Five Things to Expect When Your Small Employer Becomes a Big Business

You're working at a small company. Everybody knows your name and you know theirs. Every day feels like casual Friday. You can stroll in whenever you want as long as you get your work done. Deals are made with a handshake.

Then one day this little company becomes a big business. Maybe it's because it was purchased by a larger corporation. Or perhaps Oprah mentioned how much she loves your company's widgets on one of her shows and orders went through the roof. However it happened, change is upon you. Suddenly, there's new staff and new procedures -- and possibly new owners. Will you be able to adapt?

This week, Job Tip of the Week offers five things to expect when your small employer becomes a big business.

1. More Pressure

A sudden increase in a company's size usually means a sudden increase in pressure on everyone -- from the CEO to an entry-level employee. A once laid-back management style may give way to an unforgiving one.

Expect to hear a lot about accountability and goal-setting - and then expect to be accountable for meeting those goals. The upside to this is that formal accountability will make it painfully obvious who's not pulling his weight. It also may motivate you to raise the bar for yourself and move up the ladder - now that there's actually somewhere to go.

2. More Procedure

When a company is small, decisions often get made on the fly. A conversation between you and the owner may have been all you needed to get a new product, new ad, or new hire greenlighted. Those days are long over.

All such decisions - and most others - will probably be decided by committee and will have to go through a formal (and often lengthy) approval process. You may feel as though you are losing a bit (or more) of your autonomy and that time is being wasted; however, the bright side of this is that you will not be held solely accountable if the decision turns out to be a poor one. In other words, there's safety in numbers.

3. More Meetings

At most companies, meetings are a part of the daily culture, but none more so than big companies. So get ready.

Some meetings may seem like interrogations; you could be repeatedly asked whether or not you're on track to meeting your goals. Don't take it personally; everyone is accountable to someone else now, including management.

Also, keep in mind that when you're asked to attend a meeting, it is often because a co-worker doesn't know exactly how to do something. He wants your advice. Are the resources, the technology, and the budget available to make a project happen? Do people think this is a good idea? Consider your attendance as such meetings a nod to your know-how and imagination.

4. More Formality

A new corporate structure often yields new rules that will rub a lot of folks the wrong way. Even the hippest of small companies lose their laissez faire attitudes when they expand.

What this means is you can expect stricter office hours. A dress code may be forthcoming. Lunch hours and your comings and goings from work could be monitored. Expense reports will get extra scrutiny. Your sick and vacation days will be closely counted.

Take heart: Knowing where everyone is will actually help you do your job better. You won't have to sit around waiting for Joe the Slacker to roll in at noon to help you with a project. Nor will you have to sit idly by while Jane the Spendthrift takes all her clients to four-star restaurants on a regular basis on her expense account.

5. More Perks and Protection

Sure, your time in and out of the office is being monitored more closely. But having a formal human resources department and all the procedures that go with it actually work to your benefit.

No longer can your small-biz boss tell you that a raise just isn't in the budget. Most large companies budget at least for annual cost-of-living increases even in the leanest times. Bigger businesses are also more likely to have better healthcare (dental, anyone?), more generous retirement plans, and profit sharing.

Also, having an HR rep to speak to confidentially about issues with co-workers (or your boss) makes it easier to air your complaints and get help with professional or personal issues that are affecting your performance.

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How Do You Fire a Lawyer?


Seriously, firing your lawyer is a big decision, and it requires some vigilance. As soon as you've made the firing decision, tell your lawyer to stop communications with all parties connected to your legal business.

Write down the reasons for the firing in a closing letter. Never exaggerate, don't use foul language and be as honest as possible. The letter should include as many dates, specific events and conversations as you can remember. Cover these important issues in your closing letter:

Fee and cost balances. If you dispute the balances, say so. If your lawyer agreed to reduce or waive any fees, detail them in the letter.
  1. Agency termination time and date. Include a sentence documenting the date and time that you directed your attorney to cease all communications to any persons in any way connected with your claim.

If possible, hand-deliver the letter since you'll want to pick up your file while you're there. Keep in mind that under the law of some states, the attorney you fired may be allowed to keep your file until you've paid your bill. If you can't deliver the letter, use certified mail. Make sure you keep a copy of the letter. It could become evidence later if there is a fee dispute.

Line up another attorney before you fire your old one, especially if you're in the middle of a lawsuit. It may be harder than you think to find someone to take your case. You should also be aware that in certain states, firing a lawyer after a suit has been filed usually requires the court's permission. If the case is close to trial, the court may be reluctant to grant permission for dismissal if it will delay the proceedings.

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Avoid the Top 10 Resume Mistakes

Most employers are deluged with résumés from eager job seekers. Some human resource managers have hundreds of them sitting on their desks on any given day. With competition this fierce, the key to effective résumé writing means being certain that yours is free of the common errors that many employers complain they see made over and over again.

A strongly written résumé can be the difference between landing an interview and landing in the “no” pile. Here are 10 common pitfalls to avoid when preparing your résumé:

  1. No clear focus. Your résumé should show a clear match between your skills and experience and the job’s requirements. A general résumé with no sharp focus is not seen as competitive. Why are you the best person for this particular position?
  2. Dutifully dull. A solid résumé is much more than a summary of your professional experience; it’s a tool to market yourself. Avoid phrases like “responsibilities included” or “duties included.” Your résumé should not be a laundry list of your duties but rather an announcement of your major accomplishments.
  3. Poorly organized. Information on a résumé should be listed in order of importance to the reader. Don’t ask employers to wade through your hobbies first. Dates of employment are not as important as job titles. Education should be emphasized if you are freshly out of school and have little work experience; otherwise, put it at the end. If your résumé is difficult to read or key information is buried, it’s more likely to be cast aside.
  4. Too much emphasis on old jobs. Résumés that go too far back into the job seeker’s work history can put that person at risk for possible age discrimination. Does anyone really need to read about your high school job bagging groceries, especially when that was 20 years ago? The rule of thumb for someone at a senior level is to list about the last 15 years worth of professional experience.
  5. Important skills buried. Don’t forget to bullet the important skills that make you a standout in your field. Your objective is to play up the value that you will bring to a prospective employer. Emphasize how you will add worth to the company, not the reason you want the job. Employers are looking for someone to enhance the organization, not their own résumé.
  6. Drab looking. Try to stay away from the cookie-cutter résumé templates that employers see constantly. Show a little imagination when writing and designing your résumé. But don’t overdo it. Overly artistic or tiny fonts are a no-no, since they’re hard to read and don’t scan or photocopy well.
  7. Too personal. If your Web site includes photos of your cat or your personal blog about what you did over the weekend, don’t steer prospective employers there by including it on your résumé. Keep your personal and your professional life separate in order to be taken seriously.
  8. One typo too many. Your résumé is your one chance to make a first impression. A typo or misspelled word can lead an employer to believe that you would not be a careful, detail-oriented employee. Spell-check software is not enough, since sentences like “Thank you for your patients” would get the thumbs up. Ask several people to proofread your résumé to be sure that it is free of typos and grammatical errors.
  9. Stretches the truth. Everyone wants to present his or her work experience in the most attractive light, but information contained on your résumé must be true and accurate. Whether you’re simply inflating past accomplishments or coming up with complete fabrications, lying is simply a bad idea. Aside from any moral or ethical implications, chances are you’ll eventually get caught and lose all credibility.
  10. Skips the extras. A common mistake is neglecting to mention any extra education, training, volunteer work, awards, or recognitions that might pertain to your particular job area or industry. Many employers view such "extracurricular activities" as testament to a well-rounded employee, so leverage such things as assets to distinguish your résumé from the hordes of others out there.

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Let Your Cover Letter Do the Talking

Gail Frank,

Do you enjoy reading form letters? They don't hold your interest well, do they? Isn't it more enjoyable to read a well-written, personable letter from someone who knows you? Targeted, personalized cover letters impact the reader positively. Learn to "let your cover letter do the talking" and employers will listen!

