Archive for January, 2009
Friday, January 16th, 2009
If you did a Traditional IRA to Roth IRA conversion in 2008, and have since suffered some significant losses, you may want to consider undoing the conversion now that it is 2009. Then, as long as you wait 30 days after that and still qualify, you can redo the conversion again. This way, you only owe income taxes on the lower amount.
This Roth IRA conversion “do-over” is discussed in this CNN Money article, which included a helpful example scenario:
One of the main considerations are that you want to make sure your losses are enough that they likely won’t be recouped in the 30 days you are “out” of the market. One option is to re-invest the money in a taxable account during that period, but you’d be subject to more potential losses, as well as taxes on gains.
Another consideration is that you are essentially doing a entirely new 2009 conversion. You’ll have to again meet the income limits, and make sure your new tax bracket is acceptable to you. I did a Traditional to Roth IRA conversion in 2007 and shared my decision process, including the eligibility requirements and how to pay for it. There are more details on reconversions in this Fairmark article.
Next up: Controversial ways to deal with other Roth IRA losses.
Posted in Retirement, Taxes | 4 Comments »
Friday, January 16th, 2009
myFICO.com is offering a free credit score to members of their discussion forum. New visitors can register instantly and grab your score. No credit card or trial required. This is an official FICO score based on your Equifax credit file. Score only, no credit report. First 10,000 only - be quick!
Directions
Visit the main myFICO Forums page now expired, register, make sure you’re logged in, and then go back to the main page and click on the link “Get your Free FICO score now!” in the top right. For some reason, you’ll have to re-enter all your info again.
My score was 744, down 10 points from their last free FICO offer. I blame the issuers who closed my inactive credit cards! 
Posted in Credit Cards, Deals & Offers | 20 Comments »
Wednesday, January 14th, 2009
I still get a regular stream of comments on my old post on handling a bank error in your favor. Many are people who also got some money by accident and are looking for advice. Then I saw this AP article “Pa. couple spent windfall from bank error” posted at FW, which is a good lesson on what not to do:
A Pennsylvania couple is behind bars after police say they failed to call the bank when a glitch put an extra $175,000 in their account. Authorities say 50-year-old Randy Pratt and 36-year-old Melissa Pratt instead withdrew the money, quit their jobs and moved to Florida. They were buying a house in the Orlando area when the mistake was traced.
The two were arraigned Tuesday on theft and other charges and jailed in lieu of $100,000 bail. A public defender was being assigned.
A $1,772.50 deposit showed up in their FNB Bank account last summer as $177,250. Police say Melissa Pratt said her husband, a roofing installer, often got large checks and she wasn’t aware of any error.
Gotta love their excuse. Did he think he re-roofed the White House in his sleep or something?
Posted in General | 20 Comments »
Wednesday, January 14th, 2009
Wainwright Bank, a regional bank based in Massachusetts, is offering a $200 Series EE U.S. Savings Bond when you open a new Value Checking account and have direct deposit. $10 minimum to open, and no minimum balance with direct deposit. Wainwright Bank & Trust Company is FDIC-insured.
*To be eligible to receive a free $200 Series EE U.S. Savings Bond you must open a new Wainwright Bank personal checking account and have a recurring payroll, Social Security or public assistance Direct Deposit made to the account; limit one bond per household; bond will be mailed within 90 days of account opening; account must be in good standing with active Direct Deposit at time of Bond mailing.
Updated: Called in and asked a few questions. Seemed like a nice regional bank. They said no credit check, but they do a Efunds/ChexSystems background check. You can open online, but they just end up printing it out and processing and approving it manually, so can take a few days. You don’t need a MA address if you open online, but you do if opening in-branch.
You can request initial order of checks with application, or decline. I forgot to ask the cost. It is unknown if you can simulate direct deposit with an ACH transfer from an online bank or PayPal.
Note that a EE bond is only worth half as much as its face value initially, so the bond is actually worth $100 right now. They currently only earn 1.30% interest, but in 20 years they are guaranteed to be worth at least $200. I’d probably just cash it out after a year and avoid having to keep track of it. Thanks to reader Susan for the tip.
Posted in Deals & Offers | 15 Comments »
Tuesday, January 13th, 2009
Here’s another creative idea for a website. GiveawayOfTheDay.com lets you download a fully-licensed, no-trial, no-shareware version of some neat software. The catch is that it is only available for one day, during which you must both download and activate the software on you computer. Also targeted at the Windows OS.
