Nov 05

What do you do? Save money for an emergency, when rates on savings are now well below 1%, or pay off the debt, especially credit card debt which can be at or above 30% per year?

Two schools of thought, one vocal one suggesting it’s irresponsible to forgo an emergency fund, the other, telling us to kill that debt ASAP. One well known advocate in the “emergency fund camp” is Dave Ramsey. He advocates saving a $1000 emergency fund and not rely on your credit cards for an emergency. This may sound nice, but I’ll suggest you look at this a different way. When you owe money, the next dollar you’d put to another use is costing you the highest rate you pay. So if your credit cards range from 12% to 24%, and your payoff plan has 4 years to go, that $1,000 sitting in the emergency fund earning you nothing is really costing you nearly $2000 by the time the last $1000 is paid off. A cumulative 100% interest. (Get a calculator and multiply 1.18*1.18*1.18*1.18 for four years’ interest.) During this time of going after your debt with a vengeance, you should carefully monitor your available credit, and make sure you have enough credit to get you through a potential emergency. Every individual has a unique situation, so the exact cost or savings will be different for you. The goal is the same, to stop paying interest and start earning it.

written by Joe \\ tags: , , , , ,

Sep 20

There are times I sit back and am awestruck at how much there is to say about personal finance. I follow a few dozen PF bloggers, and week after week, they offer, as I try to, a new spin on every aspect of finance.

I’m also reminded I need to keep updating my popular List of Lists, as the new ones are pretty list-worthy. This week’s Ten Myths About Money That You Cannot Afford to Ignore offers a nice myth list including “You Can Time The Market” (uh, not really) and “Gold Is The Best Hedge Against Inflation” (not so, it barely kept up with inflation since 1933.) Two myths I question are “Living Costs Will Fall In Retirement” (I think it depends on the individual. Half my income goes to Mortgage/Retirement saving/College savings so I expect our expenses will drop on retiring as these expenses go away) and “The Reward Points On Your Credit Card Are Worth It” (I agree it’s a myth if you are paying interest and fees. Me, I’ve not paid a cent for either.) A great list by Hank at Own The Dollar.

Wise Breads post 9 Money Saving Reasons to Buy a Food Dehydrator may not make the List, but it does make me want to get my dehydrator out and dry some things. When I first bought it, a decade ago, I remember buying grapes on sale at the height of the season and making huge raisins that were delicious. I also turned cans of sliced pineapple slices into the best dried fruit ever. No sulphur, which gives some people a headache, and no preservatives.

As the father of a soon to be 11 year old, the concept of wants vs needs is a recurring theme, so Budgets are Sexy’s Wants vs. Needs: What’s the difference? was pretty timely for me. I need to have Jane 2.0 read it and perhaps prompt her to guest post her take on this.

Debt Hawk helps us plan ahead with 10 Ways To Prepare For A Layoff. You say your job is secure? Really? Is anyone’s? Read this post and heed the advice. Better that you should get a head start on this, getting re-employed even a week sooner and banking that severance. And if the layoff doesn’t come, you may still find the advice you pick up to land you a better position.

Next, Baker from Man vs Debt is now a staff writer at Get Rich Slowly. This week he offers 11 Ways to Spice Up Your Emergency Fund, in which he once again takes an old (even boring) topic and gives it a new spin, getting you thinking about how you can approach this from a different angle. As always, a pleasure reading my friend, Baker.

Mrs Micah asks (and answers) What Can and Can’t Your Credit Card (Company) Do? discussing the new laws the CARD act introduces, and how the credit card companies can’t gouge you quite so much as they used to. She also provides a further link to a slideshow which offers more detail on this new law.

Last, Kay Bell, author of Don’t Mess with Taxes alerted her readers that congress may implement a sugar tax in her post Soda tax support from doctors. I commented that I find such a tax, in fact any tax on food or necessary staples, to be regressive as the poor spend a higher portion of their income on these items.

My thanks to all my fellow bloggers for such an interesting week.

written by Joe \\ tags: , , , , , , , , , , , , ,

Aug 18

There was a time when people actually paid their mortgage off, burning the paperwork in celebration of that final payment. But the times seem to be changing. As recently as 1992, only 18% of Americans 65 to 74 had any mortgage remaining on their house, but by 2007, that number rose to 43%. There are many reasons why I’m not sporting a “mortgages are evil” bumper sticker. They are a necessary tool to buy a house which will typically cost 2-3X one’s annual income. If you buy a house by your early 30s, you’ll be through paying by your early 60s. That is, if when you move or refinance to a lower rate, you don’t continue to get new 30 year mortgages.
For some, the aggressive paying off of the mortgage, to the exclusion of nearly everything else, has them sleeping better. I think balance is important. Saving tax deferred in one’s retirement account, building an emergency fund, enjoying life. All these should come first. For myself, at 46, I have just over 7 years left on the mortgage, and 8 years before my 10 year old enters college. So, in theory, she graduates when I am 58, and I have the choice to retire or start a second career.
With the mortgage payment usually the highest chunk of one’s budget, I’d not want to get too close to retiring without knowing that payment is behind me.

