Frugalize

HSA? HRA? FSA?

2009-12-02T21:52:00.000-08:00

Posted By Paul

So just when you thought medical insurance couldn't get more confusing they added even more types of health related accounts for you to puzzle out. I've been trying to figure out what they all are so I thought I would share what I found.

Let's start with the FSA. For that I'm going to refer people to an earlier post which describes them in detail:
Are FSA's worth doing?

So then what is a Health Reimbursement Account (HRA)?
An HRA is an account setup by your employer that you can use for medical expense reimbursement. It's essentially your company telling you: "We're going to give you X dollars to help you pay for your health care costs this year."

Generally you have to submit proof of medical expenses to your company for reimbursement.

So what's the downside? As near as I can tell there really isn't one. However, the HRA might not be for everyone. For example, one thing I've seen are things where a company has two plans that you can choose from:

Plan A: Costs you $1000 a year and you don't get an HRA.
Plan B: Costs you $2000 a year and you get an HRA of $1500.

If you assume Plan A and Plan B have the same coverage, which one should you choose?

Well, if you are healthy Plan A might be better since you might have health care expenses that are so low that you might never even USE your HRA. However if you have some known health issues that makes you certain that you'll end up using that $1500, then Plan B becomes the better option.

Okay, so then the final account to cover is the Health Savings Account (HSA)

The first thing to know is that not everyone is ALLOWED to get an HSA. You only qualify for an HSA if you are in what is considered to be a High Deductible Health Plan (or HDHP...sigh all these abbreviations). If you are enrolled in an HDHP (your employer should let you know) then you are allowed to open an HSA.

So what does an HSA do? Well first lets cover how money goes INTO the HSA. Contributions come from YOU (not your employer like in the HRA), and contributions go in pre-tax (which is cool).

While in your account your money can be invested (the investment vehicles depend on the financial institution that holds your account usually a typical set of funds and a money market).

So how does money come out? You use it for reimbursement of medical expenses (by submitting paperwork to whoever is administering your HSA).

Now one cool thing about the HSA is that the money doesn't "expire" at the end of the year like it does with an FSA, it remains yours so if you have a lucky year you have that money saved up for the following year.

If you withdraw money from your HSA that isn't for a medical expense then you take a penalty, but from what I've read, this penalty disappears when you turn 65, so if you whatever money you don't use become yours without penalty when you turn 65, so in a way you can consider it part of your retirement funds.

Also, if you leave your job or change health plans such that you are no longer in a HDHP then your money doesn't disappear. If you leave your job your account remains yours. If you end up switching to a health plan later that ISN'T an HDHP then you're not allowed to contribute to your HSA any more, but you can still withdraw money for qualified expenses.

It seems to me that an HSA can be a good choice for people who are in a situation where they don't have many health expenses currently, but expect to in the future. They can put money in their HSA and if they are lucky enough to have a year without any significant medical costs then they have those contributions saved in case it happens the following year. If you manage to go several years without any significant medical costs then you could build up a pretty nice little rainy day fund for when something does happen.

I found a link to a pdf that did a nice comparison between the three accounts:

HRSFSAHSA.pdf

I also recommend the wikipedia entries as they all do a good job of explaining the accounts in further detail:

Wikipedia Entry - FSA
Wikipedia Entry - HRA
Wikipedia Entry - HSA

Tips For Open Enrollment

2009-11-14T22:53:00.000-08:00

Posted By Paul

If you're like me then November means open-enrollment. It can be a hard to squeeze in enrollment along with the holiday season, but the choices you make now are some of the most important ones that you'll make for the year.

Here are some tips I thought I'd share on navigating the open enrollment process:

1) Go to the informational sessions - companies almost always host some sort of meeting where they give an overview of your choices, be sure to go to this meeting.

2) Come to the session informed - this can be a tough one since it's easy to want to come to the session and get the information you need there, but I've found that it's REALLY helpful if you can at least try to understand your options BEFORE you go to the meeting. That way you can listen in the meetings to see if your understanding of the plans jives with the info the presenter describes. You can even come prepared with questions, which is a great way to clarify the ins and outs of your various choices.

3) Understand your choices - often with healthcare plans it's not as simple as "the plan that costs me the most is the best". Often the "best" plan is a matter of the size and health status of your family. Which brings me to item 4...

4) Have an honest understanding of the health care needs of your family for the year - it's hard to predict what kind of health issues you will face in the upcoming year but you can at least make an effort to identify things that you KNOW will be coming up.

5) Discuss with your family - The decision you make will have an impact on all of them for the year, so bring them into the discussion early. Go over the information with them. Not only does it make them more informed about their health care plan but going through the pamphlets and literature with someone else makes the process slightly less mind-numbing.

7) Discuss with coworkers - For me this is often the most useful thing to do. Your coworkers are making the same sort of choices you are so it's a great way to discuss pros and cons of plans and maybe learn something from a coworker that you missed or misunderstood.

