Archive for April, 2008
Wednesday, April 16th, 2008
I am now the proud owner of over $7,000 in hardwood flooring. It cost as much as my car! We charged it to our Citi Cashreturns card in order to grab the extra cashback at the time, which saved us another $350 on top of the $400 we got back last month for paying our taxes owed with it.
Types of Flooring Available
If you’ve ever thought about installing your own flooring, here is a quick review of our thought process. There are three major choices these days:
- Laminate Flooring. Also called “Pergo”, after a popular manufacturer. This is essentially a picture of what hardwood looks like, glued on top of wood chip composite. Think Ikea furniture. It the cheapest type, you can easily install it yourself, but it can’t be refinished.
- Traditional Hardwood Flooring. This is a entire piece of solid hardwood. More expensive, hard to install yourself, can be refinished multiple times, will probably outlive you.
- Engineering Hardwood Flooring. This is 1/16″ to 3/16″ of real hardwood glued on top of a plywood base (see picture). It costs about as much as traditional hardwood (or even more if comparing to unfinished hardwood), but you can install it yourself which can result in a net savings. With a quality floor, you can still refinish 1-2 times if desired.
Our Decision
Unless you’re really experienced and have lots of time, most DIY people either choose laminate flooring or engineered hardwoods. We first looked at laminate, aka “Pergo”. Laminate flooring is really affordable, starting at about $1.50 per square foot (sf). It can also be more scratch-resistant. However, if a scratch or a moisture bubble does occur, you can’t really do much about it. I think laminate is a perfectly fine flooring choice, but we personally did not like the look of it. I’ve been to nearly 100 open houses, and I can spot laminate flooring instantly; it simply does not look like real hardwood.
I’m probably biased though, because our last two houses both had some beat-up hardwood floors that were over 50 years old, and we loved the the look. Scratches, dents, and age simply added character to us. With a good engineered hardwood, you can get a wear layer that is nearly as thick as solid hardwood, and can also last indefinitely. In the long run, we felt that paying more for the look and durability of real hardwood was worth it to us. After installation, you can’t tell the difference between solid hardwood floors. A high quality engineering hardwood can cost $5/sf or more, but they start at around $3/sf.
Resale value wasn’t really a huge concern for us, but is something to consider. I’m sure real hardwood flooring adds more value to a house, but I don’t know if all of the cost differential between hardwood vs. laminate is recovered.
Installation
The easiest type of installation for a weekend warrior is the floating floor setup. First, you need a flat subfloor. This could be an old floor like vinyl, ceramic, or even an old hardwood floor. Second, you place a thin foam underlayment on that subfloor, which smooths out minor imperfections and also serves as a noise and moisture barrier. Third, you either click or glue together the hardwood pieces so that you have one huge piece of flooring that “floats” on top. Nothing is nailed or glued directly to the house.
Easier said than done, of course, but that’s the basic idea. Here are some tips by a professional installer, as well as some pictures from a DIY amateur. Wish me luck!
Posted in Frugal Living, Real Estate | 28 Comments »
Tuesday, April 15th, 2008
Many people, including myself, are worried about inflation. Is it just because of the current housing and stock market conditions, or are our bills really a lot higher than before? The inflation numbers that we usually hear about are based on the Consumer Price Index (CPI). Variations of the CPI are published monthly by the government’s Bureau of Labor Statistics, and they supposedly track the prices consumer pay for a basket of goods and services. For example, a greatly simplified basket may include a month’s rent, 10 pounds of steak, a tank of gas, and a laptop. As the price of this basket goes up, that’s inflation.
Why Does CPI Matter?
- Payouts on inflation-protected investments like TIPS and Series I bonds are indexed directly to the CPI.
- Social security payments, pensions, and inflation-indexed annuities all rely on CPI data to determine their annual adjustments.
- The size of individual income tax brackets, personal exemptions, and the standard deduction are tied to movements in the CPI.
- Low inflation numbers (especially when they are much less than GDP growth) make the economy seem healthy.
However, there is some controversy over whether the CPI is an accurate measure of inflation. As you can see above, there are many reasons why the government and large pension groups would like to see a lower inflation number. Lower inflation numbers mean lower payouts, a smaller budget deficit, and a happy stock market.
