For those that are unaware, the 2nd generation (1999-2004) Honda Odyssey has a history of transmission troubles, particularly in the earlier years. We were thus concerned that we might be facing a major repair.

At the same time, we haven’t noticed any slippage, racing, or other shifting problems, so we were hoping it wasn’t anything major. We dropped the car off with our favorite mechanic this morning, and guess what?

He called this afternoon to say that the warning code indicated a bad 4th gear pressure switch, which is a trivial repair. We picked the car up tonight, and are hopeful that’s the last we’ll see of the blinking green light.

And with that, here are some recent links that caught my eye…

• How to Frugally Stock Your Home Toolbox
• Yes, You WILL Get Social Security
• What it Takes to Really Succeed
• I Want to Become a Minimalist, But I Could Never Give Up My…
• Dealing With Investment Confusion
• The Future of Economics, Explained With Physics

That’s it… Happy reading!

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» Link Roundup – New Writer Edition
» Sunday Roundup – The Back Porch Edition
» Weekly Roundup – Witless Edition

I’m not kidding. You really should stop studying and just get out there. Once I did, I became a lot more successful.

I can best explain the true cost of learning when I tell you about launching my blog.

Two years ago, I didn’t know what a blog was.

A friend convinced me to launch one in order to market a book I was writing, so I decided to “look into it.”

The more I looked into blogging, the less I understood it. As a result, I went deeper.

I bought every book on the subject I could.

I paid gurus to lead me to the blogging “promised land.”

I participated in programs that offered to teach me what to do.

I literally spent six months (and a big chunk of money) learning about blogging before I wrote my first post.

Don’t get me wrong; I did pick up some very valuable nuggets – but I learned volumes more in the first month of actual blogging.

In retrospect, I was lying to myself.

I was frightened.

And I was wasting time studying. It was my excuse to justify why I wasn’t actually doing the work. Who was I kidding?

Only myself.

I share this with you because you might find yourself in the same trap someday.

Let’s say you’re about to launch a new project.

You’ve decided you need to:

• Budget better.
• Invest smarter.
• Install a sink.
• Get the right kind of life insurance.
• Buy the right car.
• Get your business out of debt.
• Improve your credit score.

You realize that if you want a good result, you’re going to have to invest some time and possibly money. But why not try to save as much of both as you can?

Here are three steps to help you do just that:

1. Clarity

Be crystal clear on exactly what you want to do and why you want to do it. Don’t worry. Later on, as you learn and experience more, you can change you mind. But be clear on your direction before you leave base camp.

Say you want to get out of debt. Even on a subject as straightforward as this, there are many opinions on what the best path is.

Is your goal to get out of debt quickly, or is it just to get out of debt and never get back into debt? Believe it or not, depending on your answer, you might take different actions.

Think hard about what exactly you want to get done.

2. Anoint your gurus carefully

There are so many experts on each subject, you’ll drive yourself crazy if you follow more than one guru. That was my biggest problem when I started learning about blogging. Each guru – even though they were all very successful – had a different message. I figured that if I could take the best that each had to offer, I’d be a sure success.

Wrong.

This was the biggest time waster I could have imagined. I followed one person’s ideas just long enough to get interested in someone else’s thoughts. As a result, I spent hours and hours chasing my tail. Don’t repeat my error.

Pick your mentor carefully and follow his/her direction.

Of course it’s important to keep asking questions. But if you are clear about your goal, pick the best person you can to help you achieve that goal and follow their lead. And put your blinders on.

Along the way, a little voice inside will tell you to veer off course. That you need to study someone else’s ideas.

Don’t listen.

If you’re trying to get out of debt for example, you don’t have to read a ton of books on the subject. You probably don’t need to spend hours and hours researching it either. You need to find one trustworthy expert and just follow that person’s direction.

3. Got Grit?

There’s a great John Wayne movie called “True Grit.” I recommend you rent it sometime.

It’s the story of a person who takes on a task without having all the tools and equipment he needs. But he makes up for that with determination. That’s what you need.

Don’t be afraid of making mistakes. They can be fixed. And be patient. Solutions take time.

Don’t be afraid of refining your goals and changing direction. Once you embark on a path, you can always make adjustments. It’s easier to do that once you leave port. But you’ll never reach your destination if you stay in port.

Every time you make a mistake, you’ll learn a ton and you’ll get much closer to your ultimate goal.

Your homework assignment

Pick the most important item on your “to do” list and take action.

Make a list of the steps you need to take in order to make that wish a reality.

If you want to improve your credit score (for example), the first step is to get your FICO score so you’ll know where you stand.

Next, get a credit report and start correcting any errors you find. Finally, take other steps to boost your credit score.

It will take patience and time but you can knock these pins down… One at a time.

Expect to do it wrong and be OK with that. Expect to make mistakes. Just put put the books down. Stop doing research.

Get going — and remind me to do the same when I get caught in the trap.

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According to the FDIC’s quarterly banking profile, more than one in ten US banks (829 out of 7830) are currently in trouble, and the number appears is climbing, with the number of banks on their “problem list” increased by 7% during the 2nd quarter.

In terms of bank failures, 118 banks have already under in 2010, compared to 140 in all of 2009, and just a handful per year prior to the current economic crisis. In other words, be sure to pay attention to FDIC limits when managing your bank accounts.

The good news is that, for the first time since 2006, the number of loans that are 90 or more days past due declined, falling nearly 5%. The same can be said of loans charged off by banks, which showed a slight year-over-year decline for the first time since the 4th quarter of 2006.

Interestingly, the 2nd quarter of 2010 also marked the first time in 38 years that the FDIC didn’t add any new banks.

Source: FDIC Quarterly Banking Report via WSJ.com

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» Historical FDIC Insurance Limits
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When we go on vacation, we book a hotel. We are sort of taught that’s where you stay. By instinct we book a hotel. We go online, shake our head at the high price, and book it anyways, wishing there was a better way.

Well, there are a lot of better ways. The problem is that most aren’t advertised because they don’t have the marketing budgets that hotels have. On your next trip, consider these four alternatives:

Bed and breakfasts

Bed and breakfasts are a good alternative to hotels. You’ll get treated just as nice (if not better), you get breakfast, a smaller and more intimate setting, and the hosts who will take care of you.

B&B’s are usually owned by a family or couple and not some big corporation. The quality of service is usually a lot better and the prices a lot cheaper. Moreover, unlike hotels, they usually provide free internet.

You can find B&Bs on this website.

Apartment rentals

If you are with a family or a large group of people, renting an apartment is a much better choice than staying at a hotel. In NYC, the average price of a hotel is $250 dollars/night, but yyou can find apartments that sleep up to 5 for $200 dollars.

If you are with a big group, a hotel is not worth it. The rooms will be far too expensive. Rent an apartment. Or a beach house. Or a condo. Just skip the hotel. I highly recommend Home Away. They have the biggest inventory and best prices.

Couchsurfing

Couchsurfing is a website that connects travelers with locals who are willing to give them a place to stay for free. You can stay with families, couples, or single people. Many hosts allow families or couples to stay with them.

I stayed with a lovely family in Denmark, a student in Oxford, and a nice lady in Athens. Members are verified by other users, the company, or people who have stayed with them. It’s very safe. Alternatives to Couchsurfing are Hospitality Club and Global Freeloaders.

Hostels

When people think of hostels, they think of dirty dorm rooms, bacteria infested showers, dirty kitchens, and smelly young people. But hostels have grown up a lot since the 60s.

Now, you can imagine them as mini-hotels. While you can still find dorm rooms, you can also find private rooms and double rooms. Moreover, most have free breakfast, free Internet, computer terminals, offer free tours, and have a kitchen.

While in NYC, I stayed in my own room with private bathroom, wi-fi, TV, and turn down service for $90 USD per night. All of which was right near Central Park. That’s a lot cheaper than any hotel in the area.

For hostels, I like to use Hostelbookers since they have no booking fee.

Just say “no” to hotels

The bottom line is that accommodations don’t have to cost a lot of money. I never stay in hotels. They’re simply too expensive. Instead, I use one of the options above.

These alternatives cut my accommodation budget in half or (sometimes) to zero. That’s money that stays in my pocket and can be used to see the sights, buy dinner, buy beer, or pay for a plane ticket. I have much better things to do than give hotels my money, and I bet you do too.

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One option for consolidating your debt is rolling it into a HELOC. But first… You might have some questions.

What is a HELOC? Is consolidating debt with a HELOC a financially sound decision? What problems might arise if you use your HELOC to reduce your debt?

What is a HELOC?

The term HELOC is shorthand for “home equity line of credit.” Home equity is defined as the difference between what your house is worth and what you owe on the mortgage. This home equity line of credit essentially let you borrow money using the equity in your house as collateral.

Lenders typically calculate the line of credit based on a percentage of your home’s appraised value. For example, if you have a house that is appraised at $200,000 and your principle is $135,000, he lender may calculate your home equity line as:

$200,000 * .80 (it varies among lenders) = $160,000
$160,000 – $135,000 = $25,000 HELOC limit

The percentage of your home’s appraised value depends on the lender, but it’s generally 75-80%. With houses appraising for much less than they used to in some areas, many homeowners have had their HELOC reduced or closed.

Why you should use a HELOC

The big plus with using your home equity line of credit to consolidate your debt is that you’ll almost certainly reduce the amount of interest that you’re paying. Since it’s a secured loan, your HELOC will typically will have a much lower interest rate than your credit cards.

If you’d like to play around with just how much you can save, I highly recommend the online calculator over at Dinky Town.

Another good reason to use a HELOC is that, assuming you itemize you tax deductions, the interest on your HELOC is tax deductible. Thus, you’re not only paying much less in interest, but you’re also catching a tax break, thereby reducing the cost further.

Why you shouldn’t use a HELOC

The other side of the coin when using a HELOC to consolidate debt is that you’re taking unsecured debt (credit cards) and tying them to your home. This can be a risky bet – what happens if you lose your job and can’t pay your HELOC? You risk losing your house, that’s what.

Also, getting a HELOC isn’t necessarily cheap. There are several possible fees associated with it that add to the total cost. Some of the fees you might face include:

• Appraisal fee
• Application fee
• Annual fees (some, not all lenders charge this)

Ultimately, you’ll have to weigh the costs of opening an account against simply using a debt snowball, or similar approach, to get out of debt.

It’s also worth noting that lenders have gotten much more strict when it comes to approving loans, so if you’re looking at getting one, be sure that you can qualify.

Another minor downside is that when you apply for a HELOC, they’ll do a hard credit inquiry which can hurt your credit score. It’s not much of a hit, but it’s worth keeping in mind.

Thoughts on using a HELOC for debt reduction

In my opinion, if you can get yourself out of debt in two years or less, I wouldn’t bother with a home equity line of credit. If you’re struggling with high interest rates, try negotiating with the credit card companies or look into doing a balance transfer to a card with lower interest.

Personally, I’m not a fan of converting unsecured debt (credits cards) to secured debt (HELOC). Yes, you can save money, but… With people getting laid off and paychecks being cut, your plans could fall through and you could lose your home.

There are other options besides using a HELOC if you’re looking to consolidate your debt. For example, you could try to get a personal loan through your bank or credit union, or you could consolidate your debt with a loan from Lending Club.

Your take

Have you ever used a HELOC to consolidate your debts? How did it work out for you? Would you do it again? Why or why not?

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For those that are unaware, an FSA allows you to use pre-tax dollars to pay for medical expenses. Starting in 2003, over-the-counter (OTC) medications were added to the list of allowable expenses, thereby giving consumers a lot of flexibility in how they could spend their FSA money.

As I’ve outlined in the past, FSAs operate under some fairly Draconian “use-it-or-lose-it” rules. More specifically, if you don’t spend out your balance, you lose whatever money is left over at the end of the year. Given this stipulation, the OTC allowance was very valuable addition.

No more OTC purchases

Now for the bad news… Starting in 2011, OTC purchases will no longer be eligible for reimbursement unless you are expressly directed by your doctor to use them. In other words… It’s going to be a heck of a lot harder to spend down your FSA balance is you set too much aside.

Yes, you’ll still be able to use your FSA to pay for deductibles, co-pays, orthodontia, and eyeglasses, but you’ll no longer be able to claim OTC allergy medications, pain relievers, vitamins, antacids, contact lens solutions, and so on.

In other words, be very careful when deciding how much to set aside in 2011.

Caution: falling limits

Looking a bit further ahead, another big change will be a federally-mandated $2500 cap on FSA contributions starting in 2013. This new limit is part of the healthcare reform legislation that was passed this past spring.

As things currently stand, FSA limits are determined by employers, and it’s not uncommon to be able to set aside $5k. Depending on your income tax bracket and level of healthcare spending, that can be a huge benefit.

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When I logged into our Chase Freedom account the other night, I found that we had a bit over 25k points waiting to be redeemed. I quickly requested a $250 check and went merrily on my way. Granted, $250 isn’t necessarily a life-changing sum, but I’d rather have that money sitting in our savings account vs. sitting around idle.

If you’re in a points-based program and you can’t turn your points directly into cash, look for a gift card to a store that you frequent. Just be sure to get at least a penny per point. In some cases, you’ll have to save up for a higher denomination, but it’s usually well worth the wait.

And with that… Have a great weekend!

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Whenever I mention the (seemingly) ancient are of check writing, I always get a few comments from readers who have long since quit writing checks.

As much as I’d like to join the ranks of the non-check-writers, we still have a number of instances where we need to write a check. Note that I’m talking here about the physical act of writing a check, not using online billpay to send a check.

More often than not, our check writing needs stem from the fact that we have four school age kids. Thus, we write checks for fundraisers, to put money in their lunch accounts, and so on.

While we’ve been able to automate many of our check writing tasks through our bank, there are still numerous instances where we have to dash off a check for one thing or another — again, mostly kid-related.

