Archives for August 2007

Housing Bubble Talk: The Real Estate Cycle Is Moving Along Nicely

Posted on August 11, 2007 // 27 Comments

I couldn’t help but catch some of the news coverage about this week’s continuing fallout from subprime loans, the resulting stock market wobbles, and the overall tightening of the credit market. CNBC’s ratings must be through the roof. Then tonight I stumbled upon a post on the housing bubble blog Patrick.net about it being a point of inflexion:

I believe we are now at what will be seen as the inflexion point. It took a long time to get here, but the housing bubble is finally recognized as a pass? concept. The real debate now is how much and how long of a correction.

This reminded me of the graph below, which I brought up when I asked If Real Estate Prices Are Cyclic, Where Are We Now?. This was back on January 4th, 2007.

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At that time, I guessed we were somewhere around Anxiety. Now, seven months later, where are we now? I’d say we’ve moved past both Anxiety and Denial already, and we are solidly at Fear. Mathematically, the inflexion point (aka inflection point) is where the second derivative changes sign. Guess where the inflexion point on such a sinusoidal graph is?

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As this CNN Money article about tighter lending standard suggest, I may be well positioned to benefit from this progression:

In addition, tightened lending standards stemming from the subprime crisis likely mean fewer buyers, pushing down home prices. The one catch is this: You’ve got to be a buyer with good credit, a low debt to income ratio, a healthy down payment, verifiable income, and looking to finance less than $417,000 (the cutoff for so-called jumbo loans).

Bring on the Desperation! 😉

Filed Under: Real Estate //

Got A Camera And Some Free Time? Work For Google!

Posted on August 10, 2007 // 16 Comments

In an effort to gather even more information for Google Maps and to promote advertising on it, Google is offering now work (as an independent contractor) under the role of Google Business Referral Representative:

As a Google Business Referral Representative, you’ll visit local businesses to collect information (such as hours of operation, types of payment accepted, etc.) for Google Maps, and tell them about Google Maps and Google AdWords. You’ll also take a few digital photos of the business that will appear on the Google Maps listing along with the business information. After the visit, you submit the business’ info and photo(s) to Google through your Local Business Referrals Center, and we’ll pay you up to $10 for each listing that is approved by Google and verified by the business.

I think you can see an example here for the best pizza in Portland. $10 a pop? Seems easy enough on the surface; However, digging deeper I found a lot of variables that may affect your payday.

Referrals are approved by Google based on the completeness and quality of data supplied by representatives. Businesses verify their information either by sending us a response postcard or verifying their information online.

You only get $2 for each business approved by Google, and then $8 more if the business actually verifies your information. What are Google’s quality expectations? (Do you have to do an entire spiel about Adwords?) What is the likelihood that the business will verify their info? Also, it’s not clear if you can just pick any old business. You may end up earning at lot less than you think, and still owe self-employment taxes.

On the other hand, it may be fun for those that have the right combination of free time and efficiency. Get a crowded location, sell it right, and maybe make $20-$50 an hour. Soon we’ll all be working for Google in some way… Found via DumbLittleMan.

Filed Under: Deals & Offers //

Make Money From Credit Cards: 0% Balance Transfer Profit Calculator Tool

Posted on August 9, 2007 // 65 Comments

My series of articles on How To Make “Free” Money From 0% APR Balance Transfers has been very popular and many readers have also jumped in. Despite the risks, I’m still happily earning some money from the credit card companies for a change, and haven’t missed any payments. From the beginning, people have asked me to make a spreadsheet or calculator in order to estimate the potential profit from such endeavors. I initially decided against doing so because there are lots of different variables at stake that make an exact prediction close to impossible. However, I think it may still be useful to obtain some more realistic numbers.

