I must say, I enjoy the Sunday round-up posts. It keeps me open to new ideas and on the lookout for fresh blogs. I try to bookmark one or two articles each day and then on Saturday review my collection. Right until now I don’t know how many will past final edit. Let’s get started and see my weekly finds.

Benjamin Clark posted at Christian PF, What are Charitable Gift Annuities and how do they work? It turn out they offer a way to get a tax deduction, immediately, then get a steady income while also do good (donating to a charity.) The downside, if there is one, is that upon your death, the charity picks up the remaining value of the funds, no money is left for your heirs.

The Psychology of Bubbles: Using Hindsight to Examine Why We Bought into the Hype is an excellent, in depth, discussion of bubbles and their cause posted at Steadfast Finances. He includes a chart of the stages of a forming and then crashing bubble, as well as discussions of the bubbles of the most recent ten years, tech, oil, and housing. Excellent post, worth your time.

Similar to the oft repeated message we hear about achieving prosperity, but worth reading is  5 reasons you are not wealthy. One day, these behaviors will be obvious enough that we’ll learn to avoid them, and get on track. Maybe.

Investopedia’s Amy Bell posted Overcoming 5 Major retirement Risks. One Risk is that you might outlive your cash. Amy offers suggestion on how to overcome this risk and four others in this article.

For some time I’ve been trying to get the word out that the Roth conversion will benefit a select few at any time. Now, Susan Tompor of Freep.com agrees that Roth IRA conversion isn’t for everyone. Of course there are many factors to consider, but Susan reminds us that if you don’t have the cash handy to pay the tax upon conversion, it’s never a good idea. The rules kick in in just about 6 weeks, what are your plans?

And to close out this week’s reading – The oblivious investor again shows us he’s anything but, his Efficient Market Hypothesis: Strong, Semi-Strong, and Weak is a great paper on a topic we usually run into in a college level finance class. This theory basically states that the current price of a stock represents all know data available on that stock at that given point in time. Theory vs reality, I suppose.

Another good week. Four days till turkey.
Joe

• This week's Best PF Blog reading
• Frugal Friday Week 17
• Weekly Reading Roundup
• Pre Tax vs Post Tax savings
• Evil Credit Cards

• Tips for Writing Your Blog
• Religion and Stocks...What Do You Believe In?
• Do You Need a Mortgage Broker?
• 15 Ways To Increase Traffic To Your Blog
• Backup Your Wordpress Blog Regularly

written by JOE \\ tags: Investing, Retirement, roth conversion, roth ira

40 years? Bert and Ernie haven’t aged a bit.

Joe

• Section 72(t) withdrawals
• On my Reading List
• Do I Need Insurance?
• 5 days, 4 percent
• The Next Depression Babies?

• Paint or Wallpaper?
• Calculating a person’s age
• What Are You Teaching Your Children About Finances?

written by JOE \\ tags: Political Cartoon, sesame street

Time is Money

How often do we here this? And is it something that we toss aside or do we take this cliche to heart? If the date on the milk is far out enough and I buy an extra container, Jane (my wife, as in Joe and Jane Taxpayer) warns me it may spoil before it’s finished. I remark back that having to go out just for that item, not as part of a regular trip to the supermarket, would cost over 30 minutes of time and nearly $1.50 in gas. So I take the risk. I know how far we live from the supermarket but how do I value that half hour? If you make $50,000 per year, it’s equal to about $25 per hour. On the other hand, as I clip coupons from the Sunday paper, and Jane asks how that’s different, I tell her that I discovered the fallacy of my ‘time is money’ rationalizing. One can’t always convert their time to their day job’s hourly rate. Sure, some people can put in overtime, but that’s another story. When I am sitting with the Sunday paper, drinking my first cup of coffee, enjoying the silence, I may not be ready for the news. Cutting coupons while listening to NPR is relaxing to me.

Remember though, a dollar saved isn’t a dollar earned, it’s quite more. Anywhere from $1.50 to $2.00 depending on your tax rate. Reading elsewhere last week I ran into an even more extreme result. The saving rate in the US is now back up to the 5% range. This means that of every $20 one makes, on average, they are saving just $1. So you might think of the dollar saved by cutting a few coupons as $20 you’d otherwise have to earn to save that buck. If that doesn’t get you rethinking the couponing game, why not try this? Think of something you wish to buy, maybe a big TV, or iPod, whatever. When you use a coupon at the store, you get to drop the saved money in a jar toward that wanted item. Last I did this, I tracked all my deals for a year and found the savings to exceed $2000. I may do this again as a monthly installment of this Frugal Friday series.

