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What To Do With Those Loan Refunds…

Written by Tony Marrone

Most of us have the great burden of having to finance our own higher education, and based on the rising cost of private graduate education, many law students are graduating with student loan debt reaching or exceeding the $200,000 mark.

The demanding course-load most law students endure makes it difficult (read: impossible) to go to school and work full-time. In order to help pay monthly expenses and survive with a decent standard of living during law school, I depend on my student loans refund at the beginning of each semester to help the fiancee and I survive.

The question is, how should you allocate the funds?

The Frugal Law Student’s Guide to Getting the Most From Student Loan Refunds

  • Step One: Budget your refund. You’re going to need to decide at the outset how much of your money you can allocate to expenses each month, and make sure your total expenses are less than your refund. I personally use You Need A Budget, I like the fact that it works on both Mac and PC (I use a MacBook, but the fiancee uses a Gateway and an HP). Whatever you decide to use, you won’t get far into the semester if you haven’t budgeted at the outset.
  • Step Two: Place the bulk of your money in a high-interest savings account. ING is running a promotion where you get $25 instantly placed into your account, when you open an account with an initial deposit of $250. (See link here). I use ING because I like their customer service. There are certainly plenty of other banks out there that offer higher interest rates.
  • Step Three: Take advantage of opportunities for free money from banks for opening accounts. The math is simple here: if ING is offering $25 for you to open an account by depositing $250, and Etrade is offering $25 for you to open an account by depositing $100, and you have well over $1,000 in your checking account “doing nothing”, go ahead and open an ING and Etrade account. Most of the promotions only require you to keep your cash in the bank for 30 days if you decide later to close the account.
  • Step Four: Only borrow what you need to live on. I’m not advocating you max-out your Grad Plus and Stafford loans so that you can invest your money in a 4% savings account. Based upon the time-value of money and the high-interest rates we pay on education loans, borrowing more than you need is a losing proposition. Even if you borrow excess money through your loans and invest aggressively and are successful, you’re really only talking about a nominal return, not even taking account the true value of the money you are borrowing (i.e., adjusting for inflation).

You need to plan ahead and be conservative when deciding how much money to borrow to finance your education costs. However, it is even more important to store the borrowed money wisely (not in canisters or buried inside your mattress) so that you can ease the pain that will later be brought on by high-interest rates during repayment.

Reader Question: How To Pick An Index Fund With A Low Initial Investment

Written by Brett McKay

Recently, I received an email from a reader of The Frugal Law Student asking a common yet important question for young people just getting started in investing:

I just finished my Masters, and talked my parents into contributing to some sort of mutual fund or index fund, etc. instead of giving me a ridiculous piece of jewelry that I’d never wear (how I wish they’d help me pay down the debt instead! alas!) Do you have any suggestions as to how I should go about picking one that has a low minimum buy-in? I know the very basics but nothing about where to get started.

Great question! This is something that I have struggled with as well.

I think index funds are great, especially for people just getting started with investing. I’ve written about them before, so I won’t bore you here with the benefits of index funds.

What holds many young investors back from investing in index funds are the high initial investment required to start the investment. For example, Trent at The Simple Dollar, is a big believer in Vanguard Index funds, and with good reason. They have solid customer service and a great track record to boot. However, in order to buy most Vanguard funds, the minimum investment is $3,000!

After doing some research, it looks like most index funds require a large amount of up front investment. The range was between $2,5000 -$3,000. If you don’t have this kind of cash on hand, your best option is to save for it. This is what Trent does. He’ll set aside money each month into a savings account. As soon as he has the minimum initial investment, he’ll buy the fund. After you buy the fund, the minimum monthly investment is usually pretty reasonable.

If you don’t want wait to around until you have the money to invest, you can always try actively managed mutual funds. There are hundreds of mutual funds and many have initial investments as low as $250. The drawback on actively managed funds is expense costs are higher than index funds. Also, unlike index funds which generally keep up with the overall market, actively managed funds can tank and not come anywhere near the market average.

How to Screen Mutual Funds

Morningstar is a reliable independent investment research firm, so we’ll use them.

