Beyond the Consumer

Sharper Image is broken

2008-01-12T10:10:00.001-06:00

Sharper Image, the retail store that prides itself on selling little electronic wonders, can't even maintain its own computer system. For the past month, when attempting to find the value of a gift card on its automated system, the phone goes dead after entering the information and - about 10 minutes later, reports that a "system error" has occurred. Their system error has been occurring for about a month!

Also interesting, their website doesn't allow you to check the balance of a card - a fairly basic function that most retail websites offer. I can only hope that the gift card will cover the balance when I ring up an electric self-cleaning nose hair trimmer and illuminated drink coaster with built in radio. How embarrassing if I were forced to choose between the two.

2007 Financial Report

2007-12-17T18:44:00.000-06:00

I finally sat down and compiled our 2007 financial report and put together a presentation. Unfortunately the 2008 projections will have to wait, but here are some highlights.

Spending on food and utilities are unchanged from last year - though our dining out spending was slightly up, our grocery spending was slightly down.

We spent 10% more on gas this year than last year. Not bad considering gas prices are much higher. Our carpooling efforts, I think, are having a positive effect.

We have paid 59% of our total debt from the beginning of the year. Rough projections still put us at paying it all off in 4 months.

Our emergency fund (not including the bill pay/readjustment account or unscheduled maintenance account) has averaged $2,045 throughout the year, with a range of $1,940 to $2,150. We really didn't need to use it this year.

For the most part, we met or exceeded all of our goals for 2007 (with the exception of me finding a better paying job).

That's about it! I'm looking forward to sitting down and figuring out some goals and estimations for the upcoming year. Of course, overall goals will have to wait until my wife and I go over the year-end report and discuss what they should be.

Anyway, what's the point? I handle most of the finances, so I like to print monthly reports of our spending/balances for my wife to read. At the end of the year, it is nice to have a presentation to show her so she can get a clear picture of where we are financially. For both of us, I think it helps us get on the same page and focuses us on similar goals.

Unscheduled maintenance account nuked

2007-12-09T20:21:00.000-06:00

Today our microwave died. It was a good old microwave and had given its various owners many years of faithful service. Lately however it had begun to act strangely. Last month it inexplicably stopped running. A quick unplug fixed it. Then randomly it would activate its exhaust fan - often in the middle of the night. Then the little lightbulb inside burned out, as well as the little light underneath.

Finally, today at 12:15pm as I attempted to make a bag of popcorn to watch the pilot of season 1 of Heroes (I'd never seen it before) on Netflix, I discovered it was no longer heating anything.

The fan, the light, the random shorts...that I can handle, but a microwave that doesn't heat just isn't acceptable.

Fortunately, I recently started an unscheduled maintenance account. Thus, the $160 microwave was fully covered. However, having just started the fund, the account is now empty...but my wife was certainly happy that we had it! Maybe I'll ask her to use our new microwave to make me some cookies (can it do that?).

AT&T lied to my wife

2007-12-08T09:11:00.000-06:00

My wife lost her AT&T cellphone. Fortunately, someone found it and returned it, but not before we called AT&T to suspend the account. We also needed to get ourselves a new sim card, and that's when the lies began. The rep told her that she couldn't just buy a sim card, that she needed a whole new phone - an AT&T phone of course - to run on their network. He was happy to sell her one for just $170 and an extension of her contract.

So, I called them back and explained the situation to a different rep. She was happy to send me a sim card for $25, which I could then call to activate with whatever phone I had. Having averted this disaster, I noticed a few discrepancies with the rep's information.

- An unlocked phone will work on AT&Ts network with any of their sim cards. You need only program the sim card, not the phone.

- Buying a new phone does not require an extension of your contract.

- You need not call AT&T to "activate" a different phone. Just take your sim card, pop it in another phone, and it will recognize the network.

- Any sim card can be programmed with the serial number provided with the card. You can buy a whole phone from Walmart with a sim card included for less ($18) than what AT&T will charge you just for the card itself ($25).

It is important to remember that when calling AT&T service reps, even those who are not in "sales" departments, are usually either clueless about how any of their services actually work, or are so sales driven that they happily dish out misleading information to land some commission. Everyone you talk to is pushing sales.