In 1995, the Boskin Commission study suggested that the CPI overestimated inflation by around 1.1% every year, and in 1996 changes were made to counteract these alleged errors. But critics say these changes were completely unnecessary, and now the CPI underestimates inflation by around 1.1% per year. Here are some of the arguments:
Substitution Adjustments
It was suggested that if steak becomes too expensive and people buy hamburger instead, then the CPI should just start using hamburger prices instead. After all, that is what people are buying right? Not only does this reduce inflation, critics wonder where this is headed. Hamburger gets too expensive, so then we eat hot dogs. Hot dogs turn into… dog food?
In addition, let’s say we go from using steak to hamburger due to price, and then back to steak again once it gets cheaper. Roundtrip, this substitution system would say that there was zero or even negative inflation during this time. But obviously prices actually rose. Just doesn’t sound right.
Quality, or Hedonic, Adjustments
A second major factor is that the CPI tries to adjust for increases in quality as well as increases in price. If a car costs 10% more, but it is 10% higher in quality, then there was no inflation. Okay, I can see this in certain examples. But critics point out that many times the consumer has no choice but to pay the higher price, so why aren’t we taking this into account?!
Example: If the government mandates an additive to your gasoline that costs an extra 20 cents per gallon, there is no affect on the CPI because this 20 cents was an improvement in “quality”. But we still get stuck with higher bills!
I wonder… if we follow all these quality adjustment ideas, isn’t shifting from steak to hamburger losing quality and shouldn’t that be adjusted for as well?
What If We Remove These Adjustments?
Here are two estimates of what the CPI number would look like without these adjustments. From Shadows Stats2 (Clinton era means 1996, when the changes were made):
From Bill Gross and PIMCO3:
Personally, I think the government has a vested interest in getting the inflation numbers at least somewhat correct (considering the scrutiny they are under), but at the same time they want to err on the low side rather than the high side. Some of the methods they use definitely seem to support this goal, and I wouldn’t be shocked if the CPI-based inflation numbers lagged what consumers actually experience by up to 1% per year at times. This may be something to consider when buying anything indexed to the CPI.
Sources and More Information
- The great inflation cover-up by Elizabeht Speirs, for Fortune Magazine.
- Consumer Price Index by ShadowStats / John Williams - Slightly more aggressive and controversial.
- Haute Con Job by Bill Gross - He runs PIMCO and the largest bond mutual fund in the world, so not quite a kook. Also see Con Job Redux.
- US CPI Inflation Statistics Manipulation and Deception? by Ronald Cooke.
Posted in Investing, Taxes | 29 Comments »
Monday, April 14th, 2008
When I first heard of SmartyPig, it sounded like a pretty cool idea. Give us back the piggy banks we had as kids, but make it virtual and public so that others can help directly with our goal. But a bunch of fees made it expensive and my enthusiasm disappeared. However, the folks at SmartyPig seem to have really listened to feedback, made some changes, and now I think it is deserving of another look. I opened an account to check things out. So, how is service different from a traditional bank?
Multiple Accounts For Specific Goals
With SmartyPig, you can create as many separate accounts as you want for different goals. Tuition for your kid, a Wii, engagement ring, whatever. Why not, they are all free. Yes, you could simply use one big savings account and a notepad for all of this, but if this convenience helps you visualize your goal better then what’s wrong with that? I use mental accounting like this all the time.
You Must Setup Automatic Contributions
No broken resolutions here. You must set up regular contributions of at least $25 per month from an external bank account. You also must add a $25 contribution to start, and your goal must be at least $250. Here is a screenshot of setting up a goal:
Friends and family can help contribute to your goal. You have the option of making your goal public. Grandma can then send over some money for little Jane’s tuition via credit card, but will be charged a 2.9% processing fee. SmartyPig accountholders can send each other money for free using their bank accounts. (It used to be a $5 fee for each external contribution, but that was dropped.) Now the question is, will Ms. Manners think it’s polite to hint at some Smartypig cash gifts?
