Nobody likes wasting money, do they? Actually, according to a news report from Moebs Services, banks, credit unions and thrift institutions made $32 billion on overdraft fees in 2012. That’s right, $32,000,000,000! That’s a lot of zeros.

The 2012 numbers represent an increase of $400 million, or 1.3 percent from 2011. If you think last year’s number is staggering, it still falls short of the record $37 billion in fees set in 2009. However, at its current rate, Moebs predicts a new record-high will be set at the end of 2016.

So, if you break down the population, how much did the average American pay? Well, considering there are approximately 330 million Americans, the average American paid about $100 in overdraft fees in 2012. If you break down the population by age, keep in mind that roughly 100 million Americans are outside the legal working age and are unlikely to contribute to the statistic. This means that the average working-age population paid close to $400 a year in overdraft fees.

Perhaps what’s even more unsettling is the rise in overdraft spending isn’t due to an increase in the price of the fee. Instead, it’s resulted from a greater number of overdrafts. Of the approximately 38 million people who have a consumer checking account, the Moebs study found that the median overdraft is about $40.

Apparently people really do like wasting money. If you fall into the category of someone who has been charged an overdraft fee, there are ways to ensure it doesn’t happen again. You can start by checking your account statement on a regular basis. In today’s world of smartphones, this task can be done in a matter of seconds without a trip to the bank or an ATM.

There are many ways to overdraft your account. The most common way is to withdraw more money from your account than you have. You can opt in for overdraft protection, which will allow you to withdraw the money and then pay a fee later on. If you decide against opting in for overdraft protection, your transaction will be denied.

While overdraft protection can be useful in some cases, a recent study by the Pew Charitable Trusts found that 54 percent of the customers who had overdrawn their accounts did not realize they had signed up for a service that cost money. Do you fall into this category?

Be sure to check with your bank about overdraft penalties and if you are signed up for overdraft protection. Do you think overdraft protection is worth paying the hefty fee? Let us know in the comments below!

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Prom inflation? There’s such a thing now? Seriously? Yep.

Visa evidently thinks prom spending is significant enough that they’re spending money doing an annual survey about how much people are going to spend on proms.

The 2013 report just came out a few weeks ago. What did it say?

New records

Recession, schmecession, prom spending is expected to set new records this year. Check out the chart below:

If 40 percent over two years is not inflation, what is?

The prudent ones among us, who routinely budget for planned expenses, would have had to put away close to $100 per month for the past year to pay for this year’s shindig. How much will it be next year?

Prom debt

However, something tells me that saving ahead of time is probably not happening all that much. What gives me that idea?

Clue #1: Credit card company survey sponsor. Do you think Visa would spend good money reporting on something people bought for cash? Out of interest I Googled “Visa survey on grocery spending” and came up empty. Think about it: if you made your money from people incurring debt, would you be interested in a class of spending that in most cases does not involve debt? Me neither.

Clue #2: Those with an annual income of less than $50,000 plan to outspend those earning over $50,000. Does it make you shake your furrowed-brow head, too?

Clue #3: Single parents plan to spend almost double what married parents spend. $1,563 to $770. Slow down and let that sink in: single parents usually make less than a married household, and spend almost double on prom night.

So, what are the chances that the higher spending by lower income earners is funded with credit card debt? Pretty high, I suspect. (Visa didn’t disclose that percentage, but in the past month they launched a new smart phone app, Plan’it Prom, to, well, you guessed it, plan out the prom, 21st century style.)

So, not only is the spending on prom nights rising to record levels, but it probably is funded by a disproportionate amount of debt.

What?

According to Kit Yarrow, a consumer research psychologist, ”prom is the new wedding.” When you look at where the money is going, it’s easy to see her point.

The big-ticket item is the dress or the tux. Some will spend upward of $300 on a dress, worn one night, although that probably wouldn’t be the average.

Then there’s the venue. The school hall doesn’t cut it any more. (Wait, you mean there are actually people who once had their prom in a school hall?)

Well, how are you going to get your fancy bottom to said fancy venue? In a fancy limo, of course. Maybe a party bus? Borrowing Dad’s car to take your date to the prom and having her back in her parents’ home by 11pm is so… hey, did they even have a century when people did that?

So, once the well-dressed young adult has arrived in stylish wheels to the fancy venue, how can you just end right there? And so the after-party was born.

I didn’t mention the pre-prom tan, because I just couldn’t bring myself to do that. The prommers apparently do it, though. Add it to the tab, Dad.

Why?

Those among us who are older are no doubt aware that prom night has always been an important event. But important didn’t always equate to spending at this debt-inducing level. Why, then, has prom spending skyrocketed?

Perhaps a form of peer pressure (“C’mon, Mom, I don’t want to be the one left behind!”) is partly responsible for ballooning prom budgets?

However, the stat mentioned above which shows single parents outspending married parents two to one makes one wonder if prom night isn’t some attempt, conscious or unconscious, by a parent to have a “do-over” to recapture the romance of a time with no responsibility beyond being home at a certain time.

Or could it be that the recession is over and any occasion to step out and celebrate is a welcome distraction from the hard times we all went through?

By far the most troubling thought to me is that this one night will be the highlight of a young adult’s life. Can that be? Is there nothing better in someone’s future than prom night? Isn’t that just the most depressing thing you heard all year?

Why do you think prom spending is rising so quickly? Especially among those who seemingly can least afford it?

Advice

How do you feel about the level of prom spending? Do you feel it’s getting out of hand, or is this just part of the new normal? What do you feel is a reasonable budget? How much of that budget should the parents pay for?

More importantly, what advice would you give to parents with teens getting ready for prom night?

I was recently interviewed on the subject of online banking, and the reporter asked a very direct question: is online banking better than traditional branch-based banking?

It’s a fair question given the information we were discussing. This included surveys from MoneyRates.com that show online banks consistently having higher money market and savings account rates than traditional banks, as well as lower checking account fees. There was also a recent MoneyRates poll that found bank customers who use online services were a little more satisfied with their banks’ customer service than those who don’t.

So again, it was a fair question, but even though online banks might seem to have a lot of evidence on their side, the answer doesn’t come down to the banks. It comes down to the customer. In order to decide which bank is right for you, you need to look in the mirror and decide what kind of bank customer you are. That will help you sort out not only the issue of online vs. traditional banks, but also questions of size and other bank characteristics.

The following are some questions about what type of bank customer you are, along with a discussion of how each relates to your choice of bank:

1. Are you a saver? If you plan to keep a large amount of money on deposit, then your bank search should focus on where you can find the best savings account, money market account, or CD rates. If, on the other hand, your need is primarily for a checking account, look for a bank which offers free checking — these are a minority among traditional banks, but most online checking accounts are still free of monthly maintenance fees.
2. Are you a student? Students often have trouble qualifying for free checking accounts because they tend to have low account balances and don’t have paychecks throughout the full year to meet direct deposit requirements. However, some banks have special accounts which offer free checking to students on easy-to-meet terms. Local and regional banks seem to offer these accounts more often, but some larger banks have them as well.
3. Are you over 50 years old? Just as some banks offer free checking to students, the same type of banks often have programs providing free checking to older customers — and the qualifying age is often as young as 50 years old.
4. Are you wealthy? Wealthy customers need to be careful about exceeding the $250,000 FDIC insurance limit; remember, this limit combines the total of all your accounts at any one institution. Wealthy customers may want to spread their accounts among multiple institutions to qualify for more insurance, and choose each of those institutions according to the type of account being opened.
5. Do you have a very small checking account balance? At the opposite end of the spectrum from wealthy customers are those who live paycheck to paycheck, and maintain a minimal checking account balance. Banks often have minimum balance requirements to keep an account open, or to qualify for free checking. You’ll find these balance requirements tend to be lower at smaller banks than at larger banks, and they are especially low at online banks. So, if your checking account is small, focus your search on smaller banks or online banks.
6. Are you a traveler? If you travel frequently, you will want to look for a bank whose ATM network is spread out across the areas you tend to visit, so you can avoid out-of-network ATM fees. These need not be the bank’s own machines; some banks belong to broader networks or have arrangements for reimbursing ATM fees in areas where they do not have machines. If you travel internationally, you may want to consider a bank which has currency exchange services or even foreign branches.
7. Do you like to do business online? As mentioned previously, online banks have certain interest rate and fee advantages over traditional banks. If you increasingly manage your personal business online anyway, then you are a very good candidate for this kind of bank.
8. How much do you value personal interactions at the bank? Ask yourself this: when was the last time you walked into a bank branch? If you realize that you do almost all your banking via telephone, mail, and ATMs, then it is worth considering whether you too might be a good candidate for online banking.

By the way, the question of online vs. traditional banking isn’t always an either/or decision. Many banks today have a mix of both types of accounts, and customers can choose which services they want to access online.

One thing that banking customers have in their favor is choice: there are about 7,000 FDIC-insured institutions in the United States, and they come in all sizes and types. Thinking about what you want from a bank will help you narrow down the selection of which bank is right for you.

In order to survive, we need water. However, the water we drink could actually harm us. According to the Center for Disease Control and Prevention, tap water can contain contamination from natural chemicals and minerals, viruses, bacteria, parasites, pesticides and even sewage overflow. That sure doesn’t sound like something you’d want to pour into a tall glass to quench your thirst.

The popular alternative to tap water is bottled water, but this might not be the best option. According to the Natural Resources Defense Council, there are actually fewer regulations on bottled water than tap water. And in many cases, bottling companies are just filling their containers with tap water anyway. Those non-biodegradable bottles are also very harmful to the environment as well as expensive. If a person drinks an average of three bottles a day, this can run you anywhere from $3 to $10, depending on the brand. That’s $1095 to $3650 per year on water alone. So maybe tap water is worth a second glance.

While tap water may contain some harmful contaminants, it still can be very useful and cost effective if paired with a filtration system. According to the Environmental Protection Agency, the national average cost of tap water is just $2 per 1,000 gallons. That’s $.002 cents per gallon! In order to take advantage of this tremendously cheap resource, there are several tools at your disposal.

