Money and Financial Business

One of the issues with applying for student loans that is often overlooked is the time and frustration that goes along with it. Even at my age, I don't like to become frustrated (and throw a tantrum when I do). The Chicago Tribune has an article on how College aid forms tests families' pain threshold:

If you have just finished applying for financial aid for a college student you might have a few gray hairs.

Filling out a FAFSA—the form required for obtaining low-interest federal loans and college grants and scholarships—is a grueling process. It's so confusing and time-consuming that parents often start to think of their tax return as a walk in the park by comparison.

The good news? There's a bill called "College Aid Made EZ Act" that is intended to make it easier to apply for financial aid by simplifying the Free Application for Federal Student Aid form working its way through Congress. The best option is not having to apply for these loans by saving early, but for those that do, making the process as simple as possible is always a good goal.

It's time to make my weekly update, as I wind down this particular project. Yep, that's right only one more week to go on this project. It's hard to believe that it's actually been 3 months.

As I mentioned over at Debt-Free 4ever, today, I wasted $20. I took a vacation day today and promptly wasted $20 tonight. Well, OK so it wasn't all wasted. I spent $4.45 for some sale items at the store (TV dinners - limit 6 - 69 cents each) getting $20 back. Then went to Aldi's and picked some sausage biscuits and eggs spending $3.35 of that 20. I then went across the street to a store with milk on sale for $1.99 to pick up a gallon of 2%, spending another $2.14 of that $20.
Then it was time to go see the movie (Peaceful Warrior) with the free tickets I had printed off at the public library (as mine here at the house is out of ink). Along the way, I stopped and bought a Chicken sandwich at my favorite fast food joint, Chick-fil-a. There goes anther $3. Then I couldn't (or rather didn't) keep spending in check at the theater, buying a $4 (small) popcorn and a $4 (large) Coke. After the movie wasn't any better as I dropped the remaining $3 into an arcade game.
Not very smart of me I know, but that is why John Cummuta says not to ask for cash back at the register for any reason. You tend to forget where that extra $20 was actually spent.
---OK, so what did I eat this past week? ----
Fri (3/23) - ?? -- I honestly can't remember what I fixed this night.
Sat (3/24) - Cooked Potatoes/Carrots and Meat balls (made from hamburger in my freezer) in a crock pot. This made several meals. Yes I peeled and cut the potatoes and carrots myself.
Sun (3/25) - Potatoes/Carrots and Meat balls
Mon (3/26) - Someone told me that a little hole in the wall, called "The Prize Package," had the best hamburgers around. So they bought my meal there.
Tue (3/27) - Potatoes/Carrots and Meat balls
Wed (3/28) - Macaroni and Cheese
Thurs (3/29) - Tomato Soup
Fri (3/30) - 2 Fried Potatoes with 3 scrambled eggs - in addition I ate 3 fried eggs with cereal before going to bed this morning.
Sat (3/31) - Chick-fil-a Sandwich

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One thing I would like to do is grow my own garden, but I need to get a spot tilled up first.

I know one new reader this week didn't like that I was eating red meat. I suspect, she thinks I should eat fish, but I hate fish, so that won't happen. I appreciate her comments anyway, even if she thinks sausage isn't meat but rather just a bunch of grease.

Ever since I read Den of Thieves two years ago, I thought that people like Mike Milken would be despised everywhere, by Wall Street, by the media, by the general public -- He traded on insider information, he accumulated enough market power to inflate the junk bond prices, and many middle class who followed were left with worthless papers; he fostered corporate raids and destroyed many business. How can the public tolerate such a person?

I was so naive! My first surprise came from Liar's Poker: Rising Through the Wreckage on Wall Street. Obviously, Michael Lewis did not think Milken as a criminal when he wrote "Liar's Poker". And in some sense, Michael Lewis thought that Milken spotted a good financial innovation opportunity (junk bond) that Solomon Brothers missed.

My second surprise came when I was listening to the radio. The radio broadcasted an ad for Wharton economic summit , where Milken is listed as the number one keynote speaker, even ahead of the finance professor Jeremy Siegel. I can't help to look for the ads and see how they advertise the "junk bond king". And to my surprise again, now he is "The Man Who Changed Medicine"! And obviously, his name is what attracts people to come to the summit.

Obviously, he has many followers, particularly from Wall Street. Everyone can have his/her own take on Milken's past. I am fine with that. But from what time he has become a Medical Research Innovator ? By giving some money to some medical research center to get tax deduction? This will be an interesting path to be a medical research innovator :)

And what's more interesting is that he will team up with Professor Jeremy Siegel, the author of The Future for Investors: Why the Tried and the True Triumph Over the Bold and the New. He "is a buy-and-hold kind of guy who predicts that an unprecedented wave of discovery and innovation will fuel economic growth in the U.S. and provide superior returns for investors who are patient." What is his take on Milken's junk bonds?

Should be an interesting speech (at least to me). But $499 a ticket, plus travel expense... no way for a deal hunter like me.

When it comes it comes to most things...especially finance, I like to follow the saying:

Keep It Simple, Stupid (aka Keep It Sweet and Simple).

With banking, that is why I chose Wamu over other online savings accounts that have higher APYs. I simply don't want to have multiple savings accounts linked together. One account with a good APY is sufficient for my needs. For my company 401k, I have maxed out the free money that the company matches and have it all going towards a target date retirement fund. This allows me to not have to worry about adjusting my portfolio as I get older. It sets most of my money going towards stocks right now and gradually adjusts it for me. It doesn't get any simpler than that. I don't like to complicate things. I've noticed a lot of money maestros like to take advantage of the 0% APR balance transfers from their credit cards to make money off interest. If you have more time to do that and are good at managing more bills, then more power to you.

When it comes to money, you don't have to be a financial guru to be smart. Investing can be simple and the earlier you start, the bigger difference it can make. Use compound interest towards your advantage!

Here is a good example that was from CNNMoney (link to article):

"To put the power of compounding on your side, you have to start early. Suppose there are two siblings who both invest in Individual Retirement Accounts earning 8 percent a year.

The sister starts at age 20, and for the next 10 years she stuffs $3,000 a year into her IRA. At age 30, though, she stops and never adds another penny.

Her brother waits until age 30 to get started, but then dutifully salts away $3,000 a year for the rest of his life. Which sibling do you think will be better off?

In this case, the early bird will always be ahead. The sister reaches age 65 with over $642,000, while her brother will have a little under $518,000 - about 20 percent less."

Deera Chat has just put up a roll up banner in Sharq Market to promote its Podcast, this move wasn’t free. Thats just a peanut of what people pay for advertisements here in Kuwait. Listen to our show this week to learn more about it.

Just recently I started a new stock traders book High Probability Trading by author Marcel Link. So far I’ve gotten through the Preface. It isn’t very dry and it seems to push all the lessons and rules I have learned from many great traders. Marcel Link stresses disciplined qualities and I’m sure [...]

