Can I Afford to Send My Kid to College?

It’s the question every parent dreads. Although the answer hopefully is yes, you’ll have to plan ahead. Unless you are very well off financially, you can’t expect to sit on the sidelines for years and then suddenly find the funds to pay for college when your child is ready to go. The best thing to do is to start saving as early as possible, even if you’re able to save only a small amount at first.

How much will college cost in the future?

For the 2004/2005 academic year, the average annual cost of a four-year public college is $14,924 and the average annual cost of a four-year private college is $30,581. (Source: The College Board’s Trends in College Pricing Report 2004.) The total figures include five expense items: tuition and fees, room and board, books and supplies, transportation, and personal expenses.

It’s a likely bet that costs will continue to rise, but by how much? During the last few years, college costs increased at an average rate of about 5 to 6 percent each year as colleges tried to control escalating costs. But going forward for the next 10 years, college costs are expected to increase a bit more, about an average of 7 or 8 percent per year. (Source: FinAid, 2002 report on college inflation, based on figures provided by The College Board and the Bureau of Labor Statistics.)

How will I pay for it?

Many parents save less than 100 percent of their child’s education costs before college. Usually, they put aside enough money to make a down payment of sorts on the college bill. Then, at college time, parents can supplement this down payment by:

  • Obtaining private loans (e.g., home equity loan, margin loan)
  • Obtaining financial aid-related loans (e.g., PLUS loan)
  • Tapping their own investments (e.g., mutual funds, 401(k) plan, IRA, cash value life insurance)
  • Having their child apply for financial aid (e.g., student loans, grants, scholarships, work-study)
  • Having their child contribute a portion of his or her savings and/or investments
  • Having their child obtain a part-time job during college

How much should I save?

You’ll want to put aside as much money as possible in your child’s college fund. The more money you put aside now, the less you or your child will need to borrow later. Start by estimating your child’s costs for four years of college. Then decide how much of the bill you want to fund-100%, 75%, 50%, and so on. To meet your goal, you’ll need to use a financial calculator to determine how much to put in your college fund each month. Click below to calculate what it might cost to send your child to college.

College Funding Calculator

In many cases, the amount of money you should contribute really boils down to how much you can afford to contribute. Every situation is different. You’ll need to take a detailed look at your family’s finances in order to determine what you can afford to add to your child’s college fund each month.

Start a savings program as early as possible

Perhaps the most difficult time to start a college savings program is when your child is young. New parents face many financial strains that always seem to take over–the possible loss of one income, child-related spending, and the competing need to save for a house or car, or the demands of your own student loans. Yet this is the time when you should start saving.

With many years to go until your child starts college, you have time to select investments that have the potential to outpace college cost increases (but keep in mind that any investments that offer higher potential returns may involve greater risk of loss). In addition, you benefit from compounding, which is the process of earning additional funds on the interest and/or capital gains that your investment earns along the way. With regular investments spread over many years, you may be surprised at how much you may be able to accumulate in your child’s college fund.

But don’t feel bad if you can’t put aside hundreds of dollars a month right from the start. Start with a small amount, say $25 or $50 every month, and add to it whenever you can. You’ll have a head start, as well as peace of mind knowing you’re doing the best you can.

Now is also the time to speak to a Financial Planner who will help to answer all of your questions regarding saving for college, retirement and/or doing a major renovation on your home. We work with several exceptional Financial Planners and ask that you contact one or all to help you meet your financial goals.

Question:

Should I take out a home equity loan to pay for my child’s tuition?

Answer:

If you own a home and have equity in it, you may want to consider taking out a home equity loan as a source of funds for your child’s private school or college tuition. A home equity loan is secured by the equity you have built up in your home and can be structured as either a revolving line of credit or a second mortgage.

With a revolving line of credit, your lender establishes a credit limit that depends on the amount of equity you have built up in your home and your ability to make payments. You can then access as much money as you need (up to the maximum amount allowed) whenever you need it by writing a check or using a credit card.

Interest rates are variable and tied to the Prim Rate Index which is governed by the Federal Reserve Board. Your monthly payments will also vary, depending upon your outstanding balance.

If the home equity loan is structured as a second mortgage, you borrow a fixed amount (sometimes as much as 100% of the equity in your home) that is transferred to you in full at the time of the closing. You must then repay that amount over a fixed term, just like you do on your original mortgage.

