The simple answer, I guess, is “because they can.” AT&T’s excuse is that they’re just covering their costs. But why not just charge more for the hardware?

Presumably they’re trying to stay ahead in a race to the bottom. Just like airlines who charge extra for checked bags, they want to keep their advertised prices as low as possible while still padding their bottom line.

Perhaps the most frustrating thing about these fees is that they typically apply to both new activations and upgrades. In other words, every time you go in for a new phone, you’ll get smacked with the fee.

Yes, I understand the economics. Wireless providers are eating part of the cost of the hardware to get you to sign up. That $200 iPhone you just bought? They probably lost around $400 when the moment they sold it to you.

But don’t feel too bad for them… That $400 investment gives them the right to charge you upwards of $100/month for the next 24 months. That $36 upgrade fee? Icing on the cake.

To be fair, AT&T isn’t alone in charging these fees.

Sprint also charges a $36 upgrade fee, and T-Mobile charges $18 for upgrades. Verizon, on the other hand, comes out on top. Yes, they charge $35 to activate a new line of service, but there’s no upgrade fee.

Unfortunately, these sorts of fees have become a part of the wireless landscape, and I suspect it’s only a matter of time until Verizon caves and starts applying their fee to both activations and upgrades.

While you can ask to have these fees waived — sometimes that works — you’ll also need to keep them in mind when comparison shopping between carriers.

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Apparently they had a system glitch of some sort that caused them not to credit interest earned on CDs in 2011 to some customers. There have apparently been a number of reports of this, and they are dealing with it on a case-by-case basis.

In other words, if you’re affected, it might not get fixed if you don’t spot the error and complain. For the record, I’ve double-checked our accounts and all is well.

Source: DepositAccounts via The Finance Buff

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As such articles sometimes (but not always) point out, stocks are not bonds, and they’re sure as heck not CDs or savings accounts. Stocks have an entirely different risk profile and, no matter how high their yield, they’re not a reasonable replacement for fixed income investments or cash equivalents.

Think about it… If you’ve been holding cash, there’s probably a good reason for it. And that reason is almost certainly not compatible with putting your money in the stock market.

Yes, high yield stocks can be good income producers, but they can also be very volatile. Don’t believe me? Check this out…

From it’s peak in the summer of 2007 to it’s low point in the spring of 2009, the S&P Dividend ETF (SDY) plummeted from $65.89 to $27.53 — a loss of 58.2% in less than two years. As of today, it’s back up to a bit over $55, which is still more than 15% below it’s peak.

Sure, it currently yields a little over 3.1%, and yes, some dividend stocks yield more or perform better than average (though others yield less and/or perform worse). Regardless… Yikes! Does that sound like a reasonable alternative for holding your cash?

Here’s my advice… If you need (or want) to hold a cash equivalent in your portfolio, then hold your nose and do so. There is no such thing as a free lunch. If you chase higher yields, you increase your risk.

Yes, inflation is a concern, and I’m not suggesting that you shun the stock market in favor of the alternatives. But don’t go putting money that you might need in the near term in the stock market simply because your savings account is paying a pittance.

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Schools are ranked on quality of undergraduate academics, costs to attend (including room and board), and financial aid availability. The key to ranking high is thus to provide a top notch education while keeping things affordable, either through low tuition or generous aid packages.

Here are the top ten public schools:

1. UNC Chapel Hill (Chapel Hill, NC)
2. University of Virginia (Charlottesville, VA)
3. New College of Florida (Sarasota, FL)
4. SUNY Binghamton (Binghamton, NY)
5. University of Wisconsin (Madison, WI)
6. College of William and Mary (Williamsburg, VA)
7. University of Florida (Gainesville, FL)
8. University of Georgia (Athens, GA)
9. University of Washington (Seattle, WA)
10. University of Texas at Austin

And here are the top ten private schools:

1. Williams College (Williamstown, MA)
2. Swarthmore College (Swarthmore, PA)
3. Princeton University (Princeton, NJ)
4. Harvard College (Cambridge, MA)
5. Rice University (Houston, TX)
6. Pomona College (Claremont, CA)
7. Washington University (St. Louis, MO)
8. Yale University (New Haven, CT)
9. California Institute of Technology (Pasadena, CA)
10. Hamilton College (Hamilton, NY)

Overall, they ranked the top 150 schools (75 public and 75 private) from an initial list of 650 institutions with a reputation for having excellent academics.

What do you think? Do you give lists like this much weight? There are certainly a number of excellent schools listed above, both public and private. Is your undergrad alma mater on the list? Mine isn’t… But I still turned out okay.

Source: Princeton Review

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When she told me they didn’t have renter’s insurance, my immediate followup question was, “Why in the world not?”

Renter’s insurance is very cheap, and provides quite a bit of protection for your personal property and peace of mind. She said that she didn’t know how affordable it could be, and had never tried to purchase it. She simply assumed that her family would not be able to afford it on their meager budget.

This is just one of several myths that continue to circulate about renter’s insurance. These myths keep far too many people from protecting themselves, their families, and their belongings with this important insurance coverage.

Here are five myths about renter’s insurance that continue to circulate, but are simply not true.

Renter’s insurance is too expensive

When compared to other types of insurance policies, renter’s insurance provides some of the lowest total premium costs for the highest level of protection. For example, depending on your circumstances, you may be able to buy $100k or more in renter’s insurance coverage for as little as $25 or less per month.

Simply put, there is no reason you should risk a huge loss when you could protect yourself for so little.

My landlord’s insurance covers me

Your landlord’s insurance does not cover your personal possessions. His insurance simply covers the building’s structure, and will allow him to rebuild should it be destroyed by fire or natural disaster.

There is no provision in the landlord’s insurance policy for the tenant’s personal property. You need to acquire your own renter’s insurance to ensure that you are adequately protected from perils and catastrophes.

I don’t own enough to need insurance

Many renters don’t own a lot of personal property, and thus feel that they can get away without insurance. The problem is that far too many renters undervalue their personal property. Most people have spent years collecting things such as electronics, furniture, clothing, and other items.

When was the last time you conducted a home inventory of all your personal property? If you were to add all of your possessions up, you might be surprised by how much you could lose. It could quickly add up to more than you’d be able to replace on your own.

I don’t need liability coverage

Renters are not typically covered by their landlord’s liability insurance. Thus, if someone gets hurt inside your apartment, you could be on the hook. You landlord’s policy typically only extends to the common areas that are shared by all tenants such as pools, playgrounds, and other communal areas.

Having renter’s insurance could provide you with at least a small amount of liability coverage should someone get hurt because of your negligence. You can also supplement your renter’s insurance with additional umbrella insurance if you need more liability coverage.

Now that I have it, all my stuff is covered

There are several categories of items that are either not covered by renter’s insurance, or are only covered up to a certain value. Your renter’s insurance most likely has a limit for losses related to artwork, cash, electronics, furs, jewelry, guns, stamps, and other collectibles.

For example, many renters’ insurance policies have a $2,500 limit for jewelry. So, in many cases, a nice engagement ring and wedding band could quickly eclipse that coverage limit. In most cases, however, you can purchase additional coverage in the form of a low cost rider.

What about you?

If you’re a renter, do you have a renter’s insurance policy?

Ultimately, skimping on this sort of coverage could turn out to be one of the biggest money mistakes of your life. But guess what? You wouldn’t be alone.

According to a study by Allstate, nearly two-thirds of all apartment and condo renters lack renter’s insurance. At the same time, data from the Bureau of Justice Statistics shows that renters are 50% more likely to be the victims of theft as compared to homeowners.

The bottom line is that renters need to protect themselves with renter’s insurance just as much as homeowners need a homeowner’s policy.

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“Own your investments and rent your fun.”

I’ve mused in the past about buying a vacation home, but the harsh reality is that such endeavors are rarely as wonderful as you’d expect.

Yes, it would be great to have a weekend getaway, but second homes can easily become a money pit. You need to furnish them. You need to heat and cool them. You need to pay property taxes on them. You “need” to buy a boat to tie to the dock. Etc., etc., etc.

Sure, you can offset a portion of the costs by renting your place out, but let’s be honest… The most attractive rental periods are when you’d most like to use it yourself. Plus, there are tons of headaches associated with being a landlord, even if it’s just part-time.

You also need to cut the grass, trim the shrubs, and otherwise maintain your weekend getaway. These things take time and/or money. And for what? So you can be saddled with an illiquid “investment” that will throw your portfolio out of whack, and will also likely underperform the alternatives?

Instead, I suggest that you do what we do. Rent your fun. Instead of “investing” in a lake house, spring for a week’s rental every once in awhile. Instead of “investing” in a condo at the beach, rent one over Spring Break. You get the idea.

Yes, these things sound expensive – and they can be – but if you consider the alternative, they don’t look so bad. You get the fun without the maintenance headaches, the extra mortgage payment, the extra insurance policy, the extra property tax bill, the extra… Everything.

Don’t get me wrong, I’m not writing this to encourage people to take vacations they can’t afford. Rather, I’m writing this to encourage people to consider their alternatives, and to avoid justifying an huge impulse buy that they’ll like regret as a “investment” in their future.

Instead, you need to develop a clear investment plan. Look at how much time you have until retirement (or whatever other goals you have), consider your ability and need to take risk, and so forth. Then put your plan into action.

If you want to invest in real estate, fine. But realize that it’s a business, and that buying a place at the lake on the expectation that it will appreciate like crazy isn’t the same thing. Not even close.

Own your investments and rent your fun.

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Citi has actually had a co-branded credit card in China since 2004, but those cardholders are technically customers of Shanghai Pudong Development Bank. Elsewhere in Asia, Citi has 16M credit card customers, but China…

Wow, what a huge market.

I haven’t seen any details regarding this card and, frankly, I know very little about the credit card market in China. I did, however, run across a 2009 article from the NY Times that talked about consumer debt problems in China due to banks “blindly” issuing credit cards. Sound familiar?

Apparently the number of credit cards issued in China tripled from less than 50M in 2006 to 142M in 2008, and a total of roughly 1.9B cards are believed to have been issued there since 1985.

Source: CNN/Money

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You want to express your inner most feelings for your sweetie in the gift you choose, but doing so may require you break the bank. And that could be counter-productive. Who wants a penniless pauper as his or her main squeeze?

For men especially, this month-two, day-14 Catch-22 delivers such a load of anxiety that they may not recover until just before Sweetest Day, when it explodes in their faces all over again. I’m betting if they’re like me, many men would prefer having the decision taken out of their hands by an authority better versed on the topic of giving meaningful gifts while respecting a budget.

Enter Vicky Oliver

Fortunately, just such an authority exists to help you.

In fact, regardless of your gender, you have an ally and invaluable aide in Vickie Oliver, author of “The Millionaire’s Handbook: How to Look and Act Like a Millionaire, Even if You’re Not!”

Oliver is out with her list of “Valentine’s Day Gift Ideas for the Frugalista,” and we’re assuming though frugalistas would seem to be women, men can partake of a few of her Valentine gifting ideas themselves.

Writes Oliver: “If you’re watching your money (and these days, who isn’t?), the good news is we live in an era when the grand gesture can be more meaningful than a present costing hundreds of dollars. With a little forethought, yours will convey just the right amount of love.”

One option, Oliver says, is to create a drink personalized to the distinct nature of your sweetheart. If he’s from Florida, include orange juice. If she’s red-haired, make sure ginger is one of the ingredients. Create a name for the drink, and a recipe card your honey can carry home to make the drink any time.

Another is to design an I.O.U. for something you know your significant other would love, and wrap it with a ribbon from another gift. It might be a “free home-cooked meal,” or “one free backrub.” Writes Oliver: “Whatever the promissory message, it should be for something that you know your love interest greatly enjoys, but doesn’t have the chance to experience nearly often enough.”

One idea of Oliver’s I particularly like is to create a CD of the songs your honeybunch likes, or that will remind you and that special person of memorable moments during your time together, whether it be a season or a lifetime.

“If you have been dating for over a year, the songs might hearken back to the night you met,” Oliver writes. “Or the CD might include the melody that played when you first kissed. Sweet dreams are made of this.”

For the über tightwad

Inspired by Vicky Oliver, I compiled my own short list of Valentine gifting ideas, perfect for folks who would make a frugalista look like a philanthropist by comparison. Let’s see if a few of them don’t appeal to the cheapskate in you. I emphasize these are my ideas. No one else would have the gall to claim them.

Weekend in Paris. There’s no place more indelibly linked with romance than the City of Light. But you don’t have to travel to France to rub shoulders with Parisians. There’s a Paris, Oregon, a Paris, Texas and a Paris, Illinois, as well as towns called Paris in Missouri, Kentucky, and Tennessee, to name a few.

Greyhound can take you to these towns or within short distances of them, but you don’t have to live that extravagantly. Simply hang out your thumb on any highway headed toward a Paris, and if luck is with you, you and your sugar pie should get there. Thumbing a ride worked wonders for Claudette Colbert and Clark Gable in “It Happened One Night,” one of filmdom’s great romantic flicks.

Dinner next to the fire. Nothing says “I love you” like romantic chit-chat and dinner next to a crackling fire. At the city dump, you’re likely to be able to find an old metal barrel. Fill it with combustibles and set them ablaze.

Look around and you may be able to spot an ancient, beaten-up couch, or maybe a discarded loveseat. Draw it up to the fire, sit down with your heart-throb and get going on some serious turtle-doving, while digging into the sack of chalupas you brought from the nearest Mexican takeout.

Romance of the rails. Long ago, train travel took on a kind of romance it’s never shed, even after being supplanted by air travel in most folks’ plans. Great American songs like “Chattanooga Choo Choo” and “Atchison Topeka and the Santa Fe” did much to cement this mystique.

So plan to make this the year you take your darling on a very romantic train ride. There’s no need to pop for a ticket, though. Rail yards in any major city are filled with boxcars, and one with open doors could be the portal to adventure and romance for the two of you.

Nod off to sleep after the train that includes your personal car starts rolling, there’s no telling where you and schnookums might wake up.

Why, it could be Paris, Ohio.

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It’s been awhile since I published my list of 36 ways to save money on groceries, and it appears that the landscape has begun to change.

According to the WSJ, stores have been increasing the prices on their private-label foods faster than the prices of the equivalent national brands. By the numbers, the prices on store brand non-perishables increased 5.3% last year vs. 1.9% for national brands. And for perishables, the numbers were 12% vs. 8%.

The driving force behind these price increases? Oddly enough, it appears that the recession is to blame. Stores apparently wised up to the fact that consumers were increasingly choosing store brands over national brands to save a buck, so they have started narrowing the price gap.

At the same time, they have worked to improve their packaging, expand their product lines, and do a better job of branding their own products in hopes of building customer loyalty. Gone are the days of the plain old black & white packaging.

To be fair, you can still save upwards of 29% using store brands, but the gap is shrinking. But that’s a broad average. There are actually instances in which the store brand is the most expensive product in the category.

For their part, name brand food companies have started offering more coupons and discounts in an attempt to win back customers — in essence, they’re engaged in price targeting, which allows them to sell the same items to different consumers at different prices.

The bottom line here is that you shouldn’t blindly pick the store brand over the national brand. Rather, if you want to get the best deals, you’ll need to pay close attention to the price-per-unit and shop accordingly.

Source: WSJ via Time

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Have you started thinking about doing your taxes yet? I haven’t. Rather, as I do every year, I’ve just been tossing all of our tax forms in a pile as they arrive, and I haven’t paid much attention to what’s here vs. what’s missing.

But now that we’ve moved into February, you should have everything you need to file your taxes, as most everything is supposed to be in your hands by January 31st.

Here’s a quick rundown of forms that you might be expecting:

• W-2 (for wages earned)
• 1099-DIV (for dividends received)
• 1099-INT (for interest earned)
• 1099-MISC (for miscellaneous income)
• 1099-B (for proceeds of broker transactions)
• 1099-C (for cancellation of debt)
• 1099-G (for government payments, including unemployment)
• 1099-OID (for certain investment income)
• 1099-R (for retirement distributions)

If your W-2 form is missing, you’ll need to check with your employer. If, on the other hand, you are missing a 1099 form, keep the following in mind:

For starters, a 1099-MISC is only required if you earned more than $600 from a given source over the course of the year. You might still get a 1099 even if you earned less than that amount, but if you don’t get one, don’t worry.

In contrast, 1099-INT and 1099-DIV forms are required for earnings in excess of $10. That being said, it’s quite possible that your bank or other financial institution has switched to electronic delivery, such that you need to login and download the forms.

You should also be aware that payments made to a corporation don’t require a 1099, regardless of the amount. Thus, if you’re self-employed and have incorporated your business, it’s quite possible that you won’t receive any 1099 forms related to your work.

Of course, you are still legally required to report all income whether or not you receive a 1099, so be careful… And if you do get a 1099, but don’t report the income, you’re just begging for an audit.

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Here’s an interesting thought experiment from Carl Richards over on the NY Times “Bucks” blog…

Imagine that your investment portfolio somehow got liquidated overnight, such that when you wake up your holding are 100% in cash. If you were give the opportunity to buy back into the market at no cost, would you re-create the same portfolio that you’re currently holding?