8) Consider the worst case and prepare for it - One thing I like to consider when comparing plans is the "worst case for the year" by that I just mean the annual out of pocket costs for a plan. If a plan says that the most you'll have to pay in the year is say....$10,000 then if you have that amount in your rainy day fund it helps me sleep a little better. If the maximum out of pocket for a plan you are considering is $10,000 and you only have $2000 in the bank then I might want to rethink your plan choice or try to add more to your rainy day fund.

9) Check the networks. There are so many plans that only pay benefits when you go to a health care provider in a particular network. It's easy to just assume that your doctor is in the network, but definitely take the time to check, it usually only requires a quick phone call or web page search.

It seems like health care choices are getting more and more complicated each year, so use every information resource available to you when making your decision.

Links: Good info sources for annuities.

2009-10-18T19:18:00.000-07:00

Posted By Paul

As I did my research on annuities I found some links that I wanted to pass on:

AnnuityTruth.org - specializes in info for annuities for seniors

Ultimate Guide to Retirement: Annuities - A great page from CNNMoney with all kinds of info about the different types of annuities. A must read for anyone thinking of purchasing an annuity.

Useful info to find out more about annuities.

What the heck is an annuity part 4: Variable with Life

2009-10-14T23:54:00.000-07:00

Posted By Paul

This is going to be my next to last posting in the annuity series (my final posting will be a collection of useful info sources I found on annuities). I'm going to talk about the most controversial member of the annuity family, the variable annuity with life.

This is a very strange investment vehicle in that it is a mix of life insurance and fund investment. Essentially you put money every month into the variable annuity, part of that payment goes into the insurance component of your account (essentially like a life insurance premium) and the other part goes into "sub accounts" (mutual funds that you can choose from a family).

So what is the appeal? Well a common argument is that you get life insurance AND a retirement vehicle. You often hear of the idea that down the road you borrow against the cash value of your annuity which means you get your money tax free. I've heard of financial advisers presenting this idea as if it were something they had thought of.

What is the downside? Here are two of the most basic arguments against variable annuities with life insurance:

1) If you want life insurance, just go and buy life insurance - my research into this mentions that generally if you compare the money you pay for life insurance through a variable annuity to just getting a normal life insurance policy you'll discover that the life insurance through the annuity is MUCH more expensive.

2) Just as with regular variable annuities, watch out for fees. Brokerage fees, fund fees, commissions, maintenance fees. They can eat up your investment quickly.

I also found in my research that when you hear about "life insurance scams" that most often it is in the form of a variable annuity with life insurance product. This doesn't surprise me since the whole variable annuity with life insurance is a great product if you want to confuse and deceive someone since you have a variable annuity (which is already a complicated and poorly defined product) and you toss in life insurance (which is a complicated thing unto itself). A variable annuity with life insurance takes these two complicated things and mashes them together into a product that is almost impossible to understand, and makes it VERY easy to hide fees.

To give a personal slant to this, I had a variable annuity/life insurance policy for a short time. I opened it and then later closed it and luckily I didn't lose much.

So what did I learn from my brush with variable annuity/life insurance policies?

-They are confusing. When I first invested I THOUGHT I knew how it all worked but only after watching it closely did I see the fees and how the affected my return on investment.

-There is inertia and psychology involved. For example when I opened my annuity I put in a small amount of money and I watched it closely. I shudder to think what would have happened if I had put my whole nest egg in there and just stopped checking it and figured it was doing fine.

-They have all kinds if little ways to keep the money rolling in. With my annuity I would get a letter every few months saying that I had been offered an increase in my life insurance death benefit, and that for just X dollars more a month I would get an additional coverage of Y dollars in death benefit. The worst part was that the letters said that unless I contacted them they would assume I wanted the increase in benefit (and premium). It got to be annoying to have to write or call them every few month and tell them NOT to raise my premium. Imagine if I had just ignored the letters? Then every few months my premium would have gone up a little and who knows where it would have ended up.

It sounds like I'm pretty down on this type of product, and I would have to say that for the most part I am.

If you read my previous article on variable annuities you may recall that I suggested going into it ASSUMING it's a bad investment and then see if you can be convinced otherwise. For the variable annuity with life insurance it's so complicated and easily prone to hidden fees and catches that I would take my warning even further.

For a variable annuity/life insurance product I would suggest the following rules:

1) If you aren't taking full advantage of 401k/Roth IRA options then don't even think of looking at this product.

2) If someone offers you an annuity life insurance product, find out what it would cost to get the equivalent death benefit with out the annuity part.

3) Take some time to find the fees. They are in there, so see where they are and how much they are, ask about broker commissions, fund fees, maintenance fees and so on.

4) Do not invest in this product unless you can get an impartial knowledgeable person to think it's a good idea. When I say impartial I mean someone who is not making or losing money based on whether or not you invest in this product. This is NOT the type of product where you should trust the person who is selling you the product.

5) Do the research. This is also NOT the type of product where you should think: "well my aunt has one and she likes it, so mine's probably okay". There is so much variety among these products that your aunt could have a totally different TYPE of product, and maybe your aunt has one but doesn't really understand how it works either.