Upon goal achievement, you can redeem for gift cards with “up to” a 5% bonus. So if your goal was $500 for electronics, you might get up to a $525 gift card to Best Buy (see update below). You could also settle for a pre-loaded Mastercard for $500. However, these “boost” percentages are not revealed ahead of time. I even called customer service, and they still wouldn’t tell me as they said they can change in the future. I would prefer more transparency, but for now I’ll just assume I’ll be withdrawing cash. If there is appropriate gift card upon my goal completion, then it’ll be gravy.
Update: Reader Tom shares the current gift card boost percentages. Best Buy is actually only 0.75%… but 2% for Amazon.com doesn’t look bad.
Doesn’t it cost money to take out cash?
Up until recently, they did charge $25 to withdraw via a check, which was a big bummer. It basically promoted “spending” on consumer goods and eliminated potential goals like an emergency fund or tuition at many universities. But as of now the check-request fee is gone, and you will soon be able to simply withdraw your money directly back into your funding account for free. I’m glad to see this.
Summary
With the elimination of these fees, SmartyPig might finally rival my current piggy bank setup with ING Direct. They are even paying 4.30% APY right now. Unless your goal is huge, it probably won’t make much difference, but it’s something. Anyone want to contribute to my “Used Jeep Wrangler” fund? 
Posted in Banking | 23 Comments »
Monday, April 14th, 2008
More posts from other bloggers that also hopefully made me wiser and smarter:
Millionaire Mommy Next Door reminds us that there is more than one right answer on how to get rich. Lots of wisdom here. While I’m reading all these financial books, I think many people who do get rich think their way is the best way, and the fact that they are rich somehow proves that. It doesn’t!
Mrs. Micah shares what busts her budget. I never though of my hopefulness as costly, but my forgetfulness is definitely up there.
JLP of AllFinancialMatters teams up with his wife to present the five things they want their kids to know about money. Highly sensible knowledge to impart!
SVB’s Digerati Life drops some tips on making 10 ordinary things last longer. It made me feel slightly better about trying not to waste the last of my shampoo by watering it down…
Ginger of GirlsJustWannaHaveFunds discusses mothers deciding whether or not to work after a baby. It’s funny how things change. For a while I was the one who wanted to stay at home with the kids, but now our goals seem to be switched. Hopefully our double-half-time idea pans out. Our financial life test-drive is working out pretty well so far.
Posted in General | 6 Comments »
Saturday, April 12th, 2008
We bought a house with some flaws, and one of them was this shag carpet complete with old pet stains. Before we can install our desired hardwood flooring, we had to remove the dirt magnet. After asking around, the price for professional carpet removal is about $0.35 per square foot. For the 1,500 sf of carpet we had, that’s a potential cost of over $500. Armed with the knowledge and help of our father-in-law, we set forth to do it ourselves.
There are a plenty of online tutorials on how to remove your old carpet (one, two, three), but in general it’s pretty straightforward:
- Remove all furniture.
- Pull up carpet, cut into strips, roll up, remove.
- Repeat #2 with the carpet pad underneath.
- Pry up tackstrips, and tons of nails
- Scrape glue off of subfloor.
- Sweep up remaining crap.
In our house, the pad underneath the carpet was glued down to the concrete subfloor. The original installers were generous (or just lazy) with the glue and squirted it everywhere, so scraping the petrified stuff up took forever. The only new tool we bought was a special scraper blade, for about $10. Otherwise you just need a utility knife, some rope/tape, pliers, and a crowbar.
Was it worth saving $500? My aching back says no, but at least now I know how to remove carpet. Also, occasionally it’s nice to perform some manual labor and feel like you accomplished something tangible. Occasionally.
Posted in Home Improvement | 22 Comments »
Friday, April 11th, 2008
Here’s another solid all-around rewards credit card that is much better than all those generic 1% back cards out there. The TrueEarnings Card from Costco and American Express offers the following:
- 3% cash back on gasoline (any, including Costco gas)
- 3% cash back at all restaurants
- 2% cash back on travel (airline, lodging, car rental, cruise line, travel agency and tour operators)
- 1% cash back on everything else, including Costco
I’m pretty sure this is also better than their previous offer, I don’t remember there being a gas rebate before (I might be wrong). If eating out and gas are your biggest expenses after housing (like us on many months), then this looks pretty good. There is also no limit on the cash back you can earn. Might go nicely with the 2% cash back from Executive memberships.
