Beanie Babies, Baseball Cards & Bitcoin

January 23, 2018 Banking, Investing, Personal Finance

What do Beanie Babies, Baseball Cards and Bitcoin have in common?

None of them are a good investment.

For those unfamiliar with Beanie Babies, they are a stuffed animal that became a fad in the mid-90’s. Ty Warner, Inc. created the toys but strategically only produced a limited amount of each new stuffed animal and retired them regularly. People would wait for hours and hours for the chance to buy one of the limited ones, then they would sell them for as much as ten times the price, mainly on Ebay. At one point Beanie Babies made up 10% of Ebay’s sales!1 People spent fortunes buying and carefully storing them. The bubble, of course, burst, and now those bins of Beanie Babies are essentially worthless. There are stories of people going bankrupt after spending over $100,000 on the toys2 or carefully sorting their Beanie Babies in a divorce.3

 

And how about baseball cards? This was a fad of the late 80’s and early 90’s. Topps, Score, Donruss and Upper Deck were among the companies that printed millions of cards and were religiously collected by almost every boy in America (myself included). Baseball card shops opened up all over the nation, and a price guide printed monthly by Beckett detailed how much each card was worth, often driving the market by setting prices. While a Mickey Mantle or Honus Wagner card might be worth a lot, the remainder are essentially worthless. It was a bubble that was bound to burst.4

Both Beanie Babies and baseball cards produced no real value – they were hyped up by the market and the prices were artificially inflated. Again – these items held no intrinsic value – they did not produce any further value. If you like Beanie Babies or baseball cards because you enjoy them, great, but if you bought them as an investment it was a bad gamble.

Enter Bitcoin.

Without getting technical, Bitcoin is a form of currency (called cryptocurrency). It is “mined” by massive computers running complex algorithms. According to a Bitcoin forum5 someone trying to mine bitcoins on a home computer will mine about 0.00001406 bitcoins per week, which means it will take well over 1,000 years to mine 1 Bitcoin.

Clearly mining isn’t the way to make money.

The basic idea behind cryptocurrencies like Bitcoin is that there is no bank or government or currency backing it up. If you own a Bitcoin you own an electronic coin that you can (hypothetically) use to purchase items (although the documentary Life on Bitcoin6 shows how hard that can be).

The basic idea would be that if a Bitcoin was worth $1, you could buy a $1 drink for 1 Bitcoin. You transfer ownership of that Bitcoin to the company selling you the drink. If a Bitcoin is worth $2 you would transfer ½ a Bitcoin to buy that drink. The new owner can either spend it or save it.

People buy Bitcoins in hopes that they will go up.

For early adopters, it went well. In 2010 the highest price was 39 cents. Bitcoin hit its high price on December 17, 2017 at $19,843.11.7 If you bought 100 Bitcoins at 39 cents each and sold them on December 17, 2017 you would have made $1,984,272 ($1,984,311 minus $39 initial investment). Not bad, right?

Wait – you didn’t buy any when it was 39 cents?!? Too bad. I didn’t either.

Let’s say you wanted to buy Bitcoin starting in 2018. On January 1 it closed at $13,500. It reached a high on January 6 at $17,152. On January 22 it closed at $10,823. Will it go back above $13,500? It’s hard to say. It might, but it might drop back down to $100.

By the way, let’s say you owned one Bitcoin when it was worth $10,289.26. To buy that same $1 drink with Bitcoin you would transfer 0.000097 Bitcoins. There’s some fun math for you!

However, people aren’t buying Bitcoin to buy a $1 drink (there are few places in the world where one can do that). They are buying Bitcoins in hopes that someone else will buy them for more. It is a purely speculative investment, with far more risk than most people should take on.

Maybe I’m wrong.

Maybe you can buy one Bitcoin today at $10,832 and it will be worth $100,000 next year.

Maybe it will be worth 39 cents.

That’s what speculative investments do.

Yes, there are cryptocurrency millionaires. There are also others who have lost far more than they could afford to. When people realize that there is no intrinsic value in Bitcoins they will have nothing.

Hopefully they can find comfort in their Maple Bear Beanie Baby while holding their Daryl Strawberry rookie card.

I recommend that you stick to real investments where real value is being created. Slow and steady wins the race. If you really, really want to buy Bitcoin never invest more than you can afford to lose, and speculative investments should never make up more than about 5% of your total portfolio.

