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 you 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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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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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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I recently received a flyer outlining the current bonus reward categories for the Chase Freedom card. For those that are unaware, Chase has decided to jump on the rotating reward category bandwagon with this card.

Now instead of getting a higher level of rewards in a standard set of categories, the categories will change seasonally. For this summer, you can get 5% cash back on travel-related expenditures. All other purchases will receive 1% rewards.

Take a road trip, visit family or plan a tropical vacation this summer. It’s easy to get 5% cash back on up to $1,500 spent between July 1 and September 30, 2010 on gas, airlines, auto rentals, and hotels.

As with the Citi Dividend Platinum card, you have to opt-in to receive the bonus each time it changes. To do this with Chase, you need to either call 1-866-920-1533 or visit: chasebonus.com/freedom38.

If you’d like to take advantage of this, then I recommend setting up an automated reminder so you won’t forget to re-enroll for the next round. I’ve set mine up as both an e-mail and SMS reminder for mid-September since both the Citi and Chase categories will change on October 1.

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You learned as much as you could about investing and you made (what you thought) were smart moves.

But the investments didn’t work out. You lost money.

Of course, you’re not the only one singing this tale of woe. Over the last 10 years, stock market investors haven’t done well at all. Many suffered devastating losses.

The question is, what do you do now?

I’ll address that point, but before I do, I need to be very clear. This is not a simple question.

How you answer it (and the course of action you take as a result of your answer) will have a profound impact on you and your family’s financial future.

And in my experience, you need to go through a few steps prior to coming up with a course of action. Here’s the approach I suggest you take:

Blame somebody

I’m serious. It’s critical to understand why you lost money. Was it because the market was terrible? Was it because you took risky bets? Did you try to time the market based on your “gut”? Was it a combination of all three? What exactly was the problem?

You need to be crystal clear on the cause of the problem in order to take the right corrective action. And you need to be completely honest. Don’t try to fool or kid yourself. If your actions made the problem worse, own up to it. It will cost you dearly if you don’t.

Accept life on life’s terms

If you are the problem, the solution is easy. Stop your crazy behavior and/or turn your investing decisions over to someone more qualified and/or less emotional.

Let’s say you’ve tried and tried to curb your emotional investing, but you can’t.

Accept that and move on. “Fire yourself,” and do it today. Turn your investments over to your spouse or a professional.

But if the problem is the market, you have to accept that as well. You’re just not going to make money in a bad market. If you refuse to accept this reality, you’ll either give up on investing or become more aggressive at precisely the wrong time.

Either decision is a mistake, and possibly a devastating one at that.

If you refuse to invest your money because of the horrible experience you’ve had over the last 10 years, you’ll likely never have enough money to live the life you really want to live. You’ll pay the price and so will your family.

If on the other hand you become more aggressive to make up for lost time and money, you’ll be taking on huge risks and probably suffer the same fate as the person who doesn’t invest at all – or worse. People who take on too much risk often end up with huge losses.

Test yourself

Given the reality that investing has risks, make sure your portfolio is allocated correctly. Make sure you’re not exposed to more risk than you are comfortable taking. People are often fine with taking risks when the market is rising. But they feel differently when the red ink starts flowing.

When you invest, make sure you can accept the worst case. If not, reduce your risk allocation.

Adjust

Once you’ve correctly identified where the problem lies, and accepted the realities of the market and your own risk appetite, you may have to adjust to your new situation.

Everybody made rosy projections 10 years ago. But those projections didn’t work out for many of us.

If that describes you, I feel your pain. Really, I do.

Now we’re both 10 years older and less able to make up for this “lost decade.”

Time to tighten the belt.

• Are you tracking your expenses?
• Are you living within your budget?
• Have you updated your financial plan?
• Are they realistic?
• Can you work longer or generate income after you retire?

Don’t try to maintain a lifestyle today based on yesterday’s investment statements.

In summary, understand that bad investment returns are unavoidable. It’s what you do with them that counts.

You may need to change the way you invest. You may need to reduce your risk exposure. You may need to shift your lifestyle. You may need to do a combination of all three.

Don’t beat yourself up, give up or ignore this reality. There is plenty you can and should do now.

How have you come to terms with bad investment results?

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» The Recovery Will Come From Those That Have Been Laid Off
» Your Investments: Seven Common Mistakes to Avoid
» Market Turmoil, Portfolio Drift, and Asset Allocation: Time to Rebalance?

And now for some recent articles that caught my eye…

• Daily-Use Fees and Free Days for State Parks
• Free Year of Amazon Prime For Students (.edu email)
• How to Safeguard Your Social Security Number
• U.S. Presidents and Their Net Worth
• How to Convince Your Spouse You Need a Budget
• Strategic Mortgage Defaults and the Rich

That’s it… Enjoy the links, and have a great night!

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» Weekly Roundup – Witless Edition
» Weekend Roundup – Labor Day Edition

The paradox of choice is sometimes referred to analysis paralysis, and it flies in the face of the idea that more options result in greater consumer satisfaction. When we’re overloaded with options, we can begin to question our decisions even before we make them.

My recent run-in with this phenomenon happened while I was trying to plan a last minute beach vacation. After poking around on mainstream hotel/resort sites, I turned my attention to VRBO.com, which is a great site for finding “Vacation Rentals by Owner” — that is, individually-owned properties that are being offered for rent.

Overwhelmed with options

The problem with VRBO is that there are so many options out there. Admittedly, this problem was compounded by a relatively vague search image on our part. All we really knew was our price range, the dates we wanted to travel, and that we wanted a beachfront place somewhere along the southeast Atlantic coast.

But still, so many options… Do we want to stay in this state or that one? This town or another one? Which beach? And so on. Even after we started narrowing things down, we were left with a tremendous number of choices.

I spent hours and hours (and hours!) weeding through things. On more than one occasion, I found myself with dozens and dozens (and dozens!) of browser tabs open, each with a different option. I stayed up late Saturday night, picked up again on Sunday afternoon/evening, and didn’t actually make a decision until sometime later in the day on Monday.

Honestly, I was ready to throw in the towel more than once, not because I couldn’t find any good options, but because I couldn’t decide amongst all the options that I did find. It was frustrating beyond measure.

The perfect is the enemy of the good

In the end, this whole experience confirmed something that I’ve always known about myself… I’m a “maximizer.” Quoting from WikiPedia’s excellent summary of the book, here’s what I’m talking about:

“A maximizer is like a perfectionist, someone who needs to be assured that their every purchase or decision was the best that could be made. The way a maximizer knows for certain is to consider all the alternatives they can imagine. This creates a psychologically daunting task, which can become even more daunting as the number of options increases. The alternative to maximizing is to be a satisficer. A satisficer has criteria and standards, but a satisficer is not worried about the possibility that there might be something better.”

Were there properties available that would’ve met our requirements? Absolutely. There were tons of them. But what if the one that I chose wasn’t the best option? In the end, it really wouldn’t matter. We’d go on vacation and have a blast. But the possibility that there might be something better out there haunted me.

As a wise man once told me, the perfect is the enemy of the good. The next time you’re faced with a multitude of choices, do yourself a favor…

Take a step back and define your expectations. Next, find an option that will meet those expectations, select it, and move on. For a maximizer like me, this is easier said than done, but it’s certainly worth a shot.

If you can’t do this on an ongoing basis, then at least try to learn to recognize relatively unimportant decisions so you can move through those quickly and save your anxiety for things that really matter. Either that, or marry a satisficer and let them decide.

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This is just a quick note to say that Discover has brought back the signup bonus on their Discover More card. Not only that, but they’ve upped the ante from $50 to $75. Simply apply for the card, get approved, and make $500 in purchases (within the first three months) to get your bonus.

In case you’re not familiar with the Discover More card, it’s widely considered to be one of the best reward credit cards available. It pays up to 5% cash back on purchases in rotating categories.

Other attractive features of this card include a 12 month 0% balance transfer, 0% APR on purchases for six months, and no annual fee, though there is a 4% balance transfer fee associated with this offer.

