Monday, August 18, 2008
While a similar tax credit boosted the housing sector in the 1970’s, a key difference comes with this year’s $7,500 tax credit: it has to be repaid, which turns that credit into the likes of an interest-free loan that must be repaid over 15 years.
According to the National Association of Home Builders website, in order to receive the credit, the closing has to occur before July 1, 2009.
Sounds good, right? I’m not sold…
1) You still have to repay the “credit”. This could end up getting people in trouble if they stretch themselves thinner than they should. Also, many will claim that they did not know it had to be repaid and will likely spend it as such.
2) You don’t receive your “credit” until you file your taxes, unless you change your withholding in the current year (which will raise your take home pay).
3) How much impact will this really have? I don’t foresee home prices halting their decline. I’m going to be potentially in the market for my first home in the near future, but with prices continuing their descent, I’m content to wait for the bottom (even if I do miss the exact bottom by a few months, I don’t feel that we’re there yet). Even Alan Greenspan, the former Chairman of the Federal Reserve believes that we are nine months away from the bottom. Why would someone jump in now? If it turns around, they’ll be right there to jump in (remember, they don’t have houses to sell and can react fairly quickly to market changes).
What would make this work? The answer seems obvious: treat this as a true credit and not an interest-only loan. In other words, don’t require repayment. But is that really the remedy of best choice? To have the government involved in propping up artificially high prices rather than letting the market complete its correction? Not to mention, pumping more money into the economy without production breeds further inflation, does it not?
All in all, I see this tax “credit” as having very little impact and simply adding to the complexity and confusion of our tax code (which is why I believe in proposals to eliminate the income tax and simply go with a national sales tax – but that’s another post!).
So, Everyman, what does this mean to you and your common sense financial decisions? First of all, this whole meltdown should remind us that we shouldn’t overspend our means. People are foreclosing because they thought that if they stretched themselves out, the market would continue to climb and they’d be able to win their gamble by selling for a higher price and taking a profit. But obviously that didn’t work out so well. Instead, it left millions without the ability to pay for their mortgage. And while the government is doing its best to bail out those that were greedy with their money, you shouldn’t put yourself there in the first place.
Be smart with your money. If you can’t afford it, don’t buy it!
Tuesday, August 12, 2008
Because of the housing spike, I expected to see a much higher peak toward the end of this graph, as wages have in no meaningful way kept up with the intense uphill climb of housing prices (and thus, housing would make up a larger portion of household expenses). Why is this? I can think of a few reasons – 1. People couldn’t afford the homes in the first place. Once the introductory rates (i.e. ARMs or Interest-only loans) jumped, they bailed (while leaving the recorded sale price of the home at a record high). 2. More families are relying on dual-incomes. This, naturally, raises the median household income, even though the family is putting in many more hours to be able to afford that same house (instead of 40 hours per week, now it’s 80). My wife and I would like to be able to have one of us at home when we have young kids. But more and more people that we know have found that to be practically impossible.
Wednesday, July 30, 2008
You may have had someone tell you, at some point or another, that 90% of the return on your investments comes from asset allocation. Asset allocation? What’s that?
Each investor has a different time frame, as well as a varying appetite for risk (and thus reward). Some people need their money in a few years, while others have decades to ride the markets. Some investors freak when they lose 5, 10, or 20%, while others ride on without being too phased by losses. While these investors have very different profiles, they all need one important strategy: asset allocation.
Asset allocation is, in Everyman’s terms, the way that you divide your investments between various categories of equities, fixed income products, and cash. Taking time horizon, risk tolerance, and other factors into consideration, this breakdown of funds can look very different from person to the next.
Example: Two investors with two very different asset allocations:
1. 23-year-old that understands that he’s in it for the long run and could almost not care less about short-term gains/losses.
2. 52-year-old that would like to retire next year, living off of her investment income, among other sources.
By diversifying their portfolios, each of these investors can buffer themselves against sever market fluctuations. However, the 23-year-old is still much more likely to have a higher risk profile – but will have at least 30 years to make up those losses. If the 52-year-old, however, had the same investments as the 23-year-old and lost 20% of the value of her portfolio, she may have to postpone retirement or live on less than she was expecting to be able to have available for her needs.