6) If anyone suggests that you invest in this type of product, ask yourself: "Would this person make money off of my investment?" If the answer is yes, then take EVERYTHING they say with a huge grain of salt.

There might be people in situations where this type of product is a good idea, but I would predict that this type of investment is probably the most commonly owned "bad" investment.

If you are someone who has this type of product and you don't really understand it I would do some serious research into your product, just some basic things like:

1) Find out what your death benefit is and do a little research to see what it cost you to get the same benefit from a reputable insurance company without all of the annuity stuff.

2) Check your subaccounts, find out what their maintenance fees are, compare them to mutual funds at Vanguard.

If you are at all worried after doing the above, then consider finding a financial adviser that is paid by the hour and seeing what they think, or perhaps just find a trusted friend or family member that is "into investing" and have them look over the account and see what they think. The worst thing to do is to be in a bad investment and continually paying month after month.

What the heck is an annuity part 3: Variable

2009-10-11T10:33:00.000-07:00

Posted By Paul

As I go through the various types of annuities I seem to be gradually moving towards the more controversial types of annuities, and that brings us to one of the more controversial members of the annuity family, the variable annuity.

So what's a variable annuity? Here are the basic characteristics of a variable annuity:

1) Tax deferred - gains are only taxed when you withdraw them.

2) Fund based - your money is going into some sort of mutual or bond fund that you select (generally an annuity offers 6-12 funds that you choose from).

The variable part just means that your money is going into an investment, your return is based on how well those investments do. There is no guaranteed return.

I'm guessing that a lot of you are thinking: "This sort of sounds like a 401k." and you're right. It is SORT OF like a 401k, but that SORT OF is important.

In my research the main thing to watch in this sort of annuity is the fees. There are often high management fees, commissions for the agent who sold it to you, and other little fees like that. The fees may seem like a minor thing, but imagine if the fees end up being 2% of your total investment, you need to make 2% to just break even, and even more to beat inflation.

It seems that these fees are what typically give these types of investments a bad name. Even if you don't see any specific up front fees, the funds themselves might have a very high expense ratio. To see what that means go to my earlier post:

A Few Quick Tips On Mutual Funds

The question now is, are variable annuities something to avoid at all costs? Well I'd say that you should ONLY look at a variable annuity if you are already taking full advantage of your allowed contributions for your 401k AND Roth IRA.

If you decide to look into a variable annuity I would be VERY careful. I hate to recommend paranoia but this is one of those situations where I would suggest going into the situation with a very skeptical eye. Assume that the variable annuity is of the "bad" type (high commissions, high fees, etc.) and only invest if you are convinced this isn't the case.

Also, I would suggest that you observe the agent you are dealing with very closely. If they seem to be trying to conceal or downplay various fees and commissions, I would be VERY careful.

Finally, if anyone tells you that you should take your IRA or 401k and roll it into a variable annuity, consider this a HUGE RED FLAG! I found several articles that said that this sort of suggestion is essentially like saying:

"Hey let's take your big pile of money in a low fee environment and roll it into an investment with high fees and commissions without any added tax benefits."

If you have money in a variable annuity, I would suggest that you take a very hard look at it and see just how much you are paying in fees and then see how that is affecting your investments.

What the heck is an annuity part 2: fixed deferred

2009-09-26T17:31:00.000-07:00

Posted By Paul

I came across another major annuity type called the "fixed deferred" or "fixed interest deferred" annuity that I wanted to talk about.

A fixed interest deferred annuity is kind of like a savings account, so I'm going to assume we all know what a savings account is and describe the annuity in contrast to that.

1) Like a savings account a fixed annuity gives you a known return on your money. In fact with fixed annuities you generally "lock in" an interest rate for some amount of time (like 5 years) and then after that interval has expired you "lock in" a rate again. One example is that Vanguard has a fixed annuity where if you open today you get a rate of 2.65% for the next 5 years. Note that this isn't a bad rate, in fact it's better than most CD's you can find right now.

BEWARE: I read about places where you get some awesome rate for the first year and then after that it resets to something lame, only now they have your money and you have to go through all kinds of hassle to move it.

2) Unlike a savings account, any interest you get is tax deferred. You don't pay taxes on it until you take it out.

3) Unlike a savings account, you can't just deposit and withdraw money whenever you feel like it. They vary, but it seems like most places have rules about how and when you can withdraw your money. The one through Vanguard for example says you can take out 10% of your savings in a year without penalty (but be careful, as with all tax deferred vehicles there can be tax consequences for getting your money out early). From my research it also seems that in most cases to add money you have to open a whole new annuity.

The above points generally capture what this type of annuity is. It's sort of like a 401k (you get the tax deferred part) and kind of like a savings account or CD (guaranteed interest).

So what are the pros and cons? Here is what I was able to come up with:
Pros: You get all the perks of a savings account PLUS tax deferral.
Cons: This is money you shouldn't plan on touching until the terms of the annuity are met. If you needed to "break open the piggy bank" early then tax and penalties could eat in to your money fast.