If so, great. But if not, then why aren’t you already making changes? Perhaps your portfolio is too risky, or maybe it’s not risky enough. If that’s the case, then you should be taking steps to correct your allocation.

Sure, there are costs associated with re-configuring your portfolio. But there are ways of minimizing these costs. And there are also potentially huge costs association with hold the wrong mix of investments.

I would argue that a big reason that people don’t make changes is inertia, and Richards agrees. It takes time and effort to evaluate your goals and determine whether or not your portfolio fits your needs. It’s far easier to ignore your portfolio than it is to re-evaluate it.

But just because it’s easier to maintain the status quo doesn’t mean that’s the right decision. Do yourself a favor and take some time to reconsider your options. Sure, you may find that you’ve already dialed in the perfect solution. Then again, maybe not.

Source: NY Times Bucks via MyMoneyBlog

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]]> http://www.fivecentnickel.com/2012/02/03/is-your-investment-allocation-right/feed/ 4 http://www.fivecentnickel.com/2012/02/02/chase-freedom-experimenting-with-quarterly-rewards-auto-enrollment/ http://www.fivecentnickel.com/2012/02/02/chase-freedom-experimenting-with-quarterly-rewards-auto-enrollment/#comments Thu, 02 Feb 2012 18:00:37 +0000 Nickel http://www.fivecentnickel.com/?p=25532

While flipping through the mail, I recently ran across a missive detailing a test of a new cash back feature for the Chase Freedom card.

As you’re likely aware, many credit cards (including this one) have adopted a rotating bonus category model, where you get 5% on purchases in certain categories for a limited time, and 1% on everything else.

In the past, you’ve had to re-enroll each and every quarter to get 5% cashback on the select categories. Annoying. But that’s (hopefully) changing…

Because I’m a “valued Chase Freedom cardmember,” I’ve been invited to participate in a test of a new auto-activation system. In short, I just have to sign up and agree to receive text reminders.

The text reminders (no more than one per month) sound fairly non-invasive; they simply remind you of the reward categories. In return, you’ll be auto-enrolled in the bonus categories each quarter for the remainder of 2012.

If you discontinue the text reminders (which you can do at anytime) you’ll also lose the auto-activation, so you can’t easily game the system.

If you’re interested, you can sign up at chase.com/freedomoffer — but hurry, you have to do so by February 10th to qualify.

Note: According to a reader (thanks Jonathan!), this is a targeted offer, so you may not be eligible. But if you’re interested, it can’t hurt to try signing up.

Don’t forget the $200 bonus…

And don’t forget… If you don’t already have the Chase Freedom card, you can get a $200 cash bonus by applying for one, getting approved, and spending $500 within the first three months. There’s no annual fee. Technically, you’ll get 20,000 points, but you can easily redeem these for a $200 check.

For what it’s worth, we’ve had this card for years and have never had any problems getting Chase to hold up their end of the bargain. You just login, request the check, and it shows up in your mailbox within a week or so.

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]]> http://www.fivecentnickel.com/2012/02/02/chase-freedom-experimenting-with-quarterly-rewards-auto-enrollment/feed/ 8 http://www.fivecentnickel.com/2012/02/02/income-based-repayment-plans-for-student-loans/ http://www.fivecentnickel.com/2012/02/02/income-based-repayment-plans-for-student-loans/#comments Thu, 02 Feb 2012 14:25:18 +0000 Lisa White http://www.fivecentnickel.com/?p=25542

No one can argue that college costs have become exorbitant. Even during the recent recession, schools continued increasing tuition. Student loan repayments are thus taking even longer to pay off, as college graduates are having trouble finding a decent job, or any job at all.

Amidst this gloom and doom, there is some positive news. President Obama seeks to accelerate changes to Income-Based Repayment, a student loan repayment program available for many federally-guaranteed student loans.

Geared for low-income families, the unemployed, and people with lower-paying, public service jobs in education or non-profit organizations, this program caps monthly payoff amounts at affordable levels relative to your income, family size, and the state in which you reside.

Currently, the IBR program forgives debt still owed after 25 years of consistent repayment, and caps payments at 15 percent of discretionary income. Under the President’s proposal, students who took out their first loan during or after 2008 and opened at least one additional loan during or after 2012 will see the cap drop to 10 percent and the forgiveness period reduced to 20 years.

This change would not only expand the number of people who are eligible for this program, but also make it even more useful to qualifying students. Is this a program that will benefit you? Here’s what you need to know.

Who is eligible for IBR?

This program is available to federal student loan borrowers in both the Direct and Guaranteed (FEEL) loan programs, and covers most student loans, with the exception of those made to parents.

This includes all Stafford, PLUS, and Consolidation Loans, but not ParentPLUS or Consolidation Loans containing Parent PLUS Loans. Private student loans don’t qualify for IBR. Bottom line: to qualify for a reduced payment, you must have enough debt relative to your income.

How are payment amounts determined under IBR?

This program uses a sliding scale to determine how much students can afford to pay. For example, if you have a family income of $40,000/year with four family members, you would pay 2.4% of your income towards student loans. That amount jumps to 8.9% if your household has only one family member.

If your income is $100,000/year and you have a family of four, you would pay 10% of your family income versus 12.5% if you were in a single-person household. Under this program, you are required to submit updated income documentation each year.

Obviously, the repayment amount will increase if your income rises.

What about interest under this program?

IBR typically extends the loan’s term, so be prepared to pay more interest than you would with a traditional 10-year payoff period. You should also be aware that, in some cases, the IBR payments may not cover the interest on your loans.

If this is the case, the government will pay interest on Subsidized Stafford Loans for your first three years in the IBR program. After this period, and for other loan types, interest is added to the total amount owed. Keep in mind that loan amounts still owed after 25 years of qualifying payments (or 20 years when the President’s IBR changes are implemented), are automatically forgiven.

What are IBR’s qualifying payments?

According to the Department of Education, payments that count toward IBR’s forgiveness period include payments made in the Income Contingent Repayment (ICR) plan before July 1, 2009; all payments made on or after July 1, 2009 in the IBR, ICR, and Standard 10-year Repayment plans; if your income is at or below 150% of the poverty level and you have calculated a payment of zero in IBR or ICR; and periods on or after July 1, 2009 if you have been granted an economic hardship deferment.

What are the advantages of IBR?

Not only will monthly payment amounts be less under IBR than under a 10-year standard repayment plan, but the government will pay your unpaid accrued interest on Subsidized Stafford Loans for up to three consecutive years from the date you began repaying your IBR loan.

In addition to having your loan forgiven after a period of time, if you work in public service, the IBR payments will count toward the required monthly payments for you to receive loan forgiveness through the Public Service Loan Forgiveness Program.

What are the disadvantages of IBR?

It’s important to note that you may pay more interest under this program, since it typically extends your repayment period. Also, you are required to submit annual documentation about your income and family size to qualify. If you don’t provide this, annual payment amounts will change to a 10-year standard repayment plan based on the amount you owed when you began repaying under IBR.

Your student loan servicer can provide additional information about IBR, including whether you qualify and how to apply.

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» What is Modified Adjusted Gross Income (MAGI)?
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]]> http://www.fivecentnickel.com/2012/02/02/income-based-repayment-plans-for-student-loans/feed/ 0 http://www.fivecentnickel.com/2012/02/01/will-the-irs-disallow-backdoor-roth-contributions/ http://www.fivecentnickel.com/2012/02/01/will-the-irs-disallow-backdoor-roth-contributions/#comments Wed, 01 Feb 2012 11:00:25 +0000 Nickel http://www.fivecentnickel.com/?p=25482

I’ve talked quite a bit about making “backdoor” Roth contributions if you’re over the income limits for contributing to a Roth IRA. In short, you can make a non-deductible contribution to a traditional and then immediately convert it into their Roth.

This strategy has become so popular that mainstream publications such as Forbes have started talking about it. But is it legal? That was the topic of a recent discussion over on the Bogleheads forum.

This discussion was prompted by an article by Michael Kitces, who is a financial planner extraordinaire and the Director of Research for the Pinnacle Advisory Group.

According to Kitces, while the individual steps of the backdoor Roth maneuver don’t run afoul of IRS regulations, these contributions could be disallowed under the step transaction doctrine.

The step transaction doctrine is a legal principle that essentially allows the IRS to look at the overall effect of a multi-step transaction and treat it as a single, integrated event.

In other words, rather than looking at the legality or tax treatment of individual steps, the IRS is free to look at the overall result of the transaction — i.e., that an individual over the contribution limits was able to make a Roth IRA contribution — and tax (or penalize) it accordingly.

So… The question is whether or not the IRS would balk at backdoor Roth contributions. I’m not particularly concerned about it, in part because the removal of income limits for converting funds to a Roth IRA appears to have been specifically intended to allow high income individuals to do just that, but…

It seems at least theoretically possible that the IRS could view this as an over-contribution, which comes with a recurring penalty of 6%/year (albeit with a 3 year statute of limitations), and these transactions could be messy to unwind.

At the same time, it’s worth noting that IRA expert Ed Slott weighed in on this issue last spring, arguing that the step transaction doctrine is a non-issue for backdoor Roth contributions.

My pal TFB has also tackled the subject. The short version is that he’s recharacterizing his recent conversions, and will re-convert at a later date to reduce the odds of his conversions being viewed through the lens of the step transaction doctrine.

What about you? If you’ve been making backdoor Roth contributions, are you concerned about running afoul of the IRS?

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» Traditional IRA vs. Roth IRA: What’s Your Preference?
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» Ratcheting up our Roth IRA Contributions

]]> http://www.fivecentnickel.com/2012/02/01/will-the-irs-disallow-backdoor-roth-contributions/feed/ 9 http://www.fivecentnickel.com/2012/01/31/four-hidden-dangers-of-leasing-a-car/ http://www.fivecentnickel.com/2012/01/31/four-hidden-dangers-of-leasing-a-car/#comments Tue, 31 Jan 2012 13:57:28 +0000 Hank Coleman http://www.fivecentnickel.com/?p=25472

For some people, there is an appeal to leasing a car vs. purchasing it outright. Leasing a car is one way for many would-be car owners to be able to finance a more expensive car with a lower monthly payment than they would have otherwise been able to afford.

This low monthly payment is not all it is cracked up to be, though. In fact, there are several hidden dangers when you lease a car that you do not typically find when making a purchase.

With the popularity of leasing on the rise and new commercials hitting the airwaves every week, it’s important to understand how these hidden expenses can wind up costing you more money in the long run than if you had simply purchased the car.

Here are four of the biggest hidden dangers that people face when leasing a car instead of buying a new car.

Lack of equity

While most financial experts are quick to point out that your new car loses value as soon as you drive it off the lot, they also often fail to mention that you will eventually have some sort of equity in the car.

When you finish making payments on your car loan — if you are a buyer — there is still a residual value to your paid off car. This is the value that you can sell the car for in the end. Granted, your car’s value may just be a fraction of what you paid for it initially, but it still has some value.

If you had leased the car instead, that wouldn’t be the case. When you lease a car, you agree to return the car at a predetermined point in time, typically three years after signing the lease. At the end of your agreement, you simply return your car and are left with nothing but memories.

Also can be the risk that if you wreck the car or have it stolen, your auto insurance will only cover the market value – which may be less than you owe on your lease.

Mileage limits

When you lease a car, you are typically limited to driving between 10,000 and 12,000 miles/year. If you want the best deal on a new car lease, you may find yourself stuck at the low end, with a 10,000 mile annual limit.

Many lease agreements charge 18 cents per mile or more when you go over your limit. So, for example, if you drove 15,000 miles each year during a three year lease that only provided you with 10,000 miles annually, you could be looking at an extra $2,700 in charges when you your leased vehicle to the car dealership at the end of your agreement.

Damage fees

A car lease requires that you return your car in good shape, and dealerships can vary in terms of what they consider to be satisfactory condition. What you may view as simple dings and chips from normal wear and tear may be unacceptable to the dealership when you return your car.

One friend of mine found himself penalized thousands of dollars for damage thanks to stains on the carpets of his car from coffee spills. ProTip: You may be able to take your car to the dealership for a pre-inspection before returning it, thereby allowing you to fix/clean it up before being charged.

Lots of legalese

Both leasing and buying a car can both be tricky, and car dealerships don’t make things easier on their customers with all their legalese.

You’re bound to hear terms such as money factor, residual value, capitalized cost reduction, and capitalized cost when you look at leasing a car. One of the most important figures to focus on is the money factor, which is essentially the interest rate on your lease.

You have to multiply the money factor by 2,400 in order to find the annual interest rate that the dealership is charging you. For example, with a 0.002 money factor, the interest rate is 4.8%.

Closing thoughts

Leasing a car is starting to make a big comeback in mainstream America as more consumers are looking for new cars while trying to minimize their monthly payments. According to the Automotive Lease Guide (ALG), which tracks industry leasing trends and residual values of cars, the popularity of leasing is expected to continue to increase over the next four years.

ALG estimates that leasing will grow to over 17% of the mainstream car purchasing market by the end of the year, with 43% of all luxury cars being leased. Leasing a car may be a viable option for many consumers, but you need to go into the transaction with an understanding of all the requirements, potential fees, and hidden dangers that lie ahead.

Have you ever leased a car? If so, did you run into any unwelcome surprises?

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]]> http://www.fivecentnickel.com/2012/01/31/four-hidden-dangers-of-leasing-a-car/feed/ 15 http://www.fivecentnickel.com/2012/01/30/how-to-save-money-on-airfare-plane-tickets/ http://www.fivecentnickel.com/2012/01/30/how-to-save-money-on-airfare-plane-tickets/#comments Mon, 30 Jan 2012 16:01:19 +0000 Nickel http://www.fivecentnickel.com/?p=25222

Are you looking forward to a nice Spring Break vacation? Or maybe a summer trip to visit family? If so, and if you’re planning on flying, then read on…

According to a study by Airlines Reporting Corp., which is company involved in ticket transactions between airlines and travel agents, the best time to buy a plane ticket is six weeks before your intended travel date.

This study, which was based on millions of transactions over the past four years, found that passengers buying tickets six weeks in advance paid roughly 6% less than the overall average fare.

The study also showed that ticket prices can rise dramatically about a week before the departure date, and can be as much as 40% higher if you try to buy the same day you travel.

This isn’t to say that you’ll always get the best deal by booking six weeks in advance but, all else being equal, that’s when you’re most likely to score the lowest price.

As an aside, a colleague once raved to me about the Bing travel predictor, which tells you whether you should by now or wait (along with a percent confidence indicator) based on whether they expect fares to rise or drop.

While this sounds great in theory, my experience has been that the predictions aren’t particularly accurate, even when their confidence is high.

As I’ve noted in the past, another good trick for saving money when you travel is to consider alternative airports. This won’t work for everyone, but some airports are consistently more expensive than others.

Source: LA Times via The Consumerist

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]]> http://www.fivecentnickel.com/2012/01/30/how-to-save-money-on-airfare-plane-tickets/feed/ 5 http://www.fivecentnickel.com/2012/01/27/does-the-irs-accept-scanned-electronic-documents/ http://www.fivecentnickel.com/2012/01/27/does-the-irs-accept-scanned-electronic-documents/#comments Fri, 27 Jan 2012 15:46:36 +0000 Nickel http://www.fivecentnickel.com/?p=25212

I’ve spent a good bit of time digitizing paperwork over the past couple of years. My primary weapon in this battle has been a sheet-fed scanner, though I sometimes snap pics with my iPhone and turn them into “scanned” pdfs using JotNot.

While it feels to good to be working toward a paperless financial world, however, the issue of whether or not these scanned documents would be acceptable has always bothered me. Having a store refuse a return because I didn’t have the original receipt would be annoying; having the IRS reject my documents could be a disaster.

So… Does the IRS actually accept scanned documents?

As it turns out, yes… They’ve actually accepted electronic documentation since at least 1997, when they issued IRS Revenue Procedure 97-22, which states:

This revenue procedure provides guidance to taxpayers that maintain books and records by using an electronic storage system that either images their hardcopy (paper) books and records, or transfers their computerized books and records, to an electronic storage media, such as an optical disk. Records maintained in an electronic storage system that complies with the requirements of this revenue procedure will constitute records within the meaning of § 6001 of the Internal Revenue Code.

Section 6001 of the IRC essentially requires you to keep and make available sufficient records to show whether or not you’re liable for taxes. It further states that such records must be retained “so long as the contents thereof may become material in the administration of any internal revenue law.”

The general requirements of the “electronic storage system” referenced in the quote above are that it:

…must ensure an accurate and complete transfer of the hardcopy or computerized books and records to an electronic storage media. The electronic storage system must also index, store, preserve, retrieve, and reproduce the electronically stored books and records.

There are some additional requirements, but the essence is that you can digitize your documents as long as they’re clearly legible (both on-screen and in hard copy) and easily retrievable. Just be sure to keep your data safe. In our case, we maintain both local and online backups of our data, so our digital documents are probably safer than hard copies.