Reiterating, the two main determining factors in asset allocation are:
1. Time (horizon)
2. Tolerance (to risk)
If you have the time to make up your losses on some bad years, as well as the stomach to swallow those losses in the pursuit of larger gains, you’ll be more heavily invested in investments that have higher standard deviations of returns (but historically higher average returns as well).
Here is what their sample portfolios might consist of:
23-year-old – Aggressive Growth Portfolio
Category - % of Portfolio
International Equity - 25
Large Cap Value - 21
Large Cap Growth - 17
Mid Cap - 14
Small Cap - 12
REITs - 6
Emerging Market Equity - 5
Short-Term Bond - 0
Aggregate Bond - 0
Cash - 0
High Yield Bond - 0
International Bond - 0
As you can see, the entire portfolio is invested in equities. This would represent a very risky, yet potentially high-reward portfolio. This portfolio is likely to see both large gains and significant losses. Given a large number of years, however, it is likely to have a higher return than the next portfolio.
52-year-old – Conservative Income Portfolio
Category - % of Portfolio
Short-Term Bond - 35
Aggregate Bond - 25
Cash - 10
Large Cap Value - 8
High Yield Bond - 5
International Bond - 5
International Equity - 5
Large Cap Growth - 5
Mid Cap - 2
Small Cap - 0
Emerging Market Equity - 0
REITs - 0
This portfolio have very little exposure to the equity markets and is almost entirely in fixed income and cash. This makes sense, as both fixed income and cash have smaller standard deviations of their returns (and thus, are more predictable in determining what the return will be on the investment).
These two portfolios are more on the extreme edges of the spectrum. The majority of you will fall somewhere in between these two, with a balanced mix of equities, bonds, and cash. Generally, the closer you are to retirement (time horizon) and the more sensitive you are to short term losses (risk tolerance), the more you’ll be invested in bonds rather than equities.
Overtime, both of these two hypothetical investors will want to rebalance their investment portfolios to move them back to their original allocation percentages. This, in theory, also helps investors by forcing them to capture gains (if large cap growth did really well, it may now be at 25% of your holdings instead of the original 17%), as well as purchase securities when they are “cheap”(if small caps had an off year, you need to buy more to get it back up to its original allocation). This follows the basic (yet so psychologically difficult) premise of buying low and selling high. Too often, we tend to buy the “hot” option at the time, only to find out that we missed out on most of the growth and instead have most likely jumped on just before it comes back to normal (thus, a loss for you, Mr. Late to the Party!).
Smart investors use asset allocation strategies. So should you, the Everyman!
To find out what percentage of your money you should have in each category, try out a couple of these helpful tools online:
Monday, July 28, 2008
Saturday, July 26, 2008
While a number of my friends are subscribed to services that provide movies directly to their homes, I prefer the McDonalds Redbox. Why? Because many times the rentals are FREE!
By searching the Internet for promo codes, you can find an almost limitless supply of codes - and free movie rentals! The catch is that the codes expire (the majority, anyway), and you cannot normally use a code more than once per credit card.
If you don't use a code, the rentals are $1.00 (plus tax) per day. Still pretty cheap!
Check out the following sites for Redbox promo codes:
Also, you can rent and return the Redbox DVDs to any other Redbox location. This is GREAT for road-trips. Just look ahead and locate the various locations that have Redbox rental centers before you go!
Wednesday, July 23, 2008
A recent survey has shown that 1 in 5 American adults has made the switch and no longer has a landline at their place of residence. 1 in 5? That’s it? That may seem high to a lot of you, but to this Everyman, I’m surprised that more people haven’t made the switch. Another survey, however, showed that 49% of movers are ditching the landline after they move. With the added convenience of only one phone – plus the fact that you won’t miss calls when you’re not at home, those numbers fall closer in line with what I’d expect. Smart people like you shouldn't be paying $10, $20, $30 or more extra per month to have a landline you don't need!
Another way that this Everyman has saved on his phone bill is by remaining on a family plan with my parents and siblings. That majority of the personal (that I would have to pay for) phone calls that I make are to them and my wife. Thus, all calls to my parents/siblings are free (because we’re in the same plan). In addition, I don’t talk for long on the phone with my wife, as I see her every morning and evening. So why have a long-distance phone line, or a phone line in general, when the people that I call most are already covered? That leaves those extra minutes on my cell plan for calling people outside of this group. For $5 more per month, my night time minutes start at 6PM. And being that I don’t get home from work until 5:30 on a normal night, that also cuts down on the amount of daytime minutes that I need/use, even lowering my portion of the bill even further.
