State Farm is quietly offering free TurboTax Deluxe Online for all customers for your 2006 taxes. It’s a very generous offer, complete with E-file and up to 3 state tax returns as well (a $56 total retail value)
To get in on this, just go to StateFarm.com and log into your account. You should see this page:
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WiseGeek has an interesting article on What Does 200 Calories Look Like?, where it photographs the portions of several foods that equal 200 calories and sorts them by weight. Here’s broccoli next to peanut butter on the same plate:
I thought it would be neat to extend this idea and see what 200 calories costs. So I extended my usual grocery trip by finding out the price per weight for each of the food items they selected. The results are below, grouped by price per 200 calories. Image credits go to WiseGeek.com. Please go there for the full versions, these are just thumbnails for reference.
| Cost of 200 Calories: Less than 50 cents | |||
 Canola Oil $0.07 |
 Wheat flour $0.07 |
 Brown Sugar $0.10 |
 Peanut Butter $0.17 |
 Cornmeal $0.20 |
 Uncooked Pasta $0.21 |
 Glazed Donut $0.23 |
 Butter $0.24 |
 Salted Pretzels $0.24 |
 Wheat Dinner Rolls $0.23 |
 French Sandwich Roll $0.24 |
 Smarties Candy $0.24 |
Some of you may be wondering how well your specific portfolio performed last year. Figuring out your exact personal rate of return requires you to know the exact dates of all your deposits and withdrawals, along a financial calculator or software program with an IRR function. For an simple and quick estimate of your returns for 2006 (or any other period), try this tool instead:
Instructions
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About My Credit Card Debt
Newer readers may be alarmed by my high levels of credit card debt. In short, I’m borrowing money for free and keeping it in safe investments while earning me interest. Along with other things, this helps me earn extra side income of thousands of dollars a year. Recently I put up a detailed series of posts on this 0% game. Please check it out first if you are curious!
I like to think of it as similar to what banks do. For example, ING Direct is paying people 4.50% interest to hold their cash, and then going out and lending that cash as mortgages to other people at 6-8%. My rate spread is even a bit better than ING, although they do have a slight edge in volume… a mere $50 Billion or so 
Thoughts
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Dollar Cost Averaging (DCA) involves investing a fixed amount at a regular interval. Lump-Sum Investing (LSI) involves putting in all the money you have available to invest at once. These are not mutually exclusive! If you are investing a portion of your paycheck every month, you are both Dollar Cost Averaging and Lump Sum Investing. The following is not about such habitual savings.
However, a different situation arises if you have a larger amount of money. Maybe you received an inheritance, an early retirement payout, or you just sold your house. Do you invest the entire amount immediately, or buy a little at a time? Due to the overall upward trend of the markets, lump-sum investing outperforms DCA about 2/3rd of the time. The argument then, is that DCA is a risk-reduction mechanism; You get less performance, but also less exposure to those ups and downs. But is DCA the best way to lower risk?
This question was examined in this academic paper titled Nobody Gains from Dollar Cost Averaging by Knight and Mandell. Here’s a sample of their results. Let’s say you have $100,000 to invest, and you want to achieve a portfolio of 90% stocks (modeled as the S&P 500) and 10% bonds (T-Bills). But that sounds risky to you. You decide to instead invest gradually over 10 years, every month putting a little bit more in, until you finally put $90,000 into stocks.
But what if you instead put everything at once into 50% stocks and 50% bonds, and kept those 50/50 proportions for the entire 10 years instead? That would also reduce your risk. You may be surprised to find out that historically the 50/50 rebalanced portfolio actually had the same amount of volatility than the 90/10 dollar cost averaged portfolio, but with a higher average return (8.37% vs. 8.05%).
So if you are keeping money out of the market because you don’t want to be exposed to a crash, it may simply be better to invest in a less aggressive investment mix. But if you are already regularly investing what you can each month, keep it up! This doesn’t apply to you.
For more academic papers on why DCA is not the best way to reduce risk, see this AltruistFA reading list. Thanks to reader Craig for sending me this article.
For my overall thoughts on investing for beginners, please see my Rough Guide to Investing.
Is your water bill higher than it should be? Toilet leaks may be silent, but account for about 95% of increased water use that shows up on bills. How to tell if you have a leak in your plumbing:
Not only will fixing a leak save you money on future water bills, but you may receive a partial refund on your previous water bills if you discover a leak and then fix it? Contact your water department for more information. I think this is a very fair way to help encourage water conservation. You must usually take action soon after finding out about the leak and prove that they were fixed.
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Everyone who sent me their Form #2 in November for my Emigrant Direct Signup Bonus Promotion was paid this week. If you’re interested in opening an account with Emigrant Direct’s 5.05% APY with no minimums, why not get yourself an extra $20 out of it?
As I sign of my psychic genius, I will predict your New Year’s Resolutions. They are:
1. I will save or earn more money.
2. I will become more healthy.
3. I will be less cluttered and more organized.
Hopefully I can help with the first one (subscribe to updates!). And here’s something for the second - Discovery Health is offering a free 8-week membership at Bally’s for registering for their Body Challenge:
All registered National Body Challenge participants will receive FREE access to our online customized meal plan, a personalized weight tracker, extensive information from doctors and health & fitness experts, a free 8-week membership to Bally Total Fitness?, online recipes, special savings from Discovery Channel Stores and more. The 8-week Bally Total Fitness? pass is only available until January 16, 2007 at 11:59 PM (ET) and is effective from January 13, 2007 through March 10, 2007.
You must register, print out the pass, and bring it to Bally’s starting on the the 13th. I just read somewhere that out of the huge amount of gym sign-ups in January, the majority are canceled by April. This is a great way to try using a gym (if you have a Bally’s nearby) without any commitment.
