Archive for the 'General' Category
Before shopping for rates, we had to figure out what kind of mortgage loan we were going to get. The first decision was between a fixed-rate or an adjustable-rate mortgage. Quickly, here are some very general definitions:
- Fixed rate mortgages (FRMs) provide a constant monthly payment for the life of the loan, no matter what interest rates do in the meantime. Common lengths are for 15 and 30 years.
- Adjustable rate mortgages (ARMs) offer a lower monthly payment for a certain initial period, and then adjust periodically afterwards. Common initial periods are 1, 3, 5, and 7 years. For example, if you see a “5/1″ ARM, the rate and payments are fixed for the first 5 years, and then will adjust according to a pre-determined formula one a year after that. A “5/5″ ARM adjusts only once every 5 years. Usually they are also based on a 30-year amortization, but not always.
Here were my three main considerations for choosing between ARMs and FRMs:
How long do I expect to stay in the home?
I’ve read statistics that people tend to move about once ever 5-7 years, and that the average mortgage only lasts 7-8 years before being refinanced or paid off (usually from the sale of the home). But who cares about average? Everyone is different.
It’s true that if I bought a “starter home” that with the arrival of kids we might need a quieter neighborhood or more space. In our case, we ended up finding a home that has everything we need for the foreseeable future. While trying to be as objective as possible, if I had to lay odds I’d say that there is a 95% chance that we’d stay past 5 years, and 75% that we’d stay for 15+.
What’s the interest rate savings if I go with an ARM?
Here you’d have to look at current rate curves. At one unlikely extreme, if you’re getting the same rate for both types of loans, of course you’d go for the fixed. Right now, the spread is about 0.5% between a 5/1 ARM and a 30-year fixed mortgage, which is pretty narrow. In the past the spread has been as little as 0.1% and as high as 1-1.2%, possibly more.
Although many mortgages brokers will tell you “even if you end up staying longer than 5 years, you can always refinance”, that’s just not true. You can’t always refinance - check out all those sub-prime borrowers who can no longer get a loan anywhere. They are stuck with rates resetting in the 15% range!
And even if you can refinance, it might be ugly… What if your credit score drops in that time? What if lending standards continue to tighten? What if rates rise significantly? What if your home value drops and your loan-to-value (LTV) ratio is now horrible?
I think ARMs can be a smart buy if you can assess your situation accurately. Some people know they’ll be gone in four years or less. Who knows, rates might actually drop like we’ve seen recently. But no matter what there is an element of risk involved. With rates still at historical lows, we see the downside being a lot worse than any potential upside.
Do I want to rent it out?
This is one consideration I don’t always see mentioned. If I do end up moving, there is a very good chance that I’d like to make my home a rental property. With a fixed mortgage, again I have stability. Rents will rise with inflation, but my mortgage payment will always stay the same. I also don’t have to worry about obtaining a investment-property mortgage, as primary-home loans are usually much cheaper.
In the end, all the signs pointed towards a fixed-rate mortgage for our situation, so that’s what we’re getting. 
Posted in General | 39 Comments »
You read it correctly, a new site called NotchUp is trying to replace pricey headhunters by actually paying people hundreds of dollars to interview. The twist is that they are actually looking for people who are already happily employed! From this article at NetworkWorld:
You say you wouldn’t interview with Company X if they paid you?
A startup called NotchUp is betting that’s a bluff.
Debuting this morning at Network World’s DEMO 08 in Palm Desert, Calif., NotchUp founders Jim Ambras and Rob Ellis tell me that 15,000 people a day are signing up for their new eBay-like employment service - based solely on word of mouth. The founders are convinced employers will pay hundreds of dollars directly to people they would like to interview — especially those not actively in the job market — because it will bring them better candidates faster.
So how does it work?
To get started, simply register, create a profile (which is similar to an online resume), and set an interview price. Your interview price is the price at which you’ll talk to prospective employers. Once you’ve created your profile, companies will search it and make you paid offers to interview if you have the skills and experience they’re looking for. Accept the offers you’re interested in, go to the interviews, and we’ll collect the money and transfer it to you.
It’s free to join, and you can even estimate how much you should ask for an interview with their calculator. For the type of professionals that they are targeting, I would actually say the price is about right. You’d still have to be careful about your current employer though, don’t want to ruffle any feathers. It’d be cool if this company merged with LinkedIn or something. Thanks to Stephen for the tip.
