Review of Suze Orman Show CNBC Special: Your Money Your Life

CNBC had a special Suze Orman Show last week, and I finally got a chance to watch it on TiVo. Recently, I’ve kind of lightened up on my view of Suze. Like all gurus, she makes blanket statements that may not apply to everyone, but at least she’s not pumping a get-rich-quick scheme involving real estate or stock-picking that is bound to produce more losers than winners. Overall, the show was pretty good for what was basically an hour of sound-bite-based financial advice for people (like me) with short attention spans.

Main Points
Here are her “action points”, which again seem to be generally good advice:

• Get rid of credit card debt as soon as possible.
• Keep your credit score high.
• Save up an 8-month emergency fund.
• You should have a 20% down payment for a house before buying one to live in.
• Contribute up to your 401k/403b employer match, then fund a Roth IRA.
• Create both a will and a living revocable trust.
• Get adequate life insurance (term only).

I picked up two pointers that I need to research further involving estate planning. First, she stated that you can pass real estate without probate through a living revocable trust. This can save months of hassle and also can avoids court fees and lawyer fees which can eat up thousands of dollars. Second, you should always check your 401k beneficiaries, as whatever you designate on those forms actually trumps your will.

Motivational Story
There was also the oldie-but-goodie why-save-early explanation. Allow me to paraphrase:

If you saved $100 every month starting at age 25, and invested it with normal market returns, at age 65 you would have a million dollars! But you say, I’m 25, who cares? If I wait until 35, that’s only $12,000 I’m not investing. ($100 x 12 months x 10 years)

However, if you indeed started at age 35 saving $100 per month, at age 65 you would only have $300,000. That decade of waiting actually lost you $700,000!!

Of course my question was – what’s “normal market returns”. Doing the backwards math, it’s about 12.08% annualized. Very optimistic, but hey, inflated numbers make the story better. It’s still a good lesson.

Don’t Buy Bond Funds?
Finally, a curious quote from her was that she hates bond mutual funds, and that people should only buy individual bonds. I thought to myself – how many casual investors actually buy individual bonds? Dealing with all the intricacies like call risk, par value, and quality ratings would be way too complicated for her target audience. However, digging a little deeper into her older show transcripts, I see that she actually recommends buying US Treasury Bills or Notes with a maturity of less than 5-7 years. Since these are of the highest quality and are relatively uniform, that definitely made more sense… but she didn’t explain this on the show!

Posted in General, Investing | 46 Comments »

Bodega: Cheap Eats and Social Commentary For 25 Cents

Do you think the $1 menu at McDonald’s is disgusting, or a godsend? Well, check out this funny yet sad video about cheap eats in the Bodegas of New York City, otherwise known as the corner convenience store. (There are a few expletives, but nothing extremely offensive.)

A humorous yet searing commentary about the choices confronting people who live in “the poorest urban county in the country.” Under the yellow awning of the Bronx Bodega, all the important food groups are represented. Join Dallas Penn of DallasPenn.com and Rafi Kam of OhWord.com as they illustrate the finer points of the Bodega Food Pyramid.

I like the Whole Foods comment. This stuff could be called “Empty Foods”. This reminds me of my breakdown of What 200 Calories Costs – The Economics of Obesity. If you’re poor, it can be tough to turn down pork rinds, snack cakes, ice cream sandwiches, and sugar water for just 25 cents apiece. You could get 1,000 calories that would fill your stomach quickly and easily for a buck. Can you really justify spending more than that if you don’t have to?

Sure, you could get a side salad at McDonald’s for $1, but that provides a mere 20 calories. Even with the low-fat Italian dressing, that’s another 60 calories for a total of 80 calories. That’s not going to satisfy you.

Is there just not enough demand for nutritious, cheap, and convenient foods? Or is it just too expensive to manufacture?

Posted in Frugal Living | 29 Comments »

How Do You Track Your Home Value In Net Worth?

