Tuesday, January 30, 2007

Taxes Underway, Cleaning the Checking Account

Despite being out-of-my-mind busy this weekend, I still somehow managed to clean the house and also get started on my taxes. About 95% of the information is into the system now but it appears that I might have forgotten to include the information from my paypal account. It was interesting to discover that interest on bank accounts may still be taxable even if you didn't get a 1099 for it; in fact the 1099 limit appears to be 10 dollars from the information I was reading.

Monthly Sweep

One of the new techniques that I've adopted this year is to put some padding into the budget and then clean things up by sweeping some of the extra money out into the linked savings account at the end of the month; once I do that tomorrow I will be ready to start putting together the end-of-month figures for January 2007. I wonder how common this technique is. Do many of you use it?

Monday, January 29, 2007

Evaluating Insurance

One of the major features of the financial landscape right now for me is insurance. While I am lucky enough to have a job that includes some insurance based on salary, I am still concerned that I might not have enough insurance.

The immediate issues are that there is for me is the idea of life insurance, and then after that, disability insurance. Interestingly, I was researching these options this weekend and I went to one of the insurance websites, Metlife.com to see if there was anything that I could use to figure out how much I might need to pay for a 30 year term policy.

Term Policies Best?

Many people like to figure out whether or not Term makes sense and to me, I think that it does. Since I get a certain amount of insurance from my job already, it makes sense for me to look at getting a term policy for between 20-30 years.

I don't view insurance as an investment for my particular situation. I am investing in my retirement accounts and paying off my debts and building assets. My goal is for my retirement accounts to be strong enough so that when I get to the middle to the end of the term, that I will open a new policy for about 25-50% of what the first policy is for.

The Worst Possibility

Unfortunately, many people think about life insurance, but what might happen is actually far worse than just dying. Becoming disabled, permanently losing income or possibility to make the kind of money that you make is probably the worst thing that could happen. The money that is lost is a huge burden, and it is coupled, usually, by expensive medical bills. It is therefore no surprise that many bankruptcies are related to medical problems.

Age Assists Insurance

Understanding that there is some risk that is mitigated as I grow older by the fact that there is more money in savings and retirement makes me more and more comfortable with the idea of slowly decreasing the amount of insurance that is held. The other major factor is that over the short term, most of the bills will be paid off except the mortgage. This means that there will be less needed to cover expenses in the event of disability.

Friday, January 26, 2007

6 Easy Steps For Organizing Your Financial Papers

Ok, if you're like me, you've finally gotten the last item you need to start working on your tax return. But before you can do that, you need to figure out what you need, and where you put it, likely in a mountain of paper. Here's what I've done so far for the past few years; it seems to work well for me.

1. Make a list of all of the items that you will need in order to complete your return. For me it is mortgage interest statement, student loan interest statement, checking account statements, auto-loan interest statements, and finally, w2s and 1099s. Once you have your list, you are ready to obtain the items you need.

2. Leverage web-access to get these items sooner. You can generally setup accounts and passwords for these websites and access the information faster to get your return underway early.

3. Eliminate the clutter. In order to keep good track of your financial paperwork, it is critical to get organized. It only takes a couple of hours every few months to stay on top of this and even if you aren't keeping up with it, you can still catch up on a weekend.

4. Decide on Piles. It sounds basic, but everything is first divided into three piles: Save, Trash, or Shred. Anything that I want to keep, from checkstubs to bills to receipts goes into the save pile. I am a bit over the top on this; I save everything. If I ever need it, I know I saved it. I can always throw it out later, but I can't retrieve it if I threw it away.

The trash pile is stuff that is not important. Its junk mail mostly, but it often it includes empty envelopes and other paperwork. Recycle if you can, otherwise just trash it. But shredding is critical. I mean, this is the stuff that identity theft is made of. Most of these papers have names, social security numbers, and other unique identifiers all over it. If that is the case, shred that paper. You don't want to throw items like this out.

