kc bob: MONEY

Showing posts with label MONEY. Show all posts

Loaning the Government Money for Free

The Motley Fool recently published a post titled: "Getting a Tax Refund? Here's Why That's a Bad Thing".
Following are a few points from it.

Don't let fear hold you back: That fear might be hurting your finances. Instead of paying down your credit cards you are overpaying taxes. Imagine how much richer you could be if you invested that money.
Avoid temptation: Large tax returns tempt the best of us to spend it on vacations and large purchases. In reality, had you been getting that money in your paycheck all along, you could've found a more responsible use for it

While many of us are inclined to believe that getting a refund at tax time is far better than owing money, in reality, owing a small amount isn't necessarily such a bad thing. If anything, it means that you, not the government, got to benefit from an interest-free loan, which is actually a pretty sweet deal when you think about it. [read the post in full here]

It's a Wonderful Capitalism

I am thinking about "It's a Wonderful Life", that wonderful Christmas movie about George Bailey and Henry Potter. The movie seems to contrast two versions of Capitalism. The Potter form of Capitalism is fueled by greed and sees no value in serving anyone but Potter. In stark contrast, George Bailey presents us with a very different variety of Capitalism. One that seeks riches of heart as well as that of bank account.

Yet today we seem to celebrate the acolytes of Potter more than we do those of Bailey. We seem to have forgotten how much we loved George when he rescued homeowners from Potter's slums. And how much we hated Potter when he took advantage of people when hard times hit. George never gave up on people but trusted them to pay their debts even when it was not "good business" to do so. Henry Potter trusted no one but himself.

In the end we came to understand what the angel told George was true: "no man is a failure who has friends.". And perhaps that is the heart of what Capitalism should aspire to? A system where everyone looks out for each other as if they are their friends? A society that understands how much we need each other? In the end our country might look a little more like George Bailey's Bedford Falls than the godless town of Pottersville.

Does your Tipping reveal your Faith?

My blog friend Alice is a waitress. I had this dialog with her in her blog's comments.

Bob: One of the best sermons I have ever heard on money was one where the topic was generosity. The guy said that if you are not commited to being generous when you tip then you should not pray before you eat and give the rest of us a bad name. Sometimes I do think that people are just cheap though. A few weeks ago a friend told me that he is not generous when he tips if the service is bad. LOL, I told him that he apparently does not believe in grace or mercy. Sometimes waitstaff most need generosity when they are not at their best.

Alice: Some of the WORST tippers are the after-church crowd, unfortunately. I once had a table whose conversation was all about discerning the spirits and pressing in and all kinds of other things of the sort. They were rude, never made eye contact, and very bad tippers. :(

Bob: Would that preachers talked more about being generous to waitstaff than being generous to the institutions that employ them. People of faith need to hear it.

So I share this in hopes that you will be more generous when you next dine out. Even if your server is having a bad day.

On Sale? Really? Am I that much of a Sucker?

Got an email from Starbucks regaling me with dreams of big savings if I would just go to their website or to one of their stores. So I went to their website and found this "on sale" box of Sumatra k-cups which regularly sells for less at Walmart. Ugh!! Why am I always drawn to these ad scams? Is it just my quest for cheaper prices or is it something else? Do I really think that companies like Starbucks really want to help me out? Am I that much of a sucker? Perhaps I am? I did click on the link in the email. I am such a sucker!

Fonzi Scheme

Seems like every time that I turn the TV on I catch Fonzi or the guy from Law and Order doing commercials for Reverse Mortgages. So I thought that I might share a few thoughts on the topic from a post by Laura Agadoni:

What It Is: A reverse mortgage takes the equity in the home once someone owns it or almost owns it and converts that equity back to cash given to the homeowner in various ways. The homeowner can choose to receive monthly payments, get money through an equity line that she can tap whenever she needs to, receive a one-time lump sum payment or some type of combination.
Rip Offs: The FDIC warns that it’s not uncommon to enter rip-off territory with a reverse mortgage and that some unscrupulous companies charge the borrower for unnecessary services.
High Costs: Lenders like to do reverse mortgages because the upfront costs are high, making the loans profitable in the short term. All mortgages involve closing costs, which are various fees and expenses above the cost of the property, such as deed filing and title searches. However, these costs are significantly higher with a reverse mortgage compared to closing costs of a traditional mortgage.
When Not To Use: The FDIC does not advise people to take out a reverse mortgage if they plan to leave the home in less than five years. It’s not the answer to cover small monthly expenses, either. The fees associated with the reverse mortgage process, which could be thousands of dollars, are too high to justify unless you plan to stay in your home for years to come, and you need the money to live on
No Home Left: Your mom or dad has to pay mortgage insurance with a reverse mortgage. This is to protect the lender in case the value of the home should drop during the course of the reverse mortgage or if the reverse mortgage is held for such a long time that the interest exceeds the home’s value. Of course, if that happens, that is bad news for any heirs, as well, because there will be no or little house left to inherit.