Calculating net worth from an accounting perspective is simply assets minus liabilities. However, most people who track their net worth (like me) end up making some judgment calls. I mean, that printer by your computer has a value. If you put it up on Craigslist, you might get $20 for it. But I doubt you measure it’s value in your “net worth”. What about your car? Jewelry? Your home?

Here are some ideas on accounting for your home in your net worth:

Option #1 – Estimate market value, and subtract amount owed.
I think this is the most technically accurate definition of home equity: fair market value (asset) minus loan balance (liability). However, the hardest part is calculating fair market value. Even professional home appraisers have told me it’s “not rocket science” and there is a lot of subjectivity. (Hint: Most appraisals are ordered by the lender, and the lenders really like it when the home appraises near the purchase price. It makes loans go through smoothly.)

Some ways to estimate current market value:

• Use a home valuation website like Zillow or Cyberhomes. The problem is that these sites often rely on tax records or other databases with outdated information, leading to some weird numbers. Even comparing the exact same house on the two websites side-by-side, I have found them to differ by up to 20%.
• Take your purchase price, and then adjust according to the the percentage change in your area. For example, if you bought for $200,000 and the median house price in your town went up 10%, then put your value at $220,000
• Use your local tax authority as a reference. Some areas estimate your home’s value every year, and use it to find your property taxes due.
• Do your own comps. Did a neighbor’s house just like yours sell recently? Find the cost/area ($/sq.ft.) and compare to your own square footage.

Finally, you could also take off 3-6% to account for the (almost) inevitable real estate commissions you’ll have to pay upon selling.

Option #2 – Track the amount of mortgage balance loan paid off.
Here you essentially assume that your home just stays at the price that you paid for it. So all you need to track is the sum of your down payment and the amount of loan principal paid off so far. This should be included in your mortgage statement.

Alternatively, you could view this as a “countdown to loan payoff”. You’re ignoring the month-to-month fluctuations of the real estate market, and focusing on what you have left to pay before actually owning your home.

Option #3 – Just ignore it.
If you plan on staying in your home for the foreseeable future, then you may not care what your home value is. Your mortgage payment is simply a housing payment like rent, except that one wonderful day it you’ll just be left with property taxes. It doesn’t change how you spend your money, or how much you wish to save.

Any other ideas?

Posted in Real Estate | 44 Comments »

Get Out Of Your Sprint Cellphone Contract Without A Penalty

One good way to get out of your cell phone contract without paying the fat penalty is to wait for them to change your contract terms. I believe by law if they change your contract, you can either accept or cancel within 30 days without any fees.

The Consumerist reports that Sprint is adding some new charges as of January 1st, 2008. I don’t remember seeing this change on my Sprint bill, but many users on the SprintUsers forum have reported success canceling their contracts without fees, and one posted this as part of a conversation with a Sprint representative.

Sprints current policy as read by account services: “On Jan. 1st 2008 Sprint customers who have been affected by the fees, [consumer and IL customers], will have their ETF waived if they wish to terminate their contract. There will be no post-dating of cancellation where the ETF will be waived as only customers affected by the new surcharges will be eligible.”

If you want out of your Sprint contract, or just want to get some fresh new-contract deals, it may be worth a call. Even if you just jump ship to the Sprint SERO plan.

As for other carriers, I just ran across this “roaming hack” which supposedly lets you cancel with any wireless provider by placing a ton of calls while roaming. The idea is that you will make yourself and unprofitable customer that way, and they’ll just “fire” you. Not sure if it works though.

Posted in Frugal Living | 53 Comments »

New PineCone Paid Survey Application Link

Paid surveys can be a reasonable source of additional income for certain folks. On a strictly per-hour basis, they end up at around $5-9 an hour and can get tedious. But hey, you can do them during downtime on the job or late at night while watching Leno in your pajamas, while adding up gradually to hundreds of dollars over a year. Personally, I find myself being more and more picky about them as time goes on.