5. Sort the save pile. Once you have your save pile completed, you can now really figure out what's what. I divide that pile again into the following piles. Checkstubs, bills, receipts, Misc Info( insurance, Flexible Spending Account Info etc.). Then with each major pile, I make a folder and label it with the contents and the year. Tax returns once completed get their own folder as well.

6. Start Now for Next Year.  Since I've been organizing this way for a couple of years now, I am starting to run out of space, but I don't mind because all of my papers are nicely organized. And if you plan to do this next year as I do, you can start to do your sorting and opening as you go. This makes for a much nicer process come tax-time.

Wednesday, January 24, 2007

This Makes No Sense

Recently I transferred over one of my loan balances on to a zero
percent interest credit card. It was a card that I already had so it
didn't hurt my credit too bad so that was not an issue. And now that
it is over there, I am paying no interest until May of this year. And
it is likely that I will transfer it again before the time runs out.
And with only paying a 75$ transfer fee, I am still ahead by like 400
bucks when it is all said and done.

Here is where it gets dumb though. I realize that I am still paying
interest on other debt and even though I am paying zero percent on
this loan, I am still thinking about working hard to pay it off.
However, it makes no sense, strictly speaking, to do that right now
because there is no interest on this debt.

I know that many other people work out zero percent deals and parlay
that free money into interest income but I don't have the money right
now to do that. I just wonder if it makes any kind of sense to work on
my other debts and just pay the minimum on this one while I can since
it is at zero percent.

Sunday, January 21, 2007

The Numbers Don't Lie

I like to watch the Suze Orman show. I know some people don't like her, but most of what she says makes sense to me. Anyway, she started a show that I saw this weekend with one of the most clear explanations of why it is good to own your own home that I have seen in a long time.

She gave the following example. If you plan to live in your home for the rest of your life, then it generally makes sense to own it outright. In the later years of a mortgage, the tax deduction is much smaller than at the beginning of the mortgage. However, the payment amount stays the same. In a scenario that you retire early, and then find yourself still paying a mortgage, you will have to ensure your retirement savings are enough to nut each and every month.

She gave as an example a 200K mortgage over 30 years that had been paid down for 20 years to a principal of 100K. This would be a 1200/month mortgage payment. And with some estimating at a reasonable return of 5% on retirement savings, you would have to save 400K to make enough at 5% after taxes, to cover the mortgage.

Obviously there are some major variables in there, but the point is straightforward. Which is easier to save, 400K or 100K? Personally, this has given me some real food for thought. I like the idea of owning where I live. And considering that the monthly mortgage payments accounts for between 30-40% of my monthly expenses, cutting that out makes a huge difference.

Saturday, January 20, 2007

How I handled my Bigger Loan Payment

This afternoon I was a little surprised. I have been trying to get my taxes filed early but it seems this is not to be. Most of the forms that I need are not available from my loans, my job etc. Despite the convenience of the internet, it still isn't getting it done any faster. It will likely be sometime in february before this is all figured out.

The upside was that I found a mistake. This month I prepared my bills online and sent them using my banks bill pay system. However, I saw on my loan's website that my bill was high this month. That seemed strange and I realized that this month was the first month that the new "step" kicked in. So, I have a higher payment than I used to.

It was a bit of a downer since that threw my budget off a little, but good for me since I caught it and didn't end up being late. The other nice thing that I did, and you could consider it to if you have a loan that has a "step" or "graduated" repayment plan. Its just paying an extra 15 or 20 bucks more than the principal. By doing this I pay down the principal a little more than the plan and when the payment goes up, it doesn't feel like such a stretch.

Friday, January 19, 2007

Format Changes and Favorite Links

Here are three excellent links that I liked this week. If you are like me, the chances are that you will find them to be thought-provoking.

The pets link especially is a great starting point if you want to consider the cost of pet ownership. A neighbor of mine had no idea how
expensive it would be when she took in a stray cat. Vet bills topped 1000 dollars when she found out that the cat had some significant medical problems.