Without further ado, I present to you the…

0% Balance Transfer Profit Calculator

Enter savings account APY: %
Enter starting balance: $
Enter the monthly minimum payment percentage (2%) %
Your interest earned:   $
(See assumptions and definitions below)

Inputs and Definitions

  1. Arbitraged Interest Rate (APY) – Where are you putting the money you’re borrowing for free? This is the interest rate of the investment vehicle (savings account, CD, Treasury bond) you are using, or perhaps the interest rate of the existing loan (car, home equity, student) that you are paying down.
  2. Starting Balance (dollars) – How much money are you transferring?
  3. Monthly Minimum Payment (%) – Usually you must still make a monthly minimum payment on the outstanding balance during the 0% period, which will decrease your profit potential slightly. This is usually around 2%, but may vary between 1.5% and 4%.

Assumptions

  1. The balance transfer is for 12 months at 0% APR, with no balance transfer fee. You can find my list of the best 0% APR offers here with low or no balance transfer fees here.
  2. The interest is assumed to compound monthly, which allows me to convert from APY to APR, and then to a periodic rate. Compounding frequency is a variable here, but doesn’t change the numbers too much.
  3. I am ignoring the time required to actually convert the balance transfer into cash earning interest. Sometimes this can take up to a few weeks, sometimes it is much faster. Instead of guessing, I just leave it be.
  4. I am also ignoring things like grace periods and the timing of statement cycles and due dates, which can actually increase the time that your borrowed money is earning interest, and thus your profit.
  5. If you are earning interest in a taxable bank account, you will likely owe income tax on that interest at your marginal rate. This is not accounted for in the calculator, but is a simple calculation.

(If you’re confused about what I am talking about, please refer to the tutorial mentioned above.)

Example Profit Calculation
Let’s say you obtain $15,000 and place it in a bank account paying 5.25% APY, with a 2% monthly payment. Using our assumptions, the 5.25% APY is equivalent to 5.13% APR, or earning 0.4273% of the balance each month.

Beginning of Month #1: You have $15,000 in the bank. Total balance left on credit card: $15,000. Nothing is due yet.
End of Month #1: You earn $64.10 in interest, but also need to pay back $300 (2% of $15,000) out of your bank balance for the minimum payment.

Beginning of Month #2: Total in bank:$14,764.10. Total balance left on credit card: $14,700.
End of Month #2: You earn $63.09 in interest, but also need to pay back $294 (2% of 14,700).

This continues for 12 months, as shown below:

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At the end of the 12th month, your bank balance is $12,477.87, and you still owe $11,770.75 on the card. You pay it off completely, leaving you with the resulting estimated profit of $707.12.

Play around with the calculator. Some people actually have over $100,000 out at once, earning them thousands of dollars a year. My credit limits aren’t quite that high…. yet!

Filed Under: Credit Cards, Deals & Offers, Tools & Calculators //

Health Insurance Benefits: Should I Choose the HMO or PPO Plan?

Posted on August 8, 2007 // 47 Comments

Starting a new job means signing up for benefits. In terms of health insurance, this has usually boiled down to choosing either an HMO or PPO plan for us. I still have never been offered the option of a High Deductible Health Plan (HDHP) with a Health Savings Account, even though I think it would be neat to have one.

After reading through all the paperwork and talking to the benefits administrator, talking with my parents (who’ve had lots of different insurance companies), and reading various articles online – here is my limited understanding of the differences, at least in my case. Please add your own thoughts too.

Health Maintenance Organizations (HMOs)

  • Usually have the lowest premiums and lower annual deductibles. In return, you must submit to various cost-saving restrictions.
  • You must get care from providers in your HMO network. You can’t use a doctor from outside the network unless in some special case it is explicitly approved (unless you pay for it yourself).
  • You must find a primary care physician (PCP) who acts as a gatekeeper to other (in-network) specialists. For instance, your PCP decides if you need to see a cardiologist, dermatologist, urologist, whatever. Although this is designed to limit unneeded care, it can also be frustrating if you disagree with your PCP. It also underscores the importance of finding a good PCP.
  • Often have less paperwork and forms to fill out.
  • You are still covered for emergencies at whatever hospital can best provide care at the time, although they may transfer you shortly afterwards to an in-network hospital.