  • Open up Moringstar’s Fund Selector. You’ll now see an app with a bunch of different drop down menus. Since we’re focusing on low cost investments, we’ll filter the funds accordingly.
  • Under “Fund Type”, we’ll select balanced. Since this is a first time investor, we’ll keep things simple.
  • Moving on to Cost and Purchase, we’ll set the minimum initial investment for less than or equal to $500. We also need to choose whether to have a load or no load fund. A load fund means that there’s a sale charge when you buy shares in the fund, no load means there’s no charge. We’ll select no load to keep costs down. We’ll select the lowest expense ratio at .5%.
  • Finally, we’ll pick the risk. This is the famous Morningstar Rating you hear investors talk about. We’ll set it for 4 and 5 stars.
  • I didn’t mess with any of the return filters. I wanted to see the results for the 1 yr, 3yr, 5yr, and 10yr returns.
  • Hit show results.

Fascinating. Many of the suggested funds are held by American Funds, the company that I do investing with. They all look to be solid investments. You can click on each one to get a detailed description of the fund. Most just require $250 to start an investment.

Once you select the fund you want to invest in, you can go to that fund’s website and open up an account with them. American Funds is super easy to start an account with. Additionally, they have a great online account management service that makes buying, selling, or starting automatic investment plans easy.

What do you all think? Did I miss anything? Don’t agree with me? Have any better ideas? Drop a comment in the comment box and add to the conversation!

180 Money Saving Tips to Turn Your Financial Life Around 180 Degrees

Written by Brett McKay

Here’s a list of 180 money saving tips that can turn your financial life around 180 degrees. These are things that I have learned while reading blogs or other books. I’ve tried to provide links to blog posts and other articles that elaborate more on the tip. This was a fun exercise. While I personally don’t practice every single tip listed, it was a good way to find out how I can do better on saving money.

Automobile/Transportation

  1. Wash and vacuum your car at home.
  2. Buy a used car. New cars drop significantly in value as soon as you drive off the lot.
  3. Get rid of your car. If you’re married, just have one.
  4. Keep your tires inflated at the correct pressure.
  5. Do not carry unneeded weight in your vehicle. Excess weight puts a heavier load on the engine.
  6. Accelerate slowly and smoothly. Avoid jackrabbit starts. Get into high gear as quickly as possible.
  7. Use your air conditioner only when absolutely necessary.
  8. Avoid unnecessary stopping and braking. Maintain a steady pace.
  9. Do not rest your foot on the clutch or brake pedal. This causes needless wear and poor fuel economy.
  10. Keep the front wheels in proper alignment. Improper alignment not only causes faster tire wear, but also puts an extra load on the engine.
  11. Rotate your tires regularly. Rotating tires slows down tire wear.
  12. Wash your car regularly. A dirty car can damage paint.
  13. Avoid heavy traffic. You’ll save on gas by not idling as much.
  14. Change your own motor oil.
  15. Observe speed limits. You’ll save money on gas and avoid costly speeding tickets and the resulting increase in insurance rates.
  16. Pay your auto insurance premiums annually instead of every six months. You’ll get a lower rate.
  17. Use the bus to get to school or work.
  18. If possible, ride your bike or walk to your destinations.
  19. Carpool with co-workers.

Clothing

  1. Find an image consultant in your town and ask if you can have the clothes their clients get rid of.
  2. Don’t buy into trends. Keep a wardrobe of classic pieces, so you don’t have to update your clothes every year.
  3. Buy clothes at a thrift store.
  4. Wear clothes more than once before washing them. You’ll reduce wear on your clothes and save energy by not washing so often.
  5. Shop at outlet stores.
  6. Avoid buying clothes that require drying cleaning.
  7. Cut dryer sheets in half to double the value of each box.
  8. Buy your winter clothes at the end of winter/beginning of spring. Buy summer clothing at the end of summer/beginning of fall.
  9. Shop at discount stores like TjMax and Ross.

