Community Garden

This year, my wife and I are planning to take advantage of the town's community garden system. Each year, the town plows up and divides a large parcel of town land into individual plots. The land in question is outstanding bottomland next to the river. They even turn over the land for everyone. Pesticides and herbicides are verboten.

If accepted into the program (first come, first serve), we will pay $15 for a 25x25 plot where we can grow veggies to our heart's content. While it probably will not save us much money, we hope to have some fun and end up with tasty veggies.

Bonus Pools – Explained and Thoughts

Right now, consumer advocates and government watchdogs are pounding Wall Street over huge bonus pools they have or plan to play employees. Frankly, bonus mania has gotten totally out of hand. For top executives, bonus payments (cash, stock and options) reached obscene numbers. Nevertheless, a huge number of workers in financial services firms have pay tied to performance and the anti-bonus mania can end up hurting the little (or middle guy). .

Example: Assume four classes of workers (analysts, directors, avp's, and VPs). Each Tier of workers a target annual bonus associated with it. (5, 10, 15, 20% of salary). Over, I know of business units that had bonus pools funded from 10% to 200% of target. Once the pool is set based upon, individual performance (often office politics) was used to divide the available pool.

While financial services firms (particularly banks) have lost enormous amounts of money, most of the losses have come from units with a relatively small number of employees. While the employees who were working in the "loser" units should expect lower bonuses ('unless you are the idiots who lost all of AIG's money), the employees in the "winner" units expect bigger bonuses because they had a good year.

Thus the problem for the firms, if they do not pay good bonuses to employees in "winner" units, they will leave for better opportunities. In a bad economy, you do not want to be losing employees who are making you money.

The Timing Problem:

Many financial services products have "long tails." In these products, you book the revenue immediately and wait (sometimes years) for the results to come in. In AIG's case, they paid big bonuses to the idiots in London before the devastating results came in.

Employees, however, fear getting screwed out of deferred bonuses by their employers. Let me count some ways:

• Your boss gave you a good bonus in 2008. In 2009, he left the firm and your new boss wants to bring in his own team. He forces you out and you end up forfeiting your "deferred bonus."
  
• Your bonus was determined based upon the performance of your unit. The company decides your unit is no longer "key" and decides to allocate additional "costs" to your unit. As a result of the "bad" performance, your deferred bonus is forfeited back to the company.
  
• After three years, you decide to leave for a less stressful job. You are forced to forfeit 2 years of the deferred bonus.
  

My Solution:

No cash bonus payments in excess of $100,000 to anyone. Any remaining bonus payments would be paid into an escrow account and paid out over 5 years. Employees would not have to stay employee with the company to obtain their deferred bonus; however, the numbers used to justify the bonus payments would need to "hold up" over time. In cases of dispute, an independent arbitration would be appointed to review the numbers.

Yes - Voluntary Company Match

My company has never had a defined benefit plan; however, we have a very generous 401k plan. In addition to the standard company match, they have a discretionary company match they "CAN" make each February. Because we are a financial services company and feeling pain like everyone else in our industry, we were concerned they might decide not make this year's discretionary match.

Thankfully, we learned today that we will be getting the match after all. While the last year has been brutal to my 401k balance, the company match has made my losses on 'my money' more tolerable.

Voting on the Budget

In Connecticut, many of us vote on the town's budget every year. Although our elected officials come up with the budget, they must put it to a vote of the people. After thinking about it, I wondered how much the United States government would save if voters had a chance to kick idiotic 'pork projects' to the curb. Wouldn't it be nice?

Non-Essential Personnel??

Yesterday, the northeast got pounded by another snowstorm. The day before, someone sent all of us an e-mail telling us our office would be open hell or highwater. One of my coworkers joked about how we didn't even have the non-essential personnel rule.

It reminded me of my time with my prior employer. We got an e-mail indicating that because of storms, non-essential employees could stay home for the day. After reading it, I decided I was going to work no matter what. The last thing I wanted was anyone thinking my job was not "essential."

