I want my W2's!!

Because I changed jobs during they and had some issues with long-term comp, I do not have a good handle on taxable income for 2007. Complicating matters, my former employer "outsourced" most of their HR functions to a TPA. Given my experiece dealing with the TPA, I am expecting mistakes.

Since I expect a large refund, I don't want any extra delays.

As I understand it, it should be postmarked by 1/31/07. We shall see.

Stimulus Package: What it would mean for me!

According to news reports, President Bush is proposing an economic stimulus package in hopes of preventing us from slipping into recession. Without getting to wisdom of the plan, I decided to analyze what a $500-800 per person would mean to my family.

For future Mrs. FinanceGuy and I, $1,000 to 1,600 would not be life changing, however, it would be a nice chunk of change in a wedding year.

Possible Uses:

1. Savings Accounts: At 5% per year, the $1,600 would grow to $5,400 by retirement.
   
2. Student Loans:     For the highest interest rate loan, we would save about $750 over the next five years.
   
3. Needed Spending Spree: When I bought the house, I was moving from an apartment with one living space to a house with two. Two years later, the living room is completely empty. Using the cash to get furniture would free up savings for other purposes.
   
4. Frivolous Spending Spree: Not our style.
   

Key Understanding: A tax rebate in hand is worth a billion promises from politicians. Until we get the checks in hand, they don't exist and we will not change or plans in "anticipation" of getting something back.

Free TurboTax for State Farm Policyholders

If you have insurance with State Farm, they offer free TurboTax Online through their website for State Farm customers. Having tested the system, I have to say I am impressed with the program. Simple login and you are good to go.

The downside: your data ends up on their system.

website: www.statefarm.com.
You will need your policy number to register to use the website.

Starpoints Coversion Rate Rocks

For only 3,000 points, I am getting a luxury room this weekend. Working from the rates I found online for the room, the Starpoints are converting at a fantastic 13-14 cents per mile.

To date, I haven't found a better conversion rate with any card.

Evaluating Mutual Fund Performance in a Down Market

In this down market, don’t make the mistake of dumping a mutual fund just because it is down. Unless your stock fund made a big bet against sub-prime lending, your stock fund probably is down significantly over the past six months. In this type of environment, two common mistakes are:
1. My fund went down. It must be bad. I’ll sell the fund and buy something that went up.
2. My fund went down. It must be bad. I’ll sell the fund and buy another fund in the same sector.

In a down market, look at how a fund did relative to its peer group. You want the best, risk adjusted, fund in each asset class. If your fund was in the top 10-25% of its asset class in a down market, transaction costs make moving funds a questionable decision.

Tax Form Season - In the Mail

Before you pitch the lastest piece of junk mail, make sure you aren't throwing out a tax form. Today, I got my form from Vanguard. You should have all your forms befor February 15th.

Securities Fraud – A Win for Corporations

Earlier today, the United States Supreme Court decided by a 5-3 vote to limit securities fraud lawsuits. For a detailed analysis of the case and links to the opinion, I recommend visiting www.scotusblog.com.

Basically, a set of vendors agreed to some “wash” transactions with its customer. Although the vendors accounted for the transactions properly, the customer used the sham transactions to commit securities fraud. Years later, the shareholders of the customer wanted to sue the vendors for aiding and abetting the customer in committing the fraud. The Supreme Court decided not to create a private cause of action.

In terms of the facts of this case, the bad behavior by the defendants was truly atrocious. Hopefully, the government will take appropriate action against the companies and their employees.

Nevertheless, I am OK with the result. Had the plaintiffs prevailed, the shareholders of the vendors would end up compensating the shareholders of the customer for the fraud committed by the customer. Furthermore, innocent vendors could spend millions defending themselves from weak/frivolous lawsuits.

Avoid “Branded” Mutual Funds

Simply put, “branded” mutual funds are almost always a bad idea. Why? They almost always replicate a fund available from another source by adding on layers of expense.

In many cases, the bank/insurance company will hire a manager like Putnam, Barclas or Wellington to manage the “branded” mutual fund. Although this might seem like a good idea, they buyer ends up with paying more for the same product.
1. The money manager charges the fund a management fee;
2. The fund sponsor charges the fund various administrative fees;
3. The fund sponsor ensures there are marketing fees built into the fee structure; and
4. The fund sponsor almost always offers the fund with a significant load.

While expenses in funds can never be completely avoided (nor should they be), you can almost always avoid extra fees imposed by “branded” funds.
1. Look at the money manager on the prospectus. In many cases, the “same” fund is available directly from the money manager with a lower fee structure.
2. If you can get the same fund without paying a load, you just made a 5% return the first day of your investment. The Fund industry has many distribution streams. Pick the one with the lowest cost to you.

Can a Gambling Man be a Frugal Man?

Each winter, a friend invites a bunch of the guys to his family’s summer house for a guy’s weekend. Touch football, drinking, cards, and the NFL Playoffs are the agenda for the week.

Because of a knee injury, I beg out of the football game, but I enjoy the card games. Since I don’t go to casinos (unless my company sends me), the annual gambling extravaganza is typically my gaming experience for the year.

How I manage risk, have fun, and keep loses to a minimum:
1. I take out $100 from the ATM on the way there.
2. I play with people who are not high rollers and don’t pressure people to take big risks;
3. We play poker tournaments. At most, you lose your buy-in. Because the games take a long time, it is difficult to lose big.
4. I avoid “three card molly.” Not much skill and a lot of risk.

This year’s results, I returned with $104 dollars.

Tata - Ultimate Cheap Car? Not

For people who don’t live in the NYC metro area, a train car is a car used by commuter train users. Generally, a train car is used to get you to/from the commuter train (PATH, LIE, Metro North) and that is about it. A good train car is: cheap to own, cheap to operate, reasonably reliable, and something you don’t mind leaving unattended in the land of door dings, rain, and sun. l

At $2,500, the Tatas might seem like the right ticket for someone looking for a good train car; however, it is likely to suffer from a problem common to new car manufacturers in the US. Expensive and/or unavailable parts. In the early days of Kia, I know someone who damaged her car in a crash. She had to wait 30 days for Kia to ship a part from Korea for her 3 month old Sportage.

Sometimes you get what you pay for. Until they prove they can build a good dealer network and provide parts for vehicles in need of repair, I would look to other low cost options.

My Fiance is Rich

My Fiancé is Rich

Just joking!! After things got serious with the goddess, we had “the discussion” about money and I determined her personal finances were out of control but not hopeless. First of all, she is a teacher with a steady income and outstanding job stability. Second, she didn’t have any expensive tastes she was unwilling to deal with. Frankly, her biggest problem was a lack of knowledge/interest/time in how to manage personal finances.

After discussing her situation, we implemented a tough, but manageable, plan to get things under control.

1. We consolidated he credit card balances from 6 cards to 2 cards. Although we couldn’t get a zero interest teaser rate, we found 2 low interest rates.
2. We implemented a budget and she stuck to it.

Today, she looked at her checking account statement and got a gorgeous smile on her face. “I cannot believe I have this much money in my account!!”

I love it when a plan comes together.

Fed Cut – Impact on Savers

Today, the Fed signaled it intending to continue to push interest rates down in hopes of stimulating the economy. If it follows through with its plan, we need to have a plan in place for dealing with the change.

Loans:
1. If you are looking to pay off loans in some sort of debt reduction plan, you need to consider reallocating principal payments.