Cover letters are business letters that should inform, entice and captivate prospective employers. Too many job seekers follow outdated and conventional rules about cover letter writing. As a result, they write generic, hard-to-read, and ineffective letters. The goal is to create an easy-to-read letter that stands out from the sea of generic-sounding correspondence and makes the reader want to learn more about you. Give them a reason to read the attached resume!


1) Focus on what the employer wants or needs. To do this, learn what the company does and how you can help it make more money. Present yourself as a solution to a current problem or situation they are facing. The key to success is researching each and every company to find out how you can help them.

2) Write to a person. Take the time to find the name of the person who has the power to hire you. It is not usually a Human Resources person, although you may send them a copy of the letter. Form letters announce that you are mass-mailing and are too lazy to find out who the right person is. Form letters also make no one accountable; you certainly can't follow up, and readers can throw the resume away without being caught.

3) Have a focus and a point. Your letter should answer these simple questions: a) what can you do for them?, b) what is your current situation?, c) why do you want to work for them?, and d) why are you qualified for this position? You are not ready to apply for a job at the company unless you can answer these questions.

4) Keep it short and sweet. A few paragraphs with short, direct sentences are all you need. Follow a traditional business letter format. Too many letters have long, rambling sentences that make paragraphs hard to read. Use bullet points where possible.

5) Write it like you say it. Forget the overly formal, stilted language you see in most cover letters. Don't use words like "pursuant" and "commensurate." Keep it conversational.

6) Communicate positive energy and personality. Let glimpses of your style come through. Employers hire not only for skills for also for likeability and "fit" with the culture. Every employer wants an employee who is thrilled to work for them. Make yourself likeable in the cover letter and people will want to meet you.

7) Commit to follow up. Follow The Golden Rule of Cover Letters: If you don't plan to follow up, don't waste the postage. Your career simply isn't that important to other people. They may mean to contact you but have other, more pressing priorities. More companies never respond at all to generic form letters not addressed to a person. Making a commitment to follow up means you'll take the time to get the name of person to contact, and do the appropriate research on the company.

8) Don't restate the resume: summarize, explain, expand or reposition your skills. Answer the unspoken questions. Your resume and history often bring up questions that may cause employers to think twice about hiring you. Or they may raise puzzling questions ("How did an Art History major end up working for a meat-processing company doing administrative support?). If possible, use the cover letter to reassure the employer that you had or have a plan for your career, and that they fit into it. Examples: "After taking 5 years off to raise children, I am ready to reenter the workforce and commit 100% to an area sales job." "While I've enjoyed the past 4 years working by myself as an entrepreneur, I've missed the camaraderie, teamwork and pride that comes from working for a Fortune 500 company."

9) Eliminate excessive use of "I" or "me." Provide variety and more detail in your writing. After the initial letter is written, count up how many times you use "I" or "me" or "mine." Go back and rewrite as many of the sentences as you can to eliminate those words. For example, change "I bring 9 years of engineering experience" to "With 9 years in engineering, you'll get an employee with extensive experience in new product launches."


Before: "Salary should be commensurate with experience."
After: "Salary is negotiable based on the exact responsibilities of the position."

Before: "Allow me to introduce myself" or "Dear Sir/Madam" or "Cordially Yours."
After: Replace with a name, or "Dear Hiring Professional." End with "Sincerely" or "Thank You."

Before: "I have enclosed for your consideration a resume that details my qualifications."
After: "If you take a minute to glance at my resume, you'll see how many awards I've won for...."

4) "ME, ME, ME"
Before: "Seeking upwardly mobile, challenging position utilizing my skills in..." Remember, the cover letter is supposed to be about what you can for them, not what they can do for you.
After: "If your department needs a seasoned customer service manager who can create and deliver training to new representatives..."

Before: "Do you need someone who can leap tall buildings in a single bound?"
After: "My previous clients would tell you they increased their sales with me because I worked hard to earn it."

Before: "I am submitting my resume and application for the job you advertised in the local newspaper..."
After: "A recent Wall Street Journal states that you are entering the global market. At my previous company I led similar efforts and successfully built sales in Europe and South America..." >7) TOO AGGRESSIVE
Before: "I can turn your business around." Be careful of overselling. Perhaps you can't solve all their problems. But you can share your relevant experience.
After: "I would love to hear the issues involved with your recent merger, as I have had success with 3 different companies as they merged and transitioned their way through acquisitions." 8) TOO PASSIVE/WEAK ENDING
Before: "I look forward to speaking with you about a position at your company." This often-used phrase gives all the power to the reader, and strips you of an ability to follow up. Keep control while showing enthusiasm and persistence.
After: "I would like to talk with you and see if I can help your company with its marketing efforts. If I don't hear from you, I'll give you a call next week."

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Ten Tips for Writing Effective Cover Letters

A creative, well-written cover letter is often the best way to make your résumé stand out from the endless sea of applicants and find its way into the “must read” pile of the person making the hiring decisions. Here are 10 simple tips to help your cover letter wow:

  1. Make yourself stand out. Get the competitive edge by writing a cover letter that focuses on your unique and exceptional qualities. What makes you an ideal candidate? Be strategic, persuasive, and concise.
  2. Target the right person. Sending your letter to the proper person can make all the difference. Avoid generic addresses such as “To Whom It May Concern” or “Dear Sir or Madam.” Instead, call the company and find out the name and title of the person who does the hiring for the job that you’re interested in. Remember to ask for the correct spelling of his or her name.
  3. Stay simple. Keep your cover letter brief. Never send a letter that is more than a page in length; half a page is ideal. Be sure to use clear, professional language while steering away from buzzwords, acronyms, jargon, or anything overly personal.
  4. Make it shine. The overall visual impression of your cover letter can be just as important as what’s written upon it. Make sure to use crisp, quality stationery. Match the style of copy on your cover letter with the style of your résumé. Stick with one font and avoid solid walls of text that make the reader’s eyes bounce right off the page. Break your text into digestible morsels with lots of white space.
  5. Be an attention getter. Don’t waste your first paragraph by writing a dull introduction. Grab the employer's attention from the start by pointing out how you can make a difference in a way no other candidate can. Keep in mind that you have only about one to two seconds to get your initial point across before the reader moves on to the next letter.
  6. Sell yourself. Don’t expect to wow a prospective employer with a lengthy checklist of what you’ve done in the past. Instead, position your accomplishments in terms of how you could bring the same benefits to their company. Your cover letter needs to answer the question “What’s in it for my company?” Clarify how your expertise will benefit them directly.
  7. Hire a proofreader. Never underestimate the negative effect of bad writing, which can greatly hurt your chances of landing a new position. Invest in your career by hiring a professional writer or editor to check your cover letter for spelling, grammar, and overall readability.
  8. Avoid exaggeration. There’s nowhere to hide when you finally land an interview and the prospective employer wants to know what you meant by “best in the world.” Avoid saying anything that sounds like hyperbole, which can project the wrong image and damage your credibility. And remember never to speak poorly of former employers or coworkers.
  9. Close encounters. Don’t depend on the employer to take action. Request an interview and tell the employer when you will follow up to arrange it.
  10. Don’t forget the follow-up. After sending in your cover letter and résumé, it’s imperative that you follow up. You’ll greatly increase your chances of getting an interview if you call the employer directly after writing, rather than just sitting back and waiting for a call.

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A Crash Course in Interview Preparation

Christopher Jones

Everyone loves to get this phone call: "This is Jane Doe. I'm calling to see if you would like to come in for a job interview."

Your pulse races: A job interview!

It isn't until the night before the interview that your stomach drops, a feeling of slight dread sets in and you ask yourself, "What am I gonna wear?" "What am I gonna say?"

You've got a case of the pre-interview jitters: A good sign that you haven't spent enough time preparing.

Getting ready for an interview should begin at least three days before the interview is scheduled to take place. This week, we'll run down the top things you should do before the big day arrives.