The advantages of a home equity line of credit or a home equity loan include tax-deductible interest and, in most cases, a more favorable interest rate than credit card loans. Keep in mind, however, that a home equity loan puts your home at risk because it serves as collateral for the loan. In other words, your lender can foreclose on your home if you fail to repay the loan.

Before you take out a home equity loan, contact me to see if a home equity loan is the right choice for you.

Ellen

Balance

The holidays are nearly here, which means it’s a good time to remember to take care of ourselves. This is an article I want to share with you about how to maintain balance in your life.

Ellen

Balance: Healthy Body, Healthy Mind, Healthy Family, Healthy Society, and Healthy Finances.

By: Elizabeth Zachariah

Certified Life Success Consultant (Life Coach) for Bob Proctor’s LSC Inc.

(Bob Proctor is a world renowned speaker featured in the “Secret”, interviewed on Oprah, Larry King and Ellen).

Acquiring balance in every area of our life is a constant struggle these days. It seems like we are running to catch our tails, trying to get everything done, be everywhere, please everyone, and we end up paying a dear price in the process. We have lost our inner balance. We do all “this” to keep our external environment controlled, or so we think.

Are there days when you feel like all the blocks you are neatly building just keep falling? And you keep stacking them up again and again but there is no movement forward in the building process? You feel exhausted, your body having taken a beating from the moment you wake in the morning until you retire at night?

These days the majority of individuals have completely surrendered the well being of their physical health to their physicians, we say “Let someone else take care of this.” Then there is the well-being of our mind which functions from all the beliefs and systems we were raised with. Have you ever stopped to ask yourself: “Why am I not moving forward in life?”

Could you imagine balance in your body, mind and spirit? Many individuals might take a step back to this simple question but those very people don’t realize we as spiritual beings residing in a human shell exists on three planes; the body (physical), the mind (intellectual), and the spirit (soul). It is this wonderful balance in all three planes that allow an individual to achieve a sense of well being.

It all starts with taking responsibility, to understand how critical it is to maintain the well-being of the mind and body connection. This is the first step to overall harmony as individuals, then for our society, community, country and ultimately globally. It all starts with us at the individual level.

Each of us want fulfillment in life so take responsibility to educate yourself on keeping our bodies healthy by having the proper sleep, drinking living water, supplementing with whole foods nutrition technology, fitness, using natural ways to stay healthy, prevention, and keeping the home environment clean. It is just a matter of knowing.

A healthy mind begins with understanding the results we have in our lives is a sum total of all the thoughts we have had until this moment in life. You are the architect of your life the quality for you, your family, your community, your world is up to you. If you want to some additional ideas to help you change the results in your life ask me how and I will gladly work with you.

“As a being of power, intelligence and love, and the lord of his own thoughts, man holds the key to every situation, and contains within himself that transforming and regenerative agency by which he may make himself what he wills” James Allen, As A Man Thinketh

Balance in the mind and body leads to balance in all other areas in our life, if we can motivate and educate ourselves we can make better choices and decisions that will inspire the intelligent action that is needed to have balance and lead a fulfilled life.

Diversification is Risk Management

Here’s a great article by Joseph Kapp about diversification and risk management.

(In conjunction with Lincoln Financial Advisors, a registered investment advisor*)

Ellen

ARE YOUR ASSETS REALLY DIVERSIFIED?

You’ve heard the old investment adage, “Don’t put all your eggs in one basket.” It’s good advice. A diversified portfolio should be at the core of any well-planned investment strategy. While a worthy goal at any age, it’s especially desirable as your net worth grows over the years.

The basic purpose of diversification is to reduce your risk of loss. It’s primarily a defensive type of investment policy. Depending on your investment goals and tolerance for risk, your strategy may emphasize one type of investment over another. But overall, your plan should be diversified. That’s because no single type of investment performs best under all economic conditions. A diversified program is capable of weathering varying economic cycles and improving the trade-off between risk of loss and expected return. Of course, diversification cannot entirely eliminate the risk of investment losses.

Forms of Diversification:

An investment portfolio consisting of twenty different construction industry stocks is not diversified. Diversification means dividing your funds among different classes of assets, such as stocks, bonds, real estate, savings accounts and tangible assets. For instance, suppose your portfolio consisted entirely of bonds. Your money would be at significant risk if interest rates rose since bond prices generally fall when rates go up.