Food

  1. Forage for food. Check out a book on local edible plants and start stocking up on them.
  2. Buy a water filter and make your own bottled water.
  3. Buy bread at the bread outlet store and freeze excess loaves.
  4. Make meals that are left over friendly, like soups and casseroles.
  5. Join a food co-op.
  6. Make dinners in a crock pot
  7. Buy in bulk.
  8. If you buy soda, buy 2 liter bottles instead of cans. It’s much cheaper per unit price.
  9. Have potluck dinners.
  10. When you eat out, share meals. Most restaurant meals are big enough for two people.
  11. If you don’t have someone to share it with, split the meal and half and put when half in a to-go box for next day’s lunch.
  12. Skip the soda when you go out to eat, and drink water.
  13. Quit smoking.
  14. Make your own coffee. Better yet, stop drinking coffee.
  15. Quit drinking alcohol.
  16. Quit drinking soda.
  17. Find cheaper café’s and restaurants to go to.
  18. Cook your own meals.
  19. Take a list when you go shopping and stick to it.
  20. Buy generic brand products at the supermarket.
  21. Bring your lunch to school or work instead of buying it.
  22. Grow your own vegetables.
  23. Use coupons and loyalty cards at grocery stores.
  24. Reduce meat consumption.
  25. Eat cereal instead of fast food. It’s cheaper and usually healthier.
  26. Have a late lunch/early dinner when going out to eat. You can save on lunch menu items.
  27. Buy cheap food coupons on eBay.
  28. Join clubs at school and take advantage of free food at meetings.
  29. Don’t buy prepackaged cheese or meat. Go to the deli and have them slice it for you. You can get more for you money.
  30. Collect vegetable scraps in a bag in the freezer. As soon as it’s full, make a soup out of them.
  31. Buy whole roasted chickens. When you have used all the meat, throw the bones into a soup.

Housing

  1. House sit. Older affluent couples often leave their house for months at a time for vacations and need someone to watch it while they’re gone. Not only can you get free rent, you might get some extra cash.
  2. Become live in help. Some older people need help around the house, someone to cook meals for them, or just someone to talk to. You can live rent free this way.
  3. Relocate to an area with a cheaper cost of living.
  4. Share an apartment. Better yet, move in with your in-laws.
  5. Make an extra mortgage payment each year. You can save money on interest.

Household

  1. Buy furniture at a consignment store.
  2. If you need a tool, see if you can borrow it from someone before you go out and buy it.
  3. Don’t throw away “dead” batteries. Remove them from your radio and use them in quartz clocks. These clocks take such a small amount of power that batteries too weak to run anything else may have enough power to run a clock for a while.
  4. Wash and reuse plastic bags.
  5. Clean your own carpets. You can rent carpet cleaning machines for about $10.

Health Care

  1. If you take a prescription medication on a regular basis, ask your doctor to write a three month prescription. Instead of paying three co-pays, you only pay one.
  2. Go to the dentist at your local dental school. Students need people to practice on. You can get all your dental needs fulfilled at a reduced cost.
  3. If your doctor gives you a prescription, ask if he has samples that he could give you.
  4. Use your local park’s playground as a workout station. Monkey bars can be used for pull-ups and leg lifts. The park will also have a trail where you can run.
  5. If you go to school, use the school’s gym. It’s free.
  6. Brush and floss your teeth. You’ll save on dental expenses.
  7. Eat right and exercise daily. You’ll reduce health costs.
  8. If you join a gym, find one that offers a month to month contract. That way if for some reason you stop going, you won’t be stuck with a 1 year contract that you have to pay for.

Beauty and Hygiene

  1. Use baking soda for toothpaste.
  2. Use baby shampoo for a makeup remover.
  3. Buy makeup online.
  4. Use makeup samples.
  5. Don’t throw out small pieces of bar soap. Wet the small piece and the new bar and stick them together.
  6. Add water to your shampoo to get more uses.
  7. Stop using shaving cream. Shaving cream’s purpose is just to keep your beard wet. You can maintain a wet beard in the shower.
  8. Cut your own hair.
  9. Simplify your beauty products. Do you really need 5 different types of body lotions?