Anyway, I thought this might make for an interesting poll topic, so… Here goes. Please keep in mind that I’m asking below about how often you actually grab the checkbook and physically write a check.

As always, please feel free to post a comment adding some context to your answer.

Interestingly, as recently as 2007, 54% of people were paying their bills by check.

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The thought popped into my head while my wife and I were on vacation in New York. (Side note – the vacation was debt free!)

While there, we visited two of our best friends – Lori and Nathan. This couple (and their two amazing kids) are a family we love dearly.

My buddy Nate is uber-successful. He is second in command at one of the largest financial institutions in the world – and he’s only 46 years old!

I want to be like Nathan, but I’m not.

I’m delighted for Nathan and honestly not jealous.

But while I was visiting him, I noticed I was beating myself up pretty good.

I asked myself why I wasn’t as successful as my buddy.

I came up with many reasons – some of which I have no control over. I’m not stupid, but I’m not a genius like Nate. Not much I can do about that.

But I did come up with one reason for which I found no excuse – impatience.

Don’t get me wrong. I’m really grateful for where I am in life. But had I been more patient at any number of turning points in my life, things would have been easier and (possibly) better.

Once I came to this realization, I asked myself how to use that understanding to do better rather than as an excuse to put myself through the ringer. Could I use this to improve my small business? Could I harness the power of that realization to improve my investing results?

I came up with a great idea.

I decided to go against myself.

Attack your weaknesses

By nature, I want to get it done and move on to the next issue as quickly as possible. Sometimes I move on too soon.

I decided to be ultra patient in any business or interaction that was on my plate even though it was the last thing I wanted to do.

I committed to slow down and hold myself accountable to others.

The result has been very positive so far. If nothing else, I feel more relaxed.

I’ve also realized that success in certain areas that I’m working on are going to take time. I’m going to force myself to be OK with that.

And once I feel comfortable with my ability to be more patient, I’m not stopping. I’m going to keep listing my character flaws (news flash: I have many). Then, I’m going to go against myself again. My character flaws cost me too much. I’m going to put everything I have into going against the grain.

How can this help you?

Simple.

Find your flaws

Ask yourself what is the one thing that has kept you from where you want to be in life.

Are you impatient like me?

Are you selfish?

Do you fail to think things through?

What is it?

This is super important. It’s painful, but you have to be completely honest with yourself if you want the payoff – and believe me, it’s worth it.

If you’re having trouble coming up with the answer, ask five people you trust and respect. Tell them you are trying to overcome your main character flaws and you need their help to identify them.

Ask your boss and spouse. Ask your co-workers. Your workout partner. Five people.

Once you have identified your main character flaw, write down how it’s impacted you in the past. What has that flaw cost you?

Has your impatience created credit card debt?

Has your laziness resulted in not having the right life insurance?

Has your selfishness kept you from getting your budget under control?

Has your anger made it difficult for your small business to thrive?

Write it down

If you want this exercise to have its full impact, you must actually write this down with a pen and paper. There is something magical about actually writing (as opposed to typing) that I can’t explain. Do it, then tell me if you don’t agree.

Once you’ve done your writing, don’t put your pen and paper away. You’ve got more work to do.

Let the past go. Don’t beat yourself up.

Instead, think about what your dealing with right now.

Are you putting together your estate plan?

Are you trying to launch a new business?

Looking for a new career?

Trying to help your kids get on track?

Think about how your character flaw, if left unattended, is going to make your job harder.

Now write it down. See yourself shooting yourself in the foot. Describe how that character flaw is going to make it harder to accomplish your goal.

Look to the future

Now, map out a different course.

See yourself NOT giving in.

See yourself NOT being lazy, but doing your homework before you buy that life insurance.

See yourself NOT being selfish but thinking of others before you create your estate plan.

Can you see how taking contrary action is going to get you closer to your goals?

How does that feel? Can you write that down too?

Lather, rinse, repeat

The great news is that you don’t have to stop there.

You can use this exercise to master other character flaws in your business and personal life.

Are you willing to do it?

Have you ever undertaken an exercise like this in the past?

What was the result?

Do you have any other ideas that can help others overcome character deficiencies?

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“Be weird. Live debt free.”

This message was part of a pitch for Dave Ramsey’s “Financial Peace University,” a Biblically-based personal finance course with a major focus on debt reduction.

This got me to thinking… While I realize that they were just trying to be cute and catchy (it worked), have we really gotten to a point where debt freedom is “weird”?

I was raised in a family that never carried consumer debt and, aside from our mortgage (now paid off), my wife and I have never been in debt ourselves. In other words, debt freedom has always been normal for us.

What about you? What’s your debt situation? Do you have a mortgage? Student loans? Credit card debt? One or more car loans? More importantly, do you have a plan for getting out of debt?

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In many people’s eyes, there’s a dark cloud surrounding the topic of budgeting. As such, it’s easy for budgeting myths to circulate. The following list highlights things people say about budgets and budgeting that simply are not true.

Myth #1: Budgeting takes a lot of time

Many people complain that they don’t have time to budget. However, budgeting need not be an elaborate or time-consuming event. Sure, budgeting does take some time, but here are some things that take more (in some cases much more) time per week than maintaining a budget:

• Painting your finger nails
• Reading the newspaper
• Watching TV

Fact: You should be able to budget in about 20 minutes a week. If it is taking longer than that, your budget is probably too oppressive. The servant (your budget) is trying to control you.

Tips for simplifying your budget:

1. Include an “I’m Lazy” category in your budget. Put $10-$20 in that category so you don’t need to track any $1 purchases.
2. Use whole numbers. Expediting the process by dropping the pennies sounds like a good idea.
3. Be consistent. The time it takes to budget only increases when it’s neglected. The best way to make budgeting harder is to put it off until next week.

Myth #2: Budgeting only works for geeks

Your budget should be customized to your personality. Sure, budgeting tends to be a better fit for people who are more detail-oriented. However, budgeting rules can be stretched until you find something that works for you.

A reader once e-mailed me to say that she just watches the bank account to be sure there is money before she buys something. She asked, “Is that alright?” I responded by telling her that her approach is better than nothing. In other words…

At least she’s living on cash, not credit. That’s better than what a lot of people are doing. I suspect she would be able to save more if she set up a traditional budget, but every time she set up a budget, it didn’t work. So I encouraged her to keep doing what works.

Fact: You can be a free spirit and find a budgeting system that works for you.

Myth #3: Budgeting is only for those who don’t earn much

I made this mistake once upon a time. When my wife and I graduated from college, we were living on two incomes. Since there was always money in the bank, we just spent money as we wished.

Fast forward ten years and my wife is at home and we have three kids. While we can’t go back and change the past, we both wish we’d thought more about how to budget and been responsible with our money when we had a larger income.

The amount of money you make has little to do with how much you save and how much you invest. Those things are the result of good, disciplined budgeting.

Fact: Regardless of income, budgeting is a tool that helps people reach their financial goals.

Myth #4: Budgeting requires a lot of math knowledge

If you use cash, you don’t even need to know any math to budget. Take cash out of the bank when you get paid, and when it’s gone, you’re done spending.

My daughter is five years old and is so proud when she remembers that 1 + 1 = 2. Guess what? She now knows enough to budget. She has one jar for saving, one for giving, and one for spending. When she goes to the stores, she looks at something, shows us her money and says, “Is this enough?”

If you feel like you’re weak at math, you should use something like an envelope budgeting system. The envelope budgeting systems only requires that you to put the right amount of cash into a labelled envelope. From there, you simply spend until the money is gone.

Fact: Simple addition and subtraction are all that’s needed to budget effectively.

Myth #5: Budgeting is a burden

When some people hear the word “budget,” they treat it like it is a bad word. It’s almost as if there is nothing good about a budget. However, budgeting is just a vehicle you can use to get to a financial destination.

Budgeting is about saying “yes” as much as it is about saying “no.” If you don’t keep a budget, the problem is that you are saying yes to more things than you can afford. However, if you learn to throw in the occasional “no,” you could actually say “yes” to the things that are most important to you.

Fact: Budgeting is a tool that helps you accomplish your life goals.

Note from Nickel: Craig is right. Budgeting is very important if you want to make the most of your money. At the very worst, I encourage you to do what we’ve done… Adopt a “reverse budget.” In other words, set specific savings and investing goals and then let the chips fall where they may.

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Here is a quick and easy guide to point you in the right direction.

Contact your card issuer quickly

Immediately call the credit card issuer to report your card stolen. If you don’t have the number handy, go online or grab an old credit card statement to get the credit card company’s phone number.

Be ready with the following information:

• Verification of identity (name, address, etc.)
• Account number
• Best estimate as to when your card was stolen
• Date of the last purchase you made with your card

Since time is of the essence, don’t delay in reporting it. Many companies have a 24-hour number you can call so you don’t have an excuse not to call as soon as you find out.

• MasterCard: (800) MASTERCARD / (800) 627-8372
• Visa: (800) VISA 911 / (800) 847-2911
• Discover: (800) DISCOVER / (800) 347-2683
• American Express: (800) 992-3404

MasterCard, for example, can also provide assistance if you need money while you’re waiting for a new card to process. This can come in handy if you’re on the road when your wallet gets stolen.

If you need to make purchases or arrange for a cash advance, with your card issuer’s approval, you can receive a temporary card the next day in the United States, and within two business days most everywhere else.

Report the crime

Make sure you call the police to file a report. This is an important step, as it affords you additional protection if your stolen card turns into full-blown identity theft.

Having a police report can also help you down the line if you have to untangle any problems with your credit report that might arise down the line. Speaking of which… You might also want to consider ordering a credit freeze to prevent any shenanigans.

Here are the phone numbers for the three major credit bureaus:

• Equifax: (800) 685-1111
• Experian: (888) 397-3742
• TransUnion: (800) 888-4213

As reminder, please keep all of your documents and file away notes from any conversations as well as all related paperwork and information you receive about the incident. If someone needs a copy, keep the original for yourself.

Protection against unauthorized charges

The Fair Credit Billing Act protects you if your credit card is stolen. Simply report it stolen and, even if unauthorized purchases have already taken place, you’ll only be liable for a maximum of $50. If you called before any unauthorized purchases are made, then you won’t be liable for any charges.

Be sure to double check your credit card benefits, as some companies offer $0 fraud liability. The best time to check is before you need it. If you can’t find the relevant paperwork, give you card issuer a call.

If you run into any problems, don’t hesitate to contact the FTC:

FTC Consumer Response Center
600 Pennsylvania Avenue, NW
Washington, DC 20580
(877) FTC-HELP / (800) 382-4357

Preventing the problem before it happens

As they say, an ounce of prevention is worth a pound of cure…

• Don’t carry cards that you don’t need. If you have several credit cards, keep only one or two in your wallet. Put the rest in a secure location.
• Only share your credit card information with a trusted source. If you’re purchasing online, be very careful with the sites you use.
• Double check your statements for unexpected charges. If you don’t keep tabs of where your card is at all times, at least check your statements. If you notive an unauthorized charge, you can follow up immediately.

Acting quickly and having good records are the key to minimizing the headaches associated with a stolen credit card. Nothing can guarantee that your card won’t get lost or stolen, but if you’re diligent you minimize the risks.

Have you ever had your credit card (or number) stolen? If so, how did you respond? And how did your credit card company handle the situation?

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» Ten Tips for Dealing With a Lost Wallet

In fact, looking across the past five years, low fees are perhaps the best predictor of future mutual fund performance – even better than Morningstar’s own star rating system. This isn’t to say that Morningstar’s ratings are without merit, as higher rated funds do typically outperform lower rated funds.

In comparing expense ratios and star ratings, Morningstar thus concluded that both were helpful. However, looking at expense ratio alone resulted in better results more often (58% of the time) as compared to looking at star ratings alone.

So, what did Morningstar learn from all of this?

“Investors should make expense ratios a primary test in fund selection. They are still the most dependable predictor of performance. Start by focusing on funds in the cheapest or two cheapest quintiles, and you’ll be on the path to success.”

The study’s author went on to say that:

“If there’s anything in the whole world of mutual funds that you can take to the bank, it’s that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds.”

More often than not, this means you should focus on index mutual funds and ETFs, as their expense ratios are typically the lowest. Of course, as Morningstar also points out, you also need to be sure that you understand the funds management and goals before investing.

This result shouldn’t really come as a surprise, as most mutual funds with similar goals have similar holdings (yes, I’m generalizing here). Thus, if one fund charges significantly more than another, its performance will ultimately be lower.

Source: Morningstar.com

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The bad news is that the fees associated with many of these offers are climbing. The good old days of no fee balance transfers within a promo period of 12-18 months are (for the most part) long gone. Instead, most 0% offers come with a transfer fee and/or a much shorter introductory period.

While these fees used to be in the 1-3% range, and were often capped at a max of $50-$100 per transfer, credit card issuers have been ratcheting things up. In fact, according to a recent study by the Pew Charitable Trusts, balance transfer fees climbed from 3% in July 2009 to 4% in March 2010.

And guess what? The longer the intro period, the higher the cost, with promos lasting 14 months or longer costing as much as 5% of the total amount transferred. In other words… You need to look critically at any offers that you receive, and don’t forget to factor in the transfer fees when doing the math.

Source: Consumer Reports Money Blog

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Here’s a snippet from their 2010 report:

Overall credit card satisfaction in 2010 averages 714 on a 1,000-point scale, up 9 points from 705 in 2009. However, customers who say they “definitely will not switch” primary cards in the next 12 months continues to decline, averaging 22 percent in 2010, down from 25 percent in 2009 and 30 percent in 2008. While customers perceive card issuers as “financially stable” and even “reliable,” they are significantly less likely to view them as “customer driven.”

Interestingly, satisfaction has improved the most amongst “revolvers” – i.e., those who carry a revolving balance. On the other hand, satisfaction amongst those who pay their bills in full (“transacters”) has declined.