Example: If you have a $10,000 car loan at a fixed 5.9% and a $12,000 car loan a variable 6.5%, I would recommend moving all extra payments towards the fixed rate loan. Although it is currently the “high cost loan,” it will not be for long.

2. Lower minimum monthly payments. Student loans, HELOCS, and credit card interest rates key off LIBOR or other variable interest rates. As the Fed continues to act, we should expect a falling LIBOR and take appropriate action. Even if youcannot increase payments, you still win as each payment includes more “principal” every month.

3. If you have a student loan, DO NOT CONSOLIDATE in the next few months. Once you consolidate, you are stuck with the rates in place at that time. Since rates are going to fall, wait at least a few months to take advantage of a great opportunity.

Savings: Interest rates on everything from savings accounts to bonds will fall. Depending upon your situation, you may want to move money from variable rate products like savings accounts to fixed rate vehicles like Certificates of Deposits.

Financial Records – Make them Prove It

If you haven’t seen the news, Countrywide Financial has been accused of fabricating documents in bankruptcy court. Countrywide Financial.

While the information age makes it is for financial institutions to keep records of everything, it doesn’t mean they can find it. Between ancient computer systems and merger mania, there is a good chance their records are inaccurate and/or incomplete. If they claim you owe money and you are not sure, make them prove it.

Years ago, a client came to me with a problem. His auto lease contained a provision agreeing to reimburse the bank (“Dumb Bank”) for any property taxes paid by the bank on his behalf for the vehicle. A few months after he turned in the vehicle, Dumb Bank sent him a bill for $434 for “property taxes.” Because he knew his jurisdiction rarely taxed leased vehicles, he refused to pay until they provided him a copy of the invoice from the county. Despite not being able to produce the invoice, they sent him to collections and he contacted me.

After I stopped collections, my conversation with dumb bank went something like this:

Bank: According to the lease, he agreed to pay us for taxes paid on the vehicle. We paid $434 in property taxes for 19XX.
Me: Please send me a copy of the property tax bill from the county.
Bank: We did.
Me: No, you sent me a bill from your bank. We want a copy of the actual tax bill from the County.
Bank: We don’t have to send you the tax bill.
Me: Why not?
Bank: Company Policy
Me: Let me get this straight, you want my client to reimburse you for a tax bill; however, you are unwilling to provide him a copy.
Bank: Yes
Me: Good luck with that.

Of course, they never found the bill (if it ever existed) and my friend/client never paid them.

Countrywide Financial – Is it a Buy?

While checking the news online during lunch, I noticed Countrywide Financial (CFC) had taken beating in the market. Later, I learned they were denying rumors of bankruptcy. Having fallen to $5.43 from a 52 week high of $45.26, it might seem CFC is a buy. Without going into a detailed financial analysis, lets look at sources of pleasure and sources of pain for CFC shareholder:
Pleasure:
1. Countrywide has a well-know brand name with multiple channels for bringing in business.
2. At the current price, the dividend provides a huge yield to common stock shareholders.

Pain:
1. While it had something like $35 billion in current assets in September 2007, its current liabilities were in the neighborhood of $83 billion. When Current Assets < Current Liabilities, you have significant bankruptcy risk if you do not have ready access to ST borrowings.
2. To support its short term borrowing, CFC has been using its long-term assets (re: mortgages) as collateral. Since the mortgage market is in trouble, their collateral is in trouble and their access to short-term borrowing must be impacted.
3. While hard companies like General Motors or US Steel have hard assets to fall back on, Financial stocks are literally made of paper. If the paper becomes worthless, they become worthless. They can and do implode quickly and leave investors holding the bag – See Enron.


Conclusion: I don’t have the time to go over CFC’s SEC filing with a fine toothcomb. Despite the attractive price of the stock, it continues to have significant short-term downside risk and little upside opportunity until the mortgage market stabilizes. While some Wall Street wizard is probably doing the work to justify an investment and will make a killing, I am going to sit this one out for now. I will, however, continue to look for the right financial for my portfolio.

Investing in a Falling Market

Like many people, I don’t believe 2008 is going to be a great year for equities. Between the election, the war, oil prices, and the subprime fallout, there is no reason to expect equities to take off.

With these expectations, I have a plan.
1. Taxable Accounts: Because I don’t believe my cash cushion is adequate, I don’t “invest” taxable money. 100% of my free cash flow goes into extremely safe vehicles (savings accounts, CD’s, money market) or debt reductions.
2. Retirement Accounts:
a. IRA: Almost 90% of my portfolio, it is invested roughly 30/30/30% in a ST Bond Fund, a MT Bond Fund, and a Foreign Equity Fund. The remaining 10% is in cash.
b. 401(k): Despite the tough expectations, I will invest 100% in a diversified portfolio of equity funds. Basically, I will treat the company match as insurance and hope to benefit from a long term increase in world equities.

Gene Simmons - Financial Guru!!!

Watching the Celebrity Apprentice, I was reminded of the genius of Gene Simmons. Basically, his business model can be summed up as: Always Be Selling.

More importantly, he finds out who has the money and gives them what they want. If you want to become financially secure, allways be selling.

My Failed Attempt to get an ETrade Savings Account

Although I have been very happy with ING Direct, I had heard eTrade Bank offered good service and competitive rates. With a $25 signon bonus, I though it was worth checking out.

Unfortunately, Etrade's online signup process is not hassle free. After recieving the test deposits (about $1.50), my online account wouldn't let me verify the transaction initiating my account. With no guidance from Etrade (online or by e-mail), I was forced to call the helpline.

After 10 minutes on hold, I spoke with a very nice woman who could barely speak English. According to her, I had to write down a phone number and fax a copy of my SS card and driver's license to it. When she could not explain why, she put me on hold for 5 minutes while she got another person on the phone. Although he spoke better English, he could not explain why it was required and was quite rude.

Feedback for ETrade:
1. I don't fax copies of my DL and SS# to blind numbers provided over the telephone by people I don't know - EVER!!
2. If you need documentation, you should inform consumers during the signup process what documents will be required and an easy way to transmit them (i.e. preprinted forms)
3. If a consumer is halfway through a signup and needs to provide documents, you might want to send him an e-mail telling him what the next step is.
3. You might want to answer your phone in a reasonable time period and you might want to have nice CSR's answer the phone.

Bottom Line - No Etrade account for me.

Advertising on this Blog

As part of my 2008 goals, I plan on increasing the frequency and professionalism of this blog. In addition to my various personal finance rantings, you can expect more content focusing on legal and insurance issues. Although my practice area is insurance for corporations, I plan to bring my experience with Personal Lines Insurance into this blog.

In addition, I will begin testing replacing/supplementing adsense with targeted links to companies I believe in. To start, I will be adding links to some of my favorite financial services providers.

Thank you in advance for all your support.

Coal to heat your home?

Like many people living in New England, I try to reduce my heating bill by burning wood in my fireplace. With the insert, I can pretty much heat the entire downstairs portion of my home.

Since solar and wind power are not viable for my home, I thought coal might be an interesting option. Back in the day, my grandparents heated their home with coal. If prices for oil continue to climb, could coal make a comeback for heating our homes.

Probably Not:
1. Not environmentally friendly;
2. Transporting coal is expensive. Getting it to thousands of homes would be a nightmare;
3. I doubt many people would enjoy feeding the furnace.

"Do you want change" - Tipping?