I have a CC that I've had and used for a good long time. A couple of days ago I attempted to get them to reduce my interest rate by 2% and failed so I decided to transfer over to a 0% card. I have been religiously shredding all the offers I've received so I had to go online and apply for a card. I was approved for the Discover card I applied for (the only one I applied for). I got the card yesterday and this morning I called to activate it and talk to someone about my account. It didn't go very well. They approved the Discover card at $1000 less than the amount I requested for the transfer. I know this was a ploy but one I refused to accept. I was reading some blogs today and ran across Lazy Man and Money, who seems to be having problems of his own with Discover. It was kind of funny that I read his blog just 10 minutes or so after I got off the phone with Discover. Here's what I left in his comment box:

Good luck! Just 10 minutes ago I called Discover to close my brand new “transfer” card. I applied online, got “approved” message in my email the next day, and received the card, 2 days later. 3 days! When I opened it up the credit limit was $1000 less than the current CC account balance, which I had requested be transfered over. I called them up and was told that because I had not had a history with them for 6 months they would not up the limit; however, I should keep the card for 6 months and then they would up the limit, and I’d still have access to the 0% transfer for 6 months. I told the very polite young man on the other end of the phone that the whole purpose of my transfering was because the current company would not reduce my rate by 2% and waiting 6 months to take advantage of 6 months worth of 0% transfer was not acceptable to me either since I would be losing out on 6 months. He tried again to talk me into staying but eventually agreed to close the account with a promise of an “account closed” letter in the mail in a few days.

I just took advantage of the 5.00% APY savings account and free checking deal from Washington Mutual. I've had Wells Fargo ever since I was a kid and now that I'm working, I've decided to stash my cash/emergency fund in a savings with higher interest.





The main thing I like about Wamu is that I can just go to my local branch if need be. HSBC has a great deal going on too, but I haven't seen any branches where I live. Linking your current savings to an online savings could work too, but again, I like the convenience of seeing a teller.

Given that Yannick and I stayed in graduate school for such a long time, we made many friends who got PhD's in various fields--economics, business, engineering, science… Some went for academic career and are already titled professors; some are still struggling for their tenure; some went to industry and become millionaires from IPOs; some got laid off and came back to school. And those fresh ones, seeing footsteps from their senior fellows, feel confused. They seek help, from advisors and professors, from fellow PhD students, from friends, from families. And the truth is: the more people they ask, the more information they gather, the more difficult the decision becomes.

After our discussion with mOOm about the value of a graduate degree and seeing the struggle many of our friends are facing, I decided to draw a decision tree to help people go through the process. This is, by no means, a replacement for advice from an academic advisor, or your career development help center. This is just my little game to find out whether what I learned in textbook can really find some use in real life.

I am not an engineering and science major, but I find PhDs in engineering and science often face a more complicated choices. They can choose to do a post-doctoral fellowship, just like residency for MD. People from economics or business school normally do not have to go through this. So I decided to draw a decision tree for Sisi, a fresh PhD from science and engineering.

Sisi got her PhD in applied math from a top school. As a fresh PhD, Sisi does have some options, and that’s exactly what she and her family are struggling with.
(1) She can get an assistant professor position in a 2nd or 3rd tier university right now, which pays about $60-80k.
(2) She can work in the industry, which pays six figures right away.
(3) She can wait for another year or two as a post-doc fellow, and shoot for a faculty position in a1st tier university.

Here is a very Simplified version of a pseudo-decision-tree.


Two main reasons make this tree "pseudo". First, Sisi is struggling with assigning probabilities to each branch. What’s the probability of getting unemployed in 2 years? Sisi had a friend who joined a very big and profitable company 2 years ago, and come back to school now due to company re-structure. What's probability of building a successful business of her own? Go to any bar in Silicon valley any day, Sisi will find 1/2 of people there dreaming of building another google, or at least a youtube. But we had only one Google, one youtube. Sisi believes that she has a technical edge to build his own business, but how can she assign a probability on this?

Second, Sisi puts only monetary value in stead of utility on each node. What makes this decision even more complicated is that Sisi and her family assign different utility to each outcome. Sisi’s husband wants her to go to a 2nd -3rd tier schools, so she can has less pressure and get a baby soon. He also puts higher utility on going to industry, since he has the same dream as a valley girl and wants Sisi to join him.

However, as a female who window-shops designer clothing from time to time, Sisi puts higher utility on "brand names". Practically speaking, option-3 is the least ‘economical one. Doing a post-doc costs another 2-3 years with minimum pay. After that, if she gets to a 1st tier university, the pay is generally lower than 2nd tier university. Top universities always have higher bargaining power, in accepting students, in recruiting faculty. However, how many 1st tier universities can you find? Supply and demand determine the price. If Sisi wants to get the brand equity of 1st tier universities, Sisi has to pay the premium. Sisi is ready to pay for it, her husband is still hesitating.

And as a female, Sisi puts higher utility on security (on this part, Sisi is not alone ). Getting tenure in whatever university will give Sisi's family low but guaranteed income and legal status. As immigrants without a green card, Sisi’s first priority is: Security! Security!! Security!!!


Still, the problem of assigning probability remains. I know that many fresh PhDs are facing Sisi's decision tree. In fact, many friends of ours are on the same boat right now. Assigning these probabilities requires experience, across time, across people. I hope that senior readers who have experienced all these can help Sisi fill in the probability in the tree. If we can get a large sample, the law of large number will work for us.


TIA!

• Mint posted on ways to reduce your expenses.
• Free Money Finance talks about why shopping with a list is important.

I made it through Puppy's vet appointment with a cool head. I did NOT put it on my CC, I did NOT purchase the flea prevention they were trying to "push" on me because I knew I could get it cheaper elsewhere, AND the whole thing was about $100 cheaper than I thought it was going to be. I also talked them into giving me until next week to see if it's time to clean my other puppy's teeth. They are having a 50% off special until today and I did not receive the flier in the mail. The head technician told me I could decide by next Friday and they'd give me the special. It's a once a year thing and I'd like to take advantage of it because he does need his teeth professionally cleaned.

I've been tweaking my budget this week. I love the paycheck calculator in my sidebar and because of it I figured out that I was under-guesstimating my take home pay per payperiod. I now have more money and have been able to include in my bi-weekly budget, without feeling stressed, the ability to purchase clothing for myself. I'm slowly losing weight since my surgery, and I was concerned about where the money was going to come from to replace my larger sized clothing without breaking the bank. If I continue to lose at the pace I'm losing then purchasing a top or pair of pants, that will coordinate with what I currently own and can still wear, won't break my budget. Like every other money issue in my life I had no idea I was stressed out about this until the stressor was gone.

I thought about selling my "old" clothes, because they're in very good condition and I buy top quality clothing, but I've decided to donate them to a place that helps women get off welfare and find employment. I am a plus size lady (for now) and I know how hard it is to find quality, affordable clothing in plus sizes that make you feel good about the way you look at work.