The Clothes Make the Job Seeker

Make sure your interview clothes are clean and pressed a few days beforehand.

The last thing you want to worry about the night before an interview is pleading with your drycleaner or getting burned by a hot iron.

Also, make sure you have a neutral colored umbrella on-hand in case of rain.

Don't Forget Your Resumes!

Make good-quality copies of your resume on a nice grade of paper. Take more copies than you will possibly need -- just in case. Store the copies in a folder where they will stay clean and unwrinkled.

Organize your portfolio, tear sheets, professional reference lists or any other papers you think your prospective employer would like to see.

Make sure your purse or briefcase is stocked with everything else you'll need: A working pen (no pencils!), a notebook, breath mints, a comb, the umbrella I mentioned and some tissues.

Practice Makes Perfect

Like most things, people get better at interviewing with a little practice.

Dedicate one night prior to the interview to a mock QandA. You can set this up with a friend or conduct the interview yourself with a list of frequently-asked interview questions and a mirror.

Don't panic if, during the actual interview, you are not asked any of the questions you practiced. The point of practicing is to "warm up" to the process of answering questions on the fly.

Do Your Homework

Spend at least two days before the interview researching the company. Take notes. Memorize important facts.

A little preparation goes a long way. A couple of hours researching the company and practicing answers to interview questions can give you that extra bit of confidence you need to ace the interview.

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5 tips for wisely tapping your home equity

Liz Pulliam Weston

Millions of Americans are using home-equity loans and lines of credit for splurges. That's risky. But for better investments, these loans can make sense.

Bankers love it when you borrow against your house. That's reason enough to be wary of home-equity lending.

Yet millions of Americans are buying lenders' pitches that our homes are a good source of funds for whatever our little hearts desire, from Super Bowl tickets to exotic vacations to investments in stocks and bonds. That lust for cheap cash has turned home-equity lending into the fastest-growing, and very profitable, area of consumer loans.

Mainstream home-equity lending soared 33% last year according to SMR Research, with new borrowing at nearly quadruple the level of just five years ago. The amount we owe on home-equity loans and lines of credit, $719 billion, now exceeds the balances on our Visas, MasterCards and other general-purpose credit cards.

Home-equity lending skyrockets




New borrowing

$431 billion

$114 billion


Total owed

$719 billion

$267 billion


Source: SMR Research

Those figures don't include home-equity lending to people with troubled credit. So-called subprime mortgage lending rose 60% last year, said SMR vice president George Yacik, to $516 billion. Although the figure includes first mortgages, Yacik said most subprime home lending involves home-equity loans and lines of credit.

Good for banks, risky for consumers

The risk to lenders from all this debt is quite low. The amount banks actually lose on home-equity lending overall is about 0.15%, Yacik said, compared to more than 3% on credit cards.

"There's no bad debt to speak of," Yacik said. "(The borrower's) home is at stake, and they have to be deeply extended not to pay their bill."

Rising home prices mean that banks can get their money back even if they have to foreclose, and troubled borrowers typically sell the home or refinance before that happens.

The low default rate masks the real problem with home-equity lending: Most borrowers are using the loans and lines of credit to fritter away their long-term wealth on short-term spending.

"I recall one computer magazine a couple of years ago that recommended that people get home-equity loans or lines of credit to purchase computers," said Andrew Analore, editor of Inside B&C Lending, an Inside Mortgage Finance publication. Then there was the recent Associated Press article about fans calling mortgage lenders to finance Super Bowl tickets, on top of the more usual borrowing to fund big-screen TVs to watch the game.

"That kind of stuff can be problematic," Analore said, "because people sometimes don't understand that their house is on the line if, for some reason, they are unable to pay for their new computer or big-screen television."

Understand loan types

Solid statistics are hard to find, but lenders believe a third or less of home-equity borrowing is used for anything that could be considered an investment, such as home improvements or education. The rest goes for debt consolidation, vacations or purchases of assets that quickly depreciate, such as cars.

If you're thinking of literally betting your house with a home-equity loan or line of credit, you should clearly understand how these loans work, when to use them and how to get the best deals.

First, the basics. There are two types of home equity lending, loans and lines of credit:

  • Home-equity loans are installment loans, like regular mortgages and auto loans. You're given a certain amount of money which you typically receive all at once and pay back according to a set schedule, over time. Home-equity loans usually come with fixed rates and fixed payments.
  • Home-equity lines of credit, by contrast, work more like credit cards. You're given a credit limit that you can borrow against, and paying down your debt frees up more credit that you can potentially spend. Home-equity lines of credit have variable interest rates that are typically tied to the prime rate.

Unlike credit cards, however, home-equity lines of credit usually aren't open-ended. For the first 10 years or so, you can draw as much as you want from your credit limit, and you only need to pay the interest charges. In the next stage, however, the "draw" period ends and whatever debt you have left is "amortized," which means you need to start paying principal and interest to retire your debt. (Some lenders let you renew your draw period, but eventually the debt has to be paid off.)

Average amounts borrowed





Lines of credit








Source: Consumer Bankers Association

With either type of borrowing, you're pledging your home as collateral. If you fall behind on your payments, the lender can foreclose and take your house.

When to use these loans

A home-equity loan is generally the best choice when you know exactly how much your purchase is likely to cost and you need several years to pay it off. A major home-improvement project, for example, might be a good candidate for a home-equity loan.

A line of credit may be a better option for shorter-term borrowing, or when you want to be able to tap your home equity to cover emergencies.

You also might consider a loan, rather than a line of credit, when you want to lock in a low interest rate in a rising-rate environment, like we have now. In recent months, the rates on lines of credit have been ratcheting up with each Federal Reserve hike.

The gap has narrowed considerably from a few years ago, when lines of credit averaged more than two percentage points less than loans. When the gap is that big, it may make sense to take the risk of choosing a variable-rate line of credit over a fixed-rate loan.

5 tips for smart borrowing

Here's how to know if you're getting a good deal:

Compare the rates. The rate you'll be offered on a loan or line of credit depends heavily on your credit score -- perhaps too much, according to one banking regulator. Julie Williams, acting head of the U.S. Comptroller of the Currency, said in December that home-equity lenders were relying too much on "risk factor shortcuts" like credit scores, which reflect consumer's past credit performance but that don't factor in how well they'll handle a big increase in their debt.

If you have an excellent score of 760 or above, you should be able to win a home-equity line of credit for half a point below the prime rate, said Chris Larsen, CEO of E-Loan. A good score of 700 to 759 should win you a rate equal to prime. (To see current rates on lines of credit and loans by credit score, visit the Loan Saving Calculator at People with mediocre to poor credit can pay 1 to 5 points over prime, or more.

Avoid the fees. If you have decent credit, you shouldn't have to pay any application or appraisal fees to borrow against your home. (Make sure the lender isn't tacking fees onto the loan amount, and that you're not paying a "broker fee" if a third party is helping to arrange the loan.) You may have to pay recording fees, which should be minimal, and an annual fee on your credit line.

Know the tax rules. Home-equity borrowing is often touted as superior to other consumer debt because you can deduct the interest. But that's not always true. You have to be able to itemize, which most taxpayers can't do because they don't have enough deductions.

If you have excellent credit, for example, you might be able to get a new car loan for a fixed rate that's actually lower than what you'd get on a variable line of credit. Unless you're able to itemize, the fixed-rate auto loan is clearly the way to go.

Also, know that even if you do get a deduction, the tax break is limited to interest on loan amounts of $100,000 or less; if you've borrowed more, the interest you pay on amounts over $100,000 can't be deducted.

Know what you're risking. A home can be a good way to build long-term wealth -- as long as you're not constantly draining it away. Every dollar of equity you borrow is a dollar that can't be used to buy your next home when you're ready to trade up, or to fund your retirement when you're ready to downsize.

Be particularly wary of using home equity to pay off credit cards or other short-term debt. Often you'll just wind up deeper in debt because you haven't addressed the basic overspending problem that got you into trouble in the first place.

