Sunday, March 30, 2008

Do we really want to bail out vandals?

It seems that the subprime “victims” are reacting to their foreclosure situation by vandalizing their own homes. Evidently these folks who are not making payments on their homes are angry with the lenders who want to reclaim their property. These are grown adults, right? How can anyone have sympathy for people like this?

And just to add to the irony, the lenders are offering up to $1000 to these people to leave their homes intact. In other words, the subprime “lendees” are actually getting paid not to smash in the walls and tear out appliances!

Given all of the media coverage, one might think that our neighborhoods are going to be barren before long. So, just h
ow extensive are these credit problems? George Will on ABC's ThisWeek stated that of the 55 million mortgages in the US, only 4 million are in trouble. He seemed exasperated by the whole situation. And I have to agree, it’s hard to believe that such a small percentage could rock the entire housing industry, financial industry and stock market the way it has. The media and the politicians have painted this situation to be so dire that reportedly we are now at a five year low for consumer confidence.

If all of this is getting you down then maybe you would like to read this article that provides three reasons for optimism in the midst of dropping consumer confidence. I listed those top three reasons below and added some additional rationale as to why we should all be enjoying this recession. ;)

1. Low mortgage rates. This is good news for homeowners who want to refinance into a fixed rate loan.

Yes, right now is a great time to be a buyer. Home prices are dropping some 20% in many areas. This leads to even more good news: since home values are decreasing, then so will property values and eventually property taxes. Woohoo! If you own your home, you’ve got to be pleased with that and if you are looking to buy, well, you are sitting in the catbird seat.

Don’t buy into the media hype and the fear mongering. They want everyone to be worried about the declining value of their home. It is not an issue unless you plan to sell right now. Surely you have planned further ahead than just the next year or so. Besides, moving is way too expensive and disruptive to the kids social lives, anyway. You might as well plan to dig in and stay put for awhile.

2. Consumer incentives. If you're in the market for a car, the time to buy is now until the end of the summer.

Yes, right now is a great time to be a buyer. I know I am repeating myself, but it’s true. Now is the time to go out and buy the car you have always wanted. Car dealers are ready to deal, offering cash rebates and low loan rates. Not only are cars a good buy, but other consumer goods, as well will be discounted. It’s a great time to have some extra money stashed away.

We have had some good times over the last several years. Given the rising stock prices, increasing salaries, low inflation and low cost of living – surely you have stashed away some of those rewards just for this occasion. We all know good times don’t last forever. That’s why we save our money during the favorable years to be prepared for the inevitable fall.

3. Buy the recession. When the market plunges, it's tempting to cut your losses and pull your money out of the market. But market declines can provide opportunities for investors looking for investments at bargain prices.

Yes, right now is a great time to be a buyer. This is the moment investors always dream about. It’s time to break open the piggybank and buy into this stock market decline. You don’t want to miss this great opportunity to buy low. If there is any doubt, just take a look at the greatest investor of all time, Warren Buffet. He has a ton of cash stacked up and he’s been on a buying spree.

Saturday, March 29, 2008

Do cell phones make drivers more considerate?

I have not come across any scientific evidence to back this up, but from my own personal experience, it seems something has changed driver behavior.

Years ago on country roads or even busy streets, some motorists acted like they could get away with all kinds of nasty behavior towards cyclists. As of late, for some reason, I have had a lot fewer incidents with motor vehicles. Gee, no one has tried to run me off the road in a couple of years!

I am not sure what to attribute this change in behavior. Maybe it’s just luck. I have actually increased my riding mileage, but I have not changed my riding style and my routes are the same. Even though more cars are on those routes, it seems I have had less trouble. One thing that is different is the fact that I carry a cell phone with me and so does nearly everyone else. Since cell phones are ubiquitous these days, I think most people/drivers assume that everyone has one. Even bicyclists. And that means the police are just a phone call away. Does this make people more accountable for their actions?

I take my cell phone on every ride. Not that I have ever needed to call anybody for help. I have been riding for 20+ years and have been able to fix every flat, broken crank arm, and bent spoke, etc. Or at least fix it well enough to limp home. ;)

But, you never know when you might fall, break something, or have an accident with another vehicle. The phone provides just a little added security, which is the primary reason that I have a cell phone. And just maybe it also makes drivers a little more responsible.

The Real Cost of Outsourcing Tasks

Sometimes it’s just so much easier to pick up the phone and call in someone else to do a job. They have all the right tools, they will get it done faster and you will free up some time to do whatever you would like. Sounds like a winner, right? For those of us with limited resources, in other words, those of us who are not handy or just don’t want to learn any skills other than our 8 to 5 jobs, it may be the only way to get something done. I hear and read about a lot of folks, even PF bloggers, who rationalize away such tasks by stating that their time is worth more, etc. That’s fine, just be aware of the added cost and the impact to your wealth building dreams.

What most people forget is that by hiring someone else to take care of a task that you could do yourself you are paying a premium for that work. Most of us earn money in pre-tax dollars, but we pay bills in after tax dollars. Therefore, when you pay a $500 landscaper’s bill, it really costs you much more depending on your effective tax rate.

If you have completed your taxes for the year, that rate should be fresh in your mind. My rate, for instance, came out around 20%, which means I must make 1.25 to keep one dollar. It also means that I will give up $625 to the landscaper for a job that I could do myself. Think about this a little deeper. If I did the work myself, I would be receiving the equivalent of a $625 raise.

To take this even further, we need to look at the wealth building power of that $625. When it comes to investing, you have probably heard that it takes money to make money. By hanging on to the $625 and investing it, instead of spending it, it will grow into something much more. At a 6% rate, it will double in 12 years.

To demonstrate that I am not just blowing smoke or preaching hot air, I will share a real life example. Not long ago, I needed to replace the faucets in my house. They were cheaply made, contractor selected faucets, that still worked after 15 years, but looked terrible. The plating was cracked and peeling off the plastic parts, some of the drain plugs would not seal and some had leaked/dripped water in the cabinet under the sink.

I had never done much plumbing work, but the cost of hiring a plumber to replace five faucets was daunting. One estimate for labor only was $150 per sink or $750 for the whole job. I decided to give it a try. If I couldn’t get the job done, I would bring in a professional. How tough could it be? After all, each faucet comes with instructions for installation and there is a ton of “how to” info on the internet.

The first one was a challenge. I started having my doubts. The cabinets under the sink were cramped and dark and I didn’t have the tools (like a crows foot wrench) that fit into small spaces. As with most tasks, there is a learning curve. I eventually figured out what needed to be done first, second and so on and how to make do with the tools that I had. Each night after work, I removed the faucet and drain apparatus from one sink, cleaned the sink surfaces and prepped for installation. The next night, I installed the new hardware, cleaned the area and repainted the cabinet under the sink. By the third sink, I was very comfortable with the tasks at hand and actually enjoyed the work. It provided a sense of accomplishment and was a real confidence builder.

