Wednesday, April 30, 2008

Are ebaY and PayPal making sellers more susceptible to scams?

It was not even one day after reading this article from the Consumerist, which exposes the vulnerabilities of ebaY sellers, that I was confronted with a similar issue.

ebaY/PayPal allowed the buyer’s funds to be drawn back out of the seller’s PayPal account after the seller had shipped! I had no idea that was possible. And yes, I am a very trusting individual that is obviously na├»ve to such shenanigans.

It seems to me ebaY/PayPal let the seller down. I hold both accountable, after all they are one and the same company after ebaY’s recent purchase of Paypal.

Evidently, many ebaY scammers use fake addresses such as unattended homes to hide their identity. Of course, they probably don’t even need to do that for small transactions. Given that most ebaY sales are for less than a couple hundred bucks, it would be nearly impossible to re-coup that loss without incurring more costs in time and lawyer fees with no guarantee that you will ever get anything out of the jerk.

Even if the scammer is identified and PayPal freezes their account, they can just open another one.

The scam is simple. Once you ship to the bogus address, the buyer disputes the sale to PayPal, PayPal reimburses them from your account and then the scammer simply watches for the item to show up at the abandoned home address. He gets a freebie.

I took the article to heart and vowed to never ship to any buyer that does not meet PayPal’s verification requirements and fall under their Seller Protection Policy. This policy protects the seller from being held liable if the buyer files a claim or chargeback indicating that they didn’t receive the item or the payment was not authorized. PayPal claims to cover the costs associated with these types of claims or chargebacks.

Not one day later, I get tested. I had an item sell on ebaY and received a notice of payment from PayPal. PayPal informs me that the buyer has an unconfirmed address and anything shipped to an unconfirmed address is not covered under the Seller Protection Policy.

I contact the buyer directly via e-mail requesting a confirmed address. The buyer replies stating that his ship-to-address is a PO box in the US, but he lives in Canada. He pleads his case by pointing out all of his good ebaY ratings, over 100 stars, that he has accumulated. This does still mean something, but it won’t be long when ebaY’s new policies take effect and no one will be able to leave negative feedback.

I contemplate taking a hard line and cancelling the transaction. A couple of other mischievous thoughts cross my mind.

  1. Sweep my funds from the PayPal account to another bank. However, I suspect PayPal will not allow this when a transaction is pending, but I don’t know.

  2. Rely on shippers insurance. I have shippers insurance for $100 that covers the cost of the item. If I ship and the buyer pulls his funds, I can file a lost/stolen item complaint with the shipping company and get reimbursed. But is that right? It doesn’t seem ethical. The shipper has done no wrong; they may have even delivered to the correct address. Besides, theft from a PO Box would be difficult to believe.

Meanwhile the buyer presses me for a ship date. I give him one. But, I am still undecided and will most likely let the date slip by without shipping. Why not test him? My only risk is negative feedback on ebaY and with all of the new, upcoming non-seller friendly ebaY rules, I am less inclined to use their service in the future, anyway. What would you do?

Tuesday, April 29, 2008

The fine print on Stock Options

Stock options are a wonderful thing, but they come with a lot of rules requiring careful management. Here are some of the general rules to keep in mind if you have stock options:

An Option may not be exercised until it has vested. Vesting is all about the rights of ownership. You have no right to the option until it is vested, even though it can still be working for you, appreciating in price, in the market. Typically, stock options will come with a vesting schedule, such as the one below. In this case, one third of the shares will be vested at the first vesting date, then another third at the second date and so on.

First Vesting Date: January 29, 2005 - One-Third
Second Vesting Date: January 29, 2006 - One-Third
Third Vesting Date: January 29, 2007 - One-Third

Some of the caveats for vesting:
* If you die or become disabled, all unvested Options will immediately vest.

* If you resign or otherwise terminate employment, whether voluntarily or not, unvested Options will be forfeited upon your termination. While Vested Options will expire at the end of their remaining term or 30 calendar days following your resignation or termination, whichever is shorter.

If you have early retirement plans, be sure to keep this last warning in mind. You have 30 days after termination to exercise your vested options or lose them!

Once an option is vested, you have the right to exercise it. Exercising a stock option means buying the stock at the price set by the option (grant price), regardless of the stock's price at the time you exercise the option. You must pay the stock option cost (grant price) to your employer and in turn you receive the shares in your brokerage account.

More caveats:
* Options must be exercised within ten years of the grant date.

* Once the option has been exercised, you can sell the stock or hold it as long as you like.

When you sell shares which were received through a stock option transaction you must pay ordinary income tax on the difference between the grant price and the exercise price. In addition, if you hold the shares and they appreciate, you must pay capital gains tax on the difference between the exercise price and the final sales price.

It is possible to reduce this tax bill by holding the stock options at least one year. For instance, if you had waited to sell the stock for more than one year after the stock options were exercised and two years after the grant date, you would pay capital gains, rather than ordinary income, on the difference between grant price and the sale price.