When a waitress brought me a check for $13.xx, I placed a $20 bill on top of the little tablet. When she came back, she asked me if I wanted change. Frankly, I was shocked.

1. Did she really expect a 65% tip?
2. Given the small size of the bill, do people normally round up?

BTW - when I told her I wanted change, she brought back a single and a five. Of course, it made leaving a normal tip 15-20% a hassle.

Net Worth Change in 2007

Total Net Worth Increase: $32,143

What caused the Increase in Net Worth:
1. Outstanding investment performance in my 401k during the first half of the year. Although it stagnated in the 2^nd half of the year, the overall increase was nice, if not spectacular.

2. Additional contributions to my 401k at my new employer to federal maximum.

3. Continued progress on debt reduction plan.

Holiday Spending Analysis

Well, I am back from the family vacation. Using a Quicken download, I added up the damage.
1. My fiance and I basically tripled the amount we normally spend on dining out - no suprise.
2. We dropped about $300 in unexpected clothing purchases. Although it might seem like a spending spree, we only purchased items we would need in the coming months for work. Furthermore, all of the items were purchased at huge, post-holiday sales.
3. Gifts - I stuck by my budget.
4. Splurge - I ended up with $400 in Fantasy Football winnings. Instead of saving it or using it to pay down debt as I intended, I purchased a new digital camera. Although I had a decent camera, it was huge and difficult to travel with. As a result, I always ended up without any camera. With the new camera, I got some great shots of my family over the holiday. Tomorrow, we are having "Christmas" with my fiance's family. Furthermore, I expect some good shots of tomorrow's "Chrsitmas" with my fiance's family. Finally, I have a honeymoon scheduled for August and my name will be Mudd if I screw up the photography. Great photos of the family and honeymoon - priceless.

Too Many Accounts? Normal?

Checking and Savings: Nine Total
ING - Primary Checking and Saving Accounts
Local Bank - For ATM use, safe deposit box, and paper checks
Wells Fargo - Largely dormant accounts

Credit Cards: Eight Total
Amex Starwoods - Primary Card
2 Gas Cards
Citi AA - Airmiles (largely dormant)
Three Store Cards - discounts on clothes and home renovations
Business Card - Required by my job for business expenses

Investment Accounts: Four Total
Vanguard - Used for Vanguard Taxable Investments
Fidelity - IRA and Taxable Brokerage Accounts
Merrill - 401k (BTW - I don't recommend them)

Loans: Four Total

Thank God for Quicken, when I merge my books with my fiance's after the marraige, I am going to have even more accounts to manage.

For married couples, I would be interested in how many accounts are "normal."

Our 2008 Financial Plan

1. Retirement Savings: My fiance has a generous defined benefit pension and I will continue to contribute(including company match) 15% towards my 401k plan. The 401K is invested agressively. The IRA approx. $100K is invested in a portfolio largely comprised of fixed income in a defensive position. As the market settles down, I am planning to move more of the IRA money into equity ETF's. Although we are both behind where we would like to be, we are making good progress towards a reasonable retirement.


2. House: I think I am upside down on my mortgage as my equity got wiped out. Will continue to improve the house gradually without borrowing. The ARM doesn't reset until July 2010 so I am not worried about getting whacked in the short term.

3. Cash Savings: We are funding the wedding and honeymoon. Our goal is to pay cash for everything and to avoid incurring any debt. On the bright side, we have no credit card debt. On the downside, our mergency fund took a big hit with her ring and paying off her credit card debts. By saving most of her check, we should be should be up to 4 months savings by the end of the year. My Tax Refund will go into cash savings. Stretch Goal: 6 months.

4. Car Loans: My loan is at 0% and will be paid off as slowly as possible. Her loan will be paid off 2009. In terms of debt load, our car loans are easily managed on our current income. When her car is paid off, we will continue to drive it for another 2 years and bank her "payment" towards a new vehicle.

5. Student Loans: Although we owe about the same amount on our loans, her loans are larger in relation to her income. Furthermore, we would like to have kids and forgoing her income for a while would hurt. Any extra free cash flow will be used to pay off smaller loans first. In light of the wedding expenses, I expect this plan will largely wait until 2009.

Peace and Happy New Year.

Must Stop Spending

Although I did OK with the Christmas spending, the post-Christmas spending has been a little bit over the top. Between eating out (we are on vacation), golf, and family things, it has been an expensive week.

On the bright side, most of our spending has been on necessities/staples at deep discounts. For example, I bought a shirt for work for $17 and my fiance bought a sweater for work for $30.

I am proud at myself for failing to purchase anything large. Having won my fantasy football league, I normally spend the winning on frivolous stuff. This year, it will help pay for the trip to see the family.

Tomorrow's Spending Frenzy!!

Because I fly to Dallas for Christmas, I have the choice of paying for shipping or waiting until the last minute to shop for family members. First thing the morning, the fiance and I are hitting the streets of Dallas looking for gifts.

Nephew - 2 years old - hitting up Toys r' Us - I love shopping for kids and will find something fun for him.
Sister & Husband - $50 at Bed Bath and Beyond, $50 at Lowes
Mother - $50-100 at Williams Sonoma

Stocking stuffers - probably another $100 on little things for everyone.

Lawsuit Abuse

Today, I found the following note in the New York Post. In one story, we can see why liability insurance costs so much. We can see why pools no longer have diving boards or slides. Even if the school wins the lawsuit, they will be out thousands of dollars in legal bills. With the NYC Diocese closing schools to meet budget, I expect they will close down the program within 2 years after their liability insurer has to raise premiums.

Ain't America Great.

BTW – Many HS football players are 5'8" and 160lbs. One year, Odessa Permian played for the Texas 5-A championship with a line that averaged something like 175.

 

www.nypost.com

INJURED HS GRIDDER 'SUITS' UP

By KATHIANNE BONIELLO and KEVIN FASICK

December 23, 2007 -- The Brooklyn parents of a student player injured in a varsity football game are suing his former high school and coach for putting the second-stringer on kickoff duty against much larger opponents.

William and Elizabeth Garry's lawsuit, filed Dec. 14 in Brooklyn Supreme Court, claims that Bishop Ford High School, its athletic administrator and its football coach negligently placed their son, William Garry Jr., in harm's way.

Garry Jr., now 20, was so seriously injured in the 2004 Catholic A League title game that he has since had four knee surgeries.

"He was not a starter," said Garry Sr., himself a lawyer. "They placed him in the front line of the receiving team. He got hit by a really big kid. He should not have been put in that position. He's 5-foot-7 and 160 pounds."

And the school showed no sympathy, said his mom.

"There wasn't a phone call, there wasn't a flower from anyone," she said. "Nobody loved football more than my son. I just think there should have been some concern on their part."

Garry Sr. said the family has spent more than $11,000 on his son's medical bills.

School officials did not return calls for comment.

 

Insurance Company Kills Woman

In the interest of full disclosure, I am an attorney, a CPCU, and have almost 20 years in the insurance world. In addition, I have some experience as a personal injury attorney. I have never, and will never, work for a health insurer.

If you haven't seen the story, CIGNA has been accused of killing a young woman in California by denying a Liver Transplant. Teen Dies, Cigna Blamed

Anyone with a heart has to feel for the family of the girl; however, insurance policy should be based upon facts, not emotion. So far, we know the young lady was extremely ill with leukemia. She received a bone marrow transplant from her brother. Unfortunately, the transplant led to complications and her liver was failing. Furthermore, other organs were damaged. UCLA was willing to do a liver transplant; however, there is no evidence a liver would have been found in time to save the girl.