I can’t say that I’m surprised by either of these changes. After all, the requirements of the CARD Act have improved things for those that carry a balance. At the same time, most credit card issuers have cut back on their rewards programs.

As was the case last year, American Express ranked #1 in terms of overall customer satisfaction, with Discover coming in second. In fact, this is the 4th consecutive year in which AmEx has ranked #1. In case you’re curious, here’s the full top ten:

• American Express
• Discover
• U.S. Bank
• Wells Fargo
• Chase
• Barclaycard
• Bank of America
• Capital One
• Citi Cards
• HSBC

The issuers at the top generally performed well in terms of rewards and other benefits as well as customer service (both on the phone and via other channels).

Source: J.D. Power & Associates

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I completely understand the sentiment. The only problem is, if this describes you, you might end up paying too much for your mortgage, credit cards, etc. You’ll also pay too much for insurance and almost everything else.

The good news is that you can overcome your fear of negotiating. Indeed, I believe that you can actually learn to love it. As a bonus, you can save yourself a great deal of money and time by learning some basic negotiating techniques.

Here are a few that have helped me tremendously:

1. Ask questions

The more you understand the other party, the better off you’ll be. Find out what’s important to the other person and why. Show some interest. I don’t care what you are negotiating for, you need to understand the person on the other side of the table and what her motivation is. It’s rarely just money.

Once you get a few answers, don’t stop. Ask if there is anything else that is important to them. Keep asking until your negotiating partner doesn’t have any more issues to explain.

What good does this do?

First, it shows that you’re empathetic. That helps your negotiating partner relax. If you demonstrate friendly behavior, the other party will be more apt to reciprocate. That could translate into better terms for you.

Also, by understanding the other person, you might learn that the things they want most, are least important to you. As a result, you can concede on some points that don’t really cost you much even though those concessions are worth a lot to the other person. As a result, you can trade your concession for something you need.

On the other hand, if you start the conversation by making demands and being aggressive, you actually give the other party a tool to use against you. At that point, they already know what’s important to you and (possibly) why.

You need to get that advantage and you can achieve that by simply asking questions.

The more you understand your partner, the better. If you have to use the internet or other sources to learn about your partner, do so.

Why is this refrigerator being offered at a special price? Does the store get a special incentive for selling this brand? Is this person trying to build her business? What kind of clients is she looking for? Does the salesperson earn more commission by selling this or the other machine?

You may not always get answers, but you should ask anyway. You never know what you’ll learn.

2. Know what you need

You should always know what you need before you start negotiating. Have a clear idea of what you need, how much you can pay, and when you need it. Do the leg work and know what other vendors are selling the same product for. Bring proof with you.

You should also be comfortable walking away from any deal if it’s not the one you need.

Let’s say you’re looking for a credit card alternative. There are plenty of them. If your credit card company won’t play ball, let them know you’ll be transferring the debt to a lower cost provider. That should wake them up. Don’t ever think you have no alternatives.

The same goes for business. You might need working capital for your small business, but you are not (I repeat) NOT desperate. There are plenty of alternatives to help fund your business too.

Other than paying for health care, there are very few transactions that are life-or-death. You’ll survive if you don’t get the deal and have to drive home in your old car. There is always tomorrow. There is always another seller.

3. Use time to your advantage

Sellers try to use time to pressure you into taking action now. That’s because they know that if you don’t take action now, the chances of you buying are greatly reduced. Once you understand that, you can use this dynamic to your advantage.

Get them to give you a price and respond immediately… With silence.

Let it sink in. Let the seller wonder what you’re thinking. This puts them on the defensive. They’ll start worrying about losing the sale. As a result, they’ll be more interested in negotiating further.

You can use time to your advantage in another way, too. Let the seller know you aren’t going to buy anything until next week. You’re planning on shopping all over town and you actually enjoy the process. The only way you’ll buy now is if the seller gives you an amazing deal. This will light a fire under them.

Finally, never go shopping when you are hungry, rushed, or tired. These are poor conditions to negotiate under. In essence, time is against you because a part of you wants to end the process quickly so you can rest or eat. The best time to negotiate is in the morning after breakfast.

4. Become valuable

Explain to the seller why you are a good customer. Talk about how you’ll make other purchases in the future and that you’re an influential member of a large community. Tell them how you’d love to share good deals with others but you need something worth sharing.

Get the salesperson to see you as a long-term customer rather than as a transaction.

5. Smile

This is similar to the tactic of being quiet and it’s my favorite technique.

When the salesperson gives you a price, don’t say anything.

Just smile.

This works on a few different levels.

First, when you smile at someone, you disarm them and (often) they can’t help but like you. When you smile at someone, you telegraph friendship. And most folks want to do favors for their friends.

But it goes beyond that.

When you smile at the salesperson, while they like you more, they have no idea what you’re thinking. They don’t really know why you’re smiling even though they feel better about you.

So on the one hand, when you smile, the salesperson will feel more inclined to want to work with you. On the other hand, the salesperson will be concerned that you aren’t happy with the terms.

These five techniques have saved me a small fortune over the past several decades. In addition, I actually enjoy a process that I used to abhor.

The bottom line is to remember that you have power and you deserve to get the best terms possible. Don’t ever think you have to make a deal with someone. By simply taking back your power, you’ll see how much you really have.

Your thoughts on negotiation

What are your favorite negotiating techniques? Have you ever used those I describe above? What was the result?

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Unfortunately, I can’t provide a lot of guidance here because I use an iPhone. I do, however, know that many FCN readers use Android phones, so I thought I’d create an open thread where people can share app recommendations.

If you’re an Android user and have any recommendations for good/useful apps that are at least tangentially related to money or finance, please leave a comment.

If you’d just like to browse around and see what’s out there, hop on over to Android Marketplace. If you click on the “Top Free” or “Top Paid” tabs, you’ll be presented with a list of categories so you can narrow in on “Finance” apps very easily.

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• Bank of America – This is where we have our “local” bank accounts. I use the app to transfer money, pay bills, etc. Hopefully they’ll add remote deposit sometime soon.
• ING Direct – Provides an overview of account balances and activity, ability to transfer money, and access to their bill pay functionality. Here again, I’d love remote deposit.
• Vanguard – This is where we do most of our investing, and their app allows you to check in on your account and complete mutual fund transactions.
• Fidelity Investments – Provides access to consumer and NetBenefits accounts, which is handy for an employer-related retirement account that I have at Fidelity.
• American Express – I use this to check in on our Amex Blue Cash and Amex Platinum SkyMiles accounts.
• Citi Mobile – I use this to check in on our Citi Platinum Select account.
• Chase Mobile – I use this to check in on our Chase Freedom card, but if you have a bank account with Chase, you can use this app to deposit checks remotely.
• PayPal – Exactly what it sounds like… A portable PayPal client. I don’t use this one very frequently, but it’s nice to have on hand.
• CardStar – This handy little app stores your the numbers from your grocery store affinity cards, reward cards, and membership cards. It even generates a scannable barcode so you can whip out your iPhone instead of fishing through a stack of cards.
• Amazon Mobile – I frequently use this app when out shopping to check Amazon’s pricing as well as user reviews on whatever I happen to be looking at. More recently, I’ve also been using it to place orders instead of firing up my computer.
• SnapTell – Very slick app that lets you scan the front of books, CDs, DVDs, or video games to access online pricing, reviews, etc. More recently, they’ve also added barcode scanning.
• Kayak Flight & Hotel Search – I use this to keep tabs on the price of airline tickets. If you like Kayak.com, then you’ll love this app.
• Evernote – This is the iPhone client for the Evernote document-storage service. I use it for storing scanned images of receipts, keeping notes on tax-related transactions, etc.
• JotNot Scanner Pro – This app turns your iPhone into a scanner so you can snap pictures of checks, receipts, etc. Crop them, square them up, and convert to pdf before storing in Evernote (above) or e-mailing them to yourself from within the app.
• SplashID – This one is a little pricey by App Store standards ($9.99), but it’s totally worth it in my book. It’s an encrypted login/password/info keeper that syncs over wifi with an optional desktop client.

What others think…

With so many apps out there, I’ve only scratched the surface. I thus decided to ask my Twitter followers for recommendations of their own. Here are fourteen more that they came up with:

• Mint.com
• Discover Mobile
• DebtTracker Pro
• Save Benjis
• Ace Budget (Lite)
• PocketMoney (Lite)
• QuickTip Tip Calculator
• Square
• Barcode Scanner
• Shop Savvy
• Morningstar
• Yahoo Finance
• CNN/Money
• CNBC Real-Time

If you have any other suggestions, please share them in the comments.

Special thanks to @EverydayFinance, @torreymcgraw, @thebudgetauthor, @waynemel68, @cmbarry, @InvestorJunkie, @rundawnrun, @DanielPacker, @CreditKarma, and @brettlhart for responding on Twitter.

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I actually knew this one was coming because the borrower in question never made a single payment. Nice, huh? This is one of the reasons that I’ve been attracted to buying notes on the secondary market. While I still can’t be sure that borrowers will live up to their obligations, I can at least weed out the total deadbeats.

Going forward, I’m thinking of pausing my new contributions. I’ve now built up a reasonably large portfolio, and will likely focus on reinvesting the proceeds as opposed to adding new money.

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All of this got me to thinking about the slight difference (in my mind at least) between a regular savings account and an emergency fund. When do you use your emergency fund, and when should you have a specific savings fund? I’ll share my thoughts below based on recent events. Hopefully you’ll have some advice as well on how to use your emergency fund without going broke.

Total loss on the car

This car accident is proving to be more and more of a headache, as USAA declared our beloved Acura Integra. That means USAA will pay us a fair amount for our car and will then junk it because the repairs cost more than the car is worth. While I’m happy that we’re getting a check to put toward a new car, we now have to deal with the hassle of buying a car.

Between the check we’re supposed to get and the money have stashed away in our car replacement fund, we’re hoping to find something reliable. If not, we’re prepared to dip into our emergency fund.

Avoiding car payments

We’re going to do our best to pay cash for our next car. As you saw with my tips on buying a car, that means we have to go through the process of finding the right one for us.

1. Determine our budget. Right now we’re looking at the money from USAA and the money saved in our car replacement fund. If necessary, we’ll take up to an additional $1,000 from our emergency fund.
2. Decide on our must haves. Reliability and gas mileage are the two big factors. My husband would prefer a two-door coupe with manual transmission, but he’s keeping his eyes open for a good deal.
3. Decide on new or used vehicle. With our budget, it’s a given that this will be a used car. As long as everything checks out mechanically, having a used car is not an issue.

I’m digging through Edmunds and Consumer Reports to get ideas on what we need to avoid and which car may give us the best bang for our buck.

We’re happy that we paid off our car loan and we don’t intend to have car payments again. They’re just such a big monthly expense that we’d like to avoid having a car loan if at all possible.

Emergency fund or savings?

Buying another car was part of our financial plan – eventually. We knew that one of cars would eventually going to break down, and that it would be smarter to get a reliable replacement.

The emergency for us now is having to buy that replacement car much sooner than we planned. As you can see, all of our well thought out plans we had went out the door when this came up. So while we don’t have nearly enough to buy a car in our ING subaccount, we’re happy to have something set aside.

Ultimately, my recommendation is to build up your emergency fund before you start saving for specific goals. If an unforeseen expense, such as a car accident, leaky roof, etc. crops up before you have enough saved in a dedicated account, then you’ll have to dip into that emergency fund. If not, then spend from other sources of money and keep that emergency fund in tact.

So just how much should you have stashed away in your emergency fund? Most experts generally recommend 3-6 months expenses, but I think a better rule of thumb is enough to allow you to sleep well at night. The fewer responsibilities you have, the less you’re likely to need. In other words, a couple with kids probably needs much more than a college student.

Once you have a fully funded emergency fund, start redirecting those deposits into a car replacement fund, an account for a house down payment, etc. You’ll be amazed at how quickly those focused deposits accumulate, and hopefully you’ll have a decent cushion when the unexpected happens to you.

Have you ever had to dip into your emergency fund?

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People can easily be intimidated by the amount of money it takes to fund retirement. However, it all becomes more manageable if you approach building your savings rates the way you would build muscle in a gym — starting with moderate exercises, and then increasing the intensity as your ability increases.

Fortunately, life makes this process of ramping up seem natural, by placing savings tasks along the path of life in order of difficulty, starting with some easy ones:

1. Saving your allowance. When do positive savings rates begin? For many people, the first transition from spending immediately to setting aside some money happens during childhood when they receive an allowance. This will generally be for a modest, short-term goal, but the fundamentals of positive savings rates are there — chiefly, budgeting and deferred gratification.
2. Saving for a car. Moving from childhood to young adulthood, often the first meaningful savings goal on the horizon is to save enough money to buy a car. This will typically represent an investment in the thousands of dollars, so it will not only take more effort, but also an ability to see saving as a multi-year commitment.
3. Saving for a house. Speaking of multi-year commitments, this notion really comes into focus when you start saving for a house. This will probably be the first time you’ve bought something that costs much more than you make in a year, so planning has to stretch out over several years. First you have to build savings rates up enough to accumulate a down payment, and then you have to maintain that budget discipline to make sure you meet your mortgage obligations, keep up with your insurance, and maybe even buy some furniture. Saving that down payment might be the first time you accumulate a significant lump sum of money, so for the first time you’ll have to face decisions such as spending time to find the best CD rates, money market rates and savings account rates to get the most out of your savings until you need them.
4. Saving for college. The next major savings challenge may come when you have to put your kids through school. Is this really a bigger saving challenge than buying a house? It can be. The College Board estimates that for the 2009-2010 academic year, total annual expenses at a private four-year college for a student living on campus were $39,028. Multiply that by four (all the while keeping your fingers crossed that your child gets through college in four years) and it’s a commitment of $156,112. Then, if you have more than one child, start multiplying that total. College can definitely be a big ticket item, and given that student loan terms are generally shorter than mortgage terms, it’s at least as tough a challenge as buying a house.
5. Saving for retirement. The right retirement goal for your lifestyle might be one million dollars, it might be two million, or even more. Still, you have the advantage of time. If you start early, retirement saving has a longer lead time than any of the above savings challenges.