Also, don't assume that using equity to pay for home improvements or education is always a slam dunk. Not all home improvements add value and it's easy to go overboard with student-loan debt, as well. It's up to you to set reasonable limits on your borrowing and to make sure that what you're buying is worth the wealth you're committing.In general, you don't want the term of your borrowing to last longer than what you've purchased. If you use home-equity borrowing to buy a car, for example, try to pay off the balance in a few years -- and definitely before you trade in for a new vehicle.

Keep some headroom. You should try to keep a cushion of at least 20% equity in your home. If your combined mortgage and home-equity borrowing exceeds that amount, you'll pay higher interest rates. You're also cutting yourself off from an important source of funds in an emergency.

"Very few families are good at savings. In effect, their home equity is their 'rainy day' fund," Analore said. "It's the only source of capital that many people will be able to tap in an emergency. And it won't be there if the home has already been leveraged to fund short-term consumption."

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How to find good investment property

Liz Pulliam Weston

If you're cut out for it, life as a landlord can be quite profitable. But success isn't assured. Here's what you need to know before diving in.

The idea of owning rental real estate seems to be gaining popularity as investors tire of the swoops and swoons of the stock market. As I pointed out in a separate column, not everyone has what it takes to be a landlord. But those who do may find rentals to be a good way to build wealth.

Once you've made the decision to buy rental property, your real work begins. Finding a profitable rental property usually takes time, connections and plenty of research.

Here's what you need to know to get started:

Know your time horizon

As with any other investment, you should have a good idea how long you plan to own a rental property before you buy it, says Robert Cain, publisher of the Rental Property Reporter newsletter.

The longer you plan to own the property, the more you'll probably need to invest in maintenance, repairs and improvements, Cain said.

"If you're keeping it for 20 years, at some point you're going to be putting a new roof on that property. You're going to be putting in new appliances and doing some major repairs," Cain said. If you're only planning to own a property for five years, by contrast, you'll probably want to avoid making any major improvements unless you're sure you can recoup the cost with a higher sale price.

You also may face more investment risk with a shorter time horizon. Although your rental will almost certainly appreciate over 20 years, it could easily lose value in the next five, particularly if you're buying in an overheated market. You'll need a bigger potential annual return to make up for that risk.

For many small investors, long-term ownership makes the most sense, said Pat Callahan, an attorney, landlord and founder of the American Association of Small Property Owners. You'll have plenty of time to ride out any swings in the market, and rental income can make a nice supplement to your day job. Find enough rental properties, and being a landlord may become your day job.

Develop a network

Experienced landlords find their properties in a variety of ways. Some hunt for foreclosures, making friends with city hall clerks or bank employees who know which properties are about to be sold. Some run ads in local newspapers. Others work with real estate agents who keep their eyes peeled for possible buys.

Several landlords recommended joining a local landlord or property owner's association to make contacts. Callahan's Website offers links to local groups, as does the National Real Estate Investors Association.

"When you begin to own rentals, all the other investors start coming out of the woodwork," said Sean Hoppe, a landlord in Pottsville, Pa., who owns 11 properties. "Through investor meetings, networking, etc., I can find out what is for sale."

You also can try approaching landlords directly to see if they're willing to sell, by calling the numbers listed on rental ads in the classifieds, by cruising neighborhoods looking for "for rent" signs or by talking to any landlords you know personally.

That's how Bob, who asked that his last name not be used, bought his rental property near Albany, N.Y. The landlord of the three-unit building where Bob had rented for 15 years was tired of the hassles and ready to sell.

"We love (the area) and jumped at the chance to buy it," Bob said.

So far, Bob and his wife have been pleased with their purchase. They raised rents and required security deposits, which caused the property's less desirable tenants to leave. He also has a backup plan for the building in case he starts to feel like the prior owner.

"If being a landlord got to be too big a hassle," Bob said, "we would just get rid of the tenants and make it our own place."

Get your finances in shape

The better your credit, and the less credit card and other consumer debt you have, the better your prospects for getting a decent loan, Callahan said. Lenders usually require bigger down payments, higher interest rates and generally stronger finances when you're buying rental property. That's because they know people are more likely to default on investment property than they are on their own homes.

Landlords say it also pays to have a substantial cash reserve left over after buying a property.

This can help pay for unexpected repairs and vacancies. Although there are few rules of thumb, setting aside at least one month's rent for each unit is a good start. CPA Paul Berning suggests having a line of credit, secured either by the property or your own home, to cover larger costs.

You also should make sure you can save enough for retirement and other goals before investing in rental real estate. While rental income can supplement your retirement kitty, most people shouldn't count on it to replace other investments or allow themselves to be entirely exposed to the whims of the local real estate market. Rents and property values can fall as well as rise, and those who are adequately diversified with investments in stocks, bonds and cash will be better able to endure the bad times as well as the good.

Avoid overpaying

As one experienced landlord put it: "You make your profit when you buy a property, not when you sell it." Pay too much, and you'll never recoup as much as you could have had you driven a better bargain.

The rental real estate market is generally tougher on investors who overpay than on homeowners who do the same thing, several landlords said. While a home is often an emotional purchase, which can lead to "I must have it!" offers and bidding wars, most landlords look strictly at the numbers to see if their investments will pay off. If you pay too much for a rental, you can't count on a "greater fool" coming along later to bail you out.

Not overpaying can be tough in a hot market, however. Apartments in New York, for example, currently sell at a 60% premium over their "inherent" value. In other words, they're selling for much more than the income streams the apartments generate, according to Reis, a national real estate research firm. In San Francisco and Los Angeles, the premium is 10%.

Some landlords use formulas, such as not paying more than six to eight times the rents they expect to make the first year. Others try to estimate what the property could be worth after needed repairs and upgrades are made, and they don't pay more than 70% of that price, less the cost of those repairs, CPA Berning said.

Every real estate market is different, however, and these formulas may not work in your area.

What's key is to make sure your rental income will cover your out-of-pocket costs, Berning said. That includes the mortgage payment on the property, as well as taxes, insurance, maintenance, repairs and a vacancy rate of around 5%. (If you have five units, for example, you should expect at least one unit to be empty three months each year. Here's the math: 5 units times 12 months equals 60; 60 times .05 is 3.)

If you can at least break even, you'll be able to profit from any price appreciation as well as from tax breaks available to rental property. Cain's Web site sells software to help you make these calculations.

When crunching the numbers, you should know that there's a big difference in how repairs and improvements are treated for tax purposes. You can typically deduct the cost of a repair, such as patching a roof or fixing a leaking pipe, on your tax return for the year in which the repair is made, Berning said.

Replace that roof or those pipes, however, and it's typically considered an improvement, which means the cost can't be deducted. Instead, it's added to the amount you paid for the property to determine your tax basis when you sell. The higher the basis, the lower your taxable profit. But if you have to wait 20 years after making a major improvement to recoup any of the cost for tax purposes, you may think twice about buying a property that needs a lot of upfront work, Berning said. To better estimate your costs, get a thorough inspection before you buy a property. Some landlords have favorite electricians, plumbers and contractors that they send to any prospective property, promising them that they can do any repair work they find. Others use professional inspectors they trust.

Longtime landlords say all this work pays off in profitable properties that build their net worth while providing a steady income stream. Callahan, whose family started investing in rental real estate in the 1940s, says it's a way of life she recommends.

"It doesn't matter if you're a professional or a laborer," Callahan said. "It's the equal-opportunity wealth builder."

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Could you handle an interest-only loan?

Liz Pulliam Weston

They sound too good to be true, allowing buyers to free up cash or to buy more house. The catch? Zero equity for years -- and then monster payments.

How would you like a mortgage that either significantly lowered your monthly payment or allowed you to buy a lot more house?