Apparently, CIGNA denied the initial request to pay for a liver transplant on the grounds it was experimental; however, they later changed their minds. It appears public pressure played a role in this decision.

In analyzing the coverage issue, we need to determine two things:

1. Did CIGNA break the insurance contract?
   

   From what we know, CIGNA had some sort of appeals process built into their claims process and the appeals process appears to have been followed. Given the unique nature of her treatment needs, I don't believe it was unreasonable to have a 2^nd opinion before spending an enormous amount of money on a treatment that may not work.
   

   
    

2. Did CIGNA act in "bad faith" by denying the initial request?
   

   If the initial denial was a breach of contract, was it in "bad faith?" Given their response to the appeal, I think not.
   

   
    

My take – this tragic situation was not a case of an insurance company looking to screw the little guy. If not "experimental," the treatment was certainly aggressive. If you pull the claim file from CIGNA, I would bet the farm they had real doctors, not "bean counters", make the ultimate decision.

 

Fiance Credit Card's Paid Off

When my fiance and I started getting serious, I sat down with her and discussed her credit card debt. While not the end of the world, it wasn't a pretty picture. In particular, a few careless late payments triggered penalty interest rates in excess of 25%. Basically, I organized her cards and set up snowball by paying off the smallest balances first.

Later this month, her final payment will go out to Citibank.

Best of all, I got to sit down with her and show how her monthly budget looked without any credit card payments. Got a great smile out of her.

Cheaper to Drive - No to Riding the Bus?

After running the numbers, I was sad to find out using the Park and Ride + the express bus was not a cost effective way to get to work. After looking at the numbers, it is clear I would need to save 10 more miles per day to make the savings on gas/wear pay for the bus ticket.

Nevertheless, I am planning on taking the bus 2-3 times per week to work. In addition to cutting down on my fuel cost, I get to avoid the hassle of fighting traffic. The downside is being at the mercy of the bus schedule. In particular, the last bus out leaves at 5:35pm. For that reason, I don't think I will become a total user of mass transit.

The other option: Take the bus to work and have my fiance pick me up on the way home. On days when she stays late, this might work.

Money Laundering - Relationships and Men

While at lunch with some male coworkers, we got to talking about hiding money from our significant others. Much to my suprise, I wasn't the only one with a strategy for stashing cash the lady doesn't know about. Laughing at our strategies and rationales, we joked we were money launderers.

The Hows:
1. All of us our on budgets for "cash" taken ou to fund everyday spending.
2. In terms of the family, both partners knows he takes out $XYZ dollars per week/month.
3, Instead of spending all the money, all of us save money off the top for "other" uses.

Reasons for laundering:
1. My case - I am trying to have a $1,000 in cash in my firesafe for emergencies. To fund the cash emergency fund, I try to save $10-20 per week by cutting back on things. So far, I am up to $250. After I finish fund the stash, I plan to keep it up and use the savings for Christmas gifts each year.
2. One Guy - he likes having a little extra money to play with at the casino. To fund his fun, he cuts back on his weekly/monthly fun to save up for casino trips.

Andy Rooney - "If I were rich..."

After watching my Cowboys fall to the Beagles, I accidently caught the end of 60 Minutes. As a result, I got to hear Andy Rooney go on and on about what he would do "If I was rich."

Andy - You are RICH!!! When you got suspended in 1987 without pay, it was reported you were making $7,700 per week. Assuming you managed to get a raise in the past 20 years, one would expect you are making $500,000 to $1,000,000 per year in salary. Having lived in NYC for 20+ years, we can assume you own a multi-million dollar co-op on the UWS or UES.

More importantly, you continue to make a great salary well into your 80's. While most 88 year olds are trying to make do on a fixed income, you are collecting a six or seven figure income.

By any standard, you are rich. Don't pretend you aren't.

ING Referral Bonus Works

Friday, ING sent me an e-mail indicating my account was credited with $20 for sending a friend and my fiance to them. Since the fiance got $25 for opening the account, our family made $45 on the deal.

Good for ING. Now, I need to sign up my sister.

Gambling Winnings - What to do?

Each year, I participate in a Fantasy Football league. For $100, I get to talk trash to my friends and have a great time following my team's successes and failures. Thanks to my monster brain (aka blind luck), I have done very well and most years I have ended up in the black.

This year, my team did very well and I made up my entry fee with weekly wins and the best record in the regular season. If I manage to make the SuperBowl (go A. Peterson and P. Manning) next week, I will end up with a $200-300 net gain.

In the past, I considered my entry fee as "gone" and any winnings "found money." As found money, I tended to blow it on fun stuff I wouldn't normally by myself.

This year, I am planning on "spending" my winnings on something responsible. I am thinking it could help with the huge oil heating bill I expect in January.

Peace and Merry Christmas to everyone.

Bill

Saved over $100 on Parka!!

Instead of waiting for the post-Christmas season sales on winter coats, I went to LL Bean and Cabelas hoping to get a good deal on a coat. With a HUGE snowstorm coming and temps below 10 degrees coming, I decided to risk giving up a few dollars for comfort in frigid weather. As luck would have it, I managed to save over $100 on my expected budget.

My existing coat, which I liked, was available at LL Bean in the correct size. Unfortunately, the new models have this ugly fur on the winter hood and has down insulation. At $200, the price was right; however, I decided to check out Cabelas.

After considering coat options, I narrowed my choices down to a $200 GoreTex (I like GoreTex) with Down (I hate down) and a $189 model on sale for $159 without the GoreTex or the hated down insulation. After settling on the cheaper model, I got to checkout and found out it was actually on sale for $89.

Best of all, it worked like a charm digging out of the snow this morning.

PS - Cabelas has great customer service. When one of my jeans got damaged and I thought it was not my fault, they replaced them - no questions asked.

Post Christmas Sales - Waiting

When I moved to the northeast in 1999, one of the first things I did was purchase a winter parka. Now that it is showing its age, I am looking to replace it.

Since I am stuck home in a snowstorm, I got to thinking about how buy a new coat as cheaply as possible.

The Plan - Wait for the Post Christmas Sale.

Net Worth Calculation: Include Value of Pension?

At my former employer, I earned a vested “defined benefit” pension starting when I turn 65 years old. Because I left the company, the pension benefit is frozen. I know what I will receive (assuming the company and the pension benefit guarantee fund don’t go under) a fixed monthly payment of a certain amount.

To determine the value of the stream of payments, I considering building a discounted cash flow model; however, any DCF analysis would be flawed without access to the appropriate mortality impact on the future cash flows.

Luckily, I know some people in the annuity business. From them, I have a fairly accurate estimate of the cost of purchasing an annuity to replace the pension.

Question: Should the present value of the pension be considered when calculating Net Worth? Opinions are welcome and desired.

CompUSA - No Store Closing Sales Yet

If you haven't heard, Compusa is going to close all its stores after Christmas. Since we were in the area, the fiance and I decided to check out the local store. At this point, they didn't have anything up to suggest they were going to move pricing to close out inventory.