In short, life’s savings challenges grow in size as time goes on, but that’s a good thing. It allows people to start small, and then tackle bigger challenges as they develop better savings habits.

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For those that missed it, Chase has moved to rotating reward categories, and this summer they’re offering 5% back on travel-related expenses, including gas, airlines, auto rentals, and hotels.

A few days after signing up for the bonus program (you have to opt in each quarter) I bought a plane ticket for a little over $600. Yes, it was rather pricey, but it’s work related, so I’ll be reimbursed.

Anyway… That should work out to a bonus of around $25 (4% extra on top of the 1% you normally get), but I got nothing. On top of that, I paid for gas a few times and also charged a hotel room on my card. I was thus expecting to see some bonus cash in my account.

Confused as to why my purchases didn’t qualify, I called Chase to ask. According to the rep that I spoke to, everything is okay. While you accrue bonus rewards throughout the quarter, they don’t actually post to your account until eight weeks after the promo ends.

In other words, I shouldn’t expect to see a bonus until the end of November since the current bonus runs through September 30th. I’ve since confirmed on the Chase website that this is the way that it works. Lesson learned… I need to do a better job of reading the fine print.

Regardless, it seems a bit strange to me that they would print a line on my statement for “Ultimate Rewards Travel” along with a $0 value when they know full well that the bonus won’t post until the end of November.

Whatever. The point here is that if your statement is showing $0 in bonus rewards, don’t worry. They’re not actually supposed to be there until later this fall.

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Anyway, I don’t usually look at our credit card statements too closely, as we pay our credit card bills in full every month. I usually just skim over the transactions to make sure everything looks right, and that’s about it.

This time around, however, my eye was drawn to the “Minimum Payment Warning” box, pictured below. I’ve talked in the past about recent credit card statement changes, and this is one of the new additions.

For context, our closing balance was $2720.12, the APR is 15.24%, and the minimum required payment is $54. As you can see from the image above, if we made that minimum payment each month and never made another charge, it would take us 21 years to pay it off. 21 years!

Not only would we be paying for our July 2010 purchases through the year 2031, but it would come at a total cost of $5,936. That’s 118% extra. 118%! If that’s not motivation to get out of debt, I don’t know what is.

The whole point of this table is to make it clear to people just how much money they’re wasting by carrying a balance. They do their best to obfuscate things in the next line, however, where they present an alternate payment scenario.

Guess what? If you pay $95/month, you can pay it off your balance in three years while “saving” $2,525. That’s all well and good until you remember that this “savings” actually represents nearly $700 in extra interest payments vs. paying it all off up front.

Hmmm. No thanks. I think I’ll keep paying my bill in full. What about you?

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If that’s your goal, then you might be interested in this list of the top US universities in terms the number of graduates to have become billionaires (in parentheses).

• Harvard (50)
• Stanford (30)
• Univ of Pennsylvania (27)
• Yale (19)
• Columbia (15)
• Princeton (13)
• NYU (10)
• Univ of Chicago (10)
• Cornell; MIT; Northwestern; UC-Berkeley; UCLA; USC (9)

Not surprisingly, the majority of these billionaires were business majors at their respective campuses.

Interestingly, NYU also has five dropouts who went on to become billionaires – including financier Carl Icahn, who left med school to become a stock broker.

And yes, I do realize that that it might be the students who choose to attend these schools, rather than the schools themselves, that make the difference. Either way, it’s still a fun list to look at.

Source: Forbes.com

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On the face of it, getting out of debt seems simple; spend less than you earn and pay back what you owe with the difference.

So why is it that it’s so hard to actually do?

There are a few reasons.

First, trying to get out of debt is intimidating. It’s like having to climb a very tall mountain starting from a very shallow valley.

Most of us stare at that mountain in awe. We think about how much work it’s going to take to get to the top. As a result, we stay anxious and paralyzed. And we stay in the valley.

But how does a mountain climber approach this task?

One step at a time.

They don’t think about the torturous days ahead. They just think about putting one foot in front of the other.

When you’re trying to get out of debt, you might face a mountain of bills, and your debt might be so great that it gives you a nose bleed just thinking about it.

In that situation, I know it’s really tough to think about taking one step at a time but let me tell you a secret.

That is the only way you’re ever going to get out of debt.

In fact, this is exactly what’s behind your struggles. You start off very motivated but little by little, you change your focus to the mountain rather than the step in front of you.

As a result, you give up.

Think about the challenge of losing weight.

Let’s say George wants to lose 20 pounds, and he’s been trying to do it for years.

He’s tried lots of diets – and they all work.

For awhile.

Then, he slips back and ends up heavier than ever.

Why?

Let’s take a look a closer look.

Every time George steps on the scale, it reminds him that he is 20 pounds overweight. Let’s say he decides to do something about it.

He joins a gym and starts working out.

He gets serious about eating well.

After a week, he’s shed 2 pounds.

But when he looks at the scale, you know what George sees?

Failure.

He still sees that he’s 18 pounds overweight.

Those 2 pounds were tough enough to lose. He tells himself that he’ll never lose 18 more. He gives up.

The only way George is really going to lose those 20 pounds is to lose them 1 at a time.

And the only way you’re going to get out of debt is 1 dollar at a time.

What we really need to do is remain focused on taking one step at a time.

How do you do this?

1. Slow down

Get the word “fast” out of your vocabulary. When you want “fast” results you’re setting yourself up for failure. Resolve yourself to the fact that it may take time to get out of debt. Make a commitment to yourself and someone else that you’re going to stick to it.

2. Redefine success

This is also a critical step. If you define success as “having no debt” you’re actually setting yourself up for failure – just like George did every time he stepped on a scale.

Success has to be available in smaller increments, so let’s break it down.

In order to get out of debt you might need to do any number of things. There are two main areas; stop creating more debt and paying off existing debt.

In order to stop creating more debt, you need to get a tight grip on spending. That may require finding and implementing a budgeting system and having a family discussion about the new focus on spending cuts and getting out of debt.

There may be other steps as well – like renegotiating or consolidating debt. You also might have to go through all your expenses. Rather than cutting, you might need to shop for lower cost replacements. (Life insurance is a great area where a little shopping could save you a nice chunk of change.)

Each of these are steps and offer you “success.”

Get out a piece of paper.

List all the steps.

Break each step down further. What are all the steps you need to take in order to accomplish those steps?

You might have a list of 30 items. That’s great. You now have 30 “success” steps.

Assign each step to a member of the family with a due date.

Once you complete these steps, you’re going to be much closer to getting out of debt.

Keep in mind that some steps, like following your budget, are ongoing. That’s great, because such steps offer you daily success. All you have to do is follow your daily budget today in order to have success.

If you want to get out of debt, you don’t need to buy another book and you don’t have to start living like a monk. All you have to do is break down your goals into bite-size chunks and start taking care of business – one day at a time.

Your thoughts on debt reduction

Have you faced challenges like these? Did you get out of debt? How?

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Salaried employees generally have an employer-sponsored 401(k) retirement account administered by the company’s HR department. Failing that, many use Individual Retirement Accounts (IRAs) from local banks, credit unions, or brokerages. Some especially conscientious employees use both.

Small business owners tend to likewise be big fans of the IRA, either in Traditional or Roth form. And while these are certainly better than having no retirement plan at all, an IRA is rarely the ideal plan. The self-employed have several retirement options which are both exclusive to them and, often times, more lucrative than the more traditional plans above.

Simple IRA

Simple IRAs are ideal for small business owners who wish to set up retirement accounts for their employees. As Bankrate explains, these accounts were established with businesses of “no more than 100 employees who earned $5,000 or more on the payroll for the previous calendar year” in mind.

Over time, Simple IRAs have become most commonly used by employers with seven or fewer employees. Fortunately, the Simple IRA is extremely easy to set up, requiring just four pages of paperwork and about ten minutes of one’s time. Employers are limited to contributing 3% of an employees pay, up to an $11,500 yearly contribution limit.

The Solo 401(k)

One rarely discussed advantage of self-employment is the existence of retirement accounts with much higher yearly contribution limits. The Solo 401(k) account is a prime example. SmartMoney explores how Solo 401(k) plans work, explaining that they’re essentially regular 401(k) accounts with much higher contribution limits: up to $49,000 per year in 2010, depending on age, income and other circumstances.

Putting things in perspective, regular 401(k) and IRA contribution limits top out at $16,500 and $5,000 per year (not counting catchup contributions), respectively. It should be noted that Solo 401(k) plans are generally restricted to business owners, rather than employees of the business in question.

The Solo Roth 401(k)

Solo Roth 401(k) plans are similar to regular Solo 401(k) plans, but offer the tax advantages of a Roth IRA. As you may know, Roth IRAs are accounts for which contributions get taxed, but withdrawals (which contain the accumulated savings, interest and investment returns of decades) do not. Moreover, InvestorGuide reveals several key advantages the Solo Roth 401(k) holds over a regular Roth IRA:

• High income earners can contribute to Solo Roth 401(k) accounts even if they’re not eligible for a Roth IRA
• You can contribute much more per year to a Solo Roth 401(k) as compared to a Roth IRA
• You can borrow from your Solo Roth 401(k)
• You can avoid (if you wish) the required minimum distributions of a Roth 401(k) by rolling its funds over to a Roth IRA prior to age 70-1/2, so long as you set up the Roth IRA account five years prior
• You can also maintain a Roth IRA in conjunction with a Solo Roth 401(k), which expands your potential annual contributions even further

The Simplified Employee Pension (SEP) IRA

The Simplified Employee Pension IRA (SEP-IRA) is in many ways similar to a Solo 401(k). While both have the same maximum annual contribution limit, it takes a higher level of income to max out the SEP-IRA. In 2009 and 2010, self-employed individuals and business owners can contribute 20% of net self-employment income or 25% of W-2 wages up to $49,000 per year. Contributions are tax deductible.

Withdrawals prior to turning 59-1/2 are subject to a 10% penalty (plus income taxes), while withdrawals after 59-1/2 are just taxed as ordinary income. Unlike defined contribution plans, there are no restrictions on whether or how much money you can contribute to a SEP-IRA in a given year. SEP-IRAs are also designed for one person businesses or business owners with employees, rather than for the company’s employees themselves.

Keogh Plans

Keogh plans are a type of defined contribution retirement plan. Established by Congressional legislation in 1962, Keoghs allow tax deductible contributions of up to 25% of annual income up to $49,000. Keogh funds can be withdrawn by 59-1/2 and must begin by 70-1/2.

A Keogh (also known as an HR10 plan) can be invested into the same broad range of securities – stocks, bonds, CDs and annuities – as can traditional accounts like 401(k)s and IRAs. Investopedia cautions, however, that their high contribution limits are accompanied by greater paperwork burdens and upkeep costs.

Defined Benefit Plans

Described by Bankrate as “the most expensive and complicated retirement plan for the self-employed,” defined benefit plans are nevertheless an option for self-employed individuals with “mountains of money” to put toward retirement. Employers can save an eye-popping maximum of $195,000 per year, but there’s a catch: an actuary is needed to determine the exact amount that can be contributed (a rather costly expense).

In contrast to the flexibility offered by Solo 401(k) accounts and Simple IRAs, a defined benefit plan is an extremely structured arrangement that must be operated in accordance with strict rules. Largely because of these expenses and complications, Bankrate finds that there are roughly 38,000 defined benefit plans today, down from 114,000 in 1985. Nevertheless, they remain a worthwhile tax-deferral possibility for wealthy business owners.

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But what then? Once you’ve defaulted, you won’t be able to get a new mortgage for a long, long time. Well… According to a recent Bloomberg article, some homeowners are starting to “buy and bail.” In other words, they’ll acquire a new house before they walk away from the old one.

While “buy and bail” constitutes fraud if the borrower lies on their loan application, this strategy is most often employed by those with a big paycheck and relatively little debt, as they’re more likely to legitimately qualify for financing on a second home. Lenders are then left holding the bag.

What do you think?

Are there any circumstances under which you’d consider a strategic default?

Source: Bloomberg via Consumerist

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After the accident, he said that he was messing with his cell phone when he saw a car “pop out of nowhere.” He then swerved into our lane where he rear-ended us.

We’re grateful that it wasn’t worse, but we’re definitely upset by all the work we’ve had to do to get the car fixed (possibly replaced) just because some guy was messing with his cell phone.

What to do when filing a claim

Even if you’re in the right and have been a victim in a car accident, you have to make sure you follow your insurance company’s procedure for filing a claim. If you don’t, you can expect headaches and problems with getting the claim sorted out, and you might not get the money you deserve.

Exchange information

After you’ve established that everyone is okay, go ahead and exchange information with the other driver(s). Besides getting their name, contact information, and license plate number, you should get their VIN and car insurance information (including the policy number).

While this is generally easy, sometimes the other driver will be belligerent, especially if they know they’re at fault. Don’t say anything to provoke them. Instead, just wait for the police to arrive – you did call them, right?

Another point to consider is whether or not you should talk about the accident with the other person. In general, it’s a good idea to avoid speaking about the details of the accident with the other driver. This helps to protect you from a misunderstanding, and from them blaming you when it’s really their fault.

Contact your car insurance company

Another important step is to contact your car insurance company as soon as possible. Some insurance companies have very specific time frames for reporting claims. As soon as the police officer finished up, I called our car insurance company.

If you have serious injuries, of course, you should get them taken care of immediately – the insurance company can wait. Even if you think you’re okay, you might want to stop by an urgent care center to double check for any injuries related to the accident.