Note: This offer is active as of 7/10. Check the Discover website for full details.

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Prepare your gear, prepare yourself

If you want to maximize the impact of your business travel, you’ll need to prepare ahead of time. Besides packing the proper attire for the conferences and meetings that you’ll attend, you should also pay attention to any gear that you might need.

You’ll want to have just enough to wow clients without having to haul around unnecessary stuff. You should start your planning by asking yourself some questions about your trip.

If you work for a company, most of the trip’s goals and activities will most likely have been decided for you. If you’re self-employed, on the other hand, you have to define your goals yourself.

• How long is the trip? The longer the trip, the more preparation (and stuff) is generally required.
• What kind of work will you be doing? Will you be preparing or giving presentations? Will you be editing audio or video?
• Will you have to tote everything with you, or will you have access to a temporary office? If you have to meet multiple clients in the field, definitely try to pack light.

I have slightly different preferences depending on the trip, but here is my general gear list for business travel.

• Laptop or netbook: Right now I have an HP Pavilion dv6 laptop and a HP Mini 110 netbook that I use. I love both and I really appreciate the fact that they both have good battery life.
• Laptop/netbook bag: I need my laptop bag to double as my ‘purse’ when flying, so it has to have plenty of space for storage.
• Spare battery: Depending on how (and how far) you’re traveling, you should consider bringing a spare laptop battery so you can work for extended periods without an electrical outlet.
• Chargers: Having chargers for both your computer(s) and phone is a necessity.
• Camera/video camera: These items are small and easy to bring along, so I usually slip them into my bag.
• Thumb drive: You never know when you’ll need to copy or transfer a file, so bring a thumb drive. This can also be handy if you’re giving a presentation.
• Laser pointer: The last thing you want to do is to get stuck in front of the screen giving a presentation without a pointer. Bring your own just to be safe.
• Business clothes: This should go without saying, but be sure to pack appropriate clothes for the business aspects of your trip.
• Business cards: Don’t forget to bring business cards! If you don’t have any, you should have some made up. You’ll be amazed at the number of times you’ll be offered a business card and/or asked for one in return. Don’t get caught unprepared.

Keeping it light and efficient is my priority. In general, I’ve found that the less I have to drag around, the better the trip goes.

Tax treatment of business trips

I also want to remind you to keep all your receipts during business trips. If you’re working for a company, keeping receipts is important for getting your expenses reimbursed. Even if their not strictly required, having a receipt could quickly resolve any disputes or questions.

If you’re self-employed, then you’ll need your receipts to support any travel-related tax deductions that you might want to take. So… What types of expenses can you deduct?

Tax treatment of business travel expenses is covered in IRS Topic 511. What follows is a brief summary of some of the key points.

Travel expenses

If your trip is entirely business-related, and you’re traveling away from home, you can deduct all your travel-related expenses such as airfare, airport parking, your rental car, cab fare, etc. Just keep in mind that if you redeem reward points or frequent flyer miles, you can’t deduct the expense.

Lodging expenses

The same general rule applies: if your stay is for business, and you’ve traveled away from the general area of your “tax home,” you can deduct your expenses. If you stay a few extra days and make it a personal vacation, you can’t claim the deduction on the extra days.

Meals

Assuming that your meals are directly related to your business travel, they’re likewise deductible. However, the deduction for business meals is typically limited to 50% of the unreimbursed cost.

Tracking your receipts

Given the importance of your receipts, you need to be 100% sure to keep close track of them. I always take an envelope with me and dump all receipts into it as I receive them. Then, when I get back home, I sort and organize them, making notes where necessary.

It’s best to process your receipts within a day or two. If you wait longer, you could lose them or forget the details. If you’re looking for an electronic solution, I recommend using Evernote to capture and archive your data.

While this level of documentation might seem tedious, it can help you maximize your reimbursements and/or result in significant tax savings.

Your thoughts

Okay, I’ve shared a few of my thoughts on making the most of your business trips. Now, I’d love hear your tips. What steps do you take to prepare for a successful trip? How do you keep track of your expenses? Do you have any other tips for enhancing the value of your business travels?

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According to Randall Kroszner of the Federal Reserve, the goal is to:

“…increase transparency and fairness in how credit card and deposit accounts operate, thereby enhancing competition and empowering consumers to better manage their accounts and avoid unnecessary costs. The rules represent a significant step forward in consumer protection. By ensuring fairness and making credit terms easier to understand, these safeguards should allow more consumers to benefit from using credit.”

The new reporting requirements include a clear summary of your account activity and payment information, a late payment warning stating any fees or penalty rates that you might trigger, a warning as to how long it will take to pay off your balance (and how much it will cost) if you only make the minimum payments, clear disclosure of any account changes including those related to interest rates, and so on.

To better illustrate these changes, we’ve assembled an infographic (below) that highlights the new requirements. Simply hover over a number for details. And if you’d like to see a larger version of the image, simply click on it.

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While on our recent vacation, we went out for dinner with our extended family. In order to keep things simple and fair, we asked for separate checks for each family. Splitting the check was a bit more work for the waitress, but we tipped well, and everyone was happy.

Depending on the setting, however, I’ve seen the check-splitting ritual handled in multiple ways. In some cases, we’ve simply split the check informally at the table and then had everyone pitch in enough to roughly cover their meal (plus tax and tip).

In other cases, it’s not uncommon for a group to opt to split the check evenly, without regard to what each individual ate and drank. This is particularly common in professional settings where everyone is being reimbursed, but it happens in social settings, as well.

While splitting the check evenly is easy, it can result in hurt feelings and resentment if one or a few people order especially expensive entrees, or extra drinks/dessert to go with their meal. Isn’t it always the guy who orders the filet mignon and a bottle of wine who suggests this method?

This all begs the question… What’s the best way to split the bill when dining out with friends? Please weigh in below.

As always, please also feel free to chime in with a comment to add some context to or otherwise clarify your answer.

Note: If you’re reading this in the RSS feed, you might have to click through to participate and/or view the results.

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Interestingly, even with these historically low rates, there hasn’t been much action. Home values are down and many homeowners are upside down, and thus unable to refinance. Others can’t qualify given the higher underwriting standards. Still others have already refinanced in the past few months and doing so again doesn’t make financial sense.

What about you? Have you recently refinanced? If not, are you thinking about doing it now? If we hadn’t paid off our mortgage, I’d be thinking very seriously about refinancing. As things stand, however, I’m not interested in re-mortgaging even at these rates.

Source: Associated Press

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After all, markets are driven by supply and demand. If a bunch of Boomers start selling to meet their needs and prices dip, others might sell to avoid a loss, thereby causing a greater drop, and so on.

I was thus very interested when I ran across an article in USA Today by John Waggoner on this very topic. The first of the Boomers will be turning 65 next year, with tens of millions to follow in coming years. This begs the question:

“If Boomers follow the usual pattern of shifting their portfolio mix toward income-generating investments — bank CDs, bonds and dividend-paying stocks — will the stock market’s long dry spell drag on?”

But will boomers really shift to a dramatically more conservative asset allocation? In theory, they should, and Jeremy Siegel (author of Stocks for the Long Run) has argued that stocks could plunge by as much as 50%.

At the same time, it’s been argued that this demographic shift won’t be enough to overwhelm other market forces. Rather, political and economic events could wind up being far more important. Beyond this, it’s not clear that Boomers will sell, or at least not all at once.

Why Boomers won’t sell

In many cases, boomers already hold a well-diversified portfolio, so there won’t be a precipitous change. In addition, those with the largest portfolios are more likely to be concerned with passing their wealth to the next generation (estate tax be damned!) than they are with preserving principal in the short-term.

But what if they do?

Waggoner argues that, even if they do ultimately sell their stocks, “any movement the Boomers make will be gradual at best,” and might be slowed further by the currently low interest rates. I agree with this to a point, but rates won’t stay low forever, and the average Boomer will liquidate stocks over time.