• Faucet-mounted filters: These filters attach directly to your faucet. The replaceable filter captures all of the contaminants. The filter will slow down the flow of water from your faucet. The assembly costs around $30, and replacement filters (which usually last about a month) cost around $20.
• Carafe filters: These are basically pitchers of water with a filter mounted in the lid. Every time you pour water in through the top, it gets filtered. It can take some time to fill the container, and might not be enough to satisfy your water needs if you drink lots of water. They typically cost from $20 to $40, and replacement filters can cost from $15 to $30.
• Countertop filters: These filters run from your faucet, through a standalone filter and out a separate faucet head. They also will not impede the flow of water from your regular faucet, if you don’t want the water to be filtered. These can be costly, running from $50 on the low end, all the way to $200. Replacement filters can run from $50 to $150.
• Undersink filters: These filters are installed out of sight, and let you get filtered water right out of your faucet. Depending on your sink’s plumbing set up, the filter may require additional pluming work, such as connecting to the water line or drilling a hole in your counter top. The filters can cost from $100 to $300, with replacement cartridges costing from $10 to $80.
• Whole-house filters: These filters help remove dirt and rust, but won’t filter out much else. They are best paired with another filter, to remove the remaining contaminants. They are placed on the main water line going into your house. These can cost from $40 to $300.

No matter what you choose, do some research to learn about each filter’s effectiveness, lifespan and maintenance requirements. Spending a little money on a system up front can save you big bucks in the long run and protect from harmful contaminants. If you already have a filter, let us know which works the best for you in the comments section below!

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A few weeks back, by sheer coincidence, I happened to meet a young woman currently enrolled in the same journalism school master’s degree program from which I graduated more than a third of a century ago.

We got to talking about all the opportunities she and her classmates enjoyed. From studying at a Chicago news bureau to working in Washington, D.C. while still a master’s candidate, these were openings not offered me or my fellow members of the Class of 1979. Noting my astonishment, she said her parents were just as dumbfounded by the opportunities awaiting today’s collegians.

“My parents say that if they’re ever reincarnated, they want to come back as their own kids,” she added with a smile.

More opportunities — and debt

I can understand that sentiment, but I bet student debt is not one of the areas that leaves parents envying their college-age offspring. The severity of the college debt crisis continues to mount, as discussed in a recent report by the Squared Away blog from the Center for Retirement Research at Boston College.

Here are a few factoids from that blog. The nation’s student debt burden has reached $1 trillion and continues to rise. Eighty percent of bankruptcy attorneys report student loans are driving more clients through their doors. Payments on half of all student loans are being deferred, an indication those with large loan balances are facing perilous financial circumstances. Student debt is held by 44 percent of American households headed by people under age 35, and it’s concentrated in poorer households, according to the Pew Research center.

Yes, it is true college degrees add an average of $1 million in lifetime earnings for every man and woman holding the sheepskin, the reports says. But that notwithstanding, what’s the societal fallout when students emerge from college with $50,000, $100,000 or even more in debt hanging over their heads?

The issues resulting from the punishing college debt include some surprising emotional landmines, as well as a few crucial lessons today’s high schoolers and their parents can learn from the debt-burdened students who went before. Let’s look at the lifestyle and psychological fallout, then turn to a few critical lessons.

Wedding bell blues. Women with no debt are more likely to marry than those who come out of college with large student debt loads. Fenaba Addo, a post-doctoral fellow at the University of Wisconsin’s Department of Population Health Sciences, studied the effect of student debt on single women in their 20s. The probability of marrying declined steadily with amount of student loan and credit card debt. Interestingly, there was no similar impact on a man’s ability to marry.

Stressed, depressed, but not repressed. Studies have found that people with extensive student debt are more likely to feel stressed out and depressed. But they’re not repressed. The rates of cohabitation with their significant others are higher for both men and women carrying substantial debt, Addo found.

Perplexing self-esteem issues. Among the most intriguing findings related to student debt is that it is linked with higher, not lower, levels of self-esteem among the debt burdened, at least initially. Part of the reason may be that college has become so difficult to afford that taking on mountains of debt is almost seen as evidence one has gone far in his or her college career. However, one study found the effect evaporated when reality set in a few years out of college.

Lessons learned

Many families won’t be able to eliminate the reality of college debt. But they can minimize its damage now and down the line. Here are some strategies:

* Rethink the conventional wisdom. Many believe state institutions are going to be the cost-effective option. Not necessarily. Many smart, middle-class high school students may be better off applying to private colleges, where competition for merit aid is not as stiff as at huge public universities, Squared Away reported.

* End of the romance. A lot of parents feel they must surrender to their sons’ and daughters’ idealistic feelings about the college that “feels right” for them. Phooey, say experts. With college degrees commonplace today, says one, “You have to consider very, very carefully how much of your life and how much of your money you’re going to invest in that educational experience.”

* Debt reducers. Consider strategies like summer work, work-study programs during the school year and even living at home as ways to trim costs.

* Be practical. Majoring in literature, history or philosophy was not unusual for yesteryear’s collegians. Today, that’s impractical. Students need to link their passions to disciplines associated with good-paying jobs, Squared Away says.

* Plan B: Community colleges and vocational schools. A four-year college degree isn’t right for every student. Some would be better off logging the first two years at a community college, or forsaking college altogether for the hard-edged, very practical training afforded by vocational programs.

* Have the conversation. Parents must have serious discussions about what higher education costs will do to family finances. It’s a way to counter what in many families are unrealistic expectations on the part of college-bound young people.

If you’ve gotten this far and are coming away from this blog with the notion that economizing on college costs ought to be as big a priority as grubbing for grades at midterms and finals, go to the head of the class.

“Modern man drives a mortgaged car over a bond-financed highway on credit-card gas.” ~Earl Wilson

So far, we have lived debt free. We used to live paycheck to paycheck because our spending was out of control, but luckily we never got into debt. Once we got our act together, not having any debt was tremendously helpful in quickly building our net worth up.

A couple of weeks ago, a conversation with a fellow blogger sparked an interesting topic. In his opinion, it is impossible to live debt free before anyone turns 50. He added that, our society is credit based, and thus it is simply not possible for normal people. Some people do it, but they either have to be extreme frugalists who live like hermits or trust fund babies who had everything given to them.

I am not so sure. Is it really impossible for people who make an average living to live without any debt?

Cultivating a debt free mind set

Everywhere we turn, be it the news, the radio, the internet or friends and acquaintances, everyone will emphasize the fact that our nation has embraced debt. We are comfortable carrying debt as long as we are making payments. It is difficult to break out of that mind set and choose to be debt free. We have to break free of the ingrained tendency to think that debt will fix all problems. There was a time in America when everyone got by with what they made and lived debt free.

Credit cards, layaway programs and easy access to credit have all made it extremely easy to get into debt. We have to think long term and decide that enough is enough. Debt is not a solution; it is a hurdle to freedom. The only thing that saved us from going into debt even when we were living from paycheck to paycheck is our hatred of debt. So having that mind set itself is winning half the battle.

It is possible to live debt free. But we have to choose to do so.

Developing a debt-free strategy

Once the main obstacle of cultivating the debt-free mind set is crossed, the implementation is comparatively easier.

• Setting priorities: The main priority in this case is to be debt free without living like a pauper. To achieve this, we have to prioritize our spending. What is more important to you? A flat screen TV now or a mortgage free house later? A fancy dinner out every day or a great memorable vacation later?
• Breaking bad financial habits: Habits define us. We do a lot of things out of habit instead of making a conscious decision to do so. We might not even realize that we are burning money on something we don’t enjoy because we do it over and over again. Analyze your spending habits and see if they align with your priorities. If not, it’s time to break bad financial habits and introduce some good ones.
• Understanding financial weakness: All of us have our weaknesses. Ours is eating out. We are currently going cash only for just our food expenses, because we found that even though we are disciplined in other areas of credit card use, we tend to spend 25-40 percent more on food when we use credit cards versus cash. Cash makes us think twice about eating out or buying more than we need.

Understanding the challenges and rewards

It takes a lot of courage to be debt free because it is a lonely place. People will question your every decision; they will criticize your way of living and dismiss it as foolishness or assume you are swimming in money. Choosing to live debt free means you will have to think long term and master delayed gratification. It takes a strong resolution to ignore all the negative influences and keep plowing ahead with the reward in mind: freedom.

Is it possible to live debt free in America? Absolutely!

Will we stay debt free? Refining the relationship with debt

As I mentioned above, we are currently debt free. Will we remain debt free forever? I cannot say for sure. We are planning to take a mortgage sometime in the future. What changed? We no longer hate debt. I don’t believe there is good debt and bad debt, but I believe in my math. Even though we have close to enough to buy a house outright, it make more sense for us to keep that money in investments as the mortgage rate is a lot lower than what that money is currently making.

Now I understand some people prefer to be debt free, period. It gives tremendous peace of mind. We choose to arrange our money by making it work for us with the maximum potential. That will be our first step in debt, if we feel uncomfortable; we could always pay it off. We feel this is the best path to build our wealth. Other than the mortgage we plan to always remain debt free.

Right now is the most popular time for people to buy a home, and if you’re looking to sell or refinance your home, one of the things you’ll have to deal with is the appraisal. If your appraisal doesn’t go well, it’ll considerably drop the perceived (because perception is reality) value of your home. So, it’s really important to do some research and know what to prepare for when you’re getting an appraisal.

The basic thing to keep in mind, an MSN.com article explains, is that “Some of the advice [for appraisals] — like home valuations themselves these days — might seem contradictory. But what all the appraisers agree on is the importance of keeping the look, feel and condition of the property as updated and cared-for as possible.”

To best prep for your appraisal, you should become familiar with the appraisal process so you know what to expect so you can prepare your home accordingly.

The appraisal

While your mortgage lender can’t conduct the appraisal, they’re the one to order it through an appraisal management company, which will then select the individual appraiser to visit your home. The appraisal will last approximately 20-45 minutes as the appraiser examines the quality, condition, size, etc., of your home.

The three parts of the appraisal

With every appraisal, you have the inspection, the comparables and the final appraisal report. The inspection is the part where the appraiser visits your home. The comparables (comps) are similar homes in your area that have recently been sold. The appraiser researches comparable homes to help figure out the market value of your home.

And, you guessed it, the final appraisal report is what the appraiser issues after he/she has inspected your home and researched the comps.

Your home

The general appearance of your home will affect the appraiser’s evaluation of your home. Before an appraisal, spruce up your home, inside and out, so your house looks clean, neat, well-kept and appealing to others.

Start with the outside

Mow and trim the lawn, put away or organize any tools/gardening equipment and clear away any debris like leaves or sticks. Get rid of any noticeable weeds or dead plants, too. Also look at the condition of the house itself. Do you have peeling paint, cracked/missing bricks or mortar, damaged gutters or siding? Peeling paint is one of the big things appraisers look at, and some types of mortgages appraisals – like FHA – have very specific requirements about paint condition. It’s absolutely worth your time and money to repaint any worn or damaged areas inside or outside your home before an appraisal.