In fact, if I had not already been using different phones with our sim cards or had not already purchased prepaid GSM phones (I have a couple of extra sim cards and phones that work just dandy), we might have fallen for the first reps story - leaving us $170 poorer (plus sim card, activation, taxes, and other fees of course).

My available credit exceeds my income

2007-12-07T09:17:00.000-06:00

One of our credit card companies (the one we actually use on a regular basis) has once again increased our credit limit by 48%. It really doesn't matter what our limits are, because we only spend what we can afford to pay off immediately. We are fortunate that we never pay any interest to these card companies because of it. I don't feel guilty, knowing they make a killing on interchange fees.

Still, I can understand how some families manage to get in over their heads. All that credit can look tempting, especially if you have an emergency. The amount of credit they will give you is staggering. In fact, the available credit on our cards (we have 4) now exceeds our total yearly income. It is humbling to think how quickly someone could ruin their lives in the blink of an eye with these tiny pieces of plastic.

Whose interests is the mortgage bailout addressing?

2007-12-06T09:21:00.000-06:00

AllFinancialMatters has a couple of great posts on the mortgage bailout proposals.

http://allfinancialmatters.com/2007/12/04/the-mortgage-bailout-plan-stinks/

http://allfinancialmatters.com/2007/12/05/the-tycoon-report-on-the-mortgage-bailout/

If you haven't heard, it's one of the leading subjects of the political debates: how to save homeowners in over their heads. The popular proposal now, and one that some lenders have already gone forward with on a limited basis, is freezing the rates of soon-to-adjust ARM loans for a specified number of years.

Everyone wants to know who is paying for these bailouts. Taxpayers? Why are we responsible for their problems? Shouldn't it be the bank's problem? Why should the government be involved at all?

Are Bush and Hillary really concerned about the American people and the poor citizens in danger of losing their homes? Or do they realize that massive foreclosures would results in housing prices readjusting to real market values, before the ridiculous housing "boom". With property values plummeting, states would lose billions in tax revenue. It makes you wonder who Uncle Sam is really looking out for.

Is 97k rich?

2007-12-03T12:52:00.000-06:00

An interesting discussion is ongoing at WSJ's Wealth Report, regarding a recent campaign dispute over the future of the social security cap.

http://blogs.wsj.com/wealth/2007/11/29/does-a-97000-salary-make-you-upper-class/

The article is good, but what really fascinated me was the comments. Do people who make 97k feel rich? Are they rich?

As a few pointed out, feeling rich on 97k has much to do with your location. An apartment in NYC eats up far more of your income than in Dallas. We make around $40k a year and our mortgage is $900. This is living in one of the largest cities in America, albeit about 10 minutes in the suburbs. I feel like I'm doing pretty good, but others making much more are barely scraping by. How can this be? Here's what some people had to say.

My base salary is exactly 97,500 wtih 30% upside as performance bonus. I support a wife and 3 young kids. I rent in the Bay Area a home SF home for 2,400

This guy takes home $5,200 a month. Minus his mortgage, he has $2,800 left over. He has no child care expenses, since his wife doesn't work. How does that compare to the average income of $45k a month? His $3k after his residence is more than the average American lives on.

I live in SouthEastern PA in a median priced home for my area ($375K) My wife and I make $132K anuually. I commute to work in a 14 year old car and she has a new SUV. Other then my mortgage ($250K) and my interest free car note I have no other debt. However, the cost of living here is so outrageous I am lucky to save $500/ month.

$7k a month in his pocket each month. He consumes $6,500 of his income every single month. He doesn't feel rich because he's barely making it. But how do people making minimum wage make it where he lives? Obviously they are living somewhere.

People I know in this boat are not living large by a long shot. Older cars, no private schools, modest savings rate, no time or money to play golf…much less join a club.

Very interesting here is the qualifications for being "rich". Private schools. New cars. Playing golf and joining a club. Do you need these things to feel rich?

They don't feel rich, but does that really have anything to do with how much they make? They in the top 6% of the earners in America, which means that they earn more than 94% of their neighbors. The top 6%! What must "upper class" be? 4%? 1%? .05%?