Posted in General | 22 Comments »
Yes, here’s yet another new financial service vying for your attention. This time it’s RevolutionMoneyExchange, which is a person-to-person payment system similar to PayPal. It’s free to send, receive, and withdraw money, but the only funding source allowed is your bank account (no credit cards). It will be interesting to see if it gains some traction (and if eBay allows them as a payment option). Currently, they are offering a $25 bonus just for signing up. Here’s mine:
However, you’ll have to submit your Social Security Number to verify your identity, so I had to do a little digging first. According to this article in American Banker, it is backed by Citi, Morgan Stanley, and Deutsche Bank AG, which participated in a $50 million venture capital round. The parent company was formed by bajillionaire Steve Case, co-founder and former CEO of AOL, and the son of the former CEO of Mastercard. Also mentioned in USA Today.
Also, there is no hard credit check done using your SSN. It says clearly at the top “This information is not used to review your credit history or to establish new credit.”
Posted in General | 60 Comments »
For a while, the site OfficialPayments.com has been offering people a way to pay a variety of federal, state, and local taxes with their credit card. While you can earn rewards for doing so, the 2.49% processing fee usually canceled everything out. Enter the Citi Cash Returns MasterCard, which offers 5% cash back on purchases for 3 months, with no caps or limits. (Update 4/23: Promotion has changed.)
The trick is then to load up your card as much as you can during the promotional 3 month period. In this case, if you used Official Payments to pay your tax bills which you used to pay by bank account, you’d stll be left with 2.51% of profit on your tax payments, or $251 for each $10,000 in taxes paid. This is especially applicable to me, as I underwitheld my taxes (without penalty) in 2007 by at least $10,000.
Who Else Can You Pay This Way?
Besides federal income taxes and estimated tax payments for sure, there are actually a good variety of options:
Official Payments is the trusted payment services partner of the United States Internal Revenue Services, 25 state governments, the District of Columbia, more than 2,500 local and municipal government agencies, more than 400 colleges and universities, and other public and private interests in all 50 states.
Use the the Who Can I Pay? and enter your zip code for the full list in your area. Being able to pay state income taxes online would be worth at least another $100 in my pocket…
Something More Controversial…
If you’re like me and you know you’ll owe some amount by April 15th to settle your tax bill and avoid late-payment penalties, why not just play it safe and overpay by a safe margin? Then you can file a tax return extension until October 15th and file your actual return at your leisure later on. When you do, you’ll simply be refunded any overpaid tax amount. This is what I had to do last year anyway, even without the carrot of instant 2.51% return on my money.
Timing The 3-Month Window
I’ve been waiting for a good 3-month window where I can max out this card. Given this tax situation and also all my upcoming new house expenses - home improvement, hardwood floors, furniture, moving, etc. - I think the timing is right. I applied tonight, but didn’t get an instant decision, most likely due to my recent move. I’ve been taking it very light on the credit cards lately, so I see no reason not to get approved.
Posted in General | 30 Comments »
Confused about the stimulus package? Here’s a quick summary from Bloomberg:
Bush and House lawmakers yesterday agreed on a $150 billion economic stimulus package aimed at avoiding an election-year recession. About $100 billion would pay for tax rebates to about 117 million families and $50 billion for business tax breaks.
The package also addresses the growing number of housing foreclosures with a provision allowing Fannie Mae and Freddie Mac, the largest U.S. mortgage-finance companies, to temporarily buy mortgages of as much as $729,750, up from the current limit of $417,000.
And here’s my short version:
- Singles: If you earn less than $75,000, you’ll get $600. Married couples: If you are filing jointly and earn less than $150,000 combined, and you’ll get $1,200. Additional $300 per kid. Additional details for each scenario in this Treasury Department Factsheet (thanks to commenter cek260).
- This is just the proposal they’ve agreed to vote on, but nothing has been approved yet. Bush hasn’t signed anything. Therefore, there is nothing you need to file or do yet in order to get your check. It is an election year, however…
- You won’t see any checks until May (read: June or July) at the earliest.
- Raising the conforming loan limit is good for folks like me who don’t want to pay 1% more interest for a Jumbo loan. Doesn’t really seem like something to help most middle-class folks, though. Seems to be mainly a product of lobbyists for the banking and housing industry.
But again, nothing firm has actually occurred yet, despite the news frenzy.