While this is not something that I am going to have to worry about since I'm starting my college savings early, that is not the case for everyone out there. Here are 14 proven ways to get financial aid from NextStudent

1. Search Far and Wide
2. Apply, Apply and Apply
3. Remember Cutoff Dates
4. Go Local
5. Be Careful Where You Put Your Money
6. Network
7. Look into Fellowships and Grants
8. Match up Your Interests
9. Serve Your Country
10. Look to Your Roots
11. Go Rural
12. There’s Always Begging
13. Try Again, Ask Your Parents for Help
14. Don’t Fall Behind

Of course, the best strategy is to start saving early so you don't have to worry about any of this when it's time to go to college ;)

This website is just another financial blog started by a 23 year old. I'm fresh out of college with a little over 1 year of experience as a software engineer. I enjoy reading other financial blogs and keeping up with the latest and greatest, but I am definitely no financial guru. Websites like www.woot.com and money.cnn.com are just a couple examples of sites I have to check on a daily basis. I am money conscious, but I am not as frugal as most of these other financial bloggers. I love to save money, but I'm not afraid to spend it either. I love to snowboard, ski, golf, surf, play computer games(i'm a nerd), and spend time with my lovely girlfriend. This blog was mainly created for myself to keep track of my goals and to learn from others. Hopefully it will help you too and maybe you'll find something thats useful.

A few years ago, FACTA (Fair and Accurate Credit Transactions Act) was passed offering free access to one’s credit report [once per year per agency]. Unfortunately, free credit scores have not followed. A credit score is viewed by many in the financial world in the same light that a GPA is viewed by many in the academic world (the usefulness of both those numbers are widely debated, but we’ll save that debate for another day).

Yesterday (3/28/07), VISA launched a new website targeted to college students and young adults called What’s my Score (http://www.whatsmyscore.org). The financial resource is designed to help individuals understand credit reports and scores, and take control of their financial futures. “Money Guides” are available, covering topics from saving for college, student loans, renting an apartment, and buying a car. You may find their information helpful (others may be a little cynical due to the source); regardless, part of the site launch was a deal struck with Fair Isaac (the company that created the most widely used credit score – the FICO score) to provide free credit scores to the first 5,000 students wanting to check their credit score. To receive the free score, go to the site above, or click to walk through a 15 minute tutorial/quiz on credit basics, credit cards, and building credit. Once that is completed, you’ll be given a code and link to myfico.com which you can use to order the score [that will be free by using the code]. The following link will walk you through the process of ordering your score after getting your code.

After getting your score, you can “break the code” at: http://www.whatsmyscore.org/break. In addition, past financial tips as well as the OFS website provide additional credit resources. MyFico is one of the best resources on the web for credit scoring. E-loan was the first site to offer access to your credit score for free, but it does require that you create a log-in [provide some personal info] to get it [and you can only do it once]. A free score estimator is also available at the What's my Score site.

The truth is, credit scores are no longer the big mystery many make them out to be [although it wasn’t long ago that they were]. I’ll write next week more about what credit scoring is in a follow up to this tip … after all, here at MU, we’re on spring break!

Well, I am into the third month of my budget, and I decided to see how things were going. Things look OK, but here are a couple of areas that have varied from the goal. (but the net-net is good)

1) The budget for Pennachuck Water is $75 per month, and the January bill of $124 really shocked me. But this was a bill that included all the water used by all the people who were here after the funeral. The Feb bill was down to a nice $49.93 and March came in at $43.67. It looks as though I might have over budgeted there.

2) Verizon Wireless was a similar thing. I have $115 per month on the budget, and the January bill came in at $124.77. That worried me, until the February bill came in at a reasonable $95.86. It was the combination of several things. Increased calls in January after the funeral. Then I forgot that we would be returning a phone and therefore lowering the monthly bill by $20.

3) The Vonage bill came out the opposite. I had initially thought I would junk the service and stick with the cell phone only. Well, I have kept the Vonage so far...at the $17.95 level rather than the Skype $1.55 per month cost.

4) I actually had one unanticipated house expense in repairing the hot water heater for $100. Actually, it was in the budget as I have a $50 a month of house repair.....so I suppose it was in budget.

5) Fuel for the car was a big problem for the budget. I had $117 in the budget and spend $251! Yikes, fuel did go up in price, but I am not sure what happened since last month I had spent $98.00.

Those are the big differences....I will keep the budget as it is for now. A few more months will tell.

BTW: I think I am saving heating fuel but can not tell because I am on a fixed budget. Time will tell with that.

It’s curious to see a resurgence of this concern coming not from the usual suspects (hedge fund managers threatening to close to new investors), but from outside the industry: in the 130/30 arena.

Weddings are for celebrating love--but the open bar at the reception is an oft-cited perk for guests.

My fiance and I are in great accord about many things, but the open/cash bar decision took quite a lot of discussion. It's funny, because neither of us are actually drinkers.

I am with Miss Manners--one does not require guests to pay for anything. If you don't want to pay for booze, don't serve it.

Fiance has a different view. He doesn't want to bankroll people's benders, and if there's a open bar, people will drink a TON. But he also swears that his family will riot if booze isn't available. Probably so would my sorority sisters.

So we have decided to go with a cash bar (except for the champagne toast, which is included in our wedding package). I am more interested in making him feel comfortable than in obeying strict rules of etiquette, but I feel awfully defensive about it--like I should have to explain that we're not being cheap, I swear!

This is the first post in my series on cheap dating. I’ve titled the series “Cheap Dating for the Rich at Heart,” mainly because I love a cheesy title when it comes to something romantic. Every Friday I’ll post a cheap dating idea for you to use over the weekend and offer a small “guide” into making that dating idea a reality. If you put one of these ideas into practice, please let me know! Just use the “Contact Me” option on the right!

This week’s idea is a classic one for the guys out there - take your date on an unexpected picnic! Let’s just be honest here, if it’s completely unexpected, this will improve your standing with the “lucky lady” by leaps and bounds. You get the kudos of a nice meal at a fine restaurant and an unexpected bouquet of flowers for pennies on the dollar in terms of costs.

Other than food and beverages, here are some general things that you’ll want to bring:

Blankets and Pillows (Unless you’re using a bench or rock - figure this out BEFORE!!!)
Plates/Napkins/Utensiles/Cups
Condiments
Trash Bag
Music (optional)
Something to clean hands

The best part of a picnic is that you get to control all the costs because you pick the place and what’s being served. Since both are VERY crucial to making this frugal date work, let’s look at each individually:

Place:
Naturally, we’ll assume that you’ll try to pull this date off when the weather’s pleasant. The typical place would be a local park, but you might want to think outside the box a bit - if you met in high school, perhaps somewhere on the campus of the school? If you’re just going to goto a park, make sure to use Google Maps (http://maps.google.com) to best locate where you’re going to have the picnic. There’s no suave way to pull off driving around lost or asking for directions. You want this to go smoothly, so you might want to make sure you know of where the place is BEFORE the date.

What to serve:
Really you can serve just about anything! Here are a few websites that will offer ideas if you want to try and whip up something special for the date:

Easy Picnic Food [Cooks.com]
Picnic Recipes
Memorial Day BBQ Recipes [Razzle Dazzle Recipes]
If you decide to try this cheap date for the rich at heart, I hope it goes well! I’d love to hear your stories about this date, and any other frugal dates that you may have been on recently!