Then, if that makes you middle class, what is lower class? Are 80% of Americans lower class? Are 50% of them poor?

Maybe feeling rich has nothing to do with your income? Maybe people making $130k don't feel rich because, just like their $40k brethren, they max out their lifestyle.

What was Kansas thinking?

2007-11-27T11:00:00.000-06:00

In just about every state you visit, you are greeted at the border by a friendly sign (sometimes quite elaborate signs) and a fancy rest stop. For those passing through the state, you have a great selection of restaurants, convenience stores, and sometimes outlet malls to keep you fed and happy along the trip. Everything about the experience screams "welcome!"

Except, I learned, Kansas.

No, it's clear that Kansas wants you to drive through it as quickly as possible and be miserable while you're there. This is the only reason I can see why Kansas would take the only major freeway that goes through it, turn it into a toll road for which you must pay $10 to get through the state, block off every exit with the exception of the tolls, offer no turn-offs or parking areas, and absolutely refuse to let you make any u-turn (missing your precious exit would surely cost you 3 times the toll fees and add about 2 1/2 hours to your trip).

Could it get any worse than driving an hour without a stop or a bathroom? Sure...because of the few "rest stops" that are on this toll we discover that Kansas is apparently sponsored by McDonald's, because other than prepackaged potato chips, McDonald's is the only food available for the entire journey through their state. I'm glad we packed our own lunches.

Avoid Kansas. Obviously they don't want you there anyway.

Electric company offers to let me pay more!

2007-11-20T18:45:00.000-06:00

My electric company has included a tempting offer in my bill this month. If I sign up for their flat rate plan with a 12 month commitment, including a mere $100 cancellation fee. This amazing plan that will "save me hundreds of dollars" will do so by billing me at a flat $0.142 per kWh.

Wow!

The only problem is that my bill tells me I'm paying $0.139 per kWh. Uh...thanks for the offer?

Major debt paid off!

2007-11-20T10:52:00.000-06:00

We just paid off our largest debt! 2 years ago we started with around $25,000 in debt, including a personal loan, student loan, and car loan. As of last night, we have paid the personal debt - the largest chunk - and have shuffled the payments to the remaining ones. We now owe $6,000 on the car and $2,000 on the student loan, putting us on schedule to eliminate it all within the next 4 months.

With this milestone reached we are very excited!

Best financial advice, fewest words possible

2007-11-15T13:41:00.000-06:00

Mine:

"spend < earn"

Any others?

Here's why consumer regulations are useless...

2007-11-08T13:07:00.000-06:00

Consumer Affairs has a report on a debt collector hit with fines for, of course, abusing consumers and lying. The amount of the fine? 1.3 million.

Maybe I'm just a pessimist, but I don't see how this solves anything.

By abusing consumers, making illegal threats, etc, this company likely raked in millions in extra profits. They collect 1.25 million accounts per year. A 1.3 million fine from the FTC is probably listed on their financial report as overhead, along with electricity. Is the FTC making any difference? Of course not...we know this because they allowed this fraudulent company to stay in business.

Under the proposed settlement, LTD will pay a $1.375 million civil penalty. In addition, LTD and its owners, Timothy Feldman and Leonard Pruzansky, and its top managers, John Brewster and Derrek Davis, are permanently prohibited from misrepresenting to consumers that nonpayment of a debt will result in garnishment of wages, seizure or attachment of property, or lawsuits.

They also are permanently barred from using false, deceptive, or misleading representations in connection with the collection of any debt, communicating with a consumer at any unusual time or place, including their place of employment, or harassing, oppressing, or abusing any person.

Is anyone else laughing at this "punishment"? Aren't all of these things already illegal?

Imagine...you rob a bank for 5 million dollars, so the state sues you for 2 million and permanently prohibits you from robbing any more banks.

This is why our regulations are useless...because companies are free to abuse consumers with impunity.

Note to builders: Please stop

2007-11-05T09:46:00.000-06:00

2 years ago I was shopping for a house. We looked into a brand new subdivision in a the suburbs that was being built by KB. We found one we liked, worked it all out, put down a deposit, and "designed" it at the KB Store. It was not fun. If you've never done it before, selecting the options for your house at the KB Store is kind of like being the only customer in a Best Buy on Christmas Eve with 25 rabid commission-paid employees.

