Archive for September, 2008
Monday, September 15th, 2008
The New York Times had an article this weekend called The Key to Wedded Bliss? Money Matters*. It was kind of hit and miss for me, but I did like one particular quote:
“A lot of the debates people have about money are code for how we want to live our lives.”
Money itself isn’t important. Money is simply a tool to achieve what you want. As long as you and your partner want the same things, then in general I think the rest falls into place. You just have to realize that money spent in one place takes away from another desire. However, if you don’t agree on what you want, you could be billionaires and unhappy.
My wife and I remind each other all the time about our primary goals:
- Work less.
- Be able to spend time with children.
- Travel and experience the world.
With this in mind, neither of us bug each other very much about most material things. I don’t ask for a BMW. She doesn’t ask for stuff from Pottery Barn or Restoration Hardware. If our wallets start to wander, then we keep each other in check.
(The rest of the article talks about little things like having a weekly financial meeting, rotating the financial responsibilities, hiring a mediator, and other minor things that I feel aren’t nearly as important. We don’t do any of those things.)
This article caught my eye because my wife and I are currently very close to booking a week-long trip to Spain, pending vacation time approval. It was weird because many of our coworkers’ reactions were “Jeez, big spender, where did you get the money for that?”. I wanted to say something along the lines of “Remember the 18 times last month you called me cheap? Yeah, that’s where the money came from!“.
More appropriate might be “How much did your [new car] cost again? Mine depreciates less than $1,000 per year. Subtract the difference, and that’s an extra $1,000+ for me every year, which is an international trip.” They make fun of our old car. 
What’s the point of all this? Having aligned goals is awesome. Oh, and I love my wife. 
Posted in Family | 42 Comments »
Friday, September 12th, 2008
Have you ever daydreamed about becoming a daytrader? Sitting at home in your pajamas, making some clicks here and there, and making money out of nothing. Much of daytrading is based on technical analysis, of which Wikipedia says:
Technical analysis is a financial markets technique that claims the ability to forecast the future direction of security prices through the study of past market data, primarily price and volume.
Basically, you try to find patterns in the stock chart, and time your buys and sells accordingly. Doesn’t sound that hard, right?
I just stumbled upon a really cool simulator called ChartGame that tests your ability to do so using old charts (via Bogleheads). Every day, you can either buy or sell your position. Your goal is to at least beat a buy-and-hold investor in the same stock. For those that are familiar, you can even plot things like RSI, Bollinger Bands, and MACD (moving averages). Try it!
Don’t get too excited though if you win a few times, though. Given the parameters, a blindfolded, drunk monkey should beat buy-and-hold half the time. Remember, this is even before taking into account transactional costs like commissions, bid-ask spread, or taxes! See if you can win, say… 8 out of 10 times or better.
Although you may not believe me, I actually used to want to program this exact type of simulator when I was first learning about investing. People often think they can see patterns, but this game gives you a taste of reality. I’ll be honest - I was horrible at it.
Posted in Investing | 41 Comments »
Thursday, September 11th, 2008
One of the three major credit bureaus, TransUnion, lost a $75 million class-action lawsuit a while back, and the settlement involves offering up to 9 months of free credit monitoring service to anyone who has ever held a credit card or loan over the last 20 years (i.e. lots of people).
This includes unlimited daily access to your TransUnion credit report and credit score, as well as e-mail alerts when something changes. This is a good way to know when someone is pulling your credit report. There is also a “potential cash payment” option, but it doesn’t seem very tempting to me given the number of eligible claimants (small pie, millions of slices). Still, you can opt for 6 months of monitoring + possible cash.
Register at the official settlement website. The deadline is coming up on September 24th, 2008. You don’t need to supply your full Social Security number (needs last 4 digits) or a credit card number, and you won’t be automatically signed up for any paid subscriptions after the free period.
More details in this Washington Post article. (Original post)
Posted in Credit Cards | 15 Comments »
Wednesday, September 10th, 2008
Do you have an ING Direct savings account with unused referrals? I usually have plenty, but have been falling behind. The first 25 people who comment below tonight and leave a working contact e-mail (name not required, e-mail will not be shared) will get one filled by me for free, which is $10 for you. Got ‘em and then some, thanks.
Due to comment moderation, your comment may not show up right away. One referral per person. You cannot have had a “freebie” before. Look for a message from me to your e-mail address with further instructions later on. Thanks!