Sunday, April 27, 2008

Secret to expediting your Netflix DVDs

Want to get your DVDs faster? Here’s an easy way to make sure your return DVDs are routed as quickly as possible through Netflix.

Make certain that the DVD jacket is placed in the return envelope with the bar code visible through the window slot in the envelope. It’s easy to get this turned upside down or whatever, but according to Netflix customer service this will help expedite your DVD.

If the barcode is visible, Netflix will be able to quickly scan the incoming DVD, credit your account with the return and initiate the process of sending out your next movie. If it is not visible, another step is required for Netflix to open the return envelope and then scan the DVD jacket.

One other tip, first thing upon receiving the DVD, open the envelope and verify the DVD is not scratched, cracked or damaged in any way. There is nothing more disappointing than sitting down to watch a movie and realizing that the DVD is unusable after taking it out of the jacket. Happy flick watching!

Saturday, April 26, 2008

Saving Money begins with a State of Mind

If you adjust your mindset to a saver's mentality instead of a spender’s, you too can save money! Below are a couple of ways that I saved money this week.

It just so happened that I received in the mail a $10 coupon for a gift card to Target in exchange for getting a prescription filled at the pharmacy the same week that I needed to fill a one time prescription. What are the odds?

Once I confirmed that Target was a “participating pharmacy” in my HMO, I headed straight over there on the way home from work to take advantage of the offer. The script by itself was only $10 bucks, since it was a generic. Not too bad - spend $10 to get $20 worth of goods.

I also traveled with work for a one day meeting/boondoggle. Since, I was traveling with a group; I went along to a restaurant serving entrees starting at $25 a plate. That took a pretty big bite out of my per diem. However, the next day the balance turned - breakfast was complimentary at the hotel, lunch was brought in by the company, and since I flew first class home I had airline food and wine for dinner. The whole day was a free food day! All in all, by my calculations, I pocketed $64.75 from the trip.

I really don’t consider myself a penny pincher and I’m not as cheap as all this sounds. ;) For instance, I didn’t even think about this free food day until it was over. It just happened without my planning for it. But that is not the end of the story.

Funny thing is that when I mentioned to a co-worker that we had avoided spending money that day – the dollar signs started spinning in his head and he immediately started plotting what he could buy with this new found money!

It seems there are two types of people in this world - those who look for ways to spend money and those who look for ways to save money.

My total savings for the week was $74.75.

Friday, April 25, 2008

An Ounce of Prevention, helps keep the Plumber away

Plumbers are notorious for being expensive. Here’s a frugal way to keep them from draining your pocketbook.

I really enjoy the large live oak trees in my front yard. They have grown tremendously in the last several years towering over the yard, providing shade and habitat for birds and squirrels. They have also developed an equally huge root system that grows voraciously. The tender, new shoots of the roots wrap around sewer pipes and work their way into the seams of the pipes in search of water. That in itself is pretty cool – the fact that the tree can detect water in a pipe and try to get to it. Unfortunately, this also results in clogged pipes.

Last summer, I hired a plumber to augur out the sewer pipe, cleaning out a nest of fine, hair-like thin roots. The plumber told me this problem would re-occur and that I would probably need to have him come out every 6 months! Ugh. It wasn’t even the cost of the $150 visit that bothered me, it was the inconvenience of the whole process. For instance, it’s difficult to know when the sewer will start backing up again, then needing to immediately arrange for a plumber, then scheduling time to be home, etc.

There has got to be a better way. I actually know people who have taken out trees to avoid this scenario. I am not any where near trying that drastic of a measure. So, I began my search to find another way. There are lots of products on the shelves at home centers, but they are ridiculously expensive, with no guarantees. I continued my quest on-line as well as talking to co-workers. Finally I hit on something that was both cost effective and seemed reasonable that it would actually work without destroying pipes and the environment.

For the last several months, I have been pouring a 1/4 cup of ice cream salt into the toilet bowl and flushing on a weekly basis. Ideally, you should do this in the evening after all the showers and baths are over so that the salt can sit in the pipes as long as possible and not be rushed through the system. It has been 12 months and no problems. But the true test will be during the coming growing season. If this saves even one visit by the plumber, it will be worth it.

Cost of salt $1.99/lb
plumber $150
commercial products $30-100.

Wednesday, April 23, 2008

Unclaimed Lottery Winnings swell into the Millions

Another unclaimed prize, a mega million ticket worth over $250,000 has been added to the Texas lottery unclaimed fund this past week. Winners have 180 days from the date of the drawing to claim their prize. Evidently, this occurs quite often. In 2007 a total of $58.9 million in winnings went unclaimed! And since the lottery was initiated in 1993, a whopping $676 million has gone unclaimed.

I have only bought a handful of lotto and scratch off tickets and I thoroughly checked each one of them, over and over for a winner. How is it possible that so many winners are never collected? Here are some of the reasons commonly cited for these huge neglected sums:

1. Scratch games are too complicated for the players to readily see that they won.

2. The terminals are failing to show tickets as winning tickets when they are in fact, winners. Often times store clerks don't allow the terminals enough time to respond when checking a ticket and will run the ticket through a second time. This causes the print-out to show the ticket is not a winner even though it may have been.