Moom started his Asset Allocation Series. So I guess it is not surprising for him to write about Emergency Fund (EF), and introduced us to English Major Money's (EMM) post. This was also our first time to participate in Carnival with a post on getting more tax returns for international students. I happened to find a controversial post by "Broke Now, Rick Later" (BNRL) in the Carnival. So I will share my thoughts here.

First, no emergency fund needed? I have to say that I admire BNRL's courage. For a single-income household with 2 kids and a mortgage to pay, he has extremely low liquidity of $282. And he was advocating NO emergency fund needed. Make no mistake, he is stacking away 20% of his income in retirement savings, which is unlikely to be ready available for emergency. So he is trading his emergency fund as extra investments in retirement account. Before reading his post, I thought there were few people as described in moom's comment. Now I think that there might be quite a few.

BNRL has 50% income to cover monthly necessities and 20% for retirement account. Considering tax withholdings and other expenses, the remaining 30% is unlikely to have any significant portion left. BNRL argued that you can always count on 0% APR installment payment combined with a delay in payment to pull the cash you need from either your salary or disability income. However, he maybe forgot that sometimes, "when it rains, it pours". What if there were two or three unexpected on his list on going at the same time?

Second, how much emergency fund do you need? I stand by the standard recommendation of 3-6 month expense and suggest everyone to look at his/her own situation like EMM did. The amount will depend on both your needs and your risk attitude.
Needs (expenses): take a look at the monthly necessary expense. For renters like Jacqui and I, ours is less than 20% of our gross income. Two months' salary gets us covered for a year.
Risk attitude (or personal preference): remember, everyone get unlucky some day in life. That's why we're paying for health and car insurance. I am very conservative, thus, may want to insure for situations of very small probability, say three or four unfortunate incidents happening at the same time; you may be more optimistic and want to just insure up to two. However, you really do not want to have no or poor preparations for them as they do happen.

Last, I think having an EF is one necessary step for anyone to get started on investment and retirement savings. I will share my experience later.

The first month after I graduated from college, I racked up a monstrous credit card bill. I think it was in the range of 2 and a half thousand dollars. It was a big deal. When I wrote Discover card my check, and I did this manually back then, I remember looking at it and thinking.

OMGWTF!

Nowadays, I do the same thing. Except with far larger numbers.

For example, my 28 thousand dollar car which I bought with NO money down. Thankfully, it was a 0% interest loan which only added up to $755.16 a month for 3 years. That's all paid off now. :- )

But now, I have a house that costs over 10 times that much with a mortgage that basically takes my income and spits back half at me. At least my car is warm in the garage every morning. This will pay off in several years...I hope.

My currently high overhead isn't a sign of wealth or success, but of a reality that things are just damned expensive. Today is a stark reminder that I've arrived in a place that isn't at all conducive to saving up a lot of extra cash. Today was tax day, I did my math and I've reached a sad conclusion.

My checking account balance is pictured below. And yet, I am waiting for my paycheck which is due in 2 days before I can write my 2 checks. :(

I wish I were as shocked as I was back when I wrote than 2.5K check. But some things become clearer in time.

Lest my personal-finance blogging imply I have all of our financial matters nicely in hand, here's a fun cautionary tale about how I firebombed David's bank account.

Because David and I have separate checking accounts and budgets, we each pay in each month to pay off the charges we've run through our main credit card, my Amex. I use Amex's Pay Online option, which lets me directly debit money from linked bank accounts. Two weeks ago, I sat down to pay David's portion of this month's bill. I calculated what he owed, cleared the amount with him, typed in the amount, hit the "pay" button, and clicked on "confirm and pay."

As I whizzed past the confirm screen and said yes yes pay, I realised -- literally the second I was hitting the button -- that I'd put in an amount almost twice what I actually intended to put in. An amount substantially greater than what David actually had sitting in his bank account.

I caught the mistake the instant I hit the button -- but by then, it was too late. Amex's online payments are instantaneous. Once you've confirmed, you can't change or revoke the payment.

I got on the phone right away to Amex's customer service, which threw up its hands and said to call Citibank and arrange a stop-payment.

Citibank's customer service center is in India, and is impressive in its level of cluelessness. Dealing with them has rarely proved helpful, and this experience was no exception. The center put in a stop payment order. A week later, we learned -- painfully -- that Amex payments don't work like typical check or debit payments, and can't be halted with a stop payment.

This whole mess was compounded by David's lack of access to his account info. In a separate incident, he lost his debit Paypass keychain thingie right after my payment debacle and had to cancel his debit card and get it reissued. Doing that temporarily cut off his access to Citibank's online banking site -- meaning he couldn't check and see what happened with the Amex charge. It took more than a week for his replacement card to arrive.

When it did, Tuesday, David hit the ATM and found that his account appeared untouched: the Amex payment had apparently bounced or been stopped. Figuring we'd worked through the mess, I went in that night and put in another payment on Amex's website, for the amount I'd originally intended to pay.

Insert hollow, dark laughter. Yesterday morning, David found his account hugely overdraw. So, instead of dealing with the Indian call center, David went to a Citibank branch to ask: What happened?

The original Amex payment was never stopped. It can't be. Online payments of the sort I made are apparently handled as direct electronic transactions between financial institutions, routing through the Federal Reserve system. If a payment doesn't go through because of insufficient funds, it tries again. Three times.

So, we now have the original payment making its second or third attempt to go through, plus the second payment I made last night starting its attempts. We're even further into the hole than when we started. And presumably every time one of these payments fails, it will generate another bounced transaction fee, on both sides, from Amex and from Citbank. Amex already socked us with one $38 fee for the first bounce. I'm praying each subsequent bounce won't incur another.

The obvious way to solve this mess is to throw enough money into David's account to let all the Amex payments suck out the money they're trying to. But, er. We lack the cash. My clever plans to create an emergency fund haven't actually come to fruition yet, partially because taking just five credits this semester
(I'm almost finished, yay!) killed my ability to get loans and all my free cash is temporarily tied up paying for the credits my company will soon reimburse. So, for the moment, we're just kind of financially screwed.

I think we can dig mostly out of the hole with this Friday's paychecks. It'll be months before I crawl out of the guilt hole, though. I owe David lots of extra niceness in return for temporarily completely destroying his bank account :(

The most well documented aspect of the super changes. From next Financial Year, Pensions paid from super and lump sum super withdrawals will be tax free if you're aged over 60. However, this isn't where tax in super ends. There is another tax, the "death tax" when the 'taxable' components of pensions/super are paid to non-dependants when someone dies, they are taxed at 15%.

Now, the definition of a dependant in this case is basically spouse or dependant child, under age 18, which generally means that those of us who have Boomer parents transferring their assets into super, are not going to see everything when our parents unfortunately, but inevitably depart this fine planet.

However, given that super benefits can be withdrawn tax free over 60, those who unfortunately die slowly, are able to withdraw their entire super benefits before they die. However, those who probably more fortunately die quickly do not get this opportunity.

This needs to be changed. Time for the Government to remove this 15% death tax. On one hand they are trying to make people put as much as they can into super, but aren't providing the estate planning benefits. Assets held outside of super can be transferred to non-dependants with no tax liability (however the recipient inherits the original purchase date & price).