Perhaps the most compelling argument in favor of a healthy stock market in the face of mass Boomer retirements is that Gen Y (those born 1983-2001) is coming of age, and it’s actually slightly larger than the Baby Boomer generation. These individuals will need to save and invest, and will thus help to offset Boomer liquidations.

What do the Feds think?

While researching this topic, I ran across an interesting report from the Government Accountability Office (GAO). In it, they tackled the issue of whether or not Boomer retirements would precipitate a stock market drop.

“Our analysis of national survey and other data suggests that retiring boomers are not likely to sell financial assets in such a way as to cause a sharp and sudden decline in financial asset prices. A large majority of boomers have few financial assets to sell. The small minority who own most assets held by this generation will likely need to sell few assets in retirement. Also, most current retirees spend down their assets slowly, with many continuing to accumulate assets. If boomers behave the same way, a rapid and large sell off of financial assets appears unlikely.”

The report also pointed to an increase in life expectancy as a mitigating factor, as a longer lifespan will translate into Boomers working past traditional retirement age as well as a greater spread in the timing of asset sales.

What do you think?

So, dear readers… What’s your view? Do you anticipate stock market troubles due to Baby Boomer retirements and the accompanying asset liquidations? Or do you think other factors will overwhelm the “Boomer Effect”?

I’m currently on the fence. It’s hard to ignore such a huge demographic shift, but there’s a lot of data out there suggesting that there won’t be much of an impact. For now, we’re sticking to our plan, but will be keeping a close eye on any further research on the topic.

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This time around, they’re proposing a $0.02 increase in the price of a first class stamp ($0.44 to $0.46), effective January 2011. There would also be corresponding increases in other postal rates.

This latest increase is being driven by a steep drop in mail volume which has reportedly fallen by 20% since early 2007. This decline has resulted in a $7B annual budgetary shortfall, and the proposed increases will only generate about $3B.

The proposed increase now sits with the Postal Regulatory Commission, who oversees the USPS. The commission has 90 days to vote on the proposal.

Oh, and in case you’re curious, you might want to check out my historical graph of stamp prices which I last updated in 2008.

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Geographically speaking, families in Northeastern cities face the highest costs, followed by those in the West, and then the Midwest. Those in Southern cities and rural areas spend the least.

Changes over time

Interestingly, when compared to the results from 1960 (the first year in which the USDA made such estimates), the cost of children has gone up significantly. More specifically, when expressed in 2009 dollars, the cost of raising a child from birth to age 17 in a middle income family back in 1960 was $182,857.

This 21.6% increase was largely driven by inflation-adjusted increases in housing, healthcare, child care, and education expenses. At the same time, food and transportation costs both decreased in inflation-adjusted terms. Somewhat surprisingly (at least to me), clothing expenses also decreased from 1960 to 2009.

Cheaper by the dozen?

The report also shows something that we’ve found to be true: the cost per child falls as you have more kids, with a 22% savings per child in families with three or more kids. These savings are driven by things like shared bedrooms, hand-me-down clothes and toys, bulk food purchases, sibling discounts, etc.

Real world translation

As for the numbers themselves, my sense is that we won’t spend anywhere near that $222k number despite being solidly in the middle/upper income range. Even with the 22% savings referenced above, I think we’ll end up doing far better than average.

Part of this has to do with the fact that we have four boys, which means that we can really maximize the multi-child savings. Since we only have one gender, everything gets handed down and we’re also able to double the boys up into two bedrooms. Bunk beds and double desks have been a godsend for us.

At the same time, our experience is almost certainly skewed by the fact that my wife stays home with the kids. This means that we’ve faced minimal childcare expenses – pretty much just preschool for socialization. To be fair, we should probably consider my wife’s lack of a salary as a child-rearing expense, but I haven’t tracked the numbers to that degree.

Anyway… No matter how you slice it, kids are expensive.

Source: USDA via The Juggler

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Everyone, though, would love to get their education cheaper if possible. Besides hunting for scholarships (which is a must), I wanted to share two ways to significantly cut down on college expenses.

Attend community college first

For some people, a community college may not seem to be a good choice. Community colleges sometimes get a bad rap for offering low quality educations. While there are certainly some bad apples, I think many would be surprised at the caliber of education you can get at a community college.

If you’re considering whether to attend a community college, let me point out some of the benefits.

Much lower costs to attend: Community colleges are usually significantly less expensive than attending a full-fledged university. If you have a great university nearby, you may be able to get a steal, as some professors may teach at both the university and the community college. In such cases, you can get a great education for a fraction of the price.

Flexible course schedules: Since many students have jobs, families, military obligations, etc., community colleges typically have much more varied class schedules.

Some may balk at attending community colleges because they think their classmates couldn’t make the admission requirements for a ‘real’ college. While there are certainly a percentage of many student bodies that fit into that category, many good students are going there for the convenience and low cost. In the end, it really is what you make of it.

You can always transfer to a higher quality university in the future – just be sure to check with your desired university so you’ll know what’s transferable. The great thing is that you’ll have significantly reduced your bill compared to many of your classmates.

CLEP some courses

The College-Level Examination Program (CLEP) tests your knowledge in several subjects that many students take during their first two years of college. Depending on how well you do, you may be able to earn college credits by taking the test.

There are currently 33 CLEP exams offered, including:

• College Composition
• French, German, and Spanish (Levels I & II)
• American Literature
• American Government
• Introduction to Psychology
• Economics (Micro and Macro)
• Biology
• Chemistry
• Calculus
• Marketing
• Business Law

Each institution has its own guidelines on how much credit they will give to their students, so you might want to wait until after you’re enrolled and to take the CLEP exams that the school accepts and that you’re comfortable with.

Advantages of CLEP exams

Like community college, CLEP exams can give students an edge if they play their cards right. The key is being knowledgeable about what CLEP offers as well as your school’s policies.

• Costs: As of July 1, 2010, CLEP exams are $77 each. That’s much cheaper than taking an introductory class in either community college or a university.
• Time: If you know the material already, why waste the time learning it again? You can either finish your degree faster or enrich your education by taking more specialized courses during the time that you saved.

Likewise, if you have kids in high school, encourage them to take some AP classes and take the exam. It can put them ahead of the game when they start college and they can shave some time (and money) off their degree.

Your thoughts on cutting college expenses

College can be a very good investment. Just like with any aspect of your finances, however, you have to have a game plan to get the most bang for your educational buck. I’d also point out that some very expensive schools offer full scholarships for students with limited incomes so, even if the above tips don’t work for you, you may be able to get a great deal on a high end education.

I’d love to hear your thoughts on getting a good education without breaking the bank. What have you done to cut down on college expenses? Have you ever attended a community college? Or maybe tested out of required courses? Any other tips?

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In some cases, corporate sponsors have stepped in to save the day, but in other cases people will either go without, or they’ll have to drive to neighboring communities to get their fireworks fix.

What about in your neck of the woods? Has your local fireworks show been affected by the economic slowdown? To be honest, I’m not sure what’s happening in our area, as we’re currently on the road and won’t be back until after all of the festivities.

Either way, I hope you have a fantastic (and safe) 4th of July!

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People often like to act without thinking about the consequences. While that feeling is definitely liberating, it may not be so wise. That’s why I advocate a system of saving for purchases and then waiting for a period of time (say 30 days) before making any significant purchases.

Resist your impulses

First let’s take a look at why we should save for purchases instead of going with our first impulses. There are two clear dangers of buying now and paying later: The risk of building up credit card debt, and the risk of becoming disconnected from our money and making purchases that we might not otherwise have made.

With respect to the former, it’s true that the personal savings rate in this country is higher than it used to be, but there are still plenty of people playing fast and loose with their credit cards and piling up debt. And no, the fact that you’ll (hopefully) be making more money in the future isn’t a valid reason to over-extend yourself.

With respect to the latter, it’s been suggested that people who use cash spend less than those who use credit. In other words, by reaching for plastic, you might end up spending significantly more than you would have with cash.

No matter how you look at it, it’s clear that rash decisions can hurt us financially and drive us to not only spend more than we expect, but more than we can afford. Beyond the immediate financial benefits of saving before spending, this practice also creates a built-in delay in our spending habits which can have beneficial effects.