Now tackle the inside of your home

After you’ve got everything shipshape outside, walk through your front door and try to look at everything through the eyes of a critical stranger. Mess and clutter will project a negative image of your home and can decrease its appraised value.

Some experts say just an old TV can make an entire room look outdated. This isn’t a necessary change, but if you were thinking about upgrading your TV soon anyway, think about doing it before your appraisal to spruce up your home’s appeal.

Keep your appraiser’s comfort in mind

You don’t want to patronize your appraiser, but think about little things you can do to make the visit a pleasant one. For example, lock up your dog if you have one. The appraiser doesn’t want an excited, or angered, pet jumping up on him/her while working. If it’s cold outside, make sure you have your house set at a comfortably-warm temperature and vice versa if it’s hot outside. You want the appraiser’s visit to be as pleasant as possible.

Also keep in mind the $500 rule

Appraisers often measure home value in $500 increments. If your home needs some relativity-minor repairs, they’ll hurt your appraisal. Absolutely fix or replace all non-functioning door latches/handles, torn screens, worn out carpet and basic plumbing and light fixtures.

Effective age

Having lights, doors or windows that don’t work can affect your home’s effective age. If elements of your home are worn or in disrepair, its effective age will be higher so it will be compared to homes that are older than it actually is.

Keep track of all repairs or updates to your home

This is something you should do whether you’re thinking about appraisals or not – so that you can point them out, along with any other special features of your home, to the appraiser.

Sell the neighborhood

You’ll also want to keep track of and show the appraiser any changes or amenities in your neighborhood. If there are any parks, playgrounds, historic landmarks, unique shops, restaurants or anything else that makes your area stand out as a great place to live.

The bottom line for home appraisals is to make your house as appealing as possible but don’t stress about it too much. Appraisers are trained to be careful and fair in their inspections.

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Everywhere you look, the story’s the same: the value of your house is going up. The National Association of Realtors reports that home prices for March were up about 12 percent from a year ago, a trend that’s been holding for more than a year now.

How does that make you feel?

Does it make you feel nice and rich? Or simply relieved that the end is in sight: your underwater home loan might soon break the surface and see sunlight for the first time in years? Or, if you don’t have a home and you want one, are you feeling a sense of panic, that your dream of owning your own place is slipping through your fingers?

If you answered yes to any of those questions, you’re probably tempted to do something, because you might not have the chance again soon.

Slow down, take a deep breath and fetch your trusty calculator.

The big picture

Home prices go up, and they go down. Many of us realize this in one part of our brain, just not always the part that makes home buying decisions. (Everyone who bought between 2005 and 2008 probably can relate to that.)

This chart clearly shows the swing in home prices (click image to enlarge):

U.S. home prices for the past 10 years: up and down

Home price movement is not random; it’s part of the overall economy, which moves in cycles which lasted roughly 7 to 10 years each since World War II. (Here’s a good chart showing that.)

What do you do?

The chart above shows that home prices bottomed out sometime in 2011 and have begun their cyclical upswing. Will prices ever hit the peak of 2006-07? If so, when? It could take two years, it could take 20. The economy moves slowly, as do home prices, even though at times it feels like lightning.

Regardless, I think it’s safe at this point to expect home prices to continue rising for the next year or two at least.

So, how do you play the cycle for your benefit? You have four choices:

1. Trade up
2. Trade down
3. Trade sideways
4. Do nothing

As my neighbor Jim pointed out, moving is very expensive, and is guaranteed to set your net worth back by at least $30,000 after you factor in things like new drapes, furniture, appliances and even garden tools. From a purely financial standpoint, then, the last option is the only smart one. There are, of course, other life reasons which might compel a move, it’s just important to remember that it’s very expensive.

But, let’s say you’re interested in capitalizing on your newfound wealth by selling your current home and buying something nicer. Ever notice how, when you’re buying something more expensive, you don’t call it more expensive, but rather “something nicer”? But when you’re buying something cheaper, you never say “something less nice”? This isn’t a trivial observation; this is the part of the brain that overlooks hard financial data when we’re about to make a bad financial decision. We always tell ourselves the nice version of what we’re about to do. It’s called rationalizing.

Rationalizing or not, you decided you want to get a nicer house, and you want to take advantage of the growing equity in the home you currently own. So, is it a good idea to wait till you get more equity in your own home before you trade up?

In order to make the best decision, consider the following:

1. You’re chasing a moving target

If the price of your home is going up, so is the price of the place you have your eye on. That might seem like a pretty obvious observation, but you’d be surprised at how many people assume theirs is the only home price rising.

2. Homes are priced in dollars, not percentages

As a general rule, the higher up you go in the housing food chain, the bigger the price swings measured in dollars: 10 percent of $900,000 is $90,000 and 10 percent of $200,000 is only $20,000. Both are 10 percent (as in “home prices are up 10 percent”) but the dollars are very different.

3. Your key number is the price difference.

This means if you’re trading up, the key number for you is the price difference… in dollars. Sound obvious? Keep reading.

The math

For the sake of round numbers, let’s say your current house is worth $200,000 and the nicer house is $250,000. (The actual amounts don’t matter, they scale to whatever you’re looking at.)

Your key number is the difference in those home values: $50,000… today.

In the recession, your house was probably worth, let’s say, 20 percent less than today, $160,000. The house you’re eyeing (let’s call it your dream house) also went for less in the recession. If your home was down 20 percent, that one would also have been down 20 percent.

So, four years ago your dream house went for about $200,000.

At that time, then, the difference between your current house and your dream house was $40,000, compared with $50,000 today. Same two houses.

Now, let’s say the economy starts going gangbusters and your current house appreciates even further. Your dream home will, too.

Let’s say you decide to wait till you have more equity before trading up to your dream house, and let’s say at that point the prices are $300,000 and $375,000 for your current and dream houses, respectively.

You can see math clearly: the difference to trade up would have gone up to $75,000, from $50,000 today and $40,000 in the recession.

For the same trade.

Conclusion

A dollar is a dollar, and you have to repay it, with interest. You pay the fewest dollars for a trade up when you feel at your poorest, i.e., in the recession. And when you feel the richest is when you pay the most for the exact same trade.

So, waiting till you have more equity with which to trade up is an illusion. It never gets better, only worse.

The best time to trade up is as close to the bottom of the recession as you can. The longer you wait, the more you pay.

Conversely, if you’re considering a trade down (empty nesters, for example) the best time for that is when home prices are at their highest. Of course, we never know exactly when “the highest” is, but you get the math.

You might feel rich hearing the value of your house is going up. However, until you stop living in your current home, its price is really irrelevant, good for after-dinner conversation (in good times and bad) and not much else.

The only number that matters is the price difference if you’re trading up or down.

Finally, if you’re thinking you’ll never have the opportunity to buy your first home, be patient. I succumbed to that thought and stretched too hard to get a house, thinking that was my last chance. Huge mistake. Prices will come back down. They always do. Keep saving and wait.

I almost sprained my neck last week from shaking my head while reading stories about wild fluctuations in the value of the Bitcoin, an electronic currency.

Bitcoins began 2013 with an exchange value of less than $20. Their value started to climb, and that climb accelerated until they reached a peak of $266 on April 10. Then the bottom fell out, and within two days the Bitcoin exchange rate was down to $61.11. I’ve seen my fair share of crazy investor behavior over the past 30 years, but this was really one for the record books.

Of course, plenty of investments have gone through boom-and-bust cycles in recent years, so what was it about this story that particularly drew my curmudgeonly ire? Let’s examine a few details of the story:

• One analyst explained that the Bitcoin might yet rally in the future because “(e)ven assets that have no underlying value have people willing to trade in it.” Too true, but hardly reassuring.
• An exchange which handles Bitcoin trading attributed the precipitous decline in price to a rush of new customers trying to buy into the currency. If that’s true, it’s got to be the first time in financial history that surging demand has caused prices to plummet.
• Bitcoin was developed by an anonymous hacker. Is that really good enough to earn people’s trust? A person who participates in illegal computer activities and won’t be identified wants your money. Any takers? Well, apparently yes.

The Bitcoin has an appeal to both liberals and conservatives who don’t like Big Brother monitoring their money, or using their currency (via monetary policy) for political purposes. On a more sinister level, this online exchange system also appeals to people pursuing illegal objectives such as tax evasion or money laundering.

Bitcoins strive to be free from monetary policy manipulations by limiting the amount of the currency in existence. Unfortunately, any number of decisions about managing distribution of the Bitcoin constitute a de facto monetary policy, including the decision to let new participants buy into the currency, how many are allowed to buy in, and on what terms the currency can be exchanged for other currencies. Even the decision to limit the supply of Bitcoins is a form of default monetary policy, and unfortunately one that threatened to turn this currency into more of a Ponzi scheme than a stable exchange medium.

This doesn’t mean that the Bitcoin or an idea like it can’t succeed, but it does mean that so far, this specifics of this concept are badly flawed.

What’s to like about the Bitcoin?

Like many attempts at innovation, the Bitcoin may prove to be learning experience that leads to better things later on. After all, there are things to admire about the idea:

1. It is easy to imagine major currencies becoming available globally. The assorted troubles of the euro have provided a cautionary tale about trying to coordinate a currency backed by several nations. However, the idea that in the future technology will allow consumers and merchants to choose from a variety of major currencies and have the digital means to make exchanges seamless is both readily conceivable and desirable.
2. Payment systems are already becoming increasingly electronic. Money itself has long been a symbol rather than anything carrying intrinsic value, and more and more that symbol is expressed in electronic rather than in physical form. So, the idea of a fully online currency doesn’t seem very far-fetched.
3. Frustration with the conventional banking system is understandable. The whole “too big to fail” concept continues to leave a sour taste in many people’s mouths. It’s like an abusive relationship, where one person continually behaves badly but then keeps telling the other one “you can’t live without me.” I agree that the banking system has done a lot to lose our trust; I just don’t think the Bitcoin has done anything to gain that trust.
4. Frustration with central bankers is also understandable. Central banks use money to try to manage complex economies, which can make people holding that money feel like a pawn in a chess match. Recent examples are the near elimination of savings account interest by the U.S. Federal Reserve in an attempt to stimulate the economy, and the threat (which they later backed down from) by the European Central Bank not to honor the insurance on Cypriot deposits. Our money would feel much more secure if it were not being used as a tool for managing economies and financial systems, though I’m not sure it is possible to isolate any form of currency from those realities.

Unfortunately, recent events demonstrate that the Bitcoin is a long way from becoming a stable, universal currency free of supply-and-demand issues and of speculative manipulation.