PineCone Research remains one of the more elusive and better paying survey companies, with a payout of $3 for each 15-20 minute survey. Thanks to Barry for sending me the most recent recruitment e-mail, which states that they are looking for new members who are male and 18+. Here’s the new PineCone application link. I’ve anonymized the link, but this still won’t last long!

*Two important tips to keep the PineCone gravy train running:

- Whatever info you sign up with, keep it up to date and follow it exactly. For example, if your profile says you’re 35 and in a later survey you state that you’re 46, you may mysteriously stop getting any new surveys.

- Fill the surveys out as soon as you get them. If you miss enough survey deadlines, they will also remove you.

Other Paid Survey Sites
In my experience, NFO MySurvey. and SurveySavvy continue to give me the most paid survey opportunities, even if I don’t do every single one. I’ve gotten multiple checks from both now.

I don’t get hardly any surveys anymore from American Consumer Opinion, Greenfield Online, or Lightspeed Panel, but that may be due to my long periods of inactivity. SurveySpot only gave me sweepstakes entries.

Posted in Bored Money | 19 Comments »

Subprime Mortgage Bailout Concept Extended To SUV Owners?

Are you sick of hearing about the subprime mortgage crisis? I sure am. But here’s a satirical news story from Patrick.net that even I found amusing – SUV Bailout To Keep America Humming.

Lawmakers in Washington are near final agreement on a proposed $400 billion bailout of SUV buyers. The massive amount of debt taken on by drivers in an attempt to ensure that their vehicles are significantly bigger than their neighbors? vehicles has resulted in millions teetering on the brink of bankruptcy. ?We need to keep these people in their Hummers, at whatever cost to taxpayers? said Treasury Secretary Henry Paulson. Paulson is expected to announce details of the plan as soon as Wednesday, said sources familiar with the matter.

With more than 2 million drivers facing higher interest costs and the possible loss of their oil-company-friendly vehicles if they cannot meet the payments, the future of US overconsumption is at stake. The White House on Friday said it was appropriate to build a ?bulwark? against the SUV sector?s woes. ?After all?, said President Bush, ?it would not be American for us to live within our means and be responsible for our own financial decisions. Those who failed to spend themselves deeply into debt should pick up the tab to keep real Americans riding high.?

While not perfect, here are the ways in which I agree with this SUV analogy:

1. Stuff is stuff. You have a $20,000 car through a $20,000 loan. You stop paying that loan. What happens? It gets repossessed! You don’t really own that car. You only own the right to use it as long as you make the loan payments. When I hear “they’re taking my home away!!”, I empathize the same amount as if they said “they’re taking my car/iPod/HDTV away!!” (which might be a lot or a little depending on the circumstances).
2. Mortgages are sold by salespeople. Cars are sold by salespeople. HDTVs are sold by salespeople. I don’t recall any laws being broken here, so what did we really expect from them? Sound financial advice? Unbiased opinions? We never fault car salesmen for painting their products in a good light, we take responsibility if we bought a Hummer we couldn’t afford.

Ironically, there actually are tax advantages for large SUVs when used for small businesses.

Posted in Real Estate | 36 Comments »

Credit Card Foreign Transaction Fee Refund: $25+

Back in February, I received a mailing about a class-action lawsuit claiming that Visa, MasterCard, their member banks, and Diners Club conspired to set and conceal markups and fees, typically of 1-3%, on foreign transactions. It appears that the settlement amounts have been agreed upon. Here are some selected excerpts from the official settlement website and FAQ.

Am I a member of the settlement class?
Those persons who made a foreign transaction using a Visa-, MasterCard-, or Diners Club- branded credit, charge or debit/ATM card between February 1, 1996 and November 8, 2006 are members of the Settlement Damages Class.

How do I complete the claim form?
You need to complete and submit a claim form prior to the deadline, either on-line at www.ccfsettlement.com/claim, or by mailing or faxing in the form.