Buy yourself some extra time

When setting goals and saving for purchases, we force ourselves to prioritize and think about what we really want to spend our money on. For example, I recently saved up for a nice new pair of headphones. While waiting for the money to build up, I realized just how much I valued them and how much use I’d get out of them (on the subway, at work, exercising, and so on). I ended up working harder to save for them, and now that I have them, I couldn’t be happier.

Similarly, by saving up for and holding off on major purchases, we have time to reconsider our decisions. Instead of making impulsive decisions about buying the latest gadget, the time spent saving, plus whatever waiting period you may have instituted, is often enough to realize that you really can live without it.

For example, I’ve had an old clunky TV for years, and there have been several times when I thought that getting a new LCD was the most important thing in the world. When I’ve had such an impulse, I’ve simply told myself that if I waited 30 days and still thought it was necessary, I’d pull the trigger. Each time, I’ve realized within days that not only does my old TV work fine, but there are a lot of other things on which I’d rather spend that money.

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To be honest, I’ve never been a big fan of New Year’s resolutions. Since they’re often overly-ambitious and ill-defined, most resolutions are doomed from the start. At the same time, New Year’s resolutions also offer a convenient excuse for deferring action until later.

After all, the year is already halfway done. Why change now when you can just wait until 2011 and make a clean start? Right? Wrong.

Today I’m issuing you a challenge. Whether you want to get out of credit card debt, pay off your mortgage early, start saving for retirement, lose ten pounds, start running, etc… Set aside your excuses and take a concrete step toward satisfying at least one of your goals this week.

Simple steps include listing your debts and prioritizing which you want to pay off first, setting up an additional auto-payment toward your mortgage, surfing over to Vanguard or Fidelity to fill out an account application, skipping that second helping at dinner, or completing the first (and very easy) workout in the Couch-to-5k running program.

Whatever it is that you want to achieve, it won’t happen unless you take that first step. Enough excuses. Just make it happen.

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More specifically, they’re looking to extend the deadline for closing on your new home if you went under contract before the April 30th deadline. If, on the other hand, you’re currently shopping for a new home, this measure won’t help.

Apparently the fate of 200,000 prospective homebuyers hangs in the balance, as they got under contract in time but are struggling to close by the June 30th (today!) deadline. The Senate, who tried to pass something last week as part of a failed job creation bill, has since been pushing their own legislation.

Source: CNN/Money

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As a DIY investor, I have a strong dislike of financial advisors – perhaps too strong. As far as I’m concerned, there’s nothing that an advisor can do for a client that a reasonably educated person can’t figure out by using a search engine and a few minutes of their time.

Ditch your advisor

In my view, one of the first steps to maximizing your investment returns should thus be to fire your financial advisor. Here are several reasons why – and yes, I realize that I’m painting with broad brushstrokes here.

1. Nobody cares about your money as much as you do

The reality about your financial advisor is that he views you as nothing more than a number. Sure, they want you to be satisfied, what business doesn’t want happy customers? Yet the secret to their success is having a large number of accounts to manage. If you’re one of 500 clients to an advisor, do you think that advisor really cares if you take your meager retirement savings elsewhere?

2. Compensation is way out of whack

My problem isn’t so much with the amount of compensation per se, but rather with the way many advisors are compensated. For example, if you buy a mutual fund with a front end sales charge, your advisor may be getting most (if not all) of that charge. In other cases, advisors get paid a percentage of assets under management.

If somebody has a portfolio consisting entirely of mutual funds, why should an advisor get paid ten times more for a $500,000 portfolio than a $50,000 one? Does it take 10 times the amount of work? If it doesn’t, then why is someone getting paid like it is?

The other problem I have with the compensation is the lack of disclosure that the investor gets. If you ask 100 people with limited investment knowledge how much their advisor gets paid to manage their account, how many would even be close to being right?

3. He drives a fancy car

Let me say right away, I have nothing against people driving fancy cars. If that’s something that’s important to you, then knock yourself out.

Your advisor is probably facing some sort of pressure to look the part of being successful, whether it’s from his superiors or just from inside his own head. Yet we all know that, financially speaking, driving a fancy car is just a waste of money.

So let’s summarize the hypocrisy of the whole situation. Your advisor advocates making better choices and saving more, yet wears expensive suits to work and drives home in a BMW. Sounds like a classic case of do what I say, not what I do.

4. Most mutual funds are a bad idea anyway

While I’m an active investor, I would recommend most people just buy index funds. A basket of well diversified exchange traded funds will get you a market return, which is pretty much guaranteed to beat most actively managed mutual funds in the long run. The reason for this is simple. Fund managers can’t consistently beat the market long term because they have to beat the market plus their management fee.

Just do it

I want to encourage everyone reading this post to explore investing on their own. There are tons of books, websites, etc. out there that can guide anyone through the process. It’s just a matter of getting started.

Oh, and if you do end up sticking with an advisor, make sure you’re on the same page when it comes to investing philosophy, and also make sure you know exactly how they are being compensated.

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At some point we’re going to have to replace them, so we opened a savings account specifically for a new car. Even though we hope to put off the purchase as long as possible, we want to prepare now for the inevitable purchase.

What’s your budget and time frame?

The biggest factor for most people when deciding whether or not to buy a new car, as well as which one to get, is their budget. You have to first determine how much you can afford, and then whether or not you’ll be able to buy it with cash, or if you’ll have to take out a loan.

Having no car payments is great for your monthly budget, so don’t just assume that you should go for a new car loan like many people do. If you are looking at making car payments, you should plan on making a nice sized down payment to minimize your monthly obligation.

If you already own a car, you have two options, and each has its own pros and cons.

• You can drive your current car until it completely dies. This option can give you some more time to build up your car fund. The downside is that you won’t get much (if anything) in return for your current car.
• You can buy another car sooner and sell your old car. This option may give you some more money than the first (depending on the condition of your car), but it also means you’ll have to buy a new vehicle much sooner.

In our case, we’re planning on driving our cars for at least a few more years. We’d like to build up our car replacement fund up to an adequate level instead of having to borrow a bunch right now.

What to look for in your next car?

Before getting into the new vs. used debate, you should have a list of desirable features in mind for your next car. This list should include both deal-breakers and preferences. Some factors to consider include:

• Manual vs. automatic transmission
• Coupe vs. sedan vs. SUV
• Passenger and cargo capacity
• Engine size
• 2WD vs. 4WD
• Standard vs. hybrid drivetrain
• Historical reliability
• GPS, Onstar, entertainment system, etc.

Using resources like Consumer Reports and Edmunds can help you determine which cars fit your needs. Regardless of where you stand on the above list, you should always consider the total cost of ownership on the various makes and models.

Now that you have an idea of the type of car you want, you can decide whether you should get a new or used model.

Buying new vs. used

Many personal finance bloggers, including myself, have written about the financial virtues of buying used vs. getting a new car. I’ve come to learn, however, that it’s not always as clear cut as you might think.

You should really weigh all your factors when looking at buying either new or used. How long do you plan on keeping your next car? If you’ll only be keeping it for 3-4 years, then why lose all that money on depreciation with a new car? If, on the other hand, you plan on owning it for the life of the car, then this becomes less of an issue.

Another factor to consider is the historical rate of depreciation for your desired make/model. Some cars depreciate rapidly whereas others depreciate very slowly. In the former case, you’ll likely do better with a late model used car. In the latter case, you can get the peace of mind that comes with a new car purchase without paying a ton of extra money.

After you’ve gone ahead and decided on the car that you want, you should check out the series that Nickel wrote about getting the best deal. You can save a lot of money by following his tips.

• Part I of “Buying a New Car”
• Part II of “Buying a New Car”
• Part III of “Buying a New Car”
• Part IV of “Buying a New Car”

Your thoughts and tips on buying a car

I’d love to hear your take on buying a car. Have you purchased a new (or new to you) car recently? If so, what factors did you consider when shopping? Did you buy new or used? Why? And do you have any tips for getting a great deal?