written by Joe \\ tags: , , ,

Aug 09

First, Wise Bread has been keeping an updated list of Top 100+ Personal Financial Blogs. It’s now up to 241 and growing, and yours truly is currently number 71, sorted by Alexa Rank. One feauture I really like is the built-in list of last post for each blogger, so if I have a few minutes, I can find a quick interesting post without scanning a full RSS reader.

Time to offer a congrats to Mrs Micah who celebrated her second blogiversary this week. (Coincidently mine was Aug 4, but I’m not so blog sentimental. I had to look it up.) If you take a visit, check out the Archives, she’s done a great job of varying topics sometimes a bit more personal, sometimes on life matters that are about the heart, not money. I may be twice her age, but I still find I can both learn and be inspired when I read her posts.

Saving For Serenity guest hosted It’s Magic! Why Index Funds Come Out Above Average Every Time. Quite true. I learned this from a pamphlet written by Jack Bogle in the 80’s. It’s great to see new investors discover this fact and learn to beat the averages.

Written last month but I just discovered – Pay off Credit Cards VS Build Emergency Fund Savings Me VS Suze Orman by Matt Jabs. It’s great to see that Suze took enough interst to reply to Matt and clarify what his wife heard regarding this decision. An interesting read.

On My Life ROI is a post To Prepay Your Mortgage or Not? I don’t want to ruin the punchline, but let me just say, I agree with the author’s conclusion.

I am still offering answers to your questions at Moolanomy answers, stop by, have a beer, and ask. A number of financially savy people are ready to answer the tough ones. Please, no homework assignments, ok?

written by Joe \\ tags: , , , , ,

Aug 06

I’ve used the term Innumeracy here to describe the equivalent to numbers what illiteracy is to reading. However, I now seek a stronger word or phrase to describe the egregious claims I’ve run across. I’m leaning toward “numerical blasphemy,” but am open to suggestions.

A Money Merge Account agent sent me a link to a You Tube video titled Truth in Lending. The author wanted to illustrate the concept of “front-loaded” interest on a 30 year mortgage. I’ve never seen a post that started with that idea end in anything that made sense, this video was no different. The video itself was well done, nice animation and voice over, but the numbers soon fall apart. I’ll offer two screen shots that show this.


As this slide came up, it seemed innocent enough,unfortunately it ends incorrectly. When working with a financial calculator you need to be very specific. N is not the number of years but number of payments, in the video’s example, 360. PMT, the payment, can be positive or negative depending on the calculator. Excel looks for it to be negative, a classic TI BA-35 calculator, positive. PV is not the equity built, but the present value of the mortgage, starting at the borrowed amount, and of course, ending with a FV (future value) of zero. He then says Compute, but there are two variable missing, %i (the interest rate) as well as FV. So, while I have no idea what his intention was, he now suggest taking I (the interest rate, I suppose) and dividing by Y (years, but why?) to produce a number which is admittedly large but meaningless.


Here, you can see that he author suggests that somehow the interest rate over 15 years is over 24%. But, back to a calculator or spreadsheet, we can see that PV = $200K (original loan) i = .5% (monthly rate or 6%/12) N=360 months (30 years) FV = 0 (after 30 years it’s paid to zero. If we enter these numbers we can comput the missing variable, the payment, which is $1199.10. Then it’s simple to set N to 180 (year 15) and compute the new future value, $142,097.69, as he shows above. On the other hand, we can enter PV =$200K, i = .5%, PMT = $1199.10, N=180 and FV = $142,097.69, and ask to calculate the rate, which of course comes back as .005 or 6% per year. By the way, it’s easy to look at the interest column above and divide say, the 2021 interest into the prior year ending balance and see you get under 6%. A couple hundred video views and no one saw how silly this all was?

As far as front loading is concerned, there’s nothing diabolical in how mortgages are calculated, you owe interest on the principal outstanding at any given time. Since you owe far more in the early years, more of your payment is interest. On this example $200K mortgage, in the first month the interest is $1000, but the principal paid is only $199.10. Pay more if you wish, that’s your decision. But don’t fall for an abomination of bad math. What does this have to do with the Money Merge Account? Only that every time I see numbers abused this badly I’m reminded of my friends at UFirst and the MMA.


written by Joe \\ tags: , , , , , , , , , , , , , , , , , , , ,