John Howard and Peter Costello, time to provide something for us younger generation. The generation who's vote doesn't seem to be important to you. You can't buy our vote on the low interest rate lie this election.

Until then, the benefit of a slow and painful death will only be the tax savings one can provide to their children.

Amidst all the constant talk about the housing bubble deflating these days, I’ve been asking myself the following question:  is it easier or harder for my generation to buy a house than my parents’ generation?  The sneak peak answer is yes, a lot harder!  To answer this question, I found some historical average housing price [...]

Even at my young age, I can see the benefits of making personal finance a required course in both high school and college. This was the subject of an piece at the Daily Trojan college newspaper:

While a student can't earn a bachelor's degree from our fair university without taking courses in writing, global cultures and scientific inquiry, the essential subject of personal finance is totally absent from the curriculum. With all due respect to the academy, understanding how to manage money will be far more important to most upon graduation than understanding the sexual rituals of vanishing tribes in Papua New Guinea...

Some may argue that a school nicknamed the "University of Spoiled Children" wouldn't need to educate its students about money because they already have it; however, the problem with many spoiled children is that they've never known how to make it. With expenses reliably placed on parents' credit cards and the word "budget" absent from their vocabularies, students used to relying on an expense account while in school may face a rude awakening when they become independent.

I'm all for basic financial education for all and I hope that this isn't even a topic of discussion when I reach college age.

I went to Barns and Noble bookstore tonight and I came across this book. I flipped through it, and thought it was a very interesting book.

It isn't written like a typical chapter book as it is written as "100 Golden Behaviors" for gaining and using wealth.

The rules I flipped through seem to present a very common sense approach...yet there are so many who don't have that common sense as their base. A reference book like this might be ideal.

I am going to Amazon and ordering it as a used book. It looks interesting.

A new tool, FAFSA4caster will soon be available (starting April 1st, 2007) to help you sort out how much financial aid you can expect to receive when attending college. From the site, this tool lets you do a couple things:

• Instantly calculates a student’s eligibility for federation student aid, including grants
• Reduces the time it will take to complete the FAFSA
• Simplifies the financial aid process for students and their families

This tool is definitely a step in the right direction. When I applied for financial aid (seems like ages ago), there was no way to predict how much aid you would receive. With this tool, you can be better prepared and more realistic in your financial planning for college. If you try it out, let me know whether you think it was helpful.

I made a few small trades this week. On Tuesday, I sold J. Crew (Ticker: JCG) at $39.98 generating a measly return of 3.57% and I used the proceeds to add to my Apple, Inc (Ticker: AAPL) position at $95.66. And today, I picked up a few shares of Volcano Corp (Ticker: VOLC) @ $18.14. I didn’t know much about Volcano until Jim Cramer mentioned it three weeks ago. Then in today’s Investor’s Business Daily, they had a write up about the company and I really bought the story. It’s a small cap company focusing on intravascular ultrasound (IVUS) products. They basically manufacture tiny cameras used to direct the delivery of coronary stents. The placement of the stents is critical and Volcano ensures exact placement. The analyst expects the company to lose 12 cents in 07, but generate a profit of 12 cents in 08 and 36 cents in 09. I shouldn’t be buying right now, but I couldn’t resist this one. Hopefully, this Volcano won’t blow up on me!!!

Here's something I meant to talk about a while ago: my CIBC Visa statement is now showing spending categories. This way I see how much we spend on restaurants, groceries, etc. every month. There are a few mistakes sometimes in terms of what gets allocated to which category but overall it's pretty good. I find this really helped me get an idea of where my money is going. It really works well for me because I put EVERYTHING on credit card (to get all those Aeroplan miles :-). I also always pay my card in full every month.

Why is this so good? You see, the thing is I don't like to do a budget or track my expenses. I pay myself first (investing, travel money), then my bills (mortgage, VISA) ... I try never to spend more than what I have in cash. I buy my cars used and pay them cash, etc. So far, this has worked really well for me but it's not for everybody. In my case, this gives me more time to do stock research for example instead of spending countless hours playing around in Quicken to track all my expenses. It really helps that my wife and I have the same spending habits and we're not impulsive buyers. We spend a lot on travel and restaurants, but so far that never busted the bank :-) Although I won't stop buying lattes, maybe cutting on 50% of the restaurants would make me save a good 200$ a month.

I know a lot of you are budgeting out there so what am I missing that would really help me save more money?

I have been looking at lots of credit card offers lately. I am currently use Citi Premier Pass for any plane tickets I purchase, and use Citi Professional Card for all other purchases. I also have United Mileage Plus and Discover, but those just collect dust. Before things get crazy with the school starting, I would like to streamline my credit cards to make sure I am getting the most rewards possible. The APRs are non-issue since I pay my credit cards in full every month, aside from the 0% BT offers.

Here are the situations with the credit cards I've listed above:

1) Citi Premier Pass: I really like this card because it allows me to earn miles through various mileage programs on top of earning ThankYou points, which I redeem for gift cards. This card is at the basic level that has no annual fees, which means that I receive 1 point for every dollar spent and 1 point for every 3 miles flown. I am going to switch to the Premier Pass Elite Level , which has a $75 annual fee but also receive 1 point for every 1 mile flown. Apparently, even just in 2007, I have flown enough that the upgrade would be worth it. And since I will be attending a school out of state (this is a given), I am sure that this upgrade will be worth it, at least for the next two years. The card also speaks of this "unlimited companion travel" but who knows what that means? I am not sure if they will just transfer my current account to this upgrade, or if I can cancel this card and upgrade to it, which would allow me to earn extra 15,000 points (or $150 in gift cards).

2) Citi Professional : I applied for this card to get the $100 gift card and just kept on using it. I think the year that I signed up, you were still able to receive 5 points for every $1 spent at grocery stores, drug stores, etc for the first year. Now, it's down to 3 points. I plan to definitely chucked this one, since I feel like I can get better rewards elsewhere. I am currently looking at Citi Driver's Edge Platinum . Currently, I don't drive enough to get the full benefit from the program (my car is now 6 years old and has less than 65k mi on it), but I think I will get more out of it than with the Professional card.

3) United Mileage Plus : I got this card because after all my traveling during a study abroad program, I earned a lot of United points. I liked this card when it was owned by Bank One because the company waived the annual fee whenever I called and asked. Now that it's run by Chase, they no longer do that. They also used to offer more free flights for less miles so I feel really cheated by Chase. I downgraded my card to the no annual fee and $1 for every 1 mile option, but I just have the card so that I can make one purchase a year to keep my United Miles active. Also, I have the longest credit history with this card, which I don't want to drop. I do have a ton of flights coming up in the next year (a friend's wedding in CA, my sister's graduation, a friend's wedding in MA, a friend's graduation in VA, a possible friend's wedding in Japan, then trips home) so if any reader has any suggestions on a card that allows you to earn the miles fast, I'd love to get some recommendations.

4) Discover : I signed up for this card to use for a 0% BT and haven't used it since. I am most likely going to drop this card because this revolving-5% money back thing requires too much remembrance on my part. And I'd like to just open a different card to take advantage of more 0% BT offers.