Preferred Provider Organizations (PPOs)

  • Usually have higher premiums and higher annual deductibles than HMOs. In exchange it offers more flexibility.
  • You can see any doctor, but the costs for you are lower if you see an in-network provider vs. an out-of-network provider. In-network doctors have agreed to a discounted fee schedule for people in the PPO, essentially providing a bulk discount. This is the PPO method of limiting costs.
  • Even if you disagree with your PCP, you can still go to whoever you want (in-network or not).

In the end, I guess one has to balance the details of each HMO and PPO plans carefully with the price differential. How much choice do you give up by going with your specific HMO? Do they have a history of complaints? In looking at cost, it’s important to understand the whole picture beside just premiums – there are also annual deductibles, co-pays, and lifetime maximum benefits.

In our case, the HMO and the PPO are by the same big insurance company, so that simplifies things for us. In addition, our family actually already has an PCP that they’ve been going to for a while, so I’m pretty sure we’re going to go with the HMO over the PPO. The HMO is $200 cheaper per month, has no annual deductible, and has lower co-pays. Otherwise, I think the best bet is to ask co-workers and friends who have the same insurance plan about their experiences and if they know of a good PCP.

Filed Under: Insurance //

Running On A Gilded Hamster Wheel

Posted on August 7, 2007 // 40 Comments

The New York Time recently published an article In Silicon Valley, Millionaires Who Don?t Feel Rich about people who have big savings and big salaries, but still keep working crazy hours:

Mr. Kremen estimated his net worth at $10 million. That puts him firmly in the top half of 1 percent among Americans, according to wealth data from the Federal Reserve, but barely in the top echelons in affluent towns like Palo Alto, Menlo Park and Atherton. So he logs 60- to 80-hour workweeks because, he said, he does not think he has nearly enough money to ease up.

?You?re nobody here at $10 million,? Mr. Kremen said earnestly over a glass of pinot noir at an upscale wine bar here.

Working inside a start-up has always been invigorating, she says. But she and her husband, 62, who also works, have concluded that she must stick with it if they are to continue to live the life they enjoy here. Recently the couple hammered out an agreement: Ms. Baranski will work at least five more years for the sake of their bottom line.

?People around here, if they have 2 or 3 million dollars, they don?t feel secure,? said David W. Hettig, an estate planner based in Menlo Park who has advised Silicon Valley?s wealthy for two decades.

The easy response, and my initial one as well, is “boo-fricken-hoo, cry me a river”. But it kept sticking my mind for some reason. Will I be like this? These people are obviously intelligent, but perhaps these people are stuck in their own little hamster wheel, albeit perhaps a nice Land Rover version. Work, spend, work, spend. When looking at the rich people around me, sometimes I think that the people who get to be millionaires at a young age are the same people who just need to keep working. More, more, more. I can only hope that I will know the meaning of “enough”.

Perhaps I should buy this USB hamster wheel, which spins when you type. Seems like a perfect daily reminder 🙂

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Filed Under: Frugal Living //

Free Samples of Schick and Gillette Razors

Posted on August 6, 2007 // 16 Comments

I’m running low, but hopefully with these offers below, my streak of at over 5 years of not having to pay for razors can continue… Credit goes to Bargainshare. In my opinion, all razors are uni-sex. 🙂

Free Schick Quattro Razor (don’t forget to check the box)
Free Gillette Fusion Power Razor via Sam’s Club.

Also: Regular free samples from Wal-Mart and StartSampling

Filed Under: Deals & Offers //

August 2007 Financial Status / Net Worth Update

Posted on August 6, 2007 // 25 Comments
Net Worth Chart August 2007

About My Credit Card Debt
Newer readers may be alarmed by my high levels of credit card debt. In short, I’m borrowing money for free and keeping it in safe investments while earning me 5-6% interest. Along with other things, this helps me earn extra side income of thousands of dollars a year. Recently I put up a series of step-by-step posts on how I do this. Please do check it out if you are curious. This is why, although I have the ability to pay the balances off, I choose not to.

Commentary
What a crazy month July was. Saying goodbye, packing up, visiting family, celebrating a marriage, moving, saying hello! In the meantime, our net worth dropped, again! What happened?