Enjoy the weekend.
Joe

• Frugal Friday Pt 5
• Phantom Tax Rates
• Bodie on TIPS
• Frugal Friday Week 21
• PF Bloggers' Weekly Roundup

• How To Get A Deal And Save Money When You're Buying Electronics Or Other High Ticket Items
• Roundup for week of 11 November 1007: Colonial Williamsburg edition
• are 'high yield' savings accounts worth it?
• Forex Basics: An Exchange Rates Tutorial
• The Results Are In - How Much Do You Spend On Groceries?

written by JOE \\ tags: coupon, Frugal, saving

With mortgage rates at or near all time lows again, it’s time to consider the ongoing question, do you choose a 15 or 30 year term? The 15 can be the way to go, especially if you are in your late 30’s or older and have a goal of having no mortgage at retirement. More than that, you’ll get a rate about a half percent lower which can save you some money as I show in this example:

As you can see, the payment required to cut the term of your mortgage in half jumps by just over 40%, all of this extra money going to principal. Another approach you can consider is to take the 30 year term, at the slightly higher rate, and make payments for a 15 year payoff. You need to look closely at your finances and your own risk tolerance to make this decision:

• Is there room in your budget for the higher payment?
• Do you have any credit card debt you carry month to month?
• Are you paying any other installment debt (car, boat, etc.)?
• Are you depositing to your 401(k) at least to capture the full match, if available?
• Do you have 6 months or more of emergency money set aside?
• Are you and your spouse secure in your jobs (as if such a thing is possible these days)?
• Are you expecting a child in the next few years and will lose some income during that time?

For many who are just moving into a house, it’s a better choice to take the thirty year, beef up your financial position, and then begin accelerating your payments. This isn’t rocket science, no complex math, just make extra payment each month to principal, and make sure the back is crediting it that way. For those who are paid bi-weekly, when you see that third check in a month (this occurs twice a year) you may use that money to pay down the mortgage. Another approach, if your retirement savings is on track, is to take half your raise and use that as your pay down money. The idea of having no mortgage is very appealing, but there’s one risk to consider. So long as you have a payment to make, that expense is still there. If I lost my job before the mortgage is paid in full I’d still prefer to have a well funded emergency account vs a mortgage that’s five years from being paid off.

One goal to consider is to pay at a rate that will have your mortgage paid off before you retire. My personal goal is ten years, so with that payment gone, we can reevaluate our retirement savings and increase to a higher level if needed. Or if we feel comfortable retiring early, at least that monthly payment will be long behind us.

Joe

• Money Merge Account Analysis Pt 32
• Money Merge Account Analysis Pt 33
• Money Merge Innumeracy
• Mortgage 101
• Money Merge Account Analysis Pt 6

• Will a home loan modification lower your payments?
• Accelerated Mortgage Payment Plans: Don’t Waste Your Money
• Increasing Your Mortgage Payment
• How to Go Into Debt to Get Out of Debt
• Random numbers

written by JOE \\ tags: Finance, Mortgage, Savings

A number of books have been written about the recent real estate crash over the last months. I’ve found Thomas Sowell’s The Housing Boom and Bust to be among the best.

Dr Sowell attributes much of the crisis to the well meaning politicians who misinterpret the meaning behind the data. They assume that any differences in mortgage approval rates between races must be due to racism and calls for correction. Instead of digging through the data to truly understand the origin of these differences, they seek to legislate equality with disastrous results. The Community Reinvestment Act (CRA) at its surface may have seemed to have the best of intentions, to provide affordable housing and improve home ownership rates among minorities. Unfortunately, good intentions didn’t lead to good results.

Let’s first take a step back and look at how the statistics are misunderstood. My undergrad is a BSEE (Bachelor of Science, Electrical Engineering), the number of women in my class and in the engineering school overall was about 15%.  Does this need to be ‘fixed’ and if so, how? The immediate fix would be to change the acceptance criteria so all women that apply get admitted, or at least as many as it takes to get to 50/50. You can see how this is nonsense. For the long term, one can present fields of study in an interesting way and let the students decide.  Can you change the interest of an entire gender? My data is 25 years old, and I suspect that the percent of women engineers has risen but not to the point of equality. This is a bit of a tangent, the truth behind the statistics, one I’ll bring up again in future posts.

An article in SmartMoney last November titled The Color of Money, spoke about the difference observed in wealth vs income among races, white households having a median net worth of $118,300 in 2004 vs black household’s $11,800.  Even after normalizing for income, the wealth accumulation was higher for whites at the same income level as their black or Hispanic counterpart. The article didn’t go into the home ownership implications as it was pretty brief, instead focusing on retirement issues,  but this observation sets the stage for some of the conclusions Dr Sowell’s book reaches.

