Master Your Card

I have to do a little braggin’ on my boys today…UT won!!!!!!! Wooohooo! It was a great game though, and so close! It will be interesting to see how they do next week against the Red Raiders…but I have faith. Still, I can’t wait for Colt McCoy to gain a little more experience, but then I’ve been spoiled by Vince Young. Oh, well. We’re undefeated so I can’t complain.

Alright, alright. Enough about football. So this is the part where I normally thank those who’ve linked to our articles this week. Unfortunately, I’ve had a little setback. We’ve updated the site and I’m not used to the new format. Where I could before see the incoming links from our fellow bloggers, I haven’t yet found that helpful tool in this new set up. Since my reading is a little behind, please accept my apologies for not mentioning you specifically! But, thank you to everyone who linked this week!

And now, here’s a peek at what I’ve been reading over the last week. As always, great stuff guys!

- First on my list is Oprah! Haha…wasn’t expecting that, were you? But, Oprah’s site has a father’s letter to his daughter as she heads off to college. It’s full of great advice and good information - definitely worth a read!

- J.D. over at Get Rich Slowly has a funny youtube video posted that explains why Wall Street can’t seem to stay out of the red. Make sure you check it out!

- Ginger from Girls Just Wanna Have Funds talks about the correlation between gas prices and elections. Frankly, I’m happy to have the gas prices lowered…whatever the reason!

- Living Almost Large talks about how pets are an ongoing expense. I’ll attest to that! I just spent close to $300 to take care of my cat…and all he had was an abscess. Pets cost a lot of money, so it’s like having kids in that you need to be sure you’re financially ready for the responsibility. By the way, pet insurance is a good idea with the right plan!

- Trent at The Simple Dollar had a reader ask the question of whether it’s better to build his business or go to college (he’s a high school senior). As Trent points out, there are strong feelings on both sides of the fence, so it ultimately comes down to what the reader wants to do. Personally, I say go to school and maintain the clients you have for the summers and breaks. I think it can be silly sometimes that a piece of paper is the difference in pay scale and position, but there it is. That paper very often does matter. If the reader every decided he didn’t want to work in his business anymore, he’d have limited options for change without a degree.

- Flexo at Consumerism Commentary asks what you would do if the company you worked for stopped matching contributions. Roll it over into an IRA, but that’s just me. I’m not going to contribute to it when it’s doing worse than my IRAs. I continue to contribute what they’ll match because it’s free money, but take that factor out and there’s no reason to contribute.

As I said, lots of great stuff out there! Be sure to check these articles out and let us know what you think! Have a great weekend everyone!

We got a mass email from our HR department that listed five things to avoid doing during a turbulent economy. I read through it and the information is solid, but I have no idea where they got it from. I can tell you they’re all avid readers of the National Endowment for Financial Education and Smart About Money so I’d guess it came from one of those sites.

These aren’t anything you probably don’t know, or at least think about, but they’re simple enough that most people may not think about them without a gentle nudge. Of course, those on the panic button have probably done all of these things, but the point is that now is not the time for hasty decisions. So, with that in mind, let’s talk about five things you should avoid doing in a bad economy.

1.) Borrowing money to continue your lifestyle

This is a no-brainer for most of us, but there are those out there who will borrow money just to keep up appearances. If your income has dropped, or you believe that it might, you may want to go ahead and rewrite that budget to reduce your expenditures. Remember, the best way to stay ahead of the curve is to spend less than you make. Don’t worry about what others are doing or how they’re living. Worry about yourselves.

I would add to this piece that if you are going to have a dramatic lifestyle change, you need to sit down and talk to the whole family. I was reading an article the other day about parents buckling down on the budget and saying ‘no’ to the kids when they’ve never done that before. It starts a lot of family fights if they don’t understand. “Because I said so” isn’t a reason, either. Be respectful of their feelings, just as you expect them to be respectful of you. Sit them down and show them the budget and the bills. They may not be interested in learning the finer details, but at least they’d have some idea of why they can’t have those $100 pair of jeans.