There is no annual fee, but you must have a Costco membership to apply. (The TrueEarnings card can also replace your Costco Membership Card. ) Regarding getting the cash back:
“Rebate is awarded annually in the form of an in-store coupon redeemable for cash or merchandise at any U.S. Costco Warehouse.”
Why not cash in the coupon, and then charge your Costco purchase to get another 1% back? 
Business Version
If you have a business, or I guess a Costco Business membership, you should get the Business TrueEarnings American Express card because it offers a higher 5% back on gas in addition the same 3% on restaurants, 2% on travel, and 1% on everything else. Leave the “Business Tax ID” space blank, and they will treat you as a sole proprietorship.
p.s. I got a Wii
While roaming Costco tonight, a lady stacking 8 Wii’s in her cart caught my eye. She seemed pretty excited, but calmed down after I pointed out it was only 1 per person. I grabbed one (figured why not?) from the huge pallet, but I came home to find out the resale values aren’t all that great anymore. So if you want a Wii, Costco might have some.
Update 9/10/08: You can also get a $25 statement credit after your first purchase. That’s a half-year of membership for free!
Posted in Credit Cards, Deals & Offers | 38 Comments »
Thursday, April 10th, 2008
The strategy of Buy & Hold Investing has a lot of followers (including me), and one of it’s touted benefits is that it is a simple way to invest. In the case of passive investors, it primarily involves picking and maintaining an asset allocation plan for the next 10-50 years of your life. No need to monitor stock prices or decipher financial statements. However, “simple” and “easy to execute” aren’t the same thing. For example, “spend less than you earn” is simple. “Always save for a rainy day” is simple. But how many people actually do this?
So why don’t I think it will be easy?
The picture above is the cover of the August 1979 issue of BusinessWeek magazine. In case you can’t make it out, the picture is of a stock certificate folded into a paper airplane that has crashed, surrounded by many other crumpled airplanes. (No Photoshop back then…)
The title of the cover story is “The death of equities: How inflation is destroying the stock market.” I haven’t been able to find the full text of the article noted, but I did find some snippets at TheFiendBear. He notes that the article “was published at a time when the Dow was languishing at 875 and had been trading in a see-saw fashion ever since topping out 6 1/2 years earlier in January of 1973. Inflation was a persistent nag on the economy and the Federal Reserve and US fiscal policies were held in low regard.”
Sound familiar? Now here are excerpts from the actual 1979 BusinessWeek article. Here is the summary:
The masses long ago switched from stocks to investments having higher yields and more protection from inflation. Now the pension funds–the market’s last hope–have won permission to quit stocks and bonds for real estate, futures, gold, and even diamonds. The death of equities looks like an almost permanent condition–reversable someday, but not soon.
Pension funds invested in diamonds? Wow. But stocks always beat bonds over long periods, right?
Until now, the flight of institutional money from the financial markets has been merely a trickle. But it could turn into a torrent if this year’s 60% increase in oil prices touches off a deep recession while pushing inflation sky-high. As it is, the nation’s financial markets and its capital flows have been grossly distorted by 13 years of inflation. Before inflation took hold in the late 1960s, the total return on stocks had averaged 9% a year for more than 40 years, while AAA bonds–infinitely safer–rarely paid more than 4%. Today the situation has reversed, with bonds yielding up to 11% and stocks averaging a return of less than 3% throughout the decade.
Still, I thought stocks were a great inflation hedge?
The one rule whose demise did the stock market in could be summed up thus: By buying stocks, investors could beat inflation. Stocks were a reasonable hedge when inflation was low. But they proved helpless against this awesome inflation of the past decade. “People no longer think of stocks as an inflation hedge, and based on experience, that’s a reasonable conclusion for them to have reached,” says Richard Cohn,an associate professor of finance at the University of Illinois. Indeed, since 1968, according to a study by Salomon of Salomon Bros., stocks have appreciated by a disappointing compound annual rate of 3.1%, while the consumer price index has surged by 6.5%. By contrast, gold grew by an incredible 19.4%, diamonds by 11.8%, and single-family housing by 9.6%.