An interest-only mortgage can do either, and lenders increasingly are touting them as the answer to many borrowers' prayers. Whether these loans turn out to be a blessing or a curse, though, depends a lot on who's doing the borrowing:

  • If you're a disciplined investor, good with money, a bit of a risk-taker and not buying more house than you can handle, an interest-only mortgage could work for you.
  • If you're not all of those things, you probably want to stick to a more plain-vanilla mortgage.

"It's a bad idea for someone who can barely afford the house they're buying," said Brad Blackwell, national sales manager for Wells Fargo's West Coast mortgage operations. "If you're using the extra money to put food on the table, it's better to get a (more conventional) loan."

The catch

Most mortgages require that you pay back some principal with each payment -- a little bit at first, a lot more as time passes. Interest-only loans skip that requirement in the early years of the loan so that none of your payment goes toward paying down principal. The result is a significantly smaller initial payment compared with other options, such as a 30-year fixed-rate mortgage or a hybrid loan whose rate is fixed for the first five years:
How payments differ on a $500,000 mortgage

Mortgage type



Five-year interest-only



Five-year hybrid



30-year fixed



* Assumes loan is amortized over 30 years, but rate is fixed only for the first five years.

Like regular mortgages, interest-only loans come in many different forms. The rate can adjust annually or be fixed for a while (usually five, seven or 10 years) before becoming variable. The interest-only portion may end after the fixed period, or it may continue for a few more years before principal payments are required. As with other adjustable-rate mortgages, there are typically caps that determine how much your interest rate can rise each year and during the life of the loan.

Here's how it might work for a five-year, interest-only loan:

  • Your payments would be fixed for the first five years at a certain interest rate -- say, 3.875%.
  • For the next five years, you still might pay just interest on the loan, but the rate would be variable and could increase by two percentage points every six months, up to a cap of 9.875%.
  • In the 11th year, the rate remains variable, but the loan requires you make both principal and interest payments.

Nobody can accurately predict future interest rates. But this is an example of what you might pay on a $500,000 mortgage if the rate started at 3.875% and jumped three percentage points in the sixth and eighth years:

How payments can change on an interest-only loan



Monthly payment

1 to 5



6 to 8



8 to 10



10 to 30



* Interest only **Includes amortization of principal over 20 years.

As you can see, the monthly cost can climb steeply, especially once you start paying back principal. You could end up paying a lot more each month than if you had stuck with a 30-year, fixed-rate loan.

Not a long-term proposition

Interest-only loans make the most sense when you're borrowing a big chunk of money. At smaller loan amounts, the savings might not offset the loans' greater risk.

And interest-only loans aren't really meant for the long haul. Lenders say most borrowers who get them expect to either sell their homes or refinance before the interest-only period ends.

"The typical time in a home is five to seven years" before the owner sells or refinances, said E-Loan CEO Chris Larsen. "For someone who does end up staying in the home for 20 years, they might not like what they see in year 11."

Opting for an interest-only loan now means you're passing up the chance to lock in today's low interest rates. If you wind up owning the home a long time -- say 10 years or more -- you may wish you had opted for that fixed-rate loan.

Interest-only loans were popular in the 1920s, when borrowers wanted to free up money for stock investments. The 1929 crash and subsequent foreclosures ended that particular party, but in the decades since then, private banks made interest-only loans available to their rich clients. These borrowers tended to have plenty of real estate exposure in other investments, were sophisticated about managing the risks and didn't care about building up equity in their homes.

In the past few years, however, spiking real estate prices -- and increasingly risk-tolerant borrowers -- helped spark a revival for mass-marketed interest-only loans. Wells Fargo introduced its version three years ago, followed by E-Loan and other major lenders. Interest-only loans currently make up about half of the adjustable-rate mortgages that E-Loan brokers, or just under one in six loans the online lender makes overall; other lenders report similar surges in interest.

"The market is really people on both coasts," said Wells Fargo's Blackwell, "places where loan amounts are higher because of high real estate prices."

Who chooses interest-only loans?

Interest-only borrowers, lenders say, come in two basic types:
  • The upwardly mobile. These people are stretching to buy more house, since the same payment on an interest-only mortgage will buy about 20% more house. Translated, that means someone who could qualify for a $500,000 house on a traditional 30-year fixed-rate mortgage might be able to land a $600,000 place with an interest-only loan. Many of these folks expect their incomes to rise sharply in a few years, and they want a bigger home now, rather than waiting to trade up.
  • The cash-flow crowd. Others want the smaller payment, for whatever reason. They could be investing the difference, or they might be business owners or commissioned salespeople with irregular incomes, said Washington Mutual executive Lenny McNeill. These borrowers want a smaller payment for the lean months, while being able to pay down their principal in big chunks when the money comes in.

Then again, a growing number of borrowers are content to let rising markets build their equity for them, McNeill said. They don't want to tie up more money than they have to in their mortgages. They figure they can get a better return on their money investing it somewhere else.

"They're more savvy, more experienced, more knowledgeable about finances," said McNeill, head of Washington Mutual's Southwest regional consumer group. "They more clearly see the benefits."It's a strategy that works very well while home prices soar, not so well when markets stall or tank. If you have to sell when prices are down and you haven't built up sufficient equity, you could take a big loss.

You also could find yourself poorer in the long run if you aren't disciplined. Millions of Americans have built up their wealth over the years by paying down their mortgages. If you skip that step and just spend the extra cash instead, your overall net worth will suffer.

The interest-only solution can work for awhile, but eventually most Americans will want to own their own homes -- not just rent them from the bank.

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5 risky real estate moves to avoid now

Liz Pulliam Weston

There's no crystal ball when it comes to the real estate market. Don't make yourself more vulnerable by getting into risky loans, dicey rental properties or other perilous positions.

Overconfidence can be an investor's most deadly flaw. Yet many people are displaying plenty of overconfidence when it comes to real estate.

They're sure home prices can only go up -- or that values will crash tomorrow. They're committing to risky loans and not thinking about how they're going to make the much-higher payments to come. They're gambling their current wealth on future, speculative returns without truly understanding the risks.

"I'm nervous," said financial planner Delia Fernandez of Los Alamitos, Calif., who says she sees plenty of clients act as if they have a crystal ball. "We know we can't sustain this growth rate … but nobody knows what the future holds."

If you're considering any of the following risky real estate moves, you might want to think again.
Risk: Timing the market -- with your home
Some pretty smart people are seeing real estate bubbles, and a few are backing up their intuition by selling their homes now in hopes of buying again later at bargain prices. Doug Duncan, chief economist for the Mortgage Bankers Association, and Dean Baker, the director of the Center for Economic and Policy Research, are among those taking their profits to the sidelines in anticipation of the bubble popping.
Should you follow suit? Probably not. There are plenty of problems with the concept of "shorting the market" by selling your home. For instance:

  • Prices may not crash. While double-digit home-price increases aren't sustainable for the long term, your particular housing market could well experience slower growth rather than an actual decline. That means you could be priced out of your desired neighborhood or wind up paying a lot more for a similar house.

  • Bubbles tend to persist. Even if there is a crash, it may not happen for years. Remember, there was a three-year gap between Alan Greenspan's infamous "irrational exuberance" comment and the actual bear market in stocks.

  • The cost of pursuing your hunch is high. Selling your home will cost you about 6% in real estate commissions, plus the expense of moving. When you eventually buy your replacement house, you'll face closing costs and possibly higher interest rates on your new mortgage. In the meantime, you'll be paying rent to some landlord -- perhaps for years. That could eat up a lot of the profits you're trying to protect.

  • You may freeze. Some people who've sold their homes assume they will boldly swoop in to buy other people's foreclosures when the crash comes. (That's what Duncan did during Washington, D.C.'s, last slump in the early 1990s.) But a declining real estate market is a frightening thing, and many find themselves paralyzed on the sidelines, unwilling to buy with prices still sliding.
If you're intent on timing the market, at least consider waiting until your area shows some signs of weakness, such as prices actually falling in the higher-end ZIP codes.