3. Winners don’t check their own tickets . Players have no idea that they have a winning ticket because they don’t check their own tickets but rather depend on the terminals and store clerks to tell them if they have a winning ticket.

What becomes of this unclaimed money? The first $20 million of unclaimed prizes is transferred to the Texas Department of Health for further distribution to hospitals and health care. Anything beyond that $20 million is up for grabs - it flows into the general revenue fund. Unfortunately, this is contrary to the initial premise that all lottery proceeds would be directed to the education fund.

It seems the state has very little incentive to improve the terminals and/or make the scratch offs less complicated since the majority of this unclaimed prize money is funneled into the general tax fund for politicians to spend as they please. Why would they want to pay out more, if in the end they get access to the unclaimed money?

Monday, April 21, 2008

Getting over Sticker Shock & Allowing myself to Spend Money

I despise spending money. And every time, I must go through the same tedious process of justifying my expenditures. Obviously, I have a great deal of respect for money. I prefer to have money working for me all of the time and trading it away is essentially trading away some time on my early retirement dream.

Of course, we must all spend some money, after all there are items that we need and must have, but what about the stuff that we would just like to have? How do we rationalize that?

I am currently struggling with the decision to remodel a shower. It’s 21 years old. It’s lots of hard-to-clean tile and glass with a rusty frame, stubborn glass door and cheap plated plastic faucets. I want it out of my life. But…it still works, no drips, no leaks, no serious issues.

I can not justify the purchase based on the fact that it will add value to my home. Such renovations almost always lose value because the money gets eaten up in labor costs, materials, depreciation, etc. The only way something like this will pay off is as a long term investment. The general rule is that you will only recover about 40% of the cost of the work done, with kitchen and bathrooms having the highest return for your money.

No, this remodel is being done for me, because, well, I deserve it. It’s that simple.

Last week I got a couple of estimates for my shower remodel. The estimating took 1.5 hours each, so I have already invested over 3 hours of my free time in this project. The contractor bids came in at $4950 and $6300. It’s difficult to imagine spending that kind of money on a shower. Just to get this in perspective, I listed some other things that I could purchase for $5000.

New Plasma TV: A real nice Samsung 63" Widescreen Plasma HDTV would look sharp in my great room for only $4400.

New asphalt shingle roof: My insurance deductible is $5000, so that would be my cost. Yes, it’s a high deductible and because I have owned the house a long time, I have come out ahead thanks to the much reduced premiums.

New hot tub: what a nice luxury that would be after a long bicycle ride. I’ll never forget how great a hot springs feels after spending a day hiking or biking. The hot soak just takes it all away and your legs are new again for the next day of hiking. It could be mine everyday for five grand.

Those are all nice things that I would like to have, but with the exception of the new roof, I will probably not purchase any of them any time soon. I figure the shower is one of those luxuries that I will give myself and most importantly I will never have to look at that old shower again and fret over what I need to do about it.

Sunday, April 20, 2008

Let’s Go Razooing!

That’s one of my all-time favorite phrases. You know you are in for some fun when you hear those words! Razooing may be a Texas country thing, so I will explain. Have you ever just gone out for a drive, usually in the country, and most of the time off road for no one reason other than to see what’s out there? That’s razooing. Most of the time they start with no particular destination in mind. Sometimes you end up at a fishing pond, to get a hook wet, while other times it may be the highest point around to enjoy the view or take in the sunset.

This week, as I wandered around the web on an internet razoo, I discovered a couple useful articles to share on this site.

This MSN money article, "20 ways to make $100 more a month", provides some good ideas for additional income streams. Everything from paper delivery, pooper scooper to editor. Here’s another one that I didn’t see in the article – pet walker/sitter. You may also notice that blogging is not on this list either. LOL

The article inspired me to think about what I will do in my early retirement. I won’t need to work but I suspect that I will want the social interaction and make a little income to continue to fund my Roth IRA. ;)

Another thought provoking article was stumbled upon over at Brip Blap. He goes on a rant about excessive TV watching. My take away from the post was to use my time wisely, because some things can not be undone. Instead of mindlessly watching sitcoms, find an educational show or do something to improve yourself or your surroundings. Challenge yourself. For instance, take a step up the culture ladder and read one of the classics, or just go for a leisurely walk. In other words, words that PF folks will understand, do something that will pay dividends.

Saturday, April 19, 2008

A little Humor in the PF World

Humor is something we don’t find very often in personal finance. And that is probably for a good reason. As my grandmother would say “T’ain’t funny McGee”

If you have never heard that phrase, it comes from the Fibber McGee and Molly radio show that was broadcast in the 30’s, 40’s and 50’s! Molly (Marian Jordan) would use the expression to deflate Fibber McGee (Jim Jordan) after Fibber had told one of his stale jokes.

