Detroit or LA?

You: For basketball?

Back in the day, sure. Today? Not so much.

You: Then for what? Beaches?

I don’t think the shores of Lake Erie compete with the Pacific.

You: Cost of living?

I think the $8,000 house in Detroit buys you about one square foot in LA.

You: Then what?

TV. I was on TV in both Detroit and LA recently. The videos are more or less identical, so you’ll have to pick one.  As someone who once worked in Detroit, I’ve put their video first but you can pick either one, of course.

Here’s the LA version.

We continue to receive accolades (and new clients) for our tax preparation service which features a 30 minute consultation with me about anything on your financial mind.  We’ve saved our clients thousands of dollars and seemingly routinely amend their prior year returns (those prepared by themselves or by another tax preparer) saving them money on years gone by. Talk about free money!

Anyway, this weekend is the last weekend we honor early bird discounts.

You: What’s an early bird discount for tax-preparation?

Simply that you send us your information by March 15. By giving us nearly a month before the deadline, we can get your return done with minimal stress.  You’re obviously organized and it allows us to be more efficient. We pass the time savings on to you in the form of a reduced tax preparation charge.

Join the onslaught of new clients this year so you can become a referrer next year – saving $50 for each new client you refer (with anyone bringing four people along garnering a completely free tax return for themselves).

We look forward to working with you!

Read more about our services, our specials, our prices, FAQs, or just get started.

Over at the Retirement Planning site at About.com, I just posted an article about the best kind of tax deductions: those that come from saving.

Think about it. Most tax deductions require you to spend money in order to obtain the deduction.  In my practice, the most common and largest deductions are:

• state and local income taxes
• mortgage interest
• business expenses (especially for the self-employed)

But the best–if not the biggest–deductions are those that reduce your taxes but don’t require you to spend any money. In fact, they require you to save some money.

I’m talking about IRA and 401(k) contributions of course. Learn more about saving for retirement and saving on your taxes at the same time.

One of my relatives recently was charged a substantial fee for rolling his 401(k) plan out to an IRA.  In my opinion, that’s total nonsense, even if it’s disclosed.  It’s the equivalent of an “account closing fee.” Can you imagine?

You: I’d like to close my account.

Bank: I see you have $100 in your account so sorry, you can’t.

You: Excuse me?

Bank: We charge $100 to close accounts here.

You: That’s ridiculous.

Bank: It’s our policy.

You: So if I keep it open or if I leave it here, it’s the same for me, isn’t it?

Bank: Yes.

You: I’ll keep it open until you change your policy.

Bank: Very well then.

It’s as though you can’t win – you can only delay the inevitable.

You: It feels awful.

I agree. Jeremy at Taking Charge (a blog affiliated with creditcards.com) wrote of his experience trying to handle basic financial transactions and the onslaught of fees.  It’s an enjoyable read and not just because I’m quoted.  I give a couple of tips to avoid the headaches, including not dealing with banks for the types of transactions he was undergoing.

Rather than trying to get out of fees, choose vendors that don’t charge them in the first place.

What do you do to avoid silly fees?

Twice in the last two winters, we’ve lost power for about 36 hours.

You: You should just pay the damn electric bill.  I know you like to negotiate everything, but you’ve got two little kids –

Massive ice storm last year.  Massive windstorm last weekend.  My write-up of the December 2008 event:

Visiting Boston during an ice storm – Like most New Hampshire residents, we lost power for at least two days earlier this month due to an ice storm.  No way we were going to ride it out at home when the inside temperatures were expected to (and did) reach the thirties – we have an infant!  So we planned on heading to a hotel 20 minutes away.  Then my wife and I chatted: Why not make lemonade out of lemons?  If we’re forced to use all these hotel points (I travel a lot for work), why not go somewhere fun?  So off to Boston we went.  Now we have family memories of being tourists in Boston (riding the subway, going to the Aquarium, pressing buttons to go up and down on the elevator) with two little kids instead of hanging out in the confines of a breakfast nook in Dover, NH waiting for the lights to come on back home

The 2010 Version

When we awoke Friday morning without power and heard it might be a while before it returned, we contemplated doing the same thing – going to Boston on hotel points.  (After all, my four-year old daughter immediately suggested it.  My wife and I have learned that she now associates any reasonably lengthy power outage with an automatic trip to Boston.)

But this time my office, three miles away, had power.  No showers or beds, mind you, but it had the most important luxury:  heat.  So we decided to bank those hotel points for a future “real” vacation and hunkered down at night with the girls in an office building.  It worked, although arriving here this morning felt a little weird as things were just a bit “off.”