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Analysis of the Revised Tax Cuts & Jobs Act

December 18, 2017 National Economic issues, Paying for college, Personal Finance, Small business, Tax Planning

I don’t know how they did it. The House passed a terrible tax bill. The Senate passed one that was almost as bad. To reconcile the two bills a House and Senate Conference Committee was created. I had extremely low expectations. What they came out with was the revised Tax Cuts & Jobs Act (TCJA), and it is, quite frankly, a great bill for almost everyone.

If you want to read the full bill, you can do so here: http://www.cnn.com/2017/12/15/politics/text-read-tax-plan-republicans/index.html?iid=EL

Before I jump into the highlights, I want to make a few important points:

  • As of this writing, it is not a law yet, so no changes have actually been made. It will likely become law before the end of the year, though, but current tax laws will be in place for your 2017 return that you will be working on in a few months.
  • I am not a CPA or tax attorney, so nothing in this article should be construed as tax advice. This article is for informational purposes only. For information about your own taxes you should consult a tax professional.
  • Page numbers refer to the page in the bill where you can find the information.

Let’s run through some highlights for individuals and families:

  • Reduces all but two tax brackets (page 12):
    Current Law10%15%25%28%33%35%39.6%
    TCJA10%12%22%24%32%35%37%
  • Increases the standard deduction to $12,000 for singles and $24,000 for married filing joint (MFJ) (page 17):
    • With the increase in the standard deduction, personal exemptions are going away. Under current law you get a personal exemption of $4,050 per individual (which would lower your taxable income).
  • If you choose to itemize, you can still deduct sales, income and property taxes up to $10,000 (page 81).
  • If you choose to itemize you can still deduct mortgage interest for home values up to $750,000 (page 78).
    • Deductions for the interest on a home equity lines of credit, however, will no longer be deductible.
  • Increases the Child Tax Credit to $2,000 per child, with $1,400 of that being refundable for most taxpayers (page 43).
  • College savings plans (529 plans) may now be used for elementary, secondary, homeschool and higher education (page 63).
  • Qualified moving expenses are no longer deductible unless you are part of the Armed Forces (pages 102, 110).
  • Alimony is no longer deductible to the payor (page 100).
  • Eliminates most personal casualty and theft losses from itemized deductions (page 81).
  • Because taxes will be easier to file for many (most will take the standard deduction) you can no longer deduct the cost of paying someone to prepare your taxes (page 99).
  • Simplifies the rules for the Alternative Minimum Tax and essentially doubles the amount you can pass to your heirs income tax-free (Estate or Death Tax).
  • If you have a pass-through business (S corp, LLC, Partnership, or Sole Proprietorship) all gains made in the business currently pass through to your individual tax form where you pay taxes on the gain as though it were income. Under the TCJA you can reduce the amount that flows through by 20% (1). For example, if you have a home-based business and you make $20,000, only $16,000 of that will flow through to your personal taxes. Because of this and other tax-friendly portions of the law, the National Federation of Independent Business, who initially opposed the House and Senate bills, is in full support of the revised bill and is encouraging both Chambers to pass the bill quickly (2).
  • The tax rate for corporations is reduced from 35% to 21%.

There are several provisions which were in either the House or Senate bill that did not make it into the final bill. These include:

  • Modification of the exclusion of the gain or sale of a principal residence (Sec 121 of the tax bill):
    • Currently if you live in your home for 2 out of the last 5 years you can exclude the gain up to $250K (single) or $500K (MFJ).
    • Both the House and Senate planned to increase this to 5 out of the last 8 years.
    • The joint bill contains no provision for this, so it will stay at 2 out of 5 years (page 109).
  • Qualified tuition reduction for graduate students continues to be excluded from income (page 68).
  • Up to $5,250 of employer provided education assistance continues to be excluded from income (page 70).
  • The Adoption Assistance Credit is retained (page 112).
  • Continues to allow taxpayers to deduct student loan interest and tuition and fees, and the American Opportunity Credit is retained.

It is important to note that all individual provisions expire after 2025. The plan is that the next President and Congress will extend these provisions for all individuals and families. It is a bit of a gamble, but it is the only way, under current rules, to pass the bill with a simple majority.

What you probably want to know is, what will this bill do to your taxes? People much smarter than me in taxation will figure that out, but in the meantime, there are several calculators you can use to estimate your tax burden. Again, this is an estimate, not a guarantee. I used two calculators to run several scenarios:

Here is what I found for five scenarios. I ran all with the standard deduction (3):

Scenario 1: Married Filing Jointly (MFJ) with four children; $85,000 in ordinary income.

  • Current tax liability: $2,288
  • TCJA tax liability: $0
  • Savings of $2,288 under TCJA

Scenario 2: MFJ with 2 children; $75,000 in ordinary income; $200 in investment income.