I recommend that you check out more of what Laura writes about Reverse Mortgages here.

Debt is not a Tool

Every now and then I am in the car when Dave Ramsey is on the air. Love his practical no-nonsense advice to folks who call his radio show asking for help to get out of debt.. A while back he shared "7 Characteristics of Debt-Free People" on his blog. I thought that I'd share a few nuggets from it here ...

Impulsive, impatient purchases are debt’s best friend.
People who decide to ditch debt for good realize that debt isn’t a tool.
People who are getting out of debt don’t care what others think.
You know you’re on the right track when your broke friends are making fun of you.
Materialism can affect any of us—rich or poor.
Becoming debt-free isn’t about stocking a garage full of cars.
At some point, people who become debt-free decide that enough is enough.

I can relate to many of these things. I have often said that I have learned to be patient, wait out purchases and buy things when they are no longer cool. I have almost always bought used cars. That said, I do think that most Americans, including me, fight materialism and the desire to buy things - and often things that they cannot afford.

Should Seminarians be forbidden Student Loans?

My friend Bill blogged yesterday about a seminary that has changed their policy about student loans. Here is their statement about it:

“It is the formal position of City Seminary of Sacramento to forbid students to incur debt for the purpose of paying tuition expenses. While those embarking upon secular business careers may reasonably expect to repay student debt out of future earnings growth, such an expectation is inappropriate for a graduate who may well be called upon to serve in a poor or even poverty-stricken field of ministry. In keeping with this conviction, the Board of Governors endeavors to provide sufficient tuition scholarship aid so that no qualified student is denied a theological education for financial reasons.”

I am not sure how to respond. My first reaction is to cheer such a decision. I do wonder how student debt drives ministers to make foolish decisions just to make ends meet.

The Rich don't give to Charity?

Thought this observation from Ken Stern's "Why the Rich Don't Give to Charity" article speaks volumes:

"Wealth affects not only how much money is given but to whom it is given. The poor tend to give to religious organizations and social-service charities, while the wealthy prefer to support colleges and universities, arts organizations, and museums. Of the 50 largest individual gifts to public charities in 2012, 34 went to educational institutions, the vast majority of them colleges and universities, like Harvard, Columbia, and Berkeley, that cater to the nation’s and the world’s elite. Museums and arts organizations such as the Metropolitan Museum of Art received nine of these major gifts, with the remaining donations spread among medical facilities and fashionable charities like the Central Park Conservancy. Not a single one of them went to a social-service organization or to a charity that principally serves the poor and the dispossessed. More gifts in this group went to elite prep schools (one, to the Hackley School in Tarrytown, New York) than to any of our nation’s largest social-service organizations, including United Way, the Salvation Army, and Feeding America (which got, among them, zero)."

Not surprising that the rich sometimes simply support the rich and do not do much for the poor. How do you see it?

Crazy Compensation

Did you catch the "What People Earn" edition of Parade magazine yesterday? A few interesting tidbits ...

  •  American Idol judges have earned up to $20m per season.
  •  27 year old Blogger made $18k and gets by on $160/month.
  •  Crazy hair guy Guy Fieri gets $100k to make an appearance.
  •  Geezer actor Mark Harmon gets $500k per episode of NCIS.
  •  31 year old ex-Intel engineer comedian makes $328k.
  •  Entrepreneurs don't seem to be making all that much.
  •  54 year old part-time clown raked in $2,500. What?!
  •  43 year old Louisiana court reporter makes $107k. Wow!?

19 year old Bieber seems to be the most outrageous on the list. What do you think is the craziest compensation?

Need a Penny?