Overall, I think that this sort of annuity isn't a bad thing to consider if you've already given all you can to your 401k AND Roth IRA and still have money to sock away. When considering this sort of annuity BE SURE TO READ THE FINE PRINT and make sure you know what you're getting. Key questions to ask are:

1) What is my rate and how long does it lock in?
2) Is this rate an introductory rate?
3) How can I withdraw my money and what kind of withdrawal limits/penalties are there?
4) Is there any way to deposit additional money?

One interesting point is that when you compare this to my previous post:

What the heck is an annuity? Part 1

You'll see that this type of annuity is VERY different from the type I describe in my earlier post. As I mentioned before (and will mention again) that's one thing I REALLY don't like about annuities, it's such a broad term.

Once again I'll close with a quote from Warren Buffett about business investing, but it applies just as well to investment vehicles:

"Never invest in a business you cannot understand. "

The 100 Rule For Investment Allocation

2009-09-22T21:09:00.000-07:00

Posted By Paul

Have you ever heard of the '100 Rule' for asset allocation? The idea is that you subtract your age from 100 and the result is the percentage of your investments that should be in stocks (as opposed to less aggressive bond funds or the like).

Well I'd heard of it and recently decided to see if I was adhering well to that rule. Well imagine my surprise when I saw that my Vanguard fund (designed to automatically transition to more conservative funds as time goes by) wasn't even close.

A little research took me this article:

Money Savvy Rules of Thumb

Which specifically mentions the '100 Rule' (rule number 3) and says that this formula is too conservative considering the current longer lifespans of people. They suggest using a '120 Rule' which is right in line with my Vanguard fund, but unfortunately not as catchy.

What the heck is an annuity? Part 1 - Single Premium Fixed Immediate Lifetime

2009-09-18T20:44:00.000-07:00

Posted By Paul

As I try to become better at understanding the financial world, one word that pops up every now and then is 'annuity'.

I realized recently that I really don't have any idea what one is. I have this vague sense that I'm not interested in them, but that's not really based on anything rational, so I thought I'd do some research and share what I've found.

Here's what I've learned:

First of all, annuity is a REALLY broad term. To define it in terms that apply to all of the different flavors you end up with something like:

An annuity is an agreement (generally with an insurance company) to pay out money for a period of time.

Pretty general huh? Well it is, and that's probably why annuities get such a bad reputation, there are so many different flavors of annuity (not to mention many providers) that it's really easy to end up with a bad one.

So I'm going to start off with what I consider to be the simplest type of annuity: the single premium fixed immediate lifetime annuity.

Quite a long name, but the terms make sense if you take them individually:

Singe Premium - means there is one premium (essentially you buy it with a lump sum)
Fixed - means the payments don't vary
Immediate - means that the payments start immediately
Lifetime - means the payments continue for as long as you are alive

This type of annuity is essentially a policy that you buy with an insurance company that says that the insurance company will pay you a certain amount of money for the rest of your life.

A hypothetical example, if I were an insurance company, I might say that if you pay me $50,000 today then I will pay you $100 a month for the rest of your life.

I found a very simple web annuity quote calculator and asked it the question:

If I were age 40 (the calculator had 40 as the minimum age) and wanted an annuity that paid me $200 a month until I died, what would it cost me?

The answer? About $41k. So the question then is, is it worth it? If I just took my $41k and stuck it under the mattress and took out $200 a month, how long would that last? The quick math says I would run out of money in about 17 years. So from that calculation it seems like a pretty good deal since I plan on living longer than 17 years.

But of course if you didn't buy the annuity you probably wouldn't just put the money in your mattress, so how best to compare that?

That gets difficult, but luckily I found a savings calculator that you can use to see how long savings will last assuming a certain APR and monthly withdrawal.

If you're curious the savings calculator is here.

Using this calculator, if I start with $41k and take out $200 a month then the amount it will last depends on the APR, but for a few values comes to:

24 years at 3% interest
28.8 years at 4% interest
38.6 years at 5% interest

Interesting. At this point you start to see the trade off between having the annuity and keeping the money for yourself. Here are some of the pros and cons of the annuity:

Pros:
1) Takes some of the uncertainty out of retirement savings, with this sort of annuity you know exactly how much you'll having coming in for the rest of your life.
2) Low risk, assuming the insurance company stays solvent, you'll get your money.

Cons:
1) It's possible that you could meet or beat the returns by just managing the money yourself.
2) If you die an early and untimely death, no money is paid to beneficiaries the money is just gone (note that there ARE annuities that include a death benefit but they cost more).
3) Your lump sum is gone, so if something happens where you wanted that lump sum back, you're out of luck.

Overall, this type of annuity doesn't seem like a terrible thing from an investment standpoint, but remember, this is just ONE type of annuity, there are so many types of annuities out there that you REALLY need to be careful to make sure you're getting what you're expecting.