I have some time before I take action on these, since I want to find out if I need to apply for any non-university or non-federal loans to fund the next two years. Has anyone used Capital One? What are your reviews?

iwillteachyoutoberich.com posted Part 2 of Personalized tax answers. There are some great detailed questions there. Also, check out Part 1 if you missed it.

Just read my money blog (MMB) expenses. As a housewife, the first thing I noticed is grocery spending. MMB's budget for grocery is $300, dining out is $250. Last year, our budget for grocery was a poor $250. I hit budget several times, which made me very unhappy. I consider myself a deal shopper, which is one of the attributes of a "good" housewife (my definition). When MS Money showed that I always hit budget for grocery shopping, I felt… hurt!!!

So I negotiated with Yannick to increase the grocery budget to $300 this year. I know this is a little like "cheating", but at that time, psychologically, I really need it.

Now, reading MMB, I just found a new solution to solve the budget problem. Our dining out expense is almost zero! I am attributing this to my successful grocery shopping --- I do not just shop for deals, I shop for deals of good quality products. I feed Yannick with premium food from organic food store, so he does not want to dine out any more!

I presented this argument to Yannick immediately, and got an instant budget re-allocation approval-- we will allocate $100 out of our $150 dining out budget to my grocery shopping! Now, I will always spend below budget. "Exceed expectation", that's the review I want to get for my work!

My next mission--improve my cooking skills. I heard that many famous chefs actually used very common ingredients -- such as Heinz ketchup, Morton salt…Why can't I? Someday, I want to hear Yannick saying: "I would rather have Jacqui's cabbage soup than Arby's roasted beef burger" (he sometimes indicates that he wants to go to Wendy's, but dismissed by me for "health" reasons. :-)

Improving cooking is one of the most rewarding investments a housewife can make: it keeps the family stay at home, it keeps the family healthy, it keeps the family money in the investment account grow... it keeps the whole family happy!

a study released last month tries to “spot the difference” between mutual funds and comparable pension funds with the same mandates.

I love reading articles that make a case for doing something completely opposite of what you’d expect. It’s not that I’m a contrarian at heart (though some say I am), it’s because I think when you’re presented with options, you’ll behoove yourself to truly know the advantages and disadvantages of each. I also think that when given a clear cut choice that’s best for you, you gain a better understanding and are more likely to stick with it if you fully understand the choice you’ve made.

That’s what I had in mind when I wrote:

Are you saving too much?

Does giving to charity hurt your bottom line?

From reading books and blogs dealing with finance, I see a lot of ideas thrown out there with very little critical analysis behind them. That’s not to say that the advice given isn’t correct, because a lot of it is. But you have to wonder how much of the information we receive relating to pretty much anything is just a large collection of group think. How many articles do you see that quote to another article? Almost every single one! Then you go to the original article and end up finding that a lot of the analysis in it is pretty weak.

I’ll be honest with you, I’m guilty of it too. It’s really easy to piggyback on the writing of another and produce a quick and thoughtful post. I’m sure I’ll still do it sometimes, but with this blog I really want to try and break through a little bit and present other sides of arguments that other writers, pundits, and bloggers have put out there. I think one of the important skills we’re losing in our society is that of critical thinking. We depend so much on other telling us what to do that we’ve lost the ability to do it ourselves. So, my goal is to make Kirby on Finance a bit more critical, not really in a viscous way, but in a way that will hopefully promote thought and conversation. I hope you’ll continue to visit, come back often, and if I light a little fire up under you, you’ll become a bit more critical yourself!

It's been about 28 years since I last bought a new car. Since then I've always bought used. Anyway, you go into these things expecting all the stereotypes you like you saw on Fargo, or see in the news and magazines. High Pressure, smarmy sales guys ready to pounce on you and sell you a bunch of extras you don't want, etc.

So today I went down to the local Chevy dealer during lunch time to take a look at some Impalas and get some info. A very pleasant experience. This particular dealership told me up front they are a no haggle dealership, and the experience was very low pressure. The sales guy was helpful, asking what I was looking for in the car, trying to show me what they had in stock that might be helpful. I had to look at 4 different Impalas to see various features I was interested in, as they had not 1 even close to what I wanted.

Still, I spent some time talking with Medy, the sales rep, and he said they could always get one from somewhere else or even order one from the factory if I chose to. He gave me a quote on my ideal Impala based on the options I wanted. I matched what they quoted vs. Edmunds.com. Edmunds was spot on! The MSRP was exactly what Edmunds quoted, the dealer invoice was what Edmunds said it was, and the average selling price that Edmunds had was very close to what the dealer offered me, with the dealer beating it by a hair. The deal had a tag in the front window with how much they were discounting off of MSRP. That amount left them about $650 $560 in dealer profit on a car they sell for $22,500. I think that's a fair deal, if not an outstanding one.

Still researching. Need to check out the Ford Five Hundred and also Chevy's at another dealership not too far away.

It's been a while since I posted but I'm happy to report that we are debt free! Over $62K in 20 months. So after paying off the debt, we are back down to having about $2K in the bank. Though this is a little unsettling, we can quickly save some money to boost our savings.

So now that we have everything paid off, our next goal is to save 20% down for a house. Since we live in West Michigan, the cost of living is pretty low so we could probably get a great home between $130-160K. We have been casually looking for a house but we have not seen anything that has peaked our interest in years. There's a HUD home going on the market soon so we might see what it's all about.

The one thing about paying off debt, it feels good but then your focus gets a tad off because everything is paid off...then you're back to saving for something else, our case is a house. I just hope that we stick with our intensity and our focus does not stray.

Paypal and Equifax have teamed up to provide a free ID theft monitoring system. Here's what it says it does

Early warnings. Automatic notification through email, in the event there’s a new account opened that impacts your credit file or a significant balance change to one of your existing accounts.

To sign up, go to Paypal and then find the link on the page that reads "Free Alerts to Help Protect You From ID Theft." You'll be taken to another page where you'll see the icon to Get Equifax Credit Alerts. Click on that and then fill out the forms and create an account at Equifax. Again, this is free, although they do offer a full featured credit monitoring system option that you are free to turn down.

Seems like a good service that will cost you nothing.

In case you don't already know, Web 2.0 is starting to provide what we all thought the internet was going to provide back in the dot com boom of the late 90's. From Wikipedia "the phrase "Web 2.0" hints at an improved form of the World Wide Web; and advocates suggest that technologies such as weblogs, social bookmarking, wikis, podcasts, RSS feeds (and other forms of many-to-many publishing), social software, Web APIs, Web standards and online Web services imply a significant change in web usage."

Ben Barren brought to my attention the lack of Web 2.0 within Aussie Finance sites. The major broker's could really gain an advantage over the rest of the market if one of them embraces Web 2.0. I use Commsec as my share broker and the site really is, like Ben Barren has said "stuck in its 1999 user model".

The US sites Ben has listed are quite interesting. I'm yet to come across anything in Australia that provides this portal type aspect. Even the two major internet forums that I have come across, HotCopper and Sharescene really lack the "social" aspect that I have come to expect from these types of sites.