And don’t forget to secure your files to protect them from prying eyes. The last thing you need is for your cache of sensitive data to fall into the wrong hands.

Of course, I’m not a tax pro, so I suggest that you check out the details and decide for yourself. The relevant guidelines can be found in this document from the IRS. The pertinent section (Rev. Proc. 97-22) starts on page nine.

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]]> http://www.fivecentnickel.com/2012/01/27/does-the-irs-accept-scanned-electronic-documents/feed/ 9 http://www.fivecentnickel.com/2012/01/26/e-filing-saves-the-irs-3-10return/ http://www.fivecentnickel.com/2012/01/26/e-filing-saves-the-irs-3-10return/#comments Thu, 26 Jan 2012 19:32:10 +0000 Nickel http://www.fivecentnickel.com/?p=25202

As January winds down, you should have received most of the paperwork that you’ll need to file your taxes. If you’re like most FCN readers — and most Americans in general — you’ll be e-filing this year.

Sure, e-filing is convenient. But guess what? It’s also much cheaper for the IRS to process your return if you file electronically. As it turns out, it costs the IRS $3.29 to process a paper return vs. $0.19 for an electronic return — a savings of $3.10 (or nearly 95%!) per e-filer.

Looking back at last tax season, more than 100M individual federal tax returns were e-filed. Thus, the e-filing program saved well over $300M last year alone — not to mention an awful lot of paper waste.

Source: GAO via Don’t Mess With Taxes

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]]> http://www.fivecentnickel.com/2012/01/26/e-filing-saves-the-irs-3-10return/feed/ 9 http://www.fivecentnickel.com/2012/01/26/home-economics/ http://www.fivecentnickel.com/2012/01/26/home-economics/#comments Thu, 26 Jan 2012 11:00:35 +0000 Jeffrey Steele http://www.fivecentnickel.com/?p=25192

I have long contended that, at its most fundamental level, keeping a household’s finances in the black has much in common with operating a profitable business. In both cases, you have to try to generate the greatest revenues, while at the same time keeping expenses in check. It’s not rocket science or brain surgery. In both worlds, success boils down to making – and keeping – more money than you spend.

These thoughts were percolating in my mind last fall, when I covered one of the printing industry’s largest conventions, the Graph Expo Show at Chicago’s McCormick Place. The show is both a showcase for printer manufacturers and suppliers, and an opportunity for printing companies large and small to learn about the latest technology.

On day one, I sat down to take notes at a presentation billed as “Heidelberg Presents the State of the Industry with Andy Paparozzi.” As vice-president and chief economist for the National Association for Printing Leadership, Paparozzi had been called on by printer maker Heidelberg to offer attendees an hour of well-chosen economic illumination.

If you ever get a chance to witness a talk by Andy, don’t miss it. Knute Rockne could have taken lessons from Paparozzi in exhorting listeners to greater glory. As impressed as I was by Andy’s gifts at a microphone, however, I was even more taken by the universal nature of his insights.

While Andy’s talk was geared to an audience of printing company honchos, it could just as well have fit virtually any other industry. Beyond that, almost every lesson he imparted to business held some parallel for those trying to hold household budgets together.

Let’s take a look at a few of Andy’s key points, and see how effectively they translate to the American household of Joe and Jane Sixpack and their 2-1/2 precocious youngsters.

Managing uncertainty

Paparozzi started by noting that as he talked to printing industry professionals, he sensed an aura of uncertainty from each. They didn’t know what to expect next.

“I’ve never seen that in my 28 years in this great industry,” he said. “Recovery has been maddeningly slow, irritatingly sporadic and uneven. But recovery is nonetheless occurring. This recovery is not what we want it to be, but what we make it. That requires making smart investments, managing uncertainty, and learning from the last recession.”

Translation: We’re not happy with the bounce-back from the economic abyss of 2008, but why waste time and effort complaining about it? We can still exert some control over how we recover, and that in itself is energizing. We’re not helpless pawns in the recovery, but masters of our own ship. We can put extra time and consideration into what we spend, and manage uncertainty by husbanding our household savings and avoiding risky purchases. We can also avoid mistakes made last time, which for many centered on assuming good times would last.

“Nothing is more important to the future than getting capital investments correct,” Andy went on. “We can’t pass inefficiencies on to our clients. The industry’s too competitive.”

Translation: One of the “capital investments” any family can make is in education and training. Being good is no longer good enough in the workforce of 2011. A struggling economy may be the best time to invest in training, because as the economy improves, it stands to make us more marketable in an ever more competitive employment landscape.

“We must stay lean,” was Andy’s next message. “Recovery no longer provides a margin for error. And you can’t let being busy be an opportunity for not getting better. We’re getting better or falling behind. Retain multi-taskers and release those who can’t or won’t multi-task. And set up a cost-watch task force on the production floor.”

Translation: Let’s excise the fat from our household budgets, while also seeking an opportunity in our spare time to improve our financial circumstances. Let’s look at landing a second, part-time job, selling some unneeded camping equipment, clipping coupons or taking in a boarder. Let’s find a way to convert some of our relaxation time into productive use, and while we’re at it, set up a reward program for the kids when they identify places to cut costs.

“If we learn, we win,” Andy next exhorted his listeners. “If we don’t, the Recession wins. If you aren’t doing things differently, you’re not in business. You can lose it all quite easily if you aren’t prepared to change your business model. We can do more with less. We have to keep our costs light, even in the good times.”

Translation: There’s nothing like tough times to force agonizing appraisals on any household. This is probably one of those times for re-examining. Can we find a lower-cost place to buy groceries? A more cost-effective phone plan? Can we trade in our car on a more fuel-efficient model? Can we scan the Internet for Deal-of-the-Day offers? We can do more with less. We have to keep our costs light, even in the good times.

“Create a ‘Recovery Manifesto,’” Andy urged in conclusion. “Improve continuously. Challenge your own success. Never use being busy as an excuse for not improving. Be adaptable and flexible, because those who are get stronger.”

Translation: You may be tired of the slow recovery, but that’s no reason not to embrace principles that make businesses successful, in printing or any industry.

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]]> http://www.fivecentnickel.com/2012/01/26/home-economics/feed/ 0 http://www.fivecentnickel.com/2012/01/25/high-deductible-health-plans-and-major-medical-bills/ http://www.fivecentnickel.com/2012/01/25/high-deductible-health-plans-and-major-medical-bills/#comments Wed, 25 Jan 2012 16:06:51 +0000 Nickel http://www.fivecentnickel.com/?p=25182

I spent yesterday at the hospital. Don’t worry, it sounds a lot worse than it was… Our oldest son had to have his tonsils and adenoids removed, so my wife and I were camped out in the outpatient surgical center for the better part of the day.

In the end, everything went smoothly, and he’s on the road to recovery. But this isn’t a parenting or medical website. This is a financial website. Thus, I thought I’d talk a bit about the financial side of such things.

As you know, we’ve been participating in my employer’s high deductible health plan for the past couple of years. In other words, we’ll be facing a whopping bill once the dust settles. Actually, it will be multiple whopping bills… The hospital, the doctor, and the anesthesiologist all bill separately. And then there will likely be some lab tests, etc.

The good news is that we’re protected on the upside by our $3,000 deductible. The bad news is that, since it’s January, we’ve paid almost nothing toward it thus far, so we’ll be paying that out-of-pocket. In our case, that really just accelerates the inevitable. With four kids in the house, we usually hit our deductible bill mid-year whether or not we have a major medical procedure.

But still, a $3k medical bill to start the year is something that could really set a lot of people back. Fortunately, we have short term cash in the bank, and we also having a well-funded health savings account (HSA) in case we need it.

Truth be told, we’re planning on continuing to use our HSA as a tax-advantaged investment account, so we’ll be paying for this from other sources. But if we weren’t, we could always fall back on that HSA.

As I’ve noted in the past, the lower premiums of our particular health plan more than make up for the higher deductible. But if we hadn’t been planning ahead, a relatively major medical procedure could’ve created a short-term cash crunch. If you’re considering a high deductible health plan, just be sure that you’re aware of, and prepared for the worst case scenario.

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]]> http://www.fivecentnickel.com/2012/01/25/high-deductible-health-plans-and-major-medical-bills/feed/ 17 http://www.fivecentnickel.com/2012/01/24/should-you-buy-travel-insurance/ http://www.fivecentnickel.com/2012/01/24/should-you-buy-travel-insurance/#comments Tue, 24 Jan 2012 11:00:12 +0000 Ed Avis http://www.fivecentnickel.com/?p=25162

If you’ve booked a vacation for your family lately, or sent your kid off on a school-sponsored field trip, you’ve probably considered trip-cancellation insurance. These offers generally promise to reimburse you for the vacation or field trip if you need to cancel. Are these plans worth the cost? It depends on your own personal risk calculation.

What does it cover?

Trip cancellation insurance comes in several flavors. Basic coverage reimburses you if you can’t make your trip because of certain reasons, such as if you get sick, a hurricane rakes the island you were going to visit, or terrorists attack your hotel. The insurance covers non-refundable expenses, so if the tour operator cancels your tour and they refund your fee, for example, the insurance does not pay.

The basic coverage also generally provides benefits if your trip is delayed or interrupted. It also pays for lost or delayed baggage, some medical benefits if you’re injured during your vacation, and emergency evacuation if something horrible happens during your vacay.

You can add to the basics. For example, for an extra fee you can add “cancel-for-any-reason” coverage, which reimburses you for at least part of the non-refundable portion of your trip if you cancel for any reason not covered by the usual terms. Other common upgrades are rental car insurance and accidental death insurance at higher amounts than the basic package offers.

Needless to say, read the terms carefully before you buy so you fully understand what is covered.

What does it cost?

How much does all of this cost? Prices vary, of course. In a comparison of four leading providers, basic coverage for a family of four on a $4,000, week-long, domestic vacation ranged from $82 for a policy from Travel Insured to $275 for a policy form HTH Worldwide.

Those two plans differed mostly in the amount of coverage. For example, the HTH plan included $500,000 in health coverage, while the Travel Insured plan offered $10,000; and the HTH plan offered $1 million emergency medical evacuation coverage, while the Travel Insured plan provided $100,000 coverage for that service.

In addition to the two firms mentioned above, popular trip cancellation insurance firms include American Express, Travelguard, and Access America. Insuremytrip.com is a site that allows users to compare rates from about 20 providers.

Furthermore, many trip providers, such as school field trip organizers, offer their own policies. As do some credit cards — be sure to see if your card provides this coverage before spending money on a separate policy.

But do you need it?

This all sounds good, but you should evaluate this kind of insurance the same way you would evaluate any kind of insurance. Rather than thinking, “Wow, I’d love to get reimbursed for our vacation if my kid gets the flu the night before,” think, “Hmmm, what are the odds my kid is going to get the flu the night before our vacation?”

Use the $4,000 family vacation above as an example. Let’s say you’re considering a plan that costs $200 and will reimburse you for the full $4,000 if someone in the family gets sick and you have to cancel. Forget about the rest of the coverage — emergency medical evacuation, health insurance, death benefits, etc. — for the moment and focus on the real reason you might get this insurance: to refund your purchase price.

If you buy this policy, you are essentially gambling $200 against a potential pay-out of $4,000. What are the odds that you will “win” this gamble? You’ll win if one of you gets sick or a big storm hits the vacation site or whatever. So what are the odds of that? One way to calculate those odds for your family is to look at history: How many vacations have you had to cancel in the past few years? If you have taken ten vacations over the past five years, and cancelled one of them because of a covered reason, you could assume that the odds of you having to cancel your current, $4,000 vacation are one in ten.

So think about it: If your neighborhood bookie put $4,000 on your kitchen table and said you could have it if you drew the right card out of a stack of ten, would you pay him $200 for that one draw? Probably not, unless you’re really into taking risks.

But here’s another way to think about it: If you bought the insurance every time, you would come out even if you were able to collect on the insurance once for every 20 trips. Now it doesn’t sound that risky, especially if you travel a lot.

Obviously, many factors play into your personal risk calculation — maybe you are not traveling with any accident-prone children or maybe you know the tourist destination you are headed to frequently has hurricanes (hmm, maybe you want to rethink this vacation!). The point is, whatever the circumstances, make a rough guess of your odds of using the insurance before you plunk down the money.

Insurance companies do this with highly trained actuaries using sophisticated algorithms and databases full of historical information, but you can make an educated guess without any of that.

That way, whether you get the insurance or not, you will rest easy knowing that you made an informed decision.

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» From the Archives (August 26th – September 1st)

]]> http://www.fivecentnickel.com/2012/01/24/should-you-buy-travel-insurance/feed/ 6 http://www.fivecentnickel.com/2012/01/23/thoughts-on-kids-and-gift-cards/ http://www.fivecentnickel.com/2012/01/23/thoughts-on-kids-and-gift-cards/#comments Mon, 23 Jan 2012 11:00:34 +0000 Nickel http://www.fivecentnickel.com/?p=25122

Ahhh, gift cards. The gift we all love to hate. Sure, they’re convenient (for the giver) and they seem (again, to the giver) like they’re more thoughtful than cash, but they’re not all they’re cracked up to be.

Don’t get me wrong, I’m always thankful when I receive a gift, and I do recognize the ease of grabbing a gift card when I need to buy a gift on short order, but I still have mixed feelings when it comes to gift cards.

Over the weekend, our (now) ten year old son had a birthday party, and he made out like a bandit. He got a number of great gifts, as well as some cash and several gift cards. He was thrilled, but those gift cards often cause headaches.

They frequently require an extra trip to a store we rarely visit, and they often require a bit of extra spending to spend them out in a single visit. And don’t forget about the risk of losing them while hauling them around waiting for a chance to spend them.

To combat these problems, we’ve developed a system for helping our kids make the most of any gift cards they receive. For cards from mainstream retailers like Wal-Mart, Target, or Amazon, we usually make them a deal… They give us the card, which we’ll use while going about our daily business, and we give them cash.

In this way, the cards get used in a timely fashion, the risk of loss is reduced, and our kids get flexibility to make use of the gift however they want. Sure, one could argue that we’re subverting the giver’s wishes, but I’m more interested in making sure that the gift gets used.

Of course, this doesn’t really apply to cards from places like GameStop, where we rarely shop on our own. But when it comes to places we shop on a regular basis, this works out quite well.

Oh, and for the record, if we don’t have time to shop for a proper gift when our kids are invited to a birthday party, we’ll often secure a bunch of dollar coins inside the birthday card rather than giving a gift card. This is a much more flexible gift, and it’s unique enough that it makes an impression on the recipient.

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» Cash in Your Gift Cards
» The Economics of Gift Giving
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» Buying and Selling Gift Cards
» Beware the Siren Song of Gift Cards

]]> http://www.fivecentnickel.com/2012/01/23/thoughts-on-kids-and-gift-cards/feed/ 5 http://www.fivecentnickel.com/2012/01/20/thoughts-on-kodak-bankruptcy-and-investing/ http://www.fivecentnickel.com/2012/01/20/thoughts-on-kodak-bankruptcy-and-investing/#comments Fri, 20 Jan 2012 11:00:28 +0000 Nickel http://www.fivecentnickel.com/?p=25052

Over the past couple of weeks, there have been rumors swirling about Eastman Kodak’s financial (in)solvency. And then it happened. They filed for Chapter 11 bankruptcy protection yesterday. Not surprisingly, their stock dropped 35%. But really, that’s just the tip of the iceberg.

Kodak actually traded at an all-time high of just under $93/share in February 1997. And now? It closed last night at $0.36/share. That’s a stunning decline of 99.99% over the past 14 years. Yikes!

As of right now, they owe a total of $6.75B (yes, billion) to more than 100k creditors. At the same time, they have around $5.1B in assets. Thus, even if they liquidated everything, they’d still be in a $1.75B hole. Not good. Not good at all.

And guess what? Back when we first started getting interested in our finances, we almost invested in Kodak. This was back in the mid-90s, and their stock (like many others) had been on a tear. They were also seemingly well-positioned to take advantage of the transition to digital photography. What could go wrong?

Well… They wound up struggling to make the digital transition and their business suffered.

This was before we had discovered the wonders of broad-based index funds — and before we had enough money for the then-steep investment minimums in most mutual funds. Thus, we were busy filtering through blue chip companies in search of dividend reinvestment plans (DRIPs) that would allow us to directly invest our hard-earned dollars.

We were enamored with such household names as 3M (MMM), Campbell’s Soup (CPB), Coca-Cola (K), Intel (INTC), Merck (MRK), Procter and Gamble (PG), and yes, Eastman Kodak (EK). Over the years, some of these have performed reasonably well and others haven’t. But none have imploded like Kodak.

Truth be told, our DRIP investing phase didn’t last very long. We soon discovered the wonders of indexing, and built up enough cash to get over the minimum investment barrier. We ultimately liquidated our individual stock positions and haven’t looked back since.

If nothing else, our near miss with Kodak should be taken as a cautionary tale about diversification. At the time, we were only holding five or six companies — in part due to a lack of capital — so taking a major hit on any one company would have really hurt.

