Archives for February 2008

Nine Traits Of The Middle-Class Millionaire

Russ Alan Prince, author of The Middle-Class Millionaire, has been trying to understand a new sub-class of Americans called the “working rich”. Prince defines them as those with net worths between $1 million and $10 million, but who still work for a living. After conducting a survey of both middle-class millionaires and those just plain “middle class” (defined as having income of $50,000 to $80,000 and net worth under $1 million), he distilled these differences into 9 traits for Forbes. Apparently, middle-class millionaires:

  1. Work Longer. The average middle-class millionaire puts 70 hours a week into the job. They take 12 vacation days a year, seven fewer than the average middle-class worker.
  2. Value Networking. More than 60% say knowing “many, many people” is very important in achieving financial success.
  3. Take Risks. Over 90% of middle-class millionaires admit to having made a major career or business decision that had a bad outcome.
  4. Avoid Vanilla Corporate Jobs. Over 80% own their own business or a have a stake in a partnership.
  5. Do It For The Money. 74% say that choosing a career “for its potential financial rewards” is very important to achieving success.
  6. Don’t See Themselves As Rich. Fully one-third of those worth $1 million to $10 million think of themselves as middle class (the other two-thirds consider themselves upper middle class). Meanwhile, 21% of middle-class people (making $50,000 to $80,000 annually) call themselves members of the upper middle class.
  7. Put Family First Over Community. The values the mass affluent place the most importance on are ethics, responsibilities to loved ones, parenthood and children’s education.
  8. Pay For Help. Half of them have hired personal or career coaches.
  9. Put Family First In Vacation. Over 60% of middle-class millionaires say that spending time with family is an important component of a vacation. By contrast, only 28% of middle-class workers think so.

Overall, there are some interesting differences. But I personally don’t see these as a “how-to” template – There’s no way I’m consistently working 70 hours a week – the whole point of being smart with money for me is to work less. Also, I feel like some information is missing. Are working millionaires older than average? Being a working millionaire at 30 is a lot different than at 60.

Free Credit Score Report Card and Analysis

In case the last 5 free ways to get your credit score weren’t enough, there’s also the free Credit.com Report Card. It is actually a pretty comprehensive analysis, providing:

  • Credit Score Range: This provides a hint of your credit score based on the standard FICO range of 300-850. (You have to pay for the specific number… see below)
  • Credit Score Grades: School-style grades (A-, C+) of each of the main factors in FICO scores: Payment History, Debt Usage, Credit Age, Account Mix, and Recent Inquiries.
  • Actual Credit Report Details: Your address on file, employer data, total accounts, total credit limits, number of inquiries, etc.

Here’s an example screenshot:

altext

I’ve bought my credit report and score before, and this is the kind of information I would find useful anyhow. I don’t care if my score is 728 vs. 732 vs. 721 since slight changes occur all the time. Note that this analysis is based on your data from the TransUnion credit bureau only. You can upgrade to reports from all three credit bureaus plus actual credit scores for $14.95 per month.

Remove Your Information From Junk Mail Lists For Free

My 5-year-old shredder is dying from all the junk mail I’ve fed it over the years. I’m totally hyped about buying a jumbo 12-sheet shredding beast. Coincidentally, I just ran across a free service called ProQuo.com that supposedly helps you remove your name and other information from a variety of different lists, including Coupons & Weekly Circulars, Snail-Mail Marketing Lists, Mail-order Catalogs, Telemarketing Lists, and Credit Card and Insurance Offers. From their FAQ:

How does ProQuo help consumers?
ProQuo helps consumers remove their personal information from marketing lists, data brokers, and other organizations responsible for a large amount of junk mail. ProQuo does this by helping people request removal directly from these sources. In many cases, ProQuo will send these requests electronically to the specific organizations that consumers select. For companies that don’t accept electronic requests, ProQuo helps consumers to print out forms for mailing or directs consumers to third party web sites.

I’ve been trying them out, and many of them do require you to print out and mail in a form to request removal. Still, many accept electronic requests, and I had no idea any of this was even an option. ProQuo also incorporates other removal services like the National Do Not Call List. Here’s a screenshot from their interface:

altext

If the service is free, how does ProQuo make money?
In the future, ProQuo will allow consumers to request offers that they do want in addition to eliminating the offers that they don’t want. ProQuo will make money from the advertisers that provide these offers. ProQuo will only provide these offers when requested by consumers.

Hmm… I’m kind of skeptical but their Privacy Policy looks okay at first glance. “We will never release consumers’ personal information without their express consent – ever.”