Who knew it could cost $600 extra to have a certain color of brick.

After further research, a miserable experience, and additional exploration of the area, we decided to bail out. We walked away because we decided buying a brand new cheap KB house surrounded by other cheap KB houses that all looked the same probably wasn't a good idea. It was the best decision ever.

I drove into that neighborhood to see how it was doing. Not surprisingly, "my" house already looks like a garbage dump and is for sale. Fifty bucks says its a foreclosure. Half of the other homes are also for sale, or "For Lease". If KBs apparent "take the money and run" strategy wasn't bad enough, they're still building houses. I have no doubt we'll be reading about KB and other home builders complaining at the loss of profits soon, and seeing some CEOs resign with multi million dollar severance packages.

Until then, they'll continue to build cheap houses, take more shortcuts on top of the shortcuts they already take, and flood the market with matchstick homes that will fall apart in 10 years, if not the day you move in. No one will want to live there, no one will buy them. These suburbs will be the new slums, taking on the ambiance now reserved for backwards rural trailer parks. At best, the land will be worth more than the house and they'll just be demolished, to be replaced by newer cheaper versions. Throw-away homes, bought and discarded like cheap plastic toys from Walmart. And in the wake of it all, families with foreclosures and bankruptcies.

If you ask me, subprime defaults are only the tip of the iceberg of what is to come in the US real estate market.

Added a new fund to our finances

2007-11-01T14:07:00.000-06:00

After recently purchasing an automotive part for a minor car repair, it dawned on me that I am missing a very important fund in my personal finance system. The part was only $70, but it could have easily been $100-200, or in the case of a dealer-only part, in the $200+ range. A $200 unexpected expense could not be easily absorbed by our already tight paycheck disbursements. In other words, we don't have $200 of discretionary spending each paycheck (since all discretionary dollars are thus spent during week following the paycheck) to go buy car parts with.

I already have a scheduled maintenance calculator and savings fund for the cars. This includes things that are easily timed and their costs more or less fixed. I know how many times the vehicles will need oil changes, and how much it costs (the price of oil and filter vary very little), so I know how much to save. And it is, of course, expected that something in the car will break down eventually, so this is something that I should be planning for - not something that comes out of our emergency fund. It's not an emergency if I know it's going to happen eventually!

So I created an "Unscheduled Maintenance Fund". It will cover the cost of minor repairs to our vehicles and our home. To determine how much I should contribute to this new fund, I gathered the receipts for all our repairs in the last year and divided by our number of paychecks in the year. This amount will be added to the readjustment account payment and isolated in a separate account (in fact, an ING savings account that I've been toying with ideas about what to do with).

Viola, problem solved. When something breaks in the house or with the cars, we'll have a little stash of money to cover it without wiping out our discretionary dollars or dipping into our emergency fund.

Investopedia stock simulator

2007-10-30T12:24:00.000-06:00

I have been playing this game: http://simulator.investopedia.com/home.aspx, and it's quite a bit of fun. You register (it is free - ad supported) and you can buy/sell stocks based on real feeds. I've found it a great way to get my ears wet in stock trading without actually risking any money (since I have fairly low income). Give it a try!

Comcast: Our 3% price increase is actually 40%

2007-10-29T06:55:00.000-06:00

Comcast took over the ground cable business in Houston, Texas. The transition was relatively smooth, with a low percentage of outages and complaints - despite many people with proprietary email addresses being forced to change names. For many people, like myself, there was little difference except the name on the bill.

That of course lasted only a little while. This is a cable company, after all. Soon after they were firmly in place, they began changing their channel lineups and increasing prices. I could care less about TV, as I only have them for my Internet, but my wife likes to watch television sometimes on the weekends so we have basic cable. For about 5 years, we've had the same package - broadband Internet and basic cable which included all local and regular cable channels (CNN, SciFi, History, etc).

Comcast came in and claimed that they were just shifting things around and adding more channels, as an excuse for the slight 1-6% increase in price, but very little else would change. Was this true? Well, this is a cable company after all. Here's what they really did.