The bottom line is that by developing and growing our own resources and learning new skills, even if they are fairly simple skills, we will be able to do more things for ourselves and hang on to a lot more of our hard earned dollars. And by investing the money that you saved, those dollars in turn will work for you. In the end, developing your resources can help lead you down the path to true wealth.

Tuesday, March 25, 2008

High Risks and High Costs

It was a couple of weeks ago when I first received the news that a long time friend of mine had been diagnosed with cancer. He is in his mid forties - just a few years older than me. There seems to never be any rhyme or reason to such things. He has always been a healthy individual, strong, outdoorsy and with a positive attitude.

When I spoke with him about his condition, I was reassured by his matter of fact approach. He stated lots of statistics and mentioned both the downfalls and the bright side to the whole situation. I refrained from questioning him, but it is only natural to want to ask how and why these things happen to people. I know that whenever I am confronted with some illness or injury, I want to know the root cause. Sure, I want to treat the symptoms and reduce the pain, but even more so I want to address the source. What went wrong? What can I do to prevent this in the future?

Obviously cancer is more complicated than a torn ligament or a recessed gum line and no one has those kinds of answers. From what is currently known about cancer, it appears that several factors interplay and that genetics have a huge role in the disease along with one’s environment and lifestyle.

News of the diagnoses was distressing, but to add even more anxiety to the situation – he told me that he is without health insurance. He is self-employed and for nearly thirty years he and his wife received health insurance through her employer. In all of those years, they were rarely ill, had no children and consequently almost never used the policy. As fate would have it, four months ago she left her job to take over the “books” for his small business. They never got around to signing up for health insurance! Again, I refrained from asking too many questions. I know that money was not the issue, so how could anyone in this day and age allow this to happen? Haven’t we all heard the horror stories about people with and without insurance?

So what does one do when faced with expensive treatment costs? One negotiates; one makes deals with the doctors! His doctors have a special plan for people without insurance. It’s called the cash discount! If a treatment is expected to cost $1200, the doc will offer it for 50% off or $600 when paid in cash.

Such dealings seem absurd, but it’s at times like these that we are reminded health care is just another business; a business that deals in life and death.

In addition, drug companies occasionally offer free samples or donations to prescription-assistance programs for people without insurance. Even with these cost breaks and freebies, his bill over the last few weeks has exceeded $12,000. His future includes several radiation treatments and a couple of surgeries, so this bill will continue to climb, astronomically. Every treatment that is recommended by the doctor must be weighed for cost effectiveness.

Who needs another variable like that in decisions about your health? For additional reading, I found this MSNBC article to be very informative about the rising cost of treatments and the new guidelines to help doctors discuss the affordability of treatment options with patients.

Meanwhile, my friend is researching the possibility of getting into a high risk state-assisted insurance pool at $1600/month. If at all possible, this is probably the way to go since other health complications may arise during his treatments.

This experience has categorically brought home for me the importance of health and health insurance. Things can and do change suddenly in life. For many years, I have planned for early retirement, which would mean the cessation of my current health insurance. With that in mind, I have always intended on purchasing a high deductible plan to continue my coverage. Now, I am certain beyond any doubt, that I will have coverage before leaving my current employer.

To read the latest and greatest blogposts on Personal Finance, check out this week's Carnival of Personal Finance.

Sunday, March 23, 2008

Behavioral Finance - Bias from over-influence by Authority

This is the tenth in a series of posts about common human misjudgments. The series is based on a Charlie Munger speech at the Harvard Law School in 1995.

Why study human behavior in relation to finances?
Recognizing and understanding why people do the things they do, what drives them, and what are innately human tendencies is the first step in overcoming your own self and making sound decisions! We want to make rational, logical decisions, but emotions and irrational tendencies get in the way.

These behaviors are not all bad, many are good in some way - that is why they survived. In fact, these behaviors served some purpose that helped extend life at some time in the evolutionary process.

10. Bias from over-influence by authority
One of the best and most extreme examples of this human behavior is the famous Milgram experiment. The study was devised by Yale University psychologist Stanley Milgram to answer this question: "Could it be that Nazi war criminal Adolf Eichmann and his million accomplices in the Holocaust were just following orders? Could we call them all accomplices?

In the experiments, volunteers were asked to administer a shock to another "subject" (actor) each time the subject got a question wrong. With each incorrect answer, the intensity of the shock increased. A tape recorder integrated with the electro-shock generator played pre-recorded sounds for each shock level. When the volunteer hesitated to administer additional shocks, for example, when the actor was screaming in agony or the gauge indicated that the intensity had reached a lethal level the test administrator simply said, "The experiment requires that you go on," or "It is absolutely essential that you continue."

The results were horrifying: 65 percent (26 of 40) of experiment participants administered the experiment's final, deadly 450-volt shock, though many were very uncomfortable. At some point, every participant paused and questioned the experiment. However, no participant steadfastly refused to administer shocks before the 300-volt level.

It’s amazing how ordinary people, simply doing their jobs, and without any particular hostility on their part, can become agents in a terrible destructive process. Even when the destructive effects of their work become clear, and they are asked to carry out actions incompatible with fundamental standards of morality, relatively few people have the resources needed to resist authority.

There are probably very few of us that believe we would do any thing like this. Yet, similar, but less outrageous situations occur all of the time in life. For instance, as investors, we tend to defer to perceived authority figures, including successful investors, investing newsletters, strategies, and market prognosticators. We tend to place too much stock in the opinions of those who seem to know more than us.

I have seen this quite frequently in the workplace. For example, from time to time, a consultant is brought in to work an unusual or persistent problem. That consultant only needs to make one or two credible statements or predictions and he/she is immediately anointed by management. No more questions asked, this consultant is now deemed the authority and we are expected to proceed according to his/her direction. In all fairness, the program manager is primarily interested in getting the problem solved to move on to the next milestone, whereas, the engineer wants a more thorough understanding of the issue and has a lot more questions.

As a final note, it’s important not to view the conclusions of such behavior as yet another indication of just how helpless we are to these tendencies, but rather simply recognize it as a handicap that we all have. Once we become aware of these tendencies, perhaps we will be become better able to “catch” ourselves in the act and modify the behavior to our advantage.