If you do need to make long-distance phone calls, a great way to do it is by using a service called Skype. This allows you to call other Skype members over the Internet for free (you can also make calls to landlines and cell phones for a fee). But if you need that way to call your grandmother in Florida – and grandma is “up” with the technology to get on Skype (a free download), you’re covered! Plus, you can even use video to check out how grandma’s new wig looks!
It’s not that difficult to save money. Everyman (and woman) can do it – and so can you. It just takes a lot of common sense and a little bit of determination. Quit paying for that landline you don't need!
Why am I telling you this? In total, I pay about $50 per month for Internet access and basic cable. I’m sure there are people that would question why I would have basic cable when I could pretty much pick up most of those channels from an antenna. I had the same thought. Turns out, it’s the exact same price to have Internet with basic cable and to simply have Internet access. Guess you get a discount for Internet when you have cable. Fair enough, plus I don’t have to deal with the good old bunny ear antennae – as well as the change over to a digital signal in Feb. 2009.
For me to add the next package up, the “Digital Starter” package, I’d be paying $50 MORE per month. And no, that doesn’t include the premier movie channels or any other subscriptions. Or HD (sorry, that’s another $7 per month). (Another tip for those of us who don’t have movie channels – McDonald’s Redbox has the latest releases for only $1 per night – or FREE if you use promo codes that you find by searching on Google!)
Now maybe this isn’t resonating with all the readers out there, but think about that for a second: $50 per month? If you haven’t figured it out by now, I’m fairly young. One thing I have figured out, however, is that with the power of compounding interest, a little now can go a long way in the future. Say I took that $50 every month an invested it. Every month, for 40 years. In reality, that $50 difference is like to increase (with inflation). And let’s say I average 10% per year on my investments. In 40 years, that $50 per month will net me over $300,000! Yes, that won’t go as far in the future, but still, even if it were $50,000 in today’s dollars – that’s a lot of money!
If you’ve never taken the plunge – or thought about how you really don’t need all those channels – now is the perfect time to try. What do you have to lose? You can always get your channels back (they’ll be more than happy to get you back on that higher package!). But I’m from Minnesota and our summers are not that long. Why not enjoy them rather than sitting in front of the TV all summer? Plus, this Everyman is saving a lot of money in the process!
Sunday, July 20, 2008
Is this a good idea? The numbers are there: I've been reading all over the Net that for every 5 mph faster you go than that 60 is like adding $0.30 per gallon to the cost of gas.
But if you're like the typical Everyman, you're not too thrilled to learn that you just added an extra hour onto the trip to go visit Otherman on Lake Somewhere Better Than Here. That can mean the difference between arriving in time to get a little fishing in or missing out on the evening bite.
So, what are some ways that you can save gas without driving like your grandmother?
Pay for gas in cash - it's not all that well known, but the gas stations pay a fairly hefty fee when you pay for your gas by using a credit card. Recently, many gas stations have been offering discounts to those that are willing to pay in cash for their gasoline purchases. Because they are not paying these fees, they can pass the savings on to you! So I encourage you to ask around for discounts on gas - most can be found at non-chain owned stations. It never hurts to ask!
Get the best prices online - I know it's not always convenient, but if you have access to a computer (which you do if you're reading this!) and know you'll need gas soon, check out gasbuddy.com for the best deals on gasoline in your area. This site collects prices from volunteers that will post the price at the various gas stations - so you don't have to drive around looking for the best deal! The differences can be significant - often I'll see one station charging at least 10 cents more per gallon - and their only a mile or two apart (and both on the way to my destination)!
Avoid the stations closest to the main roadways - if you're going to veer further off the beaten path anyway, it's best not to simply buy the gas at the first station off the of the interstate. Because of their location, they can sell at a premium. The opposite holds true for the station a 1/2 mile down the road. In order to get your business, they may charge 5 cents less. Hey, if you're a typical Everyman, you know that you can get quite a delicious donut inside the store with that money you just saved!
