Archives for December 2006

2006 Financial Goals Final Recap – How Did I Do?

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A year ago I set myself some specific financial goals to reach in 2006. Let’s see what I managed to accomplish:

Separate business and personal financial worlds. Done, I have separate business checking accounts and credit cards, and I run all of my business expenses through those accounts. I have also set up a special home office area in our house.

Open a SEP IRA for 2005 business income at Vanguard. Done, opened a SEP-IRA with $2,500, which I then later rolled over to combine with my existing Traditional IRA.

Do my taxes and research to maximize tax return. Used the advanced form of TurboTax to do this for 2006, for 2007 I will either have to do a lot more reading on how to do S-Corp taxes or use an accountant. Probably the latter.

Roll over Traditional IRA to Roth IRA. After much deliberation and procrastination, we finally initiated the conversion internally with Vanguard last week.

Implement Business Idea A, and have it not take too long to maintain. Decided against pursuing this due to various reasons. I have started writing up all my reasons for failure, but haven’t finished yet.
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Pentagon Federal Offering 3-Year CDs at 6.25% APY

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

Pentagon Federal Credit Union is now offering a generous 6.25% APY rate on it’s 3, 4, 5, and 7-year CDs (they call it a Money Market Certificate). These rates probably won’t last, so if this looks good to you you may want to jump in now.

These certificates may be a good alternative to online savings accounts for your emergency funds or other accounts with medium-length horizons. Penfed only has a $1,000 minimum on each certificate, and has relatively lenient penalties on early withdrawals. I wouldn’t use these for retirement savings if you’re young, though.

Since this is a credit union, you must meet their eligibility requirements to join. Basically all members of the military and their immediate families are welcome, as well as many other military-related groups. Otherwise, the easiest way to join is through the National Military Family Associaton (NMFA). Membership costs $20/yr, and you don’t need to renew in order to remain a PenFed member. There are some good benefits to being part of NMFA, such as scholarships, GEICO discounts, and helping support military families.

I’ve been a member for about 3 years now, and have been very satisfied with their customer service. They have other good financial products as well, including competitive mortgage loan products.

Guest Post on Preventing Lifestyle Inflation

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J.D. of GetRichSlowly was looking for some guest authors during his break, so I submitted a short piece on How To Prevent Lifestyle Inflation, or the vicious cycle of Earn More, Spend More. We are successfully living on one income right now, but doing that in the future may be tough, primarily due to housing costs where we want to live.

Myths About Marginal Tax Rates Explained

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Taxes are always confusing, and marginal tax rates are no exception. Although I am no accountant, here are some clarifications on how to use the 2006 tax bracket table I just posted.

First, it should be noted that it is for taxable income, not gross income. In very broad terms, taxable income is your gross income minus exemptions and deductions. Everybody has the standard deduction ($5,150 for single taxpayers and $10,300 for married taxpayers filing jointly for 2006), and many people have more from things like personal and dependent (kids) exemptions, mortgage interest, and state income taxes. For example, if you were single and had $35,150 in gross income, with the standard deduction you would only have a taxable income of $30,000. You owe no tax on the first $5,150.

But remember, gross income also takes into account interest and capital gains from selling investments in addition to just salary. So estimating your actual taxable income without actually filling out a 1040 form can be a bit tricky.

Second, it’s your marginal tax rate, not your overall tax rate. Marginal tax rate means this is the rate at which your next dollar earned will be taxed. So it’s not retroactive to the dollars you already earned, and you can never make less money after getting a raise.

For example, if you were single and had $30,000 of taxable income, and got a $1,000 raise later to $31,000, your entire $31,000 will not be taxed at the 25% rate (a big jump from 15%!). Only the $350 above $30,650 would be taxed at the 25% rate. Your total taxes would then be:
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What’s My Marginal Tax Rate Bracket For 2006?

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I keep having to look these up, so here are the tax brackets for 2006.

Marginal Tax Rate [Taxable Income] Single Married Filing Jointly
10% $0-$7,550 $0-$15,100
15% $7,551-$30,650 $15,101-$61,300
25% $30,651-$74,200 $61,301-$123,700
28% $74,201-$154,800 $123,701-$188,450
33% $154,801-$336,550 $188,451-$336,550
35% > $336,550 > $336,550

For comparison, here are the 2005 tax brackets. Taken from IRS.gov. For state income taxes, this site is the best resource that I could find.

Deadline for Traditional to Roth IRA Conversions is December 31st

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If you’ve been considering converting your Traditional IRA into a Roth IRA in 2006, you’ll want to pretty much do it now, as the money has to leave your Traditional IRA by December 31st. Given that Friday is that last business day available, you only have 2 days left! The good news is that you can still undo the conversion up until October 15th of 2007 without penalties from the IRS. There will be extra paperwork and possible broker transfer fees though.

I’ve been putting this off all year to see how our income picture turns out, but I need to get on the ball and make some decisions.

References: IRS Pub 590, Fairmark.