I'll close this (and probably all my annuity related posts) with a quote from Warren Buffett (he uses it to refer to investing it in a particular business, but I think it applies just as well to any investment vehicle):

"Never invest in a business you cannot understand. "

Article: Teaching Kids About Money

2009-09-14T20:39:00.000-07:00

Posted By Paul

As a new parent I'm thinking a lot about how best to deal with money and my child. I'm planning on going with an allowance system when they are old enough. I remember that when I was a kid that all of my neighborhood friends had the system where if they wanted to do something they had to ask their parents (e.g. "Can I have money to go to the movies?"). I enjoyed having my own money so that I didn't have to track down my parents and ask for money for each little thing I wanted to do.

I also remember that with my friends that if they were given $5 to go to the movies (which of course back then was ample) they would make an effort to spend every nickel, since every bit they didn't spend just had to go back to their parents. They would pay for the movie, and also get a soda and candy (and maybe a video game or two). I would just pay for the movie and skip the expensive snacks so that I could keep my velcro wallet a little fuller.

I liked the fact that this article encourages the parents to let the child aware of the family finances and also highly discourages the parents from bailing out their child when they want something but have already spent their allowance.

Click on the link below to read the article. Are there any other great ideas for ways to teach children money lessons?

The Four Terrible Money Mistakes We Make With Our Kids

Article: Back To School Shopping On A Budget

2009-09-02T20:01:00.000-07:00

Posted By Paul

I was reading an article in the newspaper talking about how many children and teens are developing frugal shopping habits because their parents are encouraging them to stretch their back to school budgets.

There were kids talking about how they were avoiding clothes that had the brand name right on them and were focusing more on trying to get as much for their dollar as possible by checking out the clearance rack and so on.

It was exciting to hear about children developing good spending habits early, and I noticed that the common thread among the children in the article was that they were given a spending limit by their parents and therefore were motivated to stretch their dollars as far as they could.

As a new parent I think a lot about how I might instill good values (including good spending habits) in my child. When I was in my tween and teen years I was never told: "You can only spend $100 on back to school clothes this year." I was told something like: "Let's go to the store, we need to go and get you some shoes and a winter coat."

Of course I remember that I really disliked clothes shopping (still do) so if my folks had told me something like "You have $100 to spend on back to school clothes." I probably would have just asked to wear my ratty jeans one more year so I could spend the money on comic books.

However, many teens are more concerned about clothes than I was, so I think it's a great system to provide your child with a spending limit so they can start to understand the benefits of making their dollar go farther.

Here is the article in full:
Frugality is cool in back-to-school shopping

Cool Info About the Roth

2009-08-20T20:12:00.000-07:00

Posted By Paul

I read an article that made a point about the Roth that I thought was interesting.

For those of you not familiar with the Roth IRA you can read up on some earlier posts on this topic:

Roth IRA: A tax shelter for your golden years
-and-
The Roth as a College Savings Vehicle

I put money in a Roth with the basic idea that the more money I can save towards retirement the better. The article made the additional point that any money you put into a tax-deferred retirement account (like a 401k or IRA where you pay taxes when you take it out, presumably during retirement) has the added wrinkle that you really have no idea what the tax laws will be like when you retire.

The changes in the tax rates for a particular income bracket can have a dramatic effect on your retirement situation. Let's say theoretically that when you retire the tax rates are much lower...well then your retirement money will go that much farther and the opposite situation if tax rates end up being much higher.

When talking about a retirement that is probably decades away, it's VERY hard (perhaps impossible) to predict and plan for this.

However, the Roth sidesteps all this. You pay the taxes now so you don't have to worry about what the tax laws will be in the future.

Not to say you should dump your IRA or 401k, but I thought it was a cool little point about the Roth that hadn't occurred to me.

Here is the full article:

New Ways to shelter your retirement

Get Frugalized!

2009-08-01T18:50:00.000-07:00

Posted By Paul

Remember the time Matt and I "frugalized" a friend? We were discussing that recently and both agreed that, while our friend already had some respectable spending and saving habits, she really benefited by getting an additional perspective on a few things that she was unsure about. Not "expert" perspective; we certainly don't claim to provide that, but we talked about all the same things we write about on the blog as they pertained to HER finances. Because many people are still nervous about discussing money matters in anything but an abstract sense, they sometimes have difficulty turning information into action.

If we don't accomplish anything else with Frugalize, we hope to at least get people talking about personal finance. It's amazing how helpful it was to our friend to just get a fresh perspective, and so we wondered, "Are there other people out there who would appreciate free input on their finances by two guys who think a lot about this stuff AND can guarantee that we're not trying to sell them an insurance policy, mutual fund, or get rich quick scheme?"

If you're interested in seeing what we think, just email us at frugalize@gmail.com. We'd have a discussion over email where we talk specifics about income, expenses, debt, and so on. We don't want to know specific account numbers or anything like that, but for our advice to be valid you need to be as honest as possible.