Ditch the SUV/Truck - I know, it's hard for the Everyman to do. But really, is it worth it to drive around a tank that gets 10 mpg (if you're lucky) when you can drive just about any decent sized sedan and get close to 30 mpg? Do you realize that 400 mile round trip to see your parents costs you $160 compared to $53.33 at $4.00 per gallon? That's a LOT of money. Maybe you can compromise and get an old truck for when you need it, while driving a more fuel-efficient sedan for your main vehicle. This Everyman works in a downtown metropolitan office-building and sees more SUVs/Trucks with only one occupant than he can even count. Worth it? I'm not so sure...
What Do You Do to Save on Gas? Comment below!
Friday, July 18, 2008
Why Is Your Credit Score Important?
Credit scores not only determine the rates/conditions of loans/credit offers that you will receive, but they also can determine whether or not you’ll even receive an offer! Those with low credit scores may not even be able to receive a line of credit or loan at all!
Where Do Credit Scores Come From?
So who determines this monumental number in your life? There are three credit bureaus that operate in the United States:
Each provides their own score, which will slightly vary between the three, all ranging between 300 (ouch!) and 850 (rumor has it, it is impossible to achieve). Your are entitled to a free credit report from each of these bureaus once every 12 months. If you are only doing it as a continual check, it’s possible to get a free credit report every 4 months by rotating which company you request from. That way, you should always have an idea of what it is that creditors are also viewing.
How Is Your Credit Score Determined?
How is your credit score determined? Much of it comes from your payment history (how well you are at paying your bills on time), as well as the amount you owe in comparison to how much credit you have available. However, other factors that come into play is the length of your credit history (someone who pays their bills on time and has a good ratio of debt to credit available, but has only 5 months of credit history is still pretty risky), recently issued credit, and the type of credit used.
Weighting of Impact on Credit Score:
35% Payment History
30% Ratio of Debt to Credit Available
15% Length of Credit History
10% New Credit
10% Type of Credit Use
Monitoring Your Credit
One option for monitoring your credit, which I’ve used for a few years after a small case of identity theft (I’ll tell you about that at a future date), is a service that Experian offers that is called TripleAlert. This service, which costs $4.95 per month, monitors ALL THREE of the credit bureaus for changes on a daily basis. Thus, if anyone were to try to open credit in my name – or if anything else were to change on my credit report – I would be notified within 24 hours. It’s been effective in catching any changes (which I’ve been able to test when legitimately applying for credit since I’ve added the service) and I’d highly recommend it as a tool to prevent destruction of your credit score by identity theft. In all, it monitors for new inquiries, potentially negative information, public information, new accounts, and address changes. You can even have it alert you by SMS text message. Cool, huh?
Ways to Improve Your Credit Score:
- Pay bills on time! This may be common sense, but if you don’t pay when you are required to, your score will take a big hit (see the weighting from the above section). Sometimes, people have the resources, but not the capacity to remember to pay their bills. If this is you, sign up for automatic payments on your accounts or bill pay through your banking institution. I enjoy the freedom of not having to be bogged down with paying bills, while continuing to have access to view the bill each month to monitor its accuracy. Again, it’s important that you keep sufficient funds in your checking account to pay these bills each month (but not too much in your checking account, as you can get a much better return in an online savings account!).
- Take the time to correct the errors - If you’ve never seen your credit report before, you might be surprised to see how many errors might actually be included. While you might not even realize they are there, you can be sure that they are dinging your score – this could be greatly impacting the terms of credit that you might have been or will be offered! If you know that you’ll have an upcoming purchase that you’ll need credit for, it’s worth the time to correct your score now. In fact, it can take 2-3 months (or more, in instances) to fix problems on the report. So start now! And if you find errors, be sure to contact the credit bureaus and get those cleaned up!
- Keep old accounts OPEN – Not surprisingly, this can be confusing to people. Why would I keep accounts open that I don’t use? The first reason is the “length of credit history” weighting. If you have a line of credit that you’ve had for a length of time, it should help your score. Remove that credit and the result will be a shorter length of credit history = lower credit score.
- Keep your debt/available credit ratio to about 25% - Just because your credit card company says that you can go out and spend $10,000 doesn’t mean you should! Ideally, you should be using no more than about 25% of your available credit. Would you rather offer a line of credit to someone who already has maxed out their other lines of credit? Probably not. So don’t be that guy that doesn’t know when to quit! This is also another reason not to close accounts – closing accounts will lower your available credit and raise your ratio of debt/available credit.