Travel

  1. Pack your travel meals in advance.
  2. Buy snacks at the grocery store, not at roadside convenience stores.
  3. Plan trips where you have friends and family. You might be able to score free room and board.
  4. Go camping.
  5. Stay at a college dorm room when traveling. Many universities rent out dorm rooms at a decent price during the summer.
  6. Book your flights and cruises way in advance. You can get lower prices.
  7. Always negotiate hotel room prices. Hotel rooms are like highly perishable food: if they’re not used that day, they’re wasted. You can almost always get a better deal just by asking, but do it with a nice smile face-to-face when you check in, or with friendly calls direct to the hotels you’re considering. It won’t work if you just call national 800 numbers, because they can’t negotiate. If your flight is overbooked and the airline offers a voucher if you take a later flight, take it.
  8. When flying, bring your own snacks. Airport food is expensive.
  9. Avoid renting a car at the airport. You’ll find more competitive rates, plus avoid extra surcharges at car rental agencies away from the convenience of the airport.
  10. Time your stay for best hotel deals. Plan the timing of your stay according to the type of place you visit. Hotels in cities are usually cheaper on the weekends, when business travelers aren’t staying there, but hotels in resort areas or other places that are popular with leisure travelers are often cheaper during the week
  11. Tourist spots sell everything from film — to capture those special moments — to sunscreen, bottled water and aspirin for prolonging your fun, at a higher cost. Purchase these items before and save.
  12. Travel after peak season. This might not be an option if you have school-age children. But families with infants and toddlers can take advantage of discounted rates by traveling in the fall.
  13. Bring an empty water bottle with you to the airport. Bottled water at airports is expensive. While you can’t bring any liquids past security, you can bring an empty bottle. Put it in your carry on and fill it up as soon as you get past security.
  14. Stay in hostels when traveling overseas. While you do have to share a bathroom and a room, you can stay for as little as $5.
  15. If you need a quick get away with your significant other, spend a night in your local bed and breakfast.

Entertainment

  1. Buy an Entertainment book. The initial investment is about $20, but there’s hundreds of dollars in entertainment savings in it.
  2. Join Gamefly for cheap video game renting.
  3. Trade video games, DVD’s and books with your friends.
  4. Start a book or film club. After reading the book or watching the film, discuss it.
  5. Have a game night with friends.
  6. Attend movies at dollar theaters.
  7. Take advantage of your local university. Colleges often have free entertainment events.
  8. Join the library.
  9. Read magazines for free at bookstores.
  10. Check out DVD’s from the library, rather than renting them from the video store.
  11. Find cheaper hobbies like blogging or jogging.
  12. Go on a hike, take a walk in the park, or go to the beach. Some of the nicest things to do in life are totally free.
  13. See if your local zoos, museums, entertainment parks and water parks have annual passes. Often the annual passes may not cost more than the price of a couple of visits.
  14. Save money on movies by going to the matinée.
  15. Watch amateur sports. High school athletic competitions are cheap and can be just as exciting as the pros.

Banking and Investing

  1. Start an automatic savings plan with your bank.
  2. Use your credit card to make all purchases, but pay it off each month. That you’ll earn cash back or travel points.
  3. Invest in index funds. There are hardly any costs in purchasing and owning index funds.
  4. Open an online savings account. Most online accounts offer a 4% interest rate. That’s much better than the 1% you get at your current bank. E-mail me for an ING referral.
  5. Avoid ATM fees. Only withdraw money from machines approved by your bank. 7-11 doesn’t have a surcharge.
  6. Pay bills by direct debit. You save on postage and avoid the risk of paying late fees.
  7. If you use checks, don’t buy them from the bank. You can get a better deal with other printing companies.
  8. Don’t overdraft on your account. You’ll save yourself money on penalties.
  9. Invest with a cheap online brokerage company like Sharebuilder.

Children

  1. Buy gender neutral baby clothing so you can use them again with the next baby.
  2. Make your kids Halloween costumes. It’s cheaper and more fun.
  3. Buy your baby toys from the thrift store. Toys suck these days. Give your child the gift of old school toys that actually requires an imagination.
  4. Buy your baby’s and tot’s clothes from the thrift store. Your kid isn’t going to notice the difference between a thrift store onezy and a Gap onezy.

Utilities

  1. Use a clothes liner to dry clothes. You’ll save on your energy bill.
  2. Replace old appliances with ones that have Energy Star approval.
  3. Regularly clean the coils on the back of your refrigerator. A clean coil uses less energy.
  4. Make sure your freezer is full. An empty freezer requires more energy to keep cold.
  5. Use washable coffee mug instead of Styrofoam. You’ll save money and help the environment.
  6. Replace all your incandescent light bulbs with fluorescent lighting.
  7. Turn off the lights when not using a room.
  8. Turn off your appliances when not using them.
  9. Don’t use a cell phone.
  10. If you have a cell phone, don’t buy the extra features like text messaging and web access.
  11. If you have a cell phone, get rid of your land line.
  12. Get rid of cable. Who needs 100 channels of crap?
  13. Use the internet at school or the library. Not only will you save money, you’ll save time.
  14. During the winter, leave the oven open after you cook to heat the house.
  15. Sign up for Skype for long distant phone calls.
  16. Turn your heater thermostat down 2 degrees in winter and up 2 degrees in the summer.