» Stock Market Blues. With everything that’s been happening, I haven’t been keeping up with this wild stock market ride. Losing 5% in one month in our investments was a surprise. Sub-prime loans are either a real factor to worry about or mainly just a cover-up for the fact that people really don’t know what to think right now. I certainly don’t, but I never try to understand the short-term movements of the markets.

» Moving Chaos. Moving cross-country really throws off a budget. We ate out a lot. We paid for travel costs. We had to pay for movers, but are waiting to get reimbursed by our employers. We bought some new furniture. We only had to pay for rent for a part of July, but we’re still waiting for our security deposit back.

» New Jobs. We’re both in our new positions and faced with new co-workers and bosses, bigger (upcoming) paychecks, and a whole new set of challenges. I have to decide on investments and contribution levels for a new 403(b), as well as other benefits like health insurance, dental insurance, and disability insurance. Lots of stuff to talk about in August!

Quick summary time… We are still saving cash, with our non-retirement funds now add up to $72,699, and total cash is $67,294 (+$2,573 from last month). Read about our mid-term and long-term goals and take a look back at our previous net worth updates.

Filed Under: Goals //

TradeKing Review: $4.95 Online Stock Broker

Posted on August 5, 2007 // 36 Comments

By request, I’m posting a review of my opinions experiences with online discount broker TradeKing. I’ve actually had an account with them for over a year now. This will be done from the perspective of a buy-and-hold investor in stocks and ETFs, not an active trader.

Commission and Fee Schedule Overview
TradeKing offers $4.95 stocks trades across the board – market or limit, online or broker-assisted. $4.95 isn’t as low as it used to be, with brokers like Zecco.com offering free trades now, but it’s still much cheaper than the big discount brokers like E-Trade or TD Ameritrade for non-active traders. They also offer options for $0.65 per contract, also a competitive price.

There are no minimum opening balances, and also no maintenance or inactivity fees to worry about. (You need $2000 to open a margin account.) There are no annual maintenance fees for IRAs, but to transfer out or terminate one costs $50. Electronic statements are free, but paper statements cost $2.50 each.

Opening Process
The application seemed pretty standard, including having to sign off on all those long disclosures. It was all online and I did not have to mail anything in.

One thing to note is that if you want to fund your account via an online bank transfer, you’ll have to be very patient. After you provide them with the account and routing numbers, they require 5 business days to verify it. Then, every online transfer (max $10,000) takes 5 business days to complete. So if you choose this option like I did, you’re looking at two weeks minimum before you’ll be ready to trade. The quickest way to start is to perform a wire transfer into your new account.

Trading Interface
My first impression of the account several months ago was that the interface was a bit sluggish. But recently, the response time has been great and overall I like the interface. Here are some screenshots of the Account Summary and the Trading screen:

They offer trailing stops and contingent orders based on price triggers, as well as complex options trades like spread, straddle, strangle, combo, butterfly, collar, and condor.

Customer Service. They are actually very responsive on the customer service side. I can usually get someone on Live Chat within 5 minutes, and they are faster to pick up the phone than my previous calls to Ameritrade and E-Trade. I can’t speak as to how they handle complex questions, as I haven’t been faced with any real problems yet.

Dividend Reinvestment. They offer free automatic dividend reinvestment, with the ability to purchase fractional shares. This can be set for all your stock holdings, or just specific ones. This is nice if you have ETFs and you want to reinvest dividends like you used to with mutual funds.

Money Market Sweep. By default, only 1% interest is paid on cash balances. You can sign up for one of three money market sweep accounts (taxable, tax-exempt, treasury), with the taxable option is currently paying 4.22% and is FDIC-insured. I highly recommend signing up for this right away, it takes just a second to send them an e-mail message and you’re all set. No forms to fax or mail in.

Long Transfer Times. Again, ACH deposits are subject to a trading hold of 5 business days, and also cannot be withdrawn for 10 business days. This can be a pain if you have a hot idea and want to make a trade fast, so I would keep whatever money you want to invest in the money market sweep above.

Awards. TradeKing has many of their awards on their site, including getting ranking #1 in Customer Service from SmartMoney magazine in 2010.

Sign-up Bonuses. For new customers they will reimburse ACAT transfer fees charged by your existing broker up to $150 when moving your account over to TradeKing.