It’s also important to diversify by owning several stocks in different industries. Suppose you held just 1,000 shares of a major company’s stock from December 31, 1999 through December 30, 2003, and you suffered a loss of $40 per share when the stock fell from 100 to 60. A diversified portfolio consisting of many different stocks in various sectors may have cushioned the blow of the loss.

A prudent investor managing his own portfolio might diversify his holdings by selecting some stocks for their rising earnings or accelerating “growth” potential while buying other stocks because they offer “value” by temporarily being out of favor. In addition, an investor may buy individual securities for other reasons, such as income or tax advantages.

An alternative to selecting and managing individual stocks and bonds is to invest in mutual funds. Some mutual funds offer diversification by holding many securities within the portfolio. However, some other funds may not be diversified across industries or asset classes and may focus on a single sector. Mutual funds offer several other features, including:

  • Funds have clearly defined objectives and strategies, which are detailed in the fund’s prospectus. A prospectus contains more complete information on the style of investment objectives you should expect in addition to the charges, expenses and risks the fund may incur. Read the prospectus carefully before investing. The investment return and principal value of an investment will fluctuate with changes in market conditions so that an investor’s shares when redeemed may be worth more or less than the original amount invested.
  • Shareholders receive periodic reports reviewing the fund’s results and performance.
  • Funds are managed by full-time professionals.
  • Fund families allow investors to allocate investment dollars among a combination of funds with varying objectives.

Diversification also means not tying up all your funds in long-term investments. You’ll need to keep a certain amount easily accessible — that is, in money-market accounts, savings accounts or short-term certificates of deposit (CDs) — for on-going expenses, emergency needs, and short-term goals such as saving to buy a car or pay taxes. And through dollar-cost averaging, a process of buying stocks and bonds from time to time instead of all at once, you can spread the risk over both good and bad markets. Using this investment method involves continuous investment in securities regardless of fluctuating price levels of securities.

Therefore, investors should consider their financial ability to continue purchasing through periods of fluctuating price levels. Dollar cost averaging does not ensure a profit and does not protect against a loss in declining markets. Diversification is also important because CDs are FDIC-insured and typically offer a fixed rate of return while investments such as stocks and bonds are not FDIC-insured and their value will fluctuate with current market conditions.

Sample Portfolio: Continue reading

How do I figure the tax on the sale of my home?

Answer:

It depends on several factors, including whether the home is your principal residence or takes some other form (such as a vacation home or investment property). If you owned and used the home as your principal residence for a total of two out of the five years before the sale (the two years do not have to be consecutive), you may be able to exclude from federal income tax up to $250,000 (up to $500,000 if you’re married and file a joint return) of the capital gain on the sale of your home. You can use this exclusion only once every two years, and this exclusion does not apply to vacation homes and pure investment properties.

For example, Mr. and Mrs. Jones bought a home 20 years ago for $80,000. They have used it as their principal home ever since. This year, they sell the house for $765,000, realizing a capital gain of $613,000 ($765,000 selling price minus a $42,000 broker’s fee, minus the original $80,000 purchase price, minus $30,000 worth of capital improvements they’ve made over the years). The Joneses, who file jointly and are in the 28 percent marginal tax bracket, can exclude $500,000 of capital gain realized on the sale of their home. Thus, their tax on the sale is only $16,950 ($613,000 gain minus the $500,000 exemption multiplied by the 15 percent long-term capital gains tax rate).

What if you fail to meet the two-out-of-five-years requirement? Or what if you used the capital gain exclusion within the past two years with respect to a different principal residence? You may still qualify for a partial exemption, assuming that your home sale was due to a change in place of employment, health reasons, or certain other unforeseen circumstances.

You should also be aware that special rules might apply in the following cases:

  • If you sell vacant land adjacent to your principal residence
  • If your principal residence is owned by a trust
  • If your principal residence contained a home office or was otherwise used partially for business purposes
  • If you rented part of your principal residence to tenants
  • If you owned your principal residence jointly with an unmarried taxpayer

Note: Members of the uniformed services and foreign service personnel may elect to suspend the running of the 2-out-of-5-year requirement during any period of qualified official extended duty up to a maximum of 10 years.