While I got a chuckle out of the comic below, I could not help but think “T’ain’t funny McGee”

Friday, April 18, 2008

I Bonds take off with Inflation

The US Treasury recently reported on April 16th that Inflation now stands at 4.83% for the last 6 months. The rate is based on the difference between the Consumer Price Index (CPI) in September and the latest CPI in March.

If you are holding any Series I Savings Bonds this is uplifting news. To determine what I bonds will earn during the next six-month rate period, just add the fixed base-rate to the 4.83% inflation rate. The fixed-base rate for your I bonds can be anywhere between 1.0% and 3.6%, depending on when the I bond was issued.

Gee, don’t we all wish we had more I bonds? You can purchase some today with the current fixed base rate of 1.2% to earn a composite rate that is over 4.2% for the next six months, which will then be followed by six months at over 6.0%. That rate certainly beats money markets, saving accounts, CDs, US Treasury securities and even Treasury Inflation Protected Securities (TIPS).

Maybe we should all go out and load up on I bonds? Only problem with that is the US Government limits the annual purchase amount for savings bonds. As it currently stands, we are limited to $5000 per social security number per type of bond. For some reason, the Treasury considers paper and electronic bonds to be different types, so you can purchase $5000 in paper I bonds at a bank and another $5000 electronic I bonds at Treasury Direct for a total of $10000.

Investing in Series I Savings Bonds can help protect a portfolio from the risk of inflation as well as the risk of capital loss. Unfortunately with the limits on Savings Bond investments, the help this strategy can provide is also limited.

Thursday, April 17, 2008

Starting Salaries are not all created the same

You might not get rich with a career in engineering, but you can get very comfortable. Starting salaries for engineers with a Bachelors degree are in the $50K to $65K range. Several factors will determine whether you start at the top of that range or the bottom. Here are a few that make a big difference: GPA, CO-OP experience in engineering and/or intern experience, and believe it or not - alma mater.

That's right, getting a degree is important, but where you get that education also makes a difference. And probably not for the reason you might think. Sure managers like to hire from their alma maters, but that doesn't justify adding more money to the starting salary. Without a doubt, some universities have higher quality engineering departments than others, but not all companies are willing to pay for that upfront. No, the reason some schools garner a premium is because those schools are designated as target schools. That’s an inconspicuous way of saying the company wants to hire people from a small select group of schools over all others to enhance diversity.

These types of practices seem to shock the average employee when they first learn of them. Most folks are aware of affirmative action and the push to hire more minorities, but very few realize to what extent this policy has been expanded at many companies nationwide. If this practice is to improve the quality of the workforce, why isn’t this information more widely discussed/published? Good ideas typically withstand scrutiny.

Everyone should know that new hires from target schools command more money, 1000's more, right from the start. If you were a high school senior and you knew that new hires from school A get $5000 more in salary and possibly a couple thousand dollars more in starting bonus than a similarly qualified new hire from school B, which school would you pick?

It's not quite that simple - because of course, you must also be a minority. Not much you can do to change that circumstance in life, however, all is not lost as you can address some of the other salary boosters.

For one, if it is at all possible, get a summer internship at an engineering company. The experience may help you decide your future career path or at least weed out a job that you know you don’t ever want to do again! Another option is to join a CO-OP program - working one semester and then returning to school for the next and so on. Most companies will reward that experience with a higher starting salary.

This past week, I participated in the Carnival of Financial Planning. My article "How much Employer Stock is too much?" was included.

Friday, April 11, 2008

You only need to Get Rich, Once

Quite often I read Suze Orman’s articles on Yahoo! and occasionally I watch her show on personal finance. The thing that always catches my eye when I read her articles is the comments. She seems to have quite a following of nay-sayers that like to comment negatively on nearly every article she writes.

One of the big beefs that these bashers have with Suze is that she only has $1 million of her $25+ million in the market. This is considered a low proportion of her assets and consequently, they claim she is not qualified to give advice to the average investor who has less than $10,000 in the stock market.

One million in this volatile market – that certainly qualifies as skin in the game, boys. From what I gather, Suze is a pretty conservative type. For instance, she’s a big advocate for insurance. I recall comments where she suggested that one can never have enough! That sounds like a rather conservative, risk adverse individual. I don’t agree with her on that point, but that doesn’t discount all of her advice.

Anyway, by investing the majority of her assets in bonds, she is employing one of the golden rules of investing that 99% of the investors in this world never “get”. And that is - You only need to get rich, once. Once you have a high net worth, you dial back the risk and let the money work for you in safer investments, like bonds.

Most people understand that concept, but they will never be able to apply it. Why? To apply that concept, you must be able to recognize when you have become rich. Survey after survey reveals that no matter how much people have, they always look up to someone else as being rich. This is also known as the wealth effect. The more money you acquire the higher the bar goes, consequently, you never want to take your money out of the market, because that’s where the big money is made, right? Bonds? Who needs stinkin’ bonds?

The fact that she has so much invested in municipal bonds tells me she is one of those few that actually understands and is able to apply the concept of wealth preservation.