The developer of the software gets some good publicity, feedback on their product, and the opportunity to earn money down the road with future license upgrades. If you think about it, most people who download the product this way were probably not going to buy it anyways.
Today’s download is PDFZilla, which converts PDFs into “editable MS Word Documents, Rich Text Documents, Plain Text Files, Images, HTML Files, and Shockwave Flash SWF Files.” Of course, you probably won’t find something useful to you every day, but it’s worth adding the feed to your RSS reader. There was some DVD authoring software that looked promising a couple days ago.
Posted in Deals & Offers | 8 Comments »
Tuesday, January 13th, 2009
Stumbled across another interesting chart from Fidelity Investments showing stock market performance during and after previous recessions:
Found via the Financial Philosopher, who stated:
Now that we are “officially” in a Recession, what does that mean for stocks going forward?
Of course, no one really knows the answer to that question, and I certainly will not attempt to do so here. What some of you may not know, however, is that, once the “recession call” is made, stocks have historically been quite close to a significant march upward.
The reason for this is that economists look backward and investors look forward.
I have no idea if this will hold true, but according to the National Bureau of Economic Research, this current recession began in December 2007.
Posted in Investing | 24 Comments »
Monday, January 12th, 2009
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Posted in General | 6 Comments »
Monday, January 12th, 2009
When I bought our house, I considered setting up a home equity line of credit (HELOC) for primarily for emergencies. For a while there were a bunch of deals that offered no application fees, no closings costs, and no annual fee. Why not have a cheap safety net around? Some people even expected their HELOC as their primary emergency fund.
However, these days with loan-to-value ratios skyrocketing and lenders trying to limit their risk exposure, many HELOCs are getting frozen or reduced with little notice. Some lenders like National City Bank (now PNC Bank) and E-Trade have even been paying people to close their HELOCs early to avoid angering customers. Turns out they aren’t a very reliable safety net.
So what can you do about it? Yesterday, a reader left an interesting comment on a previous post I wrote about reasons why all homeowners should have a HELOC:
After hearing of people getting their HELOCS frozen, I tapped my HELOC which is prime minus 25 basis points. I took the proceeds and opened a one-year CD at Wachovia paying 4% APR for a 12 month CD (this was back in Dec 08). I’m actually making money on it and I have the emergency cash available. I don’t see interest rates rsing in the next year, given the economic depression.
The numbers do look a lot better than last time I looked. HELOCs are often indexed to the WSJ Prime Rate, for example being set at Prime minus 0.5%. The prime rate varies, but is currently only 3.25%. This means it’s possible to borrow the money and place in a safe FDIC-insured savings account or CD earning approximately the same amount of interest. (Interest paid on HELOCs is generally tax-deductible if you itemize deductions and your interest is under $100,000.)
In fact, you could easily be making money this way. If the interest rate spread does go up significantly, you can just pay back the loan.
Now, maxing out your HELOC may lower your credit score, so you might not want to take all of it out. I guess it all depends on how badly you want the safety net. On the other hand, if you have a really good rate you could arbitrage out a decent amount of profit for a while…
Posted in Real Estate | 28 Comments »
Monday, January 12th, 2009
Some quick links from my weekend reading:
Cutbacks and the Value of Time
OverTheCubicleWall is being offered a voluntary work reduction to 32 hours per week. Would you take such an offer if presented to you? It’s an interesting question. I would seriously consider it. I’d probably rather have an extra month of unpaid vacation to allocate as I wish.
Where, oh where, does our $exy money go?!
J also did the dirty work and figured out how much they spend: about $4,700 per month if you don’t count savings as an expense. A worthy exercise for all.
Quiz: Are You the Entrepreneurial “Type”?
A very insightful quiz about entrepreneurs. Spoiler alert: My favorite part was that the most common reason for becoming an entrepreneur is the wish to avoid working for others, and not to make the most money. I agree with that.
Fama/French Blog
If you are a passive investing geek, you should know the names of Drs. Fama and French. And now they have a blog, where they answer some timely questions in the current market. Ex. Is the market turmoil a sign that markets are not efficient?
Sam the Cooking Guy: Cooking Videos
Cut out cable TV and miss Food Network? Here are some simple recipes with videos. I like the layout and use it for ideas. Less overwhelming than AllRecipes.
Posted in General | 4 Comments »
Sunday, January 11th, 2009
Read into it how you like. 
Via The Big Picture.