Of course, it’s not like they lost that 99.99% overnight, but still… I certainly sleep better at night knowing that we own literally thousands of companies. Yes, we still have market risk, but there’s little in the way of company-specific risk.

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]]> http://www.fivecentnickel.com/2012/01/20/thoughts-on-kodak-bankruptcy-and-investing/feed/ 7 http://www.fivecentnickel.com/2012/01/19/make-the-most-of-your-pay-raise/ http://www.fivecentnickel.com/2012/01/19/make-the-most-of-your-pay-raise/#comments Thu, 19 Jan 2012 22:58:29 +0000 Hank Coleman http://www.fivecentnickel.com/?p=25042

Despite high unemployment and lingering financial turmoil from the recent recession, American workers continue to earn pay raises each year. According to the Bureau of Labor Statistics, the typical worker earned an average pay raise of 1.9% last year, and they are on tap to earn a similar raise in 2012.

These annual pay raises will help wages keep up with inflation. While a 2% to 3% raise may not seem like a lot of money at first glance, it can equal $1,000 or more per year for a family earning $50,000. But the real question remains, what should you do with your new pay raise after you earn it?

If you do not take an active role in putting the money to good use, then you are more inclined to simply find it disappearing into your monthly budget before you can even realize the money is gone. Below are five ways to help you put your new pay raise to good use.

Pay off high interest debt

Using a new pay praise to pay off high interest debt is typically a wise move. Having credit cards that charge you 18% or more in annual interest can quickly start to add up. Paying off credit cards with a high interest rate with a pay raise is like earning the same amount from an investment.

If you were paying 18% each year in interest on a credit card and paid off that card with your new pay raise, it is just like having earned 18% annual rate of return on your money. While the stock market zigzags like a roller coaster, paying off your high interest debt can be as sure a return as possible.

Build up your emergency fund

One thing that I personally struggle with is having a fully funded emergency fund in place. Most financial experts recommend that you have three to six months of living expenses set aside in an emergency fund. What many people do not often realize is that six months of expenses is actually quite a large amount of money in many cases. It can quickly equal $10k-$20k for some families. Living on your previous income and saving your new pay raise is a great way to help boost your emergency fund if have not quite reached your goal of six months of living expenses.

Boost your retirement savings

Using your pay raise to build up your retirement savings can be a great plan. You have until April 15^th of each year to finish contributing to an IRA. If you receive a year-end bonus or a pay raise at the beginning of the year, you can put that money to good use by finishing up maximizing your retirement account contributions.

A pay raise is also a great way to build up to maximizing your 401(k) retirement plan contributions. In 2012, you can contribute up to $17,000 to your 401(k). That is a lot of money, especially if you are just starting out in your career. But, you can incrementally increase your 401(k) contributions each year until you reach your maximum contribution level. If your small increase is timed with your new pay raise you won’t even notice the difference.

Double check your insurance coverages

Do you have enough insurance coverage? Far too many people find themselves underinsured in many aspects of their lives. Do you have umbrella insurance to protect yourself from being sued? Do you have flood insurance on your house? According to FEMA, over 30% of all home damage from flooding occurred on homes that are not in a federally designated flood zone. Purchasing flood insurance if you live outside of a flood plain is very inexpensive. Spending money now on the proper insurance coverages can help you save on insurance in the long run.

Splurge on yourself a little

I am not talking about spending your entire pay raise by purchasing things for yourself. But, you did earn the money, and you should enjoy it. Many financial experts recommend taking a small portion, such as 10%, of your raise or any year-end bonus you earn and spending it on something for yourself. Doing so will help you stick to your other plans for the rest of the money. This is similar to having a cheat day on a diet. If you are too strict with yourself and how you spend your money, you will be more inclined to fall off the wagon and be resentful to your new financial goals.

Are you one of the lucky ones that will receive a pay raise this year? What will you do with your new pay raise? Will you just absorb it into your monthly budget, or will you use it to increase your financial wellbeing? Living on your previous year’s income and using your new pay raise to accomplish your financial goals is a great use of the new money. What do you like to do with a pay raise?

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]]> http://www.fivecentnickel.com/2012/01/19/make-the-most-of-your-pay-raise/feed/ 6 http://www.fivecentnickel.com/2012/01/18/401k-403b-and-457b-contribution-limits-for-2012/ http://www.fivecentnickel.com/2012/01/18/401k-403b-and-457b-contribution-limits-for-2012/#comments Wed, 18 Jan 2012 18:00:36 +0000 Nickel http://www.fivecentnickel.com/?p=24972

Do you have a workplace retirement plan such as a 401(k), 403(b), or 457(b)? If so, then you might be interested in knowing that the contribution limits for these account types has increased for 2012.

This means that individuals under age 50 can contribute up to $17,000 to their 401(k) account this year, up from last year’s limit of $16,500. And if you’re over age 50, you can contribute an extra $5,500 toward your retirement this year.

Beyond the above, the aggregate limit (employer + employee contributions), which is specified by Section 415(c)(1)(a) of the Internal Revenue Code, has increased to $50k/year. This is the so-called 415(c) limit and, while it doesn’t affect many of you, it does have an impact on some people (especially if you’re self-employed and have a high incomes).

Note that 403(b) and 457(b) plans, as well as the Thrift Savings plan, are subject to the same contribution limits, so those of you in the non-profit, educational, and public sectors will likewise be able to save a bit more this year.

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Related Articles at fivecentnickel.com:

» 401(k), 403(b), and 457(b) Contribution Limits for 2011
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» 401(k), 403(b), and 457(b) Contribution Limits for 2009
» 401(k), 403(b), and 457(b) Contribution Limits for 2010
» Open Enrollment Time
» Roth IRA Income Limits for 2007
» Roth IRA Income Limits for 2012

]]> http://www.fivecentnickel.com/2012/01/18/401k-403b-and-457b-contribution-limits-for-2012/feed/ 0 http://www.fivecentnickel.com/2012/01/18/contribute-to-your-roth-ira-even-if-it-stretches-your-budget/ http://www.fivecentnickel.com/2012/01/18/contribute-to-your-roth-ira-even-if-it-stretches-your-budget/#comments Wed, 18 Jan 2012 13:41:40 +0000 Nickel http://www.fivecentnickel.com/?p=24962

Your 2011 taxes are due in just under three months. That also means that you have just under three months left to make any 2011 IRA contributions that you might have been putting off.

But what if you’re neglected to contribute to an IRA because you’re not sure you can afford it? Maybe the only cash you have on hand is earmarked for emergencies, and you’re not willing to risk the 10% early withdrawal penalty that comes with a traditional IRA.

Well, I’d like to encourage you to think twice about that stance and consider making a Roth IRA contribution. As I noted the other day, Roth IRA contributions can be withdrawn at any time and for any reason without penalty. And if you don’t believe little old me about this, you can check it out for yourself in IRS Publication 590.

While I’m not crazy about this flexibility to the extent that it encourages (or at least allows) people to raid their retirement to buy shiny things, one huge benefit is that it gives you the flexibility to make a contribution even if you’re not sure you can afford it.

This flexibility is very valuable because you’re only allowed to contribute a limited amount to IRAs each year. In other words, if you fall behind on contributions now, you won’t be able to make up for it later when you can (hopefully) better afford it.

If you make the contribution now and fate smiles upon you, you’ll be able to re-build your emergency savings “on the outside” while having more money stashed away inside your Roth IRA. And if things go awry, you’re free to yank that money out (up to the amount that you’ve contributed) and use it to take care of whatever emergency you’re dealing with.

Some issues to be aware of:

1. This rule applies to Roth IRAs only, so don’t try this trick with a traditional IRA.
2. The usual contribution limits still apply, so don’t try to sock more money away than is allowed.
3. Roth IRA conversions are subject to a five year waiting period before they can be withdrawn without facing a penalty.
4. Make sure a Roth is right for you. If you expect to pay the same or higher taxes in the future, then a Roth might make sense for your situation. But if you expect your tax burden to fall in the future, a traditional IRA might be better — but remember, only Roth IRAs qualify for the penalty-free withdrawal of contributions.
5. Given that this is money that you may need to withdraw at any time, be sure not to put it at risk once inside the Roth. Instead, plug it into a money market fund or something similar until you’ve re-built your emergency savings.

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» Roth IRA Contribution Limits: How the ‘Phaseout’ Works
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]]> http://www.fivecentnickel.com/2012/01/18/contribute-to-your-roth-ira-even-if-it-stretches-your-budget/feed/ 9 http://www.fivecentnickel.com/2012/01/17/far-out-investment-strategies/ http://www.fivecentnickel.com/2012/01/17/far-out-investment-strategies/#comments Tue, 17 Jan 2012 19:10:58 +0000 Jeffrey Steele http://www.fivecentnickel.com/?p=24922

There’s no time like the recently-passed 10-year anniversary of the Enron wipeout to revisit some solid pieces of investment wisdom. And one of those nuggets is of such all-encompassing sagacity that it can be easily summarized in a single word.

Diversify.

If you’ll remember the Enron affair, so insightfully captured in “The Smartest Guys in the Room,” as the fraudulent energy giant teetered on disaster’s brink mere days before crashing and exploding in a spectacular fireball, CEO Ken Lay and his minions exhorted employees who had placed their life savings in Enron stock to avoid selling their shares.

I’m sure you know the rest of story… When Enron immolated, those workers had nothing left to show for years and years of faithful toil and investment. As we marked the decade anniversary, some former Enron workers who once enjoyed nice nest-eggs still struggled from the catastrophe that befell them in 2001.

I don’t claim to be an investment guru. But I have spent a lot of time chatting with financial oracles and savants, and have no reluctance passing along their guidance to investment novices. What I hear from the experts is that too many people invest too close to home for their own good. While they ought to be casting a wide net, their investments are about as far-flung as the confines of a toddler’s playpen.

In other words, diversification isn’t just about investing in diverse asset classes. It’s also about investing in a geographically diverse assortment of equities.

Doubly dangerous

The tendency of many to invest close to home begins with backing their own employers with their hard-earned dollars. They figure it’s a vote of confidence in their own futures to buy shares in the firms employing them. Nothing is further from the truth, as the “little people” at Enron discovered.

When their company died, not only were their jobs wiped out, but most or all of their portfolios were as well. Had they invested no more than four percent in any one stock, a figure often suggested, at least 96 percent of their stock investments would have been saved from the conflagration.

If it’s wise to ensure your portfolio is well diversified outside your own firm, it’s almost as brilliant to avoid investing heavily in companies in your home city, state, or region. Years ago, I spoke on that topic with Larry Swedroe, the St. Louis-based author of “Investment Mistakes Even Smart Investors Make and How to Avoid Them.”

“People make the mistake of confusing the familiar with the safe,” he told me. “Take a guess what people in Georgia own a disproportionate percentage of stock in. Coca-Cola. Guess what people in Rochester, N.Y. have traditionally owned more of. Not only is stock in Coca-Cola not a safer investment for people in Georgia, it may be a riskier investment. Because if something major happens to the company, what will happen to home values and job opportunities in Georgia?”

Imagine a regional economic shock impacts your neck of the woods. Your home turf is locked in a slump, affecting your job security and likely your home’s value. But it’s not just those items impacted, it’s also your portfolio, because you invested disproportionately in area firms. You need ready cash, but to get it, you may have to sell stocks in regional companies at the worst time, when their prices is low.

Adopting a world view

Taking this approach to the next logical level, does it also make sense to avoid having all your stock holdings in U.S. companies? You bet it does, and for many of the same reasons. Virtually any Yank is going to be tempted to feel the all-American firms he or she grew up with will be the ones that pose the least risk. But that’s just again confusing the familiar with the safe. “People in the United States think U.S. stocks are the safest,” Swedroe remarked to me. “And guess what people in France think?”

Gaining international diversification is like buying insurance that covers potential problems here in the United States, he noted. “Some years you collect, and some years you don’t,” he said.

“But you don’t complain in years you don’t collect on your insurance, because you didn’t die or your house didn’t burn down. Owning international stocks is like that. In years when they do poorly, that’s the price of insurance.

“But you get a smoother ride over the whole period.”

If you’re invested only in American companies, you’re ignoring a world of opportunity. More than half of all investment opportunities lie outside the borders of this country. And many of those in emerging economies have more upside than opportunities here. Some experts suggest even firms in other developed countries have more room to run than U.S. companies. That means you may be getting in on long-term growth potential by investing internationally.

All about correlation

What it all boils down to is you want low correlation in the stocks you own. When stocks are not correlated, they’re diverse. Stock holdings in many countries around the world? Lower correlation. Stock holdings only in the U.S.? Higher correlation. Stock holdings just in your city or region? Still higher correlation. And stock held only in the company in which you’re employed? If it could accurately be called correlation at all, that would be correlation on steroids.

If someone at the publicly-traded company that employs you suggests you place most of your investing bets on your own employer, keep this in mind. They’re likely not the smartest guys in the room. But they may be the most sinister.

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]]> http://www.fivecentnickel.com/2012/01/17/far-out-investment-strategies/feed/ 2 http://www.fivecentnickel.com/2012/01/16/roth-ira-withdrawal-rules-how-to-get-your-money-out-early/ http://www.fivecentnickel.com/2012/01/16/roth-ira-withdrawal-rules-how-to-get-your-money-out-early/#comments Mon, 16 Jan 2012 15:48:19 +0000 Nickel http://www.fivecentnickel.com/?p=24912

As a followup to Friday’s post on contributing to a traditional IRA and converting to a Roth IRA (i.e., funding a “back door” Roth) I wanted to spend a little time talking about Roth IRA withdrawal rules.

This post was actually inspired by a comment from a reader named John who is interested in using IRA funds to buy his family’s farm in about five years:

If I convert traditional, previously-deducted IRA funds to Roth IRA funds and then pay taxes on it, can I then withdraw the taxed contributions at a later time in order to purchase the investment property? I would not be withdrawing earnings, only the initial contribution.

The short answer is yes – with some restrictions.

Unlike the situation I talked about in my previous post, where you’re making a non-deductible contribution and then converting it, John is correct that he’ll have to pay taxes when he converts his deductible contributions (and any subsequent earnings). The reason for this is simple: you’ve never paid taxes on this money, so you have to do so before you can stick it in Roth IRA (since you pay taxes up front with a Roth).

The real question is whether or not John can pull this money out without consequences at some point in the future — but presumably before he reaches retirement age. Of course, if he waits until age 59.5, then all bets are off. He’s free to withdraw whatever he wants, whenever he wants.

But before that time… Can he make a penalty-free withdrawal to buy the family farm?

For starters, we need to talk about the order of distribution. As with others types of IRAs, the IRS views all of your Roth IRAs (assuming that you have more than one) as a single pot of money. And when you withdraw, you are assumed to first be accessing your original contributions. After that money is depleted, you are assumed to be accessing dollars that you converted. And after that, you are assumed to be accessing earnings.

For original contributions: This would be money that he contributed straight into his Roth IRA, subject to annual contribution limits. As it turns out, you can withdraw your Roth IRA contributions at any time without paying any taxes (you’ve already paid taxes on this money) or penalties.

For conversions: Conversions (money converted from a traditional IRA into a Roth IRA are treated similar to contributions, with an important difference. If you withdraw money that you converted into your Roth less than five years after the conversion, you have to pay a 10% penalty. This stops people from simply converting their traditional IRAs into a Roth to gain immediate access to the money. But once the five year rule has been met, you can withdraw your conversions at any time without paying any taxes (you’ve already paid taxes on this money) or penalties.

For any subsequent earnings: Finally, what about any investment earnings/gains that have occurred inside of you Roth? Let’s say you contributed a total of $10k over the years, and it’s now worth $12k. The last $2k that you withdraw would be the earnings. For starters, any earnings that are withdrawn less than five years after you opened your Roth IRA are subject to income taxes. Moreover, if you are under 59.5, the withdrawal will be taxable unless you meet certain exceptions, and you it will also be subject to a 10% penalty. Once you reach age 59.5 and your account has satisfied the five-year rule, you can withdraw your earnings free and clear.

So what about these exceptions that I mentioned above? There are several things that will make a distribution “qualified,” and thus not subject to taxes or penalties. One is reaching age 59.5 (and having satisfied the five year rule in the case of earnings). The others include: distributions made to a beneficiary after your death, disability, or using the funds to pay certain costs associated with being a first-time homebuyer.

So…. The short answer is that yes, John can convert from a traditional IRA to a Roth IRA, pay any taxes that are due (just be careful about getting bumped into a higher tax bracket!) and then withdraw the conversions in five (or more) years without paying any additional taxes or penalties.

Note that I’m not saying that this is necessarily a good idea — that depends on the details of John’s circumstances, and that’s a decision that he’ll have to make for himself after considering a number of factors. Rather, I’ve just focused on what’s possible, and when the penalties will (or won’t) kick in.