  • Current: $3,982
  • TCJA: $1,739
  • Savings: $2,243

Scenario 3: Single; $75,000 income; $200 investment income.

  • Current: $11,889
  • TCJA: $9,800
  • Savings: $2,089

Scenario 4: Single, $55,000 ordinary income; $20,000 home-business income; $200 investment income.

  • Current: $11,889
  • TCJA: $8,920
  • Savings: $2,969

Scenario 5: MFJ with 5 children, $100,000 ordinary income; $20,000 home-business income; $200 investment income.

  • Current: $6,715
  • TCJA: $2,119
  • Savings: $4,596

As more information is released I will continue to update this article and post updates on my Facebook page at https://www.facebook.com/RyanHLawBlog/.

 

(1)  This provision is eliminated for higher-income individuals and certain service businesses.

(2) https://www.nfib.com/content/press-release/national/small-business-supports-conference-tax-bill/

(3) These calculators get updated as more information becomes available. If you run these same scenarios at a different times you might get slightly different results. If the numbers change dramatically I will update the article. The numbers are correct as on December 17, 2017.

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The Republican tax bill – a burden to families, homeowners, and students

November 8, 2017 National Economic issues, Paying for college, Personal Finance, Tax Planning

DECEMBER 18, 2017 UPDATE: This bill, and therefore this article, are now irrelevant as the Senate also passed a bill, then a committee was formed to reconcile the two bills. For an analysis of the revised bill, read https://ryanhlaw.com/revised-tax-cuts-jobs-act/.

Important note: I am not a CPA or tax attorney and I don’t play one on TV. My explanations and descriptions of the proposed changes to the tax code are simplified (which is the goal of this blog). Nothing contained here should be construed as tax advice. I also want to note that I am a Conservative, and I am firmly against this bill.

In early November, 2017, the Republican party released their version of tax reform. You can find the full text of the tax code here: https://waysandmeansforms.house.gov/uploadedfiles/bill_text.pdf. Most people agree that the tax code needs some simplification and that some loopholes need to be closed. While there are a few positive aspects of the bill, the bill, as a whole, is a disaster and should not be passed.  Let’s start with the positive aspects of the proposed bill:

  • Tax brackets are reduced from seven to four, which could lower taxes for some.
  • The standard deduction is doubled, which will make taxes easier for many individuals and families.
  • Repeal of the Alternative Minimum Tax (AMT).
  • Repeal of the estate tax.
  • An increase in the child tax credit from $1,000 to $1,600.
  • Corporate tax rate lowered from 35% to 20%.

Now for the negatives:

  • Removal of the personal exemption (currently $4,050 per person). You can find this removal on page 33 of the tax bill. The doubling of the standard deduction is supposed to make up for the removal of the personal exemption, which you get for each dependent and taxpayer on a return. In my family, with five children, we get seven personal exemptions. In 2016 the personal exemption was $4,050, which equates to $28,350. We would get this on top of the standard deduction, which was $12,600, for a total of $40,950. Our deduction under the new bill will be $24,000. This bill penalizes anyone with children, and certainly penalizes large families. Even with the increased child tax credit we still come out behind. I thought Republicans were in favor of families.
  • Mortgage interest deduction would be capped on homes up to $500,000 (see page 100 of the tax bill). In many areas of the country $500,000 is an average home[i]. This only applies to new mortgages, so if you have a mortgage now and the value of your home is $1,000,000 or less, it won’t affect you. Republicans obviously don’t want you to buy a more expensive home.
  • Under current laws, as long as you are using your home as your primary residency, you can move every two years and not pay capital gains taxes on the increase in value on your home. The new tax plan increases that to five years (see page 137). This will be devastating to the starter home market, and challenging for many others. For most individuals that tax will be 15% of the gain. For some reason, Republicans don’t want you to move very often.
  • Graduate students often pay for their tuition by doing research and teaching undergraduate courses. In exchange, they are paid a wage (which average $20,000 – $30,000 a year) and receive a tuition waiver (which averages $12,000 – $50,000 a year). Under current law, the wages are taxed, while the tuition waiver is not. Under the proposed changes, both the wages and tuition waiver become taxable income (see page 98 in the tax bill). This will dis-incentivize students from going to graduate school, and raising their tax bill by a large amount, especially for those that go to more expensive schools.[ii] An analysis by Forbes shows that an in-state University of Florida grad student pays about $1,424 a year in taxes currently, but under the new plan they will pay $4,052 a year, which is 17.6% of their income. A Princeton grad student pays $2,849 (8.8% of their income) now, while under the GOP plan they will pay $13,499 (41.9% of their income)[iii]. That is a heavy, and unacceptable, tax burden on those trying to get an education. For an excellent analysis of how this would affect students, click here.  Why do Republicans not want individuals to go to grad school?
  • Elimination of state and local tax deduction (see page 105).
  • If your employer offers adoption assistance that is not currently reported as income. This bill repeals that and it will now be reported as income. NOTE: This was included in the original bill (see page 142), but has since been removed.
  • If your employer offers tuition assistance, it is currently not reported as income. That benefit will be repealed and it will now be reported as income (see page 96-98). Again, this will discourage individuals from going to school.
  • If you work at an educational institution you or your children may get reduced or free tuition. Currently this is not reported as income. Under the new bill it will be (see page 96). For example, as an employee benefit my children get free tuition at Utah Valley University. Their tuition would be reported as income.
  • The student loan interest deduction will be repealed (see page 96 – Section 221).
  • The itemized deduction for medical expenses will be repealed (see page 113).
  • The bill adds a “Chained CPI” to the tax code, which essentially means that Social Security income will grow at a slower rate than true inflation[iv].