I want my Income Taxes Back

My local paper is running a story about problems with the IRS and the AMT. It seems our idiots in Congress haven't passed this year's "fix" and the IRS is threatening to delay sending out tax refund checks.
http://ap.google.com/article/ALeqM5jU7U-o4AyoCjk9tJVAZUxjivwA2AD8T91SG02

Because of my job change, I have significantly overpaid my taxes this year. If the AMT doesn't apply to me this year, why should my refund be delayed?

Free Bus Passes

Reading through our office newletter, I noticed a note on 10 free bus rides offered by Connecticut's public transportation agency. Apparently, they think giving someone 10 free rides (plus a hotline for advice on "how to") can increase ridership.

My take - great idea. Since replacing the Saab with the SUV (aka - the guzzler), I have been considering public transportation and/or carpool options. With this program, I am going to give it a shot. There is a park/ride not far from my house and they swear it is an express bus to a building a block from my office.

Honestly, I don't believe I will take the bus everyday.
1. I like to run errands on the way to/from work. I expect I will need my car at least 1 time per week.
2. My fiance and I are considering a carpool. Once she finishes her masters program, we hope to carpool 2-3 times per week. Unfortunately, it means I get to work 1 hour early.

As for riding the bus, I did it for over a year when I lived in Manhattan. My friends, all from the city, thought I was nuts for taking bus from the UES to Murray Hill instead of the subway. Although faster, the subway was dirty and crowded. On the bus, I could read my Wall Street Journal in peace. The buses tended to have working AC in the summer and heat in the winter.

Christmas Decorations -Starting A Stash

How did you start your Christmas decoration stash? I don't own any Christmas decorations. As the only single person in my family, it was my job to fly home to see the my parents and my sister's family. For that reason, I never bought any Christmas decorations. No tree, no "stuff", no nothing.

With marraige in my future, I am thinking it might be a good idea to start thinking about decorating my house. Any good ideas for frugal Christmas decorations would be appreciated.

One thing I will do for sure, I will get some basics in the post-Christmas clearance sales.

Thanks and Merry Christmas to everyone.

Free Books - Library Upgrades

An avid reader, my Barnes & Noble card has been burned up every year. This year, I started using my local library to reduce my cash outlays.

Not having used a library in years, I discovered my library has a couple of great services:
1. Free audiobooks online and on disk;
2. Internet Reservations - even if a book hasn't been purchased yet, I can put it on my list. When it becomes available, they send me an e-mail.
3. The computerized system can search most public libraries in the state. If my library doesn't have it, they can order it from other cities.

I am happy to find my taxes are going to something useful.

Variable Annities - Minimize Taxes the Dumb Way

If you want to minimize the taxes on your investments, minimize your investment returns with bad decisions.


If you want to minimize taxes the dumb way, I recommend the following:
1. Maximize Commissions
2. Maximize Management Fees in Mediocre Funds
3. Maximize Insurance Premiums
4. Maximize Transaction Complexity

Basically, you should invest all you money in Variable Annuities with all the Riders possible. By doing so, you can defer taxes on investment income. All you have to do is pay a huge commission, pay high management fees for sub-accounts, and pay high insurance premiums for the “coverage.” To execute the variable annuity strategy, you will get to sign a contract so complex it takes teams of actuaries years to design and lawyers months to draft.

Let’s put it this way, if VA’s are a good idea, why do you have to pay a surrender charge to get out of the deal?

Thanksgiving Dinner - Eat out and Save!!

Normally, eating out is not a recipe for frugality. Nevertheless, it can be a good idea when the gathering will be small.

A typical Thanksgiving feast would mean cooking:
1. An Entire Turkey
2. Making Stuffing'
3. Making Gravy
4. Green Beans with onion rings
5. Sweet Potatos
6. Asparagus
7. Olive Plate
8. Shrimp Cocktail
9. Fruit Salad
10. Pumpkin and Pecan Pie

With only four people at this year's dinner, it was a fiancially sound decision to go out for dinner. Each of us can have our favorites without forcing us to make enough for four.

Extended Warranty - Good Buy For Laptops

For the most part, I agree with the recent story in Consumer Reports with respect to extended warranties. I must say they have saved me thousands of dollars on two laptops.
1. In B-School, we were required to buy a laptop. Because the school recommended Dell's and we didn't know better, most of us purchased Dell's with an extended service plan. Frankly, the Dell was a lemon and the extended service plan came into play on two separate occassions. On a student budget, I would not have been able to pay for a replacement.

2. Due to my hatred of Dell, I purchased an Apple to replace the Dell. Because of the reliability issues with the Dell, I purchased an extended warranty from CompUSA. Unfortunately, the Apple needed 2 screens and 1 keyboard. While CompUSA service techs were slow, they did manage to fix the problems eventually. 4-5 years later, the Apple continues to work.

Combined with experiences with work laptops, I believe laptops are inherently unstable and likely to have problems. If the extended warranty is available at a decent price, it can be a lifesaver.

Easy Saving Vehicle - Public Library

An avid reader, my Barnes & Noble has been a nice way to save a few bucks. Nevertheless, I have begun to use my town's public library to further reduce my book spend.
1. I already pay for it through taxes;
2. It has most of the books I would like to read;
3. They have the ability to "order" just about any book from other libraries in the state.

While I will continue to buy books from my favorite author, I expect my book spend will go down by 50% or more in 2008.

My Bet on an HSA

Today, I made my employee benefits for 2008 and decided to bet on our new Health Savings Account for the first 8 months of the year. In August, I will get married and change to my wife's plan.

This is how I hope things will work out.
1. For 8 months, I save a decent amount on my premium;
2. My company will contribute $600 towards my deductible on January 1, 2008
3. I will make sure I make the maximum allowable contribution before the wedding
4. I expect to spend $60 on prescriptions during the 8 month period.
5. Otherwise, I am hoping to avoid any treatments. Using my current plan, I just had a complete physical for a $20 co-pay.
6. Hopefully, I will end up with over $2,000 sitting in a tax deferred account. With the savings on taxes and the company contribution, I hope to save about $1,000 in after tax dollars.

Wish me luck.

Mortgage Company Defense

Like almost every homeowner in the United States, I have had mortgages on my homes. As a first time homebuyer, Citibank gave me a great rate on my condo despite making a 5% downpayment. A few years later, Wells Fargo did the same thing for 10% down on my current house.

Today, the media makes all mortgage companies out to be crooks and with the "evil" of tobacco companies attached to them.

While there were certainly unconscionable abuses during the bubble, many people, like myself, benefitted from the liquidity Mortgage Backed Securities gave the market.

E-Trade Bank - Time to pull out

Although they deny it, there are rumors all over the financial press that they are facing bankrupcty. If you have less then $100K in an INSURED account, you are fine. Anyone with amounts over $100k should pull out ASAP. Unless you are getting paid a risk premium (and you are not), taking bankruptcy risk is foolish.

For brokerage customers, the decision to stay/go is complicated. Nevertheless, I find it likely their service will suffer while management deals with their subprime mess.
1. I would expect the company to deploy capital to defend their ratings, not to improve service.
2. I would expect their best executive talent to be deployed in other areas.

NOTE - I do not work for or have any relationship with E-Trade, Frankly, I hope they pull out of it because I firmly believe they are good for competition.

Round Up Bill Payments to save time

Although it might cost you "some" interest, I recommend rounding up all bill and loan payments to the nearest convenient amount. It makes it easier to balance a checkbook and simplifies budgeting. The lost interest is negligible.

