Sunday, September 30, 2007

Generics, Co-Pays, and Walmart

If you have health insurance, your company probably offers a deal where you get a 90 day by mail for a $20 co-pay. For expensive drugs, this service can save a ton of money.

Nevertheless, if your drugs are on the generic list at Walmart (and now Target), a 90 day supply could cost $12.

(Note – I first learned about this idea from another blog; however, I cannot find the original post. After reading about the concept, I did some research and verified the “theory” would work with my health plan. If anyone knows the original blog post, I would be happy to cite the source.

Heloc to Fund Roth IRA?

Next year, I am considering an interesting strategy. Although my fiancé will qualify for a Roth IRA for the 2007 tax year, our marriage will make her ineligible for the 2008 year.

Unfortunately, I don’t think we are going to have the cash in hand to fully fund the Roth by the tax deadline. Between the wedding and honeymoon (we plan on paying cash for both), cash is going to be a little tight going into the summer. I am considering tapping the HELOC to fully fund her contribution for the 2007 tax year.

This is my thought:
1. At her 2007 tax bracket, a Roth IRA is a great deal.
2. We are unlikely to have the opportunity to fund a Roth anytime soon. Even if we could, our combined tax bracket will make it much less attractive.
3. Although our finances are OK, we are a little light in the emergency fund. Because we could withdraw our contributions without penalty, the Roth offers us a chance to have an extra $4,000 set aside for emergencies. While not a good long-term solution, it gives us a little cushion until we have time to add to our cash position.
4. I figure we could pay off the loan within 6 months.

Friday, September 28, 2007

AAA Discounts - Don't forget your card!

Although I have AAA, I find myself forgetting to take advantage of the various discounts available.

While the discounts are not always the "best" prices available for things, they do allow you to get a discount for things you already intend to purchase or use. Let's say you plan to stay in Hotel A in City Y, don't forget to ask for the AAA discount.

In my experience, the best bets for discounts are:
1. Hotel Rooms
2. Amusement Parks
3. Airport Parking
4. Movies

Wednesday, September 26, 2007

How old for Student Tickets?

Can people be too old to use a student discount at the movies? My fiance is working on her masters and has a student ID from the local university. While not ready for the Senior Citizen discount, we aren't 16 anymore.

Did the GM-UAW Settlement sell out the Retirees?

Yes and No.

Why Yes? According to press reports, the settlement means General Motors will be able to break its promise of health care benefits for retirees. Once the deal in consummated, General Motors will not be responsible for providing health care benefits to retirees granted in prior bargaining session. Retirees, who worked for years in factories, relied on a promise and the promise is now broken.

Why No? General Motors is transferring an enormous amount of money to a trust fund to pay for retiree benefits. Both the UAW and GM claim this money will be sufficient to fund the obligations retirees are counting on.

The Reality:
1. Although the trust fund is enormous, its ability to pay for benefits will depend on its investment return and the growth of health care spending by retirees. While GM and the UAW will trot out experts willing to say the fund is “big enough,” health care expenses never come in below expectation. If GM is claiming the fund will last 80 years, I would bet on 30-40 years.
2. General Motors and the UAW did not have a choice. GM simply could not compete with Toyota and Honda without a dramatic change in its labor costs. Without fundamental change, GM was unlikely to survive long enough to pay off the obligations.

Hopefully, GM will use the fresh start to rebuild its once great brand.

Monday, September 24, 2007

Stranded GM Card Miles

Years ago, I got a GM card intending to use the earnings to purchase a truck. Although I almost never use it, the account remains open and has $1,800 in earnings.

Since I am unlikely to buy a GM vehicle again, I wonder if there is a way to "profit" from the earnings.