2.) Avoid pulling money from your 401(k)

If you’re nervous about the ups and downs in the market, then change your allocation within the 401(k). Remember to keep yourself diversified, but a bad economy is a great time to reevaluate your risk and your goals to ensure you’re on the right track. More importantly, don’t stop contributing to your 401(k), either. If cutbacks are necessary, continue to save to the point of your employer’s match. That is “free” money, so you might as well take advantage when you can! Investments are meant to be long-term vehicles…I can’t say this enough. You will probably lose money in the short-term because that’s the most volatile. However, most stocks, bonds, and funds all have good long-term history. If they don’t, you probably don’t want to be in them; however, that is what your financial planner is for. Ask questions and make decisions based on the level of risk you are comfortable with and not what others are saying about the economy.

I recently had a member who walked in with a check from his 401(k) and told me he’d spoken to several coworkers and they said that now was the time to pull money out of his 401(k). My jaw dropped, figuratively speaking. I immediately set him an appointment with our financial advisor. They’re supposed to meet sometime next week, but now is not the time to be pulling from your 401(k)!

3.) Avoid home equities to fund current expenses

Truthfully, the last thing you need right now is more debt, even if that debt is with a super low rate. If you can’t afford your current expenses, then it’s best to cut back in areas and rework the budget…this sort of goes with number one. The other problem is that given the soft housing market, your home could devalue and it’s never a good place to be in when you owe more than the property is worth. Now, this is separate than those borrowing on their home’s equity for improvements and debt consolidation, so long as it is budgeted and can be afforded. This particular advice is really meant for those using their credit cards and home equities to live day to day.

4.) Distance yourself from retail therapy

A lot of us are guilty of this. When things get bad, we go shopping. It’s a great release to wander through the stores and pick up items we know will comfort us…at least until we get the credit card bill. Now would be an excellent time to reevaluate your spending habits and figure out what triggers impulsive buying. Some ways to help avoid the impulse shopping is to make a list of the things that you need. If you’re going to the grocery store, force yourself to only buy what’s on your list. If you’re going to the electronic store for a specific reason, only buy what’s on your list.

I’m terrible about this myself, and I really have to watch it. I don’t go the mall, but when I’ve had a bad day, nothing makes me happier than to stop at Best Buy and pick out movies I don’t yet own. It’s very costly for me to do this, particularly when I go outside my allotted electronics budget (yes, DVD shopping is included in my budget). So, I’ve been working on limiting myself to only going shopping on Tuesday’s when the new releases come out. It’s helped a little.

5.) Don’t spend on credit if you don’t have to

You guys read me harping on this one all the time…emergency funds are vital! Let’s look at it this way. Let’s say you have a small amount in savings and something comes up. You don’t want to use the money in savings because it’s earning you a little interest, so you decide to use your credit card. Ok, well first of all, most credit cards are in double digits on interest. If you pay it off at the end of the month, that’s not such an issue. However, being that it was an emergency, the chances are that you may be carrying that balance over until the next month. The money sitting in your savings account probably isn’t earning more than 4-5% and that’s being generous in most cases. So, instead of paying 11-15% interest, it makes more sense to forfeit the 4-5% interest from savings.

In case you think this is an unrealistic example, let me tell you, it’s not. I have many members who will come in to make their credit card payments and tell me they had this or that come up. As I’m making the payment, I get to see their account balances. It’s astonishing to me the number of people who had the money in their savings to begin with, yet they used their credit cards. When I ask about it, I always get, “Oh that’s for an emergency.” So what was this, a walk in the park? If you have an emergency fund, use it when you need to and then replenish it.

Now, for those of you who don’t have an emergency fund, it’s the best time to start building one. With it being so hard to get credit and lenders cutting back on limits, it’s better to have the money in the bank, just in case, because you may not be able to rely on credit solely. Here’s a personal story.

Within this week alone, I’ve had to change the brakes on the car ($700) - not just the pads and shoes, but the actual brakes; I’ve had to have the belt and tensioners replaced ($80); I’ve had to put down money for a pet deposit at the new apartment I’ll be moving to because they wanted it upfront ($350); I’ve had to take my cat to the emergency room ($115); I had to follow up with a visit to the vet because the emergency room didn’t do what they were supposed to, which also resulted in surgery for my cat ($150); and I forgot to budget for groceries this month - which I’m not sure how I managed that ($200.) That’s a total of $1595, so for even numbers, let’s just say $1600. I was pretty stressed out this week, but imagine how stressed I would have been if I had not been financially prepared for all of this. Emergency funds are important.