This isn’t to bash BusinessWeek, they were certainly not alone. Of course, since 1979 the U.S. stock market has had an awesome run, and now we are back to many people putting 100% of their portfolios into equities. But I am pretty sure that some time within the next 20-40 years there will be a similar fearful atmosphere. Imagine bonds outperforming stocks by 8% per year, for 10 years. Imagine very smart people, pension funds, moving their money as well.
Imagine this article being written 40 years later (replace 1979 with 2019, late 1960s with late 2000s), after all these crazy Fed cuts, money injections, and high oil prices spike inflation. Just something to consider. Will you still be able to buy and hold? I’d like to envision myself being a pillar of steadiness in that storm. 
Posted in Investing | 25 Comments »
Wednesday, April 9th, 2008
So how did everyone do in their March Madness pool? In the book Wise Investing Made Simple by Larry Swedroe, there is a great explanation of why stock-picking is very difficult which incorporates sports betting. I’ll try to briefly paraphrase the idea here.
Sports Betting Basics
Let’s stick with college basketball. Earlier this season, Duke played Cornell. If you were simply betting on who was to win beforehand, most people familiar with basketball would pick Duke. Duke has won national championships, has a top-ranked recruiting class, has a famous coach, has better record against stronger opponents.
But, nobody in Vegas or any sports book will take that bet. Instead, you have an adjustment called the point spread. In this case, the spread was 30 points. Now you have to either bet that Duke will beat Cornell by more or less than 30 points. This is much harder.
How was this 30 point spread determined? By the collective opinion of the other gamblers! It is a common misconception that you are betting against the casino. Nope, the point spread constantly moves so that half of all bettors are on either side of the spread. By the time the game is over, the casino doesn’t care who wins. The casinos simply take the bets, pay off the winners, and walk away with their commission. (You have to bet $11 to win $10.) Great deal, huh?
Because of this point spread and commissions, it is very difficult to make consistent money betting on sports. How many professional sports bettors do you know of? A historical study of NBA games showed that the average difference between point spreads and the actual differences in score was less than 1/4 of one point! The collective opinion of gamblers turns out to be very good.
In other words, with the handicap of the point spread, you could bet on Cornell every year and still come out the same as betting on Duke each year. (This year, Duke only won by 13.) When this is true, it is called an efficient market.
Picking Stocks
When people say “buy a company with a strong brand, a wide moat, and good growth prospects”, it is like saying one should just bet on Duke to win. It’s simply not that easy. There is a handicap, but instead of a point spread it is the price of the stock.
A good company will be priced at a premium. For example, people may love eBay, Apple, or Google and think it’s the best business company ever. But at the price you have to pay (the market price), you’re not betting that eBay will be successful, you’re betting if eBay will be more successful than the collective market participants think it will be based on all the information currently available. Again, the data shows that beating this collective prediction is very unlikely.
The argument over whether you can get better risk-adjusted returns from picking individual stocks will probably go on forever. Is it skill? Is it luck? Either way, it is important to know that very few people pull it off over the long term, and I think this analogy illustrates one major reason why. Next time you feel like stock picking, try beating the spread on 10 different sports events first.
Posted in Investing | 31 Comments »
Tuesday, April 8th, 2008
If you’re shopping for a new mortgage, there is now another option out there. The Zillow Mortgage Marketplace attempts to make connecting borrowers and lenders as effortless as typing a search on Google. Will it work?
Application: Less Nosy, But More Responsibility
While shopping for loans, I had two big worries. One, I didn’t want to give out my Social Security number to everyone. Two, I didn’t want 100 desperate brokers calling me all day long “fighting” for my business. No problem with Zillow, you only need to fill out a application with your property details, your credit score, your income, and your assets. This is all the information that a loan officer needs to provide you a quote.
To see your loan offers, all you need to do is sign up with an e-mail address. No SSN, no name, no address, no telephone.
But you really want to avoid painting a rosier picture than reality, which is what most people tend to do. If your info is wrong, then the lender’s quote is null and void, and everyone’s time was wasted. Check your credit score beforehand, ideally at all three credit bureaus. It’s one thing to say you make $X per year, it is another thing to prove it. For a full-documentation loan, you need to have two years of W-2 forms, your last tax return, and your most recent bank statements. They will want everything! I’d even say it’s a good idea to pull these up before filling out this form.