Saturday, September 22, 2007

Student Loan – Repayment Theory and Practice

Inventory your loan obligations - The Key First Step
• If you want to control your student loans rather than have them control you, the first step to financial freedom is the Student Loan Inventory. Between the GSL’s, Stafford’s, subsidized, and un-subsidized, losing track of the amounts and terms of each loan is easy to do.
• Subsidized Loans: Once you have your loans organized, you need to decide if consolidation is a good idea. For most people, I think it is. Unless rates are high, consolidation allows you to “fix” your obligation for whatever payment period you select. In my case, I was able to consolidate my loans at 4% with a 25 year payment plan.
• Un-Subsidized Loans: Although you may borrow money each year from the same lender, most lenders treat each “year” as a separate loan. You need to organize these by size and by interest rate. Although the lender may treat multiple loans as one loan for billing purposes, the credit rating agencies do not.

What are your payment options?
• Unless they increase your interest rate for allowing a longer repayment schedule, I recommend selecting the “longest” fixed payment plan available. By doing so, you free up cash flow for higher cost loans. In addition, the required payment will show up on your credit report. For FICO purposes, smaller = better.
• After you minimize your required payment, maximize your actual payment within your budget realities. Extra principle payments dramatically reduce your interest expense in the long run.

How to pay off loans early!!
• If you want to pay an extra $200 per month to reduce the value of your loans, how should you do it?
• Obviously, paying off the highest interest loans would be the smart move. In the example below, you want to pay: $200 to the consolidated loan, $70 to the big variable loan, and $230 to the smaller variable loan. Once the small loan is paid off, you can redirect the money to the next smaller loan. (The Debt Reduction Snowball)
• Unfortunately, lenders can make it difficult by allocating payments in ways not helpful to your plans. They will send you a payment slip with a combined minimum monthly payment and any extra money will be allocated to the ALL the loans. (Foiling the Snowball)
• To prevent this, you must give the lender detailed instructions to allocate the entire overpayment to the smaller loan. Inevitably, they will fail to follow directions and you will need to call to correct allocations.

Sample Student Loans for Discussion Purposes:
• GSL total loans: $30,000 at 5.5% rate (fixed) ($200 payment)
• Access Loan A: 10,000 at 8% rate (variable) ($70 payment)
• Access Loan B: 5,000 at 8% rate (variable) ($30 payment)

Wednesday, September 19, 2007

Deferred Comp Plans - Legally Risky

Tax deferred "Deferred Compensation" plans present some opportunites and some very important risks to high-income employees. If you are offered a chance to participate in a deferred comp plan, make sure you are well aware of the RISKS inherent in the plans.

Critically, your retirement savings in Deferred Comp plans may not be safe from creditors in the event your company goes bankrupt.,0,5702591.story?coll=ny-sports-columnists

If you participate in a plan, I strongly recommend you know the financial risks faced by your employer. If you have any concerns, you need to consider an exit plan and/or hedging plan ASAP.

If exiting your job is not a realistic short-term strategy and your money is stuck, you might want to consider structuring an option that "pays" if you employer goes bankrupt. Just a thought.

Tuesday, September 18, 2007

Expensive Safety Item Proves its Worth

Last week, I was forced to pay big bucks to have a tree removed before it fell on my house. They did a great job and I feel it will save me in the long run. They cut the tree up into sections; however, I have to split it or pay someone to do it.

One of the ways I am saving money on my house is doing much of the landscaping by myself. Home Depot will rent a log splitter for $120. I decided to spend $50 on an ax, wedge, and sledgehammer. In addition to saving money, I figured splitting the wood is good exercise. The first time I tried it, I realized two things:
1. It was going to be a lot more work then I estimated - Oh Well
2. Swinging an ax is dangerous. l probably needed to invest in some good workboots for this and other projects.

Difficult to fit, I invested in some good, RedWing, workboots that fit great. In addition, they come with a protective to cap.

What happened, I had the ax fall off the log and hit my foot. Although it missed the protective cap, the leather protected my foot from any injury. The new boots have an ugly gash, but it will remind me of what could have happened.

Bottom Line: Work every penny.

Monday, September 17, 2007

I am reducing equity exposure to reduce risk

When volatility goes up, the “reward” for an investment should go up. In the current market, volatility is definitely up; however, I feel the expected return over the next 12 months is not high.

Since I felt my expected return from my Vanguard Total Market EFT did not justify the price, I sold all the shares and parked it in cash until things have a chance to shake out.