Ok, so let’s discuss these five things. Do you agree that we should resist the temptation to do these things in a bad economy? Have you done any of these lately? Why or why not?

Welcome, folks, to the 21st Finance Fiesta: Blackjack edition. Now normally the Fiesta is meant to go up on Thursdays, but those of you who are familiar with my affliction will understand why this is (another) early Friday morning edition…

So first off, a history of Blackjack (courtesy of Wikipedia, of course!):

“Blackjack’s precursor was “twenty-one”, a game of unknown origin. The first written reference is to be found in a book of Miguel de Cervantes, the author of Don Quixote -and a gambler himself-. The main characters of his tale Rinconete y Cortadillo, from Novelas Ejemplares, are a couple of cheaters working in Seville. They are proficient at cheating at “veintiuna” (spanish for twenty-one), and stated that the object of the game is to reach 21 points without busting and that the Ace values 1 or 11. The game is played with the spanish deck, that is without tens, which makes the game similar to the current spanish 21. This short story was written between 1601 and 1602, so the game was played in Castilia since the beginning of the 17th Century or even earlier. Later references of this game are to be found in France and Spain.

When 21 was first introduced in the United States it was not very popular, so gambling houses tried offering various bonus payouts to get the players to the tables. One such bonus was a 10-to-1 payout if the player’s hand consisted of the ace of spades and a black Jack (either the Jack of clubs or the Jack of spades). This hand was called a “blackjack” and the name stuck to the game even though the bonus payout was soon abolished. As the game is currently played, a “blackjack” may not necessarily contain a jack or any black cards at all.”

And now to the articles. This week’s Blackjack goes to Free Money Finance, for their timely article on Why You Should Take Practice Interviews. With a Recession just around the corner (or already here, depending on who you listen to), keeping your personal skills nice and polished will greatly improve your chances of riding out the storm.

Other articles that made the cut this week: 

Contrarian Profits presents 4 Ways to Play the Coming Stock Market Rally. A quote from the article sums it up nicely: “When chaos rules, invest in chaos”. Bottom line: don’t panic, and hold on to any stocks until the next rally. Keep as much of your money in cash as you can so that you can jump in when things have bottomed out.

Passive Family Income presents My Coke Rewards. If you can’t live without the sugary, corn-syrupy, caffienated wonder that is coca cola, you might as well be getting reward points for your addiction too. This article fills you in on the new ‘coke rewards’ program. Apparently Dr. Pepper and Pepsi have their own competing programs, though for both health and economic reasons, I can’t help but think staying away from these kinds of products in general will be most rewarding in the long run. 

ChristianPF presents Pursuing financial success while obeying God. This is an interesting piece, even if (like me) you’re not particularly religious. Summary? Don’t forget to tithe, stay focused on your relationship with God, and don’t let yourself get greedy!

Jim presents Best High Yield Savings Accounts Rates. This is a particularly timely article, considering the nauseating performance of the markets over the past few months. All the institutions listed are FDIC insured up to $250,000, but keep in mind that even the best rate (4%) doesn’t keep pace with inflation. 

Cash Money Life presents Dollar Cost Averaging vs. Value Averaging. A good breakdown of the respective pro’s and con’s of Dollar Cost and Value Averaging. Ultimately, neither method my be suitable in the current climate, but some people swear by them, so it’s worth checking out.

Have a great weekend everyone!

I don’t know about you guys, but I’m growing weary of the government’s NEW ideas to help stimulate the economy. Everything they’ve done thus far seems to be only mildly responsive, but it sure is costing us a fortune. It should come as no surprise then, that the government is mulling over another stimulus package. But, before you get all excited and think they’re giving you money, they’re not. This package would be structured quite a bit differently than the last one.

The trouble is, while everyone in Congress agrees that a new package is needed, they can’t seem to agree on what should be in the package. So here’s a breakdown of what each side wants.

Democrats

- Extend jobless benefits

Ok, this one I could see. If someone is laid off and actively looking for a job, but seriously struggling to find one, then having the extended benefits would be helpful. But, here’s the thing, I’m not big on social welfare programs that hand stuff out to people without just cause. I don’t want to pay for some lazy individual who wants to sit around and do nothing all day, but still get their freebies at the welfare office. That’s a waste of my taxpayer dollars. On the other hand, if a single mom is laid off and can’t seem to find another job, then I say extended benefits in her case would be appropriate. There needs to be some restrictions on these extended benefits.