This tax bill is terrible and should not be passed. However, remember that this bill is not a law yet! I encourage you to contact your elected officials and encourage them to scrap this bill entirely. You can find contact information here:

https://www.usa.gov/elected-officials

Call them, e-mail them, post on their social media pages. Let them know you don’t support this bill.

I conclude with two quotes:

“This is a Republican plan that targets people wanting to adopt children, homeowners, small businesses and people with high medical bills.” – Carol Markowitz[v]

“If the goal of the new tax plan is to shift the tax burden from wealthy, older Americans onto young, already-indebted students pursuing their higher education dreams, it’s poised to be a smashing success.” – Ethan Siegel[vi]

 

END NOTE: If you are looking for a comprehensive review of the GOP tax bill you can find that here: https://www.kitces.com/blog/tax-cuts-and-jobs-act-2018-house-gop-tax-reform-proposal/

 

[i] In Los Angeles county, for example, 23% of mortgages are over $500,000. In San Francisco that number jumps to 56.6%. http://www.latimes.com/visuals/graphics/la-na-g-mortgage-interest-deduction-tax-calculator-20171106-htmlstory.html

[ii] https://www.wired.com/story/grad-students-are-freaking-out-about-the-gops-tax-plan-they-should-be/

[iii] https://www.forbes.com/sites/startswithabang/2017/11/07/the-gop-tax-plan-will-destroy-graduate-education/#427787703d2f

[iv] https://newrepublic.com/article/145688/biggest-trojan-horse-republican-tax-plan

[v] http://www.foxnews.com/opinion/2017/11/07/im-conservative-and-hate-republican-tax-plan.html

[vi] https://www.forbes.com/sites/startswithabang/2017/11/07/the-gop-tax-plan-will-destroy-graduate-education/#7c929ce63d2f

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Fires and Floods and Hurricanes, Oh My!

October 11, 2017 Preparedness

The government has ordered an evacuation of your city due to an impending weather event. You have 30 minutes to get out. Quick – what financial documents do you grab, and where are they?

This isn’t a difficult situation for any of us to imagine – evacuations are being ordered for fires, floods, hurricanes and other similar events happening all over the country. The important thing to remember, of course, is that human life, followed by memories, such as photo albums, are the most important. All your financial documents can be replaced. However, if you can grab them quickly and put them in your vehicle, it will make things so much easier as you deal with the consequences of the disaster, including the very real possibility that you won’t have a home to return to.

Unfortunately, for many people, their financial files look something like this:

 

I have a simple system for you to organize your documents so you can grab them quickly if you need to evacuate. Here are the tools you need:

  • Document safe
  • Hanging file folders
  • Cash
  • HomeFile Financial Planning Organizer Kit

Document Safe

You need either a fire resistant file safe or a fire and water resistant file safe. If you are in a flood prone area opt for the more expensive fire and water resistant safe. SentrySafe makes a good safe that you can find on Amazon:

Wal-mart and most other retailers will carry these safes as well.

 

Hanging File Folders

You need approximately 30 hanging file folders. You can find those on Amazon here: https://www.amazon.com/AmazonBasics-Hanging-File-Folders-Letter/dp/B00V5DG6IQ/

Place all the folders in the document safe. You may want some regular folders as well – for example, I have one folder for each person in my family where important documents for that family member are kept.

 

Cash

If you have to evacuate you may not have time to stop at an ATM, and even if you can they will not work if the power is down. I suggest keeping about $100 in cash in one of the folders in your safe. This will help you pay for some gas and food if needed.