They increased the prices of all their services by 1% to 6%. They then began adding High-Definition channels - channels that they already had in standard definition, but apparently that counts as "adding" a channel. Then they cut out several channels completely. Then they did something very clever, they completely gutted the basic service channel lineup, reducing it essentially to local (and HD local) channels. What did this do? It eliminated the basic cable service entirely, because you get very little from it that you don't get from regular terrestrial broadcasts.

This service is now $17 (up from $15)...paying for cable that gets you nothing. Their next up service package, which includes all of the cable channels we already had before the switch, is around $40/mo. That's a 38% increase in the cost of same-service cable, not the 3% increase they notified us of for our basic service in our last bill.

Very clever indeed. This does a few good things for Comcast. For customers like me, they collect slightly more money while providing vastly reduced services, thus encouraging an upgrade to give them nearly 40% more each month for exactly what I had already been getting. For customers without Internet, it encourages them to either upgrade or ditch cable entirely, since it probably isn't cost effective to provide technical and service support to a customer paying only $17/mo. It also encourages people to look more closely at their bundled packages, which would effectively ensnare consumers into having cable/Internet/phone with a single company - not, in my opinion, a smart move.

So my wife and I are considering hooking up the big antenna in our attic and just getting broadcast TV for nothing, cancel Comcast entirely and switch to AT&T (who we already have a landline phone with). This would cut our current bill in half (their best DSL speed - 6.0mbps download is only $35/mo compared to the $70/mo we now pay for Internet/cable).

We'd already discussed this before, but my wife didn't want to cancel the cable. Now that Comcast has effectively canceled it for her already, she is starting to lean towards getting rid of them and accepting local channels. Maybe it's not so bad that Comcast is so bad.

2007 Roth IRA coming to a close

2007-10-23T09:24:00.000-06:00

Technically, you can still contribute to your 2007 Roth up until April of 2008. The limit for young middle-income folks like myself is $4,000. Unless you make 6 figures, you need not worry about whether or not you can contribute (or whether your maximum contribution limit is lower). More details can be found here.

If you're like me, however, your 2007 budget ends on December 31, and savings afterwards falls into the 2008 contribution. With little more than 2 months left in the year, it's a good time to evaluate your progress and see if you have reached your maximum or exceeded it (yikes, more paperwork!). If you have exceeded it, be sure not only to withdraw the excess dollar amount but also the dollar amount of the interest that your excess earned. The tax you pay will be more than your earnings! There is no penalty for withdrawing excess contributions. Of course, hold on to it and just figure it in to your 2008 contribution.

A quick glance to my investment spreadsheet tells me that I am in no danger of exceeding my limit. Hopefully next year I can increase my monthly Roth allowance.

God wants you to lower your electric bill

2007-10-22T08:43:00.000-06:00

One of the biggest factors of your utility bills is your heating, cooling, and lighting. Surprisingly however, many people don't use what mother nature already gave us - the sun and wind. I notice that whenever I am at someone else's home, they more often than not have the blinds shut tight and all the lights on in the house, in the middle of the day.

At our house we have a pretty good system of heating, lighting, and cooling. During the summer months we adjust our blinds and open windows to keep the heat out, let the breeze come through, and light up the house. During the day we rarely have a light bulb on because all our blinds are open.

To keep the heat out, we shut all the blinds during the day when we are not home to create a dark, cool house. When we get home we fully open all the blinds on the side of the house that the sun is not striking. On the sunny side, we crack them upwards so that light gets in but does not shine on any walls, furniture, or floor (if anything it shines on the ceiling, which of course also helps lighten the room.

We also select windows to open based on the direction of the wind to maximize the breeze coming through the house. If it's cool enough outside, we just open all of them.

The savings on your electric bills are substantial, and as a bonus you get to sit down to breakfast and say things like, "the angle of the sun sure is giving us lots of light this morning."

My bank randomly charges me $1, then charges me $2 for asking about it

2007-10-19T15:25:00.001-06:00

So today on my online bank statement (for a secondary checking account) appears "FEE" with a series of numbers followed by "$1.00".

Hmm.