"Prices in real estate don't come down overnight like the stock market," said economist Delores Conway, director of the Casden Real Estate Economics Forecast for USC Lusk Center for Real Estate and a veteran of the Los Angeles market crash of the early 1990s. "If (real estate values) come down, they come down gradually."

Risk: Stretching to buy a home with risky loans
It's one thing to take on a big mortgage if your payment is fixed for 30 years, since inflation will eventually ease the strain of making your monthly nut. It's quite another to stretch using a loan that can explode in your face if you hang onto it long enough.

Interest-only and "flexible payment" or "option" mortgages typically give you the choice of making relatively small initial payments. Interest-only loans don't require principal payments in the early years, while flexible payment loans typically give you four options each month: an interest-only payment, a regular payment, a regular payment plus an additional principal payment or making no payment at all.
If you stay in the home long enough, though, you'll be required to start paying down principal, and your payment can soar. Higher interest rates will affect most of these loans, as well, because few have a fixed rate. With flexible payment loans, interest rates can change as often as monthly, and your mortgage amount can actually grow over time if your payments aren't sufficient. (For more details, read "Could you handle an interest-only loan?")

Interest-only loans made up more than 45% of total lending last year in San Diego, Atlanta and San Francisco, according to BusinessWeek Online and LoanPerformance, a San Francisco-based real estate information service, and they made up a third of the loans in 10 other hot markets. (Similar figures aren't available for flexible-payment mortgages.)

That's scaring many mortgage-rating companies, such as Fitch, which fear higher interest rates will lead to a spike in foreclosures on these loans. Falling real estate values could hurt these borrowers more than others, because many of them won't have built much, if any, equity and could become "upside down" on their mortgages, owing more than their homes are worth.

Risk: Buying money-losing rentals
In most markets, it's smart to choose property that commands rents that are at least high enough to cover your out-of-pocket expenses. (For details, read "How to find good investment property.") This is especially important in bubbly markets that could burst.

Some people think rentals will be in higher demand if foreclosures rise, but history has proven otherwise. Many of those who lost their homes in previous real estate busts lost their jobs first, Conway said, since economic downturns are what triggered the drops in home prices. People without jobs tend to leave the area in search of better prospects.

Los Angeles County, for example, lost more than 200,000 jobs a year for three years in the early 1990s, which set off the state's first-ever "out-migration" where more people left the Golden State than arrived. Rents tumbled as vacancies soared; foreclosures on rental properties climbed as landlords tired of losing both money and equity.

You can give yourself some protection by making sure your investment property has positive cash flow in good times. If you have to cut your rents, you may still get enough of a tax break to stay afloat (thanks to depreciation and deductible expenses).

Risk: Draining your home equity for other investments
Financial planner Fernandez isn't dead set against using home-equity loans to buy other investments. Some of her clients have successfully built profitable real estate portfolios this way. But using home equity to supplement a stock or mutual fund portfolio is a possibility only for the most risk-tolerant investors.

What concerns her are people who are diving in without considering the potential costs, or those who are "doubling down" by buying more property in the same, highly appreciated area where they own their primary homes.

Some want to use variable-rate loans like home-equity lines of credit to fund their ventures, not realizing spiking interest rates could make the deals unprofitable. (For more, read "5 tips for wisely tapping your home equity.")

Investors need to be reasonably confident their future returns will exceed the costs of borrowing the money, Fernandez said, and that they can handle any volatility that comes.

Most people, though, are probably better off funding their investments out of current income rather than borrowing to buy more, Fernandez said. If you do decide to borrow against your home, keep a cushion of 20% equity and consider a fixed-rate loan to lower the risks.

Risk: Owner-financed second or third mortgages
Some sellers prefer not to realize their profits all at once because that can trigger a major capital-gains tax bill. (Profits exceeding $250,000 per person on a primary residence are potentially taxable, as are all profits on rental property.) Instead, these sellers become lenders, allowing the buyer to make payments to them over time. This helps sellers stretch out their tax bill over a period of years, rather than having to realize the gains all at once.

This strategy isn't incredibly risky when the seller is in "first position" on the home -- in other words, when the seller is providing the primary mortgage. At worst, the seller will get payments for a few years until the buyer defaults. The seller might have made more money selling outright, but at least he gets his home back.

Those who finance second or third mortgages, though, might not be so lucky. If the borrower defaults, the primary mortgage lender gets first crack at recouping the loan. Only if there's equity left do the lenders in second or third position get paid off. In a declining market, those lenders can be left out in the cold.

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Software billionaire next space tourist

The billionaire software engineer who is scheduled to be the next space tourist said he's been interested in space since before the launch of Sputnik, but the biggest dream of his youth was escaping to freedom from behind the Iron Curtain.

Charles Simonyi, 58, left Hungary at 17, roughly a decade after the Soviet Union launched the Space Age by sending Sputnik, the first man-made satellite, into orbit. He came to the United States to study engineering and computer science, and went on to help develop two of the world's most popular software applications, Microsoft Corp.'s Word and Excel.

"Of course Dr. Simonyi has been successful in a much larger way on Earth than we've been in space," said Eric Anderson, president and CEO of Space Adventures, Ltd., the Vienna, Virginia, company that Simonyi is paying to take him to the International Space Station on March 9, 2007, aboard a Russian Soyuz spacecraft.

Simonyi, whose net worth is estimated at $1 billion in this year's Forbes magazine rankings of the richest Americans, is paying $20 million to $25 million to be the company's fifth space tourist. He was reticent to discuss the cost of his adventure, although he and Anderson both mused about the way things like computers and presumably space flight get cheaper with time.

Anderson predicted that in another decade or two, it could cost a couple hundred thousand dollars to be a space tourist, as soon as reusable rockets are developed.

Simonyi worked for Xerox Corp. in California for eight years before moving in 1981 to Microsoft, which he left to found Intentional Software Corp. in 2002.

He said he felt like he was making a contribution to the future of civilian space flight, helping with space research and encouraging kids to get interested in space science.

His own interest in space as a child helped him learn English -- some of his first English words were "propellant" and "nozzle" -- and his knowledge of space trivia led to victory at age 13 in a junior astronaut contest, for which he won a trip to Moscow and a chance to meet one of the first cosmonauts, Pavel Popovich. Simonyi emphasized, however, that he was always more interested in freedom than space.

"I was a very realistic person. I was already learning English. I was on my way out," he said, adding that the trip to Moscow was interesting, but that his "dream was to get out of Hungary and be free."

Simonyi described his physical and mental training for space flight as being vigorous and energizing. He said he has enjoyed meeting both American astronauts and Russian cosmonauts, although he hadn't yet worked with the two cosmonauts he would join in the rocket to orbit.

Although he will be helping with science experiments and some menial tasks aboard the space station, Simonyi said he will be spending a lot of time just hanging out, observing, taking pictures and looking out the window.

He didn't think his work as a software engineer or his experience as a pilot was likely to come in handy on the space station.

"I'm part of a team and I will do what the commander asks me to do," Simonyi said, sharing with boyish enthusiasm his hope that he will learn enough during his training to be trusted with important tasks such as drying out the space suits, which apparently are soaked with sweat during the two-day flight from Earth to the station.

His previous life experiences -- especially his understanding of computers and his Russian lessons from school -- have come in handy during his training. Simonyi noted that the training materials were written in both English and Russian.

Simonyi will be blogging about his adventure on a Web site designed to appeal to younger space enthusiasts and adults who wish they could be flying to the space station with him. He's already written chatty descriptions for the photos from his training at the Yuri Gagarin Cosmonaut Training Center in Star City, Russia.

"I want to share all that I learn with everybody, especially with kids," he said.

Simonyi said his friend and former colleague, Microsoft co-founder Paul Allen, who is making his own contributions to space tourism by investing in research to build civilian spacecraft, was not envious of his trip into space.

"He's very happy. He was one of the first people I told about my decision," Simonyi said.

Simonyi called himself a lucky man.

"This is going to be a great six months," he said.

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Reinventing Retirement - Make the Most of a Post-Retirement Job

Ken Dychtwald, Ph.D.