Saturday, March 22, 2008

Springtime Money $aving Stories

My “big” savings for the week was at Home Depot. A local car dealer mailed a coupon flyer to me that included a $10 Home Depot Gift card with a purchase of $49.95. I took the opportunity to get ready for Spring and stock up on things like lawn fertilizer, garden mulch, seeds, pepper and tomato plants. At the checkout, it wasn’t clear how the Gift card was going to work, but no worry, the teen at the register didn’t even bother to read the coupon. He just shrugged and gave me $10 bucks off my purchase on the spot.

Perhaps the growing illiteracy problem reported by the local schools is not the concern I thought it was (sarcasm). Today, it appears this has worked to my advantage!

I also brought a sack lunch to work. Whoopee. This doesn’t register with me much since I think it’s worth $5-6 bucks for lunch to get out of the office for 45 minutes everyday and experience the outdoors, feel the weather, breathe fresh air, or at least see something other than cubicles and conference rooms. Anyway, I brought my lunch not so much to save money, but just so I could work through the lunch break and check out a little earlier to take advantage of the warm, sunny Spring day.

And finally, I washed my own truck. Of course, I always wash my own truck. Just like I always mow my own yard. And I plan to do these things until the day I croak – regardless of how much money I have or don’t have.

I don’t know what the going rate is for truck washes, but I can’t imagine spending $10-15 or more for something that I can do very easily and conveniently in my own driveway. Besides, it’s the principle of it all - you don’t really own something until you wash it and clean it yourself. That’s when the true costs (time and money) become evident, which ultimately serves as a great deterrent from collecting more things that would require maintenance and cleaning. If I paid someone else to do these things, I might be tempted to take on a lot more stuff and that is the last thing that I need or want.

Thursday, March 20, 2008

I confess – I have a prepaid cell phone

Don't tell anyone, but I have a cheap phone. I'm not sure when it was, but it seems somewhere along the way cell phones became status symbols. And there are consequences for not keeping up with the latest and greatest. For me, a cell phone is a communication tool, not an entertainment device or a fashion accessory. So, of course, I have a prepaid Tracfone.

Earlier this week, I thoroughly enjoyed PaidTwice’s post on how she loves her prepaid phone. That type of talk is nearly blasphemy around my workplace. The only people I know who have prepaid cell phones are related to me!

It seems that everybody else wants and expects a lot more out of a phone. My co-workers would not even consider a prepaid phone and regularly make disparaging comments about my excessive frugality for owning one. Not to mention the fact that it doesn't even have a camera! Horrors!

Maybe it’s a frugalmeter? Obviously, the most frugal folks would not entertain a cell phone at all, but for those of us willing to splurge a little, a prepaid cell is the ticket. I figured out real early on that most of my cell calls are for 1 to 2 minutes. And most of the calls are locaters. For instance, “I’m here, where are you?” “Let’s meet at the Oasis.” etc. I do not have long drawn out conversations on my cell.

This is obviously very different behavior than the rest of the wirelessly connected world. It seems the majority of people just love to be connected all of the time. I have a neighbor who never goes outside or drives anywhere without a cell phone appendage. This obsession appears to be the height of insecurity. She is terrified to be alone with herself.

What may be even more bothersome is those folks who try to carry on two conversations at once. They will be talking on the phone and at the same time standing at a store counter trying to talk to a clerk about buying tires or whatever. I feel sorry for the other people in these conversations. Are these cell phone addicts so inconsiderate that they don’t realize they are being impolite?

Then there is the couple out for dinner where one spends the whole meal chatting on the phone while the other sits rather uncomfortably dining alone. Incredible. And finally, how about the annoying business man on a flight who calls his wife every 2 minutes to relay the flight progress. He calls to say things like: “we are on the ground”, then a few minutes later: “now, we are at the terminal”, “now, we are waiting for the door to open”, “now, I am in the tunnel”, etc. Ugh.

Anyway, Just like PaidTwice, I love my prepaid phone. It’s perfect for my type of usage and the price is right. The only downside that I have experienced is that I can’t get a statement with itemized calls for billing. I would have liked this feature to help get reimbursement for work related phone calls, but Tracfone would not give up the data. To avoid that problem, I typically check out a company cell phone when on travel. That’s a small inconvenience and certainly not enough to make me part with my no frills, frugal cell phone.

Wednesday, March 19, 2008

Tax Holiday for Appliances

If you have an appliance purchase in your future, you might want to hold off until Memorial Day weekend. From 12:01 a.m. on Saturday, May 24, to 11:59 p.m. on Monday, May 26, certain energy-efficient products will be sold without the state sales tax. This is a Texas tax holiday, but other states may be participating as well.

You could snag a substantial savings on products that qualify under the Energy Star program, which means the product meets strict energy-efficiency guidelines set by the US DOE and EPA.

The products qualifying for the exemption are:

• Air conditioners priced under $6,000 (room and central units)
• Clothes washers (but not clothes dryers)
• Ceiling fans
• Dehumidifiers
• Dishwashers
• Light bulbs and fixtures (compact fluorescent)
• Programmable thermostats
• Refrigerators priced under $2,000

Qualifying products will display the Energy Star logo on the appliance, the packaging or the Energy Guide label. I didn’t realize this but, Energy Star does not rate clothes dryers because there is little difference in energy use among all models.

There are no limits on the number of items that may be purchased during this new sales tax holiday, and an exemption certificate is not required.

You can see lists of products that qualify for the tax holiday at

Tuesday, March 18, 2008

Google Rules Sitemeter Stats

Mostly out of curiosity, I always look forward to checking my sitemeter information. It helps me understand how people find out about my blog, how they get here and what they like to read when they get here. For the non-bloggers out there, a sitemeter is one of many tools that can monitor traffic on websites. It provides a lot of interesting info about where the traffic originates, referral links, language and even browser type.

I don’t know about other blogs, but the majority of the traffic that comes by this one is referred by Google search engine. I knew Google lead the market space for search engines, but I had no idea it was so dominant! Occasionally, someone will visit via MSN or Yahoo search, but over 95% are from Google. I guess I should not be too surprised. I use Google nearly exclusively, as well.

As for sitemeter, my favorite area is the location data. Now, don’t get upset or worry that I can locate you. The location data is very general. Most of the time a city is given. It may not even be your city; it is usually the city where your ISP server resides. And, I have noticed that my own city location varies from time to time.

Anyway, the geography information is fascinating to me. It's amazing that people from all over the world come together and read the same page! Today, I see folks visiting from over 9600 miles away in Singapore and others from New Zealand, Canada, Russia, UK and on and on. One of the most surprising visits was from the Palestinian Territory. I realize people live there, work there and have computers, but from the images that I see on American TV, I can’t imagine surfing in such a volatile area. My ISP has enough trouble keeping my connection up and running in a relatively benign environment. LOL

The other neat thing about a sitemeter is that I get to see what types of things people are searching for. What is on their mind, so to speak. I typically write posts about things that are on my mind, but I still like to know what others are interested in and what they would like to read about. If you check the major portal sites for “most searched items”, it’s kind of disappointing. Because, the most searched stuff is usually related to celebrities. How far do we have to drill down to find more cerebral searches?