New Allocation: (rough estimate of IRA money)
30% - Fidelity Spartan International
20% - Vanguard Energy EFT
50% Cash

401k Contributions – 100% of new money is going into a diversified portfolio of equity funds. If the market stagnates (or drops) as I expect, it gives me a chance to dollar cost average into the market at better prices.

Saturday, September 15, 2007

Market Mayhem – “Expectations” Matter

Because of the sub-prime fiasco, the “Market” is expecting a significant rate cut – fifty basis points. Real or not, this expectation is priced into the current stock market levels. For the investor, this presents an interesting problem:

Scenario 1: Fed drops rates 50 basis points. I expect the market will move up, but not dramatically. A big move means the fed is fighting a recession. Never good for stocks.

Scenario 2: Fed drops rate > 50 basis points. This “Market” will say the fed is panicking and/or has data to justify a huge move. Market tanks.

Scenario 3: Fed drops the rate <50 basis points. While the Fed would likely issue an “everything is fine” statement, the “Market” has a 50 basis point move built in. The market will fall to compensate for the lower cut. In addition, the “Market” will get anxious and flee to quality.

Bottom Line – we better get 50 basis points or the market will tank.

My Strategy – Play Defense ahead of the move.

Friday, September 14, 2007

Writing Checks 2007 - Saving Money Experiment.

After graduation from B-School, I started charging everything on my Amex Starwoods cards. Gas, groceries, small purchases and large. The idea was to maximize Starpoints for use on travel upgrades and hotel rooms. Because I pay off the balance in full each month, the “cost” was minimal and I gained $500-1,000 in savings each year. By downloading transactions directly into quicken, it was easy to track spending.

Recently, I began to worry the convenience of charging it made it “too easy” to charge things resulting in excessive spending.

Earlier this week, I decided to go “cash only” for a month and hope to save 10% on spending. Unfortunately, I failed miserably as I got myself into two situations where I need to buy things and didn’t think to bring my checkbook.

In 2007, I now have to:
1. Get more cash from the ATM. Because I charged everything, I typically haven’t carried much.
2. Learn to carry my checkbook. I want to use the checks to track where I spend my money. In two uses so far, people looked at me like I was a space alien. NOBODY writes checks anymore.

Thursday, September 13, 2007

Is paying off Heloc "Saving?"

Like many people during the housing bubble, I was force to "reach" to purchase my home. Instead of going with PMI, I decided to finance the house with a 80/10 loan with the 10 coming from a HELOC.

With interest rates low, it was good choice. With interest rates climbing, it is looking "less good" and I have been thinking about options.

I should have my unsubsidized student loan paid off by April. Originally, I had planned to redirect the payment into savings. With a wedding to pay for, I am concerned my emergency fund might get a little light come Summer.

Now, I think it might be wise to reduce the savings and increase the HELOC payoff. At the very least, I am going to make it a priority once the emergency fund hits the target amount.

Sunday, September 9, 2007

Credit Limit Increases and FICO??

Until recently, I worked for an insurance company that utilized credit scoring. Although our actuaries swore up and down credit was a valid measure of insurance risk, they were never able to explain “why” to my satisfaction. Furthermore, it is nearly impossible to understand how our actual score is impacted by real world situations.

For example, Citibank decided to raise the limit on my credit card without asking me. Since I pay the bill in full each month, I do not need the increased limit. L

Should I call Citibank and request a decrease in my credit limit? Would it increase or decrease my FICO score?

Based upon what I have heard, the higher, unused, credit limit will tend to increase my credit score; however, I have heard excessively high credit limits can reduce a credit score.

Of course, our friends at Fair Isaac will not tell us the “answer” because their algorithms are proprietary.

Cell Phone Saving Strategies Idea

If other people have ideas, please feel free to comment.

Currently, my fiancé has cell service through Sprint and I have it through Verizon. Although we are generally happy with our service, I am always looking for ways to save some money without giving up service. Since we don’t have landlines, our cell plans are important.

Her Plan: Although she doesn’t get any discounts, all her calls to her mother and sister are free “in network” calls. For the most part, all her out of network calls are to me. She is free to choose another plan.