If you choose to support the Bitcoin because of what it represents, then by all means do so. Just understand that it is still an experiment, so limit your investment in it accordingly, because experiments sometimes blow up.

At one point you’ve probably driven through a neighborhood and seen a house covered with solar panels on the roof. This type of home, known as an active solar home, simply has the addition of solar panels to the already existing structure.

However, some people are taking advantage of solar energy without solar panels—creating a new style of home construction called passive solar homes.  Sunplans.com notes that utilizing the passive solar in-home design can possibly cut energy bills in half.

Passive solar homes are custom planned and built depending on the region and hemisphere you live in. For example, here in the northern hemisphere, the sun in the winter season comes up in the southeast and sits low in the southern sky.

Therefore, to capture the most amounts of sunlight and heat in the winter, you would want to put as many windows as you can on the southern side of your house. Conversely in the summer, the sun rises higher in the sky, so constructing an overhang or porch area on the southern side of your house will block most of the summer sun from heating your house.

What I love about the passive solar style is that there are elements you can incorporate into your existing home if you want to make it more energy efficient. Some of the ideas may cost a bit of money to install; however, they may add value or even living space to your home. Adding any one of these elements can help you utilize the natural sunlight to warm your house even in cool climates.

Add an aperture

Basically, an aperture is an area on the south side of your home that utilizes tons of windows to capture sunlight during the winter—much like how a greenhouse captures and traps sunlight to warm it. You could even add a few skylights to the southern-facing roof of your house to also help capture sunlight for both maximum heating and lighting in your home.

Install a darker, hard masonry or wood floor

Once you have fine-tuned your house to seize the most sunlight it can, you’ll want to make sure the heat from the sun gets trapped in the house. One way to do this is by installing a thick stone or dark wood floor to absorb and retain heat.

Add thermal masses to retain more heat

Many people choose to add thick masonry walls and/or masonry below the flooring to retain even more heat. This is similar to the heat-island effect that occurs in large, metropolitan areas. I’m sure when you’ve watched the weather in the morning, you’ve noticed that cities are often warmer than the suburbs or rural areas. During the day, all that brick, metal and concrete in the city absorbs the daytime heat. The same thing on a smaller level happens in a passive solar house with a thermal mass. During the day it absorbs heat, and at night when it’s cooler, the mass releases heat.

Add an overhang or sun porch

In the summer, all of those windows you put on the south wall will turn your house into an oven! To moderate the temperature in the summer, install an overhang or sun porch to limit the summertime sun—keeping your house cooler.

Adding planned landscaping

Seasonal landscaping can also help with keeping your house cool in the summertime, but still allows sunlight for winter heating. Many people plant seasonal trees or vines that may help block sunlight. Even though it was unintentional, my house is completely shaded during summer afternoons courtesy of some lovely, leafy trees around our backyard. In the fall, all of the leaves fall off the trees and the back of the house generally stays pretty warm in the winter since it gets the most winter sunlight. The lesson here is not to plant evergreen trees or any other type of plant that might block the sunlight during the winter season.

Some of these concepts aren’t the cheapest additions or fixes to your home and may come along with a little sweat equity. However, with these additions, you can avoid the installation and wiring that comes along with installing solar panels in your home. With many people turning to more sustainable homes to save money and resources, incorporating more environmentally friendly options makes your home more desirable if you decide to sell it in the future.

More stories from QuickenLoans:
Earth Day: Its Past and Present
Pros and Cons of Composite Decks
Inexpensive Raised Bed and Planter Options for Your Garden

At a recent neighborhood function, I ran into a woman I’ve known for years, but hadn’t seen in a few months. She’d be the first to admit to suffering a weight problem. A shorter woman, she’d packed on enough pounds over the years to audition for the role of a beach ball. But here she was far more svelte, and looking good.

“Edna! You look fantastic,” I exulted. “What’d you do?”

“I’ve been walking,” she replied. Then she smiled. I don’t know, but I hoped the grin was in part acknowledgement of my small role in her making that choice. As a long-time fitness walker, I sermonize to the point of annoyance on the endless upsides of a fitness walking regimen. And Edna knew I practiced what I preached. She’d routinely honked and waved at me from behind the wheel of her minivan when spotting me hoofing a mile or four down Central Avenue.

“So you’ve lost lots of weight,” I said. “What other benefits have you felt? Do you find you have more energy?”

“Yes.”

“How about sleep? You sleeping better than you did?”

“Yes.”

“And you’re in a better mood?”

“Yes!”

I came away from the conversation suspecting Edna had experienced something many big-time walkers do. Like us, she’d started to get addicted.

Financial strides

Over the years, there’s been much written on FiveCentNickel about ways to save money at the gym by embarking on a shoestring fitness routine. But nothing, I noticed while scanning the archives, has been focused solely on lacing up those shoestrings and embarking on a regular campaign of brisk walking.

That’s an oversight I’m addressing here, because it’s likely financial as well as health benefits will mount with every mile you log as a regular walker. Let’s take a look at how the world’s simplest form of exercise could help you save sizable bucks over time, while also possibly adding greenbacks to your pockets.

Health benefits

First, consider long-term health. Being sick isn’t just a drag, it gets costly over time, what with prescription drugs, hospital stays and whatnot.

Walking is proven to boost HDL or good cholesterol, while shrinking its evil twin, the bad cholesterol known as LDL. It lowers your blood pressure, reduces your risk of Type II diabetes, helps keep your bones strong and decreases stroke risk. You don’t have to study the rising costs of health care long to know that all the positives of walking could keep you from running. Running up medical bills, that is.

Get off your meds

According to Mother Nature Network, researchers examining National Walkers’ Health Study data on 32,000 women and 8,000 men found folks who took the longest weekly walks were more likely to use less medication. If you are on a course of meds, imagine the savings of giving up even a few of them, if not all. It would be like finding a large medicine jar of U.S. currency

A slimmer profile

As Edna learned, regular walking can do remarkable things for your physique. And that could mean a permanent end to shelling out good money on diet books, diet pills and diet fads. As reported by CNN.com, a Duke University Medical Center study found walking 30 minutes a day can prevent weight gain in most physically inactive adults. Sure, you’ll spend a bit more on yummy foods you no longer have to pass up, but the net result of giving up all those pricey diet gimmicks should be an improvement to your bottom line, as well as your bottom’s line.

Postpone dementia

Futurists predict there will be enormous costs in the years ahead associated with greater numbers of older people with Alzheimer’s disease and other forms of dementia. The costs of long-term memory care can completely bankrupt families. But studies of older people suggest walking for as little as 45 minutes weekly wards off Alzheimer’s disease. No matter what your age, walking is a proven boon to your brain. Being more mentally sharp could also sharpen your pencil, helping you find ways to lower your budget and trim unnecessary household expenses.

Moneyed marching

All the above arguments have to do with saving money by engaging in regular walking. But I’ll go beyond these talking points, asserting that a walking regimen can provide revenue infusions that otherwise wouldn’t be offered.

As any fitness walker can tell you, walking is a mood enhancer. Like other exercises, it helps the body produce endorphins, which makes you happier. A regular walk will also help you sleep better, give you more energy and reduce feelings of stress and anxiety. And while I haven’t seen any studies on this, I’m convinced it has a way of clearing your mind, helping you focus on problem solving and even idea generation. I don’t think it’s a coincidence that the only time I ever won an award for contributing to this column, it was for a blog based on an idea that came to me while hiking 2-½ miles one chilly December morn a couple years ago.

If you’re a less cranky, better rested, more energetic, less stressed out and anxious person who’s a good problem solver and creative idea person, there’s no reason to think you won’t be a more marketable employee. Over the course of a career, that’s sure to mean more demand for you services, a higher income, and more promotions, resulting in, yes, an increasingly healthy total net worth.

If concerned about your long-term fiscal as well as physical health, give walking a try. Sure, you may start with small steps, but they could prove to be long strides toward a more comfortable financial future.

This post is from staff writer Suba Iyer.

At my first job, fresh out of college, I was determined to prove myself, prove that hiring me was one of the best decisions the company made, prove that I could take any challenge and make it work well before the deadline and prove that I could handle multiple tasks well.

It helped that it was an interesting and challenging job, and so I took on a lot of projects with enthusiasm. Even when the inevitable problems and frustrations arose, I made sure never to complain. I developed a reputation for finishing tasks well before the expected deadline. Everyone was pleased, and I thought I was doing great.

Then came the promotion list — without my name, but with another coworker who joined around the same time. Since I was under the impression that I had exceeded expectations in every aspect, I was surprised. However, I thought about it and decided that may be I just had to work harder to impress my supervisors, make my work even better.

But the better I became at my work, the worse my work conditions became.

Slowly the challenging work started to reduce and the grunt work started to pile on my desk. The work that didn’t get done because no one wanted to do it started getting assigned to me. I had already set the bar high, so shorter deadlines became normal and I was expected to beat my own records.

What did I miss here?

I was doing a great job, but I never let anyone know how much I was accomplishing or highlighted how much my work had contributed to the overall bottom line of the company.

At the time, it sounded like boasting to me. After all they gave me the work and I exceeded their expectations in the quality of work and the deadline, so they should realize how good I am without me making it explicit, right?

Wrong.

My clients, who used the product and loved how easy it was to handle, expressed their pleasure, but when the compliments were passed on to me, I waved them away saying, “Oh, it was nothing.” I was a fool! As a result my supervisors and upper management never realized the amount of effort and late night hours I had expended in making it that way.

Essentially, I never owned up to my accomplishments.

I am not alone, a study from Columbia University highlights that men tend to exaggerate their accomplishments more than women.

What I learned from my mistake

In general, women, especially introverted women like me, don’t speak up. Studies show that 57 percent of male graduate students negotiated their salaries while only 7 percent of female graduate students did. I did not negotiate my salary when I took the first job. I had to face the repercussions of that even at my second job when they offered me a salary based on what I was already earning. I had to spend more time preparing to negotiate my salary than preparing for the actual interview. Women feel that if we do an extraordinary job we will be recognized. When we don’t get recognized we start to doubt ourselves.

Some of us need to be a lot more aggressive in getting credit for a job well done.

• Accept the compliment: Say “thank you” instead of dismissing it.
• Own the accomplishment: Give yourself a moment to reflect on a job well done. This gives you the confidence to ask for a raise, speak up in a group meeting or anywhere you will be seen.
• Educate your superiors on your work: It need not be every single detail, but an overall picture to make them appreciate what went into finishing the job along with suggestions on how it can be improved. This accomplishes two things:

(1) Lets others know you didn’t just slack off and subtly shows how much thought and effort you put into the project.