Wednesday, April 9, 2008

This Week’s Edition of Money $aving Stories

This can be addictive. I have discovered that because I report back to this blog every week, I have a little more incentive to look for ways to save money. Another pleasant surprise is that I have found it’s much easier than I ever thought to find new and different ways to save.

This past week I drove my Toyota Tundra to Jiffy Lube for a safety inspection and oil change. I normally change the oil, but since I must go in for the inspection, I splurge and “let” them do it for me.

When I arrived the place was empty, no other cars. Highly unusual. I asked for the inspection first since that can be done in only one bay and typically has a line of cars waiting. The attendants wanted to do the oil change first. I relented, grabbed a seat in the waiting room and started reading the paper.

My truck was moved off and parked when they finished the oil change. Just then, another car pulls in for the safety inspection. Several minutes later, one of the guys asks if I also want the truck inspected. Argh! He then pulls it in line and waits. Finally the whole process is complete and the attendant wants to settle the bill, but he can’t find it on his computer/register. The manager must re-enter the data on another computer terminal.

While I wait some more, the attendant gets nervous and repeatedly says he’s sorry for the wait. Eventually he gets the data and relays the total amount of the bill to me. I decide to ask – can you give me a coupon/discount for the long wait? No problem. The manager immediately takes $10 bucks off the bill.

In the past, I seldom asked for a discount. It just isn’t something I like to do, but with a little practice, it is getting easier.

And lastly, one more savings was found at the local Walgreen’s. Thanks to My Money Blog
for tipping me off about the free ink refill coupon for printers. I dropped the cartridge off at lunch time and went back to pick it up the next day. The coupon claimed the service was a $10 value, but the last time I tried to buy a cartridge it was $26 plus tax. I will use the $10 figure assuming Walgreen’s will refill it again for that.

My total savings for the week $10 + $10 = $20

Be sure to tune in next week for more high adventure in Money $aving Stories....

How to get a better Raise and Advance your Career

You may have all of the tools and skills to do your job, but to get ahead sometimes you need to do more than just keep your head down and work harder. Below, I have listed some steps that should help get you going in the right direction to improve your future salary increases and start working on that next promotion.

1) Find out how the system works. First thing, ask around to learn about the process used to set raises at your employer. For instance, does only one person, your boss, set the raise amount or is it by a group of managers and senior leads. As simple as this sounds, you would be amazed at how many people do not know who has input to their raises. Just because you receive work assignments and provide status to one lead does not mean he/she is your spokesman at raise time. Find out who is involved in making those decisions.

2) Get the word out. Once you know who the key player(s) are, make sure they know what you are doing. Obviously, you do not want to go around or bypass any managers, but do look for ways to ensure those key players are aware of your work. For example, when you send out important e-mails and/or weekly status reports to your manager, you could also CC the other key player(s).

3) Two voices are ten times more powerful than one. Two people singing your praises to a group that is deciding your raise is much more credible than just one. Get to know as many of those key players as possible. Work multiple projects to get more exposure, attend company functions, seek leaders in the company and ask questions, get a mentor. All of these things will get your name out there. Even if a lot of these folks never see your work, they may remember you in a favorable light due to your friendliness, cooperativeness, and company spirit!

4) Get to know your manager. Some mangers are terrible about talking with their employees; some barely know their people and rarely take the steps to improve that relationship. Many times it is up to you. Take the initiative, find something in common with your manager that he or she likes to talk about. It takes effort but really it’s just the application of the golden rule – treat others like you would like to be treated.

5) Be accessible and responsive. Make sure your manager and supervisor can reach you at any time. The last thing you want is for them to be searching for you and calling around trying to locate you. And when you do get paged or e-mailed, make it a priority to answer as soon as possible. That seems pretty obvious, but I know of many co-workers who put off returning calls to the boss because of fear of the unknown or just not wanting additional work assignments!

6) Think like a manager. Try looking at the job situation from your manager’s point of view. For example, why do you think a manager gets upset if you are unresponsive to his/her calls or if the manager can not locate you? Perhaps, the manager needs a quick answer to give to their boss. Perhaps they need to locate you for a drug test, a security interview, etc. It can be embarrassing for the manager and you, if they can not quickly locate the employee. Besides, by informing your manager of your whereabouts, you convey that your presence is important. You are basically implying that you know you are a critical part of the organization and will be available, if needed.

7) Be at the right place at the right time. Good luck with this one, right? Some people just have a knack for being in line for the big promotion or to head up a new project, etc. They are always right there when the door opens for a new assignment or whatever. Maybe it seems that way because they are always ready. You can do the same. For instance when your lead is scheduled to give a presentation, make sure you know the material and could step in comfortably, if asked. Most people in the audience will be ready to give you a break in that situation, they will have low expectations, but if you have done your homework and are ready, you could knock their socks off with a great delivery.

8) And lastly, Dress the part. People are quick to judge others on first impressions and you never know when you might run into some high ranking mucky mucks at work. Some even go so far as to say that you should dress like your manager. Perhaps that can be interpreted as some sort of flattery? If that is not right for you, at least dress for the position that you desire. Whether it’s fair or not, people will have a hard time thinking of you as executive material if you are always wearing jeans and sneakers.