Consult a tax professional for more details.

Need more information? Send me an email!

Ellen

Am I Covered?

Here’s a great article about Homeowners’ Insurance by Mary Snider, CLU, CPCU, State Farm® agent:

Some of you may be asking yourself, “Does my insurance coverage fit my needs?” “Do I have enough coverage to replace my home in the event of a serious loss?” “What affects my premium?”

These questions create a need for you to regularly review your Homeowners Insurance and to consider other questions such as: “Have you recently remodeled or improved your home?” “Has the rate of inflation risen since your last appraisal?” “What influences the building construction costs in your area?”

As you consider these issues, it is important to understand that real estate values measure the market value or selling price for a home. For insurance purposes, it is important to estimate the current replacement cost which is the amount needed to hire a contractor to repair the damage or to rebuild the home to its pre-loss condition. Dwelling replacement costs used by insurance companies do not include the value of the land. Market conditions in your area may impact the amount it will cost to rebuild your home if you experience a loss.

Building contractors or professional replacement cost appraisers are a good source for obtaining an estimated replacement cost for your home. Estimates from these sources should reflect your home’s specific features and details. If you are unable to obtain a detailed estimate from these sources, I can help provide an estimate.

Once you know the estimated cost to replace your home, you can decide how much insurance coverage fits your needs. You should also consider other policy endorsements such as back up of sewer and drain coverage, or additional coverage for personal articles with high values such as jewelry, fine arts, and collectibles.

You may want to consider higher personal liability coverage or the need for Flood Insurance which is provided by a separate policy. In addition to the amount of coverage you decide to purchase, your premium is impacted by optional endorsements you select, your claim history, the amount of your deductible, company longevity and multiple policy discounts such as home/auto.

Finally, remember to periodically review your insurance coverage with your agent. That will ensure you have the coverage you need.

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If you have any questions, feel free to email me!

Ellen

Is it chilly where you are?

If it is, or will be, this article is just for you:

Winterizing Your Home

This winter, do something to reduce your heating costs and make your house more energy efficient!

Furnace and Water Heater

Change your furnace filter once a month for a more energy efficient home. Have professional come inspect your furnace. If your furnace is fairly old, you may want to consider replacing it for a more energy-efficient model.

Insulate your water heater with an energy-saving foam or fiberglass blanket. Wrap the blanket around the water heater and then fasten it with water-proof duct tape. Keep your water heater set at 115 degrees Fahrenheit.

Winterizing Windows

Check for any air leaks in your windows, such as through panes of glass or around the sides. Caulking and weather –stripping your windows is a quick and easy way to reduce drafts. Apply caulk in dry weather that is above 45 degrees Fahrenheit. This will prevent the caulk from swelling with moisture as well as ensuring that it adheres and sets properly. Weather stripping is vinyl, metal, rubber, felt or foam that is applied between the window sash and the frame to seal the area from air leaks. Simply cut it to fit between the sash and frame and drill pilot holes; next, use a screwdriver to screw the weather stripping into place.

Doors

Take a look at your door; can you see light coming in through the cracks or can you feel a draft from the cracks? Weather stripping is an answer. It’s also relatively easy to winterize your doors. The idea is to install weather stripping along the sides and top of the door and a door sweep along the bottom of the door on the inside. If your door threshold (or saddle) is rotten, you’ll want to get a professional to replace it first.

Measure and cut the door sweep to fit along the bottom, drill pilot holes and then screw the sweep to the door.

Then open the door to measure for the weather stripping. Cut the weather stripping to the appropriate lengths and then install it on the sides and top of the doorframe.

Roof

An efficient roof is the best weather proofing you can get – it will greatly reduce your heat costs. First, you need to check that roof from the outside. Here are a few areas that you want to check:

  • Gutters should be fastened securely to the roof
  • Check that the flashings are all intact
  • Make sure the roof is not missing any shingles, tiles, slates or nails
  • Take a look at the caulking to make sure it doesn’t need to be re-touched
  • Look for any warped or darker areas on the roof

If you’ve noticed any problems with the roof, it’s time to call a roofing professional to take a look and asses what needs to be done.

Walls

Check your electrical outlets for any spaces by taking off the outlet covers. You can buy foam that is fitted to the outlet that is easy to install.