- Increase food stamps

I’m not real big on this, for the reasons listed above. People take advantage of social welfare, I’ve seen them do it. Yes, it can help some, but increasing food stamps doesn’t seem to be a viable solution to the economy’s problems, in my opinion.

- Invest more money in infrastructure projects to create more jobs

I like this idea a lot. There are tons of projects in the wings, ready to go, that will open a bunch of new jobs. The only thing they require is the money to get going. The downside to this is that these jobs are in the near term. Once the project is completed, there’s no guarantee that there will still be jobs available. Although, it takes them an average of 3-5 years to get the roads and stuff done here. Maybe by that time the economy will be better anyway and more jobs will be available.

- Call a moratorium on foreclosures

I’m actually surprised more aren’t on board with this option. It seems to me that if the problem with the housing crisis is people defaulting on their loans, then cut the default part out. It sounds simpler then it is, I understand that; however, if greedy lenders were more willing to work with homeowners then homeowners would be more willing to continue paying the lenders. It’s not that hard to figure out. I know I wouldn’t want to continue to sink money into a house I knew they were going to take away from me - not when that money could be used to keep up on other bills. The other benefit to this is that there aren’t a ton of foreclosed homes on the market, lowering other property values.

- Making the bill passed last February permanent

This bill increased loan limits that could be backed by Fannie Mae, Freddie Mac, and FHA. In my mind, this is a waste of time. The problem with these loans isn’t how much is backed - though honestly, the lenders would fair well with this in place. The problem is that homeowners got into loans they couldn’t afford. So, this really seems like an unnecessary point to belabor.

Republicans

- Temporarily reducing or eliminating capital gains tax on stocks

I don’t get too much into the stock side of finance, but I imagine that such a move would have a direct impact on how people access their investments. I suspect there would be plenty of people willing to pull out in order to avoid the capital gains tax and reinvest in safer securities. Perhaps I’m wrong, but I’ve had at least three clients in the last few weeks mention they’d pull their stocks if not for the capital gains tax. So, I don’t really know if this would help jumpstart the economy like the Republicans think it will.

- Lower income tax rates for companies that buy distressed assets

Well, this would certainly help companies like Chase and Bank of America who have had to step in to keep banks and investment firms from falling. But, how does this really benefit the people? This one feels like it was thrown in to keep the lobbyists happy. The upside is that with the prospect of a tax break, perhaps the company won’t have to lay anyone off.

- 2nd homes entitled to capital gains exclusion

I do like this one quite a bit. I don’t know if it’s possible to separate the capital gains tax on stocks from that of selling a home because I’m not a tax advisor. While I don’t think reducing or eliminating the capital gains tax on stocks is the right move, I do think doing so in this case could be beneficial. The idea behind this is that purchasers of homes that are not their primary residence would be entitled the same capital gains exclusion as owners who sell their primary residence. This would encourage people to consider purchasing second and third properties for their own reasons, but it would take more foreclosed properties off the market, thereby increasing home values. The only downside to this suggestion is that it would only count on properties purchased within the next 18 months and held a minimum of five years.

Both Agree

- Suspending income tax on unemployment benefits

- Temporarily exempting seniors over 70 1/2 from having to make withdrawals from IRAs and 401(k)s

Bernanke is of the opinion that now is the time to introduce another stimulus package, though he believes policy makers should take care in deciding what goes into the package. Other aren’t completely sold on having a new stimulus package at all. In theory, the idea sounds great. But, in practice we’ve seen little results. One man’s stimulus is another man’s pork.

My own feeling on this is that we need a little of both. Dems want all cash injection while Republicans want all tax breaks, but I think one or the other is a mistake. I think having a little of each is the best course of action, and probably the best way to actually jump start the economy.

What do you think? Do we need another package after the $85 billion dumped into the financial industry? Do you trust the government to make the right decision in this case, i.e. what’s best for the economy and not what will help them get reelected? Or will it be business as usual in Washington?

After I wrote my article, ‘A Little Something Learned About Apartment Living,’ a coworker asked me why I didn’t just buy a house. I got the entire spiel about it being an investment for my future, blah, blah, blah. Well, I have very good reasons, at least to myself, on why I don’t buy a house.