As it says in our disclaimer above, we're not financial advisers so we won't recommend stocks or specific mutual funds. We also won't recommend specific banks, brokerages, or insurance companies. What we WILL do is give you a critical and honest look at your financial state and offer unbiased free advice that you can take to heart or ignore.

We'll give you the best advice we can for free and all we ask is your permission to discuss the process we went through together in a future Frugalize article. We'll have you look it over before publishing to make sure that you feel comfortable with it, and obviously would not include any specifics about your identity.

If you're interested, drop us a line.

Article: Stop paying for things you don't need

2009-07-28T21:40:00.000-07:00

Posted By Paul

This article reminded me of an earlier post on Frugalize called:

Stuff to look at when it's time to cut back

It was an article that suggested ways to avoid spending money when you don't have to. I especially liked their suggestions for avoiding bottled water (which I mention in an earlier post: Save On Drinking Water) and also their suggestion to avoid buying a bunch of ring tones and apps for your cell phone.

The second suggestion reminds me of a friend that bought a new cell phone but wasn't aware that there was a charge involved when it came to downloading ring tones. My friend happily updated their ring tone at least every day and ended up with a giant cell phone bill at the end of the month.

Here is the article in full:
Stop paying for things you don't need

An easy way to recycle electronics

2009-07-24T18:36:00.000-07:00

Posted By Paul

If you're like me you have accumulated a fair amount of electronics that are broken beyond repair, but that you just don't feel right tossing in the trash.

Well there is a great service that Office Depot offers where they do tech recycling. The basic idea is that you go to a store and purchase an etech recycling box. They come in small ($5), medium ($10), and large ($15) sizes and you take them home and fill them with allowed electronics and then you bring them back in and Office Depot takes it from there, sending your electronics to various recycling sites.

It's not free, but it's pretty affordable (especially if you share a box with 2 or 3 friends) plus you don't have to drive all over town finding places to take your various recycled items.

Here is the brochure for the program:
Office Depot Tech Recycling

I bought the large box and I am filling it up now.

Article: 5 scams spreading like a virus in recession

2009-07-22T20:35:00.000-07:00

Posted By Paul

I read an article today about scams that proliferate during a recession.

Here is a quick summary of the scams they describe:

1. Government grants scam - all this talk of the stimulus makes it easy to think there is free money for the asking. Be wary.

2. Instant credit repair - you pay for services you never get plus leave yourself open to identity theft.

3. Cash for gold - I've seen TV commercials for this. Apparently a common scam is that they send you a check that is much less than the worth of the gold but delay sending it to you so that by the time you get it the 'refund window' has already closed.

4. Mystery shopping scam - you get a check for a lot of money you are asked to cash it, secret shop and then send the cash to an account...later you discover the check is a fake.

5. Social networking scams - someone posing as a loved one on a social networking site needs money for an emergency. You send it and never see them again.

Here is the full article:

5 scams spreading like a virus in recession

It seems like a common thread in scams is the sense of needing to get your money quickly for some reason or another. Always beware when you are asked to do something that involves money with an urgency that keeps you from really seeing what's going on.

Transaction rearranging for overdraft fees.

2009-07-07T21:14:00.000-07:00

Posted By Paul

I read an article that stated how many banks will rearrange the order of transactions as a way to charge you overdraft fees.

Here is a hypothetical example. Say you have $50 in your account and then you use your debit card that day:

8:00 AM $10 Breakfast.
noon $25 at the grocery store.
6PM $50 dinner

So you figure that the 6PM transaction should be considered an overdraft, you feel stupid but oh well it's just one time.

Instead the bank decides to process the transactions for the day in this order:

6PM $50 dinner
noon $25 at the grocery store.
8:00 AM $10 Breakfast.

So now you've overdrawn your account twice, causing you to incur the penalty twice.

If this sort of thing happens over the weekend you can end up with multiple overdraft penalties that easily add up to $100 or more.

You may call this unfair, maybe even think it's the banks setting you up so they can steal more fees from your account, but at the time of this posting this practice is perfectly legal.

My take away from all this? This is all just one more reason to avoid living paycheck to paycheck. The scenario I drew out above becomes a non-issue if you just put a buffer in your checking account to avoid this sort of thing.

Back before online banking was common I knew people that would subtract $100 from their balance in their checking account ledger. That way they always had a $100 buffer in their checking account just in case.

That system or the equivalent is still a great thing to do today. If you find yourself in a place where you are constantly worried about overdrawing your account then you are probably living a paycheck-to-paycheck lifestyle. Overdraft fees are just one more symptom of a problem that comes down to how you handle your money. I would suggest in the short term to make a real effort to build up a checking account buffer (this can be as easy as cutting out Starbucks or Netflix for a while and putting the money towards your checking account).

In the long term, you should look over your financial life and see how you can improve it. Maybe one of my really early posts:

My Financial Philosophy

Is a good place to start.

Avoiding mortgage modification scams.

2009-06-29T20:18:00.000-07:00

Posted By Paul

A friend of mine got a letter in the mail giving a contact number and suggesting that they could help lower his mortgage payment.