Wandering Tax Pro

Blunt Money Talks about Pet Ownership

Keep Receipts for Donations

Wednesday, January 17, 2007

What could I do with 1.2 Trillion Dollars?

I came across an interesting article today about 1.2 trillion dollars.The premise is that when amounts get large (like over a million), that they all start to sound the same. And when comparing large numbers, the best way to compare them is what you could get with them.

Of course all of this is in the context of the 1.2 trillion dollar amount which is considered to be the cost of the Iraq war. Although there are vastly different opinions on the war, I think this article is worth a read. It gives an interesting way of looking at high price tag spending and brings us back to the old standby when it comes to personal financial decisions: its all about trade-offs.

Tuesday, January 16, 2007

Thoughts and Questions on Wal-Mart's Nazi T-Shirt Fiasco

Ok, so wal-mart made a mistake. Some buyer of their shirts bought a design that was done with some nazi logos on it. Obviously it was a bad move. I think it was most likely done out of ignorance. I didn't know the significance of the symbol, but clearly, many people do. And it's not surprising that it is offensive.

My question now is: Does wal-mart care? I wrote about this many many days ago and even got a response from someone who claimed to be from wal-mart that posted a comment, claiming they would remove the shirt. Ok.

The consumerist just had another post about it today. I'm assuming it is true. So now I am just feeling a bit disappointed. I mean, how hard is it to get a note out in a staff meeting or memo that there is a shirt that needs to be pulled from the shelves? And frankly, I've read and seen a ton about Wal-Mart's technology. Their ability to restock and track merchandise is top-notch. They do it in the space of a couple of days. How come they weren't able to track and remove this shirt?

Dishwasher Disappointments

This past week, the dishwasher died. I think it was original to the
place (close to 25 years old) so I have no complaints with the fact that it died, but frankly, there is never a good time for something to die.

Fast forward to me at the local Best Buy in order to buy a dishwasher and take-it-home-that-night. Well, I find out that there is no store in a 120 mile radius (ok I might be exaggerating a tiny bit) that has a dishwasher that I can buy and pickup in the store that moment.

Feeling frustrated, I go to the store and get some sponges on a wand, paper cups, plates, and bowls and start doing my dishes by hand. Now I am stuck looking for a dishwasher, but the urgency is over because the person who could put it in for free this past saturday is no longer available.

So, to add insult to injury, I have to shell-out the cash for a new appliance but also to pay for delivery and possibly even installation now. *sigh*. And all of this frustration was while I was dealing with a cold that just wouldn't go away.

Saturday, January 13, 2007

Credit Report Review

So, one of the things that I've started doing is trying to pull my credit reports at regular 4 month intervals so that I get a free one frequently to make sure that things are progressing as I'd like them to and also as a safeguard against identity theft.

Of course, the part that I don't like is that these reports don't include a fico score - the key number when it comes to determining if you are going to be extended credit and at what interest rate.

This time, I got the report from Equifax - I went to the end of the process and for 8 dollars more I could get my credit score. And the Equifax gave me a credit score of 742. This of course is not even close to the perfect score of 850 when it comes to fico score nirvana, but 742 is still a respectable fico score.

Things to improve are basically lowering my balances on my credit cards and loans, which I already have a plan for. And also I noticed that the amount that I paid off on one of my loans is actually still being reported as debt outstanding so I will likely have to get that taken care of.

But it pays to check your report and for a cheap price like I paid, 8 bucks, I'd say that it is worth getting the score too so you can see how to make it better.

Thursday, January 11, 2007

Don't Risk Hundreds of Thousands of Dollars

One of my favorite msn articles talks about the importance of saving early for retirement. The article focuses on starting early so that you can get to 1 million dollars. However, one of the major points of this is that you should be tackling asset allocation with the same aggression that you tackle saving early. The article underscores this point.