MySurvey – Another Survey Site That Pays

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Another survey company that I’ve gotten paid out for and that I have heard other positive experiences about is MySurvey.com. Like other programs, they offer you rewards points for taking surveys. They let you redeem the points for cash, which is nice. 1000 points = $10, so think of it as $0.01/point. The payouts tend to be smaller per survey (from 10-300 points), but the surveys are also shorter. Occasionally I have been offered to receive test products and then provide feedback on them for points as well. I also like that they seem to have a steady stream of paying surveys every month.

MySurvey joins Pinecone Research, E-Rewards (both currently not taking new members), and SurveySavvy as the paid survey programs that I’ve used and liked so far.

You can also try Greenfield Online, but they offer less good-paying surveys.

Difference Between Mortgage Loan Rate and APR?

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I’m starting to pay attention to mortgage loan advertisements now. Most of them include both a Rate and and APR. But what’s the difference?

The mortgage rate is the amount of actual interest charged. It’s usually a round number like 5.75% or 6.0%. So if you have a loan amount of $200,000 and a rate of 5%, you would be charged $10,000 of interest the first year. But the cost of a mortgage involves a lot more than just the rate. There are origination fees, loan discount points, private mortgage insurance, etc.

The mortgage APR, or annual percentage rate, includes both the interest and certain other loan fees. Although it was designed to make it easier to compare different mortgages offered by different lenders, it really doesn’t. First of all, there is no steadfast definition of APR ? each lender can calculate it differently. Some may leave out many fees to make their APR look more appealing, while others include everything. For example, they may assume you have a 20% down payment and won’t pay PMI.

In addition, the APR also has to make some common assumptions that may skew things. It almost always assumes a certain loan amount and that you will be holding the loan for the entire term of 30 years or more. If some of the costs are heavily front-loaded and you only keep the house for 5 years, your actual APR would be very different. The APR for adjustable rate mortgages (ARMs) are based on the future index rates being the same as they are now, which are still near historically lows.

In the end, it seems that both are useful to note, but neither should be used alone to compare mortgage loan offers.

How To Get Bumped Off Your Flight On Purpose

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Well, Friday was a interesting day. An accident on the freeway almost keeps us from making it to the airport on time, and then when we do get there we are almost bumped off our flight for $600.

Did you know that airlines regularly overbook their flights on purpose? It’s all a numbers game, and perfectly legal. They know that statistically a certain percentage of people will not show up on time. The result is that every so often, everyone will show up on time and they will have to to bump passengers onto later flights. By law, they must compensate you if they do this, and they also ask for volunteers before forcing anyone to be bumped. You usually get about $200-$400 credit or a free flight voucher, in addition to a confirmed seat on a later flight. They don’t mind; Extra passengers are really cheap for them, as they simply take up seats that would be empty otherwise.

The key is to getting bumped is to get on their “bump list” first:
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Free 1 Year Membership to Entertainment Book Online

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SBC is currently offering free access to the Entertainment Book online. If you don’t know, this is basically a big coupon book that people usually buy for $20-$40. I’m not a big Entertainment Book fan, as I rarely frequent the restaurants on their list. I also dislike how they advertise “Save 50% at Chili’s! and 2-for-1 at Baja Fresh!”, but it turns out to be good only at one specific location 20 miles away.

But hey, if it’s free why not take a look. I didn’t find anything special for my area, except maybe some slightly discounted movie tickets. Link via KR via SlickDeals.

Plenty of Holiday Weekend Reading

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

Here are some of the posts that I’ve enjoyed reading through recently:

TiredButHappy is getting flack for her used car. Why must we judge? I secretly like the fact that our cars aren’t worth very much, if only to see if people care. Is that weird? I mean, the IRS doesn’t care whether you take bribes, deal drugs, or steal things, as long as you pay income taxes on it. From AllFinancialMatters.

And while you’re figuring out what to do with all those gift cards, why not consider one of these 25 gadgets that may actually save you money at the Simple Dollar? I want a DDR pad. How much does an old PS1 or PS2 go for these days? Anyone want to trade an iPod nano for a setup with game and 2 pads?

Excel can be a very powerful financial tool, and Experiments in Finance has a great series on Excel function tutorials.

Lazy Man and Money hosted this week’s Carnival of Investing. If you’d like to be a future host, please read about the Carnival here.

2006 In Review: A Year of My Money Blog

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

Out of the 637 posts that I scribbled this year, here are the ones that represent the good, the bad, and the fun of our 2006 financial adventure:

The Good
First, I started it off right by making financial goals (which give you something to focus on all year) instead of resolutions (which you end up looking backwards at).

Marriage and money are tightly linked, and behind the scenes this blog has spawned many a discussion about frugality and priorities. This has helped us limit our excess spending by focusing our energies towards a common purpose.

Of course, once you’ve saved it you still have to avoid the tax man. We maxed out our Roth IRAs and opened up and funded a Self-Employed 401k account. I’m very happy about that.

Finally, through the internet we have also found Modest Needs and Kiva, which give us new outlets to give to charity.

The Bad
Of course, there is always things I need to work on. We are also still on the look out for a method of tracking our spending that works for us, despite finding a bunch of free budgeting tools to help us.
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