(2) You will let them know that you can do more than what you are asked to. You have suggestions on improving the project, are ready to take on more responsibility and establish yourself as a person who takes the initiative.

A simple shift in my mentality has given me exposure I never had before. I still deliver the best possible results, but now, I also have a reputation for being the go-to person for any problem in my domain. I learned from my mistake never to dismiss my accomplishments and always speak up!

This post is by Deborah Dunham and comes from our partner site LearnVest, a site that helps people take control of their finances.

One Tuesday morning last November my husband called from work and told me to sit down—and not get mad. Whenever a phone call starts that way, you just know it’s not going to end well.

“(Insert jerk-of-a-boss’s name here) just called and said they were laying me off,” he said grimly. It was two weeks before Thanksgiving.

“What?!” I yelled. Oh, right: Don’t get mad.

“Fired,” he clarified. Something about his employer’s (an insurance company) bottom line, in the red, downsizing, bad economy. But I wasn’t really listening anymore.

In a matter of minutes, I went from shocked to angry to petrified. How could they do this to him? To us? With no warning? He had been a good, loyal employee there for eight years, and in five minutes, he was gone.

They can’t do that, I thought. Can they? We should demand an explanation. We should get more of a severance payout (because conveniently for them, this was three weeks before end-of-the-year bonuses were due). We should sue. We should … Ah, hell, what’s the point, I finally rationalized. What’s done is done.

Now I had to figure out where we could go from there.

Re-evaluating Our Wants vs. Needs

I moved into “fix it” mode, which is something I’m really good at. “Well, we’re just going to have to cut back on a lot of things,” I said, already making a mental list (starting with that Caribbean cruise over Christmas break. And that yoga retreat with the girls. And my Starbucks addiction).

By the time we hung up, we were part of the millions of other American families who were newly unemployed and in a personal financial crisis, brought on by the larger societal one at hand. It was a scary position that I didn’t dream would happen to us, and it certainly wasn’t something we were prepared for financially.

While we had been working on beefing up our emergency savings, we were less than halfway towards our goal of having enough to survive for eight months (ironically enough, in case something like a layoff ever happened). But with me being a freelance writer, I certainly did not make enough to solely support our family of four (have you ever seen the grocery bill for two teenage boys?). In fact, I only brought in about 25% of our total income, so you can probably see why panic was setting in.

One thing I had learned in my personal finance travels was the importance of addressing your “needs” versus your “wants.” And when it comes times to saving money, you must cut those “wants” from your budget without a backward glance. Only the line can, admittedly, get blurry and emotional: I clearly needed those adorable new yoga pants, my Kombucha fix and my HGTV.

But with 75% of our income gone, there was no time for whining—from me or the kids, who were told upfront and honestly about the situation (I don’t believe in hiding things from them). They quickly learned that they needed to scale back too—everything from taking shorter showers to save on water, to holding off on new clothes to using their own money if they wanted extras (like a trip to the drive-thru).

I pulled up our online bank account and analyzed every single dime we spent over the course of the last year. After feeling completely nauseated over some of our wasteful habits and the fact that we didn’t have more in savings, I started slashing. Away went every “want.” Everything I truly loved and enjoyed, it seemed. But what choice did we have?

How We Saved Over $1,000 Each Month

Getting there wasn’t pretty, but in the end, we were able to reduce our expenses by over $1,000 a month for the four months that my husband was out of work last year.

Here’s how we did it:

Eating Out. This, it turned out, was the biggest factor in our lack-of-savings woes. We went out for least one lunch and one dinner each week, along with another night of takeout, which added up to hundreds of dollars a month. I attempted to rationalize this at first (I work from home! I need to get out!). But once I was really honest with myself, I realized eating out was mainly due to laziness and my disinterest in cooking. Amount saved: $475

Movies. We love catching a good movie every weekend, but with soaring ticket costs and the ridiculous prices at the concession stand ($5.25 for a Coke, really?), renting a Netflix movie from the vending machine for $1 a week became the more economical way to go. Amount saved: $81

Coffee. So long Starbucks, hello coffee machine. I discovered Starbucks beans at the grocery store, so for $10 now I could get at least a week’s worth of coffee instead of my multiple tall non-fat mocha lattes each week. Yeah. Amazing, huh?Amount saved: $60

Books. Have you heard of this thing called the library? Where you can get books? For free? It’s a marvelous invention that I never made good use of before. So instead of spending $20 or $30 on a new book at the bookstore, I lowered my gotta-have-the-latest-release-right-now standards and started getting my nonfiction for free. Amount saved: $48

Cable. OK, this was a tough one because I am a closet HGTV fanatic. But cable is a “want.” And besides, I needed more time to read all those library books. Amount saved:$66

Groceries. Being on a limited budget forces you to become a savvy shopper. I started clipping coupons, snatching up two-for-ones, buying generics, making use of our freezer, ditching junk food and eating the bazillion boxes of pasta that had somehow appeared in our pantry. Feeding a family of four is expensive, but that didn’t mean we had to feast on prime rib or pricey pre-made crab cakes. And our wine selection could easily be whittled down to $8 bottles. Amount saved: $220

Insurance. I called our insurance company, requested higher deductibles and even inquired about “good driver discounts,” since my slew of speeding tickets from my younger and irresponsible years had to be off my record by now. It worked—they knocked my payments down. Amount saved: $43

Phones. Two adults and two teenagers equals four cell phones. First, I cancelled our home phone line (because who needs a fifth line that was mostly for people asking for “Mrs. Durham,” not Dunham). Then I called our cell phone provider and asked how we could lower the price of our family plan. They were more than happy to oblige once I threatened to switch carriers. Amount saved: $68

Yoga. This may have been the toughest of all. I love yoga. I adore it. I need it. Really. It helps keep me functioning like somewhat of a sane person. So, we compromised here. Instead of going to class three times a week, I started going twice. Amount saved: $20

Total monthly savings: $1,081

And here I thought we were already fairly conservative with our spending. Clearly, I was clueless. But once the guilt over wasting so much money was gone, we learned to happily live on less.

Luckily for us, my husband found a new job four months later—but it came with a 20 percent salary cut. Nonetheless, he accepted immediately, as we were thrilled that he found employment at all. For the most part, continuing with our new-found savings tactics made it possible to accommodate his reduced salary.

In the end, we have learned to live on less, continue to build our savings and not take our incomes for granted.

Although I must confess: I still miss my HGTV fix.

One of the more interesting currencies gaining ground right now is Bitcoin. This is a digital currency that provides users with a way to pay each other directly, without transaction fees. But, as Gizmodo explains, it’s not quite so straightforward.

Ultimate fiat currency

Fiat means “let it be done,” and Bitcoin is the ultimate fiat currency. Bitcoins are virtual tokens (although you can order “real” coins) that can be used to purchase goods and services. All you have to do is send the requisite number of Bitcoins to the address provided by the merchant. You can also accept payment in Bitcoins by providing the address of your Bitcoin wallet.

Bitcoins are produced through the power of computer. Gizmodo reports that individual computers using a special app provide the computational power to process Bitcoin transactions. New Bitcoins are created in batches and then distributed according to those who offered the highest computing power in what is known as the “mining” process.

You can try to earn Bitcoins through the mining process (you can do it individually, as part of a pool, or by purchasing “mining contracts”), or you can accept them as payment for services rendered or goods sold. It’s also possible to purchase Bitcoins on exchanges.

When you have Bitcoins, you can use them to pay others that accept them, or you can use them as investments. There are a number of exchanges that allow you to exchange Bitcoins for other currencies (so you can turn your virtual tokens into “real” dollars), and Mt. Gox, the biggest Bitcoin exchange, recently opened with Bitcoin trading at $78 against the US dollar. However, Bitcoin has traded as high as $266.

Before you invest in Bitcoin, though, it’s important to understand the risks. Problems with your wallet could erase all your Bitcoins (you are encouraged to back up your wallet), and, like all currencies, the market is volatile, as seen by the wide swings in Bitcoin performance against the dollar.

This post is from staff writer Richard Barrington.

I was recently invited to review an investment technique called “automated tax-loss harvesting.” It reminded me of the never-ending struggle for primacy between investment managers and accountants when it comes to portfolio management.

By way of disclosure, I should note that I have never been an accountant, while I did spend more than 20 years working for an investment management firm. So, you can guess which side of this battle I come down on. Still, before closing this post I will mention why accountants so often win this debate, and why that might not be such a bad thing.

Reasons why investment considerations often outweigh tax considerations

People have a strong aversion to paying taxes. On the other hand, those taxes only come about when an investment has made money. So, which is better – making money or avoiding taxes? Here are some arguments for favoring investment considerations over tax considerations:

1. Taxes are assessed only on the amount of a gain, while market volatility affects the entire value of the security. Let’s say you hold a stock that is up 20 percent, and selling it would incur a 15 percent capital gain tax. That tax may be much less significant than it seems. For example, if that 20 percent gain took the stock from $100 to $120, selling would give you a tax liability of $3. That $3 is just 2.5 percent of the current value of the stock, and market fluctuations could change that value by much more than 2.5 percent in the blink of an eye.
2. The tax value of losses may be more limited than the potential for price recovery. This is largely based on the same principle as the above. The tax value of your loss is a percentage of just the change in price since you bought the stock, whereas the appreciation potential is a percentage of the entire value of the stock. Also, if you fundamentally still like the stock, selling low means compounding the mistake of having bought too early. Yes, you could potentially repurchase the stock after 30 days, but securities which have spiked downward often rebound equally suddenly, so you risk missing at least part of the recovery opportunity.
3. Deferring taxes isn’t the same as eliminating them. People often hold off taking gains so they can delay the tax liability. However, the tax liability will simply compound along with any future gains in the stock. You don’t really win unless the capital gains tax rate is reduced sometime in the future, which seems unlikely under current circumstances. Meanwhile, you don’t really have use of the money in that stock, since you have barred yourself from selling it.
4. Substitutions are not an exact science. One strategy is to sell an exchange-traded fund at a loss, and immediately buy a similar fund so you are not out of the market. You have to be careful about this. IRS “wash sale” rules disallow the tax loss if you buy “substantially identical stock or securities” within 30 days. If instead you buy a fund different enough not to be considered substantially identical to the one you sold, then you can’t expect to capture the same investment characteristics.

Certainly, investment considerations do not always outweigh tax considerations. As with so many things, it is a matter of degree. The larger a potential gain or loss becomes, the more the math starts to favor factoring in tax considerations. Also, the closer you are to a significant date — such as the end of a tax year, or the date at which a gain would go from being short-term to long-term, the more you might gain a tax benefit with a minimal amount of investment disruption.