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As has been the case for years, the “hub” of our online banking system is ING Direct, so today I wanted to share the steps for linking additional accounts to ING. They actually offer two different ways of establishing links: online or via regular mail.

Before we get started, note that ING limits you to three linked accounts, so choose wisely. The good news is that you can remove accounts and establish new links at any time, so your decisions are reversible.

Adding a linked account online

Probably the easiest way to link a new account is to do so online. Here are the steps:

1. Sign in to your account
2. Click on “My Links“
3. Click on “Add Link“
4. Look for two small test deposits in the linked account (takes 2-4 days)
5. Return to “My Links” page, select “Unconfirmed,” and enter the amounts

This entire process takes just a few minutes, though you have to wait a few days in the middle. It’s also worth noting that this approach allows you to link a savings account (at least in theory), whereas the mail-in approach outline below is specific to checking accounts.

Adding a linked account by mail

Alternatively, you can link a new account by sending them a personal check from that account. The check must pre-printed with your name and address, payable to yourself, and made out for at least $1.00. Write your customer number and the word “Link” on the memo line of the check and sign it (but do not endorse it).

Mail your personal check to:

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

Assuming that you add an account by mail, ING Direct will temporarily restrict transfers to the new account for five business days as a security measure.

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In 2009, the estate tax maxed out at 45% on taxable estates in excess of $1.5M. However, a significant amount is typically exempted from such calculations, so only a small fraction of estates are actually subject to the estate tax each year.

So what about 2010? Well… As part of President Bush’s 2001 tax cuts, the estate tax was repealed for 2010, though it will be back in 2011 with higher rates and reduced exemptions. While Democrats promised to close the 2010 gap when they took control of Congress, they failed to reach an agreement. This means that the estate of anyone who dies in 2010 will pass completely untaxed to their heirs.

I mainly bring this up because the New York Times recently highlighted the case of a Texas billionaire who passed away this past spring. Because of the timing, his $9B estate completely escaped the estate tax. Had he died three months earlier, his estate would’ve been hit by the aforementioned 45% rate, and if he had lived into 2011, the rate would’ve increased to 55%.

The Senate Finance Committee is now trying to reinstate the estate tax for 2010, but it’s unclear whether or not such changes could be made retroactive to those who have already died in 2010. What do you think? Should Congress try to close this gap before the end of the year? If so, should they try to re-capture the lost estate taxes from earlier in 2010? Or should they leave well enough alone?

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While this card has previously offered as much as 5% cash back on “everyday” purchases (gas, groceries, and drugstores) plus 1% on all other purchases, it’s recently been paying 2% on such purchases (plus convenience stores and utilities) and 1% on everything else.

Now Citi has decided to offer the rotating category approach that Chase and Discover previously adopted. Here’s the scoop from their mailer:

• Earn at least 2% cash back in selected popular rotating categories by enrolling each quarter
• For your first quarterly bonus promotion, starting July 1, 2010, earn 5% cash back at restaurants, on car rentals and hotels. To enroll in the first bonus promotion, simply log into your account at citicards.com or call 1-800-231-0891
• The next quarterly bonus promotion begins on October 1, 2010. Enrollment is required each quarter, so watch for details before that date

Sure, 5% sounds like a decent bonus to start with, but don’t let that fool you. As you can see from the first bullet point above, the rotating bonus can be as low as 2% (care to guess how long it’ll take to fall back to that level?), and you have to remember to opt back in each and every quarter.

I’m not sure about you, but I don’t like keeping track of rotating categories, and I definitely don’t like having to sign up every quarter. If you do use a card like this, it’s probably a good idea to set up automated reminders so you don’t forget to re-enroll.

On the plus side, Citi has added both concierge service (never had a use for it) and price protection (potentially useful) to this card. In the end, however, I still prefer a straightforward cash back credit card like Blue Cash from American Express.

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As we do nearly every summer, we’re traveling by car, and we’ll wind up covering close to 3,000 miles by the time we get back home. With that as a backdrop, I thought it would be fun to run another poll.

Will you be traveling this summer? If so, will you be driving? How far will you be going? Please weigh in below, and please leave a comment to add some context.

And now, for your reading pleasure, here are some articles that are stuffed with tips on how to save money on vacation travel:

• Extreme Travel: How to Go Light and Low Budget
• Traveling Cross Country Dirt Cheap
• Travel on a Budget
• Saving Money on a Roadtrip With Kids

And one more that suggests taking a “staycation” instead of going on vacation.

Happy travels!

Note: RSS readers may have to click through to view results or participate.

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Good, me too. First, go to PickYourOwn.org to find local, organic fruit growers. Second, get your lazy but off the couch and go pick some fruit.

Why pick local fresh fruit?

There are many good reasons to pick your own fruit. Here are a few.

1. It saves you money. In most cases, picking fresh fruit is far cheaper than buying fruit at the store… Even if you’re picking organic fruit. Why? Because picking your own cuts out a whole laundry list of middlemen. When you pick your own, there are no picking costs, distribution costs, processing costs, or store stocking and markup costs.
2. It’s better for you. Picking ripe, organic fruit fresh from the plant is far higher is nutritional value than fruit grown on factory farms (Del Monte, etc.). Conventionally-grown fruit is normally sprayed and fertilized with chemicals, picked before it is ripe, shipped across the country, ripened artificially, and covered in a waxy coating. The secret is also in the soil. Most small scale, local, organic farmers nurture their soil because they know that better soil means better crops.
3. It tastes better. How do I know? Because this skeptic has compared the two. Don’t believe me? Go to a local organic farm and pick some strawberries. Now go to the store and buy some conventionally-grown strawberries (which will most likely be from out of state). Do a simple taste test, compare costs, and decide for yourself.

Why not just grow fruit?

Well, you can… But most fruit plants aren’t like tomato plants. You can’t just plant them in the spring and reap the bounty a few months later.

If you have the time, space, a plan, and the desire to do so, then growing your own may be just what the doctor ordered. However, many fruit plants require a lot of real estate and several years to mature and produce.

If you would rather grow your own, and have the wherewithal to do so, then by all means – go for it! But for those of us who don’t have time or space, picking locally may can make more sense. It does for me and Mrs. Jabs.

More about the health benefits

Here is a great quote from the enormously popular and influential book, Healthy at 100: The Scientifically Proven Secrets of the World’s Healthiest and Longest-Lived Peoples:

And we can see that the diets of the world’s exceptionally healthy and long lived peoples have a great deal in common:

• They are all low (by Western standards) in overall calories.
• They are all high in good carbohydrates, including plenty of whole grains, vegetables, and fruits.
• They are all “whole-foods” diets, with very little (if any) processed or refined foods, sugars, corn syrup, preservatives, artificial flavors, or other chemicals.
• They all depend on fresh foods, eating primarily what is in season and locally grown rather than relying on canned foods or foods shipped long distances.
• They are all low (though not super-low) in fat, and the fats comes from natural sources, including seeds, nuts, and in some cases fish, rather than from bottled oils, margarine’s, or saturated animals fats.
• They all derive their protein primarily from plant sources, including beans, peas, whole grains, seeds, and nuts.

More about the benefits

My wife, who is enjoying her new found freedom of summer break, just picked 25.6 lbs of local, organic strawberries. The cost? $32.00. Those who do the math will see that we paid just $1.25/lb for produce that is far healthier and tastier than anything we could have purchased at our local Walmart.

Here is how we have used our berries so far:

• A homemade strawberry rhubarb crisp
• 10 jars of homemade strawberry jam
• 10 pounds into the deep freeze
• 5 pounds left fresh and whole for eating over the next week or two (my personal favorite!)

We’ll plan to use our frozen berries throughout the remainder of the year, and will probably end up picking another 10 or 20 pounds to make sure we have enough. We may also make some more jam to give away as homemade Christmas gifts, just when people are hankering for a taste of fresh, wholesome, strawberry jam.

What about you?

Do you pick your own fruit? Or maybe you grow your own fruit? Do you have any tips or tricks to share? Or do you think this whole idea is a complete waste of time? Please let us know in the comments.