Finding Cheap or Discounted Ski Lift Tickets

This is a bit late in the season, but if you like to ski or snowboard be sure to sign up for the e-mail newsletter by SlidingOnTheCheap.com. They send out a free weekly newsletter that summarizes all of the specials and discounts offered by each of the resorts in most of the major US ski areas: Lake Tahoe, Colorado, Pacific Northwest, New England, Utah, and Southern California. It saves a lot of time versus tracking all of the changes on each of the websites separately. They also give away several free lift tickets each week, and occasionally get their own subscriber-only deals.

It’s always good to stay subscribed year-round because often ski resorts will sell some really cheap season passes early on in the year. For the Lake Tahoe area specifically, you can also bookmark SnowBomb.

Otherwise, if you are willing to take a gamble on buying some employee freebies or lift-ticket credits, you can either keep your eye open at the resort for scalpers or try on your local Craiglist ahead of time (just search “lift tickets”). We recently saved $24 on each of 4 lift tickets this weekend this way.

Subprime Loan Crisis Explained By Cartoon Stick Figures

Here’s a funny yet educational slide show (alternate link) explaining how the subprime mortgage mess was created through some complex financial trickery and well… simple and stupid assumptions. You know, like (1) housing prices always go up and (2) you can always refinance to another loan. There are a few expletives, but I would rate it PG-13.

altext

Thanks to Kirsten who e-mailed it to me. I couldn’t find an author, but it seems to have been first posted online by The Big Picture.

Stanford Offers Free Tuition To Low and Middle-Income Families

You may have heard that Stanford University is waiving tuition for students with families making less than $100,000 annually. If your family makes less than $60,000, room and board is waived as well. This is not chump change: Annual tuition for Stanford is around $35,000 a year and housing is $11,000 a year.

What was interesting was the last line: Only about a third of students are expected to qualify. According to the 2006 census only 19% of US households made more than $100,000. For the students at Stanford, approximately 67% of families make more than $100,000. Of course, Stanford is in California where the incomes are higher overall. Still, this information makes me want to know the income breakdown of various community, state, and private schools out there. It will also be interesting to see what Stanford’s make-up becomes after this decision comes into effect.

In an ideal world, such things wouldn’t matter, but it’s quite apparent from this move that it does. Many qualified students don’t apply to certain schools due to high costs, and this will help Stanford get more of those kids. Financial aid may bridge the gap with loans, but not everyone wants to leave school with $100,000 in loans.

Random Travel Tip: Nabbing Free Luggage Carts

I’ve already shared my habit of trying to get bumped off of airline flights on purpose for the free tickets. I haven’t been bumped recently, but here’s another frugal travel quirk that most people don’t seem to do…

Sometimes even those us who like to pack light end up bringing a lot of bags or heavy boxes. At the baggage claim, you’re then faced with the prospect of paying $3 for a cart to hold your stuff for 8 minutes. The horror!

Your bags usually take several minutes to be loaded onto the carousel anyways. So instead of going straight to baggage claim, after I get off the plane I go directly to the check-in ticketing level. Usually, especially if there are baggage scanning stations, there are plenty of discarded carts. I grab one, take the elevator down one or two levels to baggage claim, and proceed to load my bags on my free luggage cart. 🙂 I’ve wasted no extra time, and my success rate is around 90%.

Mortgages: Monthly Payments vs. Loan Term Length

Here’s a quick graph that I didn’t include in my previous post on choosing between 15, 30, or 40-year mortgages

I’ve always felt that loan lengths were a bit arbitrary. Why did 15-year and 30-year loans become the industry standard? It’d be just as easy to make a 25-year mortgage. So I took a step back and compared term length vs. monthly payment for a $300,000 mortgage at 5.5%. The result was interesting, and I would think the general behavior should be consistent across different loan amounts and interest rates:

altext

The graph shows that mortgage payment stops decreasing very much as the term goes past 20 years, and really starts to flatten after 30 years. If you use the 30-year as the benchmark, the 20-year payment is 20% higher, while the 40-year payment is only 9% less. Stretching even further from 40-years to 50-years only saves you another 5%.

Given this information, you’d think that having to get a 40-year mortgage should be a sign that you really can’t afford that house. Yet according to Bankrate, 25% of all new mortgages in California are 40-year mortgages (nationwide it’s more like 5-10%). This is partially due to the fact that pseudo-government Fannie Mae buys 40-year mortgages now. In fact, the mortgage industry has already rolled out 50-year amortizations for certain adjustable-rate mortgages. The next few years for housing should be really interesting…

$100 Bonus from Suze Orman and TD Ameritrade

While skimming my new Suze Orman eBook, I ran across her SaveYourself promotion that I blogged about almost a year ago, but is still going on for a little while longer.