Comparing Bids and Feedback Ratings
Participating lenders are supposedly verified to make sure they are licensed brokers without excessive complaints filed against them. Bids are also required to be specifically tailored to your loan, not just generic rate instantly created by a computer. In addition, Zillow is adding a feedback system (like eBay) where you can help determine the reputation of lenders (service, extra fees, if they bait-and-switch, etc.). The system is probably too new for this to matter right now, but hopefully it’ll help in the future.
I submitted an application today for a home equity loan, but I haven’t gotten any bids yet. However, I do like that all the loan quotes will be organized in the same format, so you can compare loan offers side-by-side easily. Sometimes it’s a puzzle to figure out all the lender’s fees in Good Faith Estimates.
Finally, lenders will be able to see what other lenders have been offering you. This gives them a chance to see their competition, and even lower their initial bids. I don’t see anything wrong with that. Once you pick out a lender to contact, then they will see your e-mail and you can move forward with the loan.
I couldn’t find any information about how Zillow is making their profit from this. I’m assuming they will charge a fee per lead or per closed mortgage.
More info: Zillow Press Release
Posted in Real Estate | 17 Comments »
Monday, April 7th, 2008
While I tend to be straight-laced when it comes to taxes, I also think it is our right - heck, even our duty - to pay as little taxes as legally required. I take every deduction that I can substantiate. While learning about property taxes, I read that somewhere between 30-60% of homes in many areas are over-assessed. If the estimated assessment value is too high, then those homeowners are paying too much in taxes! In areas of dropping home values, you may be able to get your assessment lowered.
But don’t expect anybody to tell you this. From this 2000 and 2004 articles about property taxes, both from CNN Money:
“It’s an unfair system,” Lewis said. “You can go to one particular block in Long Island, for example, where 11 houses got a tax reduction last year because they filed grievances. The remaining 4 homeowners who didn’t file a grievance are still overpaying. In most municipalities, if you don’t file it means you accept the assessment value of your home.”
“The bottom line is that if homeowners aren’t focused on what has happened in their marketplace, they are paying too much in property tax,” says John Brusniak, a Dallas property tax lawyer.
My sister-in-law recently contested her assessment and successfully got a reduction in her property taxes. The way to do it seems to be for (1) each homeowner to do a little research as to how their local government does their property taxes, (2) figure out if they are over-assessed, and then (3) file an appropriate appeal if necessary.
How Are Assessments Calculated?
This varies between states and even counties, but it could be based on:
- the sales of comparable homes in your neighborhood,
- the replacement value of your home, or how much it would cost to build your home from scratch at current material and labor costs,
- a multiplier of how much rental income your property would produce,
- or the most recent purchase price, plus an inflation adjustment.
You can usually find an assessment report at the tax collector’s office showing you how they got their number. Now you have to reverse engineer things to figure out how you can argue it back down. For example, you might have comparables with lower prices, or they might have marked down your square footage or other details wrong. Use sites like Zillow or Domania as well, since they can be based on tax records. Ideally, you’ll find a house just like yours, but with a lower assessment value.
The Appeals Process
Check out your local state website. If you live in California, there is this Guide to Residential Property Assessment Appeals. In New York, they have a Guide to Fair Assessments For Property Owners.
After looking at a few examples, some places seem to have a written from you can fill out first (an informal review). From this SF Chronicle article:
If your home is worth less than you paid, chances are you also can get a temporary reduction in your property taxes - without a battery of lawyers or dubious arguments about functional obsolescence. Just ask your county assessor for an informal review of your assessed value. It’s free and easy to do yourself. [...] In most counties, you can simply call or write your assessor’s office or download a form from its Web site and mail it in.
If that fails, then you might have to perform a formal appeal which involves meeting with officials and assessors face-to-face. It doesn’t seem all that complicated, besides building up your evidence the most important thing to have is persistence. Hurray for bureaucracy!
p.s. If you’re selling your home, consider that a lower assessment (and thus a lower tax bill for the new owner) can help you sell your home faster or even for a higher price.