It would be cool if one of the portals would index the searches. In that case, for instance, all searches related to finance could be placed in one bin and all searches for Paris Hilton could be in another bin, far away. Maybe there is such a feature? If it is to be, I am sure Google will lead the way.

For more personal finance stories, please visit the Carnival of Personal Finance. My article “First visit to Broker pays off with Everlasting Impression” was included this week.

2007 Tax Preparations are complete

Finally finished! Today, I was finally able to verify/research the last couple of issues and close out my returns. I e-filed my federal return even though I won’t actually send a check to pay the tax man until April 15th. Unfortunately, Turbo Tax couldn’t e-file my “adopted” state return, so I printed that out to mail in. Now, for the results.

The good news first – I will be getting money back from Alabama! I live in Texas, but work out of state quite often and must pay state income tax to AL. The cool part is that my employer pays the tax directly to AL and they pay the maximum possible, or premium amount based on my income earned there. So, if I have any deductions, I get a refund. A refund of a tax that I never paid. Awesome. My HR employee rep kept saying that they were going to pay a “premium” – I didn’t get what that meant until Turbo Tax showed me the money.

The bad news – I owe a lot more federal income tax than I expected. Two reasons: (1) The market was rocking last year. So my capital gains and dividend income was much higher and (2) I also worked a lot of overtime, so my income was higher.

I don’t think I will have either of those two issues in 2008 because the market is a disaster and work has slowed down. Regardless, I’ve already adjusted my W-4 withholding allowances to the minimum possible: 0. As the year progresses, I may have to add supplemental payments to make sure that I pay in for 2008 as much as I paid last year in 2007 to avoid a tax penalty.

I learned the hard way about underpaying my taxes. Back in 2000, I sold some over priced dot-com stocks in March for a hefty gain and didn’t pay tax on those gains until April 2001. The IRS does not like that. They want their cut of your money upfront, right when you make it. In other words, to have complied with the IRS, I would have had to send them a special payment in March 2000.
Even so, I rationalized that paying a small penalty to avoid the possibility of the IRS improperly crediting my account or someone else’s with my prepayment was probably worth it. LOL

Sunday, March 16, 2008

Hold on to your Gold – it’s real and it has trunks

Yes, gold is real and nearly everything else is over priced, fool’s gold. The only asset class that is appreciating in this market is Gold, while nearly every other sector is tanking. That’s because gold is not backed by paper notes, or paper dollars or lots of hype. Its backed by something real – gold.

Even your house is not real. Sure , it is physically real, but guess what - it’s overpriced. The real value is much less. The past 8 years of this easy credit frenzy has boosted the housing market to ridiculous levels. And the banks that financed all of that are overpriced junk! Borrowing from one of Warren Buffet’s sayings - they are swimming in a market without trunks. Well the tide is going out and revealing to everyone what a farce these banks have been running.

The problem is that several of the nation’s largest banks are basically bankrupt. A large portion of their assets are mortgage securities that can’t be sold. They can't be priced and therefore can't be sold. Nonetheless, the banks still have them on their balance sheets listed as Level 3 "assets". Bear Stearns, the nation’s 5th largest bank, has $28 billion in Level 3 “assets” on their balance sheet. Evidently, Bear’s creditors got nervous and tried to cash out this week; this created a huge panic, a run on the bank. Bear stock lost 47% in one day!

The Fed jumped in to help save the naked swimmer, Bear Stearns. The Fed will do anything to save its banks, yes its banks – they are all in cahoots. The Fed plans to print all the money and give all the loans it can to these lousy bankers.

Why not? What’s the problem with that? How about skyrocketing inflation for starts. How about worthless money? Our dollars are shrinking, thanks to the Feds actions. That 1000 dollars you have in the bank is not anywhere close to a 1000 dollars anymore.

So what else can be done? Let the banks fail. Which means the banks would liquidate and call in all of their loans resulting in foreclosures. Housing prices will collapse, money will be hard to come by, loans will be very difficult to get.

But the Fed has already made their choice. Too bad, Bear Stearns is only the tip of this iceberg. The nation’ largest bank, Citigroup, has more than 4 times that amount or $133 billion of level 3 bad debt. What happens when Citi’s clients get nervous and want to sell? Frankly, I can’t believe they have not already tried to sell out of Citigroup. If Citigroup does not get an injection of cash soon, we are going to see that it’s just as fat and naked as Bear Stearns out there swimming without trunks.

The Fed bailed out Bear Stearns because it's worried that if one bank collapses the dominos will start falling and we will get a full out run on banks.

So, what’s an investor to do? If the Fed continues to bail out these banks, inflation is going up and that means hold on to your gold!

Saturday, March 15, 2008

First visit to Broker pays off with Everlasting Impression

Quite a few years ago, while in college, I took an engineering management course. One of the first projects assigned was to select a stock portfolio and follow it daily. This sounded great to me; I was eager to get involved in the stock market. We were expected to chart the results, calculate the return on investment and at the end of the year be prepared to discuss the performance of the stocks. Of course, we were doing this experiment with pretend money.

This was back before the days of the wonderful internet and so to chart the daily moves of a stock, it meant that I would need to subscribe to a newspaper or visit the library everyday. I was too frugal and broke to sign up to a paper and the library idea was way to time inefficient. Fortunately, another much wealthier student in the class subscribed to the Wall Street Journal. He stacked them in a massive pile in a corner of his dorm room for months and then one day at the end of the semester he waded through each of them to get his prices. He then loaned all the papers to me!

Anyway, to get help with the assignment, another student and I decided to visit a nearby brokerage firm. We had already decided that we wanted to research some engineering companies, but we needed to know what the transaction fees were for buying and selling securities. Now, remember this is also before discount brokers. Trading was expensive!

The broker was very receptive, even though we told him we only had play money. He showed us all around the office and pointed out that they had a direct link on a computer to a stock ticker! That was so impressive watching the ticker symbols roll by. I felt the energy; it was like we were right in the middle of the action. I thought it was amazingly cool to see other paying clients come in, sit down at the computer and check out their stocks. Someday that will be me”, I said to myself.

The broker gave us his schedule of fees. And when he heard our story and realized that we were only 20 years old, the only thing he could talk about was how great it was that we were starting investing so early. He went on and on about how getting in early was so important. He rattled off rates of return over the last 20, 30 and 40 years and something about compounding interest.