The difference in mortgage approval rates can be viewed two ways, one study showing a denial rate for whites was 11% vs blacks 17%, ‘nearly 60% higher denial rate.’ When we look at the same data and state that the white approval rate was 91% vs blacks 83%, ‘less than a 10% disparity,’ the picture seems a bit different. What the CRA did was to encourage the banks to change the rules of lending, discarding much of what we learned in Mortgage 101. It wasn’t simply that house prices rose too high, as even in in 2005, the median house took just 22% of median income to afford, a number consistent with having housing cost 25% or less of one’s income. It was the introduction of subprime loans including those of the ‘no money down’ variety becoming the norm in many areas. This combined with the various adjustable rate products were the proposed solutions to a problem that didn’t exist. It doesn’t take a math genius to calculate the monthly payments required for an option ARM (paying interest only at a low teaser rate) and a fully amortizing higher rate loan a few years later. These products were the equivalent of financial time bombs.

This book is brief, only 148 pages, but an excellent read. The author, Thomas Sowell, is not a journalist with an agenda to promote, currently a Senior Fellow at the Hoover Institution, Stanford University, he has a respectable resume as a professor and author.

Joe

• Paulson to the Rescue
• Money Merge Account Analysis Pt 9
• Credit Card Rate Caps coming?
• Money Merge Innumeracy
• Dilbert's “Unified Theory of Everything Financial.”

• Loan Rate Ananlyzer Strategy Update
• New Credit Card Rules For U.S. Consumers in Credit Card Lending Overhaul of (CARD) Act
• Actor's Strike Could Mean Another Long, Cold Winter
• 12 tips for beating the summer heat and keeping money in your pocket
• Financial Guru Review: David Bach

written by JOE \\ tags: boom and bust, community reinvestment act, Mortgage, Subprime, thomas sowell

This week let’s start with Bob at Christian PF asking Does Saver’s Remorse exist? It’s a great question, but a tough one to wrap my brain around. If I knew for certain (a) my future income stream, (b) the market return, and  (c) the day I’ll die, I’d be able to plan things pretty well. I just pulled out a calculator to see what $500/mo invested over 40 years would turn into at different rates of return. At 4%, it’s $590.981, at 6%, $995.745, at 8%, $1,745,504, and at 10%, 3,162,040. The higher return will give you 5X the money you’ll get at the lower return in this range. This implies that you can have a target, but must keep your eye on the goal and change as time passes. If you assume a low return and have a lucky couple decades (anyone remember the 80’s and 90’s?) you may have saved more than you needed, but to count on 10% and then have a lost decade, well, ouch.

Jason at Redeeming Riches offers up 5 Dumb Mistakes That Smart People Make. A nice mix of observations ranging from Keeping up with the Joneses to not taking advantage of the 401(k) match. The list contains mistakes that are easy to make, but at the same time, easy to avoid. Take a read and see how many you’re guilty of doing.

Len Penzo is Not Cutting Up his Credit Cards, and neither am I. Len offers both sides of the debate, a number of great reasons why you shouldn’t use credit cards and a number of reasons why you should. In the end, the decision is yours, of course. Are the cards making your life better (added protection, extended warrantees, rewards) or worse (You can’t pay in full and the interest is just adding up each month)? One of the best pro/con credit card articles I’ve seen in some time.

JSWesey wrote about the Side Effects of New Credit Card Law. I wrote on this myself a few weeks back in The Unintended Consequences of CARD and JSW’s post is confirmation to me that card issuers are doing what they can to extract every dollar out of the consumer. The new law just has their lawyers rewriting the agreements to get fees from people not paying interest, or raising rates from those that do.

And I’ll end this week’s best with the Fiscal Geek’s 10 Things Your Baby Doesn’t Need that Can Fund Their College Education. We do spoil out kids, and Paul is right, they don’t need a warmer for their baby wipes. And yes, my mother in law was right, my daughter didn’t ‘need’ a Bose Wave Radio when she was two. On the other hand, I had gift certificates to The Sharper Image and the life size Yoda would have just freaked her out.

Enjoy the week ahead,
Joe

• PF Bloggers' Weekly Roundup
• My Blog Reading This Week
• Credit Card due date redux
• Reading other PF bloggers
• Weekly Reading Roundup

• Mistakes to Avoid When Blogging For Business
• Use Low Interest Rate Credit Cards To Lower Your Debt
• Why I'm Skittish Around Automatic Billing: Dreamhost's Big Screwup
• Credits Cards Really Aren't So Bad (Re-Post)
• Sunday Money Roundup - Baseball Starts Again Edition.

written by JOE \\ tags: Finance, Frugal, Investing, Retirement, Savings