So I call them up and, a quick 20 minutes later, ask a customer service rep why I have a $1 fee on my account. Long story short, it would appear they have decided to start charging me an account fee because of a direct deposit that was cut off several months ago. I ask why the fee has suddenly appeared many months later. He can't explain why, but he tells me I am lucky that I avoided paying all those fees in the meantime.

I feel so lucky.

So I ask if he can waive the fee. He can't. So then I ask him if he's going to charge me a $2 fee for calling him on the phone. He is, and he can't waive that either. Why? Because I'm so lucky that I haven't been paying this other fee for so long.

The conversation is simply comical, and keep in mind we're both lighthearted and chuckling through his ordeal. I am laughing because I think the situation is ridiculous, he is probably laughing because he knows I'm a powerless consumer to be toyed with.

I ask to speak to a supervisor, and 5 minutes later I have my $1 fee waived, my $2 fee waived, and my account converted to a different account type to avoid the fee. I guess the supervisor figured $3 was worth keeping a customer.

Research your financial adviser/investor

2007-10-19T08:01:00.000-06:00

Our financial adviser handles our Roth IRAs. Beyond that we have our employers 401ks and personal investments that we handle ourselves. I believe a key part to spreading risk is to avoid having one person with total access to your money. Also important is to conduct research on a financial adviser before signing up.

You can do this by visiting NASAA's website, FINRA, and CFP.

Kilpinger offers some of these tips while conducting your research:

60% of those [victims of fraud] had hired a broker based on recommendations from family and friends
look for other red flags, such as whether he or she has changed firms every year
Check with your state insurance department to make sure the person is licensed and see if the state has taken any disciplinary actions against the salesperson
verify that the person really holds the CFP and find out if the CFP Board has taken any disciplinary action against that person
learn a bit more about any other designations they're touting. Some require a lot more education and training than others. A few of these designations are primarily marketing tools offered to anyone who pays a big fee and takes an easy test. ("Certified Advisor for Senior Investing", [for example, is a] totally fabricated designation)
So it's also important to take precautions to protect yourself -- even if the person checks out. Establish an account at an independent institution (typically a brokerage) to hold your money because some scam artists hide a swindle by issuing false account statements.
Never write a check directly to an adviser -- only to the custodial institution, which must send you quarterly statements. And meet with your adviser at least once a year to review your account.

Sell your own house

2007-10-18T12:18:00.000-06:00

A little article on CNN has some tips on selling your own house. You can save a bundle by cutting out the real estate agent who basically drives people to your house and saves you the agony of being there while they look at it. With the power of the Internet, RE agents are essentially worthless. I personally found my home on the Internet and did my own financing. The RE was "there", but he didn't do much that we couldn't have easily done ourselves.

6% commission is way out of proportion to what they actually do. You'll need to do a ton of research to sell your own house, but when you're talking about $10k or so in fees, it is well worth it.

I would hate selling right now though. Someone I knew was selling recently, and it was just a pain because many of the "buyers" couldn't secure financing and had to back out at the last minute.

Banks report losses

2007-10-18T09:49:00.000-06:00

Many of the major banks are reporting losses.

Chase reports 70% loss in its investment banking division.

Bank of America profit is down 32%.

Countrywide has a whole host of problems, including plummeting stock values and a 20% layoff of their workforce.

Wells Fargo is also reporting big increases in credit losses, particularly from consumer real estate.

Citibank plunges 57%.

Washington Mutual reports 72% profit loss.

Wachovia falls 10%.

Disney thinks you will pay more for fruit with their logo on it

2007-10-17T10:29:00.000-06:00

Buying veggie and fruit combination trays are always more expensive than buying it individually and making your own combination plate. Grocery stores have been selling this convenience to adults for quite a while, but now Disney wants to market it to your kids.

Disney has previously sold fruits with character stickers on the packaging as well as frozen pizza and hamburger patties made in the shape of Mickey Mouse's head.

I really want to know who bought hamburger patties in the shape of a Mickey head. Making Mickey's head out of ground hamburger seems to be the simplest thing anyone could do yourself, ever.

Why did you take the ARM?