He was so caught up in getting started early that we didn’t get to talk much about how to research and select stocks! All of his talking and enthusiasm left a very deep impression with me. I was about to graduate with a decent engineering job and would have more money than I needed for basic expenses. I made a note to myself to invest that extra cash as soon as possible.

Would you believe that I never stepped foot into another brokerage firm after that day!? After landing a job, I subscribed to a financial magazine that had advertisements for mutual fund companies. That was the first I had heard about a company named Vanguard. I liked everything I read - low fees, no frills and solid performance. I mailed in my first investment to the S&P 500 fund, VFINX. That was the start of many more investments with Vanguard.

Why didn’t I buy stocks? Very simply - the fees. I couldn’t get over the high brokerage fees! Eventually, a few years later, discount brokers came on to the scene and I promptly signed up to buy individual stocks at more reasonable costs.

Even though I didn’t buy stocks right away, I have to give credit and thanks to that broker for being so persuasive and adamant about investing early because that has proven to be a key to achieving financial independence.

Friday, March 14, 2008

A tale of Stock Mergers and Schedule D

This year’s tax return has been anything but EZ. I do not have a mortgage, but because I have capital gains, I routinely must complete forms 1040 and Schedule D to report those gains or losses :(

Capital gains are typically reported to the IRS by your fund manager or broker. So, the IRS knows what you received in the sale of these securities, but they are clueless concerning the purchase price. You must furnish the cost basis, or what you paid to purchase the stock. This is very important information, because it will determine whether you have a gain or a loss and the amount of your tax bill.

Most of the mutual fund companies will track your basis for you. This is a big help, given the multitude of purchases that can occur when one uses dollar cost averaging. As for individual stocks, you are on your own. I record all of my transactions by date, shares, dollar amount and any fees in an Excel spreadsheet. I also keep the statements for the transactions from my broker. If, for some reason, I still can not find the data, I resort to Yahoo! Finance for historical data.

For the most part, completing schedule D is straightforward, but this year, I have been thrown a new twist. Two of the stocks that I have owned for several years, were bought out by other companies. The mergers resulted in new shares, a cash payout and cash in lieu of shares. Hmmm. How do I report all of that on schedule D?

I use tax software, but I still need to calculate the basis for all this stuff. It sure would have been nice if Turbo tax could have asked about the parameters of the sale and then ran the calculations. I was surprised the software did not have the capability, after all stock takeovers and mergers are rather common events.

Instead, I fired up Google and started searching for some help. Based on information that I found here at, I have worked through one of the stock mergers and it’s tax consequences.

Stock Merger #1
Kinross Gold Corp (KGC) acquired Bema Gold (BGO) in the last quarter of 2007.

KGC merges with BGO providing 0.4447 shares of KGC for every share of BGO, as well as $0.01 Cdn (0.00849 US$) in cash for each share. The price of KGC at the time of the merger is $12.01/share.

I have 1000 shares of BGO at a cost basis of $1464.

After the merger, I have 0.4447*1000 = 444.77 shares of KGC @ $12.01/share and $0.00849*1000 cash.

The total deal = 444.77*12.01 + 0.00849*1000 = $5350.18

Now, let's calculate the gain.
Gain = total deal – basis = $5350.18 – $1464 = $3886.18

The IRS requests that I report the lesser of the cash received or the gain. Obviously, the cash received is much less at $8.49.

Now to calculate my new basis.
New Basis = Old Basis + gain reported – cash received = $1464 + $8.49 -$8.49 = $1464

And finally, since companies do not like fractional shares, the 0.77 shares will be given to me in cash. This is referred to as cash in lieu and must be reported to the IRS.

The cash amount is: 0.77 shares * $12.01 = $9.25

Using my old cost basis, I calculate my cost per share.
$1464/ 444.77 = $3.292/ share

My cost for the 0.77 share is $3.292*0.77 = $2.53

And the gain to be reported is $9.25 -$2.53 = $6.72

All of that number crunching to arrive at a total of $15.21 in gains. Fortunately, this isn't going to impact my tax bill much, but what a pain! And I still have one other stock merger to go…

Thursday, March 13, 2008

How many sodas do you drink a day?

“A man’s true wealth is his health.” - The Buddha.

I definitely agree with the Buddha on this one. I appreciate the wisdom, but this is one of those lessons in life that you must learn for yourself – since it seems no one gives it much thought until they have a brush with disaster or just plain get old. Most of us take our health for granted.

Fortunately, I’ve always had a keen interest in health and exercise and tend to read a lot of health and fitness information, magazines, etc. So, I consider myself fairly informed about health issues. Yet, I have been astounded by some of the factoids that I have come across while reading You: Staying Young: The Owner's Manual for Extending Your Warranty (You) by Roizen and Oz.

One of the most interesting and alarming tips concerns the consumption of fizzy, syrupy drinks. Evidently, drinking these types of beverages increases your chances of pancreatic cancer substantially! I could hardly believe it; so I Googled it and found all kinds of sources that backed up the claim. For instance, this MSNBC article references a Swedish study that makes the statement:

The group of people who said they drank fizzy or syrup-based drinks twice a day or more ran a 90 percent higher risk of getting cancer of the pancreas than those who never drank them.

Twice a day? That’s two cokes a day. Now, there is the caveat that this type of cancer is very rare, so increasing your chances by 90% is still a smallish number. But, just knowing that there is a coke to cancer correlation is rather disturbing. I realize just about anything in excess can cause health problems, but two sodas a day? Basically, your doubling your odds by drinking a couple of silly cokes.

Nowadays, I will only occasionally have a soda, but there was a time in my early twenties that I drank two diet cokes a day, like clockwork. I didn’t think much of it, because everybody that I knew drank sodas with some drinking 5-6 Dr Peppers a day!

Why isn’t this information more available to the public? Isn’t that one of the roles of the Surgeon General? To educate the public on possible health issues? A lot of this information is fairly simple and straightforward and it just seems like it ought to be brought to the attention of the citizens. Of course, there may be some who would rather not have this information available to anyone.....

Wednesday, March 12, 2008

This week’s Money $aving Stories

I have enjoyed reading Single Guy Money's blogging series describing the ways he has saved money over the past week. In fact, I like the concept so much I decided to write a post this week about a couple of recent purchases.

To start the weekend, I stopped into the local take n’ bake pizza place with a coupon (mailer) for a free medium pizza. I upgraded to a large size for a dollar. I got four meals out of that one pizza. Not bad! Tasty 25c meals are hard to beat.

Now for the bigger purchase. Tires. Tires can be a major expense. I checked my MS money history and found that it ranks as one of my most costliest one time expenses. Of course, tires usually last a few years, so to be fair the price should be pro-rated.