Porn – Leading Economic Indicator

While on the way back from a meeting, I noticed a porn store had closed down and the space was available for rent. Have you ever seen a porn store closed (except by authorities), I have not. Thus, I must conclude the economy is near bottom.

When I see new porn stores opening, I will believe the recession is about to be over.

Financial Fraud – More or Less?

Every day it seems the feds are tracking down another financial fraudster. Does it indicate more fraud is being committed? No. Does it mean they are becoming more diligent in fighting fraud? No.

One of the dirty little secrets of a "bull" market is that it allows fraudsters to cover up their crimes. In the bull market, Madoff was able to draw more "new" money into his scheme year after year. After his clients were hit with other financial problems, they needed cash and Madoff's money was a good source to tap. Unable to keep bringing in "new" money to cover redemptions, he was forced to turn himself in.

Although other fraudsters haven't turned themselves in, the damages of the stock and bond market make it impossible to cover up their crimes.

Spending down 10% per Amex

As part of their earnings announcement (down 79%), Amex stated its customers spent an average of 10% less in the 4^th quarter of 2008 than they did in 2007.

In other news, companies are laying off people by the thousands every day.

Amex Blue v. Fidelity Amex Cash Card Review

Using my annual statement, I was able to compare the actual Amex Blue Cash rewards against what my Fidelity Retirement American Express Card is promising.

Fidelity Amex promises 2% cash back on all purchases.

• No trying to pick the best card for each purchase.
  
• Unfortunately, they are run by FIA card services. From prior experience with FIA, they are not easy to deal with and their website is 2-3 years behind Amex's.
  
• Charges do not download into Quicken until the monthly statement is ready and I do it manually from FIA's website. Truly, this is a hassle.
  
• They will automatically transfer $50 into my brokerage account every time I hit the $2,500 spending threshold.
  

Amex Blue Cash has a complicated formula for determining cash back.

• I have access to the fantastic Amex website.
  
• In addition to nice features such as an annual summary, they have historically had great customer service.
  
• Charges download automatically into Quicken.
  
• You get the cash back in a lump sum one time per year.
  

Results: After crunching the numbers, I determined Amex Blue returned a net 1.86% of total spending to me.

Conclusion: For .14%, my family will continue to use the Amex Blue as our primary card. Over a year, the additional interest from the Fidelity card would not likely exceed $25. For that amount, the service and ease of use of the Amex Blue card makes it a winner.

Waiting for Tax forms

ING Direct customers – our tax forms are online a few days earlier than the promised Jan 31, 2009 date. Now, if I can just get my employer and my wife's employer to send us our W2, I will have a good idea of our tax situation for 2008. Based upon my Quicken data, we should be getting a refund. Nevertheless, the change in tax status (married from single) has me worried. A few years ago, I expected a $2,000 refund and ended up owing $1,000 in additional taxes. It was not a good time.

Amex Blue – Year End Summary

One of the things I like about using American Express is the year-end summary they provide. Unfortunately, for 2008, we managed to charge north of $20K during the year. Although we charge everything, this amount was larger than normal due to charging significant wedding/honeymoon expenses.

 

HR Block Emerald Card – The Fee Machine

After watching many ads touting HR Block's Emerald Card, I decided to check it out. Originally, I thought this prepaid Mastercard was just a way for them to tack on an enormous fee for a refund anticipation loan. Reviewing their website, I learned it has some value, but it is an enormous fee machine for HR Block. They even charge a $2.50 per month monthly maintenance fee on inactive cards. I expect the managers at HR Block will be happy to take your money.

The Benefits: for people who cannot get traditional bank accounts, it does have some value. Rather than carrying around cash (and risking getting robbed), they do provide "somewhere" to deposit funds. Nevertheless, I suspect anyone who qualifies for this card will qualify for a low-cost checking account.

• Payroll Service - Payroll can be deposited directly by employers to the card.
  
• Cash Access: The fee is $1.95 per transaction when using certain ATMs in the U.S. and $2.50 per transaction when traveling abroad.
  