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]]> http://www.fivecentnickel.com/2012/01/16/roth-ira-withdrawal-rules-how-to-get-your-money-out-early/feed/ 1 http://www.fivecentnickel.com/2012/01/13/contribute-and-convert-funding-our-roth-iras-through-the-backdoor/ http://www.fivecentnickel.com/2012/01/13/contribute-and-convert-funding-our-roth-iras-through-the-backdoor/#comments Fri, 13 Jan 2012 16:00:19 +0000 Nickel http://www.fivecentnickel.com/?p=24772

As a followup to my post earlier this week on Roth IRA income limits, I wanted to highlight how we typically make our Roth IRA contributions. For background, we’re in a relatively high (and variable) income tax bracket. Because of this, we flirt with the Roth income limits on an annual basis, and it’s hard to know for certain whether we’ll be above or below the line until late in the year.

While we could wait until the end of the year, or even early the following year, to determine whether or not we can contribute, I’d rather get it knocked out right away. Thus, we make what others have termed “backdoor” Roth IRA contributions.

For background, the income limits for converting from a traditional IRA to a Roth IRA went away back in 2010. Beyond this, there are no income limits for contributing to a traditional IRA. Yes, there are income limits for determining whether or not you can deduct your traditional IRA contributions, but you’re free to contribute no matter how much you make.

The workaround, then, is to contribute to a traditional IRA (this will be non-deductible if you make enough to be ineligible for a Roth) and then convert it to to a Roth IRA. And that’s exactly what we do every January. For those of you that invest with Vanguard, I’ve outlined the steps below to show you exactly how it’s done…

For starters, you’ll need to make your traditional IRA contribution. There are a variety of ways to do this, with the easiest be funding your IRA from a linked bank account. For now, I’ll assume that you’ve already done this.

Once your traditional IRA fund are in place, simply log in and select “Exchange (Sell funds to buy funds)” option from the “Transact on this account” pulldown menu.

When asked what you want to sell, choose the traditional IRA holding(s) that you wish to convert out of. When asked what you want to buy, choose the Roth IRA holding(s) that you wish to convert into.

Once you click to review, you’ll be warned that “A conversion is a taxable event. Generally, you’ll owe taxes on the amount you convert from your traditional, SEP, or rollover IRA into a Roth IRA.”

Assuming that you made a non-deductible contribution, that you don’t have any untaxed gains in the account you’re converting, and that you don’t have any other non-Roth IRA IRA accounts in your name, however, there will be no tax liability*. It will be as if you had contributed directly to the Roth IRA in the first place, except you’ll have circumvented the income limits.

Given the above, I selected the “Do Not Withhold” option when asked about tax withholding and then submitted the order.

That’s it. We’ve now fully funded our Roth IRAs for 2012 and don’t have to think about whether or not we’ll finish above/below the income limits.

*Note: If you have previously made tax-deductible contributions to a non-Roth IRA, even if they’re in a different account, making a conversion like this will generate a tax liability. The reason for this is that the IRS views all of your IRAs as one big pot of money, and they don’t let you pick and choose which dollars you convert.

The good news is that money in “qualified” plans, such as 401(k) or 403(b) plans, is not included in the tax calculation, so you could conceivably move all of your pre-tax money into a Solo 401(k) to effectively hide it before doing the “contribute and convert” thing.

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Related Articles at fivecentnickel.com:

» Will the IRS Disallow Backdoor Roth Contributions?
» Contribute to Your Roth IRA, Even if it Stretches Your Budget
» Roth IRA Withdrawal Rules: How to Get Your Money Out Early
» Traditional to Roth IRA Conversion at Vanguard
» 2007 IRA Contribution Limits
» Ratcheting Up Our 403(b) Contributions
» Funding an IRA When You’re Not Sure You Can Afford It
» Look Before You Leap: Roth IRA Conversions in 2010

]]> http://www.fivecentnickel.com/2012/01/13/contribute-and-convert-funding-our-roth-iras-through-the-backdoor/feed/ 7 http://www.fivecentnickel.com/2012/01/12/the-high-cost-of-convenience/ http://www.fivecentnickel.com/2012/01/12/the-high-cost-of-convenience/#comments Thu, 12 Jan 2012 18:00:45 +0000 Nickel http://www.fivecentnickel.com/?p=24742

The other night while on my way home from work, I was reminded of the high cost of convenience. We were in the mood for margaritas, so I stopped by the liquor store to pick up some tequila and mix. As it turns out, they were out of the mix I was after, but I made a mental note of the price.

I then stopped off at the grocery store (a bit out of my way, but not too far) to grab the mix there. When I arrived in the right aisle, I was quite surprised at the price difference… What had been $7.99 at the liquor store was $4.09 at the grocery store. This was for identical items — same brand and same size.

I always assumed that you’d pay a premium to buy the “extras” at the liquor store, but I’d never paid attention to how big the difference was. That extra $3.90 for a bottle of margarita mix equates to a 95% markup at the liquor store vs. the grocery store. Sure, there are instances when it might be worth the added cost, but with a bit of planning you can avoid these extra expenditures most of the time.

Of course, the same can be said of a huge number of items. For example, a gallon of milk costs at least 30% more at our nearest convenience store/gas station as compared to the grocery store. In other words, it (literally) pays to be organized and informed, and to plan ahead.

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» Cheaper to Eat at a Restaurant than at Home?
» The Downside of Debit Cards
» The High Cost of Being Single
» Best High Mileage Cars
» The Best of September 2007
» Refilling a Toothpaste Tube for Fun and Convenience
» From the Archives (May 4th – May 31st)

]]> http://www.fivecentnickel.com/2012/01/12/the-high-cost-of-convenience/feed/ 9 http://www.fivecentnickel.com/2012/01/12/eight-ways-to-save-money-when-eating-at-a-restaurant/ http://www.fivecentnickel.com/2012/01/12/eight-ways-to-save-money-when-eating-at-a-restaurant/#comments Thu, 12 Jan 2012 16:02:57 +0000 Ed Avis http://www.fivecentnickel.com/?p=24732

Eating out is fun, relaxing, tasty…and darn expensive! The current tough economic times have forced a lot of people to trim their dining budgets, but it’s a hard thing to give up altogether. So in the spirit of indulgence — but within a budget — here are eight tips for saving money at the restaurant:

Split a meal

Most restaurants offer portions that are larger than a person would normally eat at home, so save the price of one whole meal by splitting an entree with your partner. Same goes for the kids — if you know neither little Sammy nor little Janey will eat a whole chicken fingers dinner, why buy two? Some restaurants charge a fee to split the meal, but it’s way less than another whole entree would cost.

Don’t split the bill

If you go out with a group, ask for your own bill. That way you won’t have to subsidize your buddy Buster’s six Dutch imports while you sip a Diet Coke. Everyone has a story about spending way more than planned because someone in the group overindulged (or worse yet, forgot her money). Even if everyone else in the group is sharing a bill, beg off by saying you need to leave early or something. You’ll be glad you did when you see the rest of the group struggle over that giant bill.

Drink wisely

Drinks can add up to a serious part of your dinner tab if you’re not careful. Four options: 1) certain restaurants, especially those without liquor licenses, allow patrons to BYOB. They may charge a “corkage” fee to open and serve the liquor you bring in, but you’ll still save a ton of money; 2) drink specials are often worth it — a bucket of Bud Light for $15 is a much better deal than buying six separate imports; 3) bottomless drinks? Yes please!; and 4) water is almost always free, and everyone knows how healthy it is, so drink up.

Stick with the specials

Restaurants promote specials, such as buy-one-get-one-free deals, to get you in the door. They hope you’ll buy drinks, appetizers, dessert, etc. to make your visit profitable. But they won’t complain if you just take the special without the extras (and guess what, they’re still making more money than if you didn’t show up at all). So take advantage of those deals. Same goes with Groupon and those other seemingly amazing “daily deals.” You’re saving money, the restaurant’s making a little money, and everyone is happy in the end.

Become a regular

Regulars are treated better, get the best tables, and generally have way more fun than the customer who shows up once a decade. But how do regulars save money? A couple of ways. First, no one cares if a regular comes and nurses one beer for two hours. So if you just want the restaurant experience without spending much money, go to your regular joint. Second, regulars get clued in on the best deals, get offered the most lucrative loyalty cards, and sometimes get free stuff. They get all this because the owner values loyalty, and if he gives you a free dessert tonight you’ll tell your friends how great it is tomorrow. So soak up the pleasures of being a regular, including a slightly fatter wallet.

Use the doggie bag

Don’t be embarrassed to take your leftovers home. You paid for them, right? If it was great for dinner tonight, it will be nice for lunch tomorrow.

Go for lunch instead of dinner

If your schedule allows, enjoy the restaurant experience at lunch rather than dinner. The prices are almost always lower…sometimes even on the same dishes! Plus many restaurants have quick lunch specials that beat any dinner special, because they know most workers on lunch break are on a tight budget and tight schedule.

Don’t stiff your server

No matter what you do, don’t think the tip is a place to save money. Servers work hard for you, so if the service is decent, give them the full 20 percent. Trying to save a buck by paying a measly tip will only bring you bad mojo. If you just can’t stomach paying the tip, go to a restaurant that doesn’t have table service. You’re not limited to fast food — every town has a decent cafeteria-style or counter-service restaurant.

Dining out is a major social event, and even the thriftiest tightwad wants to enjoy a restaurant now and then. If Scrooge follows these tips, he can have his fun and still have a fat wallet.

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Related Articles at fivecentnickel.com:

» Cheaper to Eat at a Restaurant than at Home?
» Eating Out Without Breaking Your Budget
» How to Split the Check When Eating Out in a Group
» Eight Ways to Stretch Your Vacation Dollar
» Restaurant Tricks That Make You Spend More
» Do Daily Deals Really Save You Money?
» Six Ways to Teach Your Kids To Be Money Savvy
» Going Too Far in the Name of Saving Money

]]> http://www.fivecentnickel.com/2012/01/12/eight-ways-to-save-money-when-eating-at-a-restaurant/feed/ 11 http://www.fivecentnickel.com/2012/01/11/roth-ira-income-limits-for-2012/ http://www.fivecentnickel.com/2012/01/11/roth-ira-income-limits-for-2012/#comments Wed, 11 Jan 2012 16:06:50 +0000 Nickel http://www.fivecentnickel.com/?p=24712

I recently wrote about Roth IRA contribution limits for 2012, which are unchanged from 2011. Today I want to talk about the current income limits for contributing to a Roth IRA. Here goes:

Married Filing Jointly: Contributions phase out from $173k-$183k
Single or Head of Household: Contributions phase out from $110k-$125k
Married Filing Separately, Living Apart: Contributions phase from $110k-$125k
Married Filing Separately, Other: Contributions phase out from $0-$10k

(Note that these numbers all refer to modified adjusted gross income, or MAGI)

The good news is that even if you exceed the income limits, there is a workaround for funding your Roth IRA. Indeed, as of 2010, the income limits for converting from a traditional IRA to a Roth went away, so if you earn too much, you can make a non-deductible traditional IRA contribution and then convert it to your Roth.

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Related Articles at fivecentnickel.com:

» Contribute and Convert: Funding Our Roth IRAs Through the Backdoor
» Will the IRS Disallow Backdoor Roth Contributions?
» Roth IRA Conversion in a Down Market
» IRA Changes for 2008
» Roth IRA Income Limits for 2007
» What are the 2012 Traditional and Roth IRA Contribution Limits?
» Postponing Taxes on a Roth IRA Conversion
» 2007 IRA Contribution Limits

]]> http://www.fivecentnickel.com/2012/01/11/roth-ira-income-limits-for-2012/feed/ 0 http://www.fivecentnickel.com/2012/01/10/restaurant-tricks-that-get-you-to-spend-more/ http://www.fivecentnickel.com/2012/01/10/restaurant-tricks-that-get-you-to-spend-more/#comments Tue, 10 Jan 2012 17:40:17 +0000 Hank Coleman http://www.fivecentnickel.com/?p=24682

Casinos, grocery stores, and shopping malls are no longer the consumer outlets that are trying to use psychology to make consumers stay longer and buy more merchandise. Now restaurants have gotten in on the action, going to great lengths in order to use consumer psychology, menu engineering, and behavioral tricks to help separate us from more of our hard earned money.

Whether it’s the setting at the restaurant or the layout of the menu, restaurants have been hard at work trying to understand what makes people spend more money on each visit. Understanding how consumer psychology plays a part in our shopping decisions can help you save money while eating at a restaurant.

Menu design and spending

No dollar signs on menus. There are very few dollar signs on menus in a restaurant. This is especially true for national chain restaurants. Using casino chips instead of real dollars makes you less cognizant of how much time you are actually spending at the casino. The same is true for the lack of dollar signs on the menu next to the items’ prices. Dollar signs can make you aware of how much these items are truly costing you. Leaving the dollar signs and often times even the decimal and cents off the restaurant menus help keep the prices more abstract and seem less threatening.

Descriptive names. The names of products on the menu also matter to consumers. Have you ever noticed patriotic or funny names for food on the menu? According to a Cornell University study, people are 27% more likely to purchase an item from a restaurant’s menu that has a descriptive or creative name than one with a more normal name. The study also found that restaurants typically charge a premium of 10% or more for these items.

Prices are staggered. Have you ever noticed that the price of items on a restaurant’s menu is often staggered as you look down the page? This menu trick is done on purpose by the folks who practice menu engineering. Restaurant owners don’t want to you to be able to simply look straight down the page and easily compare prices from one item to the next. Staggering the items breaks up the flow of your eyes as you look down the page.

Boxing money makers. The location on a restaurant’s menu for specific items can be a big influence on how often patrons will purchase an item. Restaurants tend to put their most profitable item in the upper right hand corner of the menu where our eyes have a natural tendency to be drawn to first. A box on the menu screams for our attention, as well. You will often see high profit margin items being called out in a box on the menu as well.

Restaurant setting and spending

Background music. The level of music that a store plays over its loudspeakers and how that affects customers’ shopping habits has been studied for decades. Reserch has shown that when slower music is played in grocery stores and restaurants, customers spend more time and money there. One study from Loyola University estimated that restaurants and stores which play slow music see a 38% increase in sales over stores that choose to play loud or fast paced music. Restaurants tend to see longer wait times at tables and higher bills when slower music is played.

Size of your drinking glass. According to studies conducted by the Food and Brand Lab at Cornell University, people consume a larger amount of a drink when they are given a short, wide glass instead of a tall, narrow glass. We have a vertical bias over horizontal objects which explain our tendency to focus on an object’s height. So, the illusion in a restaurant is that you receive more of a beverage when it is served in a tall glass. Bartenders have also been found to pour more than the set limit of drinks in a short, wide glass.

Size of your plate. When restaurants offer two sizes of the same item, they often want you to purchase the smaller one contrary to typical thoughts. For example, many restaurants may hope that you purchase two small salads that costs $9 each instead of buying a large salad that costs $12 and splitting it between two people. The cost of extra ingredients for the larger salad is negligible, and the extra money spent on the wrong size item is pure profit for the restaurant though.

Take home lessons

So, what does this mean for you, the average consumer, who is trying to save his or her hard earned money? Like G.I. Joe used to during the Saturday morning cartoons, “Knowing is half the battle.” Now you know a few things to look for when you enter a restaurant. Simply walking into a restaurant and ordering without giving much thought is a recipe that could cost you a lot of money in the long run.

Now it’s up to you to use that knowledge and not to be fooled by simple psychological tricks that are designed to separate you from your money. By understanding a little of the consumer psychology used against you, you can be a much better shopper who enjoys a night out while still saving money.

Do you think that simple things such as leaving the dollar sign off a menu or staggering the prices make you spend more at a restaurant? What other psychological and behavioral tricks have you seen retailers use against consumers?

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Related Articles at fivecentnickel.com:

» Eating Out Without Breaking Your Budget
» Do Daily Deals Really Save You Money?
» Cheaper to Eat at a Restaurant than at Home?
» Always Read the Fine Print
» Finally… Customer Service That Rocks
» Eight Ways to Save Money When Eating at a Restaurant
» Car Dealership Tricks to Avoid
» Thoughts on Tipping

]]> http://www.fivecentnickel.com/2012/01/10/restaurant-tricks-that-get-you-to-spend-more/feed/ 7 http://www.fivecentnickel.com/2012/01/09/discover-more-balance-transfer-no-fees-0-for-12-months/ http://www.fivecentnickel.com/2012/01/09/discover-more-balance-transfer-no-fees-0-for-12-months/#comments Mon, 09 Jan 2012 19:54:21 +0000 Nickel http://www.fivecentnickel.com/?p=24662

Was one of your New Year’s resolutions to pay down your credit card debt? If so, then you might be interested Discover More’s newest 0% balance transfer offer. This card offers 0% APR on both purchases and balance transfers with no transfer fee and is thus far one of the best balance transfer credit cards of 2012.

The 0% APR promo rate applies for 12 months following the date of your transfer, and the transfer(s) has/have to be made by August 10, 2012 to qualify for the no-fee treatment. After that, there will be a 3% fee, but that’s six months away so you should have plenty of time to make the transfer. Also note that there is no annual fee.

This card pays up to 5% cash back for purchases in rotating categories, though (if I had high interest credit card debt) I would personally use it for the balance transfer and nothing else.