Why are Australian Finance sites yet to embrace the new type of web? We no longer want sites to tell us what to see, we want to be able to customise and tell the site how and what we see. I fear that the sometimes lack of common sense legal system would mean a financial planning site like Wesabe would soon be shut down by ASIC due to the the laws around non-licensed people providing advice, and the paper trail that follows a licensed person providing advice, even if its only general. Or perhaps the nerds are too busy making money investing to worry about designing websites that most likely won't provide huge amounts of revenue!

• Keller Williams Realty's International Team Leads Technology Revolutio
  International luxury properties get marketing boost via podcasting technology.

On the family tree of modern investment management “LDI” and “Portable Alpha” are first cousins. Unfortunately, familial affection doesn’t necessarily go both ways. But LDI is doing fine, thanks.

Bloglines will be performing some system upgrades on Thursday, March 29 from 8:00pm-11:00pm PDT. During this time, the site will not be accessible. We apologize for the inconvenience and hope to be back up to speed shortly.

-The Bloglines Team

Yesterday I wrote about the pitfalls of emotional investing. I view emotional investing as the psychological consequence of our own weaknesses having exposing themselves. Emotional spending and investing are created by our own perceived weaknesses, but just as a perceived weakness can cause us to handle our money poorly, so can an unreasonable perceived strength - an ego.

I’ve been guilty of it myself - a couple solid stock trades and I think I’m the next Jim Cramer. Shoot, I’ve been known to feel a little bit like David Bach after I have a good month with staying on budget. This isn’t to say that being successful isn’t worth patting yourself on the back, because a little self-congratulating is always helpful when you’ve put a lot of work into something.

The problem is that when a little self-congratulation takes the form of an ego, we tend to make careless errors on a much bigger scale than we would have before we picked up an ego. If it’s dealing with finances, we may decided that we can make a bigger ticket item purchase because we can “budget” it into making sense. If we’re dealing with investing, we may decide to get after an even more speculative stock because we’ve “gotten good” and finding the needles in the proverbial investing haystack.

The trick is to stay grounded. This means being accountable with yourself at all times. I’ve found the best way to stay grounded after any form of success is to give myself a fair assessment of what I did right, but always find areas to improve. I know this sounds like a real bummer, but if you can let yourself enjoy success but never be satisfied with it, you’ll set yourself up for even greater victories in the future. Of course you can take the time to smell the roses, but think about it - successful people in vastly different areas are never satisfied with the successes they have, they just don’t let it go to their head. Think about Tiger Woods, he keeps winning, breaking records, but he also keeps finding areas to improve. It’s really no surprise that he’s consistently at the top of his game is it?

I've had new car itch, and I've been looking up new cars like crazy on the web. I've noticed two things:

1. Cars are like cell phones. They keep adding on more features to keep the price up.
2. You basically get more car now then before for the same money, after inflation.

In November 1979, my dad and my 16 year old self went out car shopping for my first car. We both knew I needed something cheap and reliable. We settled on, and don't laugh, a brand new 1979 Ford Pinto. The sticker price was $5,800, but my dad being the former car salesman knew that this particular vehicle had been on the lot a long time as they were well into the 1980 year sales, so he bargained them down to $5,000. Thus I was the lucky recipient of a Ford Pinto with luxuries of automatic transmission, Power Steering, Power Brakes and AC. Well, recipient wasn't the word. I paid for almost all of it over the next 3 years. I drove that car to death selling it 10 years later with 138k on the odometer.

Anyway today using internet searches I looked for the most likely equivalent of a Ford Pinto and settled on a Ford Focus hatchback. I went on Edmunds and equipped it with at least what the Pinto had, including Automatic Transmission. Of course it comes with much more standard than the Pinto ever did. The Average selling price was $14,228.

Next, I went to the governments CPI calculator and asked what $5,000 is 1979 is equivalent to today. It came out to $14,015.

I think we can all agree that the Focus is a far superior vehicle. I've rented one and was satisfied with it. It also has more luxurious standard features. So the lesson here folks is we are getting much better equipped cars, better performing (trust me, the Focus performs far better than my gutless Pinto ever did), and safer (remember the infamous exploding Pinto gas tanks) cars than at least in the late 1970s, for roughly the same price.

I know many of you are waiting for the next dose of subprime mortgage madness…don’t worry…it is coming. I have been out of town quite a bit lately, and I am going to be gone a bit more. Don’t worry though, you aren’t going to miss anything as this mess is going to take years [...]

Affiliate marketing is a well known way to generate revenue on the internet. Google “affiliate marketing” and you get back over 35 million results! And according to Wikipedia, “MarketingSherpa’s research team roughly estimates affiliates worldwide will earn $6.5 billion in bounty and commissions in 2006.” So if that estimate is correct, I’ve earned about 0.000000012% of that so far this year.

I’ve been working with Commission Junction. In the past, I only had links here on my blog but now I’m branching out. You have noticed that my posting frequency has been low lately. That’s partially because I’ve been creating a few content sites to draw in leads and hopefully generate some money. Over the last few weeks, I have also been doing search marketing, which has really been paying off for me.

The hardest part is finding a good product to promote. After that the next hardest part, for me, has been finding good keywords to bid for that aren’t overpriced. It takes some patience and strategic bidding, but once you find the right mix you can really start pulling in the clicks which, of course, leads to revenue! I am promoting 3 primary products.

Want to read more about affiliate marketing? Check out these posts on ProBlogger.net: Affiliate Programs for Blogs and Affiliate Programs - Commission Junction. This article by Shoe Money helps you decide which product to promote.

Have a blog post about affiliate marketing? Link to it in the comments below.

Technorati Tags: personal finance, business, investing, affiliate marketing, commission junction

A popular article on CNN.com talks about modern-day millionaires. And to that, I say: Who just wants to be a millionaire? The term has lost all of its cachet. Not to say that millionaires are losers; obviously they're doing much better than most of us.But it certainly doesn't mean what it used to.

The Oxford English Dictionary lists the first documented usage of the word "Millionaire" coming in 1816 from George Gordon, Lord Byron: "He is still worth at least 50,000 pds being what is called here a 'Millionaire' that is in Francs and such Lilliputian coinage." It is interesting that even back then, there was a question over what might truly be considered a "worthy" millionaire. Obviously currency conversion rates can wreak havoc with the term. you can be a Yen millionaire for roughly $8500. That's a pretty low bar to pass.

So, what's your own definition of a millionaire? Personally, I look back to roughly 1900 to 1920. The age of Robber Barons and The Great Gatsby.... the age when the term "Millionaire" was extremely impressive. Using the Inflation Calculator we can see the following current values for previous millionaires:

• 1900 Millionaire: $23.3M 2006 dollars
• 1910 Millionaire: $21.6M 2006 dollars
• 1920 Millionaire: $11.3M 2006 dollars
• 1950 Millionaire: $ 8.2M 2006 dollars
• 1970 Millionaire: $ 5.3M 2006 dollars
• 1980 Millionaire: $ 2.7M 2006 dollars
• 1990 Millionaire: $ 1.6M 2006 dollars

Based on this, I'd have to go with the nice round figure of $10M to be what I would personally consider to be a "modern-day millionaire." That's the kind of money that you can't get by being an extremely frugal teacher or janitor like those described in The Millionaire Next Door (the very fact that there can be a "Millionaire Next Door" is an indication of how much the term has slipped). That kind of money almost requires that you be very successful in what you do. Of course, there will always be lucky people like heirs, lottery winners, and early employees (as opposed to founders) of startups who end up with $10M+ net worth. But it's still a very rarefied group, and it's my goal to end up there.