Option 1 is an Easy Refund of $25 and is recommended if you travel outside of the U.S. for less than one week or had foreign transactions of less than $2,500 using your eligible cards during the class period.

Option 2 is a Total Estimation Refund that is based on typical spending during travel and answers to the few questions listed on the claim form. This option is recommended if you traveled outside the U. S. for more than one week or had foreign transactions of more than $2,500.

Option 3 is the Annual Estimated Refund option. It is recommended if you had extensive foreign travel or foreign transactions and are willing to provide year-by-year information.

Seems like a pretty huge settlement class! You don’t even need to have gone anywhere, maybe you just bought something online in a foreign currency. If you choose the simple $25 option, you will need to provide your name, address, credit card number, issuing bank, and the last 4 digits of your Social Security number. This site has been reported in various new outlets, so I believe it to be legitimate. Also, thanks to the readers who reminded me about this.

Posted in Credit Cards | 49 Comments »

What Are We Saving For, Anyways? Our Life Goals and Retirement Plans

I’ve talked about this in bit and pieces under the Goals category, but I thought I should organize our life goals into one post. Hopefully, this will outline our priorities and shed some light on why we choose to do the things we do.

First, I’d like offer what I am afraid people think our life goals are:

Incorrect Goals

1. Find the highest paying job possible. Work long hours, but tolerate it for the money.
2. Live a very spartan lifestyle, with minimal luxuries and worrying about money constantly.
3. At age 65, abruptly stop working so hard, finally relax and begin enjoying our life. Hopefully live long enough to enjoy this period.

In fact, that’s not what we want at all:

Actual Goal #1 – Finding A Job That Fits
If your going to spend almost 50% of every weekday doing something, shouldn’t you enjoy it? Sure, even great jobs have their challenges – bureaucracy, boring meetings, office politics, the occasional annoying co-worker. But finding a job where you don’t dread getting out of bed in the morning was a huge priority for me. It took a few different degree programs, a couple of resignations, some stressful interviews, and several rejections, but we are definitely making progress in finding work that is challenging, enjoyable, and reasonably well-compensated.

I would also add that having a simple lifestyle initially allowed us to take some risks in order to get where we are now.

Actual Goal #2 – Less Work, More Life
Read the rest of this entry…

Posted in Career, Family, Frugal Living, Goals, Retirement | 38 Comments »

Equity Asset Allocation: Comparison of 8 Model Portfolios

I’m still planning on reshaping my investments and continuing my choosing an asset allocation series, but Thanksgiving and work has thrown me off a bit.

To skip ahead a bit, here are several sample asset allocations from various sources for the equity (stock) side of your portfolio. I thought it would be helpful to see them all side by side and compare how different authorities might split things differently between domestic and international stocks, how they deviate from the “total” market indexes, and whether they choose to incorporate additional asset classes like real estate or commodities.

For more information about any specific portfolio and the source, just click on the pie chart.

Read the rest of this entry…

Posted in Investing, Retirement | 17 Comments »

Take Pride In Being Financially Different!

Recently, I ran across an article called the 5 Steps to Early Retirement. Written by a couple who retired at 38, here are they are:

1. Track your spending.
2. Save a lot.
3. Invest wisely.
4. Put peer pressure into perspective.
5. Keep your eye on the prize.

At first glance, these steps may seem obvious and common sense. However, I would say there is a lot of hidden wisdom in the 4th step, in which they explain:

Social pressure to spend can be subtle and pervasive, and it can divert you from your commitment to retire early. Marketing specialists tell you that if you only buy this new product, car, house, or membership, your lifestyle will improve. It’s reasonably easy to tune out that marketing message, but you have to handle your friends with a little more tact. Trying to match the spending of our peer group is a surefire way to derail financial goals. Decide now that you don’t have to keep up with their consumption to fit into the crowd. The choice is yours — not theirs.