You can get a $100 bonus after one year (expired) if you open an account at Ameritrade by March 31, 2008 and set up an automatic deposit of at least $50 per month for 12 consecutive months. This deal isn’t bad as a mandatory cash savings vehicle if you don’t need to withdraw the money. They even offer a special money market rate much higher than their usual piddly 0.05% rate:

Get started on Suze’s Save Yourself Plan by opening a new account with TD AMERITRADE, featuring a special high-yield deposit account with a 2.78% Annual Percentage Yield (as of February 1, 2008). Your cash is held in an FDIC-insured Money Market Deposit Account (MMDA) at TD Bank USA, N.A.

There are no maintenance fees on the account, plus you receive the $100 offer for making 12 monthly automatic deposits of at least $50 each to help you build up your account balance. […] Should you need to withdraw the money prior to the twelve-month commitment, you may withdraw all of your deposits, plus the interest earned. However, you will forfeit the $100 bonus.

Doing the math
Looked at one way, if you just put in the minimum $50 in each month, at the end of a year you will effectively have earned 35% interest on your money. If you are truly starting out on a savings plan, this is a pretty nice guaranteed return. $50 a month isn’t too painful, and at the end of the year you’ll end up with over $700 tucked away for your emergency fund, Roth IRA contribution, or whatever. It’s a good incentive to get in the habit of saving.

Alternatively, if you’re already saving all you want in high-yield savings accounts, you’ll still be ahead by about $90 in extra interest.

I wouldn’t necessarily stay and invest with TD Ameritrade, though. They are alright, but at $10 per trade with potentially small balances, here are a few alternatives that I suggest exploring. Note that TD Ameritrade has a $75 fee for transferring out your account directly to another broker. Keep your money in cash, and then simply withdraw it and close your account with no fee when you wish to leave.

Do You Buy The Loss Damage Waiver For Rental Cars?

If you’re like me, you don’t rent cars very much outside of work. But when I do, I’m always of mixed emotion when it comes down to the inevitable question: Do you want to buy the Loss Damage Waiver (LDW)? It costs around $20/day, but it basically absolves you of any liability if the car becomes dented, breaks down, gets scratched, blown up, or whatever.

Your Existing Car Insurance Might Extend To Rental Cars
This is the most basic thing to know, but according to a survey by Progressive only about 25% of people bother to ask. Find out if your own insurance will act as your primary rental car insurance! My policy with State Farm does extended to the occasional rental car, but the deductible still applies.

But That Might Not Help…
I have high insurance deductibles, and I’m not worried about a full-on accident. I’m more worried about scratches and dents. If it was my own car, I’d never care about a dented bumper. But a rental car company can charge me $500+ for a new bumper, and also $75 a day that the car is unavailable for rental while they fix it (“loss-of-use” fees). Or they might just charge me $100 for a scratch because they want to squeeze every penny out of me… 2 months after I return the car.

In addition, your own auto insurance may cover collision (damage to the vehicle), but not other things like those “loss-of-use” or other administrative fees. Finally, making a claim on your insurance may jack up your future rates, which is partially why my deductibles are so high in the first place.

Credit Card Secondary Coverage To The Rescue?
The next layer of protection to consider is that offered by your credit card company. All of the biggies – Visa, MasterCard, American Express, and Discover offer some sort of coverage. According a review of the policies done on Wikipedia:

The main difference among the four credit card companies listed below is that MasterCard and Amex cover collisions, theft, vandalism and weather; Visa covers collisions and theft, but omits vandalism and weather; while Discover covers only collisions. However MasterCard is not useful in areas with dirt or gravel roads [paved roads only].

However, details can still vary depending on the specific type (Classic, Gold, Platinum, etc.). Look for specific wording in the paperwork that they mail you with the tiny print on amazingly thin paper. Here’s an excerpt from MasterCard coverage:

MasterRental will pay for covered damages on a secondary basis for which you are, or any other authorized driver is, legally responsible to the rental agency.

Covered damages include:
–Physical damage to and theft of the vehicle, not to exceed the limits outlined below.
– Reasonable loss-of-use charges imposed by the vehicle rental company for the period of time the rental vehicle is out of service. Loss-of-use charges must be substantiated by a location- and class-specific fleet utilization log.
– Reasonable towing charges to the nearest factory-authorized collision repair facility.

If you have, or an authorized driver’s primary automobile insurance or other indemnity has, made payments for a covered loss, MasterRental will cover your deductible and any other eligible amounts not covered by other insurance.

Secondary insurance means that they will cover what your primary insurance doesn’t. Together, this seems like a pretty solid combination. Of course, I’ve never made a claim through any of these card companies so I have no idea how easy they are to deal with. (Anyone have stories?)