Posted in Real Estate, Taxes | 16 Comments »
Monday, April 7th, 2008
PineCone Research remains one of the better paying and reliable survey companies, with a payout of $3 for each 15-20 minute survey. The hardest part is signing up - I just ran across a banner ad for a signup link at Pinecone. (It won’t last long.)
I’ve already shared my thoughts on Pinecone and paid surveys in general here. I call them Bored Money. Here’s a quick list of other paid survey sites:
The three that I have been most active with besides Pinecone are NFO MySurvey, e-Rewards, and SurveySavvy. I like it them because they continue to give me the most paid survey opportunities, even if I only pick and choose which ones I want to do. I’ve gotten multiple checks and/or rewards from all of them. However, I see that e-Rewards is currently not accepting new people.
There are several other sites with which others have reported varying levels of success: American Consumer Opinion, Greenfield Online, Harris Poll Online, Lightspeed Panel, or SurveySpot.
Posted in Bored Money, Deals & Offers | 15 Comments »
Sunday, April 6th, 2008
We are considering renting a room to one of our siblings temporarily. She’s moving out here for a new job, and since we live in an pricey area living with us will offer her a way to save up some money. On our side, we are two people with four bedrooms, so we have plenty of room right now.
Of course, horror stories abound when renting to family members. I don’t know what to say about that. I don’t foresee it being a problem as we are pretty close, and we are all responsible professional adults, but I’m sure everybody else says that as well. Being that we recently rented a unit from a another family member successfully, I also feel good being able to “pay it forward”.
The Plan
We would collect “rent”. The idea is that she would pay 1/3rd of all utilities (gas, electric, water, garbage, cable, internet) plus some buffer for other miscellaneous household maintenance items. This obviously will be much less that what it would cost to share an apartment on the open market, let alone a studio. So she’s paying her way, but we aren’t making much profit if any, ideally preventing any guilt or resentment on either side.
The Problem: Fair Rental Price
But then I did some research about the potential tax implications. Is rent always taxable income, even if from a relative sharing a home? From what I can tell, the IRS says yes. (Someone please correct me if I’m wrong.)
However, if I am reading the IRS “Renting to Relatives” regulations right, the good news is that if I rent out the room at “fair rental price”, I can start deducting a portion of my expenses - including interest, taxes, repairs, maintenance, utilities, insurance, and depreciation. This has the potential to offset the rental income completely (resulting in no net tax owed), although I can’t create a loss since it’s my personal home.
The bad news is that if I don’t charge fair market rent, then I can’t deduct anything. 100% of the rental income is now fully taxable as passive income. Having to pay taxes on money that is basically covering the utilities just doesn’t sound right.
Solution?
From anecdotal evidence, I’m sure compliance is spotty at best in this area. What if a son pays $200/month to live with Mom and Dad? But to fall in line with the rules, it seems like I should either (1) charge something close to “market” rent and maybe buy her a nice gift later or (2) not charge anything at all. My idea was simply have her pay some of the utilities directly. This way I don’t actually accept any money. Any suggestions?
Posted in Family, Real Estate, Taxes | 49 Comments »
Friday, April 4th, 2008
I’ve been noticing that multiple banks like Washington Mutual, Bank of America, and other banks have been offering me “free” Accidental Death & Dismemberment (AD&D) Insurance. Usually I get around $1,000 to $3,000 of complimentary coverage, just for being a valued customer. Awww, how thoughtful! At first glance, it sounds pretty good. That could cover a few funeral expenses in case I decide to go sky-diving again.
Of course, they are always “proud” to be able to offer you more coverage at a rock bottom price. Additional covered for you is only $1 per month for each $10,000 of coverage. But wait, that makes my $1,000 of free coverage worth…. 10 cents a month Hmm, they must value me a lot to spare $1.20 a year for me…
As you might guess, the price isn’t that great. And again it only covers accidental death, so it’s not as comprehensive as traditional term life insurance. But it does cover dismemberment, and somehow my morbid sense of humor was amused by the dismemberment payouts. I can just imagine some actuary researching on how many people lose a thumb and index finger on the same hand. Just a thumb? They’ll be fine.