While I felt fine for a few minutes after the accident (aside from a killer headache), I noticed that my knee was bleeding. It didn’t look too bad, so we didn’t need an ambulance. Since our car was still functional, we drove ourselves to urgent care. I ended up getting a tetanus shot and a prescription for a pain killer.

While waiting for the nurse, my husband and I called and gave the insurance company all the information they needed. This included:

• Names and contact information of all involved
• Names and contact information of any witnesses
• Vehicle information and VIN of the other car
• Detailed description of the accident
• Information on any injuries and/or medical treatment sought

If you have the presence of mind, you should try to give them this information as soon as you can after the accident, or at least write down the details so you don’t forget anything important.

Take pictures and organize your documents

My husband took numerous pictures of our car, but forgot to get pictures of the other guy’s car. Along with the photos, we’ve been accumulating related documents, receipts, and paperwork in a central spot.

When you’re getting phone calls and scheduling repairs, it’s very helpful to keep all of your information organized. If you don’t, you might lose documents that you don’t even know you’ll need.

Be careful before signing anything

While your car insurance company is processing your claim, take some time to review your policy to make sure you’re getting everything you’ve paid for. If you don’t understand any part of your policy or claim, call your insurance company for a thorough explanation.

Insurance companies often try to give you estimates of losses that are lower than your actual losses. Don’t accept their estimates without getting some estimates of your own. Also be sure to read any paperwork that you’re given to make sure you’re not signing off on anything that you don’t agree with.

Your thoughts

Have you ever been in a car accident? If so, what happened? And how did the claims process go? Did the other driver or their insurance company give you a hard time? What about your own insurance company? Please share your thoughts and experiences in the comments section.

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Finding a lost card

We took the boys to see a movie on Saturday. My wife and I were out and about separately, so we decided to meet at the theater. She got there first with our oldest, so she went in to save seats.

As I walked our younger three across the parking lot, our five year old said “Daddy, there’s a credit card on the ground under Mommy’s car.” Sure enough, when I got down to his level, I spotted it.

When I fished it out, I discovered that it was actually a debit card. Unsure of what to do, I headed into the theater. I wasn’t comfortable turning in an active card at the box office, but I also didn’t want to just throw it away or hang onto it until later.

Doing the right thing

Our eight year old jokingly (I hope!) said “Cool, now we can financially ruin them.” But instead, I decided to do the right thing. I started by trying to look up the owner using my iPhone, but I came up empty.

Since the movie was about to start, I decided to call the number on the back of the card and simply report it as lost. Once I reached a rep – harder than you’d think without a PIN code – I told her I had found a card and wanted to report it lost.

The rep took down the number and said they’d place a hold on the account until they heard from the owner. I then turned the card in at the box office just in case the owner came back looking for it.

What would you have done?

So, dear readers… What would you have done if you were in my shoes? Left it lying there on the ground? Turned the card in at the box office? Called to cancel it? Cut it up and threw it away? Go on a shopping spree?

(I’m kidding about that last one.)

As an interesting aside, we found this card maybe 200 yards from where we found $1100 cash about 12 years ago. I guess we should hang out there more often!

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I finally decided to take the plunge after: (1) several commenters shared their positive experiences, and (2) I had a hard time finding enough suitable notes through the ‘normal’ investing channel.

What is the note trading platform?

Instead of trying to describe the note trading platform myself, I’ll let Lending Club describe it themselves:

The Note Trading Platform is an electronic marketplace where individuals and organizations can buy and sell Notes that correspond to consumer loans issued through the Lending Club website… The Note Trading Platform is operated by FOLIOfn.

You can access the trading platform from the “Trading Account” link in your Lending Club account. Be forewarned: You have to apply for an account and wait for it to be activated before you can use it.

Why use the note trading platform?

There are several reasons you might want to use the Lending Club note trading platform, including accessibility, speed of investments, risk reduction, and discounts.

Increased accessibility

Probably the biggest reason to buy notes on the secondary market is that not everyone is eligible to invest directly via Lending Club. In fact, you can only use Lending Club if you live in one of 26 select states. Residents of the other 24 states (and DC) are out of luck.

As for the note trading platform, nearly everyone can participate. In fact, only residents of the District of Columbia, Kansas, Maryland, Ohio, Oregon, Texas, and Vermont are ineligible.

Put your money to work quickly

Another big reason to use the note trading platform is that you can use it to put your money to work much more quickly than via direct investments. While new loans can take 10-12 days to fund, you can buy a note on the secondary market and the transaction will settle within 24 hours.

Risk reduction

Of my two notes that have been charged off, neither borrower ever made a single payment. By investing on the secondary market, you can screen these individuals out by only investing in notes that have received at least one (or a few) payment(s).

While an established payment record doesn’t guarantee that a borrower won’t eventually turn into a deadbeat, it does get rid of the outright scammers.

Buying notes at a discount

Finally, it’s possible to pick up decent notes at a slight discount. And yes, this applies to decent looking notes, not just stinkers. Sure, the discounts will be smaller on better notes, but I’ve been able to find plenty of promising notes at a 0.2% to 0.5% discount – not much, but I’ll take it.

How to select notes

So… Now that I’ve convinced you to give it a try, how do you go about selecting notes to buy? I’m still rather new to the game, but I’m always happy to share my strategies.

Unfortunately, FOLIOfn only has rudimentary filtering capabilities. You can filter based on interest rates, payment status, and the number of payments remaining. My primary considerations here are status and number of payments remaining.

I set the status to “Never Late” and the number of payments remaining to “35” – this latter setting guarantees that there’s been at least one payment made. At this point I have a huge number of loans to choose from, so I sort them based on their “Markup/Discount” with the largest discounts at the top.

Another major consideration at this point is the borrower’s credit score change. There’s a column for this in the resulting data table, with an arrow pointing up (increase), down (decrease), or across (no change). From here, I simply look for notes that have had no change or an increase in the borrower’s credit score, and I click to load each of them in a new tab.

Now the fun begins… I simply flip through the tabs and click the “Original Listing” link to load the original loan application. I then quickly check the loan against my loan selection criteria and close tabs that don’t meet my expectations. I then hop back to the list of loans, check off those that I want to buy, and submit my order.

The first time I did this, I managed to identify and order twelve promising loans rather quickly. If you place your order before 2:30 Eastern, your trades will settle that day. Otherwise, they will settle at the end of the next business day.

The downside of the note trading platform

The primary downside of the Lending Club note trading platform is that the interface kind of sucks. As I noted above, the filtering is rather limited, and I was also frustrated by the order submission process.

Instead of being able to add notes to a shopping cart of some sort and continue clicking through the available notes (you can only view up to 60 at a time), you have to submit your order before changing pages. No big deal, right? Wrong, as you can’t easily pick back up where you left off.

Instead, you get dumped back out to the main screen where you have to re-filter, re-sort, and then find your place back in the long list of available notes. Not a deal killer, but their design is definitely lacking.

Another minor issue was that, of the twelve notes that I selected, I only ended up getting ten of them. The other two simply disappeared from my order, and the money was credited back to my account.

Confused, I pinged Rob Garcia of Lending Club. His response was that, if there are payments coming in while a purchase is in progress, the transaction might get cancelled “so the purchase is not mispriced.”

My interpretation of Rob’s explanation is this:

The interest that has been accrued but not yet paid goes to the buyer. If a payment comes in before the sale is completed, the accrued interest plus the principal portion of that note would end up in the seller’s account, thereby reducing its value. Because this has an adverse impact on the buyer, the transaction gets scrubbed and you get your money back.

It seems like it would be easy enough for FOLIOfn to protect against this possibility, but I guess this is just how things work — at least for now.

What do you think?

For those of you who have tried out the note trading platform, I’d love to hear your thoughts. Any tips or tricks for navigating the interface a bit more efficiently? What about tips for finding those “diamond in the rough” notes? Anything else to add?

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Because ING Direct doesn’t yet support the uploading of check images, I’ve typically deposited checks at my local bank and then initiated an ACH transfer. If you’d like to cut out that extra trip to the bank, then read on…

Depositing checks by mail

For starters, endorse the check. Before signing your name, you should write “For Deposit Only into Account {your acct #}” (fill in your real account number). On the memo line, you should also be sure to include your customer number.

Note: For those that are unaware, your customer number isn’t the same as your account number(s). Your customer number is like a username, though you can now create an alphanumeric username. Once logged in, you’ll see the numbers associated with your individual accounts.

If you’re uncomfortable including all of this information on the check, which will likely be returned (either physically or as a digital image) to the check writer, then you should simply write “For Deposit Only” above your signature on the back and enclose a note with your account number.

Either way, it’s a good idea to include your customer number on the check itself so they can track you down if something goes awry.

Once it’s ready, mail your check to:

ING DIRECT
P.O. Box 60
St. Cloud, MN 56302-0060

While it will take a few days to arrive, your check should be posted immediately upon receipt by ING Direct. Yes, you’ll have to pay for a stamp, but you’ll most likely save both gas and time.

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Perhaps a “friend” borrowed money and didn’t pay it back. Instead, she “remembers” that it was a gift from the start — and tirelessly tries to convince you.

Or maybe your brother-in-law sold you mortgage life insurance — and you didn’t need it. You later found out that he pocketed a huge commission and he knew you didn’t need it from the start.

Beyond the financial losses, the emotional fallout can be catastrophic.

Those feelings can weigh so heavily on you that it becomes debilitating.

You simply freeze. You become unwilling to take further financial action or to trust other people.

I can understand why you might react this way, but it’s really no way to live. It feels terrible, and it will cost you big-time in terms of lost opportunities in the future.

So what is the solution?

My experience tells me there are five steps that you need to take to overcome financial betrayal.

1. Damage Control

If the financial betrayal is happening now, you have to stop the bleeding. If someone has taken advantage of you financially, don’t allow them to continue doing so. This may seem like a no-brainer, but sometimes we tell ourselves that if we only give the perpetrator another chance or a little more money, it will all work out.

This is like Charlie Brown trusting Lucy NOT to pull the football out from under him at the last minute — like she’s done every time she had the chance.

Are you Charlie? Who is Lucy? Are you going to give her yet another chance to fool you?

Don’t fall for it. Get out now.

2. Get Right-Sized

As I mentioned above, the emotional pain of being messed with can be more devastating than the financial losses involved. Part of untangling that emotional knot is to understand the true nature of the losses you’ve incurred.

Somebody sold you the wrong life insurance. Okay… But you can cancel it.

Your spouse “nuked” your budget. Fine… You can fix that.

I know this is going to sound terrible. But even if you lose your small business, can’t you open another?

If a “friend” wrecks your credit, you can rebuild it… Yes?

You can even survive bankruptcy.

It’s not cancer… Right?

Very few financial errors are fatal to your future. Keep that in mind.

Don’t blow the problem out of proportion. This will help you stay present and make adult decisions.

Of course, I’m not saying to minimize the problem. But, in most cases, the problem is the person in your life who has betrayed you — not the actual financial cost of the deception.

3. Draw Boundaries

You certainly don’t want to repeat what you’ve just gone through. And you don’t want to give the “perp” another opportunity to put you in this position again.

You don’t have to write this person out of your life completely (although if it’s your brother-in-law, you have my blessing if you do). But you do have to install safe boundaries around this person so you don’t get taken to the cleaners yet again.

If someone has demonstrated poor character, have no further financial dealings with them. Period.

This is easier if it’s a non-spouse. But if it’s your husband or wife, it’s a bit trickier.

If that’s the case, explain how this failure has impacted you financially and emotionally. You may even want to see a marriage counselor together because it’s a core issue. I say this because you can’t have a happy relationship with someone when you have resentment towards them and/or you don’t trust them.

What can you do to put in safeguards?

Take his credit cards away? Manage the budget and pay the bills yourself from now on? Cancel that whole life policy and buy term life insurance instead?

Whatever you have to do, do it. Protect yourself. You’ll be doing yourself and the other person a big favor by being honest about your feelings.

4. Check With Others

If you’re hurt, you should talk about it with people you are close to. Tell them what has happened and what you plan to do about it. This way, you’ll have an objective pair of eyeballs giving you feedback to make sure your response isn’t over the top.

5. Understand Who the Real Loser Is

When we get hosed, we often blame ourselves and label ourselves the loser. This is not correct or even helpful.

Do you need to make changes? Yes.

Do you need to be more careful around others? Maybe.

But the real loser is the person who took advantage of you. All you did was trust someone. They are the person who behaved despicably. You only have to make minor changes and re-affirm your boundaries. The other person has a lot of amends to make. They have to live with the person they are. Thankfully, you don’t.

Have you ever had to deal with financial betrayal? What happened? What did you do? What was the result?

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A brief history of remote deposit

USAA Bank become the first major bank to offer remote deposit to consumers when they rolled out their Deposit@Home service back in 2009. More recently, a growing number of institutions have begun offering similar services.

Remote deposit was actually first made possible by the Check Clearing for the 21st Century Act (Check 21 Act), which made digital images of checks legally acceptable for payment purposes.

While the Check 21 Act was primarily intended to keep American commerce rolling in the event that a catastrophe of some sort made long distance transport impossible, it also opened the door to the scanning and uploading of checks.

Banks and credit unions that accept scanned checks

While there are tons of banks and credit unions that offer remote deposit for commercial customers using specialized hardware, many fewer banks offer this service to consumers using standard scanners or cell phone cameras.

What follows is a list of banks and credit unions that definitely offer consumer-level remote deposit. Alongside each entry is an indication as to whether each institution supports desktop scans, Android photos, and/or iPhone photos of your checks.