The article explains that large cap us stocks grew at about 10.7%. However, it contrasts this growth with a later statement: "If you invested in small company stocks, whose long-term annual return clocks in at 12.5 percent annually, you could have much more money." It puts this figure at about 2.4 million. The importance of asset allocation cannot be denied, especially when compounding is considered.

Sure, small caps (those stocks which have less value in the stock market) are risky and volitile. The volitility comes from lots of different factors Mutual funds of large caps seem safer and therefore more desirable. However, when push comes to shove, can you really afford to waste 1/2 of your retirement earnings just because you were scared of a little risk? Ignoring asset allocation by choosing all large stocks, not being diversified, and ultimately sticking with investments that sap away several percent of your investments year after year is a sure-fire way of losing hundreds of thousands of dollars

It makes me want to rebalance myself right out of those target funds that I am in and take on some of this asset allocation business myself. Not that I think target funds are bad, per se. But if you could figure out a way to do it yourself, wouldn't it be worth the extra several hundred thousand dollars? That's the kind of money that I think I can make, not by doing anything fancy--just by staying a little more involved than the next guy.

Wednesday, January 10, 2007

The Promise of Education

One of my accomplishments this year was to get enrolled in the upromise program. My plan is that I hope to amass a little bit of money for my brother so that when he is older he won't have quite so much debt if decides to go to college. If he opts not to, then it will go to someone else who needs it.

Since getting enrolled in the program, I've found that I was able to accumulate about 40 cents. I've been enrolled for about 4 months so far and I was shocked to find out that my program was not paying me as much as I thought it would for my grocery purchases. Instead, the majority of my money was getting contributed from gasoline purchases. This is a little ridiculous in my opinion.

Nevertheless, I still think that upromise is a good program. The bottom line is that if you are not using these programs, you are leaving money on the table. And with a set-and-forget-it situation like upromise, there is very little that needs to be done by you after the initial setup. Even if it only ends up being 5 bucks, it was 5 bucks I didn't have to earn.

Monday, January 08, 2007

Starting My Taxes

2006 is over and my tax-prep process has already started. Here's what I've done and have left to do:

Listing all deductions/forms needed.
Phone calls to agencies/bills to get interest for deduction purposes.
Signing up with HR+Block to do taxes online again this year. I really like their online service.

To Do:
Finish up the last of business account review.
Logon to websites to get remaining interest amounts needed and w-2 information for work.
Calculate Mileage.

All in all I feel very comfortable and happy about the fact that I've done well in getting prepared ahead of time and that I am organized. It takes a lot of the stress out of the situation.

Sunday, January 07, 2007

This Guy Is Kidding Himself

I will admit it; I'm a tiny bit obsessive about money and money-related topics. For example, I just read this little blog entry at scottburns.com with statistics about national net worth. And in the comments someone wrote: "I have to confess I love looking at data like this. I know it’s not a race and it’s really pretty much irrelevant where I stand compared to other people but it is very fun to look at. "

I love looking at this data also. I'm a data person. But this last statement in a comment to the entry is where I totally disagree. "I know its not a race...," the comment states. Well, I disagree, strongly. It absolutely IS a race.

Not What You're Thinking

I'm not saying I think we should all get caught up checking out our neighbor's wealth etc. because that is not what I mean. But I do believe that it makes sense to remain above the median net worth if you can.

One saying that I've heard and that rings true with me is this: "He who has the gold makes the rules." The idea being that poor people generally don't have much influence or choices. They cannot decide to not work, they need the money. Rich people, on the other hand, have options. They can decide where, if, and how to spend both their money and their time. Since they may not have to work, their time becomes much more free as well.

"Rich Dad" likes to point out that working to earn more to spend more is a rat race; a race we should be trying to get out of. I suppose that is one way of looking at it. But even if we "get out" of the rat race, we are still in another kind of race. We cannot simply sit back. If you have your own money, and have more than other people in your normal age/income bracket, it is likely that you will have the most options. And if there's anything I've learned, its that you should always give yourself as many options as possible. With options, comes freedom.