Oh, you’re on your own for the third one. Getting organizational advice from me is like asking Britney Spears how to be a good mom.
Update: I still think this is potentially a great deal, although you may need to endure a sales pitch. Some Bally’s may use lame sales tactics, but all gyms in a nationwide chain are not created equal. They should give you the passes without requiring your credit card information. If not, fight back!
I’d say I’m somewhere between anxiety and denial now. If you can’t tell, I’m thinking of buying a house in a large West Coast city sometime late in 2007. Hurry up despondency! 
This chart would be funnier if it didn’t hit so close to home. “Temporary set back, I’m a long-term investor”. That’s me! Image via Mish’s Economic Analysis.
The Center for Economic and Policy Research (CEPR), a non-governmental economic think-tank, is very upfront about its views on the housing bubble. For a clue as to what they are, check out this article titled “The Menace of an Unchecked Housing Bubble“. They draw several parallels with the tech stock market crash of the late 90s. While there is a lot of other articles of note, I was drawn in by their Housing Cost Calculator:
This calculator compares the cost of owning a home relative to renting for a potential new homeowner. The Housing Cost Calculator reports the “Net Cost of Owning” — the expected amount of additional cash available to a renter compared to the amount available to a homebuyer who buys a home today and sells the home at a specified time in the future. The calculator takes into account the unprecedented run-up in real home prices since 1997.
In other words, it says that housing prices will revert back to its historical tendency to keep in step with inflation. Remember this chart?
In my post about Roth IRA conversions, commenter JT pointed out a good way to get around the Roth IRA income limits if your income varies from year to year. Simply put contribute to a non-deductible Traditional IRA, and wait until your modified AGI drops below the $100,000 limit to do the conversion into a Roth. Maybe you plan on going back to school or are cutting back your hours to stay home with the kids? Although the limits go away in 2010 anyways, it’s something to consider.
For example, in 2005 I made too much to fully fund my Roth (phase out) but I?d be making less than $100K MAGI (salary - 401k) in 2006, so before April 15th in 2006 I put the excess contribution (4000 - what I was able to contribute directly to my Roth) into a Non-Deductible IRA then did an immediate Roth Conversion (no taxes since there was no gain). Full Roth Contribution even though I was in the phase-out range?
An important note - when you do a Roth Conversion the IRS sees all of your traditional IRAs as a pool, so if you have a traditional IRA from a 401(k) rollover then the above trick doesn?t work since you will owe taxes on a portion of the money?
As suggested by my When Should You Redeem I Savings Bonds Calculator, I redeemed a $5,000 I-Bond purchased in October 2005 on Tuesday. I ended up receiving $298 in interest over a holding period of 14 months (I bought at the very end of October). Since the interest is exempt from state-income taxes, my effective interest rate was around 5.8%. I did it all online at TreasuryDirect.gov and the money should be in my bank account within two days.
We just cleaned up at the After-Christmas sale at a local drugstore chain (Longs Drugs). They had everything marked down for 10 cents each! We stocked up on enough tissue paper, holiday gift bags, and rolls of wrapping paper to last us for years for only $5. All the holiday candy was marked down really low too, but we skipped that as we already gained enough weight the last few weeks. And to think, we only went there to buy some last-minute garlic salt for a potluck dish we were making.
I’ve seen 75% off at other drugstores and Wal-marts, so it’s worth a look if you’re there.
By definition, a “rule of thumb” is meant to be a greatly simplified estimate for a complicated matter. So let’s see what happens when I search for “rule of thumb” + “how much house can I afford” on the internet:
Northwest Community Credit Union says 1.5 times your gross annual income:
If you and your spouse have a total income of $50,000 the general rule would be that you shouldn?t borrow more than $75,000 for your home.
CNN Money says 2.5 times:
The rule of thumb here is to aim for a home that costs about two-and-a-half times your gross annual salary.
Washington Mutual Bank suggests anywhere from 3 to 5 times:
As a broad generalization, most people can afford to purchase a house worth about three times their total (gross) annual income, assuming a 20% down payment and a moderate amount of other long-term debts, such as car or student loan payments. With no other debts, you can probably afford a house worth up to four or even five times your annual income.
Hmm… So far, with an annual income of $50,000, I’ve been told I can buy a house for anywhere from $75,000 to $250,000! Instead, I decided to run some numbers for myself using values I think are reasonable with current interest rates.
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For the best site that I’ve found to the Traditional-to-Roth IRA conversion process (and more clear than the IRS instructions), see the Fairmark guide. Reading through it, you can see there are a ton of variables to consider, including evaluating your current situation and predicting future legislation. Here’s a summary of my decision process after reading the guide:
Am I Allowed To Convert?
My main concern was the income limits. No matter if you are single or married, your total combined modified adjusted gross income (MAGI) cannot be over $100,000. The definition of MAGI is pretty confusing - either read Pub 590 or better yet Fairmark again for the details. But one way to lower your MAGI is to make contributions to your employer’s retirement plan (401k, 403b). Making more pre-tax contributions to enable you to convert pre-tax contributions to post-tax contributions may seem a bit paradoxical, but I just see it all as increasing your retirement savings.
Note that the income limits are scheduled to be removed in 2010.
What Types Of IRAs Can I Convert?
You can convert both a SEP-IRA or Traditional IRA into a Roth IRA. You can also convert an old 401k/403b/457 plan from your employer to a Traditional IRA, and then convert that to a Roth IRA if you satisfy all of the conditions. My current Traditional IRA is a mishmash of all three of these - an old Rollover 401k, straight Traditional IRA contributions, and a SEP-IRA.
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