Anyway, it’s a chunk of cash to layout at one time. To start the ball rolling, I did some internet research to find tires with the best tread wear, traction, temperature and good reviews. Then called my local tire store for a price. I mentioned another internet store’s price that was slightly lower and asked for a discount. The clerk shaved $14 off each tire and gave me a price of $581.77 to get out the door with my preferred tires. I noted this information and the clerks name on a print-out describing the tire.

I was surprised by the amount of markdown and how readily he offered a discount.

The next day I headed to the tire store. I showed the clerk the print-out of the tire I had chosen. He asked about the $581.77 scribbled on the page. Surprisingly, the tire was not in stock – perhaps it sold out in the past day? I had noticed on their website that it was low in stock.

He suggested an alternative. I pointed out that the ratings were similar but the alternative tire was higher priced. Of course, he countered that it was a better tire. He then offered to order my preferred tires or give me these “better” tires that were already in stock for the $581.77 price - which was quite a discount from the stated price of $690.02.

Evidently, moving stock out of their store is a pretty important factor. He was willing to sell a more expensive set of tires for $108 less than sticker to avoid shipping another set.

Most internet tire sites will provide general information on stock quantities at your selected location. It makes sense that the store would want to move inventory, so once you find out a tire is out of stock or low in stock – ask for that tire to be ordered. The clerk just may offer you a better deal on an in-stock tire!

Below is a summary of some tips to help save money on big ticket items.
  • Research the item before going to the store (get a grasp on prices)
  • Call or e-mail the store (they will bargain more on the phone to entice you into the store)
  • Ask for a discount (don’t be shy, they can only say “no”)
  • Get a price quote and a clerks name (write it down and take it with you)
  • Leverage low stock inventories to your advantage (they want to move inventory and don’t want you to leave without buying)

Tuesday, March 11, 2008

With the Economy Tanking, it’s no time to propose increasing Foreign Aid

While perusing the many proposed changes that our presidential candidates have offered during this primary season, I ran across one proposal that really dazed me. Senator Obama is sponsoring a bill to give an additional 845 Billion dollars in foreign aid! Wow! That’s a huge number.

The bill would actually span over 13 years and provide 65 billion in aid the first year. That’s billion with a B. Those are big numbers and it’s hard for any of us to really grasp the magnitude of this bill.

To get this in perspective, I went back to take a look at the proposed 2008 federal budget. Maybe if I have an idea of how much is spent on other items, then this 65 billion would make more sense.

For instance, I found that the US budget has allocated 17.3 billion to NASA and another 5.9 billion to the National Science Foundation. These two groups are dedicated to the exploration and advancement of science and are keys to investing in the US and ultimately improving this world. So, the U.S can only afford to spend 23.2 Billion on science, but give away nearly 3 times that amount to other governments?

For some other comparisons: The Department of Housing and Urban development receives 35 Billion, while the Veterans Administration gets 39 Billion. These are big government programs, yet even these figures are dwarfed by the Billions that this foreign aid bill would ship overseas.

But, the real kicker is that according to some sources foreign aid does more harm than good! A real eye opening article on foreign aid can be found here. This ABC
news article asserts that:

In the past 40 years, Western governments have given Africa more than half a trillion dollars. Yet Africa is even poorer than it was before the foreign aid began.

These are your tax dollars. The US will hand this money over to foreign governments to disperse and use on programs within their countries. Unfortunately, the majority of this foreign aid ends up in the hands of corrupt government officials. It’s estimated that some 70% of the aid that we currently dole out ends up in the wrong pockets.

I want some respect for my tax dollars. I want some accountability. In times like these, when we are experiencing an economic crisis, record breaking budget deficits, job outsourcing and endless war fighting debts, I expect more responsible actions.

Raiding your retirement to save a house

It's surely a sign of desperate times - withdrawing money from a retirement account to stave off foreclosure. I understand wanting to hang on to a house, but it is just a house.

Cashing out a 401(k) to save a house, is basically doubling down on the house. Putting everything you have into it. You are gambling that things are going to turn around, what if they don’t? What if you end up declaring bankruptcy?

As long as your 401(k) money is in a 401(k) account, it’s untouchable by the bankruptcy courts. However, if you withdraw your 401(k) money and put it into a house, it will most likely be handed to your creditors.

This situation continues to get ugly, but it is a consequence of living life paycheck to paycheck, with no emergency fund, and buying homes beyond one’s price range, etc. That type of
financial behavior is reckless, irresponsible and it will eventually catch up to you.

Certainly, no one wants to see this happening. Some lessons can be brutal especially when people live like there is no tomorrow.

For more PF articles, please visit the Carnival of Taxes courtesy of Texas Journalist, Kay Bell. My article "Knee deep in Turbid Tax" was included this week.

Sunday, March 9, 2008

How much Money does it take for you to FEEL Rich?

The first time I heard this question, it was from my ninth grade speech teacher. She asked each of us to think about what we needed to feel rich and then one by one she had us walk to the front of the class to tell everybody our answer and why we felt that way. This is one of the few impromptu public speeches that I did not dread!

Of course, we all had some dollar amount that we thought was needed. Not one student ventured into any kind of deep, introspective thinking about non-monetary life values and risked being ridiculed by the class. We all gave pretty standard answers. Some only required $5 to $20, others went as high as $100.

Why so little? As 14 year olds, we had no expenses and being in school all day we had very few items available to purchase. If I had ten bucks in my pocket, I felt rich. I could easily buy a lunch at the cafeteria, a snack after school and a soda. What more does one need in life?

From that memory, I surmised that our perception of wealth has a lot to do with a combination of three items:

  • Quantity of money in your pocket
  • Current Expenses
  • Buying opportunities

In the PF blog world we hear a lot about spending less than you earn. But that is only part of the equation. Having limited buying opportunities is another big factor in accumulating wealth.

For instance, if you are always shopping or watching TV you will be bombarded with the latest and greatest gadgets, vehicles, clothing, etc. This stuff is paraded in front of you all of the time. You can’t help but want to have some of it. It's only natural. Likewise,
if you are constantly comparing what you have to your co-worker or neighbor, you will always feel like you need more.

Obviously, it’s nearly impossible to avoid the onslaught of commercials, advertisements and neighbors. That means we have to take matters into our own hands. And the way to do that is to stop buying and admit that we have enough. We have enough stuff. We do not need to go shopping for anything more than basic necessities. Try it for one week.

Personally, I know a handful of people who have done this. They have jumped out of the rat race. Some have moved to an area with a lower cost of living. And to hear them describe it, they cherish having a simpler life, fewer choices, less items to clean and care for, and of course, more money.