Click the image below for full size.
Ah, the timeless creations of Bill Watterson. I own all of the Calvin & Hobbes collections, though I haven’t read them in a long time. Definitely saving them for my kids to read someday. Can you believe that most kids these days have never heard of it?
Posted in Funny | 15 Comments »
Friday, January 9th, 2009
While Suze Orman has her Action Plan, I have also been thinking of my own. The first is general but the rest should be good blog fodder. They also fit into the concept of Kaizen and continuous improvement. Not really resolutions… I just want to keep making small steps forward.
Project #0 - Make Sure You’re Valuable At Work
I basically think of job security like this. Would life be difficult if you’re gone? Make sure it would be. In addition, networking can be hard for the introverted like myself but necessary.
Project #1 - Back to Basics, Conscious Spending
Tracking Spending
People either love or hate budgets. But can you say right now how much your annual expenses are? I think that is more important. I have already estimated that my family spends about $3,500 on housing per month (!) and $1,500 on everything else. But I want to drill down further.
I plan to try out the newest versions of free online money management tools like Quicken Online, Mint, Geezeo, Wesabe, and Yodlee MoneyCenter and review each one.
I’ve already started using Quicken Online for January, and it has already had a lot of improvements since it became free a few months ago. This old screenshot is obsolete.
Critical Examination Of All Expenses
Next, I plan on going through every single expense category one by one (housing, electricity, dining out…) and looking at each with an open mind. Am I willing to move somewhere with cheaper housing? How about when I retire? Should I install a solar water heater? Buy a new car and drive it into the ground, or buy used? I also feel I should prioritize all expenses.
Project #2 - Build an Online Store
I don’t get too excited about selling a physical product as a main job, primarily because it is so labor-intensive if you do the inventory yourself. I’m more interested in either drop-shipping or dealing with electronic product, even though it is a very crowded field. Investigate profit margins. I also like the idea of playing with the back-end software like shopping carts and content management.
At a minimum, it will be a educational hobby with small start-up costs and one that might make some money. Lots of trial and error expected. Want to tell me about any good drop-shippers? I can keep it a secret.
Project #3 - Rental Property Search and Education
I don’t think the real estate market in most areas will be picking up anytime soon. But with lower prices and real estate agents with more time, I think later this year will be good time to learn about possibly being a landlord. I might hire a Realtor to run some searches, and also do browse some foreclosures. Learn to run the calculations and properly estimate rental income, expenses, and tax benefits.
This way, I can recognize an opportunity when I see it, and act accordingly. As part of being ready, I should also commit some cash to this goal.
Posted in Goals | 25 Comments »
Thursday, January 8th, 2009
Suze Orman is still offering her “Save Yourself Plan” in conjunction with TD Ameritrade, although the offer is not as good as it was before. Previously, you had to open a new account at TD Ameritrade and put in $50 per month for 12 consecutive months. The default FDIC-insured interest rate also started a 2.78% APY. You were effectively making over 35% interest annualized, albeit on a limited amount of money.
With the current offer, you must now deposit $100 a month for 12 consecutive months, and the FDIC-insured interest rate on cash is only 1%. This works out earning about a 16% annual interest rate. Still not bad, if you have never had an Ameritrade account. As compared to keeping your money in an online savings account at 3%, after a year you’ll be ahead by about $80 in extra interest.
Plus, once we receive your first deposit, you will receive free online access to Women & Money—the book that launched Suze’s Save Yourself movement. And that’s not all. You will receive emails of support and encouragement from Suze…
I wouldn’t trade there, though. Just take the bonus. For more value, here are the brokers that I would recommend for starting an IRA.
Posted in General | 17 Comments »
Thursday, January 8th, 2009
Suze Orman was on The Oprah Show today, and is promoting her new book Suze Orman’s 2009 Action Plan by offering as a free PDF on Oprah’s site. Here is the download link. Expires in a week on 1/15. Thanks to reader Anthony for the tip.
I haven’t read this one yet, but she also did this previously with her Women & Money book, which I did read and review.
Posted in Deals & Offers | 16 Comments »
Wednesday, January 7th, 2009
If you haven’t heard already, several large credit card issuers (Chase, Washington Mutual, Citibank, Capital One, HSBC) are currently closing millions of consumers’ credit cards without prior warning due to inactivity. This is their legal right, but it can also negatively affect your credit score. Here’s why and some steps that you can do about it:
How Can Closed Credit Cards Affect My Credit Score?