The point is that ideally, neither investment managers nor accountants should be tone-deaf to each other’s concerns. Unfortunately, that is too often precisely the case.

Who wins the debate?

Investment managers who don’t want to be handcuffed by tax considerations have strong arguments on their side. Still the reality is that accountants often win the debate; clients instruct investment managers to make portfolio moves based on tax considerations, or berate those managers when their gains result in higher tax liabilities. So why do those clients so often come down on the side of the accountants?

Perhaps it is because tax consequences are immediately tangible, whereas investment outcomes often fall into the “what if” category. Therefore, clients who opt to favor tax over investment considerations are simply choosing the bird in the hand rather than the potential of two in the bush — and that may not be such a bad thing.

The bottom line is that it doesn’t ultimately matter what the accountant or the investment manager prefers — it’s the client’s opinion that counts. Clients who can strike a fair balance between tax and investment considerations may find they get the best out of both their investment managers and accountants.

This guest post is from William Cowie, who has contributed to Get Rich Slowly and other personal finance blogs. He also blogs about investing and offers a free Investing Basics course on Bite the Bullet Investing.

Like little ants, we moved and hustled all day, nine years ago, settling into our new house. We didn’t notice night falling… until we saw a light beam dance on the ceiling and loud noises from outside. From the second-floor bedroom window we saw (and heard) a group of neighbors. One had a flashlight, shining it into our undraped room. “Hey, neighbor! Stop already, and come say hi!”

In the urban America of today, that’s not your usual welcome. But then again, this isn’t your usual neighborhood, even though it’s about as middle class as it gets from the outside. We were intrigued to find the back fence has a well-used gate to the neighbors’ house, and they, in turn, have another gate in the side fence between them and the next set of neighbors.

Not surprisingly, we soon became good friends with all the neighbors, but it took a while to discover Jim’s dark secret.

With no outward sign to give that secret away, Jim is the prototypical “millionaire next door.”

In his 60s now, he had an average job his entire life, making average money, hardly what you think of when you hear “millionaire.” I asked Jim the other day about the secrets to his success.

Some of his steps may be old hat to veteran readers of Five Cent Nickel, but I was intrigued to hear a few I’ve never seen written about before:

The classics

Jim doesn’t read financial blogs. In fact, getting him to open his email more than once a week is a goal yet to be achieved. Nevertheless, his financial life’s story sounds like he’s been a saver all his life.

1. They always spent less than they made

Jim and his wife made a conscious decision to avoid the Joneses — you know, those up with which you have to keep, and they always made it a priority to save.

2. No debt

Because they had no Joneses, it was easy to avoid debt. They always drove used cars, well looked after. Even today, their Explorer and little Ranger truck are both well over 10 years old.

3. They invested

Jim said they started small, but early. Content with buying just a few shares every now and then, they went with a buy-and-hold strategy on commonsense, boring stocks. For the first 10 years nothing looked spectacular, but they just kept at it. The long bull run of the late ’90s helped them, but the crash afterward took some of that back. Still, they kept at it. Along the way, he made a few mistakes, but he says just the “keeping on keeping on” overcame those mistakes in time.

The million dollars, Jim says, came not from his salary but from the investing. The fact that they set the money aside, and never drew from it, is what allowed it to grow.

The un-classics

Jim, as I said, never read any how-to financial success blogs. He just made it up as he went along. And so it was interesting to me to hear two more recipes for success you don’t see mentioned in books or the blogosphere.

4. They never moved

They bought their house more than 30 years ago and never moved. There was a time when a bigger house would have been “more comfortable” and now that they’re empty nesters, they could downsize. However, they’re “people people” and their neighbors are their friends. It’s telling that almost everyone along their street has lived there more than 20 years.

It’s not just that. Moving, Jim pointed out, costs money… serious money. Not only do you have a 6 percent hit to your biggest asset in the form or real estate commissions, he says, you also have the closing fees on the new place. But that pales in comparison to the cost of making the new house a home. It’s rare that the old drapes will do, and it’s not long before carpets and furniture get added to the list. All-in, the total cost of a house change is well over $20,000, and that’s conservative. Over time, that becomes $50,000 or more in end-game money… per move! And for what? Be satisfied with what you have and look after it.

5. They’re still together

As our interview wound down, I couldn’t think of anything else to ask and a comfortable silence sat down and joined the conversation.

Then Jim continued. “And we never pissed away any of our assets in a divorce.”

You never read that, but he’s right. When he looks around at acquaintances getting divorced, he can’t help but notice the hurt that puts on their net worth.

Soon they celebrate their 49th anniversary. Their house is middle class, their cars are more than 10 years old, they rarely “go out,” and the way they dress and live would probably bore a younger generation.

But those are the things that made him our millionaire next door.

This post is from staff writer Jeffrey Steele.

The Employee Benefit Research Institute’s 2013 Retirement Confidence Survey was released in mid-March, and reinforced the notion that within many sober reports on serious personal finance subjects, we can find a few good laughs.

In short, one will come away from perusing this survey with more than just a bonanza of solid information. Also lying in wait for the reader is the periodic giggle, the oft-heard chortle, and the occasional good raucous guffaw.

All of these result from reading about the retirement philosophies and actions of Americans, a group that includes many people who, hamstrung by lack of formal education in personal finance, sustain their bewilderment by sidestepping every chance to learn more about and master sound money management disciplines.

Having earlier been tipped to one finding of the report, that something like 57 percent of people in the country had saved less than $25,000 for retirement, I wasn’t surprised by some of the details revealed in the EBRI survey.

Those tidbits included the fact that Americans’ confidence in their ability to comfortably retire is at an all-time low; that many cite specific percentages of income they must save to retire comfortably, but haven’t bothered to investigate how much they actually will need; and that some Americans spend good money on financial advisors, and then ignore those advisors’ suggestions.

Is it any wonder that many Baby Boomers expect to be shuffling off to work well into their 80s (but as the report reveals, probably won’t be able to)?

With no further ado, let’s enjoy some yucks.

Waking up to reality

The survey acknowledges that despite the steadily brightening economic climate, many workers’ own states of retirement confidence have darkened. That’s likely because they’re finally dialing in to just how much they will need to save. Thirty-three percent of workers polled said they figured they would need to save 20 percent or less of household income, 20 percent said they’d need to save 20 to 29 percent and 23 percent figure they’ll need to save 30 percent or more.

Here’s the part of the report that caught my eye:

“Those who say they are not confident about their financial prospects in retirement are more likely to say they do not know how much they need to save.”

So in addition to being down about fact their retirements may be impoverished, these folks have made themselves more morose by not clicking on any one of the 10.2 million results that appear on Google when the words “retirement-planning calculators” are entered.

Delaying retirement planning

One of the more amusing findings of the report had to do with when respondents started planning for retirement. If up to me, I’d mandate starting in their junior year of high school, while taking an obligatory personal finance class. But since that’s not very common, the report asked retirees when during their adulthood they began to plan. An admirable 34 percent said 20 years or more, and another 32 percent said they initiated planning 10 to 19 years before they retired.

“However,” the report remarks, “19 percent said they did not start planning until five to nine years before retirement, and 12 percent started less than five years before that point.” The factoid I loved was that two percent of retirees polled starting planning for their retirements – are you ready? – the very year they retired!

I think these were some of the same people who do their taxes on April 15^th, start their holiday shopping at all-night pharmacies on Christmas Eve, and cracked open their first course book in a class the evening before final exams.

Following investment advice

Approximately a quarter of both the workers and the retirees responding to the survey reported they had paid for investment advice from a financial advisor.

Last time, I checked, such advice wasn’t offered for low rates; in fact, the folks dispensing it often make a very good living. So those accessing the advice likely had to pony up some significant dollars. Despite this, 23 percent of workers and 28 percent of retirees in the survey reported obtaining financial advice. Yet only 27 percent of workers said they followed all the advice, and almost a third of workers said they followed only some of the advice, or none of it.

This would be akin to hiring a lawn service, and then when the crew shows up with state-of-the-art lawn tractors, shoving them out of the way and using a non-motorized push lawn mower to mow the lawn yourself.

And we’re supposed to be shocked they are downbeat about retirement prospects?

A final note

Want to quickly understand why retirement may be difficult for many Americans?

The survey divulged that only two percent of workers and four percent of retirees view retirement planning as the most pressing financial issue facing Americans today. Compare that to the 60 percent of workers and nearly 40 percent of retirees identifying their current debt load as a problem, and we get a sense of priorities out of whack.

We as Americans have to do a better job of planning ahead for our post-work years. If we don’t, the result isn’t going to be funny.

This post is from staff writer Suba Iyer.

“What is now proved was once only imagined.” – William Blake

Most of us embrace frugality to save money. Typically though, there are a few areas where we wish we could spend more. If you come into a windfall, depending on the amount, you might not be as frugal as you are now. However, will you completely give up being frugal? Or is frugality, for you, an outcrop of trying to reduce waste rather than saving money? What would I do if I won the lottery? Would I be drive the same car? Live in a similar house? What would I do with my time if I didn’t have to work anymore?

How much would the money change you? Can you imagine living the same lifestyle you have now, with millions under your belt?

Defining frugality

By definition frugality means “prudence in avoiding waste.” In my life, I practice frugality by spending as little as possible in areas that don’t give me any pleasure and channeling that money toward something that has value in my life and makes me happy. I am not rich now, at least not by U.S. standards. Even so, I do not practice extreme frugality.

The simple concept of avoiding waste cultivates many great personal finance traits that doesn’t stop with saving money: spend less than I earn, spend based on priorities, be focused and disciplined, ignore the Joneses, delay gratification and continuously add new skills to save more.

Essentially I view frugality as a lifestyle that focuses on goals and a determination to achieve those goals.

What would money change for me?

Since I do not practice frugality just for the sake of saving money, not much would change. But I believe money can buy happiness if spent appropriately, so my spending and saving habits would change a little.

Realize my dream of starting a charity to work with mentally challenged kids much quicker than I can do now. As much as I would like to set aside most of our income to this cause, I am not there yet. I have started to take the first steps in this journey but I have a long way to go. Coming into a windfall would certainly make this go a lot faster.

I will travel the world. Traveling is one of my two luxuries (food is the other). Right now I cannot afford to take any international vacations. I would like to travel to different countries, meet different people, sample local cuisines and learn from all the cultures in the world. Having more money will certainly help me do that and without too much guilt of spending that money on me when it could have helped a few more kids.