You also need to check the outside walls of the house. Walk around the house with a caulk gun and caulk around pipes and spouts.

Basement

Be sure to caulk any drafts in your basement, such as around your dryer vent and any windows.

Using some of these tips on winterizing your home will save you money on your heating bill! You will also save money by lowering your thermostat to 68 degrees Fahrenheit. Drop it by ten degrees during the night or while you’re away. You can purchase and install an automated thermostat in order to wake up to a warm house.

Stay warm and dry this winter!

Ellen

Bygones aren’t always… gone.

Here’s another great article from Steven M. Sushner. It gives some solid and prudent advice about how to protect yourself with Title Insurance.

Ellen

What is Title Insurance and what does the Title Company do?

Simply put, Title Insurance is an insurance policy that insures a Lender or Owner of Real Estate property against loss in the event of an ownership dispute.
Different audiences often don’t understand what Title Insurance is and how it can benefit them.

One important distinction separates Title Insurance from many other lines of insurance:

Title Insurance provides protection from what might have happened in the past, whereas other types insure against what might happen in the future.

Continue reading

Paying for College

School’s back in session, and if you’ve got young children, you’re probably trying to think of ways to pay for their higher education. Take a look at this article by Joseph Kapp, “A Good Plan Just Got Better.” You’ll find some good information in it.

Ellen

A Good Plan Just Got Better

By Joseph Kapp
(In conjunction with Lincoln Financial Advisors, a registered investment advisor.)

The cost of a college education can be staggering. Expenses at private universities currently average more than $30,000 a year*. The annual cost for state colleges averages about $15,000*. For many families, qualified tuition programs — also called Section 529 education savings plans — are attractive ways to help meet future education expenses.

How Section 529 Plans Work
Section 529 plans are education savings programs sponsored by most states under Section 529 of the Internal Revenue Code. Beginning in 2002, private educational institutions have been able to sponsor prepaid tuition programs. You can contribute to a Section 529 plan regardless of your annual income or your age, and your contributions can be for the benefit of a grandchild, niece, or nephew, as well as your own child.

With a 529 plan, you either invest a lump sum or make periodic contributions to an account set up for a designated child. While different programs do place limits on lifetime contributions, most limits are in excess of $100,000, and some are greater than $200,000. The plan account is professionally managed according to an investment program you set up when you make your initial contribution. When the child is ready for college, generally you — not the child — withdraw the amount needed to pay qualified education expenses, such as tuition, room and board, supplies, and equipment.

Tax Advantages
Money invested in Section 529 plans grows free of federal income tax and possibly state income tax for participating residents in many states. Some states also allow you to deduct investments in Section 529 plans for state income-tax purposes, up to certain limits, if you participate in your own state’s program. In addition, the plan investment managers can move money between different investments as needed with no capital gains tax consequences, something you can’t do with a regular investment account.

Since 2002, payouts from state plans are tax free, and beginning in 2004, payouts from all Section 529 plans will be excludable from income. These tax benefits are scheduled to expire at the end of 2010, unless further action by Congress is taken. (Note that after 2001 tax-free withdrawals cannot be used for the same expenses for which HOPE or Lifetime Learning Credits are claimed.) Withdrawals for anything other than qualified education expenses are subject to income taxes and may be subject to an additional 10% federal tax penalty.

Investments in Section 529 plans qualify for the federal gift-tax annual exclusion. This exclusion lets you make tax-free gifts of up to $12,000 a year ($24,000 if your spouse agrees to join in your gifts) to each of as many people as you choose. A special tax provision allows you to contribute up to $60,000 in one year and treat the contribution as if it were made over five years so it qualifies for the exclusion. So you and your spouse could contribute as much as $110,000 in one year for each of your children or grandchildren, free of gift tax.

The money you invest in a 529 plan, as well as all future appreciation on that money, generally is removed from your estate for estate-tax purposes. However, if you make the five-year/$55,000 election, and die within five years of the election, a prorated portion of the contribution will be included in your estate. Using the annual exclusion to make gifts to grandchildren has generation-skipping transfer (GST) tax advantages, too. No GST tax will be applied to contributions that qualify for the annual exclusion.