Miscellaneous

  1. Get a digital camera. You save money on film.
  2. Don’t own a pet. You’ll save money on food and shots.

Shopping

  1. Avoid impulse buying. Practice tantric shopping.
  2. Buy as much as you can online.
  3. Negotiate the price on big ticket items like cars, electronics, and large appliances.
  4. Use cash as a negotiating tool. Nothing makes a seller’s mouth water than cold hard cash in their hand.
  5. Before you buy something, ask if the item will be put on sale in the near future.
  6. Don’t buy extended warranties. Eighty percent are never used, and they’re a major profit item for the vendor. That’s why they push you so hard to buy them!
  7. Keep receipts and send in rebate slips. Very few consumers actually return rebate coupons. Which is, of course, exactly what the manufacturers are hoping for.

Low cost ways of making extra money

  1. Sell your old stuff, like CD’s and books on eBay and Amazon.
  2. Turn your hobby into a business. Pretty much anything you do can be turned into a business of some sort.
  3. Sign up with an online survey company like Survey Spot.
  4. Become a mystery shopper. Not only can you make some extra money, you might get some free stuff as well.
  5. Have a yard sell.
  6. Start a blog and put Adsense on it. You might only earn 4 cents a week, but it’s something.
  7. Become a consultant. Do you know a lot about a particular skill? Put that knowledge to work by helping others.
  8. Do freelance work on the side. If you’re a good writer, photographer, artist, or programmer you can make some extra money by selling your talent to companies.
  9. Start an errand Service. Offer to pick up groceries or dry cleaning for others.
  10. Waiting service. People these days don’t have time to wait on the plumber of cable guy. Charge by the hour to do the waiting for other people.

School

  1. Check out study supplements from the library. Don’t buy them.
  2. Buy used text books.
  3. Take advantage of free pens and pencils at business conferences.
  4. Keep track of your pens and pencils. You’ll spend less on them if you don’t lose them all the time.
  5. Buy back packs that your kids can use for years. While they might think the Sponge Bob Square pants one is cool in 2nd grade, they probably won’t think it’s cool in 4th.

Computers

  1. Use open source software like OpenOffice for your computing needs. Here’s a huge list of all the open source software you’ll ever need.
  2. Refill ink cartridges instead of buying new ones.
  3. Print off your documents in draft mode. It’s faster and saves ink.
  4. Use free online storage for all your digital storage needs.
  5. When you buy new computers or printers, keep the old cables. You never know when they’ll come in handy.

Gifts

  1. Make your own greeting cards.
  2. Make your own wrapping paper.
  3. Agree with family and friends to NOT buy each other Christmas presents this year.
  1. Offer to give a service, like a night of free babysitting as a gift, instead of buying stuff.
  2. Give baked goods. Everyone loves cookies!
  3. Learn the art of the re-gift. If you get something that you don’t like, keep it and give it to someone else later. However be careful to keep track of who gave you what. You don’t want to give a gift back to somebody.

Can you think of any more? Add to the conversation!
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Featured Resources

A great way to avoid spending extra Money is by avoiding Credit Card Offers that have a high Interest Rate. When you signup with a new Credit company be sure to check their APR rates and find out if a free Balance Transfer option can help you save money.
[tags]saving, frugality, personal finance, clothing, food, cars, beauty, health care [/tags]

Do This, Retire Rich

Written by Brett McKay

benstein.jpg

This month’s Men’s Health features an article by Ben Stein. Mr. Stein offers four rules that if followed will result in a nice retirement fund.

Rule 1: Instead of trying to time the market, try to tie it.

Forget about trying to find the next Google. You’ll waste your time and money trying to beat the market. Instead, just try to do just as well as the market. If the market return is averaged at about 10%, that’s not a bad return. Invest in index funds that track the S&P 500 or even the entire US market.

Rule 2: When you’re tempted to sell, buy.