Here are the details:

• Limited Time Offer – $0 Balance Transfer Fee!*
• 0% intro APR on purchases and balance transfers for 12 months, then the variable standard purchase APR of 10.99% – 19.99%*
• 5% Cashback Bonus® in categories that change like gas, restaurants, department stores and more. Limitations apply*
• Up to 20% Cashback Bonus at popular retailers when you shop online through Discover.com
• Discover is ranked #1 in customer loyalty–15 years in a row! (2011 Brand Keys Customer Loyalty Engagement Index report)
• 24/7 access to a U.S.-based Account Manager within 60 seconds
• Great rewards with no annual fee, no rewards redemption fee, and no additional card fee
• *Click apply to view rates, fees, rewards, limitations and other important information

If you’re interested, then by all means…

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]]> http://www.fivecentnickel.com/2012/01/09/discover-more-balance-transfer-no-fees-0-for-12-months/feed/ 4 http://www.fivecentnickel.com/2012/01/09/when-are-2011-taxes-due-hint-its-not-april-15-2012/ http://www.fivecentnickel.com/2012/01/09/when-are-2011-taxes-due-hint-its-not-april-15-2012/#comments Mon, 09 Jan 2012 16:19:49 +0000 Nickel http://www.fivecentnickel.com/?p=24652

Believe it or not, it’s already time to start thinking about filing your 2011 income tax return. In the coming weeks, you should be receiving your W-2 form(s), a variety of 1099 forms, etc. And if you pay estimated taxes, your 4th quarter payment is due next week (on January 17th).

So… With that in mind, I thought I’d post a quick reminder as to when your 2011 federal income tax return is due. As you’re likely aware, the filing deadline is April 15th of each year. But when the deadline falls on a weekend, it’s pushed to the following Monday. And when the deadline falls on a federal holiday, it’s pushed to the next business.

This year, like last year, is a bit different. This time around, April 15th falls on a Sunday, and Monday is not a federal holiday. And yet, your taxes are due on Tuesday, April 17th. Why?

The funny date is due to a April 16th being Emancipation Day, which is a holiday in Washington, D.C. Emancipation Day marks the anniversary of the signing of the Compensated Emancipation Act by President Lincoln in 1862, which freed the slaves in the District of Columbia.

Emancipation Day has been an official public holiday in D.C. since 2005, and it’s been responsible for shifting the 2006 and 2010 tax filing deadlines (in 2007 and 2011, respectively).

Oh, and don’t forget that you technically get one more day than you might otherwise think this year — 2012 is a Leap Year, which means that February has an extra day. In other words, you have no excuse for missing the deadline this time around.

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Related Articles at fivecentnickel.com:

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» How Are You Preparing Your Taxes?
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» What Effect Will a Federal Government Shutdown Have on Tax Refunds?
» Contribute to Your Roth IRA, Even if it Stretches Your Budget
» What If You’re Not Going to Get Your Taxes Done in Time?
» What Happens if I Forget to Sign My Tax Return?

]]> http://www.fivecentnickel.com/2012/01/09/when-are-2011-taxes-due-hint-its-not-april-15-2012/feed/ 3 http://www.fivecentnickel.com/2012/01/06/citi-bonus-cash-back-reward-categories-for-winter-2012-plus-a-100-bonus/ http://www.fivecentnickel.com/2012/01/06/citi-bonus-cash-back-reward-categories-for-winter-2012-plus-a-100-bonus/#comments Fri, 06 Jan 2012 17:11:57 +0000 Nickel http://www.fivecentnickel.com/?p=24462

As a followup to my recent post about Chase Freedom bonus categories for 2012 (and their $200 signup bonus), here’s some info on the bonus categories for the Citi Dividend Platinum Select Visa credit card…

As you’re likely aware, many credit card companies have switched to a model where they offer a base level of rewards (typically 1%) plus bonus rewards (usually 5%) in certain categories. Citi is amongst those who now use this model and, unfortunately, you have to re-enroll each quarter.

The categories just switched on January 1, so it’s time to re-enroll. Here’s the deal:

Earn 5% Cash Back when you use your Citi Dividend Card in the following categories from January 1, 2012 through March 31, 2012*, after you accept this offer:

• Health Care
• Fitness Clubs
• Utilities

Within 2 business days of when you accept this offer, or January 1, 2012, whichever is later, you will earn an additional 4% cash back on eligible health care, fitness club and utilities purchases from January 1, 2012 and March 31, 2012.

The healthcare category includes physicians, dentists, medical facilities, etc. Thus, if you have a high deductible health plan like we do, this could come in quite handy during the early part of the year before you’ve satisfied your deductible.

To enroll, simply login to your account and look for the 5% banner along the left edge of the screen. Click it, agree to the terms, and you’re done.

Don’t forget the $100 bonus…

If you don’t already have the Citi Dividend Platinum Select Visa card, you can get a $100 cash bonus by applying for one, getting approved, and spending $500 within the first three months, and there’s no annual fee.

As with the Chase Freedom card, we’ve had this card for years and have never had any problems getting Citi to hold up their end of the bargain. You just login, request the check, and it shows up in your mailbox within a week or so.

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» Citi Bonus Reward Categories for Winter ‘12
» Chase Reward Categories for Winter ‘12 – Plus a $100 Bonus
» Citi Bonus Cash Back Categories for Fall 2011
» Chase Freedom Bonus Reward Categories – Summer ‘12
» Citi Dividend Platinum Select Card
» Chase Freedom $200 Signup Bonus
» Chase Freedom Reward Categories for 2012 – Plus a $200 Bonus
» Chase Reward Categories for Fall ‘12 – Plus a $100 Bonus

]]> http://www.fivecentnickel.com/2012/01/06/citi-bonus-cash-back-reward-categories-for-winter-2012-plus-a-100-bonus/feed/ 0 http://www.fivecentnickel.com/2012/01/06/five-fiscal-new-years-resolutions-for-families/ http://www.fivecentnickel.com/2012/01/06/five-fiscal-new-years-resolutions-for-families/#comments Fri, 06 Jan 2012 16:32:28 +0000 Ed Avis http://www.fivecentnickel.com/?p=24452

New Years resolutions usually involve losing weight, quitting smoking, etc. Instead, this year use your resolutions to help put your financial house in order. Doing that won’t help you fit into that pair of skinny jeans or improve your breath, but it will fatten up your wallet and improve your financial outlook. Here are five potential resolutions you can make for your family:

Go Without One Thing

Have each person in your family resolve to give up one indulgence in the coming year. These don’t have to be big things, but they need to be things that cost money. Examples might include chewing gum, an expensive brand of hair conditioner, the second daily cup of Starbucks coffee, driving to a destination that is easily walked to, playing the lottery, etc.

The sky is the limit here. The idea behind giving up one thing is that psychologically it is more effective when you can focus on your sole sacrifice rather than generally resolving to spend less money. And it’s easier to keep track — if you pack a lunch for work rather than going to McDonald’s one day each week and it saves you $3 to do that, it’s easy to calculate that you’re saving $150 a year.

Shop Slowly

Shopping slowly involves several concepts. First, it means that you plan your shopping trips, which helps prevent expensive impulse purchases. Second, shopping slowly means that you comparison shop, clip coupons, and otherwise get the best deal possible. Finally, shopping slowly means you resist using credit for purchases that can wait. Sure, you want to buy all new accessories for your bathroom this minute, but if you wait a month, you may be able to pay cash.

Inventory Your Financial Life

Resolve to sit down once or twice in the new year to seriously consider your financial life. Start your financial inventory by writing down all your sources of revenue and all of your major expenses. Then examine each one in turn. Here are some questions you might ask:

• Are you getting the best price on the various types of insurance you carry?
• Is your phone/internet/cable plan exactly what you need and can afford?
• Do you really need three cars?
• Are there some tasks you are paying others for, such as lawn care, that you could do yourself?
• Is it time to ask for a raise or promotion, or to seek a new job?
• Is your 401K allocated properly?

Find savings or new money in just a couple of these and you could end the new year with a healthier bank account.

Teach the Kids About Money

This year, focus some of your parental effort into teaching your kids about money. If your children are young, you might give them their first allowance and show them the importance of saving 20% each week. If they’re preteens, help them become entrepreneurs by suggesting jobs they could do in the neighborhood or items they could create and sell. If they’re teens, get them involved in your family finances by explaining how you budget, make major purchase decisions, save for college and retirement, etc. These three suggestions are only the tip of the iceberg — there are tons of other ways to teach kids about money.

Set Some Specific Financial Goals

Being vague about financial improvement is lazy and ineffective, so instead set some clear goals. For example, consider ending each month with $250 more in savings than you had the previous month. You can accomplish this by either saving that much, earning that much more, or some combination. Exclude things you can’t control, such as the stock market (that is, if your stock portfolio drops by $100 in a month, you’re not really $100 further behind).

Some other possible goals: Find one specific area in your budget each quarter that you can trim by at least 10 percent; set aside exactly 10 percent of each paycheck for savings; end the year with zero balances on your credit cards. The key is to be specific, because specificity breeds discipline.

So when the New Year’s noise makers are put away and the streamers are cleaned up, take an hour to consider these potential resolutions. Even if you choose just one or two, the new year will end more financially stable than this year did.

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» Happy New Year!
» From the Archives (January 20th – January 26th)
» Weekly Roundup – 12/30/05
» 2008 Resolutions: Are You Still on Track With Your Goals?
» Average Net Worth Values

]]> http://www.fivecentnickel.com/2012/01/06/five-fiscal-new-years-resolutions-for-families/feed/ 1 http://www.fivecentnickel.com/2012/01/05/2012s-twelve-for-twits/ http://www.fivecentnickel.com/2012/01/05/2012s-twelve-for-twits/#comments Thu, 05 Jan 2012 14:34:32 +0000 Jeffrey Steele http://www.fivecentnickel.com/?p=24422

Back in 2011, I wrote that many Americans appear to follow a “Goof’s Guide to Money Management” in most of their monetary transactions. In the column, I posited this loony approach to dealing with earning, spending, saving and investing that nearly guaranteed a lifetime saddled with back-breaking debt.

There may be something uniquely American about the indifference many display to their own financial illiteracy. Indeed, legions across the nation seem to take a kind of perverse pride in their standings as dollars-and-cents doofuses. So for those Goof’s Guide adherents who would like to lift their fiscal fumbling to new heights, elevating themselves to masters of money management mopery, I propose for the new year the following “12 for ‘12″ money resolutions.

Avoid the saving habit. Most people who pile up substantial savings do so through the habitual tendency to “pay themselves first,” routinely banking a portion of their earnings. Like any other habit, this one can be avoided! Any time you feel the tendency to save coming on, fight it by lying down, closing your eyes and repeating the hypnotic mantra, “Don’t wait! Buy now!”

Make blowing cash a daily routine. Opportunities exist each day to let money ignite a hole in your pocket. Don’t pass them up! Shop convenience stores for groceries, pop for $6 cups of frothy liquefied caffeine at coffee houses each morning, and lay rubber as you rocket away from every stoplight.

Sidestep personal responsibility. Folks who accumulate nifty nest eggs invariably take personal responsibility for their own financial futures. This doesn’t have to be you. Assign full responsibility to the government or your employer. Your later years can be made more enjoyable by constantly repeating your belief you were gypped out of a secure retirement by forces beyond your control.

Equate possessions with happiness. Embrace lock, stock, and barrel the idea that the purchase of vehicles, homes, clothing and toys will ensure a happier life. On TV commercials, you’ve seen luxury SUVs crowned by giant holiday bows heal marital strife, calm surly teenagers, and put grins on the faces of family members from Granny to Fluffy. Why shouldn’t the same work for you?

Remember, it’s not who you are, it’s what you buy. Resolve to base your sense of self not on what you do, who you are, or how much you give back to your community, but on your showy acquisitions.

Be the first to acquire every new electronic device, from smart phones to wall-sized TVs. And for goodness sake, don’t bypass the opportunity to charter a stretch limousine to ferry you and your friends to the priciest concert events in town.

Steer clear of stocks. Should you come into some money, do not invest it in the stock market! Ignore the fact a broadly diversified portfolio of equities held over long periods of time offers some of the best assurances of solid gains.

Should a trading day end with indexes lower, proudly proclaim, “I’m sure glad I never took the risk of getting into the stock market!” Then pooh-pooh the idea that by socking your money away in a “safe” instrument paying a fraction of one percent, you’ve traded market risk for greater purchasing power risk.

Develop a booze or drug problem. Have you seen the pricetags affixed to bottles of liquor these days at your local stores? Routinely having to replenish your liquor cabinet can be one of the best ways to erode earnings, while helping ensure you face additional health care costs down the road. Ditto for drugs.

Make the prescription slip your permission slip. Speaking of drugs, there’s nothing like prescription pharmaceuticals to flatten your wallet. Assume you’ll have no option over time but to take on a substantial regimen of meds, each generating side effects requiring still more pills.

Every prescription shall be your permission to avoid exercising, eating well, or caring for your health. For confirmation, look to the pro-pill messages dispensed by major media. The fact those very media outlets reap giant revenues from pharmaceutical advertising? Sheer coincidence!

Make a casino your home away from home. No money management miscue promises greater excitement than dumping most of your paycheck at the roulette wheel or a slot machine. So proceed frequently, if not daily, to one of those glittering palaces chockablock with flashing lights and annoying sounds.

Don’t give a thought to the term “one-armed bandits.”

Play the lottery every day. You say you don’t live close enough to a casino to venture there every day? Don’t despair; you still have options. You can plow a huge chunk of your earnings into your state lottery. Over time, the winnings add up. Why, after decades of lottery playing, you should be able to boast of several $50 payouts to offset the tens of thousands you’ve pissed away.

Live for retirement. Don’t give a thought to finding a vocation you like well enough to work beyond retirement age, or even well beyond. Instead, spend your days in a dreary job, dreaming of that golden day you can retire. After retirement, you’ll be able to spend a lot more time watching TV, and also fretting about the precipitous decline in purchasing power of your meager bankroll.

Ignore this posting. Fearing they might hit close too home, never, ever read opinion columns lampooning Americans’ daffy dalliance with dollars.

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» Current 0% Balance Transfer Offers
» optionsXpress $100 Signup Bonus
» Common Federal Income Tax Deductions
» Buying Life Insurance (Again), Update #1
» Friday Fun: The Ten Most Popular Travel Destinations
» The Recession is… Over?
» 2005 Federal Tax Refund Received

]]> http://www.fivecentnickel.com/2012/01/05/2012s-twelve-for-twits/feed/ 9 http://www.fivecentnickel.com/2012/01/04/savings-bond-purchase-limit-increased-in-2012/ http://www.fivecentnickel.com/2012/01/04/savings-bond-purchase-limit-increased-in-2012/#comments Wed, 04 Jan 2012 16:44:07 +0000 Nickel http://www.fivecentnickel.com/?p=24412

If you’re a fan of savings bonds, then I have some good news for you… The Treasury has increased the TreasuryDirect purchase limit from $5k per bond type (I or EE) per year to $10k. This change offsets the loss of over-the-counter sales of paper savings bonds, effective January 1, 2012.

From the press release that I just received:

The annual purchase limit for online United States Savings Bonds is $10,000 per series, effective January 4, 2012, the Department of the Treasury announced today. The new limit applies to Series EE and Series I savings bonds purchased through TreasuryDirect at www.treasurydirect.gov. Under the new rules, an individual can buy a maximum of $10,000 worth of electronic savings bonds of each series in a single calendar year, or a total of $20,000.

Since 2008, investors could buy a maximum of $5,000 in each series and in each form (paper or electronic). So a single owner could buy $20,000 in one year. As of January 1, 2012, paper bonds are no longer being sold through financial institutions. With today’s announcement, the total amount an individual can purchase in online savings bonds in one calendar year is $20,000. An investor still can purchase up to $5,000 annually in Series I paper savings bonds using his/her tax refund and IRS Form 8888.

So, in effect, they’ve increased the Series I Savings Bond limit from $10k ($5k electronic + $5k paper) to $15k ($10k electronic + %$5k paper) so long as you’re willing to jump through the hoop of buying paper bonds with your tax return.

From my perspective, this is very welcome news. While the fixed rate is still a disappointing 0%, these bonds provide a degree of inflation protection, and also have tax advantages, especially if you redeem them to cover educational expenses.

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Related Articles at fivecentnickel.com:

» 401(k), 403(b), and 457(b) Contribution Limits for 2012
» Treasury Confirms May 2011 Series I Savings Bond Rate
» Series I Savings Bond Rates – November 2011
» Series I Savings Bonds Rates – May 2011
» What are Series I Savings Bonds?
» Buying Paper Savings Bonds in a Paperless Era
» Series I Savings Bond Rates – November 2010
» What are the 2012 Traditional and Roth IRA Contribution Limits?

]]> http://www.fivecentnickel.com/2012/01/04/savings-bond-purchase-limit-increased-in-2012/feed/ 0 http://www.fivecentnickel.com/2012/01/04/sp-dividend-aristocrats-for-2012/ http://www.fivecentnickel.com/2012/01/04/sp-dividend-aristocrats-for-2012/#comments Wed, 04 Jan 2012 14:43:08 +0000 Nickel http://www.fivecentnickel.com/?p=24402

A few years back, I published a list of “Dividend Aristocrats” — companies in the S&P 500 that have increased their dividend payouts for at least 25 consecutive years. These are large, blue chip companies that have historically provided (slightly) better performance and (slightly) lower volatility than the S&P 500 as a whole.