Posted in General | 129 Comments »
Wednesday, September 10th, 2008
In an earlier post on motivating myself to work harder, I had thrown out a piece of “common” financial advice:
Spend less than 30% of income on housing.
It was really just an afterthought, but I got a bunch of e-mails about it. Where did you get this? Why 30%? Is that gross income or after taxes?
The source of this “rule of thumb”, which is about as useful (or useless!) as most such rules, is the traditional underwriting requirements of mortgage lenders. You know, before many of them went nuts.
Lender Ratios
Also called the debt-to-income (DTI) ratio, this is the maximum debt load that the lender will accept and still lend you money. You have two types of debt. Housing debt, which usually means PITI, or principal + interest + taxes + insurance, so it’s a bit more than just the straight payment from a mortgage calculator. The “other debt” is the sum of your other recurring monthly liabilities - car loans, credit card balances, student loan payments.
There are usually two lender ratios, a front and a back (Example: 28%/36%). The front ratio meant housing debt divided by gross income. The back ratio was housing + other debt divided by gross income. Usually you have to satisfy both of these ratios.
Some superficial online searching reveals that Fannie Mae and Freddie Mac allow a maximum of 28% for the front ratio and 36% for the back ratio. FHA loans have ratios of 29% and 41%. So that’s where my 30% number came from. Of course, even earlier this year you could find people allowing front ratios of 50-60%.
So if your gross income was $4,000 a month, to get a conforming Fannie Mae loan your housing payment should be no more than $1,120 per month. At the same time, your housing + other debt obligations altogether should be below $1,440 per month.
Posted in Real Estate | 23 Comments »
Wednesday, September 10th, 2008
Through October 31st, 2008, the referral bonus from Scottrade is now worth 7 free trades (instead of the usual 3) when you open an account with at least $500. At $7 per trade, that’s worth nearly $50. If you need a referral code, please contact me and I’ll send you one from another reader.
Both referrer and referee will receive 3 free online trades when the referee opens a qualified account with Scottrade. These free trades will usually be credited within 24 hours. An additional 4 free online trades will be credited to both accounts within 15 business days.
Referrals must be made and the new account must be opened by the new referee by the end of business day on October 31, 2008 in order for both accounts to receive the bonus 4 free online trades.
Related
Posted in Deals & Offers | 5 Comments »
Tuesday, September 9th, 2008
Now to the bigger picture… As of today, the U.S. government is the largest mortgage lender in the country. And that means, if things continue to go badly in the housing market, you and I as taxpayers get to pay for bad mortgages! Hurray!
How did we get into this mess? On Monday’s PBS Marketplace public radio show, economist Gregory Ip had some interesting commentary. I think sums it up nicely, as well as asks some good questions.
Americans woke up today to learn the federal government had basically taken over Fannie Mae and Freddie Mac. It’s one of the biggest government takeovers in history.
This moment, though, has been years in the making. We knew these companies were a potentially dangerous hybrid. They are chartered by Congress to promote home ownership. But they are owned by shareholders who want the maximum possible profit. This means that they could take big risks with the knowledge that if they got into trouble, they’d be too important for the government to allow to fail. The Bush administration tried to constrain Fannie and Freddie, just as its predecessor did. But with the support of many in Congress the companies always fought off these efforts.
And then the housing crisis hit. Far from shrinking them, the Bush administration was now forced to ask the companies to expand their role of buying and guaranteeing mortgages, because, quite simply, private investors no longer wanted to. Unfortunately, just when the economy needed Fannie and Freddie the most, they couldn’t do the job, because they had lost so much money on the mortgages they already owned.
Treasury says it acted this past weekend to keep the housing and financial markets stable. But it still hasn’t answered the question: What role should the government play in home ownership, and do these companies have a part to play? Yes, common stock holders have been punished. They’ve lost almost their entire investment. And over time, the companies will have to shrink under the terms of the deal with Treasury. But Fannie and Freddie will continue to exist unless and until Congress revokes their charters. And the final decision of the companies’ fate will rest with the next president and the next Congress.
Then there’s the question we as a country must answer: How much should we promote home ownership? If we conclude taxpayers should back most mortgages, we must find a transparent and accountable way to do it. It’s not at all clear that these companies can accomplish that.
Posted in Real Estate | 40 Comments »
Tuesday, September 9th, 2008
I’m still on several mortgage brokers’ e-mail lists, and it appears that the government takeover of Fannie Mae is a glimmer of sunshine in what has probably been a very bleak few months for them. The message: Mortgage rates have dropped by around 50 basis points (0.50%) today! So if you are in the market for a loan or refinance, you might want to see what’s available out there.