Imagine hypothetical payments:
Mortgage $983.45
Credit Card: 231.43
Gas: 134.12
Electricity: 124.26
Landline: $23.12
DSL: 23.68
Cell: 62.97

To easy my workload, I would probably send actual payments of:
Mortgage: $1,000
Credit Card: 240
Gas: 135
Electricity: 125
Landline: 24
DSL: 24
Cell: 63

Loans as Percentage of Takehome?

Because I am getting married, I have been spending some time/effort trying to imagine our life as DINKS. While we hope God will bless us with children soon, we expect at least 1 year as DINKS.

After taxes, benefit costs, and 401k contributions, our loans will take up the following percentage of our takehome pay:
22% - Mortgage and Heloc
8% - Car Loans (hers will be paid off within 12 months, cutting our payments in half)
8% - Student Loans
0% - Credit Cards
38% doesn't seem so bad; however, we are going to take advantage of DINK status by "spending" what she will save on rent, utliities, etc as follows.

1. 50% will go towards saving for children.
2. 50% will go towards debt reduction with the following priorites.

a. Eliminate non-subsidized student loans within 12-24 months.
b. Increase payment towards HELOC to increase equity in our house.

Keeping Heating Costs in Check

With oil prices out of control, I have implemented a plan to reduce my oil bill.
1. Keep the thermostat at 64 degrees. With sweaters, long pants, and socks, it is quite comfortable.
2. During the weekend and evenings, I start a fire. With the insert in the fireplace, it keeps the downstairs warm enough to keep the boiler from firing off.
3. Insulation. Using materials from home depot, I have insulated the pipes in the basement.

Best Deal in Tax Software?

I am interested in finding the best deal for my software for the 2007 tax year. Typically, I use TurboTax; however, I am willing to consider other options. I will need a Federal and State Tax product. Although not incredibly complex, my return is not a 1040EZ form.

Of course, coupons will be appreciated.

ING Debit Card - Cash Back

Just got a nice note from ING. From Nov 15 through Dec 31, they are giving 1% cash back on signature based debit card purchases.

Thank you ING.

Benefits Election Package Arrived

Today, my company delivered the 2008 benefits selection package. Frankly, we were lucky and the costs did not change for most of the benefits.

Health Plan - The cheapest plan was replaced by an HSA. If we select the plan, the company will contribute up to $600 toward the deductible. The other options are a HMO and a PPO style plan. Complicating my situation is my marraige in August. After we are married, I am definitely switching to my fiance' plan. Although I am still running numbers, I am planning to select the HSA and contribute $1,000 towards savings. Hopefully, I can stay away from the doctor for 10 months.

Life Insurance: Together with my own cash balance plan, I have approximately 4x my salary in life insurance. Given my new responsibilities, I will probably increase my election slightly.

CEO Exit Package Idiocy

Another day, another Wall Street CEO gets the boot for poor performance. For most of us, getting fired means very limited severance. For these guys, $100 million dollar exit packages are the norm.

In their defense, a large percentage of the announced packages are amounts already earned. Typically, the amounts represent pensions, deferred comp, and options granted in prior periods. Since the amounts have already been "earned," they aren't really golden parachutes.

Nevertheless, the amounts "earned" are idiotic. The Board's should never allow CEO's to loot the companies for excessive pay.

Credit Score - Reaching 800

On a lark, I signed up for a free trial of MyFico.com. Ever the anal retentive type, I have a perverse desire to get my credit score over 800.

According to the guidance on MyFico, two things are holding me back:
1. Recent inquiries - I have been changing credit cards to maximize gas card rewards
2. Balanced used - although good, my score will probably go over 800 when I pay off the balance on the account I opened to do a Zero percent arbitrage.

$50 Discover Miles Savings Nice

I signed up for a Discover Miles Card as part of a zero percent balance transfer arbitrage plan. While the plan is working, I have found the reward (interest) is not worth the expense (time and effort). After I pay off the loan in a few months, I plan to stop using it.

One upside of the plan is the 2,000 bonus miles (provided I charge something each month) I earn. By charging something in the $20 range each month, I have accumulated 8,000 miles. After purchasing my Christmas plan tickets, I traded 5,000 miles for a $50 balance credit. Considering the amount of money "spent" on the Discover card, it has been a big winner.

Finally, I have to give them credit for good service and an easy to use website.

Getting Married and Health Insurance

For anyone, health insurance choices can be confusing and require a significant amount of thought. For people getting married, it is doubly so.

Last week, my company sent out its first package outlining parts of our 2008 benefits choices. As promised, we will have a HAS as an option. Although we won’t have the final details until next year, it looks like a “premium” insurance package will cost approximately $20 per month more than the HSA.
HSA Deductible: $1,000 with $500 funded by the employer
Premier Plan: Typical HMO style plan with lots of Co-Pays

For me, a key consideration is my impending marriage in August, 2008. Once that happens, my wife and I will have “life events” and will need to consider adopting one plan for both of us

1. If you change plans mid-year, you start over for deductibles;
2. Understand you family’s plan in the future. As a single, healthy male, the HSA looks like a no-brainer. With a pregnancy and children in our future, it doesn’t look like such a good idea.


What we will do:
1. I am reviewing her plan in detail. It looks like a typical PPO program with low co-pays and broad benefits. If I drop health insurance, my employer will give me a credit towards other benefits.
2. I will select the HSA for the first 8 months. The one “known” medical expense I have coming up is not covered under my plan. By using the HSA money to pay for it, I convert an uncovered expense to a covered one. In addition, I get a tax deduction for my contribution to the plan.

Rate Cut Saves Debtors Money

Today, the Fed was nice enough to drop interest rates 25 basis points.

What it means for me?

1. Credit Cars – no credit card debt = no savings
2. HELOC – the rate floats with the LIBOR. As this is my biggest floating rate exposure, any savings could be significant.
3. Unsubsidized Student Loans – the rate cut should save me a few bucks; however, I hope to have it paid off by December, 2008.
4. Savings Accounts – I will get less interest from my ING Direct and my money market mutual funds. Basically, the losses will offset the gains on the student loans.

In the grand scheme of things, it won’t change my life. Once the student loans are paid off, I am redirecting the payment to the HELOC.

Safety Fund - Cash In Hand

For many people, the "Emergency Fund" is the amount of money held in their checking, savings, or money market funds. While it might protect you from a financial setback, it is not the same thing as Cash in Hand.

Imagine you live in a city hit by a hurricane, earthquake, or other disaster, phone/power/internet access is down and you need cash NOW. How much cash do you typically walk around with? Could it get you out of town and rent a hotel for a day or two?

In my case, I tend to get money out of the ATM in $100 transactions. In terms of walking around money, it works for me and I usually have a little left over each week. Nevertheless, I realized I wasn't prepared for a disaster.

Cash in Hand Strategies:
1. Car Fund - after forgetting my wallet a few years ago, I stashed a $20 bill in my glove compartment just in case. When gas was reasonably priced, it would fill up my compact car and get me home in an emergency. Now that I have a SUV and gas is $3 per gallon, I am going to raise it to $50.

2. House Cash Stash - starting last week, I am working my way up to a $500 Safety Fund. Stashed in an envelope in my fire safe, it should provide a nice cushion for most contingencies. To fund it, I am planning putting $20 per week away until the it is fully funded.