He decided to call and they essentially said they were lawyers who would re-negotiate his mortgage at a lower rate. This service would cost $3000. They asked him who his mortgage was with and when he said bank X they said that they had worked with them before to negotiate 30 year fixed mortgages at a great rate.

Being smart, he called his bank next and asked if they had ever heard of this law firm. They essentially said:

1) They had never heard of this firm.
2) They don't offer a 30 year fixed mortgage.
3) They would be happy to renegotiate his rate directly.

Based on this he decided to not call the lawyers back. He discussed the terms of his mortgage with his bank, and they gave him some options that he is considering.

Then just today I saw an article on avoiding mortgage modification scams. It sounds suspiciously similar to what my friend experienced. I wonder what would have happened IF he had decided to go forward and give them the $3000. Maybe they would have just disappeared with his money, or perhaps done some hand waving to make it look like they did a bunch of work to get him the same rate and terms that he got by just calling the bank directly. My friend gave them his email address and they sent him the list of info he would have to gather for them to proceed on his behalf and it was an identity thief's dream (tax returns, pay stubs, etc.).

I suppose it's possible that this people were for real, but I think you really can't be too careful these days, especially when calling someone that sent you a random letter in the mail.

Here is the article on avoiding these scams:

Avoiding mortgage modification scams

Also here are two stories I read about people who fell for these scams and how they ended up losing their homes:

Mortgage scam snags Idaho couple

Chicago owner loses home in mortgage scam

Article: Do the right thing in a recession

2009-06-26T18:04:00.000-07:00

Posted By Paul

This is an article I found on CNN Money that I thought did a great job of addressing the "moral hazards" of money. There is lots of info out there on how best to deal with your money from a fiscal standpoint, but this article addresses what you should do from a moral standpoint.

I liked the fact that the article highlights the idea that you shouldn't feel too guilty about the financial impact of dropping a service (housekeeper, landscaper, etc.) if it's a service that you can't afford right now. I also liked the fact that it specifically calls out that when making choices your first obligation is always to the loved ones that you support.

I also liked the fact that it mentions the idea that helping someone out of a financial bind isn't always helpful in the long run. This reminded me of a previous post:

Millionaire Next Door Review Pt 3: Economic Outpatient Care

The idea that by helping someone out of a financial bind you are shielding them from a lesson that perhaps they needed to learn.

Here are some highlight quotes from the article:
-----------------------------------
Where should your budget ax fall?
But there are three principles to keep in mind. One is that sacrificing is a necessity, not a punishment. It's to be expected of everyone, and you can't feel guilty about not underwriting what you can't afford. Second, family comes first. As concerned as you may be about your housecleaner -- or your favorite charity -- your first obligation is to the loved ones who depend on you.

Finally, remember: Opportunity is priceless. Sell your jewelry, sell your car -- whatever you need to do to be able to invest in your child's future.
-----------------------------------
What do you do about budget-busting friends?
There is absolutely no disgrace in looking a friend in the eye and saying, "I'd love to do that, but right now I can't afford to." If your pals aren't understanding, shame on them.
-----------------------------------
Who should get your bailout bucks?
As for others more worthy, try to help them (a) if you can and (b) if their request seems reasonable -- reasonable to ask of you and reasonable in that the situation genuinely merits intervention.

The quotes make more sense in context of the full article:

Do the right thing in a recession

Article: Car Dealer Tricks to Watch For

2009-06-24T18:40:00.000-07:00

Posted By Paul

I read this article and thought it was interesting. I thought the one about Eavesdropping was actually kind of clever.

Car Dealer Tricks to Watch For

Has anyone caught a dealer trying any of these?

For a related article see an earlier posting:

Article: 6 Things You Should Never Tell A Car Salesman

Article: Get your spouse to stop overspending

2009-06-01T19:19:00.000-07:00

Posted By Paul

Here is an article I enjoyed that was talking about managing a spouse who is more free with spending than you would like.

It's a short article but it reminds me of what one married couple I know did as a way to manage their money. They had a fairly common system where one spouse (in this case the wife) handled most of the day to day money issues (she wrote the checks for the utility bills and mortgage, etc.). The husband was sometimes prone to overspending and that frustrated her.

What she did was that she made sure that the husband helped with the check-writing (she wrote the checks and he entered them into the checkbook), so that he could see and realize that they were spending too much money. By actually seeing the checkbook balance shrink (and sometimes go negative) he was able to see the consequences of his actions. Prior to that his spending was something he would hear about through his wife but it never sunk in until he got involved in the process.

Here is the article:
Get your spouse to stop overspending

Cash incentives for saving water

2009-05-28T08:00:00.000-07:00

Posted by Matt

This post is targeted to my local readers; if you're not a customer of Tualatin Valley Water District, you can stop reading here or check with your own local water provider to see if they offer a similar program.