Portability
Starting in 2002, money can be transferred tax free from one qualified tuition program to another qualified tuition program for the same beneficiary. Other transfer rules vary from state to state. In case the designated child decides not to attend college, you have the option of changing the account beneficiary to another family member. Family members include the beneficiary’s spouse, siblings, first cousins, children, nieces, nephews, and their spouses. Take care, though, when changing beneficiaries. Gift and GST taxes could apply if the new beneficiary you name is a generation below the old beneficiary.

Continue reading

Goldline Award: Most Dependable

Press Release


Ellen Davis, Mortgage Link, Inc. Selected as One of The Most Dependable™ Mortgage Brokers of the Washington D.C. Area

Gaithersburg, MD August 15, 2007: Ellen Davis, Mortgage Link, Inc. has been selected by Goldline Research as one of the Most Dependable™ Mortgage Brokers of the Washington D.C. Area. The list of the Most Dependable Mortgage Brokers of the Washington D.C. Area is scheduled to be published in the September issue of The Washingtonian Magazine.

“I am very honored to have been chosen as one of the Most Dependable™ Mortgage Brokers of the Washington D.C. Area,” said Ms. Davis. “In this industry, credibility and dependability are key factors for success. I strive every day to provide my clients with the most accurate and timely information available. Buying a home is a huge investment, and for most people, it is one of the biggest commitments they will ever make. It is inconceivable to me to be anything less than completely motivated and dependable with so much at stake. That means every time I work with a client I am there for them, holding their hand, throughout the entire process.”

“We are pleased to have Ellen Davis, Mortgage Link, Inc. on this list” said Ryan Kluft, Publisher of Goldline Research. He also said, “She exceeded all of our industry criteria and had outstanding client references.” Over 2,000 Mortgage Brokers were contacted regarding the list and the response was overwhelming.

Ellen Davis is committed to providing the most comprehensive mortgage solutions to her clients with the highest degree of trust, knowledge, respect and convenience.

Whether you are buying a new home, refinancing your current mortgage or consolidating debt, Ellen will provide you with professional, responsive, involved, dependable and ethical service. Serving Maryland, District of Columbia, Virginia, Delaware, Pennsylvania, North Carolina, South Carolina and Florida, your financial needs are addressed, creating a solution to reach your goals. With access to thousands of mortgage products from more than 150 investors, Ellen can customize a loan to fit your budget and meet your individualized financial goals.

Goldline Research is a list research and publishing company specializing in investigating the credibility and performance of companies in a variety of professional services industries for selective inclusion in their published The Most Dependable™ lists. Goldline Research works closely with leading professionals in professional services industries to develop criterion for each industry, which forms the basis for its selection process. Goldline Research’s lists have appeared nationwide for over 4 years in a wide variety of print publications such as Southwest Airlines SPIRIT Magazine, Texas Monthly, San Diego Magazine, United Hemispheres Magazine, Delta Sky Magazine, Forbes, LA Magazine and Phoenix Magazine. In order to be selected to a Most Dependable™ list, firms must meet all of Goldline Research’s industry criteria, have no consumer complaints, lawsuits or disciplinary actions and provide client references that are checked and scored based on a proprietary scoring system.”

The Sandwich Generation: Part 4

Considering the needs of your children

Your children may be feeling the effects of your situation more than you think, especially if they are teenagers. At a time when they are most in need of your patience and attention, you may be preoccupied with your parents and how to look after them.

Here are some things to keep in mind as you try to balance your family’s needs:

  • Explain fully what changes may come about as you begin caring for your parent. Usually, children only need their questions and concerns to be addressed before making the adjustment.
  • Discuss college plans with your children. They may have to settle for less than they wanted, or at least take a job to help meet costs.
  • Avoid dipping into your retirement savings to pay for college. Your children can repay loans with their future salaries; your pension will be the only income you have.
  • If you have boomerang children at home, make sure all your expectations have been shared with them, too. Don’t be afraid to discuss a target date for their departure.
  • Don’t neglect your own family when taking care of a parent. Even though your parent may have more pressing needs, your first duty is to your children who depend on you for everything.
  • Most importantly, take care of yourself. Get enough rest and relaxation every evening, and stay involved with your friends and interests.

Finally, keep lines of communication open with your spouse, parents, children, and siblings. This may be especially important for the smooth running of your multi-generation family, resulting in a workable and healthy home environment.

Ellen

Want to share your ideas? Post a comment, or send me an email!