This Reuters article questions if the drop will last:
The 30-year fixed-rate mortgage has fallen to near 6.00 percent on Monday from 6.50 percent on Friday, according to Greg McBride, senior financial analyst at Bankrate, Inc, in North Palm Beach, Florida.
[...] “The question is how much of the interest rate drop will actually stick,” he said. [...] “There are concerns about how much debt the U.S. will be issuing as a result of this bailout and that could pressure benchmark Treasury yields, offsetting some of the improvement in mortgage spreads”
Posted in Real Estate | 6 Comments »
Monday, September 8th, 2008
Finally got around to adding up the numbers for the last month:
Credit Card Debt
If you’re a new reader, let me start out as usual by explaining the credit card debt. I’m actually taking money from 0% APR balance transfer offers and instead of spending it, I am placing it in high-yield savings accounts that actually earn 3-4% interest or more, and keeping the difference as profit. Along with other deals that I blog about, this helps me earn extra side income of thousands of dollars a year. Recently I put together a series of step-by-step posts on how I do this. Please check it out first if you have any questions. This is why, although I have the ability to pay the credit card balances off, I choose not to.
Retirement and Brokerage accounts
The bad news is that the market value of our investments went down over $3,500. And this is despite my wife being able to finally max out her 401k for 2008 (total of $15,500 as of this month). At least I don’t own much Fannie Mae stock…
The good news is that I am finally ready to make some big contributions to my Fidelity Self-Employed 401k, at the same time that the markets are near their 2008 lows. Buy low, sell high! Why now? I like to wait because my income fluctuates and this way I have a clearer idea of what my contribution limits will be, as they are based on gross income.
Cash Savings and Emergency Funds
Our mid-term goal was to have six months of expenses ($30,000) in net cash put aside for emergencies. This is now done. As mentioned, future cashflow will be put towards retirement accounts. Speaking of emergencies, with all these hurricanes, I have been checking out portable generators as well.
Home Mortgage
Another ~$500 of loan principal paid off. Housing prices are still dropping in my area. I will probably have to adjust my home value estimate in the future, a short-term goal might be to pick a simple benchmark to follow. After a few other financial priorities are taken care of, perhaps I’ll start a DIY biweekly mortgage plan.
We had some visitors and took a tiny bit of vacation this month, so it was a nice end to the summer. You can see our previous net worth updates here.
Posted in Goals, Retirement | 24 Comments »
Monday, September 8th, 2008
High-Yield Bank CD
Washington Mutual has brought back their 5% APY 12-month CD for another week, which had previously dipped to 4.5% APY. If this fits your needs, don’t miss it this time around.
Chest Freezers
Apparently, I was not alone in doing cost/benefit analysis on an extra chest freezer, as this AP article shows:
Once relegated to the dank corners of the basement, freezers are being embraced again by shoppers who are stashing bulk-sized purchases of meats, fruits and vegetables there as they work to combat rising food prices. Across the country, shoppers bought more than 1.1 million freezers during the first six months of the year — up more than 7 percent from the same period last year, according to research firm NPD Group.
That rings up to nearly $400 million in freezer sales — a staggering figure compared to the rest of the home appliance sector, where industry data shows shipments are down nearly 8 percent. And, experts said, it’s a trend that’s expected to continue at least through much of next year as penny-pinching shoppers buy in bulk to take advantage of deals or bundle grocery shopping trips to conserve gas. [...]
About half of all U.S. households already have a chest or upright freezer, separate from the refrigerator-freezer combo that’s a kitchen stalwart, according to industry statistics. [Source]
I also had no idea 50% of households already had an extra freezer. We still haven’t bought one yet ourselves; I’ve been in kind of an anti-stuff mode recently.
Posted in General | 8 Comments »
Sunday, September 7th, 2008
Here are some recent links from fellow bloggers that made my cursor pause…
Grad Money Matters ponders when to stop chasing money? How do we know at what point when we need to slow down? Good question.
Wisebread offers up some cheap things to do in San Francisco. I always like to see other people’s views of an area I am familiar with; everyone always has different ideas. The comments are good too.
The Consumerist tracks the continuing trail of destruction by the Grocery Shrink Ray. AllFinancialMatters laments the shrinking beer bottles of certain brands. Or are they 1/3 liter bottles? Or are 1/3 liter bottles a convenient metric-system-abusing excuse? Financial Ramblings says we get what the market decides. I believe, with consumer awareness, the balance can be shifted.