In other words, if you want to be different from everyone else – have more savings, retire earlier, whatever – then you have to act differently from everyone else. Here’s a quick anecdote. A friend of my wife recently told her:

“You make good money, you should stop buying your dresses from Target… Check out my new Louis Vuitton purse!”

The same friend later in the same week said:

“How the *%& do you have $100,000 (20% down) saved up already for a house?”

She didn’t make any connection between the two events. I’m not saying everyone should buy dresses from Target, but I do think everyone should pick their battles and be proud of them. Maybe it’s not leasing that shiny SUV or brown-bagging the lunch more often. Maybe I’m weird, but I love it when people judge me by my outward appearance. One day, perhaps that same friend will say:

“What!? You’re only 48 and you’re retiring?”

Posted in Frugal Living | 48 Comments »

Lending Club Review: Free $25 To Start, P2P Borrowing

Next up in the person-to-person lending showcase is Lending Club. I recently joined up because they were offering the carrot of $25 sign-on bonus, and I was curious to see how they differentiate themselves from Prosper Lending (review, $25 bonus). As usual, this overview will primarily be from the perspective of a potential lender/investor in these unsecured consumer loans.

Lending Standards
LendingClub only allows borrowers with a minimum credit score of 640. Prosper initially had no bottom, but later raised it’s floor to a 520 credit score, which by itself eliminated 45% of their loan listings! So lots of subprime action over at Prosper, but very little over at LendingClub. Some people may disagree on whether this a plus or a minus.

Setting Interest Rates For Loans
With Prosper, prospective lenders bid on loans in an eBay format. Essentially, all the lenders as a whole set their own market rate. But with LendingClub, they do all of it for you.

The mechanism for setting a fair interest rate is complex: it involves a proper assessment of the risk associated with each loan (based on the borrower’s credit history, current situation, income, debt and other factors), an understanding of the volatility associated with each level of risk, and a proper reward for that volatility. We have access to large amounts of information and historical data from the credit bureaus, which puts us in a unique situation to set attractive, fair and equitable interest rates. Rates also depend on the amount of the loan (with larger loans bearing higher rates).

Each loan request made by a borrower is attributed a Lending Club grade ranging from A1 to G5. Here are some sample corresponding loan rates:
Read the rest of this entry…

Posted in Deals & Offers, Investing | 69 Comments »

Zopa US Initial Review: A Credit Union Disguised As Person-to-Person Lending

Zopa US joined the person-to-person lending arena recently. From a potential lender’s perspective, I was excited to see what they had to offer since Zopa has been operating in the U.K. for a while, and with several features that made them different than the current leader in p2p lending within the US, Prosper.com (review, $25 sign-up bonus). These include:

• More Flexibility – You set your rates, choose how long you want to lend for (1 to 5 years) and decide on a risk level. With Prosper, all loans are for 3 years, there are no other options.
• Risk-Based Interest Rate – Each borrower has a risk-assessment done, and your investment rate is based upon what risk grade you want to invest in. This is different from the pure reverse-auction format of Prosper.
• Easier Diversification – If you lend ?500 or more, your money is spread across at least 50 borrowers. That’s only ?10 per borrower. On Propser, the best you can do is split it to $50 per borrower.

Which of these were extended to Zopa US? None of them.

With Zopa US, they have basically turned into a credit union. Your only choice is to buy a NCUA-insured 1-year certificate of deposit, currently paying 5.10% APY. While the rate is better than average, it’s nothing spectacular. That’s it. Minimal risk, minimal return.

Oh, there is a bit of optional charity if you like. You can “choose your rate”, which mean if you choose a rate of 4.90%, then 0.2% goes the the borrower to help them pay off their loan. But borrowers pay at least 8.75% interest on their own loans! Who’s making money off the rate spread? Zopa, not you.

Person-to-person lending was supposed to cut out the bank as middleman. But this just the same old bank/credit union setup. My guess is that Zopa went this route because US regulations don’t allow them to replicate the UK model here. Very disappointing!

Posted in Investing | 12 Comments »