• Cash Back with Purchase: By using it as a traditional debit card, users can withdraw cash from your prepaid card when shopping, with no need to make a special trip to the ATM. Usually, this will be a no cost transaction.
  

The Enormous Costs:

• ATM: Cash Withdrawal Fee $1.95
  
• Domestic ATM Balance Inquiry Fee $1
  
• International ATM Cash Withdrawal Fee $2.50
  
• International ATM Balance Inquiry Fee $1.50
  
• ATM Denial $0.50
  
• Over Limit Fee No fee
  
• Additional Card Fee $10
  
• Replacement Card Fee $10
  
• Express Delivery Fee for Replacement Card $35
  
• Check Request or Outgoing ACH Fee $20
  
• Paper Statement Fee $1
  
• Duplicate Paper Statement Fee $2.50
  

Monthly Maintenance Fees Monthly Maintenance Fee $2.50 (per month — begins the fourth month following 3 months of no activity on the card account)

$862k per year – treatment?

The Hartford Courant reports the state is considering shutting down a children's psychiatric hospital because it costs a mind-boggling $862,000 per child per year to treat the patient. Literally, they can ship the patient to Yale (Yale-New Haven Hospital) and actually save money.

If they do not fix this idiocy, heads need to role.

Blaming TurboTax - WTF

The Obama government got off to a funny start today. It seems, Obama's nominee for Treasury Secretary (that would be the guy who collects taxes and is in charge of the economy) failed to pay taxes on his self-employed earnings. Testifying before Congress, he blamed ------ TURBOTAX.

1. One would hope the guy in charge of collecting taxes would have made sure he paid his taxes correctly;
   
2. Who makes a $34,000 mistake with TurboTax? If an error of that size is possible, he should have had the brains to hire an accountant to get it right.

Insurance – Affinity Marketing Explained

In terms of insurance, AARP has one of the largest affinity marketing programs in the United States. Indeed, if you read their literature, access to their insurance programs is one of the "benefits" they brag about when they try to get people to join. It has P&C programs through The Hartford, life insurance programs through New York Life, health plans, and long-term care insurance. Not a senior citizen? You probably qualify for an affinity insurance product from your church, university, professional association, union, and so on and so on. They are everywhere.

With this post, I will provide simplified information on how affinity marketing works and how it benefits/harms consumers.

1. The Sponsor Organization: The foundation of any affinity marketing insurance program is the sponsoring organization. The Sponsor Organization provides the insurance company with access to its membership base. The larger the membership, the more value the sponsoring organization brings to the table.
   
2. The Pitch: through the sponsoring organization, the insurance company will pitch the benefit of coming to them for insurance products. Typically, they will pitch a combination of discounted premium, special coverage terms, or guaranteed issue.
   
3. What the Sponsor Organization Gets: MONEY. The sponsor gets a royalty/commission for bringing the consumer to the insurance company. In return for the royalty/commission, the insurer will get some combination of 1) the membership list, 2) inclusion on the website, 3) inclusion in written materials (ex. Newsletter, the bill), and 4) access to the sponsor's logo. Think about it, AARP is not going to let NY Life use their logo for free. If the sponsor organization uses this money to benefit members, it is certainly understandable.
   
4. Do you get a discount? Probably Not. The fundamental basis behind insurance rates is loss ratio (how much do they pay in claims) + expense ratio (policy acquisition costs and overhead). Unless the relationship between the insurer and the sponsor organization reduces costs, there will be no discount.
   
5. What do you get?
   
   1. If the sponsor organization does a good job, they will select a good carrier with good customer services.
      
   2. Products: Good sponsor organizations will make sure its members have access to good products that meet its members' needs.
      
   3. For groups with special underwriting problems, the Sponsor Organization can really provide value. Example: you are a member of the American Skydiver's Association. If they find a life insurance company that will write members at reasonable rates, they have done a good job for their members.
      