 

HomeFile Financial Planning Organizer Kit

This is the key to the whole system. The HomeFile Organizer kit will help you keep track of and organize all of your documents. The system comes with 22 file divider cards with labels such as autos, bank accounts, retirement savings, real estate, taxes, and wills and trusts. Each folder tells you what to file there, what to not file there and when you can remove it. I have used this system for years, and I can you that it works. I can file my paperwork quickly and find what I need quickly.

Each of the divider cards goes in a green hanging folder, then documents are placed behind it.

If you have to evacuate, you can grab the box knowing that all of your financial documents are safe and in order.

 

ACTION STEPS:

  1. Buy a safe and hanging file folders.

  2. Buy the HomeFile Financial Planning Organizer Kit:
    With shipping, these cost $36.60 on the HomeFile Organizer website: http://www.homefileorganizer.com/. I have several extras and will sell one to you at more than 20% off (your cost through me is $28 and that includes shipping in the United States). If you are interested in buying one through me, let me know on my Contact Me page and I will send you a PayPal link. I only have a handful at this price, so they will go to whomever contacts me first.

  3. Organize all your financial documents in the safe.

If you found this information helpful, please share it with a friend and subscribe to my blog through the link to the right of this post.

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TransUnion now offering Credit Lock

September 20, 2017 Credit Scores, Identity Theft

Credit bureau TransUnion, in response to the Equifax data breach, is now offering all consumers TrueIdentity, which allows you to lock your credit for free. It essentially does the same thing as freezing your credit, but you can lock and unlock it through the TransUnion site, and it is free every time. You can also sign up to get a text every time someone applies for credit in your name.

If you have already frozen your TransUnion account, leave it frozen. Otherwise, head to https://www.transunion.com/product/trueidentity-free-identity-protection and sign up. I think this is a great service being offered to all consumers – I would like to see the other bureaus follow.

Each step you take protects you a little more from being a victim of identity theft.

Also, one quick update from last week’s post and Credit Karma. Sign up for Credit Karma BEFORE you freeze your credit. If you freeze it before you won’t be able to use their site. Read this article for more details: https://help.creditkarma.com/hc/en-us/articles/202041774-I-have-a-security-freeze-on-my-credit-reports-Can-I-still-use-Credit-Karma-

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How to protect yourself after the Equifax data breach

September 11, 2017 Consumer Protection Laws, Credit, Credit Scores, Identity Theft, National Economic issues, Personal Finance

equifax data breachFollowing the news of the hurricanes, news of the Equifax security breach has been all over the news. Financial data of 143 million Americans has been stolen, and in many cases it means that the victims are at-risk of becoming victims of identity theft for the remainder of their lives. That’s right, you, and if you have them, your children, could be at risk for the rest of your life. The hackers got names, Social Security numbers, birth dates, addresses, credit card numbers, and some driver’s license numbers.

The breach ticks me off – this never should have happened. Clearly Equifax has some major vulnerability in their system which they should have known about and protected. A credit bureau should be utilizing the highest level of security at every level. Your information with them should be as secure as a vault. On top of that, to add insult to injury, three of Equifax’s executives (including the CFO) sold nearly $2 million worth of stock after the breach, but before they told the public about it. That’s right – here’s a timeline for you:

  • Between mid-May and July, 2017 – breach happens
  • July 29, 2017 – the hack was discovered
  • Aug 1-2, 2017 – executives sell almost $2 million worth of stock
  • Sept 7, 2017 – the public is informed of the breach (thank you, Equifax, for waiting more than a month before letting us know)
  • Sept 8, 2017 – Equifax stock drops by double-digits

Equifax cliams that these executives had no knowledge of the hack when they sold their shares, but I don’t buy it. You’re telling me the CFO didn’t know about this? If he didn’t know, then who did? I’m sure that the timing of the sale will be part of any investigation.

The breach has happened, though, and you need to take specific steps to be sure you protect yourself. Let me warn you now, the few hours you spend on this are not going to be the most fun, but it is critical you take care of it now. It will be much, much worse if you wait and are a victim of identity theft.

I’ll try to make it as easy as possible for you with links and instructions.

  • First, don’t sign up for the protection that Equifax is offering. It only lasts a year, and, unless you opt-out of it, means you can’t be part of suing Equifax later on. I also don’t trust the company that just had the biggest data breach in history to be able to protect my data. Pass. Due to the severity of the breach, they should offer identity theft protection for life.
  • Sign up for Credit Karma (https://www.creditkarma.com/). You will get free credit scores and free monitoring of your credit reports. If anything unusual happens, they will contact you. It’s a free service and you should sign up for all adult members of your family.