The list declined from 52 companies in 2009 to 42 in 2010 as many companies cut their dividend payouts. It then held steady in 2011, with three companies being dropped and three added. For 2012, one company (CenturyLink; CTL) has been removed from the index while ten companies have being added.

These ten include:

• AT&T (T)
• Colgate-Palmolive (CL)
• Franklin Resources (BEN)
• Genuine Parts (GPC)
• HCP (HCP)
• Illinois Tool Works (ITW)
• Medtronic (MDT)
• Nucor (NUE)
• Sysco (SYY)
• T. Rowe Price Group (TROW)

The full list of 51 companies follows:

• 3M Co (MMM)
• AFLAC Inc (AFL)
• Abbott Laboratories (ABT)
• Air Products & Chemicals Inc (APD)
• Archer-Daniels-Midland Co (ADM)
• AT&T (T)
• Automatic Data Processing (ADP)
• Bard, C.R. Inc (BCR)
• Becton, Dickinson & Co (BDX)
• Bemis Co Inc (BMS)
• Brown-Forman Corp B (BF/B)
• Chubb Corp (CB)
• Cincinnati Financial Corp (CINF)
• Cintas Corp (CTAS)
• Clorox Co (CLX)
• Coca-Cola Co (KO)
• Colgate-Palmolive (CL)
• Consolidated Edison Inc (ED)
• Dover Corp (DOV)
• Ecolab Inc (ECL)
• Emerson Electric Co (EMR)
• Exxon Mobil Corp (XOM)
• Family Dollar Stores Inc (FDO)
• Franklin Resources (BEN)
• Genuine Parts (GPC)
• Grainger, W.W. Inc (GWW)
• HCP (HCP)
• Hormel Foods Corp (HRL)
• Illinois Tool Works (ITW)
• Johnson & Johnson (JNJ)
• Kimberly-Clark (KMB)
• Leggett & Platt (LEG)
• Lowe’s Cos Inc (LOW)
• McCormick & Co (MKC)
• McDonald’s Corp (MCD)
• McGraw-Hill Cos Inc (MHP)
• Medtronic (MDT)
• Nucor (NUE)
• PPG Industries Inc (PPG)
• PepsiCo Inc (PEP)
• Pitney Bowes Inc (PBI)
• Procter & Gamble (PG)
• Sherwin-Williams Co (SHW)
• Sigma-Aldrich Corp (SIAL)
• Stanley Black & Decker (SWK)
• Sysco (SYY)
• T. Rowe Price Group (TROW)
• Target Corp (TGT)
• VF Corp (VFC)
• Wal-Mart Stores (WMT)
• Walgreen Co (WAG)

Unfortunately, if you’re interested in a mutual fund or ETF that tracks this group, you’re out of luck. The closest thing that I’ve been able to find has been the SPDR S&P Dividend ETF (SDY), which seeks to track the S&P High Yield Dividend Aristocrats. This is a list of the 60 highest yielding members of the S&P Composite 1500 index that have increased their dividends for at least 25 straight years.

Thus, SDY tracks the performance of companies drawn from a broader swath of the market (the S&P 1500 vs. S&P 500) and selects for those Aristocrats with the highest yield rather than including them all. As of this writing, the SDY has a dividend yield of 3.20% compared to 2.02% for SPY, which tracks the entire S&P 500.

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Related Articles at fivecentnickel.com:

» S&P Dividend Aristocrats for 2011
» Investing in the Dividend Champions
» Investing in the S&P 500 Dividend Aristocrats
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» Citi Bonus Cash Back Reward Categories for Winter 2012 – Plus a $100 Bonus
» Stocks are Not Bonds, CDs, or Savings Accounts
» Citi Bonus Reward Categories for Winter ‘12
» Followup: Citi Dividend Platinum Select Card Conversions

]]> http://www.fivecentnickel.com/2012/01/04/sp-dividend-aristocrats-for-2012/feed/ 2 http://www.fivecentnickel.com/2012/01/03/accelerating-your-mortgage-payment/ http://www.fivecentnickel.com/2012/01/03/accelerating-your-mortgage-payment/#comments Tue, 03 Jan 2012 19:51:04 +0000 Lisa White http://www.fivecentnickel.com/?p=24392

There is not a month that goes by where I don’t receive a solicitation pushing for me to pay off my mortgage more quickly by participating in a biweekly mortgage payment plan.

You’ve probably heard that accelerating your mortgage payments can substantially reduce the amount of interest you’ll pay over the life of the loan. Even with today’s rock bottom interest rates, extra payments may make sense for you.

Unfortunately, many of the accelerated payment programs can be confusing, and companies may be exaggerating how much you can save over time. Given the number of options out there, it’s important to be clear what the terms are before making the commitment.

The three most common ways of accelerating mortgage payments are paying bimonthly, paying biweekly, and paying extra principal. Let’s look at each one.

Paying bimonthly. In this context, bimonthly means twice a month. With a bimonthly mortgage payment, a payment service takes half the monthly mortgage payment from your bank account twice a month, but payments are only applied to the loan once a month.

Paying biweekly. With a biweekly plan, you’ll pay half your monthly mortgage payment every two weeks. Since there are 26 biweekly periods a year compared with 24 bimonthly periods, biweekly schedules produce the equivalent of one extra monthly mortgage payment each year.

Paying extra principal. Each month you have the option of paying an extra amount over and above your minimum monthly payment. While your minimum payment goes to both principal and interest, any extra amount you pay towards principal further reduces the amount you owe, which reduces the amount of interest charged on all future payments.

What’s the difference to the bottom line? For our baseline, let’s start with a 30-year fixed-rate mortgage with a balance of $200,000 at 6% APR. In round numbers, if you made 360 minimum monthly payments of $1,199, you’d pay a total of $431,676 (principal and interest only, not including taxes and insurance). Now let’s see the effects of each type of accelerated payment program.

Bimonthly payments

In a true bimonthly (or semi-monthly) payment plan, you pay half your monthly payment twice a month. In our example, you’d pay $599.50 on the 1^st of the month and another $599.50 on the 15^th of the month. You’ll make 24 payments a year as opposed to 12, but your total monthly payment is the same, $1,199. As a result, your total payments are still $431,676.

Most true bimonthly programs simply hold your first payment until the end of the month and then send both payments to your lender at the same time. You won’t see much, if any, savings because the lender is still amortizing based on monthly payments. Your only benefit is the ability to split your mortgage payments each month, which might be better for your cash flow situation.

Biweekly payments

Paying biweekly (every two weeks) means you’ll make 26 payments a year instead of 24 (or 12), effectively making one extra mortgage payment a year. Assuming your lender credits the payments as they are received (for which they may charge a fee), the benefits are not only a faster payoff, but also lower interest costs over the life of the loan. If you get a paycheck every two weeks, it might make sense to time your mortgage payments to match.

In our same example, paying $599.50 every two weeks will pay off the 30-year mortgage within 24 years for a total of $382,094, or a savings of $49,582.

To experience the largest cost savings, this true or simple interest biweekly payment must be credited immediately upon receipt by the lender as opposed to once a month. Interest also must be calculated for two-week intervals and the biweekly payments less the interest must be applied to the mortgage amount in order to reduce its principal every two weeks.

Extra principal payments

Instead of signing up for an accelerated payment program, what happens if you simply make monthly payments and add something extra each month to pay down the principal? Using our same example, paying an extra $100 per month (one-twelfth the monthly payment) will pay off the 30-year mortgage within 24 years for a total of $382,538, which is very close to the biweekly option, but without the added cost of paying someone else to set up the program.

Before committing to any new mortgage payment schedule, it’s important to confirm, not only the payment amount and frequency, but also the timing of when the payment will be credited to the account, which will impact the interest payments over the life of the loan. By doing this, you can better determine the overall savings on your mortgage amount.

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Related Articles at fivecentnickel.com:

» What’s a Piggyback Mortgage?
» Pre-Paying our Mortgage
» Making Mortgage Prepayments
» Are Biweekly Mortgage Payment Plans Worthwhile?
» Learning About Mortgage Escrow Accounts
» 15 vs. 30 Year Mortgages: Which is Right for You?
» Improve Cash Flow by Paying Off Long-Term Debts
» Refinance and Overpay to Pay Off Your Mortgage Faster

]]> http://www.fivecentnickel.com/2012/01/03/accelerating-your-mortgage-payment/feed/ 11 http://www.fivecentnickel.com/2012/01/02/2012-stock-market-predictions/ http://www.fivecentnickel.com/2012/01/02/2012-stock-market-predictions/#comments Mon, 02 Jan 2012 18:15:42 +0000 Nickel http://www.fivecentnickel.com/?p=24362 In case you haven’t heard, the S&P 500 closed the year at 1257.60 this past Friday. That’s just a hair down from the 2010 closing price of 1257.64 — essentially even in the grand scheme of things.

Despite the flat performance overall, the past year was anything but uneventful. Don’t believe me? Check out the graph below.

After some nice gains during the first half of the year, Congress managed to cook up a crisis which resulted in a US credit downgrade and dramatic losses stock market losses. From that point forward, the market gradually regained its footing, though it was far from a smooth recovery.

Of course, the above numbers ignore dividend reinvestment. After account for dividends, the market (as measured by the S&P 500) returned something close to 2% for the year. Not great, especially given the volatility, but better than nothing.

Through it all, I managed to do a good bit of tax loss harvesting on the equity side, and we also benefited nicely from our bond holdings (Total Bond Market [VBMFX] and TIPS [VIPSX]), which account for roughly 40% of our total portfolio.

With that as a backdrop, I though it would be fun to run a poll asking for 2012 stock market predictions…

How much will the S&P 500 change from the beginning to the end of 2012?

• Down 20% or more
• Down 15%-20%
• Down 10%-15%
• Down 5%-10%
• Down 1%-5%
• Between -1% and +1%
• Up 1%-5%
• Up 5%-10%
• Up 10%-15%
• Up 15%-20%
• Up 20% or more

View Results

If you’d like to make a guess as to the specific closing price at the end of 2012, please do so in the comments section (but please also select a poll choice). You won’t win anything but bragging rights if you get ir right, but hey…

Bragging is kinda fun.

Note: E-mail and RSS subscribers may need to click through for the poll to work.

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]]> http://www.fivecentnickel.com/2012/01/02/2012-stock-market-predictions/feed/ 1 http://www.fivecentnickel.com/2011/12/30/what-are-the-2012-traditional-and-roth-ira-contribution-limits/ http://www.fivecentnickel.com/2011/12/30/what-are-the-2012-traditional-and-roth-ira-contribution-limits/#comments Fri, 30 Dec 2011 15:48:25 +0000 Nickel http://www.fivecentnickel.com/?p=24352 With just a few days left before the New Year, I thought I’d put together a quick post on IRA contribution limits for 2012. As a reminder, contribution limits have been indexed to inflation since 2008, and can increase in $500 increments (as necessary). As you can see from the table below, however, nothing has changed in recent years.

Year	Under Age 50	Age 50+
2002-2004	$3,000/year	$3,500/year
2005	$4,000/year	$4,500/year
2006-2007	$4,000/year	$5,000/year
2008	$5,000/year	$6,000/year
2009	$5,000/year	$6,000/year
2010	$5,000/year	$6,000/year
2011	$5,000/year	$6,000/year
2012	$5,000/year	$6,000/year

A few notes…

First, note that this limit is a combined limit for traditional and Roth contributions. Thus, while you can contribute to both in the same year, the total contribution cannot exceed the $5,000 (or $6,000) limit.

Second, your traditional IRA contributions may be tax deductible, depending on whether or not you’re covered by a retirement plan at work, and how much money you make. Details can be found here and here.

Finally, remember that you can make contributions for 2011 all the way up to April 17th, 2012 (the due date for filing 2011 tax returns). Thus, if you still haven’t gotten around to it making your 2011 contributions, you still have time.

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Related Articles at fivecentnickel.com:

» Roth IRA Income Limits for 2012
» Contribute to Your Roth IRA, Even if it Stretches Your Budget
» 2007 IRA Contribution Limits
» 401(k), 403(b), and 457(b) Contribution Limits for 2009
» Contribute and Convert: Funding Our Roth IRAs Through the Backdoor
» IRA Changes for 2008
» Max that Roth!
» Ratcheting Up Our 403(b) Contributions

]]> http://www.fivecentnickel.com/2011/12/30/what-are-the-2012-traditional-and-roth-ira-contribution-limits/feed/ 14 http://www.fivecentnickel.com/2011/12/29/mobile-banking-security/ http://www.fivecentnickel.com/2011/12/29/mobile-banking-security/#comments Thu, 29 Dec 2011 13:00:52 +0000 Lisa White http://www.fivecentnickel.com/?p=24342

When is the last time you were inside your bank? It’s probably been awhile. With ATMs and online banking, and mobile banking, there’s rarely ever a need to visit a teller.

And with the growing number of banking apps, we can virtually carry our banks in our pockets and purses. But at what cost?

Mobile banking grew 20% in the first quarter of 2010, according to Nielsen, a New York City market research firm. Although transactions are limited and vary by bank, more are increasing these capabilities and adding apps day by day.

With the added convenience has come more concern about safety. Now our smart phones harbor details on our finances, including account information, passwords and other valuable data that is vulnerable to criminals.

If you’re thinking that it just couldn’t be that easy to steal this information off your smart phone or to breach a banking app, think again.

Although customer information is typically not saved on a smart phone after the transaction is completed, that’s not always the case with downloadable bank apps. In the past, some have been found to store critical banking information in a text format right on the phone, including user names, passwords, and banking transactions.

Part of the problem is that this technology is evolving so rapidly, and it can be difficult to address all of the vulnerabilities in a timely manner. Because the opportunity is there, many say it is only a matter of time before breaches are found and capitalized on by criminals.

App stores don’t typically review apps for security, and you most likely have not installed security software on your phone like that which is on your computer; this can spell disaster if your phone falls into the wrong hands. And, if you don’t have a passcode set up on your smart phone, you may be handing over your banking information to criminals who gain access to your phone.

Mobile banking on the fly is tempting, but when you tap into free WiFi at your local coffee shop, at a hotel, or in an airport, the network is not secure and your information can be more easily lifted.

If the easy access and convenience of banking via smart phone are just too tempting, there are a number of steps you can take to more closely safeguard your finances.

First, it is important to treat your phone like you would a credit card. Be careful not to lose or misplace it. And make sure others don’t have access to it.

SMS, or short messaging service, is the least secure way to exchange banking information and should be avoided. It’s possible to request account details by sending a message code, which tells your financial institution that the request comes from your phone. However, if you lose or loan the phone, this information is no longer confidential. Also, scammers can pose as the bank to try and obtain account details via SMS. When utilizing this method, never send out passwords, account numbers or other sensitive information.

Mobile web methods utilize Internet browsers to access bank web sites like with a computer. Most banks now have web pages formatted for mobile screens for easy browsing. However, just like on a computer, mobile browsers are vulnerable to security breaches. As this technology becomes more prevalent for smart phones, viruses and Trojan horses are being created by criminals determined to capitalize on the lack of safeguards for mobile banking. Use the same security methods as you would on a computer, avoiding e-mailed bank links that could be fake and saving the bank’s login page as a web link bookmark to ensure it is accurate.

Many banks now offer client apps that can be installed on smart phones, which will connect you directly with the bank’s servers. This makes it faster and easier to connect to your financial institution and can be simpler to navigate. These proprietary apps are probably the most secure way to bank via smart phone. Be aware, however, that sensitive information may still be stored on the phone, and it’s important to log out of the app right after using it. Also, make sure the program is downloaded from a trusted source so you don’t reveal sensitive information to an unknown party.

Bank apps and mobile sites typically require logging in with the same username and password you’d use on your computer. Make sure the programs on your smart phone don’t automatically log you into the bank account, or your information can be lifted if the phone is stolen.

Bottom line… Common sense should always prevail. Do not share passwords, account numbers, PINs or any personal information, and make sure these are not saved on the phone. Most importantly, immediately notify the bank and mobile phone company if your phone is lost or stolen.

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Related Articles at fivecentnickel.com:

» One Year Ago This Week (October 22nd – October 28th)
» Online Financial Statements
» Mobile Money: Five Tips For Managing Your Finances on the Go
» Improved Security for Online Banking
» Send Money Via PayPal Using Your Cell Phone
» HSBC Direct Adds (More) Annoying Security Features
» Online Banking Poll Results
» Social Security Taxes in 2010

]]> http://www.fivecentnickel.com/2011/12/29/mobile-banking-security/feed/ 2 http://www.fivecentnickel.com/2011/12/28/chase-freedom-reward-categories-for-2012-plus-a-200-bonus/ http://www.fivecentnickel.com/2011/12/28/chase-freedom-reward-categories-for-2012-plus-a-200-bonus/#comments Wed, 28 Dec 2011 18:00:51 +0000 Nickel http://www.fivecentnickel.com/?p=24332

With New Year’s Day nearly upon us, it’s time to think about signing up for the next round of bonus categories on your rewards credit card.