Friday, January 05, 2007

Tax Advice - How to Account for Stolen Property

The IRS has clarified what would have been an otherwise murky part of tax law recently. Each year the IRS publishes various pdfs that are available online in order to help people stay current with tax laws. This particular gem comes from publication 17, page 90 and relates to stolen property: 'If you steal property, you must report its fair market value in your income in the year you steal it unless in that year you return it to its rightful owner!'

Check out the publication here: http://www.irs.gov/pub/irs-pdf/p17.pdf

I cannot believe that we are paying people to write up text like this into these publications? This is published by a government agency for pete's sake!

Sigh of Relief - Roth IRA limits?

After a bit of thinking, I was concerned that there was going to be some sort of conflict when I had the question cross my mind about someone -- they are likely going to be getting a significant contribution from employer-side with regard to SEP this year. However, they also contribute to a ROTH IRA individually, but the question/concern was: will the high employer-contribution actually reduce the allowed contribution to the individual's ROTH IRA account?

Thank goodness for the internet. Since after reviewing the correct publications on the IRS website, it is clear. http://www.irs.gov/publications/p590/ch02.html -- this states: " If contributions are made to both Roth IRAs and traditional IRAs established for your benefit, your contribution limit for Roth IRAs generally is the same as your limit would be if contributions were made only to Roth IRAs, but then reduced by all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs."

And that, my friends is the game, set, match for that question. The employer contributions don't matter and the Roth contributions may continue. , unchallenged.

Wednesday, January 03, 2007

I believe everything I read

Or at least, I'd like to be able to! That's why I get upset when people post their net worth on NetWorthIQ.com. I am sitting here at home, diligently working on my finances or at work, updating by budgetting spreadsheet and then I find out that Kira2001 or CatLover44 or BurnThruCash has a net worth that dwarfs mine by about 400k. And that is annoying.

I don't begrudge people their money or their net worth. Heck, my household net worth is doing well as of december, (up over 20k), which
is a significant improvement over last month. But the fact of the matter is this: NetWorthIQ is misleading. It is a great site for people that really want to track their net worth over time, but the searches that return sparse amounts of what I think are slanted and inaccurate sets of data are annoying.

When I put my info into the site, I want to compare myself with people who are using the site the same way I do: diligently each month. When I compare myself with people who are doing something that is totally different, either faking their information or entering their information just once (usually based on imaginary figures), you know that the person doesn't care. I just wish there was a way to "filter out" the casual or unrealistic users from the real ones.

Does anyone else get annoyed at these "sharing" / "social" sites or is it just me?

Tuesday, January 02, 2007

Tax Time Underway

Like many other pf bloggers out there, I am already starting to think about my taxes and what the implications of the changes at the IRS will do to my tax return. At any rate, since I have been good lately at getting a jump on certain things, I have actually already signed in and gotten myself started with my tax return.

I don't have all of the figures yet, but I got a list of the items that I will need. And thankfully, I have been good so far about keeping receipts and also categorizing my business purchases as I go so that I can make sure that there are no crazy 10 hour sessions while doing this thing.

And even more good news is that my company is now using an ADP on-line tool for paychecks which means that I will be able to get my w2 information electronically...long before the traditional mailed copy. And since I just logged into my ING account and they make it easy to send the refund there directly, this makes me even happier :)

Monday, January 01, 2007

Resolved: Exercise More in 2007

One of the things that I realize as I get older is that my body will start to slow down and want to pack on extra weight. I want to stay in shape more than ever. But I refuse to be sucked in to the idea that I need to run out and spend hundreds of dollars on a gym membership. That just seems silly to me.

Of course, the drinking and chinese food I had last night probably aren't helping the cause very much at all either, but starting with today, its a new year and I hope to make the most of it by improving my life. I recently went to a wake and it has reminded me quite clearly that the time we have is precious and we may never get a second chance to make our lives better. So go out and seize the moment! And a Happy New Year to everyone.