    • Credit Karma logo

  • Place a credit freeze on all three of your credit bureau files. A credit freeze is THE SINGLE MOST IMPORTANT THING YOU CAN DO TO PROTECT YOURSELF. It literally locks your credit bureau files so NO ONE, including you, will be approved for new credit. A thief could have your information and they will apply rapidly for credit, all of which will be denied. They will eventually move on. Depending on the state you live in, there will be a $0-$15 fee to set this up, and you need to do this for each adult member of your family.Here are the links:
    https://www.freeze.equifax.com/Freeze/jsp/SFF_PersonalIDInfo.jsp
    https://www.transunion.com/credit-freeze/place-credit-freeze
    https://www.experian.com/freeze/center.html

    Because millions of people are setting these up the systems are not all working. I was able to set up Equifax and Experian, but not TransUnion. I will keep trying throughout the next day or so, and if it doesn’t work I will take care of it via mail.If you need to apply for credit later, you can un-freeze your reports for a limited period of time, after which it will re-freeze.

  • Place a fraud alert on your accounts. This is simply an extra step that puts an alert on your credit report that you might be a victim of identity theft, and that creditors need to call you before any credit application can be approved. It only lasts 90 days, but you can put the alert on there repeatedly. I already have a note on my calendar 90 days from today to renew the alert. You only need to place the alert with one company then they will place the alert with the other two. I recommend you use TransUnions fraud alert system – I found it to be the easiest one: https://www.transunion.com/fraud-victim-resource/place-fraud-alert

    • fraud alert

  • Sign up for Zander Insurance identity theft insurance. For $145 a year it protects your entire family, including your children. They have a 100% recovery success rate and protect you against all types of ID theft, including tax fraud, medical ID theft, and, of course, financial fraud. If your identity is stolen as a result of the Equifax, or any other breach or identity theft, they will take over and fix everything. It is well worth every penny. You can sign up for that here: https://www.zanderins.com/idtheft2

    • logo_zander

  • Speaking of children, does it make sense to freeze their reports? The credit bureaus don’t want you to be able to do that, but some states have made it mandatory. All three bureaus are falling in line, but none will allow you to do it online. TransUnion will do a search, for free, to see if your children have credit reports. You can find that here: https://www.transunion.com/credit-disputes/child-identity-theft-inquiry-form.
  • Utah is taking things one step further – they have set up a Child Identity Protection Program through the Attorney General’s office that registers your children’s Social Security numbers as a number belonging to a minor, which will help protect their data. You can find that program here: https://cip.utah.gov/cip/SessionInit.action. If you live in a different state encourage your attorney general to create a similar program. Because I live in Utah and have this option, along with the Zander protection, I don’t feel that I need to freeze their credit, but if I lived outside of Utah I would absolutely take that step.

    • utah cip

  • Because credit card numbers were stolen, I recommend calling the toll-free number on the back of each credit card you have and requesting a new number. It’s a pro-active step you can take to prevent unauthorized charges in the future.

Again, I realize this isn’t fun – it’s a lot of work to set these things up, but I wouldn’t delay. Take a couple of hours today and get all of this done. Taking these steps is like building a brick wall between you and identity thieves.

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My Favorite Podcasts (Financial and other)

August 9, 2017 Uncategorized

I love learning, and one of my favorite ways to learn is while I am driving. A while back I discovered podcasts, and today I want to share with you some of my favorite podcasts that I listen to while I am driving. They are not all financial, but all of them will help you be a better person and learn some interesting things along the way!

  • Optimal Finance Daily: This podcast is part of a larger series of podcasts including Optimal Living Daily, Optimal Living Daily – Relationships, Optimal Health Daily and Optimal Living Daily – Business. On each of these podcasts they narrate a blog post (with the author’s permission). On a recent episode of Optimal Finance Daily, for example, they read from Kristin Wong’s blog about how to budget with a variable income. Each of the shows publishes one podcast each weekday, while Optimal Living Daily also publishes on the weekends. Each show is about ten minutes long.


  • The 5 AM Miracle with Jeff Sanders: Sanders is the author of The 5 AM Miracle and on his weekly podcast he interviews productivity experts. Each show is about 45 minutes long.


  • The TED Radio Hour by NPR: I love TED talks, so this show is perfect for me. NPR selects a topic and features portions of TED talks about those subjects and interviews with the speakers to get deeper into the subject. Each show features about 4 talks and authors. A few recent topics include Prevention, Crisis and Response, Beyond Tolerance and Shifting Time. Each episode is about an hour long.


