Stock Market Goes Down and Down

Last week, the stock market wrapped up its worst week since July, 2002, falling 4.2 percent. The Nasdaq slumped 5.8 percent, and that was its worst showing since the first week of trading after the terrorist attacks on 9/11.

No one really knows when the stock market is going to go up or down – or by how much. But here's the key thing for you to know: Unless you had to sell stocks last week, you didn't lose any money. Sure, you might have paper losses, but you don't have real losses until you sell.

When I was in my early 20s, here's what someone once said to me about the stock market: Do you believe the U.S. will be in a better place in 20 years? Do you believe companies will be bigger and more profitable? If you do, then put your money in the stock market, because that what you're betting on – the creativity and ingenuity of the U.S. economy.

Making a "reasonable" offer to an unreasonable home seller

I heard from a listener this week who wanted to know what a reasonable first offer would be on a property he likes.

It's a great question, but one that's hard to answer because the whole issue of "reasonable" ties directly to what's going on with the seller's neighborhood and the seller himself.

If the seller has priced his home in the stratosphere, a reasonable offer could be 30 percent below list price. On the other hand, if the property is priced competitively, then an offer that's 5 percent below list or even at list might be a fair opening offer.

You don't want to leave money on the table, so before you make an offer, get to know what else is on the market in the neighborhood. Look at amenities, size, location and price of other homes for sale.

Then, ask your agent to help you figure out what's most important to the seller. Sometimes it's price and sometimes it's timing.

Once you know the details, you can construct a winning offer.

Giving Property vs. Inheriting it

I received an email this week from a WSB listener whose 92-year old grandmother had given him a special gift at the beginning of this month: She transferred over to him a 6-acre parcel of raw land.

It's easy to sign a quit claim deed and transfer ownership of a piece of property. But there are all sorts of problems associated with giving away land this way.

You get the land at the value the giver paid for it – so when you sell, there's a hefty tax bill owed. And if the land is worth more than $12,000, the giver has forms to file with the IRS, the transfer may trigger a taxable event.

If the grandmother had simply left the land to her grandson as an inheritance, he'd inherit it at the market value on the day she died. If he sold on the same day, he'd owe no tax. If she put the land in a trust, he'd even avoid probate.

Subprime Lending Brings Out the Worst in Lenders and in Buyers

There isn't a day that goes by that I don't hear from someone who's in financial trouble because he signed his name to a home loan he didn't understand. I say "he", but there are plenty of "shes" out there as well.

I heard recently from a retired professor on a fixed income who walked into a mortgage brokerage company and asked for a new loan with a lower monthly payment.

This is like walking into a car dealer and saying you only want to spend $300 per month. You're at the mercy of the dealer. It's hardly a position of strength.

Two years later, the professor has woken up and realized he's added $20,000 to his loan balance and his pay-option ARM has risen to the point where his monthly payment has doubled.

He's mad, can't afford his monthly payments, and wants someone to fix it. Sorry, professor. You didn't do your homework, and you signed your name to a 40-page loan document without understanding it.

The Cost of Having Children is Going Up

When my son Alex was turning 1, my cousin Marcy, who's a top party planner in Chicago, told me about a first birthday party she was putting together for a client – it cost $50,000.

Clearly that child is having a platinum upbringing, estimated by the Wall Street Journal to cost more than $1.6 million from birth to age 17.

While those parents might charitably be considered, well, excessive, it does cost a lot to raise kids these days and parties are the least of it.

On the low end, the Federal government estimates that it will cost $279,000 for your child's first 18 years on the planet. And that doesn't include college or graduate school.

While not everyone will spend $1.6 million on their children, it's a good bet you'll spend more than $15,500 per year, once you factor in everything from daycare, after school programs, food and health care to entertainment, pets and travel.

Oh, and then there's college.