 

Bottom Line: Affinity marketing is not a panacea for consumers. Although Affinity Marketing does not offer huge discounts, good programs do exist. You just need to be careful when you choose one. Some are good, some are bad, and some are an abomination.

 

$122.36 iTunes Fee – DRM Fee

While loading some podcasts onto my iPod, I noticed a link for DRM-Free songs on iTunes. According to the link, Apple wants to charge me an additional $122.26 to drop the DRM from 492 songs on my iPod.

Not going to happen.

Obama Rally – Not Really!!

 

First day of the Obama government and we get a 5% drop. Financials get crushed. It is going to be a long four years.

Rebates – Illegal?

Yesterday, we purchased a new laptop for my wife. We got a good deal and my wife is very happy with it. Nevertheless, I have been annoyed trying to decode the instructions to get the $100 mail-in rebate. It turns out the $100 rebate was actually two - $50 rebates.

Thinking about it, I have decided mail-in rebates should be illegal.

Free Credit Monitoring – AGAIN!

WTF? BONY-Mellon sent me a letter indicating they had a records breach and they were providing me 2 years free credit monitoring from Experion. Combined with the 2 years that my employer game me – through Kroll, I have the entire belt and suspenders.

Although I am not terribly worried, I would have preferred they had not lost my information.

Circuit City – False Sales

The bride and I went to Circuit City looking for speakers for an iPod. On the road outside the store, they had a guy standing (in 10 degree weather) holding a sign promising big savings. From what I saw, almost nothing was on sale. Since you aren't going to be able to take anything back, I would not recommend buying anything more complicated than a DVD.

10% Lowes Coupon

If you are at the post office, check out the packet they have for people changing address. There is a 10% off coupon good a Lowes for up to $500.

Coach v. First Class - Humor

Thankfully (and miraculously), everyone survived the crash of the US Air flight into the Hudson. From the fantastic website, http://www.dealbreaker.com/, I found the following post. It is sick and twisted, but downright funny.

Cash Stashing – Saving Strategy

Each week, I take out the same amount of cash from the ATM. Whatever I have not spent from the prior week goes in an envelope in the fire safe. This money helps feed the cash emergency fund. Should there be a natural disaster, my wife and I have some ready cash available to get out of town.

Adsense Earnings $54.30

Well, my one year of blogging has earned me a whopping $54.30 from adsense. Needless to say, I will not be retiring on my blog money. Indeed, until I hit $100, I cannot even cash out my current earnings. At my current pace, I am hoping to use the money next Christmas.

When will it end?

Today, we watched the market drop as Citibank continues to falter. While they are not the be all and end all, they are a symptom of things to come. Until people are confident they will not face financial ruin, they will not spend again. Until companies are confident they will hit profit targets, they will continue to lay people off.

Fidelity 2% Cash Back Card Review

In an era a frugality, getting the most of one's credit card reward programs is an important way to save revenues. As a Fidelity Brokerage customer, their new 2% cash back program seemed like a good idea and I signed up.

 

The Amex branded card is actually a card offered by FIA Card Services. Although FIA Card Services is one of the largest credit card issuers in the country, their website is a travesty.

1. They do not offer the ability to download transactions directly to Quicken (automatically or manually).
   
2. They do not offer any way to contact them electronically.
   

 

Otherwise, the product does offer what it promises. For every $2,500 spent, they will deposit $50 in my brokerage account.

 

Nevertheless, I think I am going to use my Amex Blue for most spending. Because a large % of our monthly spending is Gas and Groceries, I end up earning 5% on most of my spending (after getting past the threshold).

Insurance Rates – How they are determined

As my prior posts explain, I was able to save $600 per year by moving my family's auto insurance from my old carrier to USAA. While it might be tempting to say my prior carrier was trying to gouge me, the reality is their pricing for "my family" just was not as competitive as USAA's. To explain how this occurred, I have written a simplified explanation of how insurance companies determine their rates.