I hope this helps people make a decision! I like TradeKing, but it’s very hard to simply call any broker “the best” or “the worst” as everyone has different trading levels and preferences. What one person deems a critical feature, another cares nothing about.

More Broker Reviews
Scottrade Review – $7 Trades
Zecco Trading Review – 10 Free Trades/Month

Filed Under: Investing //

4 Ways To Tell If You’re On Track For Retirement

Posted on August 4, 2007 // 24 Comments

August’s issue of Money Magazine asks: Are You Doing The Right Things (For Retirement)? Although a bit mundane, it’s offers a quick gut check. Here are the questions and my answers:

1) Are you maxing out your 401(k)?

I think I put in $10,000 last year, which wasn’t the max. This year I haven’t been on pace for the $15,500 maximum either, but I do plan on reaching it by year’s end. I’ll need to run the numbers to see how much I’ll need to increase my contributions in order to catch up in time.

Maxing out a 401(k) does seem like a tall order for the average U.S. household though, considering the median income is about $46,000 a year.

2) Are you keeping tabs on your progress?

Yup, every month. Next update is coming up soon.

3) Are you grabbing every tax break you can?

This is mostly directed at IRAs. I’m probably not going to be eligible for a Roth IRA this year due to the income restrictions. However, I will likely fund a non-tax-deductible IRA, which has the potential to be converted to a Roth in 2010. Otherwise, I’ll settle for the watered-down tax advantages and stick some bonds in there. 🙂

4) Have you created a safety net?

In an addition to an emergency fund (they say 3 months), the article states you should have adequate life and disability insurance. Life insurance is something I definitely want to get within the next year, and definitely before we buy a house.

Filed Under: Insurance, Retirement //

2007 Back-To-School Sales Tax Holidays

Posted on August 4, 2007 // Leave a Comment

Summer’s winding down, which means that certain states (though not mine) are having sales tax holidays for the back-to-school crowd. If you’re in need of stuff like clothes, school supplies, computers, and electronics, TaxAdmin.org has a nice table of all the holiday dates listed by state for 2007. A quick summary of eligible items and links to the official state websites are also included.

Filed Under: Frugal Living //

Reader Poll: How Large Is Your Emergency Fund?

Posted on August 3, 2007 // 35 Comments

Unless you have unlimited ATM access to the Bank of Mom and Dad, most of us keep some money around for the unexpected. I haven’t been worrying about this much, as we have over $80,000 in cash split between our savings accounts at Washington Mutual (5% APY) and FNBO Direct (0.85% APY). (See bank reviews and more here.) Although this is for a mortgage down payment, technically all of it could be tapped if needed.

But, if we do buy a place, we’ll need to decide exactly how much we want to keep in cash. Instead of absolute numbers, I like measuring it in terms of “months of basic expenses”. This expense total will be different for everyone, but it is essentially what you would spend if you had no income anymore. For most people, they would still need to pay things like rent, utilities, and insurance. But maybe they would spend less on dining out, travel, or entertainment.

You can help us decide by sharing your own situation. Just divide your current Emergency Fund balance by your Basic Expenses, and vote below. One is for what you actually have saved, and one is what you think you should have saved. You can view the results right after voting.

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{democracy:5}

If you’re curious, you can also check out the results of the last poll: Do You Have A Speculation Portion Of Your Portfolio?

Filed Under: Frugal Living, Insurance //

$100 Signup Bonus For Chase Checking Account

Posted on August 2, 2007 //

Chase Bank is offering a $75 $100 bonus for opening a “Free Checking” account with direct deposit. Thanks to SoonToBeKSGrad, who found it from the post office when moving. Chase will likely perform a hard credit check, they did for me. Selected fine print below:

Offer valid from 08/01/07 through 10/31/07. A $100 minimum opening deposit of new money … Reward will be automatically deposited into your new account within 10 days of account opening …. Chase Free Checking has no monthly service fee when you have a monthly direct deposit. Checking account must remain open for six months or the reward will be debited from the account at closing.

Filed Under: Deals & Offers //
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