As you may recall, most cash back credit cards have moved to a base 1% level of earnings with rotating bonus categories, and you need to sign up for these on a quarterly basis.

Looking ahead to 2012, here are the Chase Freedom 5% reward categories…

January-March: Amazon.com and gas stations

April-June: Grocery stores and movie theaters

July-September: Gas stations and restaurants

October-December: Airlines, hotels, Best Buy, and Kohl’s

To register your card for Q1, be sure to visit ChaseBonus.com — and don’t forget to go back to re-register throughout the year.

Don’t forget the $200 bonus…

If you don’t already have the Chase Freedom card, you can get a $200 cash bonus by applying for one, getting approved, and spending $500 within the first three months, and there’s no annual fee. Technically, you’ll get 20,000 points, but you can easily redeem these for a $200 check.

For what it’s worth, we’ve had this card for years and have never had any problems getting Chase to hold up their end of the bargain. You just login, request the check, and it shows up in your mailbox within a week or so.

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Related Articles at fivecentnickel.com:

» Chase Freedom $200 Signup Bonus
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» Chase Freedom Experimenting With Quarterly Rewards Auto-Enrollment
» Chase Reward Categories for Summer 2012 – Plus a $100 Bonus
» Why Didn’t I Earn Bonus Rewards from Chase?
» Chase Freedom $100 Cash Back Signup Bonus

]]> http://www.fivecentnickel.com/2011/12/28/chase-freedom-reward-categories-for-2012-plus-a-200-bonus/feed/ 5 http://www.fivecentnickel.com/2011/12/28/tips-for-returning-unwanted-gifts/ http://www.fivecentnickel.com/2011/12/28/tips-for-returning-unwanted-gifts/#comments Wed, 28 Dec 2011 15:13:54 +0000 Nickel http://www.fivecentnickel.com/?p=24312

With Christmas in the rearview mirror, it’s time to deal with the aftermath. Did you love your gifts? Or did some of them miss the mark? While it’s the thought that counts, you may be thinking about returning or exchanging one or more of your gifts.

With that in mind, I wanted to share a few tips for returning unwanted gifts.

Bring the receipt

First and foremost, bring the receipt. While you don’t always have a choice in the matter, having a receipt makes a world of difference when making a return. No, I’m not suggesting that you ask the giver for the receipt — that would be awkward. But if you have access to the receipt (perhaps there was a gift receipt tucked in the box?) then be sure to bring it with you.

Without the receipt, you’ll likely get credit for the lowest price that the product was sold for in recent months. And, in many cases, that will be far below what the gift giver actually paid.

Bring your ID

In an effort to combat fraud, many retailers now require ID to make a return. This isn’t a huge deal, as most people bring their driver’s license wherever they go, but… There’s nothing worse than waiting in a long line at the service desk only to be turned away. So do yourself a favor and double check that you have your ID before heading out the door.

Know the timeline

Another important thing is to know the allowable timeline for making a return after Christmas. Many retailers have a relaxed return policy for at least 30 days following Christmas, but that’s not always the case. This is especially true when it comes to certain electronics, which may only have a 7-14 day return policy.

So… While it’s good to wait a few days to let the customer service lines die down, you need to be aware of the applicable time limits.

Don’t open packages

If possible, leave the packaging intact. In most cases, stores won’t accept returns on music, movies, or video games if the shrink wrap has been broken. Yes, you can swap a defective item for an identical replacement, but you won’t be able to get your money back or exchange it for something else.

And when it comes to clothing, some stores are cracking down and refusing returns if the tags have been removed, so… Be sure to leave those tags in place until you’re sure you want to keep it.

Beware the restocking fee

Related to the above, if you open a package before making a return, you may face a “re-stocking” fee of as much as 15%. Such fees are standard fare on certain items — such as high end electronics — and can really take a bite out of your return. If you do open the item, re-package it carefully and enclose everything that came with it.

Or consider re-gifting…

If all else fails… Consider re-gifting. Just be sure to keep it out of the same social circle so there won’t be any hurt feelings.

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Related Articles at fivecentnickel.com:

» Father’s Day Spending
» Six Ways to Save Money this Holiday Season
» Weekly Roundup – 12/22/06
» Back in Town, Life Returning to Normal
» Holiday Savings Roundup
» Do-It-Yourself Christmas Gifts
» How to Get Off Junk Mail and Telemarketing Lists
» Second Stimulus Check: How Would You Spent It?

]]> http://www.fivecentnickel.com/2011/12/28/tips-for-returning-unwanted-gifts/feed/ 0 http://www.fivecentnickel.com/2011/12/27/quit-quashing-the-quirky-support-small-businesses/ http://www.fivecentnickel.com/2011/12/27/quit-quashing-the-quirky-support-small-businesses/#comments Tue, 27 Dec 2011 14:17:54 +0000 Jeffrey Steele http://www.fivecentnickel.com/?p=24302

Years ago, I was assigned to write a series of Chicago Tribune articles set in Princeton, IL, the historic Bureau County seat that grew up along U.S. Rt. 6, about two hours west of Chicago, and an hour east of the Quad Cities.

After I wrapped interviews one day, the Princeton Chamber of Commerce director winked and said, “C’mon, I want to show you a special place out of town.” We got in his car and motored winding, forested roads a few miles south before pulling up at a low-slung motel overlooking a picturesque lake in the middle of nowhere. “Welcome to the Ranch House,” the chamber czar said.

The Ranch House looked so much like the Bates Motel of Hitchcockian fame that I half expected to find Tony Perkins behind the front desk, battling odd facial tics. A 1950s-era neon sign with a blazing arrow beckoned to the parking lot, and an old, creaking wood plank walkway led to the handful of rooms.

The motel had the same air of abandonment as the hostelry in Psycho. Yet it was wide open for business, as was its attached dining room.

Ambling into the Ranch House Restaurant was akin to stepping through worn oaken doors into the immediate post-War era. The eatery showcased dark wood paneling, booths of virgin Naugahyde, and a decorating style time had forgotten. Yet it radiated a cheerful air. We slid into a booth with the owner and ordered up the mouth-watering specials, “whiskey steak” and battered, deep-fried pickles.

The grub was bested only by the stories told of the Ranch House.

A colorful legacy

It turned out that the history of the motel and restaurant was as unique as its ambiance. In the 1950s, the legend went, a handful of Chicago politicians made an autumn ritual of skipping town for a long weekend on a west-bound train. At the first stop out of the city, they’d be joined by their best friends, a pack of Cicero mobsters. Thus assembled, the fun-loving group of cronies would travel until the train hit Bureau Junction, home of the Ranch House. There, they would hunt, fish, and be entertained by area gals practicing a profession as old as time.

Returning to Chicago, I couldn’t stop trumpeting the charms of the Ranch House. I pleaded with anyone with the slightest urge to weekend in Bureau County to book a stay at the old motel, and sup at least once in its restaurant. Several took me up on the suggestion, and ended up loving the place as much as I did. When out-of-state friends came to the Windy City, I always squeezed a visit to the Ranch House into the itinerary. After all, I reasoned, a place that unusual, that distinctive, that one-of-a-kind couldn’t survive much longer.

Of course, it didn’t. It wasn’t three years after my discovery of the Ranch House that I got the sad news that it was gone. In a more urban setting, it would have been razed to make way for one more chain submarine sandwich shop, or another in an endless string of national bank branches or chain pharmacies.

But since it wasn’t, it simply burned down. Arson? No one knows.

Iconoclastic ancestry

In the lineage of idiosyncratic small businesses, the Ranch House was a cousin to a variety store in my hometown that sold anything the owner could buy off the back of a truck, from tackle boxes to tape recorders. It was of the same family tree as a much-beloved German eatery on Chicago’s north side that felt like a mini vacation to Bavaria each time you visited. It was a distant relative of a quixotic amusement park where generations of northeast Illinoisans relished their first Tilt-a-Wheel rides.

All the above have passed into memory now, replaced by condominiums, parking lots and in one case, the latest outpost of a national home center chain.

These recollections aren’t just random, misty, watercolor memories. Consider the existence of Small Business Saturday, the post-Thanksgiving and Black Friday event designed to encourage folks to shop small, independently-owned stores, boutiques, and service businesses for their holiday gift purchases.

That’s a noble cause, and one I applaud. But we ought to be shopping and dining small most days of every year, not just one. If we don’t, the future for America’s subsequent generations may be as absent of independently-owned businesses as it could be of spotted owls, Siberian tigers, and mountain gorillas.

Sure, there should be a place in the world for chain restaurants, convenience stores, bank offices, cinema megaplexes, and discount retailers.

But through our quest for the quick and convenient, we’ve made them so ubiquitous that when traveling it’s getting harder and harder to tell Dallas from Philadelphia, Seattle from Jacksonville, or New Orleans from Detroit.

Moral of the story

If there’s a place for national chains, there should also be one for the family-run, non-plasticized, non-homogenized, non-Seal-of-Approval-endorsed business. The kind of enterprise that doesn’t just sell you a product, service or meal, but leaves you with a memory, an anecdote to recount to friends and just maybe a friendship with the personable owner dependent on your business.

If we all back independent stores, eateries, and hostelries with our dollars, we can help ensure at least a few of them will still be around years from now. We can think of it as our holiday gift, and indeed a priceless one, to generations yet unborn.

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]]> http://www.fivecentnickel.com/2011/12/27/quit-quashing-the-quirky-support-small-businesses/feed/ 6 http://www.fivecentnickel.com/2011/12/23/save-money-by-asking-for-discounts/ http://www.fivecentnickel.com/2011/12/23/save-money-by-asking-for-discounts/#comments Fri, 23 Dec 2011 11:00:42 +0000 Nickel http://www.fivecentnickel.com/?p=24192

Last night I saved $228 (plus tax) with a 10 minute phone call. How? Easy. I called our DSL provider and asked for a discount.

While poking around on their website, I noticed that they were offering their 6 Mbps DSL service (our current level) at a promo rate of $19.99/month for new customers. Given that we’ve been paying $43/month, I was annoyed. Annoyed enough that I called and asked for a better deal.

Actually, I started with their online chat, but that turned out to be a dead end. His recommendation was to call the “business office” and ask for their help. When I called the main number, I was told that the $19.99 was a promo for new customers only, but that they could transfer me to the retentions department who might be able to help.

Once I had the retentions rep on the line, I explained the situation — $19.99/month for new customers vs. our current $43/month rate, and the fact that cable companies regularly advertise similar promo rates. I then asked if there was anything they could do for us. She briefly put me on hold, and then came back with an offer…

She said that they could drop our rate to $34/month plus give us a temporary discount of $10/month for the next 12 months. Score! That works out to $24/month, a savings of $228 over the next year, not including taxes. Not quite $19.99/month, but it was apparently the best she could do.

I quickly agreed, mostly because the cable thing was a total bluff… We can’t actually get cable in our neighborhood (hence our love-hate relationship with Dish Network), though I would switch in a heartbeat if I could.

And before anyone gets self-righteous about how I handled this, please note that I didn’t actually lie. Rather, I just pointed out that cable companies regularly offer similar promos for new customers, and then I asked if they could help me out with a better deal.

Looking ahead, I’ll be calling again in 12 months to ask for another discount. And even if they refuse at that point, we’ll still be ahead of the game with a $34/month rate vs. our current $43/month.

And now… I’d love to hear about your discount-requesting successes. Have you cut your cable bill? Trimmed your telephone charges? Or saved on internet service? Please share the details in the comments section.

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]]> http://www.fivecentnickel.com/2011/12/23/save-money-by-asking-for-discounts/feed/ 11 http://www.fivecentnickel.com/2011/12/22/intuit-promises-to-add-lion-support-for-quicken-2007/ http://www.fivecentnickel.com/2011/12/22/intuit-promises-to-add-lion-support-for-quicken-2007/#comments Thu, 22 Dec 2011 21:05:24 +0000 Nickel http://www.fivecentnickel.com/?p=24182 Here’s a bit of good — albeit very overdue — news for those of you who have been waiting for Intuit to fix the Quicken 2007/Lion situation…

As you may know, Quicken for Mac 2007 does not currently work on Apple’s latest operating system, Mac OS X 10.7 (Lion). I understand the frustration this may have caused you and have put a team in place to address this issue. I am happy to announce that we will have a solution that makes Quicken 2007 for Mac “Lion-compatible” by early spring.

That’s from an e-mail that I received from Aaron Forth, the General Manager of the Intuit Personal Finance Group earlier today. Of course, we’ve heard this before — with an “end of summer 2011″ timeline — and it never materialized.

In his e-mail, Forth also claimed that “Working toward a Quicken for Mac 2007 solution is just a first step in winning back your confidence.” Given Intuit’s track record when it comes to (lack of) Mac support, I’m not holding my breath. But it’s good to at least here them talking the talk.

In the mean time, Moneydance is an excellent Quicken alternative. I made the leap last summer and haven’t regretted it one bit.

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]]> http://www.fivecentnickel.com/2011/12/22/intuit-promises-to-add-lion-support-for-quicken-2007/feed/ 1 http://www.fivecentnickel.com/2011/12/22/cash-gifts-vs-gift-cards-pros-and-cons/ http://www.fivecentnickel.com/2011/12/22/cash-gifts-vs-gift-cards-pros-and-cons/#comments Thu, 22 Dec 2011 15:34:52 +0000 Lisa White http://www.fivecentnickel.com/?p=24172

Cold, hard cash… Or glittery gift cards? It’s an ongoing conundrum every holiday season. If you’re like me and you have a particularly challenging list of friends and relatives to buy for, this is the burning question.

For those looking to choose one or the other, consider the pros and cons of both.

Gift card pros

Today, it’s easy to buy gift cards. They’re in the checkout lane of almost every retailer, or in a stand nearby. And it’s no wonder; retailers love gift cards! Not only do they make a bigger profit than from shoppers using cash, but considering the many cards that are lost, forgotten, and/or have outstanding balances that are never used, stores can really come out ahead.

Gift cards also bring in new customers who would otherwise not have shopped the store. Best of all, those who are using gift cards often spend more than the card is worth, boosting the retailer’s revenue. It’s a win-win… For the gift card retailer!

A gift card feels more personal because you actually had to go to a store to purchase it. Also, you had to pick from a seemingly endless variety, which proves there was some thought put into the gift giving. So what if the card recipient is not a fan of the only store they can redeem the card at. It’s the thought that counts, right?

Did you know there are ways to pay less for gift cards? Yes, you can fool your gift recipient by spending less on them than they think you did! Auction sites like eBay sell these cards for less than face value, but you need to make sure you’re not getting ripped off or paying a shipping charge that would negate any savings. Also, verifying the card’s expiration date is important.

If you’re not comfortable with eBay, specialty sites such as giftcards.com and certificateswap.com offer gift card discounts of 10 to 20 percent — but there isn’t always a great selection. Warehouse clubs such as Costco and Sam’s Club also sell gift cards at a discount off face value.

Today, there are also more gift card options. A more versatile alternative to a specific store card is a prepaid Visa, Master card or American Express gift card. These are readily available both at many stores, including convenience stores, or online. The biggest benefit is that these cards can be used like cash anywhere for anything. You could be giving the gift of gas for the car or diapers for the baby, but money is money in this economy, even if it isn’t being used as a gift.

If you are really unmotivated to shop this year, there are e-gift cards you can purchase and send from the comfort of your home. Just be aware that spam blockers may interfere with the recipient actually receiving your gift, so you’ll have to give them a heads up. The element of surprise is overrated anyway, right?

Gift card cons

Many gift cards are limited to one retailer, so you need to find out where the recipient likes to shop. Otherwise, you risk giving a gift that will be re-gifted, something we all try to avoid.

Gift cards can be easily lost, misplaced or not fully utilized. That’s not an issue for the giver, unless you consider that your hard-earned money was wasted. In this case, consider your purchase as a gift to the retailer or business the card came from.

Some gift cards also have fees, expiration dates, and/or restrictions, so be aware of what your purchasing and make sure the recipient is in the know, as well.

Cash pros

The biggest benefit of cash is its convenience and flexibility. It can be used anywhere for anything. You may have grandma to thank for at least part of that new iPad this Christmas!

Cash does not have an expiration date, hidden fees, or any restrictions whatsoever. You can just spend it at will. Unlike a gift card, you can save or invest cash.

Also, if you don’t use the full amount of a cash gift, you get change back that you are more likely to spend at a later date because you know how much it is worth. You may not remember it was part of a gift or who gave it to you, but it’s there nonetheless.

Cash cons

It’s hard to find any negatives with cash gifts. Yes, it can be lost or stolen just like gift cards. Also, actual money can be considered less personal than a gift card. But it’s a sure bet that most recipients will appreciate cold, hard cash, even if they choose to spend it on someone else.

There is no better time than now to consider the pros and cons of cash and gift cards to help determine the best choice this holiday. After all, we only have a few shopping days left before Christmas!

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