My Plan: My contract is up in April. My contract was obtained while at my former employer and is priced at a 15% discount. My new employer has a similar discount with ATT. Almost all my calls are to my family or my fiancé. Since my parent’s are baffled by cellular phones, they only answer their landlines.

Tentative Family Strategy; When my contract ends, we will set up a family plan with Sprint. With most of our calls “in network,” we should be able to sign up for a minimum number of minutes.

Discount Gasoline from Supermarket

A couple months ago, a new PriceChopper grocery store opened near my gym. With their loyalty card, customers get a coupon for a 10-cent per gallon discount at Sunoco after spending $50. Unfortunately, Sunoco is typically 2-3 cents higher priced than the Citgo. With the discount I get from using my Citgo card, the 10-cent per gallon discount didn’t help me. Needless to say, I have been ignoring the discount.

When I got my groceries today, I took a look at my receipt and realized PriceChopper adds the discount to prior discounts. With prior shopping trips counted, I had a 50-cent per gallon discount and used it to fill up the SUV.

Note to self – read the fine print on rewards programs from the supermarket.

Monday, September 3, 2007

Lowest Cost IRA Rollover– EFT’s are Perfect

When I changed jobs recently, I moved my 401k money to a rollover IRA at Fidelity. While my new employer offers some 4 and 5 star funds in our 401k, there is only one Index fund available and it has a high expense ration. Bottom line, all 401k money will be in actively managed mutual funds for the foreseeable future.

Since I cannot add any tax deductible money to my IRA, it is the perfect vehicle for a buy/hold strategy using index funds. Since Fidelity offered me “free trades for a year,” it was the perfect time to get into EFT’s. Unfortunately, I couldn’t find an international EFT I liked. The weighted average expense ration of the portfolio is well below 20 basis points.

New Retirement Asset Allocation:
Vanguard Total Stock Market ETF – 0.07 Expense Ratio
Fidelity Spartan International Fund – 0.10 Expense Ratio
Vanguard Energy ETF - 0.25 Expense Ratio

Saturday, September 1, 2007

Bank of America ATM Pricing: $3 ??

Although I use ING-Direct for most of my checking account activities, I kept a local checking account at TD Banknorth. In addition to the occasional “real” check, I use this account for ATM access. Each Friday, I hit the branch ATM near my office for my weekly allowance.

Because I wasn’t able to go to the bank on Friday, I found myself in need of cash and nowhere near aTD Banknorth branch. The nearest bank turned out to be a local Bank of America branch.

Because TD Banknorht refunds ATM fees and I use my branch for almost all ATM transactions, I don’t pay much attention to ATM fees. When I saw BOA wanted $3 for an ATM withdrawl, I was shocked.

I know they are in business to make money; however, I wonder if BOA’s pricing is counterproductive. I would think excessive ATM fees would drive customers away from BOA.

Your thoughts?

Savings Income – Finally earning real dollars

After years piling all my savings into my 401k and debt containment, my emergency fund is finally large enough (and better invested) to earn “noticeable” income. Frankly, it was embarrassing reporting investment income of $50 per year on my taxes.

Thankfully, my emergency fund is large enough to earn $50 per month in interest. While not a huge sum, it is real money. In terms of debt, I have a reasonable car loan, student loans, and a mortgage. No credit card debt.

12 month plan:
a. Save for wedding
b. Pay off smallest student loan (the floating rate one)
c. Continue to contribute 10% of salary to my 401k (plus company match). In a pinch, this money could serve as a backup emergency fund.
d. Begin to develop a post-wedding spending plan and budget priorities.

Savings Allocation:
1. $500 + $25 per month in savings bonds
2. 1 month savings - ING Direct Savings Account
3. $1,000 in six month ING Direct CD.
4. Remaining savings - Vanguard Money Market Mutual Fund.

Bed Bath and Beyond – Does anyone pay full price?

It seems like a get a BB&B or Linens and Things coupon for 10% off every other week. Furthermore, 20% off coupons seem to come on a monthly basis

Since my fiancé and I are set up separately, we get 2 coupons each time.

Since everyone knows these coupons are coming, why pay full price?