FICO has previously revealed the following breakdown of factors considered in credit scoring. We can also read between the lines of the questions asked by the free FICO Score Estimator by myFICO.
Capacity used. This simply means how much of your available credit you are using, sometimes referred to as utilization ratio. A lower ratio is better, either by lower balances or higher credit limits. If you’re maxed out on all your cards, obviously that’s not a good sign. Logically, closing credit cards means you have less available credit.
Length of credit history and past credit applications. To be specific, not the only length of your oldest line, but also the average age of all your accounts matters. In addition, you’ll have less need for new credit applications if you can keep your existing purchasing power.
Closed by creditor or consumer? A lesser concern is whether the account is marked as “closed by creditor” as opposed to “closed at consumer’s request”. Since FICO doesn’t release the details of their scoring algorithm, it is still debated whether this matters to the numeric score. Some credit repair experts say it does, others disagree. However, if someone does a manual review of your credit report, it can raise some questions as to why the account was closed by the lender.
How To Protect Your Credit Score
Okay, so we’ve established that just waiting for our inactive cards to be canceled can be bad. So what should we do about it? Here’s an action plan:
- Gather up or make a list of all your credit cards. I have mine in a spreadsheet - it is a pretty long list! Misplaced some? Grab your free report from the official AnnualCreditReport.com, which should list them all.
- Rank them according to importance to your credit score. From above, we see that credit cards with high limits and long histories are the best. Newer credit cards with low limits are least important.
- Start using the important ones! If you have a cell phone or cable bill, chances are that they accept credit cards. Not only that, but you can use multiple charges across multiple cards. I spent 20 minutes just charging $5-$10 to my Sprint bill across about 8 different cards to put some activity on them. Start from the most important card onwards.
- Consider canceling the rest. If you have a newer card with a low limit that you don’t ever plan on using again (just wanted the sign-up bonus?), it may actually help your score to simply cancel it. This way, it will also show as “closed by consumer”.
Make sure that it has a zero balance first, otherwise you make be stuck with penalties or your credit limit will be lowered to your balance amount, jacking up your utilization percentage and hurting your score.
I was too late for two Chase accounts and one Washington Mutual account I mentioned before, but I ended up closing a few cards preemptively and put some activity on the rest. All in all, perhaps this worked out for the best. Don’t we all want less clutter for the new year?
Posted in Credit Cards | 65 Comments »
Tuesday, January 6th, 2009
Credit Card Debt
I have no actual consumer debt. In the past, I have been taking money from credit cards at 0% APR and immediately placing it into high-yield savings accounts or similar safe investments that earn 5% interest or more, and keeping the difference as profit. I even put together a series of step-by-step posts on how I make money off of credit cards this way. However, given the current lack of no fee 0% APR credit card offers, I haven’t been as active with this recently.
Retirement and Brokerage accounts
The value of our passively-managed portfolio bounced back by about 10% compared to last month. There were no new contributions. As noted, we did manage to max out both of our 401(k)s this year, and plan on making 2008 IRA contributions by the April deadline.
Cash Savings and Emergency Funds
Our emergency fund balance is nearly at 12 months of our total monthly expenses. So theoretically both my wife and I could be laid off and we would be okay for 12 months without having to sell any longer-term investments. I am very happy with this cash cushion.
Where is it? I suppose you could say I “actively manage” my cash, putting it in various places to maximize yield while maintaining the highest possible safety. For example, I have some in a previous WT Direct promo at over 6% annualized interest, some in Series I Savings Bonds at over 6%, and a chunk at a WaMu 12-month CD paying 5% APY with about 10 months remaining.
Compare this to the piddly 0.14% for 90-day T-Bills and 0.43% on 1-year Treasuries! If you didn’t get in on any or all of these, keep reading or subscribe to updates for new deals as they come up.
Home Equity
I continue to estimate our home value using internet tools, starting with the average estimates provided by Zillow, Cyberhomes, Coldwell Banker, and Bank of America. This left me with $584,516. Then, I shave off 5% to be conservative and subtract 6% for expected real estate agent commissions (11% total) to reach my final estimate. Fortunately, we bought as prices were falling already, and the area where we live has not been hit nearly as bad as other major metropolitan areas.
Looking ahead, I am working on new goals for 2009, and also better metrics for measuring our financial progress. You can see our previous net worth updates here.
Posted in Goals, Investing, Real Estate, Retirement | 23 Comments »