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Believe it or not, all major credit card issuers provide you with rental car insurance coverage if you pay for the rental with your card. While I always charge my car rentals, I’ve never had to invoke the rental car insurance.

In the one instance where I did damage to a rental car, it was a business trip, and my employer had negotiated a deal where all work-related rentals got full coverage from the rental agency. Thus, I just called in to report the damage and then handed over the keys and walked away at the end of the rental.

Anyway, if you’ve been wondering about the type of coverage offered by the various types of credit cards,

Visa rental car insurance

According to Visa’s policy, you will receive coverage for both collisions and theft as long as you pay for the entire rental with your card. This coverage extends to all authorized drivers on the rental.

This coverage includes “reimbursement for damage due to collision or theft up to the actual cash value of most rental vehicles” in excess of any other insurance coverage that you might have.

As with most insurance policies, there are a ton of exclusions, including theft of personal belongings, personal injury, personal liability, loss due to off-road operation of the vehicle, and loss due to illegal activities.

MasterCard rental car insurance

According to MasterCard’s policy, you will receive coverage for collisions, theft, vandalism, and weather-related damage as long as you pay for the entire rental with your card.

Once again, this coverage extends to all authorized drivers on the rental, and it applies to amounts in excess of those covered by any other insurance that you might have.

As far as exclusions go, things like theft of personal items, personal liability, loss due to illegal activities, etc. are likewise not covered by MasterCard. In addition, the MasterCard coverage extends only to damage that occurs on paved roads.

Discover rental car insurance

According to Discover’s policy, you will receive coverage for collisions only. The coverage is once again secondary to any other insurance that you might have, and it’s limited to $25,000.

Interestingly, this coverage extends only to the person named on the Discover card, and it’s valid only in the United States and Canada. Otherwise, the exclusions are quite similar to those of other card issuers.

American Express rental car insurance

Finally… American Express. Their coverage is similar to that of MasterCard in that it covers collisions, theft, vandalism, and weather-related damage. However, like Discover, the coverage extends only to the individual named on the card.

They also exclude “large SUVs” as well as any damage that occurs off of paved roads. Aside from that, the coverage is quite similar to that offered by other credit card companies.

What about debit cards?

It’s worth noting that debit cards do not typically offer this sort of protection. Thus, if you pay with a debit card, you’ll not only be faced with a relatively large hold placed on your bank balance, but you’ll also be foregoing free insurance coverage.

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In other words, it wasn’t exhaustive an exhaustive study, but it should still give a pretty accurate picture of the ease of redeeming frequent flyer miles on the different airlines.

Here’s a rundown of the results, ranked by domestic availability.

As someone who lives near a Delta hub, I find these results a bit depressing. At the same time, I’ve had pretty good luck redeeming miles in the past, though I’ve had to be a bit flexible in terms of departure times.

What I’d really like to see is a similar study broken down by departure city, as I really only care about how hard it is to get a ticket out of the airport that I use. I suspect that the results would vary dramatically by location.

Anyway, as I’ve previously noted, this is one of the big reasons that I dislike travel rewards. They’re just so much harder to redeem than cash-based rewards, which can be spent anywhere on anything.

See also: Houston Chronicle

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Our trip out west went smoothly, and we arrived in LA on time. Our friend’s wife wasn’t so fortunate, as she got caught in Atlanta with multiple delays. Ever since we (finally) met up, though, we’ve been having a blast.

Travel insurance this vacation season

While eating breakfast in the hotel, I ran across an article on travel insurance that caught my attention. With so many people about to head out on the road for their summer vacations, I thought this would be an especially timely topic.

Travel insurance is supposed to protect you against unexpected events. On the surface, this sounds very useful, but the value of travel insurance is a hotly debated topic. Some people are strongly in favor of it, while others hate it.

Flights, cruises, and travel insurance

The point of travel insurance is to reduce your financial obligations should something happen during your travels. It’s usually offered as a bundle with medical, cancellation, and interruption protection.

There is also flight insurance that will cover your surviving family in case of a plane crash, but that’s usually expensive and completely unnecessary.

The first place you should check is with your credit card company to see if you have any travel coverage or benefits. Some do, and others don’t. Just be careful because some issuers have dropped their travel coverage. When in doubt, look online or call the company.

Believe it or not, your health insurance might already cover you for overseas emergencies. Here again, your best bet is to call your insurance provider and ask exactly what they do and do not cover.

Weighing the risks

The decision to buy travel insurance (or not) depends on many factors, and you need to carefully consider your options to see if it makes sense for you. If you’re planning an expensive trip that you really can’t afford to have canceled, for example, you might want to check out your travel insurance options.

You should also look at what kind of vacation you’re taking when considering extra insurance. For example, cruise companies are reportedly very difficult to work with, so insuring your cruise vacation might be a worthwhile idea.

On the other hand, if you’re planning a short trip or staying within the country, you might decide that travel insurance doesn’t really offer enough benefits to justify the cost.

You may decide to be self insured and create a savings buffer for the trip in case anything goes wrong. This approach can work if you have enough time ahead to get your finances squared away.

Car rentals and insurance

When it comes to car rental insurance, be careful not to pay for coverage that you already have. Doing so can be a drain on your wallet. Start by checking with your car insurance company to see if you’re already covered. You should also check with your credit card issuer to see what sort of coverage they’ll provide if you charge your rental.

Ultimately, you need to be prepared for the rapid-fire rundown of your insurance options that you’ll receive when you arrive at the rental desk. You may be rushed through the process, so be prepared, and don’t be afraid to ask questions or turn them down if you’re already covered.

Some common options offered include:

• Collision Damage Waiver (CDW): With few exceptions, this waiver has the car rental company, not you, covering collision damage. This tends to be the most expensive coverage choice, and can add updward of $20/day to your car rental fees.
• Personal Effects Coverage (PEC): This coverage can protect you from theft and damage done to your vehicle. This sort of coverage will typically be provided by your own car insurance policy.
• Personal Accident Insurance (PAI): This sort of policy covers medical expenses for you and your passengers. Many people already have this sort of protection through their health insurance plans, at least for themselves.

If you travel a lot and your current auto insurance policy doesn’t cover rental cars, you might want to ask how much it would be to add it as a rider. You might also want to shop around to find a reasonably priced policy if it costs too much.

Again, it really pays to read the fine print and see if you’re getting something useful or if you’re paying for a service that you already have.

Your thoughts

If you’re a regular traveler, what are your thoughts on travel insurance? Have you ever skipped it and gotten burned? Or paid for it and regretted it? Do you have any tips for deciding whether or not to buy it?

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Redemption difficulties

First and foremost, it’s often difficult to redeem your rewards even if you’ve saved up a ton of points or miles. In fact, most programs have blackout dates during which you’re not allowed to book flights or rooms.

Beyond this, hotels and airlines both commonly have very restrictive capacity controls, meaning that you have to book very early (often six months or more in advance) in order to find availability.

Free isn’t free

Another problem is that your “free” rewards often aren’t free. While most hotel rewards can be redeemed without charge, it’s common for airlines to charge redemption fees. Moreover, complex itineraries often require a phone call or two, and calling an airline for booking help almost always costs money.

And don’t forget about checked bagged fees… Sure, the ticket might be free (after booking fees), but you’ll pay as much as $50 roundtrip for a single checked bag. Free checked bags is a big part of the reason we’re getting the AmEx Delta card.

Reward point (or mile) deflation

We’re big fans of Hampton Inn for short stays and Embassy Suites for longer stays. Unfortunately, Hilton recently re-worked their HHonors Rewards Program and dramatically reduced the value of their points.

More specifically, we used to be able to easily find rooms for 7,500-10,000 points, they’ve reclassified the vast majority of their properties such that it’s rare to find a room for less than 25k points.

While most airlines have held steady at 25k miles for a free flight, they’ve deflated their points by forcing you to buy your way around a number of restrictions in order to use your points. For example, you can often get around the aforementioned blackout dates and/or seat limitations for 50k miles.

Why bother with travel rewards?