Finally, I will be a lot more frugal with my time. I do spend a lot of time in getting the best value for my money. While that is not entirely bad, I feel I spend a little too much time for the return to be worth it. Right now, my time is not worth much so even if I save $5 by spending one hour it is not a big deal. But if I do have a lot of money, I will be a lot more prudent with my time.

What would stay the same?

Pretty much everything else would stay the same.

My lifestyle would stay the same. I never fancied cars; they don’t give me any pleasure. A car to me is just a means to get from point A to point B. So I will drive the exact same car (will probably add cruise control and a rear-view camera).

I do not own a home yet. If I come into money, I will buy a house but that would be the same house I would have bought without the windfall anyway. I do not have TV/cable mainly because I do not have the time to spend in front of a TV, not because I do not have the money to buy a TV.

Last year I quit my job to concentrate on my business and volunteering. That would stay the same but now I will have an added benefit of financial security. So I will be able to concentrate more on my charity goal instead of sweating about everyday expenses.

In a nutshell, if I became rich today, I would still be the same frugal person.

Yes, it is nothing more than day dreaming, but I find this a very productive exercise in two ways:

(1) Motivating myself to work harder, to earn more money, to help me achieve everything I want to achieve, if only I had more money!

(2) To evaluate the attainability of my goals (that I think I need to be rich to accomplish) in my current financial situations. I do not want to delude myself in thinking a magical golden egg will realize my goals when in reality I could do a lot more with my current finances. My goal is a journey not a destination.

Would you still be frugal if you were rich? What does your dream life look like? Are you confident that part of your dream life is not attainable right now?

This post is by Anne Greenwood, as told to Colleen Oakley and comes from our partner site LearnVest, a site that helps people take control of their finances.

As the head of client development — and one of the very few women in a managing role — at Morgan Stanley Smith Barney, I had a lucrative career in finance, and 25 years of experience under my belt.

But, in my mid-50s, I was ready for something different.

I’d spent years advising people through their retirements, and I noticed that there were a lot of people in their 80s who’d worked in the same career their entire lives, and then looked back and thought, “Why didn’t I do something different? Why did I just keep going down this path?”

The answer: Because it was the easiest thing to do. It was the path of least resistance.

But the path of least resistance wasn’t the right one for me.

A midlife career crossroads

My favorite Mark Twain quote comes to mind: “Twenty years from now, you will be more disappointed by the things that you didn’t do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover.”

I was ready to catch those trade winds. But I wasn’t ready to retire.

I was in my 50s, with more energy than I had 20 years before, so I had no interest in hitting a ball on a golf course for the rest of my days. I wanted to make a difference in the world — to be fully engaged and use the skills and talents I’d acquired over the years to do something that I was passionate about.

As soon as I made up my mind, I was ready to quit my job and start this new life immediately. That’s how I do things — I get fired up and then go full steam ahead. But as I was talking to a friend over coffee about my plan (which wasn’t really a plan at all), she told me about New Directions, a company that helps people at my stage of life figure out what to do next. “It’s career and retirement coaching,” she said. I was skeptical, but I had to admit that I didn’t really know where to start.

So I made an appointment. What did I have to lose?

What career coaching is really like

At my first meeting, as I was telling the counselor that I was ready to quit my job cold turkey, he responded, “You can always quit, but you can’t un-quit.”

It was good advice, and I knew at that moment that coaching was something that I could use. I was paired with a counselor, Mark Shepard, M. Div., Th.D., whom I met with two to three times a month to begin formulating a proper plan.

For the record, coaching costs anywhere from $15,000 to $75,000, depending on your needs. The New Yorker reported last year that there are close to 50,000 career-cum-retirement coaches out there today. The uptick is likely due to a trend among Baby Boomers known as “retiring retirement” — instead of simply putting their feet up, these folks are pursuing second careers in their later years. In other words, retirement has become a process rather than a destination.

Over the next six months, Mark helped me to understand that walking away from a career — whether you’re retiring or just moving on to something else — takes careful thought and consideration. You need time to not only uncover your options, but also do some deep reflecting on who you are and what you’re good at. Career coaching is as much about the psychological aspect of changing paths as the financial part.

Along with my coach, I was paired with a psychologist, and we delved back to my childhood years to examine the things I enjoyed and excelled at as a kid. They’ll look for the tiniest kernels of joy from your life to see if there’s something that might be worth re-engaging with in your coming years.

One thing that we touched upon was my inclination toward nonprofit work. I got my undergraduate degree in urban studies, and my first job out of school was working with an agency that helped the chronically unemployed. I ended up running that agency, but it was so emotionally draining to work with people who were dealing with substance abuse that I shifted into the for-profit sector, with the intent to give back on weekends. That, unfortunately, didn’t happen.

Mark also put me through a battery of tests — including four or five written personality tests, like the Myers-Briggs — to really find out what makes me tick. One of the most significant things that I learned about myself was that I’m not someone who can be alone in a cubicle: I get my energy from working with a group of people. I guess I always knew that was true on some level, but the tests confirmed it.

Little did I know that I was about to stumble across an opportunity as far away from a cubicle as you can get.

How I found the right path for me

During this time, I was reading “The Big Shift,” which mentioned a Harvard fellowship program called the Advanced Leadership Initiative. It’s a one-year offering that connects people like me — who’ve had successful careers in business, and now want to use their skill sets to make a difference in the world — with each other and with Harvard’s faculty and staff.

For example, one man in the program is working to bring accessible electricity to Liberia, an African country where only 2,000 households out of 4 million have lights. Another woman in the program has cleaned up San Francisco’s unsafe water, and she’s even co-authored a book about water and technology.

I finally saw the opportunity I’d always sought to improve the world, so I talked it over with Mark, who agreed that the program would be a good fit for me. When I was accepted, I really was ready to quit my job. I had a plan — I was no longer winging it.

That was more than a year ago, and I just finished the fellowship. I’m now working in an advisory capacity with three different social entrepreneurship start-ups focused on helping women feel more empowered about managing the financial side of their lives. Thanks to my work with Mark, I have a feeling that, unlike some of my former clients, I’ll someday look back on my life and know that I threw off that bowline.

This post is from staff writer Sarah Gilbert.

I’ve done it all; worked remotely, worked in an office with a serious in-traffic commute, worked in an office with a short commute, worked for myself, and worked for Fortune 100 corporations. I’ve worked 80 hours weeks and I’ve worked 10 hours a week part-time. I’ve been overpaid and underpaid. I’ve worked at $2.13 an hour with tips. I’ve worked hourly with overtime. I’ve been given a bonus bigger than my annual salary. I’ve managed people, hired people, fired people, and managed a team of dozens of freelance contractors. I’ve even managed groups of volunteers.

Never, however, have I been more certain that someone had the whole concept of human nature as it relates to work more wrong than when reading recent news that Yahoo! CEO Marissa Mayer was telling her remote employees to come into an office or lose their jobs. “Speed and quality are often sacrificed when we work from home,” says the memo.

Lots of people agree: some people are lazy

I have done many wrongs in my career, but I can guarantee you that quality and speed were never positively correlated to my presence in an office. I can equally say that the most effective work I’ve ever seen done — the highest-speed work, the best quality work, the most kick-butt, forward-thinking work — was done by a group of freelance contractors, many of whose faces I never ever once saw.

Studies show that remote workers are more engaged in their tasks. And I have lots of anecdotal evidence to back that up, including a few friends who work remotely at Yahoo! — I’ve rarely seen such all-the-time dedication to their jobs. To think those employees would be more engaged and have better “speed” and “quality” of work if they moved to Los Angeles, bought cars, and commuted a few hours a day in one of the worst traffic cities in the world, leaving their children with nannies a few more hours each day? I can tell you if it were me, I’d be resentful and bitter (like so many people I’ve known who spend hours each day in their car), often spending hours at the office following up on auto insurance claims, dealing with paperwork for day cares and summer camp applications, or shopping for clothes to wear to the office.

Working in the office is a time sink in itself

Driving to and from work each day is a social construct that requires an enormous amount of upkeep, and includes an equally enormous amount of social inefficiency. A recent interview with a knitting writer I admire prompted hundreds of comments, including one woman who was shocked, after taking an in-office job for the first time, at the many hours of time wasted with pointless meetings and social interactions (like a co-worker who demanded help figuring out a basic software package).

This is not to say that every job ever should be done by remote workers; this is not to say that all people are more efficient in the home than in the office. Judging by the number of people I see every day working in coffee shops, I imagine that there are lots of home environments not at all conducive to work.

But I think most reasonable people would agree that the commuting, the lunch-getting, the requirements of hygiene and wardrobe, the social niceties, the gossiping and the scheduling, the fact that human brains do not work well sitting quietly in front of a screen for eight-to-10 hours a day, all add up to lots of lost “productivity.”

I get more productive investment banking done working from home, 15 hours a week, than I did as a 20-something banker in 40 hours in the office. And I make more money, too, because I don’t have to spend any of it on commuting, lunches out, clothes or the inevitable social functions (and none on the near-compulsory United Way!).

The higher the quality of life, the better the quality of work

What it comes down to in my opinion is a truth often acknowledged by researchers but rarely honored by the way corporate environments (and, in fact, a good deal of our modern work economy) are created: if you are happy with the quality of your life, you will be a better employee. European countries acknowledge this to some extent, with shorter work weeks and much greater “entitlement” to vacation and family time (not to mention far more generous family leave policies). But many American companies stubbornly refuse to create policies that support this balance.

I’ve done what many of my contemporaries have done; find work situations that agree with my own personal findings. I’m much better if I get to care for my creative, community and family obligations as the priorities; and now that I’ve found an ideal assortment of freelance and creative work, I’ve even discovered that my financial life is better for it. I’m paying off debt, growing savings, and only spending money where I want to spend it. I think that the attitudes of my own children and the “millennials” who will one day run our corporate future agree with this belief.

Do you do better work in a traditional commuting office environment, or with more flexible arrangements? How have you created a work life that does (or does not) work for your skills and personality type?

Cardholders can add money to the card via direct deposit, transfers, cash at Walmart or check. The card can be used anywhere that accepts American Express, for online purchases, ATM withdrawals ($2 fee if using an out-of-network ATM or don’t have direct deposit), bill payments. This week the partners announced enhancements to the card, including FDIC insurance for funds in an account, direct deposit of government payments (Social Security, military pay and tax refunds), and checking. The FDIC insurance is important, since they’ve also raised the balance limit to $100,000 per year.

American Express, which markets itself as a luxury brand, and Walmart, which markets itself as inexpensive, would seem an unlikely partnership. Yet AmEx has long been the issuer for the Costco TrueEarnings card. And who doesn’t like to spend, er, save money shopping at Costco?