  • Malcolm Gladwell’s Revisionist History: I look forward to the publishing of each episode of Gladwell’s Revisionist History. I highly recommend you download both season one and two and listen to every episode. Gladwell finds fascinating subjects that have been overlooked or misunderstood and do an in-depth episode about the topic. Each season is 10 weeks, and each episode is about 45 minutes long.


  • Achieve Your Goals with Hal Elrod: Elrod is another author of books about productivity, focusing, like Jeff Sanders, on getting up early. Similar to Sanders, Elrod publishes a weekly podcast focusing on productivity and goal achievement. Elrod is currently recovering from cancer treatment, so he has a guest host who tends to talk more than his guests, which bugs me, but I still pick up valuable insights. Each episode is about 45 minutes long.


Obviously this is more than I can listen to in a week, so I delete a number of episodes and just choose the ones that sound the most interesting.

What am I missing? Which podcasts do you enjoy most and why? Share in the comments below or on Facebook.

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Financial Filing Systems

July 14, 2017 Financial Planning Tools, Personal Finance

Think about all the financial paperwork you receive each month – either digitally or in the mail. In a typical month you might receive an investment statement, credit card bills, bank statements, and more. Some need to be checked for accuracy while others need to be filed for tax season.

If it is tax season you will get even more financial documents each month. In addition to new ones you are receiving you also have documents that you keep a copy such as previous year tax returns, real estate documents and your will.

While there are countless financial filing “systems” that individuals have created and discuss on their blog, two stand out that were developed by financial authors or planners – David Bach’s File Folder System and the HomeFile Financial Planning Organizer Kit.


David Bach’s File Folder System

Bach’s system consists of 14 hanging folders and approximately 50 file folders. Each hanging folder is labeled with a different category such as:

  • Tax Returns
  • Retirement Accounts
  • Household
  • Credit Card DEBT
  • Insurance
  • Savings and Checking Accounts

As documents are received they are placed in the corresponding folder.

Bach’s system is simple and, beyond the cost of the folders, is free. Bach discusses his system in more details at http://www.oprah.com/money/david-bachs-file-folder-system.


HomeFile Financial Planning Organizer Kit

HomeFile was developed by financial planners J. Michael Martin and Mary E. Martin. It contains 22 laminated cards that are pre-labeled and are similar, though more detailed than, Bach’s system. Some examples include:

  • Autos
  • Charities
  • Credit
  • Employment
  • Personal
  • Real Estate

Each card is labeled with what is filed there, what is not filed there and when you can remove the document. The system includes a quick-find index so you can locate a document easily and a 48-page handbook with instructions and forms.

The system is $29.95 for one kit. You can learn more at http://www.homefileorganizer.com/.

It is recommended that these types of files are kept in a file-proof locking box or safe. It may be advantageous to make it a portable box so it can be taken with you if needed.

 

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Paying for College – 529 plans

June 28, 2017 Investing, Paying for college, Personal Finance, Saving money

College can be paid for in a number of different ways – you can save up in advance, you can work and pay along the way, you can excel in academics, sports or other areas and get scholarships, you can pay with grants or loans or you might just have a rich relative that is willing to pay it for you.

In today’s article I want to cover the first option – saving up in advance.

In 2013 the Center for Social Development did a study called “Small-Dollar Children’s Savings Accounts, Income, and College Outcomes”(1) where they share some interesting findings:

  • 61% of low- and moderate-income (LMI) children have no savings account for college.
  • An LMI with savings for college is three times more likely to enroll in college than a child with no savings, and more than four and a half times more likely to graduate.
  • Only 5% of LMI’s with no savings will graduate, while 25% of those with savings of $1-$499 will graduate, and 33% of those with $500 or more set aside will graduate.

These numbers are significant – compared to their peers from a similar socioeconomic background, setting aside between $1-$499 for your child or grandchild makes them three times more likely to enroll in college and four and a half times more likely to graduate. That’s not a lot of money for those outcomes.