As you look ahead to retirement -- or, if you've already entered those years, consider ways to reshape it -- odds are you may think about some kind of employment, not just to keep the paychecks coming but to stay busy, productive, and involved.

Don't be put off by rampant misconceptions about older workers. You can pull your weight at the office well past 65, and employers are beginning to realize it -- and count on it.

Clearly, some occupations are unappealing or even off limits for older employees, who may work less swiftly or and some can possibly struggle with physically strenuous tasks. Yet contrary to popular belief, workers over 55 don't sustain more work injuries or absences -- younger workers do.

Moreover, more and more thoughtful employers are adjusting their work environment and benefits -- -doing things like improving lighting and acoustics and offering regular health screening and fitness programs -- to accommodate workers of all ages and capabilities.

Productivity Knows No Age Limit

Aging does not equal lost productivity. With your extensive knowledge and life experience, you can easily offset any age-related shortcomings by working smarter, being better, at filtering out what's not important, and focusing on essential actions. You'll simply work smarter.

The true key to remaining productive isn't staying young; it's staying healthy. Regardless of age, people in poor health tend to leave the workforce earlier and have high rates of the highest rate of absenteeism. Interestingly, staying on the job is one way to stay healthy. Early retirees report more health problems . People who stay on the job longer (or in equivalently intensive volunteer work) enjoy the psychological benefits of feeling a sense of contribution and of self esteem, and of belonging to a workplace community with vital intergenerational contacts. The best way to preserve your brainpower is to keep using it.

Can you be as productive as when you were younger? That depends on the kind of job you take. The physical demands of climbing power poles and stringing cable every day are beyond the typical 55-year-old.

So if you're a lineman, you'll probably need to put your knowledge and skills to work in some other end of the business. Likewise, a lot of nurses retire early or switch jobs before retiring because of the physical strains of that work.

No Reason to Stop

But generally jobs are becoming less physically strenuous, and the latest research reveals that mature workers are effective at many tasks far longer than previously believed.

Consider airline pilots. Those over 60 are the least likely to fail flight simulator tests, recent studies show. Commercial airline pilots in the United States are now lobbying to do away with the mandatory retirement age of 60, or at least extend it to 65 -- on par with Europe and other parts of the world.

People of any age can perform the overwhelming majority of jobs today. For instance, Lee Iacocca once told Wired:

"I've always been against automated chronological dates to farm people out. The union would always say, Make room for the new blood; there aren't enough jobs to go around. Well, that's a hell of a policy. I had people at Chrysler who were 40 but acted 80, and ... 80-year-olds who could do everything a 40-year-old can. You have to take a different view of age now. People are living longer. Age just gives experience. Besides, it takes you until about 50 to know what the hell is going on in the world."

Your Career Trajectory

We tend to picture a career path as a straight climb up the corporate ladder that ends with a plummet into the abyss at retirement. But that's the wrong model for most of today's aspiring retirees.

Sure, some folks still look forward to carefree years of pure leisure. But far more simply want to adjust their roles, schedules, and other work arrangements -- not leave employment behind entirely. They might want to downshift into a less intensive but still rewarding work pattern that can evolve through and past any official age of retirement.

Which trajectory are you on? There are three basic ways to go: the traditional retirement path, where responsibility and contribution stop cold; the downshifting trajectory, where you decelerate but stay at work, often in a carefully planned role as mentor or project manager, or by turning a hobby into a small business; and the sustaining trajectory, where high responsibility and contribution continue as long as you remain healthy, eager, and able.

Sustainers are special cases, though every field produces them. They possess fertile minds, a hunger for knowledge, and a desire to contribute meaningfully to society. Well-known sustainers include the late Peter Drucker, the management guru, and Jimmy Carter and Nelson Mandela in world affairs.

Most folks, though, will prefer the downshifting model. The field of education offers a clear view of how this model works. There, professors serve as faculty advisers, committee chairs, department heads, and research center directors. Some reach such leadership heights as dean or university president before returning to the laboratory, the field, or the classroom, with lighter teaching loads and fewer students, until they join the faculty emeriti.

What Older Employees Desire

A growing number of employers are working to accommodate your evolving workplace needs. They can't tailor their programs to the whims of all who seek a special work arrangement later in life -- there are just too many variations.

Some older employees want to do less of the same work. Some would rather do entirely different work but for the same employer. Some feel stale in their job and want to do the same work elsewhere, often in a smaller organization. Some want to do totally different work in a different organization -- a late-career restart. And some want to provide service for nonprofits or volunteer outside the officially tabulated workforce.

But here's what every employer understands about your later life career ambitions: First, you want to contribute meaningfully, possibly taking a leadership position and having the chance to blossom into a late bloomer. Second, you want to improve your skills and stretch your talents.

Third, you'll probably want a more flexible work arrangement that lets you get the job done without neglecting other important areas of your life, like grandkids and the social life that you may have ignored for so many years while climbing the corporate ladder.

Employers Will Want You

Progressive companies are providing for all that -- for selfish as well as altruistic reasons. They'll face a brain drain as baby boomers begin to retire and there are too few workers to replace them. While it may be hard to imagine in this youth-obsessed era, in the years ahead, they'll want to keep you.

"Older workers are very responsible," says Stephen Wing, spokesman for the pharmacy company CVS. "They care about the customers. They're good examples to our younger employees. They also relate well to CVS' older customers, who trust more experienced employees, particularly in vital positions such as pharmacy. We now the have reputation of empowering older workers, which puts us in front of the competition in attracting both older employees and older customers."

Clearly, your post-career career is taking shape, even if you don't know it.

Adapted from Workforce Crisis: How to Beat the coming Shortage of Skills and Talent by Ken Dychtwald, Tamara J. Erickson, and Robert Morison.

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The Last Days of the Dollar

Robert Kiyosaki

In 1966, I was traveling the Pacific aboard a freighter. I was 19 years old at the time and attending the U.S. Merchant Marine Academy at Kings Point, N.Y.

As part of my academy education, I spent a year as a student officer on freighters, passenger liners, oil tankers, and even tugboats. It was a great way to see and study the world.

An Instructive Exchange

One of the earliest lessons I learned at sea was about currency exchange rates. Even though currency valuation was not a subject taught at the Merchant Marine academy, my ship constantly traveled from one country to the next, so my education in what is today called FX -- or foreign exchange -- began.

Back then, the formal exchange rate in the banks was 360 Japanese yen to one U.S. dollar. On the black market in Hong Kong, I could get 366 yen to the dollar.

This made me aware of the games banks and countries play with their currencies: In 1966, the six-yen difference told me that Japan was buying more from Hong Kong, which is why yen was cheaper in the then-British colony.

A six-yen difference might not seem like much, but for a student earning just $105 a month every little bit counts. So I would wait for my ship to stop in Hong Kong and then trade U.S. dollars for yen. Then I would travel back to Japan and go shopping with the yen. Although the money I saved wasn't substantial, the lessons it offered in currency exchange were priceless.

The End of the Golden Age

It was pretty easy to understand foreign exchange back in the mid-‘60s, since much of the world was following the Bretton Woods Agreement. Enacted in 1944, this agreement made the U.S. dollar the global medium of exchange.

Because the U.S. dollar was pegged to gold, figuring exchange rates was a cinch. If we purchased too much from Japan, then the Japanese could ask us for gold. If we had less gold, we had less money.

In 1971, President Richard Nixon changed everything by removing the U.S. dollar from the gold standard. Suddenly, the dollar was still the world's currency, but now it was backed by nothing. The United States was free to print as much money as it wanted, and the world went along.

Because of this change, understanding foreign exchange became a bit more complex. Today, to understand the world of currency, you need to think a little differently -- essentially because things don't make sense.

For example, today, the United States is perceived to be the richest country in the world. In reality, though, we're the biggest debtor nation in the world. And who are we indebted to? What many consider to be a Third World country: China.