This image reminds me of how much I hate pennies. This ring, and old penny loafers, may be one of the few uses for the coin. Here is what consumer advocate Clark Howard says about it:

Canada has now done away with its penny. Is now the time for us to follow suit? Pennies actually cost more than one cent to make and manufacture. Think about how easy it would be to do away with them. Let's say you go to a store and the price of something is 11 or 12 cents, it just rounds down to 10 cents. If it's 13 or 14 cents, it rounds up to 15 cents. That rounding makes us exactly even-steven over time.

I vote to get rid of the penny. How do you vote?

The Debt Cliff

Back in September financial poobah Peter Schiff wrote an oped titled: "The real fiscal cliff". In it he frames our current national monetary crisis in this way:

"The buyers, who legitimately can be described as “investors,” extend credit to the United States at such generous terms largely because of America’s size, power and perceived economic unassailability. If those perceptions change, 5 percent could quickly become a floor, not a ceiling, for interest rates. Given that America’s balance sheet bears more than a casual resemblance to those of both Spain and Italy, it should not be radical to assume that one day we will be asked to pay the same amount as they do for the money we borrow. The brutal truth is that 6 percent or 7 percent interest rates will force the government to either slash federal spending across the board (including cuts to politically sensitive entitlements), raise middle-class taxes significantly, default on the debt, or hit everyone with the sustained impact of high inflation. Now that’s a real fiscal cliff."

I suggest that you read the whole article here. I agree with Schiff when he says:

"By foolishly borrowing so heavily when interest rates are low, our government is driving us toward this cliff with its eyes firmly glued to the rearview mirror. Most economists downplay debt-servicing concerns with assertions that we have entered a new era of permanently low interest rates. This is a dangerously naive idea."

Scary Timeshare Story

The word Timeshare conjurs up all sorts of images - okay maybe not the one pictured here but sometimes this image may not be too different in some respects. I have never owned a timeshare but consider this excerpt from a post, titled "My worst financial decision ever....sort of" written by my blogging friend Don.

We are in Kauai for our 25th anniversary at the Sheraton, and to save money on a flight around the island we promised to hear a time share sales promotion. We did, we said no, they began to invite us back for a stay at a mere 100 dollars a night. In the meanwhile I had my first heart attack. Thinking I was a goner, we took them up on the deal and returned to Kauai with two of our children and one grandchild, and we loved it. The thought of trading and doing this in other resorts, the idea that all our payments for the week would apply to the sales price, and me thinking my life was almost over....well, in a moment of weakness we bought a sweet little every other year prepaid vacation so we could have "future inflation free vacations". HA

Allow me to condense to the end of the story. Ten years later we have enjoyed five weeks of vacation for our considerable investment, The resort changes hands three times, a rapacious crook takes over and management hikes our yearly maintenance fees to a ridiculous amount, and then decides to pass on a massive repair bill for shoddy construction from way before we ever got on the helicopter ten years ago.

Hence we are billed half of our original money just to continue our ownership, our inflation free vacation becomes enormously expensive again, and we and 500 plus other owners said, We have had enough an d we aren't going to play this game any more. We are waiting to see if this "sham foreclosure" affects our credit ratings, or if they sic credit collectors on us.That would be the ultimate low down scum move, as he gets to sell our timeshare again to some younger suckers. We are in a lawsuit, but this shyster gets not one more nickel of my vacation money.

Wondering if anyone else has a scary timeshare story to share?

Evading Taxes by Renouncing Citizenship? Really?

I think that, for some, being a citizen of the United States is all about greedy entitlement and has little to do with being a responsible member of our society. Sadly it seems that the richer you are the more ways that you have to hide your income from paying taxes - and some go even farther. Consider what David Gerwitz writes in his ZDNet article titled
"Why Facebook co-founder Eduardo Saverin is a schmuck". Here are a few excerpts:

"Writing this article without profanity has been almost physically impossible. But we’re a family site, here at ZDNet, so I’ll just let you insert whatever invectives come to mind.

In this case, I’m talking about Eduardo Saverin, co-founder of Facebook, who — in order to avoid paying taxes on his multi-billion dollar IPO windfall — is renouncing his United States citizenship.

There’s a truth about life that’s often difficult to accept. Justice doesn’t always happen. Some people, usually because of their great wealth, get away with doing reprehensible things. It’s not fair, and it’s not right, but it’s what happens."
...
"What he’s done is played a system and gained tremendously for it. A case could be made that that’s fair. One of the first things they teach you in B-school is to pay the least amount of taxes you can within the bounds of the law, and even the IRS accepts this as a reasonable strategy.