You: Forgot to throw away the dirty diaper?

Ugh – fortunately that didn’t happen.

Truth be told, we had fun and kept the costs to a relative minimum.  Of course, we went out to lunch and dinner (keeping the refrigerator and freezer closed at home saved a bunch of groceries from going bad) but went to fun, inexpensive restaurants.  For breakfast the next morning, I went to a grocery store and picked up some oatmeal packets (we have a hot water cooler at the office), yogurt, and some juice.  Lunch was deli meat and some wraps. All in all, we kept it fun, kept it inexpensive, and kept our sanity.

At 3PM, the power was on.  We were just about to cook dinner when friends invited us over. Together, we celebrated the little things. What else really matters?

Saving for a home or, more precisely, how to save for a home is today’s Q & A.

You: Q & A?

Although Friday comes every week, Friday Q &A comes around only when someone submits a good question AND I have time to answer it.   Both happened this week, so here we go. Want to ask a question?  Click here for more information or simply email a question.

I would like to know what is the most effective way to save for a home? I am currently putting the matching percentage of my employer into my 401(k). Should I open an IRA account or Money Market account to reach my goal of 20% down payment on a home?

I believe my income prevents me from getting a ROTH IRA but I am not sure about a traditional IRA.

Matt C.

I love when people ask questions like Matt’s, because it shows they’re committed to doing the right thing and simply want advice as to the best way to do it.  Contrast Matt’s question with the infinitely more common, “Can I use my emergency fund  (It’s almost $1,000!) to make a down-payment on this new car I want? I’d be getting a great deal!”

For anyone that has a matching program at work, taking advantage of said program is step # 1. Matt’s done that – congrats to him.

Now, Matt wants to know how to save for a home – an appropriate goal for most individuals.  Have you paid off your high interest credit card debts?  Do you have an emergency fund?  If so, great. If not, go there first – those items are more important than the house.  Seriously.

Once you’re ready to save for the home, I believe it makes sense to open a separate account (it can be at the same institution where you already have a relationship) that is earmarked for that purpose.  Doing so makes it much more difficult for you to take the money out for some alternative purpose in the many months (possibly years) before you actually take the plunge into homeownership.

While others will argue that an IRA or a Roth IRA (each of which has some exceptions to taxes and penalties due on a pre-retirement distribution when the money is used to buy a home), I do not support this approach.  Rather, create a regular taxable savings or money market account.  The tax savings, particularly in this pathetic interest rate environment, from using a retirement account to save for a home will be negligible at best. More importantly, I prefer to think as retirement plans as exclusively available for retirement. If you tolerate one exception, why not another later on?

A retirement plan is to used for retirement.  Keep your promise. It’s a promise you’re making to yourself, anyway!

How to Save for a Home – Account Specifications

Don’t put your money in an account that is not FDIC insured. Right now, there’s a $250,000 limit on insurance per account.  There’s no reason to take on any risk with your down payment money.

Choose a bank that pays some freaking interest. While interest rates for savers are disappointing almost everywhere, there is still a meaningful spread between the least and most generous banks, a range that is likely to become more important when rates one day increase across the board.  Internet only banks like ING DIRECT, HSBC, Emigrant Direct and others are great places to start. Bankrate.com lists the highest paying institutions.

Consider CDs.  If you know you’re not going to buy a house for 6 months, a year, or even longer, consider CDs as a way to earn a bit more interest. I don’t suggest going too long, however, as you may not want to lock in your rate for, say five years at a couple of points, since rates may be much higher before your term is done.

Establish a realistic goal. Then achieve it. Do what you can to get a down payment of 20% of your purchase price, saving you the potential significant expense of mortgage insurance.  (Matt’s 20% wasn’t picked out of thin air.  It’s the goal all first time home owners should set for themselves).  If 20% sounds like a ton of money, it probably is.  But you’ll be more financial savvy for achieving that amount, as many home owners (and former home owners) have recently discovered. Banks too have re-learned the importance of a home owner have a financial stake in their home.

Good luck Matt. Stay in touch and let us know what you decide to do.

#     #     #

Anyone else planning on buying a home soon?  My wife and I still are, although we haven’t updated you on our progress (or lack thereof) recently.  More to come.

Schedules L & M are now available at the IRS web site, and post offices and libraries near you.  You’ve never filed these forms before.

You: How do you know?

Schedules L and M didn’t exist before this filing season.

You: Correct.

Thanks.

You: What are these schedules?

You don’t know?

You: Of course I don’t know! I don’t get paid to memorize tax schedules.