• Addison Avenue Credit Union (scans)
• Alliant Credit Union (scans)
• Boeing Employees Credit Union (scans)
• Chase Bank (iPhone)
• Digital Federal Credit Union (scans/Android/iPhone)
• Everbank (scans)
• First Command Bank (scans)
• First Internet Bank of Indiana (scans)
• The Golden 1 Credit Union (scans)
• Hanscom Federal Credit Union (scans)
• NASA Federal Credit Union (scans)
• PenFed Credit Union (scans)
• Penn State Employees Credit Union (scans)
• Randolph Brooks Federal Credit Union (scans)
• Sharon Credit Union (scans)
• Service Credit Union (scans)
• Summit Bank (scans)
• Texas Security Bank (scans)
• USAA Bank (scans/Android/iPhone)
• Vystar Credit Union (scans)
• WV United Federal Credit Union (iPhone)

(Source: Paperless Office Wiki)

If you know of any other banks or credit unions that should be included on this list, please leave a comment with the pertinent details.

The future of check scanning

As for the future, US Bank will soon be rolling out their own consumer remote deposit service known as Deposit Express, and other major banks can’t be far behind. While I’m looking forward to Bank of America launching their own service, that’ll be just the tip of the iceberg.

Just think… When you combine ATM fee waivers with online check deposits at banks like ING Direct, most consumers will have very little need for a brick and mortar bank. It’ll be interesting to see how old school banks respond as more and more of their customers flee online.

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» FDIC Insurance Coverage: Is Your Money Safe?
» The Safest Banks: Everbank and ING are the Best
» The End of Cash?
» Why Doesn’t Sam’s Club Accept Visa Credit Cards?

While $3 isn’t much, the time invested is small, so it might be worthwhile if you’re looking for ways to earn extra money. The primary limitation is that Pinecone only accepts applications intermittently, so you have to strike while the iron is hot.

Assuming that their current application window hasn’t closed by the time you read this, you can sign up through this link. Good luck!

Hat tip: Sun’s Financial Diary

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Aside from increasing your investment options, rolling your 401(k) protects you from early withdrawal penalties associated with cashing in your account. The key is finding a way to manage your retirement fund effectively and stick with your overall retirement plan.

Why cashing out is a bad move

When moving from one job to another, you might be tempted to cash in your retirement account to pay off some bill, or even have a little bit of fun. Don’t do it. If you do, you’ll get hit hard. Twice.

For starters, you’ll expose that money to income taxes, and it might even be enough to bump you into a higher tax bracket. On top of the taxes, you’ll also get hit with a 10% early withdrawal penalty.

I learned this the hard way when I changed jobs years ago. Since I didn’t meet the minimum balance requirement to keep my old 401(k) open, I was sent a check with the balance of my account.

I should have immediately opened an IRA and completed a rollover, but instead I used it to pay off bills. I thought I was being smart, but the penalties ate a good chunk up of my savings, and I was left with no retirement savings.

I won’t ever do that again. Next time, I’ll inform HR to send it to my IRA directly, avoiding the temptation for me to spend the cash.

Where to roll over your 401(k)

You have two options for rolling over your retirement fund, either to an IRA or into your current company’s 401(k). You’ll have to the weigh the pros and cons for yourself.

Into an IRA

You’ll have complete control over your money with an IRA. You can choose your preferred brokerage or mutual fund company, and you’ll likely wind up with more and better investment options than with a 401(k).

If you’re working with a financial planner (fee only, please!), feel free to ask for their advice on the matter. I would also suggest you check out some of the following companies to see if they would fit your needs:

• Charles Schwab
• Vanguard
• T. Rowe Price
• Fidelity

In most cases, you can initiate the rollover online. Just be sure to have all of your old 401(k) information on hand. When we opened an account with Vanguard, we were able to fill out all of the information online, but we still had to sign and mail the documents.

As with any financial transaction, just be sure to read all of the paperwork carefully, and don’t be afraid to call and ask questions if anything is unclear.

New company’s 401(k)

The primary advantage of this option is simplification. By rolling your investments into your new 401(k), you’ll have one fewer account to deal with. Another advantage, if you want to call it that, is that you can borrow from your 401(k), but not an IRA.

In my view, the ability to borrow isn’t typically an advantage, though there are some circumstances in which it might be the best option available. By having all of your funds in a 401(k), you’ll have a larger balance to borrow against.

Another consideration, of course, is whether or not your new plan accepts incoming rollovers. Even if they do, you might have to satisfy a minimum waiting period before you’re eligible.

Choosing your investments

If you’re looking for the easiest option that you can set and forget, you might want to look into target date mutual funds. These funds are designed to adjust asset allocation as you get closer to the retirement date, though there are some disadvantages to them.

Index mutual funds are another great option for people who are willing to construct their own portfolio while minimizing their expenses. Index funds are designed to track specific market indices, and thus don’t incur expenses associated with an active fund manager.

Exchange traded funds (ETFs) are similar to index funds in that they typically track a market index. ETFs can be traded through out the day like stocks. One major downside of ETFs is that, depending on where you buy and sell them, you may have to pay brokerage fees.

If you’re looking for some more information to help you decide, there are plenty of posts on the topic here at FiveCentNickel:

• Index Mutual Funds vs. Exchange Traded Funds (ETFs)
• ETFs vs. Index Mutual Funds, Revisited
• Avoiding and Reducing Mutual Fund Fees and Expenses
• Stocks and Bonds vs. Mutual Funds

And here are some articles on asset allocation:

• Our Investment Portfolio: Asset Allocation and Location
• Reconsidering Our Asset Allocation
• The High Cost of Low Risk Investing
• How Much International Exposure Should Your Portfolio Have?
• Market Turmoil, Portfolio Drift, and Asset Allocation: Time to Rebalance?

I would also recommend reading a few good books on investing if you’re going to start taking a more active role in managing your portfolio.

Your Thoughts on Rolling Over Your 401(k)

Have you changed jobs in the past? If so, how have you handled your associated retirement savings? Did you leave it in place? Roll it into an IRA? Or maybe you rolled it into your new 401(k)? Do you have any tips for making the process easier?

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» Should You Roll Over Your 401(k)?
» 401(k), 403(b), and 457(b) Contribution Limits for 2010
» Your 401(k) Match: Don’t Miss Out on Free Money
» Using a Solo 401(k) to Facilitate Roth IRA Conversions
» 401(k) Limits to Decrease in 2010?
» The Best 401(k) Plans
» 401(k) Transparency Being Eliminated?

On Saturday morning, I read that the number of bank failures in 2010 had climbed to 108. For the sake of comparison, “just” 69 had failed at this point last year, and bank failures peaked at 12 in 2002 as a result of our last recession.

As you’re likely aware, FDIC insurance limits were increased from $100k to $250k per depositor per institution back in 2008. This increase was set to expire at the end of 2013, but it was made permanent with the recent passage of the financial reform bill.

The same goes for NCUA insurance coverage, which was likewise scheduled to fall back to the original $100k limit at the end of 2013. For those that are unaware, the NCUA is much like the FDIC, except that it protects credit union deposits.

Looking at the history of FDIC insurance limits, it seems perfectly reasonable to make the change permanent. After all, the limit has been at $100k ever since 1980. Accounting for inflation, that was the equivalent to $261,934 in 2008 dollars.

From the outside, virtually nothing will change. You’ll just no longer have to worry about the safety of your savings account, CDs, etc. come 2013 if your combined balance at a single bank is somewhere between $100k-$250k.

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» Is Your Credit Union Safe?
» NCUA Insurance Coverage: Protecting Your Credit Union Deposits
» Risk-Free Banking
» Don’t Be Stupid – Leave Your Money in the Bank

To make a long story short, you’ll have to pay taxes on any tax-deferred funds that you convert. This includes any pre-tax (i.e., tax-deductible) contributions that you’ve made as well as any earnings that your IRA investments have generated.

The catch is that the IRS will look at all of your IRAs (Traditional, SEP, and SIMPLE) as one big pot of money when determining taxable amounts. Thus, if you have a mix of deductible and non-deductible contributions, you can’t just cherry pick the dollars that would minimize your tax burden.

Example: You have a SEP-IRA with $5000 in tax deferred funds (deductible contributions + earnings) along with a Traditional IRA with $4000 in non-deductible contributions plus $1000 in earnings.

In this case, 40% of the holdings ($4k out of the $10k total) have already been taxed, so 40% of your conversion would be tax-free. This is true regardless of which account(s) the money actually comes from.

That’s the bad news. The good news is that, as long as you do the conversion in 2010, you have the option of deferring the tax burden until 2011 and 2012. If you do this, you will pay taxes on 50% of the conversion in 2011 and the remaining 50% in 2012.

Given that income tax rates are generally expected to increase in 2011 with the expiration of the Bush tax cuts at the end of this year, you’ll have to decide for yourself whether or not this is a good idea.

A couple of other considerations…

Do you have enough cash on hand to pay the taxes on the conversion? If you’re under 59.5 years of age and you use any of the cash that you take out of your to cover the tax burden, you’ll have to pay a 10% early distribution penalty. Not good.

Will booking the entire conversion during 2010 push you into a higher tax bracket? If so, then it might be better to wait even if income tax rates increase next year. Again, you’ll have to run the numbers and see what’s best in your specific case.

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» Look Before You Leap: Roth IRA Conversions in 2010
» IRA Changes for 2008
» Carnivals – Week of 06/04/07
» Cash Out Roth IRA to Pay Off House?
» Using a Solo 401(k) to Facilitate Roth IRA Conversions

He’s one of the infamous Teletubbies – those colorful little TV creatures who live in Teletubby Land, of course. You remember his friends Po, Dipsy and Laa-laa, don’t you?

I knew it would all come back to you.

Anyways… Tinky taught me a great deal about money – and I only just recently realized it.

First, a little background.

My youngest grew up loving Tinky Winky, and was constantly fascinated by his (her?) antics.

Being a good dad, I spent time with my little one watching the Teletubbies, and I’ll admit it wasn’t easy.

You see, I have 2 older children. They grew up with Sesame Street and Power Rangers.

They knew about quality.

(I mean, come on… How could Tinky Winky compete with the likes of Big Bird and Elmo?)

It’s laughable, I know…

Poor Tink never had a chance, at least not in my mind.

But as convinced as I was, my kid wasn’t having any of it.

As hard as I tried to get my little one interested in high-quality characters like Elmo and Big Bird, it was of no use. My little girl was hooked on Tinky Winky, and I couldn’t do anything about it.

What made things worse was that, as I grew more intolerant of the little purple dweeb, my little pumpkin enjoyed the show more and more.

How could she have been so misguided?

Eventually, I gave up. When I couldn’t tolerate Tink anymore, I just started reading “Atlas Shrugged” instead. That kept me busy until she was well out of the Teletubby stage and into Miley Cyrus.

So how does this have anything to do with money you ask?

It has everything to do with money. Everything.

Opinion vs. fact

In fact, it’s probably the most important lesson you could master when it comes to finance.

You see, what Tink taught me is that I don’t know everything. I shouldn’t be so sure of myself.

I was so convinced that the Teletubbies were the by-product of a bad acid trip and just worthless. But I was wrong.

I was absolutely sure that Tinky Winky was a lightweight, and not worth anyone’s time.

At the same time, my daughter (and millions of other Teletubby fanatics) came to a different conclusion.

You see, my opinion is just my opinion. The problem starts when I mistake my opinion for fact.

Avoiding financial ruin

I didn’t (and don’t) know everything. I have to check my conclusions from time to time — especially when I’m “sure” that I’m right.

This may seem like an obvious axiom of life but, if you’re like me, you forget. And when you forget, you run the risk of financial ruin.

People who are convinced they are doing the right thing often fail to re-examine their financial decisions. Instead, they plod ahead – even though the results of their actions may scream “STOP!”

It’s like an explorer who is convinced they’re trekking in the right direction. They might eventually realize that they were holding the map upside down, but it’s often too late.

A real life example

I recently had this experience with my budget at home.

I was absolutely sure that I was the best person at home to handle our budget. I’ve been doing it for decades. I own a successful small business, I’m a CFP, and I have a degree in accounting.

I know about budgeting. More than that, I’m proud to say I don’t owe anyone in this world one red cent.

Not bad, huh?

You’d think that I’m a Budgeting Behemoth, right?

Wrong.

My wife recently started handling the books, and we are far better off as a result.

Why?

Because she is the person who is in charge of most of our spending.

Duh.

For 20 years, I handled the money and the books. At the same time, we often disagreed over the best use of our funds.

Why couldn’t she just see things my way?

This has all changed now.

She comes up with ideas to save money I never thought of. And since she does the books, she sees first hand how spending impacts our ability to save and invest.

And yes, she makes very strong arguments for spending money sometimes that I never would have spent in the past. And I often end up agreeing.

We both “get it” now, and it’s a direct result of her taking charge of our bookkeeping. I never would have guessed this change would occur, but it did.

Imagine that… Something happening that I didn’t foresee.

There are plenty of other examples.

I talked to a couple only 2 weeks ago. They’ve owned life insurance on each other for the last 30 years. When they first bought it, they needed it. But now they don’t.

In fact, they haven’t needed life insurance for over seven years. But they never stopped to re-examine their financial decisions. They were “sure” they were doing the right thing. Unfortunately, “being sure” cost them more than $40,000 in wasted life insurance premiums over the last seven years.

Re-evaluate everything

Of course, checking your financial behavior doesn’t stop with budgeting or insurance.

You should examine everything. Your investments, budget, and insurance policies (especially if you are retired), how you are dealing with your debt, and both estate planning and retirement planning.

You don’t have to do this with a financial professional, and you don’t have to spend a red cent. You can find someone who is knowledgeable, and whom you trust, and just have an hour-long conversation.

The most important element is your ability to listen. Whoever you speak with, ask questions. Don’t go into that meeting sure that what you are doing is right. That defeats the entire purpose.

You don’t know how many times I get calls from couples “desperate” for help. Sometimes, rather than being open to doing things differently, at least one of them simply wants to convince me how smart they are. They want me to sign off on their financial life.

In other words, they don’t want to change their behavior, they simply want to change the results of their behavior. Even Tinky Winky can’t work that magic.

Think about your financial behavior. Which aspects are you most sure of?

Now… Go out and get a second opinion.