All insurance companies have teams of employees who work as actuaries. They are the bean counters who determine what the company will charge for each potential customer. Their goal is to predict, as accurately as possible, the expected losses the carrier will face from each customer. Once loss costs are estimated, the company will build out its rate quote based upon expected loss costs, expense load, and cost of capital. Obviously, companies with lower cost structures will have a competitive advantage.

While some consumers think there is a grand conspiracy to "get it wrong" and quote the highest rate possible that is simply not the case. If a carrier systematically gets it wrong and quotes higher prices than are necessary, they will lose business to other carriers willing to charge lower rates. If a carrier systematically gets it wrong and quotes rates inadequate to provide a reasonable profit, they take heavy losses and go out of business.

How could USAA charge $600 less than my old carrier?

Simply put, their model predicted lower losses on Toyota Corollas than did my former carrier's model. Why? I have no idea. If USAA's actuaries built the best model for Corollas, they will make a profit off my business. If not, they will lose money on consumers who drive Corollas.

The Model's Change: As a consumer, our job is to get the best combination of price and service for our premium dollar. Good carriers are constantly tweaking their model's looking for better results. For that reason, USAA may not always be the lowest price carrier for my family. Every so often, consumers should shop their coverage to make sure they are getting the best price for them.

DO NOT GO WITH THE LOWEST COST CARRIER ALL THE TIME – SERVICE MATTERS

Although it is tempting to say they are "all the same," I can say with 100% confidence they are not. Before moving your policy to any carrier, research their claims handling and service reputation. Some smaller carriers are a nightmare to deal with. I would not wish them upon my worst enemy.

 

* Note – in many jurisdictions, insurance companies must have their rates "approved" by the state. Because the rate approval process can distort real economics in a myriad of ways, this post does not address the impact of regulation on rates. Having said that, years of working in the insurance industry tells me rate regulation leads to higher prices.

Free 411 – Thanks Google!

http://www.google.com/goog411/

With the demise of the phonebook, getting information often means booting up the computer or paying a fee to one's cellphone carrier. This service by Google promises to give us the information we need – free of charge.

% of Income/Car Costs – Guidelines?

Although there are well known guidelines for the appropriate percentage of income to spend on housing cost (one would have though banks would have consulted them before making bad loans – but I digress), I have not found any that apply to car payments.

Because my wife and I have paid off one of the cars, our current (car payment/take home income) percentage is about 4%. If I figure in insurance, taxes and maintenance (but not depreciation), it comes in at 6.7%. To calculate take home pay for this exercise, I added my wife's paychecks to mine.

25% Discount on TurboTax – USAA Members

While I will not benefit from it this year, I just learned that USAA members can get a 25% discount on TurboTax products. I just finished moving my auto policies to USAA and will save almost $50 per month for the same coverage. If you are a member, I recommend surfing their site. They have discounts on unexpected items.

USAA – Saved me $600

Full Disclosure – I have worked in the insurance industry (claims and underwriting) for 15 years in personal, commercial and specialty lines. In terms of saving yourself money, you should understand pricing models can vary dramatically from carrier to carrier. The company offering best price/coverage for senior citizens might be totally non-competitive for someone with young drivers.

Since I was 16 years old, I had my coverage with carrier A. Because they offer good service and I liked having an agent, I have been very satisfied. When I obtained competitive quotes, carrier A's pricing was competitive and I never seriously considered moving coverage.

When I got married, I moved my wife onto my policy. For reasons that continue to baffle me, carrier A charged more to insure her '04 Corolla than my '07 Highlander.

Annoyed by this pricing oddity, I obtained a quote from USAA for matching coverage that will save us $600 per year.

 

 

iTunes Pricing Changes

Apple iTunes Pricing Changes

According to the Wall Street Journal, Apple has decided to make some major changes to its pricing of music on iTunes.

1. Three tiered pricing: instead of a flat 99 cents per song, songs will be 69/99/1.29. Apple claims most songs will be 69 cents.
   