Tualatin Valley Water District has several rebate programs designed to provide additional incentives for their customers to reduce their water usage (assuming you haven't been swept up by the "green" wave already). I discovered that the lawn aeration that we were considering is encouraged by the water district because it allows you to use less water on your lawn. If you're not familiar with the process, aeration looks much like lawn mowing, except that the machine has a roller with cylindrical spikes on it to take plugs of soil out of the lawn. It is especially helpful for lawns with very hard-packed soil. This is something I did as a child with a pitchfork, and I'm glad to pay the $35 that our aerating service charges to do both the front and back lawns.

Of course, now I'll only end up paying $10 after the $25 rebate! We may also buy some hose bib timers to simplify watering; those have a rebate available also (as do rain sensors and pressure regulation service). If you don't have a lawn, you can also find rebates for efficient appliances and even toilets here. All any of the programs require are forms and receipts.

Link: How to figure out the value of donations

2009-05-23T19:52:00.000-07:00

Posted By Paul

I recently donated some old furniture and other items to a charity organization and I thought I would look into the possibility of taking a tax deduction on the donation.

I was immediately perplexed by what amount I should use for the various items. I vaguely remember what we paid for the items originally but I'm not sure what their fair price is now.

I did a little searching and found this great guide for the value of donated items. It's provided by the Salvation Army:

Salvation Army Donation Value Guide

I am going to try to keep track of all the various items we donate to charity and see how it affects my taxes this year.

PGE wants to send us all a check

2009-05-19T21:31:00.000-07:00

Posted by Matt

Portland General Electric's latest newsletter just informed me that I may be eligible for a refund of money that I paid for the Trojan nuclear power plant. I don't really remember buying a power plant in the October 2000 to the September 2001 timeframe, but I'll take their word for it.

If you were a PGE customer during that time, visit http://www.trojanrefund.com/ to apply for a refund. You HAVE to apply to be eligible. It only took me about two minutes, and residential customers are expected to receive about $23 each.

Article: 8 Things Parents Don't Need

2009-05-16T19:15:00.000-07:00

Posted By Paul

As a new parent I was happy to run across this article listing things that you DON'T need as a new parent.

8 Things New Parents Don't Need

I especially liked the author listing the expensive burp cloths and how cloth diapers work just as well. In fact a friend of mine went to a baby shower where as a game they had each guest decorate a cloth diaper in permanent marker for the parents to use as a burp cloth. The parents use them for various baby related cleaning and it's cool to see the funny and creative designs that the guests put on them.

Also the fact that they mentioned the baby wipe warmer was excellent. I saw one listing for a baby wipe warmer that said something like:

"the baby wipe warmer saves you money by being able to use any type of wipe in it."

What saves you even more money is to not buy the warmer in the first place. I looked on Amazon and read customer reviews of warmers and several people swore that their baby didn't like cold wipes and that buying this device improved their life considerably. Our baby actually thinks the cold wipes are kind of ticklish and using the cold wipes will often turn his crying into laughing. I guess it goes to show that all babies are different.

Any other suggestions for things new parents SHOULDN'T buy, or at least shouldn't ASSUME they need?

Store Credit Cards: Know What You're Signing Up For

2009-05-15T21:30:00.000-07:00

We have a guest post from Matt's wife Leah today. Enjoy!

-------------------------------------Posted by Leah

One of the major department stores (who shall remain nameless) recently hooked us with a “save 15% right now if you apply for a store credit card” offer. Normally we wouldn’t even consider it, but we were making a pretty large purchase and the savings totaled about $30, so my frugal nature won out and I convinced Matt to go for it.

There were several people waiting in line behind us, so I was feeling rushed during the application process. It was very quick, though, and only required a few taps on the buttons of the credit card swiper. Voila! We were approved in about one minute, and I walked out feeling pretty smug about my $30 in savings.

Fast forward to about a week later. We got a letter from the store thanking us for purchasing an additional plan that would help us pay off our balance should hard financial times strike. This plan would cost us $1.60 per $100 of our balance each month. That adds up to an extra 1.6%, added on to an already sky-high interest rate (Matt and I never carry a balance, so we don’t worry too much about interest rates on credit cards).

The letter stated that we could cancel this plan within the first 30 days and wouldn’t be assessed any charges. Of course I did this immediately, and filed a complaint with the company about this automatic enrollment. The representative informed me that I had agreed to this additional charge during my rushed application process, although I had no memory of doing so.

Ok, so it was my bad. I shouldn’t have applied for the card without reading all the small print, but what makes me mad is that the store knows that nobody is going to stand there, holding up the line, while they read through all the terms of use on that tiny screen. They also know that the majority of people, for various reasons, won’t get around to cancelling their membership in the plan within the first 30 days. I believe this is the store’s sneaky way of sticking it to the customer and squeezing that little bit extra out of us.

So what’s the moral of this story? Don’t apply for credit cards? No. Used wisely, credit cards have all sorts of benefits. Don’t apply for a store credit card while being rushed through a checkout line? Maybe…although most people don’t take the time to read the fine print even if they have the time. Be aware that this kind of stuff is happening, ask questions, and read your mail? Definitely!