Given all of these limitations, why bother with travel rewards? In our case, we don’t go out of our way to chase them, though we do sign up for the programs where appropriate. We have nothing to lose and might end up snagging some free rooms and/or flights along the way.

In practice, this means that we prefer cash back credit cards over travel credit cards (the AmEx Delta card notwithstanding), but we certainly won’t turn down points or miles in connection with our travels.

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• Baggage fees. As I noted about six weeks ago, Delta is now waiving their baggage fees for AmEx Delta cardholders. When we take long trips as a family, it’s not uncommon to check four bags (for the six of us). This works out to $200 in baggage fees that we’ll no longer have to pay.
• Pay with miles. AmEx Delta cardholders can “pay with miles” (10k miles = $100), and there are no blackout dates. While it’s often better to save up for free trips, there have been instances when I’ve wished we could pay with miles.
• Bonus miles. There’s a 20k mile bonus* after our first purchase plus an additional 2500 miles for adding my wife as a cardholder. 5000 of these miles count as MQM miles, and we’ll earn additional blocks of MQM miles depending on our spending level.
• Double miles on Delta purchases. This card offers a relatively unimpressive 1 mile per dollar spent for most purchases, but twice that for Delta travel purchases.
• Companion certificates. Each year, we’ll receive a certificate for a free “companion” flight. These can be difficult to use, but when it works out you can save a few hundred bucks.
• No fees on mileage redemptions. AmEx Delta cardholders pay no mileage redemption fees (which suck in the first place) on Delta or partner airlines.

Since we live near a Delta hub and use them for virtually all of our air travel, this card makes good sense for us. The only downside is the $150 annual fee, but we’ll easily earn that back (and more) on baggage fees alone.

Anyway, I applied yesterday, got approved with a reasonably high credit line, and am now waiting for the card to arrive.

*Note: The application page shows a 15k mile bonus, but that’s for the Gold card. If you click to apply for Platinum, it will update to a 20k mile bonus.

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I’ve thus become increasingly dependent on automated reminders to keep things on track. I first started out using 4info.net as a complement to my paper planner. This allowed me to create text message reminders to be sent at a future date, but I ultimately found that to be too clumsy.

In the end, I wound up switching to Google Calendar and haven’t looked back since.

Tracking appointments

I originally started out with just two calendars — Home and Work. These calendars hold all of my professional and personal appointments, our kids’ medical appointments and game schedules, travel dates, and so on.

Depending on how important each of these things are, and whether or not my attendance is required, I also set create custom reminders. For example, professional appointments get an e-mail reminder 3 hours in advance and a text reminder 30 minutes in advance.

This means that my morning appointments are sitting in my inbox early in the day and my afternoon appointments are there by lunch or shortly thereafter. The text reminder serves as a failsafe in case I get distracted (and I often do).

Expanding the system

Since I first started with Google calendar, I’ve create a third “Reminders” calendar to track random, and often infrequent, items. For example, I typically create reminders for things like life insurance premium due dates, tax due dates (though I forgot to set these up for 2010), and other financial deadlines.

I’ve also begun tracking major home maintenance items that need to be done on a periodic basis. These include flushing out our water heater (yearly), pumping out our septic tank (every three years), replacing our furnace filters (every 1-3 months), paying our property taxes (now that we’ve paid off our mortgage and no longer have an escrow account), etc.

Depending on the frequency and importance of these items, I usually set up something like an e-mail reminder 7 days in advance with another one coming a day in advance just to be sure I don’t miss it. Because most of these items are recurring, I can also enter them just once and set them to repeat at the desired interval.

Working the system

This system works great, but it’s only as reliable as the data that gets entered. I’ve thus been training myself to immediately enter any appointments or reminders as they crop up. This has been made much easier by a combination of my iPhone and a fantastic app known as CalenGoo. Yes, it’s a dumb name, but CalenGoo is a very powerful Google Calendar client.

Benefits of automated reminders

One of the biggest benefits of this system is that it frees up a ton of mental space and lets me focus on what I’m doing instead of what’s coming up. In other words, it’s a very effective stress reducer. Aside from that, we’ve saved a good bit on late fees by making payments that we might have otherwise forgotten.

Sure, you can use automatic bill pay (and we often do) to achieve some of the same things. But even if you do, it’s still a good idea to set a reminder to check your bank balance and/or transfer the necessary funds to avoid overdraft fees.

Finally, it’s well known that you can save money through regular home maintenance. By using this sort of reminder system, you can be sure to get all of your preventative maintenance done before problems arise.

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My husband is a landscaper. During the winter his work gets a little slack. Does that mean that we can tap into our emergency fund to help cover our expenses or should we open a separate account just for this situation?

In some ways, this is an issue of semantics – how exactly do you define your emergency fund? To me, a seasonal slowdown does not qualify as an emergency. Rather, it’s a predictable hiccup in your income stream, and it’s best addressed through proper budgeting.

Ultimately, my advice would be to create a dedicated emergency fund that is to be used only for unanticipated emergencies. Alongside that emergency fund, I would create a separate “income-smoothing” account.

If you’re looking for a bank that makes this really easy, you should check out ING Direct, as they make it very easy to create subaccounts for this sort of thing.

Smoothing out your income

In order to smooth out the peaks and valleys throughout the year, I would recommend adding up your annual expenses. Next, compare that number to your annual income.

If you’re spending more than you earn, that problem needs to be addressed first. Perhaps you’re a bit looser with your spending during the good times, or maybe you need to reign things in throughout the year. Whatever the problem, you need to make sure you’re living within (if not below) your means.

Next, divide the total by twelve. This is your average monthly expenditure. With variable income, you’ll have months where you earn more than you spend and months where you earn less than you spend. The goal here is to smooth things out across the year.

This sort of smoothing can most easily be achieved by directing all income into the income-smoothing account. Then, on a monthly basis, transfer out a “salary” to your regular checking account to cover your expenses (don’t forget about retirement investing, emergency savings, and so on).

The ultimate effect here will be for you to build up a cushion during the good months that you can tap into during the bad months. By keeping this account separate from your actual emergency fund, you won’t be tempted to draw down the latter when things get tight.

A real-life example

I grew up in a situation somewhat similar to what Vivian described. My dad was a school teacher and was therefore only paid for nine months out of the year, and my mom stayed home with the kids. While the school district gave them the option of spreading my dad’s salary out into twelve equal checks, my parents never did this.

Instead, they took his pay over nine months and then simply saved a portion of each check to cover the summer months. Doing this allowed them to get their hands on the money sooner and to earn a bit of additional interest while still covering the lean months.

As far as I know, they didn’t have separate savings accounts for smoothing things out, they just had a lot of discipline. Adding a dedicated account for this purpose makes it much easier to keep track of where things stand, though, and should greatly increase your likelihood of success.

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Breaking it down…

Simply stated, we each have a unique set of passions/interests as well as a certain skill set. At the same time, life presents us with a more or less limited range of opportunities.

While our passions sometimes overlap with our skills, that’s not always the case. Likewise, we’re sometimes presented with an opportunity to work in a field that we’re passionate about, or for which our skill set is particularly well-suited, but…

It’s relatively uncommon for all three to overlap. When they do, the thinking goes, you’ve hit the jackpot. You’ve been presented with an opportunity to work in a field that you’re not only passionate about, but also particularly well-suited for when it comes to the necessary skills.

That’s all well and good, but it leaves out a major variable… Compensation.

What about financial security?

One of the big problems with feel-good career advice such as this is that it often ignores financial realities. Sure, it would be wonderful if we could all work jobs that we love, and in which we excel, but we also have to make ends meet.

Numerous personal development gurus have argued that if you follow your passion, the money will follow. This sounds great in principle, but how true is it in practice? I’d argue that this worldview is overblown, and that there are tons of fulfilling jobs out there that won’t pay the bills.

This isn’t to say that you should chase money over happiness, but you do need to make sure that you can make ends meet. In my opinion, blindly following a passion in hopes that things will magically work out is a recipe for disaster.