2. They are going to eliminate copy protection for all songs in their digital store.
   

 

Personally, I love iTunes. In all but a few cases, I do not want to pay for a entire CD and I certainly do not want to store anymore of them. By offering songs for $.99, iTunes allowed me to legally purchase music at a price I feel is reasonable.

Google Chrome Brief Review

For the past two weeks, I have been testing Google's new browser – Chrome. Simply put, it blows Internet Explorer out of the water.

1. It loads 90+% of web pages faster.
   
2. Unlike IE, it doesn't crash all the time.
   

The only negative is it doesn't have an easily accessible "zoom" feature.

Best of all, I am not doing business with a company that believes it is acceptable to release programs with code that has not been properly debugged.

Madoff Investor’s Bailout – NO!!

Although I feel a great deal of sympathy for the investors who lost money investing with Bernard Madoff, I am outraged by their desire for the US Government to pay for their loses. In many cases, they want to be compensated for amounts in excess of the SIPC limits. While their losses are tragic, a bailout for them would signal that there is no risk with investments.

Sadly, fraud is a legitimate investment risk. From the Madoff fraud, we have learned the importance of due diligence, skepticism and diversification. An SIPC bailout would wipe away what we have learned.

Amish Heaters – Scam?

Do any of my readers have any good information on the "Amish Heaters" offered on TV? Although I talked someone I know out of getting one, I want to have more information to share with her.

$100+ saved with Online Bill Payment

A few days ago, I posted about the interest earned on my ING Savings accounts in 2008. On a lark, I calculated the savings from using online bill payments (ING Electric Orange) to pay most of my bills. Last year, I made 166 payments. At 42 cents postage per bill, the minimum amount I saved was $69.72. If you add in the cost of a box of envelopes ($7 for a box of 50) and gasoline to deliver some of the bills to the post office, I probably saved $100.

Furthermore, I could confidently schedule the payment of bills close to the due date without fear of incurring late fees or interest charges.

2008 Late Fees Paid = $0

2008 Credit Card Interest Paid = $0.

 

My 2009 Predictions

1. S&P 500 up 5%
   
2. Ford survives
   
3. GM and Chrysler survive after the US Government agrees to pay excessive wages and benefits to UAW workers.
   
4. Bank of America and Wells Fargo begin to profit from their huge market positions.
   
5. Interest rates remain low.
   
6. Gas prices are below $2.00 per gallon all year.

1st Stock Purchases – 2009

Today, I decided to move 2% of my IRA back into the stock market. To do it, I purchased equal amounts of Altria and ExxonMobil. Although I believe both stocks have the possibility to move lower in the short term, I think they are great long-term investments.

Rationale:

1. Altria – great dividend and margins. Low p/e.
   
2. Exxon – when gas prices get close to $1 per gallon, I start to look at moving money into oil stocks. At today's price, I am probably a little "early" to the trade. Nevertheless, lower interest rates make this a risk I was willing to take.
   
3. I don't have the time or skill to evaluate individual bonds with credit risk. As a result, I don't think individual municipal bonds or corporate bonds are a wise investment for me.
   
4. In a low interest rate environment, bond funds are a nightmare. In the short term, the "interest" return is minimal. In the long terms, the principal gets hammered when interest rates go up. Finally, there is ZERO UPSIDE as interest rates cannot go lower. As a result, gains on principle are out.
   

Next Major Investment: I will probably add to my TIPS holdings at the next auction. Through Fidelity, I can pick them up without paying any commissions.

$300 in ING Interest

By getting rid of the dismal interest rates offered by my local bank, I managed to earn $300 in interest on my various ING accounts (Electric Orange, Savings, & CD Ladder). With my emergency fund coming around, I was hoping to hit $500 in 2009; however, I expect lower interest rates will make $300 a more reasonable goal.

Christmas “Mis-” Gifting Dilemma

In many ways, I hate the "gift" experience that Christmas brings. Basically, my friends and family spends money on things I do not want and I spend money on things they may not want. For example, I have one relative who keeps giving me decorative items for my home. Simply put, I cannot stand her taste and do not want any of her gifts on display in my home.