But going so far as to renounce the incredible gift of citizenship we gave to this man, and by doing so, saved him from kidnap gangs in his native country — that’s below reprehensible.

Justice would be to take away his stock benefits if he renounces his citizenship. Justice would be to block him from raking in all that cash if he’s not willing to pay his fair share. But justice doesn't work that way.

Instead, Saverin is running away to Singapore, a very small country with a very low crime rate."
...
"By not paying his fair share of taxes in the United States, he’s essentially stealing from all of the rest of us taxpayers who supported his education and his business venture. If it weren’t legal, it’d be a crime."

I think that people like Saverin and people who hide their money offshore give wealthy people a bad name. Thankfully the USA is filled with generous philanthropists who do wonderful charitable things with their money. And in that I rejoice.

How I use Mutual Funds to Keep my Sanity

Ann and I both had been contributing to our company 401k plans for some time but really did not have a coherent plan to manage our retirement dollars. So we were anxious to have someone help us when I retired in 1998. Back then financial analysts seemed to come out of the woodwork. These folks tried to create an exotic mysticism around the way that a retirement portfolio should be developed and managed.

After interviewing several companies we settled on one small business, run by Christians, that was recommended by a friend. These guys came up with a plan encased in a nice binder and seemed really smart. We were gung ho on the plan until we began to scrutinize it and discovered that five annuities were buried in their recommendations. Annuities are great for the people who sell them but not so much for those who buy them.

Since that day I have been convinced that I do not need someone to manage my retirement portfolio. There is a lot of educational information out there and, if you use mutual funds in your 401k and IRA vehicles, it is possible to manage your own retirement portfolio. Here are a few general principles that I have developed over the years:

From the image on the right (click to make larger) you can see that there are many types of portfolios out there. To discern my target I determined the amount of risk that I was comfortable taking which equated to a moderate to conservative portfolio.
To keep my sanity I diversify not only across stock and bond funds but across mutual fund managers. That means that I will not entrust a lot of money to one mutual fund.
I use analyst recommendations when I pick a fund. I like the Morningstar ratings and tend to stay away from low rated funds.
I tend to favor value oriented funds over those of the growth variety. These tend to be a bit more stable over the long haul.
I rarely pick a fund that has an expense ratio greater than 1%.
I never pick a fund that has any fees or are front loaded funds.
I try to stay away from being over invested in one company or industry sector. Means I check mutual funds' top holdings.
I like to have enough liquidity to sustain us for a few years. Advisers do not like it but it helps me sleep at night. :)

For me, the key has been to view my portfolio as an investment strategy rather than an opportunity to regularly buy and sell stocks and bonds. Consequentially I do not buy and sell very much. I tend to regularly (a few times a month) check my portfolio but actively manage it only it a few times a year. This seems to reduce my stress level a bit. :).

I'd be happy to share more. Feel free to comment below or send me an email if you have any questions.

Shred it Now!

Years ago we bought a shredder and have not regretted the investment one bit. In fact, we wore our old one out and had to buy a new one last year when we downsized and move. Matt Brownell recently offered "8 things you should shred right now". Here is his list:

Old Tax Returns | older than three years
Bank Statements | especially old one with SSNs
Credit Card Offers | tearing up is not enough
Old Photo IDs | info on it can be used
Pay Stubs | gold mine for identity theft
Convenience Checks | from credit card offers
Cancelled Checks | contain bank routing info
Cancelled Credit Cards | info on mag strip

This is a great list and is worthy of a complete read at the MSN Money site. Last year we shredded boxes of cancelled checks, bank statements, pay stubs and tax returns. It took us days to go through all of our files but it was worth the effort. I suggest you give it a try.

Did you find this helpful? Anything missing on the list? Do you own a shredder?

The Rich get Richer and All is Well with the World

This graph is from a Congressional Budget Office (CBO) site titled "Trends in the Distribution of Household Income between 1979 and 2007". Here are a few observations that they make about these statistics:

CBO finds that, between 1979 and 2007, income grew by:

275 percent for the top 1 percent of households,
65 percent for the next 19 percent,
Just under 40 percent for the next 60 percent, and
18 percent for the bottom 20 percent.

The share of income going to higher-income households rose, while the share going to lower-income households fell.

The top fifth of the population saw a 10-percentage-point increase
in their share of after-tax income.
Most of that growth went to the top 1 percent of the population.
All other groups saw their shares decline by 2 to 3 percentage points.