For Richer and Poorer

The irony is that many Americans think we're rich and China is poor. Exactly the opposite is true. This is because the removal of gold's backing from paper money has created a virtual explosion in credit and liquidity. The sheer amount of liquidity around the globe is incalculable.

This excess funny money causes people to feel rich and almost everything to be more expensive. Today, stocks, real estate, automobiles, and gasoline become more expensive as the dollar becomes cheaper.

While some people do become richer in this system, funny money actually punishes working people who save money. It devalues the value of your work and your savings, even though you may feel wealthier.

In overly simplistic terms, China and many countries in the world today lend us billions of dollars to buy their goods. They send us products like computers, televisions, cars, candies, and wines, and we send them funny money in return.

Since they can't spend those dollars at home, they simply lend them back to us so we'll buy more of their products. That would be like me going to my local grocery store and asking them for a loan so I could buy their tomatoes. A logical person would say, "That makes no sense." Yet it's exactly what happened after 1971, and to many highly educated people -- bankers and politicians, for instance -- it somehow does make sense.

An Uneven Trade

You can find current smaller examples of such financial insanity. For example, many people refinance their homes to pay off their credit cards. This makes no sense; you and I know that someday that debt will have to be paid.

Yet getting deeper into debt does make sense as long as you can repay your lender with cheaper dollars, and as long as your lender is willing to take those cheaper, less-valuable dollars. To use my earlier analogy, it would be like buying an orange for $1 on credit and then paying him back for it a year later with 80 cents. As long as the grocer is happy with this arrangement, things are fine.

In real-world terms, one of the reasons the U.S. dollar only buys approximately 110 yen instead of 360 yen today is because the Japanese allowed us to continually devalue the dollar -- that is, to pay our debts with cheaper dollars.

Over the years, the yen got stronger and the dollar got weaker simply because we, as a nation, printed more and more money, all the while consuming more and producing less. Japan would lend us money and we would buy their products. Japan's economy boomed, and so did ours.

Game Over?

The problem today is that China isn't willing to play the game the way the Japanese did. If we drop the purchasing power of the dollar, the Chinese, by pegging their currency to the dollar, also drop the value of their currency. The United States then pays back its debt with a cheaper dollar.

The irony is that we accuse China of playing games with their money. It's more honest to say that China just isn't willing to play the game we want to play.

But an even bigger problem is looming: It seems like the rest of the world is less willing to play our money game. That's why the European Union introduced the Euro. If China creates an Asian equivalent of the Euro (which, admittedly, is a long shot) then the U.S. dollar could be in real trouble.

If the oil-producing nations stop accepting the dollar and switch to gold or the Euro, things will definitely get sticky. The world might be tipped into a global recession and possibly even a depression.

For now, though, this funny money game continues. How long will it last? I don't know. I do know that throughout history, all paper money has eventually come back to its true value, which is zero. That's when the game truly ends, and a whole new cycle of pass the buck begins.

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Money Matters - Test Your Homeowners Insurance Smarts

Just because you have homeowners insurance doesn't mean you're protected.

True protection is when you know for a fact that your policy will provide you and your family coverage that allows you to repair, rebuild, and restart after a major loss. Not assume, not guess, but know you have the right coverage.

Yet time and again I've seen homeowners who buy a policy that "seems OK," without really understanding the coverage they have. Often, it's a decision simply based on which company is offering the basic coverage demanded by a mortgage lender at the cheapest premium. You as a buyer figure that if the mortgage lender is fine with it, then you're amply covered.

You're not. All mortgage lenders care about is that your insurance at least covers the value of the loan. That covers their financial risk, but it doesn't cover everything you need to be truly secure.

What You Already Know

Let me put you to the test:

  1. If your home is destroyed due to a loss (fire, for example) covered by your policy, the payout you receive will be equal to:
    1. Whatever it takes to rebuild my home to the standard it was before the loss.
    2. 125 percent of the dwelling limit coverage stated on my policy.
    3. 100 percent of the dwelling limit coverage stated on my policy.
    4. The value of my home's materials at the time of the loss.
    5. I have no clue.

  2. The coverage amount of my policy is adjusted annually for inflation.
    1. Yes.
    2. No.
    3. I have no clue.

  3. If my possessions are stolen or damaged in a covered loss, my payout will be equal to:
    1. The depreciated value of the possessions at the time of the loss.
    2. The cost to buy new replacements.
    3. I have no clue.

  4. If I can't live in my home while it is being repaired or rebuilt, my policy will help me pay for another place to live for:
    1. A maximum of 12 months with no dollar limit.
    2. A maximum of 12 months with a dollar limit.
    3. An unlimited period of time with no dollar limit.
    4. I have no clue.

  5. If I'm ever sued and must pay a large judgment, I have enough personal liability coverage so that I won't be forced to sell my home or other assets to settle the payment.
    1. Yes.
    2. No.
    3. I have no clue.

If you were honest in your answers, I imagine you made a few guesses or opted for "I have no clue" more than once. That's not good; you're playing financial roulette with what probably amounts to your largest investment.

You need to immediately check your current policy to see what coverage you have, or call up your agent and discuss the crucial elements of a homeowners insurance policy that truly protects you.

What You Should Know

Let's run through the right answers:

1. A or B

The amount of money your home is insured for is called the dwelling limit coverage. The goal is for your policy to give you a payout that would cover the cost of rebuilding or repairing the home, which can often be more than you anticipate given the ever-rising cost of building construction and materials.

The best homeowners insurance coverage is what is known as guaranteed replacement coverage: Whatever it takes to replace, your policy will pay for. If you can get this coverage, do so, but it's not available in every state.

That brings us to B: Extended replacement cost coverage. With this coverage, your maximum payout can exceed the dollar amount listed on your policy. The typical max is 125 percent of your dwelling limit coverage.

Let's say you have a $300,000 policy and your home is destroyed in a covered loss. If you have a simple replacement cost policy (option C), your maximum payout would be $300,000. But with extended replacement cost coverage, your maximum payout could be as much as $375,000.

2. A

OK, this one is obvious. Not all policies automatically include an annual inflation adjustment, though, and you probably don't check in with your insurance agent every year to update your policy.

But, please, make it automatic: You want the value of your dwelling limit coverage to increase every year to keep up with rising building costs. Get the inflation coverage -- now.

3. B

When it comes to insuring your possessions, if you see the words actual cash value (ACV) anywhere in your policy, then you have a lousy policy. ACV is insurance code for "We're not going to pay you enough to go out and buy a replacement that's new."

"Actual" refers to the depreciated value of the possession at the time of the loss. So if your five-year-old sofa is damaged, you'll be given a payout based on the value of a used five-year-old sofa, not what it will cost you to buy a new replacement. Same with your plasma-screen TV and every other possession.

Doesn't sound too appealing? Then make sure your possessions are insured for replacement cost. With this coverage, the payout is based on the cost to purchase a new replacement.

4. C

Again, no big surprise, but my experience is that homeowners typically have no clue what sort of coverage they have.

You have to realize that if your home is damaged or destroyed, you still need to keep up with the mortgage payments even if you can't live in the home. Yet at the same time, you're going to have to live somewhere else, so that creates a second set of living costs.

That's why this coverage is so crucial: It gives you money to pay the rent for the "second" home while you wait for the home you own to be repaired or rebuilt. Ideally, you want this coverage to give you a payout for as long as needed; if your home is destroyed, it can often take more than a year to rebuild.

If your policy provides just 12 months of extended living cost coverage, you're going to have a lot of out-of-pocket expenses between the time the coverage runs out and you can move back into your home.

5. A

The maximum personal liability coverage on a homeowners policy is $500,000. If the value of your assets -- including your home -- is more than that, you need to purchase a separate personal umbrella liability policy.

If you're ever sued and lose, your liability policy can cover the settlement instead of you having to sell your assets to raise the money. A $1 million policy will cost just a few hundred dollars. That's a small price to pay to be sure you'll never lose your home.

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