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If so, then check out this graph…

This is a graph of historical mortgage rates going back to 1986. As you can see, rates on 15- and 30-year fixed rate mortgages are currently really low.

Back when we bought our first house in 2002, we were paying something like 6.5% on a 30-year fixed rate mortgage. Not long thereafter, we refinanced to 5.75% — once again for 30 years.

When we sold that house and bought our current one in 2006, our rate bounced back up 6.375% for 30 years. We later refinanced into a 15-year fixed rate mortgage at 4.875%, and have since paid it off.

As things currently stand, you could get a 30-year fixed rate of 5% or less. Amazing. Almost makes me want to have a mortgage again. Almost.

Source: HSH.com via MyMoneyBlog

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The first time you move into a new place, the entire process can be exciting and fun. For most people, that novelty wears off after a few more moves, with the entire ordeal becoming something you dread instead of looking forward to it.

If you are moving to a new city in search of a new job or to accept a new position, then you might be more willing to put up with the hassles associated with moving. It’s also worth noting that many moving expenses may be tax deductible when you relocate for work.

Today I’m going to look a bit more closely at what expenses qualify and how you can claim these income tax deductions when you file your income tax return.

What moves qualify?

Before you attempt to claim moving expenses, be sure that the move itself qualifies. Qualifying moves are the result of relocating for your current employer or accepting a position from a new employer. In addition to being work related, the move must also pass the time and distance tests.

• Time test: In the first year (12 months) following your move you must work full-time for at least 39 weeks. For self-employed individuals, the first year requirements are the same (39 weeks), and you must work for a total of 78 weeks during the first 24 months.
• Distance test: Your new job must be at least 50 miles farther from your old home than your current (or old) job. In other words, if your old commute was 20 miles, then your new job must be at least 70 miles from your old home in order for your moving expenses to qualify as a tax deduction.

What expenses qualify?

Any expenses resulting from moving your personal effects and household goods can be used as a tax deduction. The expenses must, however, be reasonable to the move. For example, if you are moving from point A to point B, but decide to stop off on the way or take a detour for other purposes, those expenses would not be eligible as a tax deduction.

It’s also important to note that only expenses that are directly related to the move will be eligible. Perhaps the most common non-deductible expenses that you will likely incur while traveling are meals. But when traveling by car, you can deduct gas and mileage as long as you keep good records to prove your expenses.

How to claim moving expenses as a deduction

In order to claim qualified moving expenses on your income tax return you will report information on IRS Form 3903. Total moving expenses incurred while traveling will also be reported on Line 26 of Form 1040.

As with any income tax deduction, it’s advisable to keep accurate records that provide proof of money spent on your eligible moving expenses. Since it’s common for things to get misplaced or even lost while traveling, consider using a large envelope that can be sealed to hold all of your receipts until tax time.

One last thing… If your receipts don’t have dates or a description of the purchase or charge, be sure to make a note on the receipt itself as soon as your receive it so you won’t have to guess what the expense relates to at a later date.

Good luck, and happy moving!

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» What is Modified Adjusted Gross Income (MAGI)?
» Stretching Your Savings in Retirement

As I’ve noted in the past, the credit card market has been coming back to life in recent months. As further evidence of this, the Chase Sapphire Preferred card is offering a signup bonus of 25k points.

This is a solid deal, as your 25k points can be redeemed for either $250 in cash, or an airline ticket worth up to $312.50 (you get a 25% bonus when applying your points to travel). If you want a more expensive ticket, you simply pay the difference. There are no blackout dates or other travel restrictions.

To qualify, simply apply for the card and spend $3,000 in the first three months. There is an $85 annual fee, but it’s waived for the first year. Once you have the card, you earn one point per dollar spent with no earning cap or points expiration.

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I’ve noticed that other personal finance bloggers have started container and square foot gardens. For example, Matt has a vegetable garden. In fact, he’s taken it to the next level by composting and using rain barrels.

What’s amazing to me is that neither my husband nor I have a green thumb, yet we’ve had decent success with our garden. I have a history of having plants die on me, including (believe it or not) a cactus!

This isn’t to say that our gardening has been 100% successful. In fact, plants sometimes die on us, and we’ve been known to have minuscule harvests. With all this fuss, some people may wonder why even bother with gardening.

Why have a kitchen garden?

I think everyone has their own reasons for starting a garden. While we’d like to think that we’re doing it all for the good of the environment, there are usually some other factors involved, as well.

• Save money: One of our goals is to cut our grocery expenses by growing our own food. Learning from last year and earlier this season, I think we should be able to meet that goal.
• Productive use of space: We have a small yard and you really can’t do much with it. We could try to cram in a table, chairs, and grill, but it would look ridiculous, and we wouldn’t be able to take full advantage of it.
• Sustainable living: We think it’s kind of interesting to grow an organic garden and learn a bit about sustainable living. It feels good to do something that’s not only beneficial to us, but also friendly to the environment.
• Extra income: This wasn’t one of our reasons, but having a side job can motivate some. If you find that you’re good at gardening and you really enjoy it, you may earn a small side income by helping others create their own garden, or by selling what you grow.

As we started working on this project, another benefit presented itself. I believe that everyone needs a hobby to blow off steam and to get creative. As I noted above, I don’t have a green thumb by any means, but I found that tending to our little garden is relaxing. It’s nice to see progress with the plants and appreciate a little bit of nature.

Our garden: costs of starting up

How do you decide what to grow? We’ve selected vegetables and herbs that we enjoy. For example, while I’m not crazy about tomatoes in my salad, I do love salsa and spaghetti sauce, so we’re growing tomatoes.

Here’s a list of the plants we’re currently growing:

• Icebox watermelon
• Tomato
• Cucumber
• Bell pepper
• Eggplant
• Basil
• Thyme

More recently, I found this list of the best plants to grow yourself. I wish I had read it sooner because I would’ve changed up our selections and included lettuce instead of the watermelon.

Besides plants (or at least seeds), you also have to buy a few other supplies to get started.

• Pots – Be sure to buy pots big enough to handle your plants when it’s time to harvest them.
• Potting mix – If you’ll be using containers, having a good potting mix makes growing good plants much easier.
• Garden trowel – You’ll need this both for planting and for digging in compost.
• Garden gloves – Buy yourself a decent pair of gloves to protect your hands when working in the garden.

As you can see, you don’t need too much. In fact, if unchecked, you may end up buying too much. Plan ahead and have your list ready before you pick up your garden supplies.

Last year, when we were living in our apartment, we had a much smaller garden. We had rosemary, tomatoes, and peppers. Seeing some success from last year motivated us to do it again.

Unfortunately the move to the townhouse contributed to the rosemary’s demise along with that of our peppers. We had to start with a new batch of plants this year.

Tips on managing a kitchen garden

I’m not an expert by any means, but when you work out in the garden you can learn some things from personal experience and friends.

• Google is your friend. I can’t tell you how many times I’ve searched for information about either specific plants or gardening in general. Just punch it into Google and all your questions will be answered!
• Have plenty of sunlight. I’ve been told that morning sunlight is better than afternoon, so place your plants accordingly.
• Water before 10am if possible. I personally like to water early in the day, especially with the heatwave we’ve been having this year. According to Arizona’s guide to container gardening, you should water until it starts coming out the drainage holes. And by watering early in the day, you minimize evaporation.
• Start small for the first year. It’s very easy to go overboard when you’re picking out plants for your garden. My advice is to slow down and improve your chances of success by focusing on three or four types of plants. You may be able to get away with more if you have a lot of herbs.

Your garden stories

Having a garden takes time, but I think it’s worth it. I’m curious to hear what you guys are growing in your gardens – if you have a garden, please leave a comment. And please also be sure to share any tips that you might have.

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» Weekly Roundup – 03/16/07
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» From the Archives (May 13th – May 19th)

Like 10,000+ other people, I subscribe to FiveCentNickel, so everyday I get the newest post in my Google reader. When I saw the title “Why You Should Fire Your Financial Advisor” come up on my screen the other day, it immediately piqued my interest. The post was written by the guy who runs Financial Uproar, a self-proclaimed DIY investor. The main reason that this post grabbed my attention is because I work in the financial industry every day.

That post contained four main arguments as to why you should fire your financial advisor:

1. Nobody cares about your money as much as you do
2. Compensation is way out of whack
3. He drives a fancy car
4. Most mutual funds are a bad idea

I think the main problem with these arguments really comes down to the author’s competence, both in daily finances and investing. Unfortunately, I don’t believe everyone is as focused as him on investment and money management.

While it’s true no one cares about my money as much as I do (except maybe The Wife), that doesn’t mean that everyone is good at it. You don’t have to look very hard to find one person after another who can’t manage their day-to-day finances, much less an investment portfolio.

I’m pretty sure that no one cares about my car as much as I do either, but I don’t pop the hood and play with the flux capacitor. That’s just not something that I’m good at.

I’ll come back to the compensation issue, later, but I wanted to note that I actually want my financial advisor to drive a nice car. Maybe “fancy” isn’t the best word for it, but if any professional in my life showed up in a POS, I would get worried.

Moreover, while the author of the original piece presents actively-managed mutual funds as the primary tool of a financial advisor, that is an extremely narrow view of the industry. And even if you agree with him that most investors are best served by holding a portfolio composed entirely of index funds, many investors need some help when it comes to identifying the right mix of holdings.

Compensation of financial advisors

And now for the big one…

Before we can even discuss whether their compensation is fair or not, you have to decide whether or not it’s true that not everyone is cut out to handle their own investments. If you think that everyone can (and should) handle their own portfolio, then any level of compensation is egregious.

As a tongue-in-cheek example of what I mean, I believe that pretty much everyone can tie their shoes, so charging a fee for that (no matter how it is structured) would be unfair compensation. Am I right?

If you’ve spent much time reading about finance, then you know that the financial industry gets hammered by bloggers, authors, pundits… Just about everyone. But let’s take a closer look at the numerous ways that advisors can get paid:

• Commissions
• Hourly fee
• Flat fee
• Fee for assets under management

I really don’t believe that any option is better or worse than another. Yes, strong arguments can be made for fee-only advisors but, in general, the bigger problem is that the various options aren’t typically fully explained to the client.

Consider, for example, a typical 22 year old with a relatively small investment portfolio. Should that person choose an hourly rate of $100 to $300, perhaps with a large retainer up front, akin to an attorney… Or would they possibly be best-served by choosing an advisor who’s paid on some sort of a commission?

Advantages of a financial advisor

Just to be clear, I don’t think everyone needs to meet with a financial advisor, just like I don’t think everyone needs a personal trainer to oversee their exercise program. At the same time, however, it’s sometimes nice to meet with a professional.

Off the top of my head, here are a few advantages of working with a financial advisor:

• Advice on asset allocation
• Cash-flow analyses
• Retirement income analyses
• Estate tax planning
• Tax loss harvesting
• Providing a buffer against emotional decisions

Yes, while most of these things can be achieved on your own, even some of the most money-savvy people sometimes drop the ball. If you think that an advisor would suit your needs, then you shouldn’t let anyone scare you into dropping them.

Moreover, if you’re currently a DIY’er but you think you might need some additional help, you should definitely consider asking around for recommendations. Once you have a few names, go ahead and set up an initial consultation with two or three of them to see what they have to offer.

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With that in mind, I wanted to talk a bit about an article on the costs associated with being single that I recently ran across in The Daily Telegraph. Because this is a UK publication, some of the finer details may not apply to life in the United States, but it was interesting nonetheless.

According to a survey by uSwitch, the average annual premium for being single works out to nearly $7400 (I converted to USD). This added cost is a byproduct of “having to carry the full burden of a mortgage, holiday [hotels, cruises, etc.] costs, insurance premiums and utility bills.”

When summed over your post-college years through the current average life expectancy in the United States (ages 22-78) this works out to $414,120. By that’s just the tip of the iceberg, because it ignores the effects of increasing costs over time, as well as compounding investment returns.

No matter how you slice it, it appears that there’s an added cost to living single. The article goes on to argue that, as people marry later and live longer, homebuilders need to focus on building small homes, hotel companies should consider charging per person, and so on.

So… What do you think?

Is there really a significant financial advantage to doubling up? Or are there instances where staying single is cheaper? (Divorce and the “marriage penalty” come to mind.) Do you have any tips for saving money when living on your own?

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If you’re the one who manages the finances – and possibly earns most of the money – you’ll do your spouse a solid by simply going through this exercise.

Ask your spouse how they’d pay the bills if you were gone.

How would they pay the mortgage?

Where would the money come from?

How would they save for retirement?

Pay for the kids’ education?

Track expenses?

I recently asked a group of men in their 70s and 80s to think about how their spouses would carry on in their absence. They didn’t even understand my question. They looked at me as if I were from Mars.

They never took the time to think about what might happen to their spouses once they die. Rather selfish… Don’t you agree?

What? They’re going to live forever?

Are you?

You might love to run this “fire drill” at home but your spouse doesn’t want to take the time to do it. I feel your pain but want to encourage you not to acquiesce.

Ask your spouse to think about getting on an airplane. Isn’t it better knowing there is a trained co-pilot even if he or she never gets the stick? Of course it is.

Doesn’t your family deserve a co-pilot too?

You’ve worked hard to create a solid financial base, but it’s going to turn into “poo” if your spouse doesn’t have the skill to take control. How does that make you feel? How does it make your spouse feel?

I take this stuff really personally. I know what it’s like to try to pick up the pieces after the people who were supposed to be financially responsible weren’t. It’s not pretty. It’s not fun. Don’t let this happen to you.

So… What are the three most important steps in getting your spouse ready to take control?

1. Maintaining a budget

You simply have got to get your partner conversant in the language of “budget-speak.” Put them in charge of tracking your budget. This way, they’ll get a sense of where the money is coming from and where it’s going.

It doesn’t matter if you use an envelope system or a software package to track your expenses. Just implement a system and make sure your spouse takes charge of it.