Posted in General | 53 Comments »
First. it was credit cards and their foreign transaction fee settlement. This time, it’s the De Beers diamond company accused of being a naughty monopoly and artificially raising diamond prices. They have reached a tentative settlement which you can learn all about at DiamondClassAction.com. For the consumer, they are proposing to split about $135 million (less fees) to the following eligible consumers:
All persons located in the United States who purchased any diamond or diamond jewelry or other products containing gem diamonds for personal use and not for resale between January 1, 1994 and March 31, 2006. For example, Consumers include people who purchased diamond jewelry to wear or to give as a gift.
Lawyers will get at least 1/3rd, so the pie is more like $80 million. The money will be pro-rated across all claimants, so the more approved claims that there are, the smaller the individual payments will be. In addition, if your share is less than $10.00, no check will be sent to you as a result of “prohibitive administrative costs”. Still, I filled out the form - they asked for name, address, e-mail, and basic jewelry info. Regarding proof:
If you did not buy a diamond or piece of diamond jewelry that cost over $10,000, you do not need to submit documentation at this time. Please remember to keep all documents showing your purchase, such as a receipt, invoice, insurance statement, appraisal, authenticity certificate, or other proof of purchase. You may need to send the documents to the Claims Administrator to prove your purchase at a later time.
I look forward to receiving my check for $15.61 in the year 2011. 
Thanks David for the tip.
Posted in General | 8 Comments »
Am I describing myself? Nah, just my selection of reading over this weekend:
Jeremy of GenXFinance offers a glimpse at his personal experiences while encouraging us not to make bad decisions during this volatile stock market.
My job has good and bad periods, and when the markets are up, everyone loves me and I hear nothing but good things. But at the same time, as soon as the markets begin to show some weakness, my phone is ringing constantly with worried investors. While you can occasionally talk some sense into certain people, others just go off and make irrational decisions.
Madame X of My Open Wallet has a series called New York Stories, which offers up real financial stories from real New Yorkers. I like it because these are kinds of stories you’d hear from your friends, if money wasn’t such a taboo topic. I particularly enjoyed the one by Escape Brooklyn.
Hazzard of Everybody Loves Your Money pointed me towards this post about the simple life. But if there’s one thing I’ve learned, it’s that simple does not equate to easy. For example, why is it we have to work hard and remember tips to keep things simple? Hmm?!
J.D. of Get Rich Slowly has a nice discussion going on about how to find work that you love. I tend to think that some people really do need to love their work, while others are able to keep a certain amount of detachment from it.
Posted in General | 3 Comments »
Here are some follow-ups on some recent posts:
Cast Iron Skillet: The Ultimate Smart and Frugal Cookware?
- Amazon actually sent it separately by 2nd-day Air, I can only assume to make sure it arrived without damage. But sending a $15 pot by 2nd-day air? Curious.
- I’ve used it twice to cook steaks and then again for some veggies for fajitas. Seared and delicious! My only comment is that the 12″ model that I got is a beast. If I had to do it again, I’d go for the 10″ model or even the 8″ one to reduce the weight. At least I already own a 12″ lid that fits my skillet perfectly.
Merry Christmas Sweetie! I Got You… Nothing.
- I ended up stumbling onto something small but thoughtful that my wife would like. It’s something that I would have bought her anyways even if it wasn’t for Christmas, but it made me feel a tad less guilty. In any case, I still think it’s better to have unexpected displays of affection.
U-Haul vs. Penske Moving Truck Rentals: Share Your Story
- We ended up going with U-Haul for the local move. The U-Haul truck was pretty beat-up, but I carefully recorded all the dings (most were already marked with stickers) on the contract. Brakes were really mushy, but everything was in working order. We only ended up racking up about 32 miles, and it was pretty uneventful. I would use them again for another local move, but I would have gone with Penske for a long-distance move.
What Are We Saving For, Anyways? Our Life Goals and “Retirement” Plans
- I like these goals so much better, that I’m thinking of getting rid of my $1,000,000 status bar on top. Who cares if I’m 1% closer to a million every couple of months anyways? It doesn’t really even motivate me. I just need to think of a way to measure my progress that’s not simply an income number.