1.) Can’t afford it

I’m a firm believer in living below your means. I’m also not going to put myself in a position that many people find themselves in today. I can’t afford to pay double what I’m paying in rent, and unfortunately, that’s what I’d be looking at to own the house. Plus, the money in my savings account is for an emergency and not for a down payment on a house, or to be used to help make the mortgage payment for six months and then I’m without a ‘what if’ fund. I simply can’t afford a house on my own at this time.

2.) Don’t want the responsibility

As if the first reason wasn’t good enough, I really just don’t want the responsibility. With an apartment, I have a restricted space to work with. Not that I don’t like a lot of room, but what it really boils down to is that I’m lazy. I don’t like cleaning, so why would I add more space to clean. To that end, I’m thinking of reworking the budget to include maid service as it is, think how much more expensive that would be for a house. But, I also don’t want to have to mess with a yard, worrying about my own repairs, or trying to figure out how I’m going to handle a hornet’s nest on the back door. Yeck! It’s not for me!

3.) I don’t know where I want to be

The other problem I run into is commitment. Somehow, owning a home seems very final to me, and even though it’s not, it feels that way. I don’t want to live in Texas forever, probably not even long term. I’d actually like to live in California…and if I can’t afford a house here, then I certainly can’t afford it in L.A. But, I’m a military brat, through and through, so that means I get a little restless when being in one place for too long. I may eventually decide that the East coast is more my cup of tea and want to move there. I just think owning a home limits me in some ways. I don’t have the freedom to pick up and move. My mom tells me this wanderer’s spirit of mine will temper with age…or when I get saddled with a family. Phrased like that, I wonder that’s true. It doesn’t sound like hers was.

4.) Don’t really know the term moderation

When it comes to most things I’m perfectly willing to start small and work my way up, but when it comes to owning a home I’d rather go for broke. I have a house in my mind’s eye that I genuinely want, anything less is simply unacceptable. The trouble is, what I want involves a mansion and a whole lot of money to build. So, being somewhat of a perfectionist, I drag my feet on home ownership because I know it won’t be what I want right now.

5.) Less risk involved

Then there’s the matter of the housing bust that comes to mind. I had initially considered getting into a house back when they had the whole ‘0 down’ promo going on. Lots of people were doing it and I really thought it might be a good opportunity to buy, then flip and make a little cash. But for me, I was considering it for the wrong reasons and I had a feeling that would come back to bite me in the butt later on. As we can see, even the housing market is volatile and can cause people to lose a little money. In the long run, it’s probably a great investment, but coupled with my other reasons, it really does reduce my risk overall not to own.

6.) Insurance is cheaper

Ok, technically this isn’t a reason that keeps me from owning, but in truth, it’s still saving me some money. Renter’s insurance is far cheaper than homeowner’s insurance. I think I paid like $113 for the entire year last year, and homeowner’s insurance can run you $113 per month.

7.) I don’t want to pay property tax

That’s pretty plain and simple. I already don’t like funneling my money into a social program I may never see, I would feel a little annoyed at having to funnel it into property tax. Along with that, I don’t want to have to pay out money to the school district when I don’t have kids attending that school. Call me selfish, but since I work hard for my money, I’d like a little say in what schools or charities I donate to.

8.) HOA

It’s one thing to rent a place and have a landlord over you telling you what you can and can’t have lying around. It sort of comes part and parcel with renting…you expect it and even accept it, despite the fact that’s it is frustrating. It’s another thing to OWN a place and have someone telling you that you can’t have something sitting on your porch or you can’t have a home-based business by ordinance of the HOA. I’d be kicked out of the neighborhood because I’d be all too happy to tell the HOA what I thought of their rules and exactly where they could stuff them. If I own a place, I don’t really want someone telling me how and where I can place potted plants. Now, I’m not opposed to the whole “keep your lawn mowed and don’t have toilets littering the front yard.” Those make sense as they devalue the entire neighborhood; however, it’s the more specific and nitpicky rules that bother me.

So, those are my reasons for choosing to rent, at least for the time being. What do you think? Are you a renter as well? Any other reasons that I missed? Homeowners, is my logic flawed to you?