I’ve done this at home even though I’m the CFP with 25 years experience and a degree in accounting. My wife keeps the books. She is in charge of the budget tracking, and we spend an hour every week going over the numbers to make sure we’re on track.

It’s been a game changer for me as I know it will be for you.

How do you introduce this system?

At first, spend that time learning together. Don’t get angry if your spouse is resistant or finds it difficult. Be patient. Give them time. But stick to it and don’t allow them to give up.

Get a commitment from your spouse that he/she will update the books each week at a set time. If they need your help, make yourself available during that time.

In addition, meet every month at a pre-arranged time. Go over what’s working and what needs to be addressed. Are you on budget? Are you saving as much as you planned? How are the investments performing?

2. Life insurance

If you have people who depend on you, buying life insurance is a must. Term is my insurance of choice because it’s cheap, and it gets the job done. Talk about this with your spouse. Tell your spouse how much insurance you have, why you have it, and what should be done with it in case you get taken out.

3. Books and records

Create instructions on how things should be handled in case you die prematurely. The instructions should cover:

• What to do about living trusts and wills
• Who should be contacted
• How to generate income
• Where the investments are and how to manage them
• Where the insurance policies are and how to cash them in

In my experience, these are the three crucial steps to take to get your partner involved with your finances.

I understand that it may not be easy for you to ask your spouse to take these steps with you. I understand that even bringing up the subject could be very uncomfortable. But I also know (first hand) that failure to do so exposes your spouse and your entire family to tremendous risk.

Take these three steps. Start with step one. Start today.

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As you may or may not be aware, Social Security taxes are capped such that you only have to pay this tax (denoted FICA-OASDI on your paycheck) on your earned income up to a certain threshold.

In 2008, the cap kicked in at $102,000 per individual. In 2009, the cap rose by $4,800 to $106,800. And now, in 2010, the cap remains unchanged at $106,800. Hurray for a stagnant economy, huh?

This means that you’ll have to pay Social Security taxes on your first $106,800 in earned income. Beyond that, your Social Security obligation will drop away, and you’ll only have to pay the Medicare portion of your FICA taxes.

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Not surprisingly, pessimism is inversely correlated with age. Ask those in the 55+ age bracket and only 26% doubt Social Security will make good on its obligation. But ask those int the 18-34 age bracket, and the number skyrockets to 76%. This pattern isn’t terribly surprising, but it’s interesting nonetheless.

At the same time, 56% of current retirees think that they will eventually see their benefits cut. Just five years ago, only 32% of retirees anticipated a reduction in benefits. That’s quite a change.

Running on fumes

We’ve heard for years that the Social Security system will eventually start paying out more than it takes in. However, this wasn’t supposed to happen until at least 2016. Well… Guess what? Thanks to the recent economic downturn, the timeline has been shortened to this year.

That’s right. According to an article in the NY Times earlier this year, the bleak job market has resulted in more people applying for benefits sooner than expected while revenue because there are fewer paychecks available to tax.

This isn’t to say that the Social Security Administration (SSA) will be unable to meet their near-term obligations, but it’s only a matter of time before they go broke unless something changes.

No news is… troubling?

That NY Times article alluded to the SSA’s forthcoming annual report, which was expected to provide insight into the true financial condition of the system. This report is supposed to be published by April 1st each year, but this year’s report has been postponed indefinitely.

According to Forbes, the stated reason for the delay is to provide more time to account for the effects of the recent Healthcare Reform legislation.

One possibility is that the new legislation will cause employers to substitute higher taxable wages in place of employee health insurance coverage. Likewise, employers that offer so-called “Cadillac” health plans might trim benefits in favor of higher wages. Both scenarios would boost tax revenues and help balance the books.

While this sounds like a plausible excuse, rumors are swirling that the truth is that the Feds are just buying time while they try to figure out how to put a positive spin on what may be a very bleak report.

Fixing the system

So… What about the future?

My personal view is that Congress will do whatever it takes to keep Social Security unchanged for as long as possible. It’s just too popular, and politicians are too self-interested to rock the boat.

Of course, eventually something will have to give. As always, proposals for “fixing” the Social Security system include tax increases, benefit reductions, and delayed eligibility. The longer we wait, the bigger the changes will have to be.

My best guess is that any future reform will involve some combination of all three as opposed to somehow re-inventing the system. But will these things be enough to stave off a collapse?

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This is all part of the process of making a house a home, and we’re intent on not going broke doing while doing it. A big way we’ve been saving money has been to go ahead and do some of the work ourselves.

Do your own painting

When we closed, we immediately took the keys and drove to our new place. It was fantastic to have a home of our own, but something was definitely missing — color. The house was plain white on the inside, and we knew that we needed to get some of the rooms painted before we moved in.

Unfortunately, since we had just made the biggest purchase of our lives, we were on a tight budget. We thus decided to host a painting party, and several of our friends volunteered to help. What’s nice is that our circle of friends includes some professional painters who gave us some tips for getting a great paint job.

We bought the paint and supplies while our friends filled in the gaps, such as lending us their ladders. Sharing these sorts of items amongst friends can be a great way to save money.

Here’s what we needed to complete our painting project:

Paint

We bought our paint from Sherwin-Williams and Lowe’s. Depending which room you’re painting, you might opt for different finishes.

• Flat: Bedrooms, Dining Rooms, Ceilings
• Satin: Halls, Children’s Bedrooms, Family Rooms
• Semi-gloss: Kitchens, Bathrooms, Trim
• Gloss: Wood trim, Doors, Cabinets

Primer

While people often cut corners when it comes to primer, using it can give you a much better end result. This is especially true if you’re changing colors. For example, when my mom bought her house, one of the bedrooms was black. We had to prime it in order to change it to a very soothing pink for my sister’s bedroom. When we were done, nobody would’ve had a clue about the previous color.

Brushes and rollers

We bought a variety of brushes for “cutting in” and also several types of rollers for achieving different textures. We also borrowed several painting poles for getting to hard-to-reach places.

Miscellaneous

Finally, we picked up a number of other small items including drop cloths, rags, paint trays, and a paint can opener. You should also be sure to have some basic tools on hand (hammer, screwdriver, etc.) for prepping the room before painting.

Putting it all together

In the end, our painting party really felt like a party, we had the music cranked and were catching up while we painted. We did our best to show our appreciation by having plenty of food and drinks on hand. We also threw a ‘thank you’ party to celebrate moving in and to show appreciation for every one’s hard work.

Installing ceiling fans

When we were choosing options for our house, we asked friends which upgrades we could do on the cheap ourselves and which we should have done professionally. The feedback they provided saved us a lot of money.

For example, we wanted ceiling fans in several rooms, but the builder was asking an unreasonable amount. Instead, we had them install the necessary wiring and we bought and installed the fans ourselves after we moved in.

After searching for the right style and price, I found a great deal on ceiling fan kits at Lowe’s. Unfortunately, when we went to install them, we discovered that the included instructions didn’t match the wiring in our house. Fortunately, we have a couple of friends with electrical experience, and they were able to point us in the right direction.

We now have a ceiling fan in our living room, and will have one in our bedroom soon. We’ll install fans later for the office and guest room, but they’re not a high priority right now.

Buying new furniture

While buying new furniture isn’t technically a “home improvement,” it makes our house much more livable, so I’m including it here. Since moving into our new place we’ve acquired several new (to us) pieces of furniture.

Our biggest find was a love seat in good condition that fits like a glove in our guest/TV room. Someone in the neighborhood had put it out by the dumpster. Most of the time we only see junk out there, but every once in awhile we’ve seen great pieces that were dumped by neighbors who were apparently upgrading.

Will we be buying new furniture at some point? Yes. For example, my old office desk got broken during our move to North Carolina two years ago. I’ve been using a card table, but will soon be in the market for a replacement. While we’ll look for a good used desk, we might end up buying new.

Another trick that we’ve learned is refinishing furniture instead of replacing it. For example, we repainted our dining room set rather than buying a new one. It really has breathed new life into it, and allowed us to work on rebuilding our savings instead of plunking down a bunch of money on new furniture.

Budgeting for home improvements

I’ve read and have been told that you should set aside 1-2% of your home’s value for ongoing maintenance and improvements. We haven’t been homeowners long enough to say if this is accurate or not, but it seems prudent to automatically set aside some of our cash for little projects. And if you don’t end up using it all on household projects, you’ll have a handy savings account that you can use for other projects in the future.

I should also note that we’ve really enjoyed these little projects. While it’s technically work, getting these things done has made us feel incredibly productive, and has allowed us to spend some quality time together

Your take

So now it’s your turn to share… What types of home improvement projects have you tackled? And what tricks have you learned for saving money along the way? Do you have any funny stories to share from your experiences?

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For these test portfolios, I let Lending Club auto-select the loans. In the time since then, I’ve continued investing by selecting my own loans. Overall, I’ve invested in a total 289 notes, 20 of which have been paid off early.

Thus far, my results have been quite good, though it’s still too early to say for certain, as all of my loans have a 36 month term. As such, there’s still a lot of time for my borrowers to get themselves into trouble.

Rate of return

I’m currently earning a “net annualized return” (NAR) of 10.83%, though that number’s a bit generous, as it doesn’t consider the effects of idle cash.

According to Quicken, my “real-world” performance has been about 2% below my NAR, meaning that my actual annualized return has been just short of 8.90%. That’s still a nice return, but not quite as high as Lending Club would have you believe.

In terms of my relative performance, I’m in the 48th percentile, meaning that 52% of Lending Club investors have a higher NAR than I do.

Of course, you need to be careful when interpreting such statistics, as the numbers are likely skewed upward by the large number of new(ish) loans that have been issued, and which haven’t had time to go bad.

Defaults and delinquencies

Speaking of loans going bad… I’ve had exactly one borrower default since I started. This note was part of my auto-selected, “high risk” portfolio. To date, I haven’t experienced a single default on a hand-selected note, though I suspect that will change soon.

Overall, I currently have four notes that are 31-120 days late, though one of these borrowers is on a modified payment plan and has been making regular, albeit partial payments. I fully expect that loan to get back on track, but I’m less optimistic about the others.

I’ve dabbled with selling questionable notes to reduce risk, but have had mixed success. While I’ve been able to sell some notes, others have been impossible to unload, even with a fairly steep discount.

While defaults and delinquencies are frustrating, they’re part of the territory. Lending Club is very upfront about the fact that a small percentage of your notes will likely default. It remains to be seen how accurate their estimates are, but you shouldn’t let a small number of defaults chase you away.

Thoughts on the future

The primary downside to investing with Lending Club is the time commitment. Sure, I could just let them auto-select notes for my portfolio, but I’m just not comfortable with that.

Adding to this problem is the fact that I like to keep my notes small to reduce risk. Thus, I need to find a relatively large number of acceptable borrowers on an ongoing basis. Again… This can be a rather time-consuming process.

This problem has been exacerbated by the fact that Lending Club has recently started offering 60 month loans. While the rates on these longer-term loans are somewhat higher, I’m not crazy about the idea of stretching out the repayment period any longer than it already is. Thus, I tend to avoid such loans, further shrinking my pool of candidates.

Of course, the “low risk” portfolio that Lending Club assembled for me back at the start is performing admirably, with 100% of notes being paid on time. Thus, while I like to think that my loan picking efforts are worthwhile, maybe I just need to get over myself and rely more heavily on the auto-loan selection tools…

What about you?

If you’ve been investing with Lending Club, I’d love to hear about your experiences. How long have you been doing it? How many notes do you have? And how is your portfolio performing?

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What follows is an alphabetical listing of state sales tax holidays along with a brief summary of what’s included in each case, as well as a link to more information. This should be a fairly comprehensive list, but it’s always possible that I missed something. If I did, please let me know so I can update the list.

Sales tax holidays, state-by-state

Alabama: August 6th-8th. Includes clothing up to $100/item, computers up to $750/item, school supplies up to $50/item, and books up to $30/item. (link)

Connecticut: August 15th-21st. Includes clothing and footwear up to $300/item. (link)

Florida: August 13th-15th. Includes clothing and books up to $50/item and school supplies up to $10/item. (link)

Illinois: August 6th-15th. Includes clothing, footwear, and school supplies up to $100/item. (link)

Iowa: August 6th-7th. Includes clothing up to $100/item. (link)

Louisiana: August 6th-7th. Includes the first $2500 of the purchase price of all “tangible personal property,” not including vehicles. (link)

Maryland: August 8th-14th. Includes clothing and footwear up to $100/item. (link)

Mississippi: July 30th-31st. Includes clothing and footwear up to $100/item. (link)

Missouri: August 6th-8th. Includes clothing up to $100/item, computer software up to $350/item, computers hardware up to $3500/item, and school supplies up to $15/item. (link)

New Mexico: August 6th-8th. Includes clothing up to $100/item, computers up to $1000/item, associated peripherals up to $500/item, and school supplies up to $15/item. (link)

North Carolina: August 6th-8th. Includes clothing and school supplies up to $100/item, instructional materials up to $300/item, computers up to $3500/item, computer supplies up to $250/item, and sports/recreation equipment up to $50/item. (link)

Oklahoma: August 6th-8th. Includes clothing up to $100/item. (link)

South Carolina: August 6th-8th. Includes clothing, clothing accessories, footwear, school supplies, computers, printers, software, and a variety of housewares. No stated limit on value/item. (link)

Tennessee: August 6th-8th. Includes clothing up to $100/item, school supplies up to $100/item, and computers up to $1500/item. (link)

Texas: August 20th-22nd. Includes clothing, footwear, book bags, and school supplies up to $100/item. (link)

Virginia: August 6th-8th. Includes clothing and footwear up to $100/item and school supplies up to $20/item. (link)

Note: There are a handful of other sales tax holidays throughout the year covering things like hurricane preparedness, Energy Star products, and even guns. My focus here was just on the back-to-school sales tax holidays.

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