Investing isn’t a get rich quick scheme. Think big picture when you invest. When the market is tanking, that’s the perfect time to buy because it will eventually rebound and you’ll make even more money.

Rule 3: Collect Sectors

Not only can you buy index funds that track the S&P, you can also buy fund that track different investment sectors like energy and telecommunications. The key here, says Mr. Stein, is to diversify. That way when energy tanks, you still have telecommunications buoying you up.

Rule 4: Invest in yourself (involuntarily)

Make investing automatic. Set up an automatic deposit online and then forget about it. If you invest in index funds, you won’t need to tinker with them. When it’s time to retire, you’ll be surprised by the nice little fund you accumulated.

These rules are pretty basic Ben Stein. Nothing really new, but they’re good fundamentals that if put into practice will result in a comfortable retirement.

[tags] Ben Stein, index funds, investing, saving[/tags]

11 Free Video Games That Will Develop Your Business & Personal Finance Skills

Written by Brett McKay

I love simulation games. Ever since I played Sim City on the Super Nintendo back in 1990, I’ve been addicted. In fact, I feel simulation games gave me my first lessons in economics. By playing SimCity I learned about taxes, spending, and budgeting. While the real world is a bit more complicated, SimCity gave me a basic understanding.

I still think simulation games have a lot to offer as a way of introducing people to basic financial principles. About.com has put together a nice list of free business simulation games. Play these and you’ll increase your business savvy or at least motivate yourself to become more business savvy. If you think you’re too old or already know enough, have your kids play them. It’s an excellent way to teach your children business and personal finance skills.

  1. Simutrans. The goal of Simutrans is to build a network of railroads and bus connections. Think Railroad Tycoon.
  2. Food Force. The United Nations helped develop Food Force. The object of the game is feed 6 million people on an island in the Indian Ocean. Food Force will help develop budgeting and planning skills.
  3. Lemonade Stand. Lemonade stands are most people’s first introduction to business. Now you can do it online. The object of this game is to make as much profit as possible in 30 days.
  4. Chart Wars. Ever wanted to manage a band? Now you can with Chart Wars. You hire bands, plan road trips, and sell albums. Harness your inner Rick Rubin.
  5. Fantasy Stock Market. The best way to learn about investing is to actually do it. But if you’re afraid of losing money while you’re learning, check out Fantasy Stock Market. It’s online game in which you compete with other investors to see who can develop the best portfolio.
  6. GameBiz. It’s 1983 and you’re video game developer. Try to outperform other well known video game companies like Atari and EA.
  7. Industry Player. This game is played online with other registered players. You start off with a set amount of money to be used to grow a business empire.
  8. MiniMogul. You take the part as movie producer who invests in future movie releases.
  9. Musical Manager 3. It’s the similar to Chart Wars. In this game you’re band manager trying to help your band make it big.
  10. Rich Man Game. Perfect the art of the corporate take over in this massive multiplayer game.
  11. The Second Chance for Mankind. This is very similar to SimCity. You goal is to build a successful metropolitan area.

If you go through all these and still haven’t satisfied your craving for simulation games, you can always play old school SimCity for free.

Are You Making These 3 Money Mistakes?

Written by Brett McKay


This month’s Men’s Health has an excellent little article by Jeff Stevenson on how to avoid three costly mistakes.

  1. Borrowing from your 401(K). This is a big mistake for two reasons. First, the money you take out will no longer be accruing interest. Second, you repay your loan from your 401(K) with after-tax dollars and pay taxes when you withdraw cash at retirement. You’re taxing yourself twice on the same money.
  2. Purchasing whole life insurance. While the whole life insurance never expires and might grow each year, you have to pay thousands of dollars in premiums. They’re not really efficient investment instruments. If you’ve been investing, term life insurance is probably the better way to go. A 20-year policy for $500,000 will only set you back a few hundred dollars a year.
  3. Applying for an interest-only mortgage. Why is this bad? If you take out a 30-year, $250,000 mortgage with an interest only term of 10 years, after 10 years of monthly payments adding up to $175,000 you’ll still owe $250,000. However, you’ll only have 20 years to pay it off, so your monthly payment will go up. While you can deduct the interest in taxes, you’re still going to end up paying more over the long haul; thus, the tax benefit is mitigated.