While there is no substitute for hard work, it can be beneficial to incorporate a few of these tips to get a boost up the career ladder.

Monday, April 7, 2008

The Fed has thrown Granny under the Bus

The recent series of Fed rate cuts are great for banks, lowering their lending rates to each other and encouraging more liquidity, but this action is also sacrificing the rates of return on fixed income accounts, CD rates, and money market accounts, etc. For example, over the last few months, the interest on my brokerage money market account has dwindled from 5.21% to 2.46%. CD rates are not much better ranging around 3.2% to 3.7%. Given the latest Consumer Price Index, CPI, recently reported at 4%, these fixed income assets are a losing proposition. To make matters worse, I think most consumers would agree that 4% is a low number and that the real rate of inflation is higher.

The impact of this rate decrease to my standard of living is inconsequential. I am still working, still making new money, but this is getting ugly for a lot of retired folks on fixed income with a majority of their nest egg in CDs. A huge portion of their income is derived from interest earned from CDs. The Fed has thrown these people under the bus.

If your grandparents are anything like mine, they do not trust the stock market. Years ago the market was akin to gambling and many still think it is today. Consequently, their investments are much more conservative and are concentrated in low interest earning bank accounts, CDs and bonds. According to a common Bogle formula for stock to bond ratios, that is exactly where they should be invested. If you are 90 years old, you should have 80% or more of your assets in fixed income vehicles.

So, what can one do in this situation? What other options are out there? In the following, I have a listed a couple of ideas, but just remember this information is for educational purposes and is not a recommendation to buy.

1) Municipal Bonds
If you can get granny to open a brokerage account (good luck with that) now is a great time to invest in municipal bonds. Munis are paying decent rates and are very attractive compared to Treasury bonds. They are also free of federal taxes and some are even free of state taxes.

2) Canadian Oil Royalty Trusts
For someone who is willing to take on a little more risk, like myself, I am exploring adding more Canadian Oil Royalty Trusts, or Canroys, to my portfolio. There are several Canroys out there paying dividends of 6% to 15% and a few that trade on the NYSE.

I already have a small position in Harvest Energy Trust (HTE) and am considering adding to that or purchasing another Canroy. However, before I make a much bigger investment, I want to further research the risk versus reward of Canroys and of course write a blog post or two about that.

Saturday, April 5, 2008

Paying off a Mortgage is not for everyone

Sometimes we don’t realize the potential impact of our own words. A casual conversation or blog post ;) about personal finance can have unintended consequences. It’s important to understand that everyone’s situation is different. One financial strategy does not fit all. I came face to face with that reality recently when discussing accelerated mortgage payments with a couple of co-workers.

One colleague feels the hand cuffs of being in debt. He is working to pay down endless debt and is eager to break out of the cycle. He mentions that because of his obligations, he is overly dependent on his employer. He would love to have more freedom, to just know that he could walk away, if he really wanted to. If you have ever had a bad boss, you will understand this desire to be free from the shackles of a job.

The other co-worker is not comfortable with investing in the stock market and sees paying off a mortgage as a guaranteed 6% return. I nod and agree with both of them and add to the conversation that I have paid off my mortgage. They are impressed and inquire - What is it like to have all that extra cash each month? I reply that it's great, but not like they think. I explain that once I paid off the house, I re-routed the mortgage payment money straight to my investments in Vanguard. My standard of living has not budged an inch.

The idea of being mortgage free was appealing to both of them and I could see the wheels turning in their heads. I didn’t give it much thought, a lot of people want to pay off a mortgage early, but very few actually carry it through.

To my surprise, one of the co-workers came to work a few days later and stated that he had paid off the balance of his mortgage! The other mentioned that he was paying extra towards his mortgage, a lot extra. Yikes!

I would have never advised either one of these guys to do what they did. I firmly believe in the maxim that - it takes money to make money. And a mortgage is a great way to leverage money, that is, to use someone else’ s money to make money. That is a proven way to get ahead and reach financial independence. I paid off my mortgage only because I had a high percentage of assets invested in equities (way too high). I wanted to diversify and real estate was a good choice for my portfolio.

Because neither of these guys was comfortable with selecting investments and didn’t want to do the due diligence, they took the easier road and paid down their debt. That's not all bad, but someday they should take the time to learn to invest or hire a financial advisor and do more with their discretionary income than just put it in savings.

This week I participated in the Carnival of Money, Growth and Happiness #39. My article, How much money does it take for you to FEEL rich? was included.

Friday, April 4, 2008

Hang in there, we’ve almost made it to Tax Freedom day

It’s remarkable to think that the average taxpayer will shell out more in federal taxes than he/she will pay for housing! Is housing getting less expensive or are taxes getting out of control? (sarcasm)

According to the data found at the, it takes 79 working days to pay the average federal income tax bill and 62 days of working to pay for housing.