Get Rich Slowly talks about the best salesman in the world, whose path to riches lay in selling $5 potato peelers on the streets of New York City. Interesting story.
No Credit Needed offers an illustrated guide to debt reduction. I like pictures.
The Simple Dollar explains why they decided to finally merge their married finances.
Christian PF makes his own toothpaste. I must admit, this is something I’ve never thought of doing myself. I do drive my wife crazy by squeezing the last atom out of our current tubes, though…
Almost Frugal shows us how to cut a little boy’s hair. Amazingly enough, no bowls were involved! As a kid, I was happy with a buzz cut for many years. I’ve never been big on hair…
Posted in General | 4 Comments »
Friday, September 5th, 2008
Costco Junkies: The Costco TrueEarnings American Express card is now offering $25 bonus after your first purchase. This is a good all-around cashback card, offering:
- 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
There is no limit on cashback you can earn, and no annual fee with your Costco membership. It also doubles as your membership card, preserving some of that precious wallet space.
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. No $25 bonus, though. For individuals, leave the “Business Tax ID” space blank and just use your Social Security number, and they will treat you as a sole proprietorship.
[Also related: My overall favorite cashback/rewards cards]
NYC Commuters: Chase Bank is offering up to $50 back towards your commuting costs when you use your Chase debit card to make the purchase:
Pay for your MetroCard® , Train and NYC Yellow Cab rides with your Chase Debit Card. Get a $10 Cash Reward (up to $50) for every $150 in qualifying purchases this September 1 to October 31, 2008.*
Credit Score Watchers: This is a follow-up to my popular post on Five Ways To Get Your Free Credit Score … With No Trials!. One of the options, CreditKarma, has re-scaled their proprietary credit score to be in the 300-850 range, matching that of the “official” FICO-branded score. Their score is based on your TransUnion credit report, so it should now be easier to understand.
Posted in Deals & Offers | 16 Comments »
Thursday, September 4th, 2008
Most homeowners know that they have the option to pay more than their required monthly mortgage note, which will directly reduce the principal. Assuming there is no prepayment penalty, due to the power of compound interest (backwards?) this can significantly shorten your loan period. Whether or not this is a mathematically and/or behaviorally optimal idea is a subject of debate, which I won’t go into here.
Anyhow, one of the more popular ways to do this is the “biweekly payment plan”. Imagine you had a 30-year mortgage with a payment of $1,200 per month. If you paid $600 every 2 weeks instead, you would be done with the mortgage about five years early! (Use this calculator for more exact numbers.) Because there are 52 weeks in a year and not 48 (12×4), you are essentially making one extra mortgage payment per year.
The attraction of the biweekly plan is that it often coincides with your biweekly paycheck and thus you don’t “feel” that you’re paying extra.
BiSaver®
Today I got an letter from my bank lender about a program called BiSaver, which is basically an automated bi-weekly payment system. Every two weeks the increased biweekly amount is taken from my bank account, and it is eventually paid towards my loan.
However, it costs $399 upfront, plus $1.50 each transfer ($39 annually)*. Another sneaky way they make money is off of the float. Say your loan is due on the 31st of the month. Earlier in the month, on say the 1st and 15th those two biweekly payments (ex. $750 x 2) will be taken out of your bank account. But according to the fine print, only on the 31st will the amount be paid toward your mortgage. In the meantime, BiSaver is earning interest off of those payments.
I really hated this part of their sales pitch:
Can I pay biweekly without BiSaver®?
No. We are not aware of any mortgage company that will accept biweekly or semimonthly payments for a monthly mortgage. What you may do is submit more than your regular monthly payment each month to reduce your principal balance faster and save interest.
No? If you don’t credit the actual payment until the end of the month, then you’re not saving me anything anyways! In fact, I’m losing the opportunity to earn interest in my own savings account.
Yes, You CAN Do It Yourself For Free
After some research, I found out that “BiSaver” is simply a third-party company that goes around pitching this system to mortgage holders like it is some sort of secret sauce. But really they just accept the payments, and then forward them on to the lender. While it purports to “pay for itself in interest savings” almost instantly, it also neglects to mention that anyone can do this for free. If anything, I’d be paying for the convenience factor. But first ask your bank about one of these options.