Saturday, March 8, 2008

Still Time to get Forever Stamps at lower rate

On May 12, 2008, the United States Postal Service will increase prices for mailing services. A first-class letter will require a 42c stamp or a Forever stamp, which can still be purchased at the 41c rate until May 12th. According to the USPS, 5 billion Forever stamps are in stock to meet the increased demand before the price change.

Since the post office is one of those places that I try to avoid at all costs, I filled out a Stamp Purchase Order today to give to my letter carrier. I ordered the Forever Stamps, enclosed a check and placed the orange envelope in my mailbox. How convenient is that?

Friday, March 7, 2008

You Must File 2007 Tax Return to get Tax Stimulus

This seems like a no-brainer, but the IRS is about to send out a notice explaining this and a few other key points concerning the stimulus package. You can get a preview of the notice, here. The notice also states that the one-time payments will start coming out in May and if you qualify you will not have to do anything, except file a 2007 tax return. The IRS will do all the rest, such as: determine eligibility, the stimulus amount and mailing it. This notice should appear in your mailbox soon, followed by another notice shortly before the payment is made.

I suspect the IRS may have one of the best turnouts ever for 2007 tax filings. And according to this article, filing taxes may help avoid deportation and tip the scales in favor of citizenship for illegal workers. How ironic is that, given the recent hoopla surrounding the Senate’s efforts to bar illegal aliens from receiving a stimulus check? It appears illegals may benefit from this stimulus after all.

For more interesting reading, be sure to visit the Carnival of Total Mind and Fitness at Fitbuff. My article “Cycling’s silent but potentially ominous threat to your skeleton” was included this week.

What a day!

Just when I thought Spring had sprung in Texas, we get a snowstorm in March. I was out of the state on business travel this week with plans to fly home yesterday (Thursday afternoon). But American Airlines cancelled all flights. Not just delayed for the weather to pass, but cancelled. My co-worker and I immediately tried to book a flight on other airlines. It wasn't to be - each one had cancelled their flights. The earliest flight we could get was late afternoon on Friday. And with more snow in the forecast, I started to wonder if any flights would leave the ground.

Then we strolled over to Southwest Airlines. All flights were good to go! We booked one on the spot, then called into the office. That's when the reaming began -we were informed that the company does not approve of SWA, will not reimburse any travel on SWA and will not insure us for any travel while on SWA.

Wow. Pure hatred of all things SWA. We got the message and cancelled the flights, then headed for the rental car counter. Our company would pay for a rental car to get us home, but not a SWA ticket.

So, after driving 12+ hours, we finally arrived at our home destinations. The most amazing part was that the airport was still shutdown as we drove in, but the "snow" was gone and the streets clear as a whistle.

Wednesday, March 5, 2008

Behavioral Finance – Bias from contrast-caused distortions of sensation, perception and cognition

This is the ninth in a series of posts about common human misjudgments. The series is based on a Charlie Munger speech at the Harvard Law School in 1995.

Why study human behavior in relation to finances?

Recognizing and understanding why people do the things they do, what drives them, and what are innately human tendencies is the first step in overcoming your own self and making sound decisions! We want to make rational, logical decisions, but emotions and irrational tendencies get in the way.

These behaviors are not all bad, many are good in some way - that is why they survived. In fact, these behaviors served some purpose that helped extend life at some time in the evolutionary process.

9. Bias from contrast-caused distortions of sensation, perception and cognition.

This one works every time! A great example is the real estate salesman. These folks know all the tactics – heck most all salesmen study this stuff. And you need to know it as well so that you can be on your guard.

Any time someone new strolls into town, the realtor immediately knows that he/she has a built in advantage. The first thing the realtor does is take the new folks out to tour a couple of the most awful, overpriced houses on the market. This warps the buyers perception. Since they are new in town and they do not know what to expect and being friendly people eager to find a new home they trust this salesman. Then the realtor takes the folks out to some moderately overpriced house and sticks it to them. This last house looks so much better and at a lower price than the others that they actually believe it’s a good deal.

Why are we so vulnerable to this ploy? It seems that if information comes to us in small pieces, we're likely to miss. So, if you're going to be a person of good judgment, you have to do something about this warp in your head where it's so misled by mere contrast.

Fortunately, today we have access to a lot more information via the internet. You can check prices on most anything before ever stepping into a store or touring houses in a far away location. It’s an awesome tool that helps you become more informed and make better decisions.

For more on PF, please check out the Carnival of Money Stories at Piggybankblues . My article “What would you do with $100,000?” was included this week!

Tuesday, March 4, 2008

Turning a Golden Egg into a Golden Goose

Have you ever dreamed of managing a large sum of money? I am sure many of you would like to give it a try. How tough can it be to manage Paris Hilton’s fortune? Bill Gates’ billions? Most people trivialize such situations probably because they have never seriously considered themselves in such a position. Dreaming about winning the lottery rarely includes dreaming about the financial management side of the story.

I got a sense of the anxiety that can accompany such responsibility when I first hit a big financial milestone. Even though I had been slowly accumulating this money and watching it grow for quite some time, once the amount hit six figures, I started to feel uneasy over managing a sum of this magnitude. Somehow, when it was a lesser amount say $70,000 or even $95,000 it was not an issue, but once it climbed over $100,000 dollars, the panic switch flipped and all of sudden I realized that I had more money than I had ever had.

My plan was working perfectly as I had accumulated a nice nest egg to provide substantial financial security. That was the main goal.

But this money was destined for more than just security it was to be the seed for growing my future early retirement income. It was very important that I invest it wisely. Of course, I had been doing that all along, but for some reason hitting that amount triggered some hesitation. I began questioning whether I possessed the expertise to invest so much money. Most of the people I knew at the time that had anywhere near that much cash also had financial planners. Did I need one now?

I have never employed a financial professional to manage my funds. I have never hired an accountant or CPA, rather I prefer to calculate my own taxes even though they have grown increasingly more complex. I am definitely a DIY’er. And I wanted to remain that way. I had to find a way to get over this new perceived fear that might cause me to freeze up when making financial decisions.

The first thing I did was to organize my accounts so that it was easier to focus on the percentages and not the dollar amounts.

Then, to get everything into perspective; I determined the potential passive income that this lump sum could generate. After all, that huge lump sum really didn’t matter, because it wasn’t going anywhere. In fact, I may never spend that money. What does matter is the amount of money generated by the lump, also known as passive income.

That passive income will one day become my primary source of income in retirement. Looking at it that way, I realized that $100,000 really wasn’t that much money at all. Invested at a conservative rate such as 6%, it would only produce $6,000 a year before tax. I still had a long ways to go and this first $100,000 was just the beginning in my financial future.

This was an important step. I had transitioned from seeing the money from a viewpoint of what it could buy me right now to what it could generate for me in the future. Some see money as a tool to buy things and never reach this next level where money becomes a different kind of tool. Money can become a tool that keeps on giving. It’s no longer the golden egg, but the golden goose.