Going to the Movies – EXPENSIVE

To be honest, I love going to the movies. Unfortunately, the cost of movie has gotten totally out of hand. For my fiancé and I to attend a first run movie:
1. $18 for tickets
2. $14 for drinks and popcorn
3. $20-50 for dinner before or after the movie

At $30-80 per movie, “movie night’ is not a casual expenditure anymore. While discount tickets and matinees can save some money, “movie night” must be thought of as an “event.”

For all but a few special movies, my bride and I do “movie night” at our house.
1. Cable - I love some of the original programming on Shotime and HBO. Since I subscribe for the original programming, the movies are essentially free.
2. On Demand - for $5.99, Comcast offers HD movies on PPV.

Alternative I don’t use: Many of my friends use Netflix (or the similar product from Blockbuster) to save money. While I have tried both products and they work as advertised, I don’t like having to “pre-plan” my movie watching habits. If you like planning ahead, they are great services.

Saving is Debt Reduction!

Having heard Dave Ramsey on the radio a few times, the man talks a good game. While many of his ideas are sound, I have to point out SAVING money IS debt reduction. Net worth = assets – liabilities.

Lets say you have $30,000 in student loans. By sticking to a budget, you have the option of paying off $5,000 in loans each year or saving the same amount.

Decreasing your debt by $5,000 increases your net worth by $5,000.
Saving $5,000 accomplishes the same thing.

When deciding what to do with “extra” money intended to increase risk, one must balance:
1. Liquidity – people with cash in hand have options. Savings increases liquidity and savings increases it.
2. Interest Expense – if you are paying 20% on a credit card and receiving 4% on your savings, pay off the debt. If the differences is minimal, cash is king
3. Discipline – if you tend to spend “saved” money, pay off the debt.

Law School v. Day Care Expenses

My fiancé and I are considering having children after we are married. Unfortunately, I discovered daycare in Connecticut starts at $1,000 per month per child. In the 90’s, $12,000 per year paid for my law school including living expenses. Thank you instate tuition!!

Simply unreal.

Expected Tax Refund Strategy

Bird in Hand – Tax Refund 2007?

Each year, my goal is to obtain a tax refund in the neighborhood of $500. Any more, I am giving Uncle Sam an interest free loan. Any less, I risk having an unhappy surprise.

Through trial and error, I have figured out the correct number of exemptions for a normal year. This year, I changed jobs and “took” some deferred income from my prior employer. As a result, I know I am going to get a huge refund.

With a wedding to plan and pay for, I have been trying to figure out exactly how much it will be. Using the tax estimator on TaxCut.com and other sites, the estimate varies by up to 3 thousand dollars. Since this year’s version of TaxCut is not available, I used last year’s version and got the largest estimate yet.

Despite the good news, I learned the hard way a bird in hand is worth two in the bush when it comes to taxes. A few years ago, I expected a refund of $2,000 and spent it. Much to my horror, I discovered an error in the returned and ended up paying $1,000. A $3,000 swing to the negative is not good.

As for this year, I will keep the refund in mind; but, I will not “spend” it until it is my ING Direct account earning interest.

If it comes in as expected, I am planning on paying down the balance of my non-subsidized student loan.

Used CD's as source of cash?

For quite a long time, I would purchase a new CD with every paycheck. As one would imagine, I have quite the stash. With the advent of DVD's, iTunes and satellite radio, I never listen to CD's anymore. As a result, I am considering options for the disposal of the collection. After I finish the complete transfer to iTunes, I am considering what to do with them.

Options:
1. Stick them in storage and hope some of them become collectors items.
2. Sell them on eBay. From other postings, used CD's don't seem to have enough value to make it worth the effort
3. Give the collection to charity and take a tax deduction.

Right now, I am leaning towards a combination of 1 and 3. If anyone has other options, I am all ears.

When will Tax Software be ready?

Does anyone know when TurboTax or TaxCut for the 2007 tax year will be ready?

I need to run some "what/ifs" before the year is over and want to test the outcomes?

Hillary's 401k Idiocy

After 8 years of running "against Bush" the Democrats are finally running for office. As a result, we are finding out what kind of ideas they really have.

Hillary's Idea - "Give" everyone $1,000 for their 401k. Why is this idiotic?
1. It is based upon the idea - somebody else will pay for it. Of course, we all know everyone always pays. Under this plan, the government will take $1,200 in taxes, waste $200 on pork projects, and give you $1,000. Of course, you should be greatful to "them" for giving it to you.

2. If $1,000 is a good idea, $1,500 is a better idea. Why not give us $10,000?

Bottom line: Beware of politicians who want to give you money. Every dime they give you came from money they take from you.

Carpool to save $240 per year

Although I love my SUV and the room it provides, I miss my compact car and its 28mpg. To keep fuel costs down, my fiance and I take her Corolla whenever possible.

Starting next week, I am going to hitch a ride to work with her on Wednesdays. My job is about 1/2 of the way to her job and she can drop me off on the way.

This carpool arrangement will have two key benefits:
1. I get to spend an extra 40 minutes per week with the most important person in my life. Big Win for Me.
2. I figure to save $5 per week through reduced fuel expense and reduce wear and tear on the SUV.

Next step, I am going to try to figure out how to take the bus at least one time per week.

Improving ING Direct Online Bill Pay

While I love the service at ING, one thing about their bill payment program needs improvement.

Let's say you schedule a bill payment for December 1, 2007 for $100. ING will allow you to change the amount to $100 or to $120. It will not; however, allow you to change the date without cancelling the original transaction.

Saving too much in 401k?

Sometimes I wonder if I am saving too much in my 401k? Although I will have a small pension from an old employer in 25 years, my new employer has no pension of any kind. No defined benefit, No cash balance, No Nothing.
Luckily, they compensate for the lack of a pension with a very generous 401k program. Up to 5%, the company match is 150%.
Including the company match, I am saving 15% of my pre-tax earnings.
Why I should save more?
1. Due to law school and B-School, I got off to a slow start.
2. Without a significant pension, I am on my own.
3. The fiancé is moving in. With our combined incomes, I have more flexibility to save.
4. The tax deferral is a huge benefit. Even with the penalty tax, having a large amount of money in the 401k is a nice risk reduction tool.

Why I should save less?
1. The emergency fund is getting a little low. After getting the engagement ring, it is not where I want it to be.
2. In addition to spending on the wedding, I am spending more money fixing up the house for the fiancé. I expect this spending spree to continue into 2008. In addition to living room furniture (I have none), the house needs about $5-10,000 in repairs and upgrades.

Although I am not going to reduce my contribution, I am starting think about it.

Target Matches $4 Generics

One of the dirty secrets of the prescription drug market is many common prescription drugs are dirt cheap.

A few months ago, Walmart began offering a 30 day supply of many common generics for $4 for a 30 day supply. Since I despise Walmart, I am happy to report Target has matched the offer.

If you have a common 10 retail or $20 mail-in copay, it is cheaper to buy a 90 day supply without using insurance. Just make sure you get credit toward your deductible.

Banning Sub-Prime ARM’s

A few years ago, I bought my house using a 5 year ARM. With the credit crisis upon us and my house having devalued, I wish I had the foresight to get a fixed 30 loan. Nevertheless, I don’t have it bad. With 2.5 years left on the fixed portion of my loan, I will probably sell the house before it resets. More importantly, my loan resets are capped a maximum of 2% per year. Although it would hurt, I could make the payments if I had to.

In my reading about the sub-prime fiasco, I learned that most sub-prime ARM’s do not have a cap of any kind. Considering the poor credit history of the borrowers, the rates can be expected to reset into the 18-20% range.