Posted in General | No Comments »
Either by coincidence or due to my subconscious, most of these links have to do with careers and jobs:
SVB at TheDigeratiLife explores the true costs of relocating. Most people move for jobs, but we moved for family first, and found jobs second. Not everyone can make such priorities work in real life, but with a combination of luck and hard work we were able to make it happen. I had written that our jobs had covered an increase in cost of living, but that was wrong. If you count in the higher cost of real estate, we would have definitely been better off financially by staying in Oregon.
Lily of TheHonestDollar isn’t sold on video resumes. I definitely don’t want to do that, text resumes are already hard enough. I like in-person interviews as they provide two-way communication.
Patrick at CashMoneyLife continues his series on applying for an MBA. Right now, all my friends seem to be either getting MBAs or law degrees. Did I miss a memo?
FiveCentNickel observes that beer prices are rising. I was just thinking today that grocery prices seem to be increasing a lot faster than the government inflation numbers that I read about. Even when buying less-processed items like herbs, vegetables, and raw meat for dinner, I was paying $15 for all the ingredients, which is almost as much as just going out to eat!
Mrs. Micah talks about becoming a Certified Financial Planner. I have done some superficial research into that career path. The thing is, I wouldn’t want to work on a commission basis when being in charge of other peoples’ financial well-being. However, it is very, very difficult to start out in this field as a fee-only planner. You have to respect those who go down that path - they could probably earn more money otherwise. I wouldn’t mind learning the material taught in the CFP courses, however.
Posted in General | No Comments »
CNN Money has a potentially useful piece on how to get a copy of important documents if you happen to lose them. Hopefully you won’t ever need this info, but here it is anyway…
Savings Bonds
Visit TreasuryDirect.gov or fill out Form 1048 (Claim for lost, stolen, or destroyed US Savings Bonds).
Old Stock and Bond Certificates
Most stock and corporate bond records are kept at one of three transfer agent firms: ComputerShare (781-575-2000), Wells Fargo Investments (866-243-0931) or American Stock Transfer & Trust (800-937-5449).
It may cost up to 3% of the stock or bond’s value to obtain a replacement.
Auto Titles
Visit your local DMV in person or online. Might cost $20-$30.
Tax Returns
You can actually order a copy of your old tax returns from any of the last 7 years from the IRS.gov for $39. Use Form 4506 (Request for a Copy of Tax Return).
If it’s within the last 3 years, you can also try requesting a “tax return transcript” or “tax account transcript” for free using Form 4506-T (Request for Transcript of Tax Return). It’s basically the same info in a different form, and there is a good chance it’ll be accepted by mortgage brokers or whoever needs it. Oh, and it arrives a lot faster than a photocopy of your actual return.
Posted in Frugal Living, General | No Comments »
Shh… I’ve already opened up some of my Christmas gifts. Wait, what is this? A gift card? Nooo!!! Evil!
It’s trendy to bag on gift cards right now. Liz Pulliam Weston says gift cards are not gifts and complains that “holidays have rapidly devolved into what amounts to an exchange of cash. A gift card says nothing about the personality of the recipient — but it says lots about the giver.”. Miss Manners is quoted as saying they are “a pathetic compromise convenient to people who do not trust their judgment about selecting the right present for those whose tastes they ought to know.” Consumer Reports even took out a full-page ad in the New York Times with the following message:
Umm… So? How many *gifts* go sitting unused every year?! How many sweaters, handmade widgets, DVDs, scented candles, or whatever sit in your house right now, collecting dust in a closet. How about just saying “Last year, shoppers like you were out $80 billion because of unused, lost, or inappropriate gifts. Easy money for retailers…”
Truth is, converting cash into gifts of any kind creates the potential for waste. If you don’t want that, either (1) don’t buy gifts at all or (2) give cash.
I agree with Mighty Bargain Hunter when he says that gift cards are gifts. And like any gift, it can be good or bad. You know what happens when I receive a gift? I say thank you, and do what I can with it. Even if it’s hideous or not useful to me. I have mine all stored in baseball card sleeves ready to go.
Idea for gift card compromise?
First, pick something (doesn’t have to be perfect) that is in the price range you want. Then figure out the exact price, including sales tax. Buy a gift card in that amount, and attach a card with an explanation. “I thought you might like Rayman Raving Rabbits 2 for the Wii. Here’s a gift card for $54.86 from Best Buy”. There, you put a little thought into it, but they can use it to buy anything without having to “reject” and return your actual gift.
Also, for the curious, I even investigated which gift cards have the highest resale value. The result was that Amazon gift certificates are the most versatile.