Monday, March 3, 2008

Dreaming of a Buyout

The latest announcement by Ford to offer one of the most lucrative buyouts ever to 54,000 employees has me longing for such a deal. With the current state of Detroit’s big three auto industry, I am a little surprised that they are doing so much to help the employees – evidently they learned a few things about public relations and the backlash of pulling the rug out from loyal employees.

Ford is saying all the right things and doing a lot to help in this transition:
“We need to restructure, and it’s important to our business to do so,” said Joseph R. Hinrichs, Ford’s head of global manufacturing. “But we want to do it in the best way for our employees.”

As an employee, I especially approve of this statement:
“We always prefer for people to voluntarily leave and that’s why we put the energy and effort into this package of buyouts,” said Martin J. Mulloy, Ford’s vice president for labor affairs.

Back to my own reality, I am faced with a corporation that has taken a completely different route with very different results. In the past, buyouts were offered to encourage those close to retirement to move on. It worked well, as it was a voluntary program. It was not disruptive or threatening to the employees. But, the company complained that the “wrong” people were leaving. In other words, they couldn’t choose the people to be dismissed.

So, a new tactic was deployed under the veil of “compensation for performance.” We were informed that instead of merit increases being spread across the employee base like peanut butter, the better performers would be rewarded with more money and the lowest rated employees would receive zero raise. Since most of us believe we are above average employees, we all bought it.

Over several years, as times have gotten leaner, this has evolved into not just a zero, but a one way ticket out the door for the lowest rated employees. If this was a perfect world and fair was fair, this scheme would probably work, but unfortunately there is favoritism, old boy syndrome, subjective evaluations and personality conflicts that determine the bottom 10% of the base. It has created animosity, distrust, and suspicious employees. Not to mention all of the lost work time as a result of the numerous watercooler discussions concerning this policy.

This approach of weeding out employees would be more effective in situations where each employee’s work productivity could be measured. For instance: a salesman who completes a finite number of sales for a quantifiable amount in sales. Forcing engineering into such a metric is a mistake, as sometimes the most valuable person in the room is the one who knows the right question to ask, or the one who thinks differently, out of the box, thereby providing another perspective on a problem.

So at this time, to my chagrin, buyouts are not on the table and probably will not be for quite awhile. The cycle will turn at some point, when management finally realizes the damage that has been done to morale, but for now I can only dream of having a nice send-off in the form of a cash buyout.

For more personal finance stories please visit the Carnival of Personal Finance. This week's theme centers around facts about the homeless people in the US. My article "When are the peak earning years?" was included.

Sunday, March 2, 2008

The only sure thing is the Allure of Gold

Men have had a romance with gold since the beginning of time. Sure women love it too, but very few have left their families, their homes, everything that they have ever known to go in search of a shiny yellow metal. This attraction is irrational, it defies logic, common sense. The lust for gold has lead men all over this planet and deep towards the center of it, too. Some may argue that it has no real value, it’s not worthy of investment, but it has always been treasured by humans. Ancient history, as well as recent history has shown us that people will sell their soul for gold.

Gold currently moonlights as a commodity, as it does have practical uses. It is used to plate electrical contacts, build low loss waveguide, and create jewelry just to name a few. It trades as a commodity in our markets today, but really it is much more. The desire for gold is extremely powerful and has driven the exploration and exploitation of the world. Thousands have died for gold. Over time many items have been considered valuable as a result of supply and demand such as: spices, silk, crude oil, gas, dollars. And when those valuables are gone, gold will still be there. It represents a safe haven and that is why it continues to hold its own in the market.

If you could invest in only one thing from the dark ages to now to the end of time, what would it be? What investment has always been valued, always marketable, always tradable? Gold, of course. That doesn't necessarily make it a good short term investment, but long term, and in times of dire markets and shaky economies, yes.

So when the possibility of Armageddon arises or maybe just a recession, we all rush to be in gold, not paper money. Gold is the standard and we fallback or regress to the standard. No government has to tell us it’s valuable. It’s not like paper money, because regardless of what country backs it, it's still only paper. US dollars used to be backed by gold, but not anymore. It is now backed by your faith in the market and the government that is printing it. If that faith wavers, as in a recession, or market collapse, then the value of paper dollars will also collapse.

If there was ever one thing that has been a constant through time, since the beginning of mankind, it is the allure of gold. Do you really think that is going to change anytime soon?

Disclosure: I own gold in the form of shares of the Exchange Traded Fund (ETF) GLD, a gold mining stock and a Canadian ETF, EWC. I just wish I owned more of each!

Saturday, March 1, 2008

Knee Deep in Turbid Tax

As I was slogging through my 2007 taxes, answering a myriad of questions, some of which seem to be very repetitive, I got to wondering what the shiny new presidential candidates are proposing to help me with this annual nightmare. I did a little digging and found that one of the candidates does have a plan for tax reform.

According to the information at, Mr. change, himself, Barack Obama, is proposing that the US government fill out your tax forms and send them to you for signature. He asserts that this will save you money and all you have to do is sign the dotted line and of course, pay your taxes.

Now that would be a big change. Let’s examine this a little more closely. I know taking off the rose colored glasses is no fun, but we really need to look a little deeper at his proposal.

TMI (too much information). There seems to be numerous amounts of personal information that I must tell the government on my tax form. How would Uncle Sam know whether or not I am the head of the household, my tax deductions, gifts to charity, cost basis on shares sold, etc. What if he gets it wrong on my forms? Maybe I am paranoid, but I don’t trust the government to get it right. And we all know how hard it is to change something with the government.

No Time Saved. Because the government does not have all that information, it is not going to be able to “help” me with the most time consuming part of my tax return which is filling in all that personal information, schedule D, capital gains, deductions, etc.

Growing Government. Another result of this proposal would be the elimination of a lot of private sector jobs – tax preparers, accountants, CPAs, as well as the jobs and businesses associated with Tax software. Sure we might still need a few of those, but most could go. The government is going to do all the work, now. This would shift a lot of private business to the government and greatly expand the Department of Internal Revenue Service.

Red flags. Say you did need to amend your return, it seems that any changes would require extra scrutiny, that would be out of the norm and there goes the red flag for an audit.

I wonder if the candidates spend much time thinking through some of their grand proposals? It seems to me, once again the politicians are off the mark when it comes to the real problem with taxes. I will spell it out: The IRS tax code is too complex. I don’t want help filling out my form, I want a more simple tax code, an easier form! Argh

For more PF information, please visit the Carnival of Taxes. My article "Tax Stimulus is Steroids for the Economy" was included.