Frankly, I am coming to believe sub-prime borrowers should never be allowed to have an ARM. Because these borrowers have/had money problems, allowing them to face enormous interest rate risk is irresponsible.

Emotional Investing and the IRA

Because I was with my old employer for a long time, my 401k balance never really went down. In addition to the strong market, my contributions plus company match meant it grew almost every month. In terms of asset value, it is my largest account.

After leaving, I moved my 401k to a Fidelity IRA. Because all my new contributions are going into the new 401k plan, the IRA doesn't have the benefit of additional contributions to make it appear to grow.

After tanking with the market (and causing me angina), the runup in the market has pushed the account into positive territory.

During the downtime, I had to fight the urge to sellout and go to safety. Emotional investing is the path to ruin.

Personal Finances and the Fiancé

Because we are paying for our wedding and honeymoon next year, my fiancé and I have been forced into significant conversations about personal finance. Thankfully, the conversations gone well and we have reasonable expectations about post-marriage financial life. We know where we stand and where we want to be before the wedding.

Nevertheless, our conversations woke me up to how different our personalities are. A teacher and an artist, her emotional approach to problem solving is in stark contrast to my black/white approach to life. She calls me relentless and she is right.

Last week, she faced a financial aid problem related to her Masters program. Explaining what happened, she told me what happened and started asking "what if" questions about her options:
1. Will the school allow me to pay off the balance on a payment plan? What is the interest rate and/or fees associated?

2. Should I reduce my savings/debt reduction plan temporarily?
3. Should I charge in on a credit card? (we decided no)
4. Should I raid my emergency fund?
5. Should I ....

Talking about it, she mentioned how proud she was of her new approach to dealing with financial problems. Instead of "hating money," she is learning to get what she needs from what she has. This "new" approach to financial problem tells me she "gets" my approach.

As for me, I trying to take more joy from things like watching her grade papers on my back porch while I work in the yard.

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.

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

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.

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.

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)

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. http://www.newsday.com/business/ny-bzdefer0918,0,5702591.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.

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.

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.

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.

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.

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.

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.

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

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?

Savings Account Rates Going Up

While the fed may end up lowering rates in the near term, banks are beginning up the interest they will pay on savings vehicles. Why?

The collapse of the sub-prime market is having a dramatic impact on the mortgage market. In the past few years, banks and mortgage companies made money the follow way:
1. Provide the mortgage to the buyer;
2. Package the mortgage with others and sell it to other banks or as Mortgage backed securities.
3. By repeating this process over an over, the bank can make more loans over and over without having an increase in deposits.

With new mortgage backed securities basically unmarketable, the only way banks can make loans is to increase deposits.

In particular, companies like Countrywide Bank will be looking for deposits.

Interest Rate Risk and the Saver

For the saver, it is easy to misunderstand interest rate risk and its impact on our strategies. For the purposes of this discussion, I will focus on saving strategies designed to provide access to cash in an emergency and will ignore credit risk by focusing on insured accounts or government securities.

Bond prices are irrelevant to savers, but interest rate fluctuations are not.
• Because bond prices are inversely related to interest rates, bond prices will fluctuate as interest rates change.
• For savers, the bond prices are irrelevant because we can hold securities to maturity.
• BUT – we cannot escape interest rate risk. Although we will get 100% of the security value at maturity, we “lose” interest while our money is locked up.

Example: Bob buys a $10,000 CD from his bank with a 1 year maturity. Based upon current interest rates, Bob will receive 10,675 at maturity. Bob is happy.
• After 6 months, interest rates spike upward. Although Bob will still get his $10,675 back, he has “lost” money with his CD.
• Because Bob cannot reinvest his money at the higher rates for 6 months, Bob has become a victim of interest rate risk.
• Of course, Bob is a winner when interest rates fall (the Fed cut rates today) because he is getting more interest then the market is currently paying.

The Risk Premium: To compensate the saver, Banks and other borrowers must pay savers a premium for tying up their money in longer term interests (CD’s, T-Bills, Bonds)

Recommendations for Savers:

1. First in – the emergency fund should be invested in a high-yield “cash” investment with little or no investment risk. I have a two-tier strategy for this money. My one month emergency fund is in a high-yield savings account with ING Direct. Easily tied to my Electric Orange checking account, I can get to this money almost instantly if needed. Although ING doesn’t pay the best rates anymore, their service is first rate and the convenience/speed saves me the cost of having to keep any money on my credit cards (I pay in full each month). The second tier of my savings strategy is a high-yield money market mutual fund through Vanguard. In addition to the slightly higher rates, it takes 2-4 days to get the money out. This prevents me from spending my savings.

2. Time Money – After the emergency fund, I have a 2 year ladder of CD’s maturing at different times. This allows me to get paid the risk premium for tying up my money for 2 years at a time. By laddering the CD’s, I get paid the prevailing rate on new investments as the CD’s mature and get reinvested.

3. Treasure Bills – TreasuryDirect allows savers to structure a ladder of T-bills with no transaction costs. A good option; however, I prefer the convenience of CD’s.


Convenience Premium: Unless you are the Bank of New York, you are unlikely to have enough money in “cash” to make a huge difference in your finances. While the money is nice, one shouldn’t spend thousands of dollars of time chasing hundreds of dollars of interest. Find a good bank or banks, enjoy the interest, and your free time.

Market Falls – Increase 401k Contribution

With the market in troubled times, many people think the prudent strategy is to reduce their 401k contributions. At the very least, they want to put all their money in the Money Market Fund or the Stable Value funds.

Although counter-intuitive, the falling market is the perfect time to increase your 401k contribution.

1. As the market falls, you are buying more shares for each dollar you contribute.
2. When the market turns around, you are already invested in a way designed to maximize your upside.

I am increasing my contribution from 9% to 10%. With the company match (we don't have any pension), I am going to be saving 14.5% of my salary.

Engagement Rings – The Big Ripoff

The good news is it looks like I am going to be getting married next summer. The bad news, I had to buy a diamond engagement ring. Although my bride to be is quite understanding and laughed at my threat to get her a “Ziamond,” I did what American men have been conditioned to do. I bought a highly compressed and crystallized piece of coal.

By shopping around, I did my best on getting the most bang for the buck; however, it is hard to shake the feeling that Americans have been duped by DeBeers.

Nevertheless, it is gorgeous and I hope to be looking at it for the rest of my life.

Spend More – Save Money

When we shop, we often face decisions related to different products that do the same thing. For one product, you might have a choice of store brand, value brand, or premium brands. What to do?

When to choose the cheap product:

1. If the product is disposable or a one-time product, don't pay for extra quality.
   
2. Know what brand products are identical to value products.
   
   1. Clorox Bleach is IDENTICAL to store brand bleach.
      
   2. Batteries
      
   3. Baking Soda
      

   
    

When to choose the premium brand:

1. If you need to use the product for years, it is likely to wear out, and it has a good warranty.
   
   1. I bought a very nice Fiskar clipper. After a few months of heavy use, it was not working properly. I called their customer service number. They sent me a new one. No questions asked.
      
   2. When I bought another garden tool with moving parts, I got a Fiskar.
      
2. You like the taste better.
   
   1. If you like taste of Green Giant beans over the store brand, buy the Green Giant
      
3. You like the feel better.
   
   1. If you like the feel of the good toilet paper, there is no reason for the rough stuff.