Right.  Schedule L allows you to increase the size of your standard deduction.

You: I thought my standard deduction was based solely on my filing status.

At one point, that was true. To get your standard deduction today, you start with your filing status but then make certain adjustments.  Homeowners and people who purchased new cars during 2009 are potentially eligible for increased standard deductions.  Make sure you take yours.

Similarly, millions of workers (and retirees) will qualify for the “Making Work Pay” credit, potentially worth $800 per couple. Make sure you complete Schedule M or you could be leaving some money on the table.

You: More forms – yahoo!

Yes. But these are just the easy ones.

You: I know, I know.  So much fun.

It doesn’t have to be that way.

You: I know, I know.  I’ll be in touch.

A close relative of mine just sent me this email:

Gotta love my bank . . .

I went online to check my bill and I see nothing there about me ever having a credit card…

As i’m looking around I notice I have an “email” from bank of America with a new credit card number…umm…WHAT!??!

So I call them…she said it has been “compromised or your card is lost or stolen.” I said umm I have it in my hand…it’s not stolen…she said, well sir mail has been sent to you regarding why this was done…I don’t have any info.”

i called back 5 min later and someone much more helpful said It’s not just me, its thousands of people. Apparently some store I shopped at (could have been a month ago or 4 years ago) got hacked and all their credit card numbers have been stolen. So they closed everyones accounts down and sent out new cards…my card that I have right now will still work till I get the new one.

This is all fine and dandy…but don’t you think they should have called?!?!?!

So no one knows anything till I get something in the mail.

#     #     #

Who can be the first person to correctly identify the bank?

Who else is in the same shoes?  Should they call or at least email? Thoughts?

Of my top ten saving strategies is Number 4: Enjoy Free Stuff.

You: How can somebody do that?

Easy.  Just play on the swings or dance in the leaves.

You: Seriously?  I’m an adult.

Not going to lie to you – you might get some looks on the swing set.   Still, well worth it.  Or try something similar like going for a hike, visiting the beach, or taking a newspaper to the park.

You: Gotcha.

Yesterday, I re-discovered one of the best free activities in existence.

You: Re-discovered?

I chose that word because I forgot how much fun the activity was. I hadn’t done it since I was in high school.

You: Is it legal? Not sure I want to do anything I did in high school again.

It’s not like that.

You: What did you do?

I went sledding.

You: Really?

Yup. Took my girls sledding down a big hill at a nearby farm.  It’s in the early running for the memory of 2010.

You: Why?

Sledding is A LOT of fun.  Riding down a big hill with virtually no steering control knowing that the worst thing that could happen is a face full of snow is a blast.

Admission charge: zero dollars.

Sled price per use: Negligible, especially when you consider that it was really inexpensive to begin with and we’ll have it for two kids and several winters.

Seeing two little girls go from slight fear to daredevil status in less than an hour?

Priceless.

What can you do next weekend for very little money that you’ll remember for years to come?

As common as identity theft has become, I am amazed at the poor password practices of many people I interact with.

You: Because I use my significant other’s name as my password?

That’s one example.  But, at least according to this New York Times article, there are far more egregious examples.   When a hacker was able to get into a big web site and decided to post all the passwords, an analysis of the top passwords used featured obvious choices that could easily be guessed.

The number one most commonly used password?  See below:

• 123456

You: that seems like a pretty easy one to figure out.

I agree, but apparently people figured it was far safer than the second most commonly used password . . . wait for it:

• 12345

You: Not exactly a tough one.

No.

You: What else did people use?

Besides the incredibly sly password 123456789, the next most common password, and the first one to introduce the complexity that letters create was:

• password

You: Huh?

The most common password that uses letters was “password”.

You: Seriously?

Yes.  Also, Iloveyou.

You: Excuse me?

Iloveyou.

You: This is out of nowhere. I’m just reading your blog. . . I barely know who you are.  You’re making me uncomfortable.

Sorry, just reporting the news. The next most common password after password is “Iloveyou”.

You: Oh. I knew that.

I know.  It doesn’t get much prettier after that (although “princess” is a top 10 password too. My, how modest we all are.).

The analysis showed that 20% of all accounts could be opened by trying just 5,000 passwords. Those smart, yet evil, people with computers surely could figure out a way to try 5,000 passwords on your accounts in fairly short order.

The bottom line:

• “Password” ain’t no password.
• Don’t tell your bank that you love them (or at least not as a password).
• Your dog may be your best friend, but his name is a lousy password.

Also, don’t forget: nT09%9bUl2 is a damn good password.  But if it’s on a post-it note attached to your computer, it sucks.