What’s so bad about giving cash, anyhow?
Newsflash: In many cultures and households, giving cash is perfectly acceptable and in many cases even preferred. What are we pretending? That gifts don’t cost money?! I give cash gifts all the time. For more formal gifts I go to the bank and request crisp $20 or $100 bills.
Posted in General | 63 Comments »
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CNBC had a special Suze Orman Show last week, and I finally got a chance to watch it on TiVo. Recently, I’ve kind of lightened up on my view of Suze. Like all gurus, she makes blanket statements that may not apply to everyone, but at least she’s not pumping a get-rich-quick scheme involving real estate or stock-picking that is bound to produce more losers than winners. Overall, the show was pretty good for what was basically an hour of sound-bite-based financial advice for people (like me) with short attention spans.
Main Points
Here are her “action points”, which again seem to be generally good advice:
- Get rid of credit card debt as soon as possible.
- Keep your credit score high.
- Save up an 8-month emergency fund.
- You should have a 20% down payment for a house before buying one to live in.
- Contribute up to your 401k/403b employer match, then fund a Roth IRA.
- Create both a will and a living revocable trust.
- Get adequate life insurance (term only).
I picked up two pointers that I need to research further involving estate planning. First, she stated that you can pass real estate without probate through a living revocable trust. This can save months of hassle and also can avoids court fees and lawyer fees which can eat up thousands of dollars. Second, you should always check your 401k beneficiaries, as whatever you designate on those forms actually trumps your will.
Motivational Story
There was also the oldie-but-goodie why-save-early explanation. Allow me to paraphrase:
If you saved $100 every month starting at age 25, and invested it with normal market returns, at age 65 you would have a million dollars! But you say, I’m 25, who cares? If I wait until 35, that’s only $12,000 I’m not investing. ($100 x 12 months x 10 years)
However, if you indeed started at age 35 saving $100 per month, at age 65 you would only have $300,000. That decade of waiting actually lost you $700,000!!
Of course my question was - what’s “normal market returns”. Doing the backwards math, it’s about 12.08% annualized. Very optimistic, but hey, inflated numbers make the story better. It’s still a good lesson.
Don’t Buy Bond Funds?
Finally, a curious quote from her was that she hates bond mutual funds, and that people should only buy individual bonds. I thought to myself - how many casual investors actually buy individual bonds? Dealing with all the intricacies like call risk, par value, and quality ratings would be way too complicated for her target audience. However, digging a little deeper into her older show transcripts, I see that she actually recommends buying US Treasury Bills or Notes with a maturity of less than 5-7 years. Since these are of the highest quality and are relatively uniform, that definitely made more sense… but she didn’t explain this on the show!
Posted in General, Investing | 46 Comments »
Hazzard points out the story of a Taco Bell employee fired after 30 years of service, including two robberies and being shot once. Seems a bit like ageism to me. I see very little loyalty to companies these days… I wonder why?
Madame X explores if there is any connection between the amount you spend on food and obesity. Apparently at least one of her readers thinks spending $800 a month of food can’t be healthy.
Sun investigates some international dividend ETFs. Seems like ETF offerings are growing exponentially these days, I can’t even keep up.
Joseph Sangl made a graphical way to track his mortgage payoff process. Looks like so far he owns either his garage or living room. That’s one more room than me!
Posted in General | 15 Comments »
As I catch up on my feed reader, here are some posts from other bloggers that I found interesting:
The Digerati Lifeshares her latest portfolio update. I love open portfolios, I don’t know why.
Lazy Man has left his job, and his wife explains why that’s okay. I left my job about 2 years ago to go back to school and switch specialties, and my wife was very supportive, which made all the difference in the world. Best decision ever. You gotta be able to chase your dreams, even if you’re married!
IndexFundFan noted the arrival of an Emerging Markets Small Value ETF. Holy non-correlated-asset-classes, Batman! I like having more competition and choices, but I don’t think I’ll partake of this one. I wonder what the tracking error on this thing will be.
Get Rich Slowly states that a credit card is not an emergency fund… but then shares a story where it was ;). It was in a small business setting, though - should that make a difference?
CFO tried Dream Dinners, where you make your own take-out for a week. She liked it the first time, but not the second time. I still get a steady stream of comments on my old Dream Dinners post, although I must admit I never cleared out enough space in the freezer to actually try it ourselves.
Posted in General | 3 Comments »