100% Benefit
Death 
Both Feet or Both Hands
Entire Sight of Both Eyes
One Hand and One Foot
One Hand and Sight of One Eye
One Foot and Sight of One Eye
Speech and Hearing
50% Benefit
One Hand or One Foot
Entire Sight of One Eye
Speech or Hearing
25% Benefit
Thumb and Index Finger on Same Hand
So, should I bother taking it? I’ll probably pass, but it is still free. If I add up all my offers over time I might eventually build up a nice bounty. Probably not worth giving up the personal information needed, though. Anyone else sign up?
Posted in Insurance | 21 Comments »
Thursday, April 3rd, 2008
You may be expecting a review of the new online service SmartyPig. Well, that review is in-progress, but while doing my research I was reminded of an alternate way to create your own online “piggy bank”. Remember how you’d actually have to save your quarters to buy what you wanted? Oh, the good old days…
Let’s say you want to set up multiple “baskets” or “piggy banks” of money for specific goals. Maybe you have
- an ongoing pet medical fund to which you add to regularly instead of paying for insurance ($50 per month?)
- an ongoing car maintenance/repair fund (I need one of these)
- a summer vacation fund (goal: $1,000?)
- a Christmas fund
- …or that all-purpose emergency fund!
You want separate balances and accounting for each account to keep things neat, but you don’t want to open up 3 new accounts at 3 different banks. The good news is that this can all be done with ING Direct - they let you easily and instantly create multiple savings accounts that have their own balance and nickname. No credit checks, no applications, and it earns interest. Here’s how:
1) First, you’ll need an ING Direct account. If you have one already, you’re all set. If you opened one before and it got closed to due low balance or inactivity, you can have them re-open it by calling 1-888-ING-0727 (or you can login and do it). If you are a new customer, you can earn a $25 sign-up bonus here by opening with at least $250.
2) Open up an additional savings account (or several!). It’s not all that complicated, but it still confused me initially so I broke down the steps below with screen-by-screen walkthrough. Click on the thumbnail images for a full size screenshots.
a)Log in first, and then click on “Open an account” in the top left corner.
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b) Click on “Orange Savings Account”
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c) Scroll down and click on “Open Now”
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d) Pick the correct ownership title
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e) Pick a nickname, funding source, and initial deposit amount. I chose “Pet Insurance Fund”
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f) Read T&C’s and confirm
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g) Print out confirmation page
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h) Go back to main page and bask in the glow of your newly created account
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3) Set up an automatic savings plan
Although you can schedule manual transfers, why not make it easy on yourself and set up an automated transfer schedule? You can set a fixed amount of automatic withdrawals if you have a specific goal ($100/month x 1 year = $1,200 = HDTV), or you can make it repeat indefinitely (great for our often-used pet fund).
a) Click on the “Automatic Saving Plan” icon
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b) Choose your funding source, recurring deposit amount, frequency, and number of recurrences
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c) Confirm the details and setup
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And you’re done! You can make as many of these sub-account as you like. The cool thing is you can make withdrawals at any time (max 6 per month), and there are no minimum balances or fees. The interest rate at 3.0% APY isn’t the absolute highest, but comparatively it’s no longer that far behind other similar banks.
(FYI - I was talking with my sister about this and she told me she didn’t use her ING Direct account anymore. When I asked why, she said it was not because the interest rate wasn’t high enough, it was simply because they made you log in with your customer number, and she would never remember it! I just wanted to point out that now you can pick your own username (like “janedoe444″). Use it carefully though, as your password is still just a 4-digit PIN.)
Posted in Banking, Budgeting, Frugal Living | 41 Comments »
Wednesday, April 2nd, 2008
American Express is running a promotion where you can get 4 free movie or museum details by mail, if you meet purchase requirements at specific stores. For a the full list of participating stores, see the official promotion website. All the big movie chains (AMC, Regal, Cinemark) seem to be covered. If nothing is nearby, you can get a $40 American Express gift card instead.
For those that live in certain parts of the the Western or Central US, the easiest way seems to be eating at a Del Taco restaurant three times between 4/1 and 5/20. You could probably go once and buy two tacos and a drink, all separately for a few bucks. Not bad for four movie tickets. Here is the Del Taco redemption form. Via Fatwallet.
My Favorite American Express Cards
Posted in Deals & Offers | 11 Comments »