An Immature Reason To Buy The LDW
I couldn’t find the clip online, but I remember a stand-up act by Jeff Foxworthy or somebody about rental car insurance that went something like this…. “You mean for 15 bucks I can drive this car like a maniac? Heck yeah I want that insurance! Time to grab some airtime!” I must say that the only time I’ve ever been in a car that did a doughnut in a empty parking lot…. that was a rental car. Of course I don’t drive like that. However, I will admit that have tested to 0-60 times of a few of my rental cars. Too bad in a Chevy Aveo that’s about 38 seconds downhill…

In the end, I have gone both ways depending on my mood. I have bought the waivers on short rentals because I just didn’t want to deal with any potential hassles. Most times, I have refused. I am making another rental later this week, so that’s why I’m pondering this…

Reader Question: Handling a Bank Error In My Favor?

Reader Kristina from Arizona has a problem. Well, some might not see it as a problem, but here it is:

On December 7, 2007, I had $2,802.00 deposited into my business checking account at Wamu. A chunk of change I must say. I called the bank to ask them about it and said they would put in search and see if there is a match in the system for anyone with missing funds. They told me that it was a counter, CASH deposit made in Georgia. I live in Arizona and have never been to Georgia. The bank said they would call me when they found something.

So a week goes by and I hear nothing. I call the bank again and ask them about it. Still nothing. Then another week goes by. I call the bank a 3rd time and still nothing and tell me they will do another search. I called today and asked them if they could send me a copy of the deposit slip. So they will be sending it out soon.

I really don’t know what I should do. I know the money is not mine, but what if I never caught the deposit in the first place and used that money? Would I get in trouble for using that money that is in MY account?

The bank has made an error. I think the bank should have to fork out the money back to the person who made the deposit and let me keep the money. OK OK maybe that is a little to greedy. But who wouldn’t want some extra money!

It’s been over 2 months and still waiting.

So what I did with the money for now is put it into my IngDirect Savings to earn a little money on it for the time being.

I would love everyones thoughts on this. Please help!

So a bit of ethics, and a bit of legality. My non-lawyer, non-ethicist opinion is this: It was correct to contact them about it, both in terms of ethics and to avoid any future legal hassles. But I would also document that contact somehow, either through a letter, saved e-mail, or signed acknowledgment by a bank employee. Otherwise, I’d probably do what you did. If someone claims it correctly, they can have it, but in the meantime there is nobody to actually give it back to, so I’d keep it.

Any other viewpoints or suggestions for Kristina? Has a similar bank error happened you to you, or perhaps one not in your favor?

Retired At 40: How Much Is A Military Pension Worth?

A few weeks ago I was reading an article in Money magazine about a couple who retired at 40. While they do live frugally in relatively low-cost St. Louis, the primary reason they were able to retire is that they each served for 20 years in the military and now receive a pension of $58,500 per year. They will receive this amount, adjusted for inflation, for the rest of their lives! On top of that, they get health coverage forever as well.

Obviously there are some important issues involved in working in the military. A sense of national duty, risk of injury and even death, possibly lower pay, and constant relocation, just to name a few. But let’s just focus on the financial aspects here. I knew military pensions were good, but I didn’t know they started as soon as you retired. I figured they’d kick in at 60 or 65, not right away. How much is that pension really worth? How much would a civilian job-jumper have to put away to replicate it?

Converting A Pension To A Lump Sum
A pension income is essentially what is provided by an immediate annuity. You pay a lump sum, and in return you get a constant stream of payments for the rest of your life. According to the quote estimates at ImmediateAnnuities.com, a policy that provides $58,500 of lifetime income per year starting at age 40 is worth a million dollars. This is without inflation adjustments, as I couldn’t find an instant quote for that. There are a ton of different options to these annuities, and there are tax implications to boot, so I’m just giving a ballpark number here. (You can estimate your own lump sum number by multiplying your desired income by 17.)

In addition, I can’t properly estimate how much the lifetime of health insurance is worth, but it has to be worth at least another $100,000-$200,000. The article lists their net worth at about $500,000, but really it is the equivalent of around $1.75 million for someone with no pension. At 40 years old, that is quite impressive.

Converting Lump Sum To Savings Rate
So let’s take an even million dollars. According to this simple savings calculator, if I assume an 5% annualized return on my investments (after-inflation), to end up with a millions dollars, that would be the same as saving $2,500 every single month for 20 years (in today’s dollars).

One way to to look at this is that their pension benefit was like receiving an additional $30,000 per year on top of their previous income. This is not to say this was any easy path and you have to have special resolve to stay for 20 years, which does not sound like an easy task at all.