For those who are frustrated by bank fees, which continue to rise at brick-and-mortar banks, the Bluebird card is a decent alternative. Unlike most debit cards, there is no annual fee, no monthly fee, no card-replacement fee and no inactivity fee. Plus, you get those AmEx benefits like purchase protection, roadside assistance, and access to entertainment events.

Granted, it’s not going to help you build a credit score, since activity is not reported to the credit reporting agencies. But it can be an alternative to a checking account.

Have any of you tried the Bluebird card? Are you happy with it?

This post is from staff writer Richard Barrington.

Co-workers tend to look at me as someone who dives head-first into projects and generally meets deadlines ahead of schedule, so they don’t realize my hidden secret.

I’m a recovering procrastinator.

When I was a student, I did everything at the last minute. I suppose the blessing was that it taught me to work fast, but the stress made me miserable, and often the results were not my best work. Once I started my career, with so much more at stake, I made a conscious change. I’m not sure that the natural tendency to procrastinate every really left me, which is why I refer to myself as a recovering procrastinator. I force myself to jump on every project as soon as it comes up, because I know that the longer I delay, the harder it will be to get started.

The result is much better productivity, but that’s not why I do it. The truth is that it just makes me happier. There’s an awful lot of stress and misery in being a procrastinator, and once I realized that, I chose to avoid it.

Anyway, I bring all this up because procrastination has a terrible effect on personal finance. The more you neglect your responsibilities or put off saving, the worse your finances will be. So, here are four tips from a procrastinator’s point of view for overcoming the tendency to delay financial decisions:

1. Use automatic deductions to take the effort out of savings. Saving money effectively relies on starting early and being consistent — two things that procrastinators are not good at. If you find you often don’t get around to putting money into savings, set it up to happen automatically. If your employer sponsors a retirement plan, you can generally have contributions automatically deducted from your payroll. Even without a retirement plan, you can save money out of your paycheck by having a little more than you need for taxes withheld every week. Financial advisers don’t generally recommend that, but with interest rates so low these days, you aren’t losing much by getting your money a little later, and having a lump sum accumulate automatically is simply a more effective saving method for many people than having to make a regular effort throughout the year. Finally, check with your bank to see if you can have money regularly transferred from your checking account into a savings vehicle, so you can put more savings on autopilot.
2. You can start saving for retirement before you do any actual retirement planning. Most people realize more savings accumulate if you start early, but when you are young, retirement planning seems like a big chore that is best put off until you are a little older. Here’s the thing though — you don’t really need to go through a detailed planning process before you start setting aside some retirement money. You know you’ll need that money later, even if you haven’t yet set specific goals. Don’t get me wrong — the planning process is important and you should get to it eventually. It’s just that for most people, setting up payroll deductions or some other savings mechanism is a much smaller barrier than going through detailed retirement planning, so get the money flowing first if you find that easier.
3. Learn to love IRA contributions. IRA contributions not only have tax advantages, but they should be a procrastinator’s dream. Not only do they extend the official end of the prior year until the April 15th tax deadline (that is, you’ll be able to make a 2013 contribution until April 15, 2014), but special “catch-up” contributions are available to older taxpayers who may be a little behind in their retirement savings.
4. Honor the pleasure principle. In psychology, the pleasure principle is simply the idea that a lot of human behavior is motivated by seeking pleasure. Overcoming procrastination does not have to be based completely on puritanical concepts like self-denial and discipline. You can honor the pleasure principle by looking for enjoyable aspects of the task at hand. Seemingly thankless tasks like retirement planning and saving can be leavened by fantasies about the vacations you’ll take or the things you’ll have time for when you meet your retirement goals. And, of course, work itself goes by much more effortlessly — and often with better results — when you decide to enjoy it. You won’t like everything about your job, but focus on the parts you do like, and get as much satisfaction as you can out of that.

I hope some of this is helpful to my fellow procrastinators. Acknowledging and confronting my tendency to put things off has worked in my career and in my personal finances. I’m semi-retired now, so you could say I’ve taken the approach of being a little lazy on the back end of life, rather than on the front end. Still, I got this blog written ahead of schedule — and that feels great.

In the spring of 2009, I took on my first two staff writers (Matt Jabs and Laura Martinez). And later that year, I reached an agreement to sell FCN to a company called QuinStreet with me staying on in an editorial capacity.

Following the transition, we continued the practice of having staff writers contribute a couple of posts per week. And, of course, I continued to write – to the tune of roughly 2,800 total articles over the life of the site.

During all of this, our 1st grader grew into a high school freshman. Our preschooler became a middle-schooler. Our toddler is nearly out of elementary school. And our youngest, who was barely 4 months old when I launched the site, is now 8 years old and nearing the end of 2nd grade.

In other words, much has changed in my life. And now it’s time for another change. I’ve decided that it’s time for me to step away from FCN. It’s been a great run and I’ve enjoyed it immensely. But, as they say, all good things must come to an end.

The good news is that the site will live on. It’s in the hands of an excellent editorial staff and capable contributors. They have every intention of keeping it humming along in my absence and I fully expect them to deliver.

Before I go, I want to thank the many bloggers whom I’ve interacted with over the years — in particular, the original members of the old MoneyBlogNetwork (Flexo, FMF, Jim [also here], JLP, and MBH) as well as those who joined along the way (NCN, JD [now here], and the good folks at WiseBread). I also want to thank all of you, the readers and commenters, who have made this so much fun.

And finally, to my wife…

Thank you for your patience, understanding, and support. You frequently picked up my slack during the many long evenings that I spent building this site. I noticed. And I appreciate it more than you know. I couldn’t have done it without you.

There are some who wear their religiosity on their sleeves. They never tire of telling people how devoted they are to their church or synagogue, how faithfully they attend services, and how God-fearing, spiritual and pious they are. Some go so far as to suggest others who don’t share their faith are headed hell-ward.

My father claimed he maintained a standard response to such people whenever and whenever he encountered them. He tightened his grip upon his wallet.

The more I read about affinity fraud, the more inclined I am to feel that he may have had a point. There’s nothing wrong with being religious, and much right about religious faith. But when coming face to face with those especially loud about their spiritual beliefs, it might be best to observe a fair degree of skepticism.

That’s doubly true if there is the prospect of a money-making venture to be had. The number of folks who have been fleeced in investments brought to them by members of their own church, synagogue or mosque is growing, according to organizations tracking the particularly nefarious scam known as affinity fraud.

It’s no coincidence that affinity fraud is particularly prevalent in a place like Utah, where people tend to know their neighbors, 65 percent of the population is Mormon and trust seems part and parcel of being a Utahn. Affinity fraud has grown so rampant there that they’ve even established a “Fraud College” to school folks on “fraud awareness, protection and education.”

People who perpetrate affinity fraud are, or purport to be, members of a group, whether religious denomination or church, an ethnic group, an immigrant community, racial minority or even a member of a country club.

Affinity fraudsters exploit the trust and camaraderie between members of such groups. They often first work to gain the trust of leaders of that congregation or group, recognizing those leaders command the ears and allegiance of those they lead. In many cases, the leaders themselves become victims of the fraud.

Members are persuaded to place their money into investment opportunities that may appear legitimate on the surface, but are in reality Ponzi schemes or some other type of sham transaction. Once the fraud has been perpetrated, those victimized are often reluctant to report the scam, preferring to keep the problem and any potential resolutions hammered out within the tight-knit church, group, or organization of which they’re members.

No lack of case studies

Examples of affinity fraud abound. Many claim Bernard Madoff’s fraud was an affinity fraud, because word of Bernie’s seemingly spectacular returns spread via word of mouth among a tight group of friends and relatives. Other examples are far more clearly affinity frauds.

The U.S. Security and Exchange Commission reports one recent example of affinity fraud was a $7.5 million Ponzi scheme that victimized members of the Los Angeles Persian-Jewish community. Rather than giving his investors the rich returns he touted, the fraudster tossed their money away on shopping sprees that netted him scads of jewelry, luxury cars and tickets to pricey big-time sporting events.

Then there was the $11 million investment scam targeting the gay community around Fort Lauderdale. The fraudster at its center wove tales of returns as high as 26 percent while wining and dining potential victims — who came to him through friends and relatives — at some of South Florida’s most upscale bistros.

Additional affinity frauds targeting African-American churchgoers, evangelical Christians, members of South Florida’s Cuban exile community, Hispanic groups seeking help establishing financing services firms and many other ethnic, religious or racial groups have been reported in recent years.

Together those frauds took their victims to the cleaners for millions if not tens of millions of dollars.

Fighting affinity fraud

The healthy dose of skepticism I alluded to at the outset of this column is one of the best defenses against affinity fraud.

Authorities advise being leery, doubtful, perhaps even cynical, about investment opportunities presented to you, not just by those in your church or synagogue, but by members of your fraternal or civic organization, workforce group and any other tight-knit coterie of which you might be member.

Before coughing up even one red cent of your own money, thoroughly check out both the investment opportunity and the background of the individual bringing you that investment. Be cognizant of the fact that the seemingly trustworthy person alerting you to the opportunity may have been duped into the conviction that it is above board, even if it is in reality a Ponzi scheme of Madoffian proportions.

If the individual bringing you the investment opportunity pledges returns that appear too good to be true, walk away. Take a similar stroll if the opportunity comes with the promise of little or no risk. In the lexicon of fraud, there’s no bigger red flag than investments guaranteeing sizable returns with no risk.

Another danger sign of fraud is the investment opportunity you’re told you simply have to act on immediately. No one delivering a legitimate investment offer will prevent you from taking time to closely examine the particulars of an offer, and no above-board opportunity will force you to rush into forking over cash.

Follow all of the above cautions regarding affinity fraud, and you’ll be tipped-off long before you’re ripped off.

Last month our portfolio looked like this:

• 110 loans were current
• 295 loans had been paid off
• 1 loans were currently 16-30 days late
• 6 loans were currently 30-120 days late
• 40 loans had defaulted and/or been charged off

with a net annualized return (NAR) of 6.7%.

As of now, our portfolio looks like this

• 88 loans were current
• 315 loans had been paid off
• 2 loans were currently 16-30 days late
• 7 loans were currently 30-120 days late
• 40 loans had defaulted and/or been charged off

and a current NAR holding steady at 6.7%.

So the good news is that 20 more loans have been paid off with no more defaults. The bad new is that the sorta late note slipped into the really late category and two more notes moved into the sorta late category.

What about you? If you’ve been investing with Lending Club, how are things going? When reporting your results please be sure to give us an idea of how many notes you’re holding and how long you’ve been at it.