Some will say that the CBO promotes class warfare. Maybe these statistics reflect a war.

US Debt Problem Explained ...

Saw this on Facebook today and had to share it here with you.

Who amongst us (even folks with multiple credit cards) could live with such debt?

It reminds me that I need to pray more for our leaders in DC.

Taxing the Rich

Transparently speaking, I have flip flopped all over the place on this idea of taxing the ultra-rich. On one hand I listen to gadillionaire Warren Bullet speak about how he pays less, percentage-wise, than his secretary. On the other hand I watch a 60 Minutes piece that tells me that corporations and the ultra-wealthy are not paying taxes here but pay them where the rates are cheaper.

Consider these points from an article (from a somewhat biased site) titled
Tax The Rich? 14 Facts You May Want To Consider ...

The top 1 percent of all income earners already pay 39.5 percent of all federal income taxes. When you take all forms of federal taxation into account, the top 1 percent of all income earners pay 28.1 percent of all federal taxes. The top 20 percent of all income earners in the United States pay approximately 86 percent of all federal income taxes.
One recent poll found that 64 percent of Americans are in favor of raising taxes on those that make $250,000 or more a year in order to help balance the federal budget deficit. Another recent poll found that 72 percent of Americans favor raising taxes on those making $250,000 or more a year.
Approximately 45 percent of all U.S. households pay absolutely no income taxes at all. Overall, U.S. households are now receiving more income from the U.S. government than they are paying to the government in taxes. This is clearly not anywhere close to sustainable.

Those are interesting but this is the one that got my attention:

The ultra-wealthy keep much of their wealth outside of the United States so that the government cannot tax it. It has been estimated that a third of all the wealth in the world is held in "offshore" banks.

Got me to wondering if our government is really smart enough to squeeze a few more bucks from the ultra-wealthy or if attempts to do so would just chase them, and their money, to other countries? All of this is starting to get me wondering if my friend Lynn is right about taxing spending rather than income. Conceptually it seems that such a plan would be more difficult to scam than our current one. What do you think our leaders in DC should do?

Dedicated to Wall Street ...

... and all of my ~~anarchist~~ capitalist friends with kudos to ASBO Jesus.

The Fool on the Debt-Ceiling Crisis

These past weeks have witnessed much dysfunction in the federal government of the United States. I think that the Motely Fool has a few good points to make about it in their recent posting titled "What You Need to Know About the Debt-Ceiling Crisis". Here are a few excerpts:

What is the debt ceiling? It's a self-imposed limit on the Treasury's ability to borrow. Reaching the debt ceiling does not mean the U.S. is bankrupt. Investors around the world are breaking down the doors at the Treasury to lend us money. This is a purely self-inflicted crisis.
Importantly, raising the debt ceiling is not merely about making room for future spending. It's about Congress deciding whether it wants to pay for the laws Congress has already passed and is committed to. The ceiling has been raised 87 times since 1945, almost always without fanfare.
What happens to the government if the ceiling isn't raised? The Treasury says it will run out of cash on Tuesday. Others think higher-than-expected tax receipts could extend that by a few days. President Obama has indicated he's open to extending the debt ceiling for a few days if more time is needed to hammer out a last-minute deal. If the Treasury does indeed run out of cash, someone won't get paid.
What happens to markets if the ceiling isn't raised? That's the trillion-dollar question. In an actual default, there would undoubtedly be some degree of panic, particularly in the banking sector (think September 2008). Banks and money-market funds that rely on Treasury bonds as bedrock assets would be thrown into disarray. The financial system is held together by confidence. Losing it is not something you want to play with. But the odds of default are low. More likely is a credit downgrade.
A downgrade wouldn't be catastrophic, but it shouldn't be taken lightly. In general, an AA-rated nation pays more to borrow money than an AAA-rated nation -- interest rates are higher by 0.7%, on average. A rise of that magnitude could hammer the stock market and increase the cost of mortgages, credit cards, and other forms of borrowing. As I wrote this morning, a 0.7% rise in interest rates would add $100 billion a year to federal borrowing costs and could slow economic growth by around 1% a year. As a rule of thumb, that could cost roughly 1 million jobs.

The fools ends by giving this advice to investors: There's never a good time to panic, and decisions made during emotional upheavals are usually regrettable. If you were happy with your portfolio last week, you should be happy with it next week.

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