In addition, the government has provided some great tax benefits to saving for college in special accounts called 529 plans. Each state has at least one 529 plan, but they all share these benefits:

  • Tax-free investment growth
  • Tax-free withdrawals for qualified expenses
    • Qualified expenses include tuition, fees, room and board, textbooks, computer, printer and software as well as any other required fee from a university or college
  • You can use the money to pay for education expenses in any state
  • The account holder maintains ownership of the account
  • You can change the beneficiary any time you want
  • If your child gets a scholarship you can withdraw up to the amount of the scholarship and just pay taxes on the earnings
    • Non-qualified withdrawals (i.e. those not for qualified expenses) are subject to taxes and a 10% penalty on the earnings
  • Legally there is no maximum amount, though in reality most people want to keep the annual contribution below $14,000 if you are single, and $28,000 if you are married(2)

Many states offer a tax deduction or credit of some kind if you live in that state and invest in that state’s 529 plan. NerdWallet has created a list of which states offer a deduction or credit here:

https://www.nerdwallet.com/blog/investing/529-plans-list/

Which plan should you invest in? You want to find a plan with low fees, direct-investing (which means you pay no commissions on the investment) and, if possible, a tax deduction or credit.

Consumer expert Clark Howard said, “Utah is by far the single best plan in the country.” He also lists Iowa, New York, Georgia and Michigan as great plans.(3) Morningstar rates Utah’s plan as “…one of the best in the U.S.”(4)

You can explore your state’s plan further from the NerdWallet link above, but if you are looking for a great plan you can’t go wrong with the Utah Educational Savings Plan (https://uesp.org/). It is direct-sold, has low-fees, and has good investment options with Vanguard. There is no fee to open the account, there is no minimum investment and Utah residents can get a Utah State tax credit for contributions.(5)

Remember – saving as little as $1-$499 for your child’s college education dramatically increases the odds of them going to, and graduating from, college, which will increase their lifetime earnings, decrease their chances of living in poverty and decrease their chances of being unemployed.(6)

 

  1. https://csd.wustl.edu/publications/documents/wp13-06.pdf
  2. Note that it could actually be much higher than this if your plan allows it, but that gets into estate planning issues, which we aren’t going to get into here.
  3. http://clark.com/education/clark-updates-his-529-guide-for-2010/
  4. https://uesp.org/morningstar-utah-educational-savings-plan-is-one-of-the-best-in-the-u-s/
  5. This is not tax advice – check with your tax advisor or preparer to ensure you get the maximum benefit.
  6. This is assuming they choose the right major, but that will have to be covered in another article.
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Are Credit Cards Evil?

June 8, 2017 Credit, Credit cards, Debt Elimination

If you listen to certain radio talk-show hosts you might think that credit cards are evil. Credit cards are NOT evil. They are a tool, but just like with any other tool, they need to be used responsibly. If you can’t handle a tool you shouldn’t use it.

I think you should have one or even several credit cards. I have one main one that I use for cash back, a Delta card that I used to get a free flight, an Amazon card that gives me 5% cash back on Amazon and the Costco credit card that I use to get 4% cash back on gas.

But what about all the credit cards versus cash spending studies?

No doubt you’ve heard studies that prove that we spend more with credit than we do with cash. It is very possible that these are myths.

The most popular is the study that Dun & Bradstreet supposedly did where they found that people spend 12-18% more when using credit cards instead of cash. However, no one can seem to find that study. Everyone cites it, but no one cites the source.

There is also a study that McDonald’s reports that the average ticket price is $7 when people pay with credit and $4.50 when they pay with cash. Again, though, no one can find the original source (1).

Mark Wells, CFO of the payment processing company for McDonald’s reports that, “When an establishment accepts credit cards, the average ticket size goes up. We anticipate a 40 percent increase in the average ticket size for those franchises implementing credit card processing for the first time” (2). Again, though, Wells doesn’t provide any supporting data for this statistic.

While those studies might be made up, it is important that you practice responsible spending when using credit cards.

  • If you can’t pay the full balance off each month, don’t use credit cards.
  • If you think you will spend more with cards than cash, use cash.
  • Whenever you use your card you should immediately transfer money from a category in your budget and move it to the credit card category. For example, when I buy gas at Costco I immediately enter the transaction in my budgeting software. It records it as a credit card transaction and moves the amount I spent from the gas category to the Costco credit card category.

You’re better off not using credit cards if you can’t pay them off during the billing cycle. If you’re paying 12.9% interest and getting 1.5% cashback, you’re clearly not coming out ahead.

If, however, you can use them wisely, and you pay them off in full before any interest is charged, why not take advantage of the rewards?

  1. Most websites that talk about these two studies cite this article on NerdWallet as their source: https://www.nerdwallet.com/blog/credit-cards/credit-cards-make-you-spend-more/. Citing a website that didn’t do the original study, and doesn’t cite their source, is not a proper citation and proves nothing.
  2. http://www.businesswire.com/news/home/20031021005628/en/Credit-Cards-Process-Faster-Cash-McDonalds-Franchises
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