A couple of weeks ago I posted on how the long term trends indicated we were going to see more Red days than Green days on the stock market. Well, the market has all but recovered all of these losses!

The US Dow Jones Index is still around 300 points off the high set in February, but the Aussie All Ordinaries is less than 100 points off the pace, partly pushed up by stronger metals and oil... after all, we are the world's quarry.

The rush to get money into super over the coming months may mean more green than red. Concerning, given that prices might not be reflecting fundamentals, but more simply, supply and demand. A short supply of Blue Chip stocks and a lot of money to be invested, means that prices are being pushed up not because greater profits are expected by the companies, but because there is simply nowhere else for the money to go!

The good news for investors is that there will be plenty more money going into the sharemarket than will be going out, so this climb may continue, however, I am still cautious and think there might be more volatility to come.

I was having a bit of a heated discussion with a fella the other day about tax effectiveness of share investing. I offered him advice on how to make his shares even more tax effective, but I'm not sure he understood.

His argument was that he could earn $75,000 a year from his portfolio of shares and not pay a cent tax. This of course is because he holds a portfolio of shares that pay fully franked dividends. Meaning, he is entitled to a 30% tax rebate on this income in the form of imputation credits, and as he is on the 30% marginal tax rate, he pays no tax. He then said to me, "Why should I bother with these tax free pensions when I'm receiving tax free income anyway. I agreed, YOU are not paying tax, however SOMEONE IS. By restructuring your affairs, you can get the tax back!

You see, the reason most share income from blue chip stocks contains this 30% credit, is because companies have already paid tax on this income, at the company tax rate, which not suprisinly, is 30%. So, whilst the investor isn't paying tax out of their own pocket, they effectively are, as tax is being withheld before they actually see the income (dividend).

My proposal to this investor (he was over 60), was to get his direct share portfolio into a Self Managed Super Fund (I didn't address Capital Gains Tax, but this would definitely have to be looked at), and then he had two options, leave the funds in the growth phase of super, in which case income is taxed at 15%, or convert it to an allocated pensions, from 1 July, draw the minimum income which is 4%, and whilst within pension the fund pays NO TAX on earnings.

These imputation credits will then be credited back to the fund, which means the tax is basically being paid back and the investment will truly become tax free. If it stays in the growth phase of super, you're looking at half the credit coming back (super pays tax on income at 15%), or if its in pension, the whole credit basically gets added onto returns.

Put simply, if your shares are within the pension phase and you are receiving a dividend yield of 5% fully franked, you're dividend all of a sudden becomes about 7.15%. Pretty good huh!

In QotD: Subprime Mortgage Mess - Who's to Blame?, JLP at All Financial Matters poses the question: "Who’s to blame for the subprime mortgage mess? The lenders or the borrowers? Or, should the blame be shared?"

He got a lot of interesting replies, and this was going to be one of them, but I started writing and it got very long, and then I got pulled away and ... blah blah blah. The point is, my answer is here now.

They're both to blame for their own part of the problem.

Anybody who defaults on a loan is obviously to blame for 1) overextending themselves and/or 2) not understanding what they were getting into. That is an individual problem, and each individual is responsible for their own problem.

Lenders are at fault for the bigger, aggregate problem. They made stupid loans, quite simply. They made loans that they couldn't cover. Millions of them. Millions of poor business decisions, pure and simple. They are totally at fault for that and therefore bear the majority of the responsibility for this whole thing. Loaning to subprime borrowers is inherently risky. You go into it knowing that some percentage of them will default. It is the job of the lender to figure out that percentage and set their rates accordingly to keep from going bankrupt.

Your average individual American cannot really tell you how much house they can afford and how much they will be able to afford 2, 5, or 10 years down the road. A bank, with lots of smart people working for it, using tons of actual data to make predictions, can. The credit game is one of "if you build it, they will come." If you decide to loan money to people with poor credit, people with poor credit WILL decide to borrow money. If they default (which some will, no matter what) then you have nobody to blame but yourself for lending them the money. If you create lending programs specifically for people with poor credit, and then advertise them in every newspaper and every other broadcast medium, guess what? People with poor credit will apply for that credit! And if the company is stupid, it will approve more than it should at lower rates than it should.

We are all familiar with the typical bad image of a company with more marketing acumen than actual good products. They come up with something stupid, and then, in order to sell it, they use marketing to "create the market." They generate demand to meet their supply of the product -- demand which, like the product, was nonexistent before. And then millions of people end up with Pet Rocks or Food Dehydrators feeling like idiots, while the marketers of the product are laughing all the way to the bank. This current situation is a case of the lending companies "creating a market" that shouldn't have been created.* And in this case, there are some "just desserts" being dished out in the form of crashed stock, some ethics investigations and maybe even some criminal prosecutions.

(*Note: I'm not saying that lending companies created the demand here. There is always a demand for free money or easy credit. Lenders created the supply, and thus created the market. You could set up a business to lend million-dollar unsecured loans with no credit checks, and I'll bet you'll find pent-up, currently-unsatisfied demand from several billion people -- but obviously it would be a bad business decision to enter that market. All of this comparison to Pet Rocks and the like is just to connect the two different shady kinds of business. In the Senate hearings on this fiasco, I bet we will hear time and time again from lending execs that they were just "trying to meet the market demand for this kind of loan product." And guess what? I just did a Google search for lender trying to meet market demand. The first result was (I admit, this amuses the hell out of me) a recent speech by Sen. Hillary Clinton:

According to most recent statistics, delinquent payments now affect more than 13 percent of subprime loans in our country. That's the highest level in four years. Now, many would attribute this rise to unsophisticated homebuyers, even irresponsible buyers, or the subprime market itself. But the foreclosure rate for all mortgages increased by more than 17 percent in the last quarter of 2006. That's the highest foreclosure rate in four decades.

So when somebody tells you this subprime market thing is no big deal, or maybe, you know what, let the buyer beware, these folks signed on the dotted line, it's their responsibility. Ask them why the rate for all homeowners is so high. Because the economy is not supporting homeownership the way we need it to. And after all, in the absence of an alternative, the subprime market has opened the doors to millions of families and responsible lenders and the market are rightfully casting out some of the worst actors in the subprime industry. But the market will not address the millions of families trapped in unworkable mortgages, hounded by delinquency and facing the grim possibility of foreclosure.

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We need to expand the role of the FHA to issue more mortgages at better rates to these homeowners. We need to give consumers more counseling and information, prevent families from being trapped in high interest loans with pre-payment penalties and in some cases, allow more breathing room from foreclosure.

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Now, I will soon be reintroducing my 21st Century Housing Act, which will take steps to modernize the agency by allowing the FHA to reinvest a portion of its revenues in new employees and information technology; to develop new mortgages to meet market demand and to position the FHA to work more efficiently with lenders and to serv