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If you’re wondering what this is all about, estimated tax payments most commonly apply to the self-employed and/or those with significant investment earnings. In short, if you have a decent amount of income that isn’t subject to income tax withholding, then you might get hit with an underpayment penalty at the end of the year unless you make quarterly estimated payments.

You can also trigger an underpayment penalty by paying your estimated taxes late, though in most cases this will end up being a very small amount. In fact, if you only miss by a day or two, the IRS probably won’t even notice.

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As of right now, the Bureau of Labor Statistics estimates that approximately 15 million people are unemployed. That means you or someone you know has probably suffered a decrease in income due to job loss.

What are some ways you can deal with unemployment? How can you help your friends?

Analyze your financial situation

You will feel better and increase your odds of success if you can visualize your new cash flow on paper. This may be a difficult step, but it will give you a clear picture of where you stand. Remember, the goal is to get a workable plan to keep your family afloat.

Ask all the tough questions now rather than later.

Are you getting a severance package? How long will the money last? Can you maintain your health insurance, perhaps by using COBRA? Or do you need another option? Perhaps you can switch to your spouse’s plan?

How much are your monthly expenses? Figure out what is essential for your bills and start cutting what you can. Do you really need cable? Can you adjust your cell phone bill? Have you tried services like Bill Shrink and Mint to see if you can find more ways to save money? Can you shop more frugally for your essentials?

For example, when buying groceries, could you buy ingredients to allow you to cook meals from scratch rather than using ready-made meals? Cooking homemade meals tends to be cheaper than pre-made food. It could have a significant effect on decreasing your grocery bills.

Develop a financial plan while you’re in between jobs

Use all of the resources available to you

If you can legitimately claim benefits that you’re entitled to, such as unemployment compensation or state insurance benefits, take them. It’s a temporary fix, but it can help take some pressure off as you find your next job. Reducing your monthly expenses can help while you’re looking for your next job.

Find a part-time job while you’re hunting for work

If you can work some flexible part-time jobs, you can alleviate some of the financial burden.

Getting a part-time job can help as you still need to have some available hours for job hunting and interviews. Some flexible part time jobs you may consider include:

• Pizza delivery
• Barista
• Hotel/hospitality
• Call center customer service rep
• Waiter/waitress
• Retail work
• Private tutor
• Bank teller

The idea is to offset some of the income lost as you get back on your feet. Double check with your state’s employment agency to see how your part time job will affect your unemployment benefits.

Avoid credit cards

It can be extremely tempting to use your credit cards as part of your bill pay system, but you should avoid this as much as possible. Credit cards should be considered a last resort, as they can add more financial woes to your difficult situation.

Have a game plan for finding your next job

Utilize your network of friends and family

There are many job openings that aren’t published online or in the papers. Take advantage of your connections and ask friends and family to keep their ears open for any opportunity that would be a good fit for you.

Ask your former manager for a letter of recommendation

If you were a great employee and did not burn bridges when you were laid off, it could help if your supervisor could write a letter of recommendation.

Visit your state’s employment agency

Many state employment agencies offer resume and cover letter help. If you’re hoping to bounce back quickly, it certainly helps to have your best foot forward. And if you’re in a creative arts type of career, make sure your portfolio is updated.

Decide on what you’re looking for in employment

As you work towards the next step in your career, be open to trying different things in your field. Perhaps your skills can be used in a different (and perhaps more stable) industry. Sometimes you can find a better job after you lose your current one.

See if self-employment is for you

You may want to venture out and start earning money on the side. Use this as an opportunity to test the waters by taking some temporary assignments.

Your thoughts

I’m interested in hearing your thoughts about how best to handle a job loss. Do you have a plan in case you get laid off? Have you ever survived a job loss? What helped you to keep your finances in order?

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At the time, I suggested that these sorts of fees are a one-way street in that they get added when times are tough, and they never go away. Well…

Here we are, over 1.5 years later. Gas prices are still in the mid-$2 range and there are still tons of businesses charging fuel surcharges. For example, we recently had our septic tank pumped, and guess what? When the bill showed up, they had included a $15 fuel surcharge.

Don’t get me wrong… I’m more than happy to pay someone to pump our septic tank, but a $15 fuel surcharge? Come on. If you’re having trouble making ends meet, just be honest and raise your prices. Enough with the nickel and dime surcharges!

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However, as many of you know, the income limits for converting from a traditional to Roth IRA went away this year. In other words, anyone making too much to contribute to a Roth IRA can simply make a non-deductible traditional IRA contribution and immediately convert it into a Roth account.

Shortly before our taxes were due, we opened a traditional IRA in my wife’s name and made contributions for both 2009 and 2010. Since she doesn’t have any deductible IRA funds laying around, we can simply convert these funds into her Roth without paying any additional taxes.

Converting your Vanguard IRA

I’ve actually been meaning to take care of this for quite awhile now, but just haven’t found the time. Fortunately, it’s very easy to execute the conversion through Vanguard’s online interface.

Simply login, click your way into your traditional IRA account, click the “Buy & Sell” link, and then do an “Exchange” between your traditional and Roth IRAs.

When you do this, you’ll get the following warning:

“A conversion is a taxable event. Generally, you’ll owe taxes on the amount you convert from your traditional, SEP-, or rollover IRA into a Roth IRA.”

The good news is that, assuming you’re converting non-deductible contributions, and further assuming that you don’t have any other IRA accounts with deductible contributions in them, this should be a tax-free maneuver.

In our case, we have a tiny amount of investment gains that have accumulated on top of the original non-deductible contributions, so we’ll wind up owing a few cents in taxes. We’re not worried, though, as we’ll be juicing up our Roth accounts.

Looking ahead

I’m actually working on doing the same thing myself, though I have a SEP-IRA with significant pre-tax (i.e., deductible) contributions. Thus, I still need to roll my SEP-IRA into a Solo 401(k) to avoid a nasty tax hit when I do convert.

To be honest, I’m not sure that it really matters if I get the SEP rollover done before I do the conversion, so long as I do it during 2010. In fact, based on my read of the current version of IRS Form 8606, either way should be fine. I’m not, however, interested in taking any chances, so I’ll be doing the rollover first.

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Since that time, the stock market has rebounded nicely, though it’s been a pretty rough ride over the past six weeks, and we’re still nowhere near pre-crash levels). At the same time, the Federal Reserve is reporting that all parts of the country are showing signs of economic growth.

At the same time, unemployment rates are still very high, and European economies have started sputtering. With these things in mind, today’s poll focuses on whether or not you guys think things are really getting better…

As always, please also feel free to chime in with a comment to add some context to or otherwise clarify your answer.

Note: If you’re reading this in the RSS feed, you might have to click through to participate and/or view the results.

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What is the Medicare donut hole?

According to DHHS, Medicare Part D provides prescription drug benefits to those on Medicare, but there is a $310 deductible. After the $310 deductible has been met, you have to pay 25% of the cost of your prescriptions until the total cost of medicines you have received in a year hits $2830.

Once you cross this limit, you are responsible for the entire cost of your prescription drugs until you hit the catastrophic coverage threshold — currently $6440. The uncovered portion between these limits is known as the Medicare gap, or the donut hole.

Who will get a check?

As part of the recent healthcare reform legislation, seniors who hit the Medicare donut hole will receive a $250 rebate check in 2010. An estimated four million checks will be sent this year.

Beginning in 2011, seniors in the donut hole will receive a 50% discount on prescription drugs, and the Medicare share of costs will continue to increase until the donut hole is entirely closed in 2020.

When will my check arrive?

The Medicare donut hole checks will be sent automatically when you hit the donut hole. They will be mailed from a Medicare contractor’s address in Wisconsin, and you don’t need to do anything to trigger the check. The first round of checks are going out this week, with additional checks being sent as people qualify through the remainder of the year.

Beware of scammers

Reports of scams related to these checks are already starting to surface. As noted above, these checks will be sent automatically. If you’re contacted by someone asking for information to help get your check processed, hang up on them and call 800-MediCare and report the incident to your State Attorney General and/or the FTC.

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