Lender-Initiated Automatic Transfers. Right now, my mortgage payment is due on the 15th and the amount is automatically sucked out of my checking account every 10th. This is a system offered by my lender. So I called them up and asked if I could add an additional principal payment to each monthly transfer. The said I could, and it would be free! This confirms my theory that BiSaver pays lenders to market to their customers this fake package, and gives them some sort of kickback. Why not just tell us about the free option??
To replicate the results of the BiSaver program, simply take your monthly mortgage payment and divide it by 12. Now add that to your monthly payment amount. So if you originally paid $1,200 you would add $100 for a total of $1,300 per month.
Use Online Billpay. Now, if your lender doesn’t allow this, then you should still be able to make extra principal payments by check. Now simply use your bank’s online billpay system and have them send a monthly recurring payment for $100 (using this example) to your lender. To force a paper check, you should simply set up the payee as a “custom payee” and supply the mailing address. You should also be able to designate what to write on the memo line of the check. Again, ask your lender for specifics, but something like “principal reduction” or “apply towards principal only” and also your loan account number should ensure that it does not get confused with your regular payment or escrow account.
Use Savings Accounts. The most simple way to think about this is that you need to make an extra payment per year. Every Jan 1st, just write an extra check for $1,200. If you like automation, just setup recurring withdrawals with an online savings account - they all offer this feature. If you use ING Direct, open up a new subaccount.
* Note: $399 + $39 per year, growing at a rate of 5% annually (not 8% to account for inflation) comes to $3,306 at the end of 25 years. Don’t pay for a biweekly payment system when you can do it for free!
Posted in Real Estate | 65 Comments »
Wednesday, September 3rd, 2008
One of my long-time favorite credit cards, especially for those that like to travel, is the highly flexible American Express Starwood Preferred Guest Card. Starwood Preferred Guest (SPG) was originally a good hotel rewards program, but got even more popular because you could also transfer the points to a variety of frequent flier programs as well as things like Amazon.com gift certificates.
Today, they announced a new redemption option - any flight with no restrictions or blackout dates. Essentially, you can buy any ticket available on a site like Expedia using points. For example, a flight costing up to $150 with SPG can be bought with 10,000 points. This is a transfer rate of up to 1.5 cents per point. While I still like “topping off” my frequent flier miles to grab awards tickets, this is nice to have if you need to book a flight quickly and/or directly. Thanks to reader Eric for the tip. Here is the exchange chart:
| Ticket Price |
Starpoints |
| up to $150 |
10,000 |
| $150-$215 |
15,000 |
| $215-$280 |
20,000 |
| $280-$345 |
25,000 |
| $345-$410 |
30,000 |
| $410-$475 |
35,000 |
| $475-$540 |
40,000 |
| $540-$605 |
45,000 |
| $605-$670 |
50,000 |
| (continues on) |
|
And unlike frequent flier awards, you also get to earn frequent flier miles for the trip!
Rack Up Some Starpoints
Right now, if you apply for a Starwood American Express card, you will get 10,000 free points after your first purchase, which is good for a $150 ticket or a $100 Amazon gift certificate. You can get an additional 15,000 points by spending $15,000 on the card within the first 6 months. That’s a potential total of 25,000 points, which can now be redeemed for any airline ticket priced up to $345.
The annual fee is waived for the first year, $45 afterwards. Cancel within first year if you just want the bonus points. There is also the Business Starwood American Express Card, which is offering an additional 10,000 Starpoints after first purchase.
Finally, now that you are familiar with it, you can earn 250 Starpoints by taking this short survey about the new feature.
Posted in Deals & Offers | 7 Comments »
Wednesday, September 3rd, 2008
Heard some buzz today about some tiny new condos:
Via SFGate:
Home, small home: 250 square feet in SoMa
New condo development targets young first-time buyers without too much stuff
It’s about the size of seven ping-pong tables - and all yours starting at $279,000.
A San Francisco design and development firm has begun marketing 98 tiny condominiums - ranging from 250 to 350 square feet - at the Cubix Yerba Buena building in SoMa. [...]
The kitchen area includes a mini sink, two-burner electric cooktop, half fridge and microwave-convection oven. The appliances are stainless steel; the countertop synthetic brown stone. There isn’t room for a bed and a sofa, so each studio is staged with a sofa-bed. They come with a wardrobe but no closets.
Efficient? Yes. $300,000? No thanks.
I could probably live in this place if I was single, but no way with two people working varying hours and wanting occasional privacy. At some point, why not just let people live in RVs in parking garages?
Posted in Real Estate | 40 Comments »