- Remember that parking ticket or library fine? – Yes, even forgetting to pay off that library fine or parking ticket can result in a significant decrease in your credit score. Don’t forget things like your utility bills! You can be sure that they will also report you if you fail to pay. That late library book fine might damage your credit report for a good SEVEN YEARS! Be careful about paying those off on time!
- Don’t open a lot of store cards (or any cards for that matter) – Yes, it may be tempting to open that card at (name your favorite retailer here) because they are offering (name amazing perk here) if you apply today! While many of those cards have sometimes astronomical APRs, it also looks horrible to have multiple inquiries and new accounts in a short period of time, especially right before you are looking to obtain credit for a more legitimate purpose (a car or home). Besides, you already have enough to keep track of with your finances. Do you really need to open another account to remember to pay off? These leads to my next point.
- If you can’t handle your cards or find yourself getting behind… - Sometimes people just reach a point where they lose self control. They have large credit limits and soon reach a point where they can barely make the minimum payments. While your credit score may have already taken a hit, it’ll be severely damaged if you are forced to start missing payments – or worse, file for bankruptcy (and that, my friend, will stay on your credit report for 10 years). I can’t take credit for the idea, but I also can’t remember where I heard it. If you need a break from your credit cards, go all cash for a while. In the mean time, take your credit cards and freeze them in water. That way, you’ll still have them, but in order to use them, you’ll have to make the choice to thaw the card out after pulling it out of the freezer. Yes, maybe a bit drastic for some, but it’s well worth it to help you slow down and live within your means.
- Share your tips – Anything else Everyman didn’t think of that you think would be beneficial for readers to know? Submit a comment below!
Overall, a good credit score can make life much easier. Your interest rates will be lower (this can be a significant reduction in payments, especially on large items such as homes) and you’ll have more credit available to you. By taking a few initial steps to improve your credit, along with consistent credit monitoring, everyman can maintain an excellent credit rating.
Wednesday, July 16, 2008
If you've read this far, you can see the astronomical amount of money that I save each year by riding the bus. And this does not include even more benefits:
- Less stress - rather than sitting in white-knuckle traffic, I'm nice and relaxed, both when I get to work, as well as when I get home to my wife.
- More time - not only is the commute shorter when you ride the bus (buses can run on the shoulder of the road!), I also have more time to read/listen to music or podcasts/take a nap/etc.
- Entertainment - let's face it: public transportation can be interesting. Mind you, I ride in from a suburb that is relatively well-off. But the stories still abound! From the lady who attempts to sing along to her imaginary headphones, to the one who always tries to short-pay her fair with a new driver (plays the "can't speak English" card), there's always something happening on the bus!
If anyone wants to use my spreadsheet with their own numbers, let me know and I'll send it to you.
Everyman has to get to work. How much you save on the way is up to you!
Tuesday, July 15, 2008
This site includes daily deals (technology, clothing, samples, and more), as well as coupons (that you can search for by company name), and forums that users can contribute to with their own deals that they've come across.
I really like this site for deals because of the rating system that is used. The more stars that the deal gets, the more attention that I'll give it! I can't even count the number of sales, coupons, and forum postings on this site. You can find some GREAT deals on here!
Their motto is "Prices other sites simply don't tell you". And it's true! You can find some great deals on anything from books, movies, clothing, electronics, and more
"We Search, You Save". Pretty straighforward, eh? This site is also in my Top 5 for saving. Again, selection is across the board. One thing I do like about this site is that you can also search for features such as "Free Shipping".
If you like to dine out (who doesn't?) but don't like to pay the full price, here's a site for you! With this site, you can buy gift certificates for various restaurants in your local area. Most metropolitan areas have restaurants listed. The catch? The best deals are at the end of the month...however, once the gift certificates are gone for the month from that restaurant, they don't get any more until the next month. Expect to find certificates that will cause your jaw to drop, however ($10 certificate for $3...$50 for $20...and more!). For cheaper eats, this is the place to check out! A lot of high quality restaurants listed on this site!
I'm always looking for new suggestions - where do you save money online??
Many of the personal finance blogs out there are rather unrealistic - people that are making 250K per year or post about their dilemma between which vacation home to go to. They may even let you follow their pace toward becoming a multimillionaire by the age of 23.
No, this page is for those of us who are looking for better ways to manage our finances and make smart choices about our money, while making a decent return.