That’s a lot of days in the old coal mine. Essentially, all of the work completed and money earned from every tax paying citizen from the beginning of the year through the last week of April is channeled to the Fed to pay the tax bill.

That special day in April has been dubbed Tax Freedom Day. If you paid all your taxes, up front, as you earned your salary, Tax Freedom Day would be the first day of the year that you could keep any money for your household. Or in simpler terms, it’s the first day of the year in which you stop working for the Government and begin to earn money for yourself.

For some background, the Tax Foundation Organization is a nonpartisan group that advocates a simpler tax system, and tracks the occurrence of Tax Freedom Day each year. They have calculated this years Tax Freedom Day to be April 30, 2008.

But, of course there is more. We have not added in the state taxes, yet. To pay the total tax bill, Americans will work an average of 120 days to pay all of their taxes and 105 days to pay for basic needs: food, clothing and housing. As ridiculous as that sounds, this is nothing new, it seems for the last 20 years Americans have been paying more in total taxes than they pay for basic needs.

There really isn’t much one can do, except maybe move to a less taxing state. That eliminates the East coast as a possibility, since there’s nothing inexpensive about their tax rates. For instance, Vermonters pay 14.1% followed closely by Mainers at 14%.

Rates tend to drop a couple of points as you head out West. Tennesseans and Alabamians are two of the least taxed coming in at 8.5% and 8.8%, respectively. But the real winners by a large margin are Alaskans with the lowest rate of 6.6%.

Thursday, April 3, 2008

Replace the Magic Ball with a sound Asset Allocation Plan

Thanks to FinanceBuff for pointing out the Chris Farrell column over at His recent article responding to a question about the Market Turmoil was straightforward and right on target. A reader asked what should one do in this market crisis? Should we ride it out or sell stocks and buy safer investments? It's the usual magic ball question. “What does your magic ball say about the future of the market?”

Farrell simply advised that one should:

take advantage of this time by figuring out whether you're comfortable with your portfolio. Are you too much in stocks? Bonds? International? How do you wish your portfolio was constructed? Once you've figured that out, then I would create that portfolio over time.

That is excellent advice. Do not allow yourself to be whipsawed around by the market. Get a plan together and stick with it.

To that end, I have been reviewing my bond allocations. I know that they are too low, however, I am not quite as conservative as some investors. For example, the rule of thumb put forth by John Bogle is that the allocation of bonds in your portfolio should be about 10 percentage points less than your age. So if you are 40 years old, aim to have 30 percent in bonds.

“As you get older, you want more bonds; bonds produce income and time is less on your side to recoup losses,” he said.

Once you settle on an allocation amount, it’s essential to be aware of some other significant aspects concerning bond ownership. For instance, most bonds distribute income, and it is important to shelter that income from taxes, if possible. You will want to select a different type of bond depending on what type of account you are wanting to fund. Starting with

Taxable Accounts:
“For taxable accounts, municipal bonds are extraordinarily attractive compared to Treasury bonds,” Mr. Bogle added. He suggests half short-term bonds (one to two years) and half intermediate-term bonds (six to seven years). When interest rates go up, so will the income on the short-term bonds.

To purchase municipal bonds, you will need to have a brokerage account. It helps to have a broker, who will notify you of new issues. But, you can also research and purchase existing munis from brokerages.

Non-Taxable Accounts:
For retirement accounts, like IRA’s, “inflation is a big, big worry,” he said. “Everybody should consider a significant holding of U.S. Treasury inflation bonds or TIPS.”

So what are TIPS? Treasury Inflation Protected Securities, known as TIPS, are securities whose principal is tied to the Consumer Price Index. As inflation grows, the principal increases, while with deflation, it decreases. When the security matures, the US Treasury pays the original or adjusted principal, whichever is greater.

Here is an informative article by The FinanceBuff about purchasing TIPS at auction. You can also acquire TIPS in a mutual fund, such as VIPSX, which is a low expense, Vanguard fund.

As part of my 2008 financial resolution, I want to increase my bond holdings in my retirement accounts. I plan to accomplish that in two ways 1) Convert some existing shares in my traditional IRA to VIPSX and 2) Add the $5000 IRA contribution allowed for 2008 to VIPSX.

Wednesday, April 2, 2008

How much Employee Stock is too much?

I work for a large corporation and through my 401(k) I have invested in the company stock. The company has also given me stock as a match to my contributions and I have been fortunate to receive stock options. All of this means, I have a lot of shares in "big mama" corporation.

In fact, my company stock as a percentage of my total portfolio continues to increase steadily. Over the last 6 months, it has grown to 15% of my total holdings. The growth is not so much from the stock appreciating as it is from my other assets shrinking in value!

According to most financial advisors 15% is way too much invested in a single stock, and way too much invested in my own employer. Most financial planners advise that no more than 5% or your retirement portfolio be concentrated in your company stock.

Gee, my company stock has actually been one of the few bright spots in this market. It has held it’s own throughout this credit crunch ordeal, while nearly all other assets have plunged 10 to 20%.

From the beginning I have always rationalized that my employer’s stock is different, it’s a defensive stock, somewhat of a hedge against the market. To this day, that reasoning seems to have been right on target.

However, I have this eerie feeling and can’t help but wonder if Bear Stearn’s employees made similar assumptions. Thinking that Bear was just too big and too important to the US economy to ever fail. Of course, Bear wasn’t allowed to fail, but with the revised rescue plan, the value of the company stock owned by Bear employees is now worth a tenth of what it was just three months ago.

Can you imagine that? Your 401(k) dropping in value from say $200,000 to $20,000 in less than 90 days? Whether you are young or about to retire that has got to sting. Have we not yet learned our lesson from Enron and others about the pitfalls of owning too many company shares?

This NY Times article provides some interesting stats about company stock plans.

In 2001, when Enron filed for bankruptcy, investors in 401(k) plans that offered company stock held 28 percent of their retirement account in employer shares, on average, according to Hewitt Associates, the employee benefit research firm. By the end of last year, that figure had dropped to 16 percent.

That’s a big step in the right direction, but it’s interesting that the article also points out that some 401(k) participants are still making huge bets on company stock.

At the end of last year, nearly two of every five 401(k) participants were putting 20 percent or more of their money into employer stock, according to Hewitt. And about one-sixth of participants were investing half or more of their nest eggs in it.

It seems that familiarity with one’s company stock is a big factor. It’s probably comforting to many employees to buy stock in what they know best – their own employer. Isn't that what the luminaries of investing such as Peter Lynch and Warren Buffet have been telling us all along - invest in what you know?

I am willing to risk a little more than 5% in my company stock and a little less than 15%. My goal is to get the allocation back around 10% and maintain that for the long run.

For more personal finance information check out the Money Hacks Carnival #6. My article, "The Real Cost of Outsourcing Tasks" was included.

Tuesday, April 1, 2008

How I $aved Money and Made a little extra Cash this past week

Last week I was paid to eat, lodge and drive anywhere I needed to go. I was on travel with work. ;) A lot of my co-workers complain about losing money while on travel, but, if you play your cards right, you can actually rake in some cash.

For starters, I used a lot less gas in my own vehicle. Because I didn’t drive, that saved $30 this week. Also, my employer pays me the full per diem amount for my meals. Any money that is not spent on food can be pocketed. It isn’t a lot, but it does make the hassle of travel a little less taxing.

I traveled to a mid-sized city where the per diem rate was $44/day. My average daily food expense for the week was no more than $12. So, over the course of 4 days, I will pocket somewhere in the neighborhood of $128.

Obviously, I am trying to keep my meal prices down. Breakfast is typically provided by the hotel and most of my other meals on the road consist of items like the asian chicken salad from McD’s for lunch and then maybe a hamburger or chicken sandwich for dinner.

This is far different from most of my co-workers. For them, dinner is an event. It seems they live to eat and use the per diem meal money to splurge on a much more expensive meal. I might do that occasionally, but it certainly is not the norm.

My total savings (money not spent) for the week $30 + $128 = $158.

Wait. I almost forgot the per diem money is tax free. So, given my most recent effective tax rate of 20%, I would need to make $160 before tax to net the $128 cash. With savings like that, maybe I shouldn't be so relunctant to travel!

Making Money from my unpaid IRS Taxes

Hank over at My Investing Blog is running a Holiday Handout offering several prizes. One of the many ways to enter the giveaway is to write a blog response to Hank’s Holiday Handout Question. The question and my response follows.

How will you spend/save your 2007 tax return? If you aren’t getting one, how much do you owe?
I am not getting a return, and I will be writing a check to the IRS for $9746.00. That’s no small amount! You may wonder how on earth did that happen. Well, the IRS has a rule that you only have to pay in as much as you paid for the previous year. So, at the beginning of 2007, I calculated what that amount needed to be and adjusted my W4 accordingly. Then three things happened that drove my income higher. From the start of the year until the Fall, I was racking up overtime and early on in February, I earned a substantial raise. It wasn't long before I realized that if I continued to pay federal taxes at the same rate, I would far exceed my 2006 tax amount. That is when I modified my W4 to hold back a lot less. And finally, the third thing that impacted my taxes was that I received a large amount of capital gains and dividends from my investments.

I actually planned this and as painful as it is to write that check, I would just as soon add to that pain and write a check for my entire IRS bill at the end of the year. By holding back the $9746, I was able to make a little money off of my unpaid IRS tax money throughout the year.

To find out just how much, I did a quick check on the rate of return for my investments in 2007. I found that my portfolio managed to garner 12% growth last year. Not too bad, especially compared to 2008. Now, if we assume that I held back $187 a week (9746/52) from the IRS and the 12% growth was linear for the year (big assumption) I can calculate approximately how much money was skimmed off the IRS’s money.

Don’t you just love the sound of that? It turns out that I pocketed somewhere in the neighborhood of $554. That sure beats giving the IRS an interest free loan and it does take a little bit of the sting out of writing that big check.