2007-10-16T10:17:00.000-06:00

Countrywide is getting criticism for not permanently fixing the rates of several hundred thousand homeowners in risk of foreclosure. Part of this is being fueled by a protest group, NACA (or the Neighborhood Assistance Corporation of America).

If you take a look at their site, you will see all kinds of emotional statements designed to make you sympathetic to their cause, things that have nothing to do with subprime borrowers in foreclosure. Information such as "Chairman of Countrywide, one of the leading companies, is reported to have earned $22 million per year" seems to encourage the thought that because the CEO of a multi-billion dollar corporation is rich, he should forgive people who haven't been paying their mortgage.

These “geniuses” and their companies actually compensated their brokers and agents more if they marketed and closed loans containing abusive yield-spread premiums, low teaser and high re-set rates, and other costly loan terms and conditions

In other words, it worked like just about every commission based sale out there. Shocking that the company would give higher commission for a loan that makes the company more money.

Why on earth would the rates for these loans be so high? Why is lending to people with bad credit and lots of debt result in high rates? They answer it themselves: "almost one in every five subprime loan goes into default", yet they don't seem to make the connection. To be profitable, a bank has to get paid for the money it lends out. If a group of people tend to default at higher rates, their interest rate will be higher to ensure the bank doesn't lose money on those loans.

Modify every loan back to the rate at which these borrowers were or should have been qualified, and everyone wins. People can keep their homes and avoid financial ruin, and lenders can still receive payments on mortgages that borrowers can actually afford.

Here's the problem, NACA, they weren't qualified for payments they could afford. They were qualified for high interest adjustable rates, and that's exactly what they got. It is not the banks duty to set payments that someone can afford, it is the borrowers responsibility. What you are suggesting essentially shafts every single American paying a regular rate on a 30 year fixed.

These “genius” profit barons have pretended to create unparalleled homeownership opportunities for working people and families. Instead, they have preyed upon the most vulnerable, often based on a low credit score -- people with marginal credit and limited resources who could and should have obtained homes through fair lending practices. They charged people interest rates above 10% and often enticed them with teaser rates of 6% and less for the first two years.

The banks took a huge risk by putting these people into homes with teaser rates, when all the statistics showed that there was a high probability of default. To make such a venture profitable, they needed to charge higher interest rates later in the loan. These people could have used that time to rebuild their credit, save up to afford the new payments...anything. Instead, they rode along and when the teaser rate expired, cried foul. They can't refinance because, surprise, their credit still isn't any better.

Bottom line, it is not the banks responsibility to create a loan that is affordable to the borrower. Their only interest is in creating a loan that is profitable. It is the borrower's responsibility to determine whether that loan is affordable to them or not.

Banks don't want to foreclose. It costs money to foreclose. They end up with a house, which in all likelihood has been trashed by the deadbeat homeowner, that they have to sell for cheap at auction. They want you in your house, paying your mortgage, paying that interest. But because the group you fell into, that bad credit group, is a high risk and will default in higher numbers, your rate is higher in order to make up for the other deadbeats who do foreclose. Why is this so difficult to understand?

At the same time, some acknowledge that regardless of whether their loan is modified, some borrowers could lose their homes anyway because their financial situation is otherwise precarious.

"It all comes back to affordability," said Richard Pittman, housing services coordinator for ByDesign Financial Solutions, the Los Angeles branch of the Consumer Credit Counseling Service (CCCS). "As recently as 12 months ago, some were refinancing themselves out of their problems. A lot of them were just kidding themselves. They were fine through their second refi, but the third refi caused them problems."

Yes, I have read that a good number of these people in subprime loans in foreclosure, perhaps even the majority, are refinances. They refinanced equity to pay off their debts. This is the consequence of such a debtors lifestyle.

What is missing here? Case studies. No one appears to be asking these homeowners one very important question: "Why did you take the ARM?"...I would be very interested in hearing their answers.

Happy Easter!

2007-10-16T07:45:00.000-06:00

Easter is only, what, 7 months away? I feel the need to buy a giant inflatable Easter bunny for my front lawn.

But alas, it is Christmas that causes the gift-grubbing credit card swiping frenzy, so we get to be bombarded with it 3 months early. All the stores are stocking for Christmas. They've emptied the Halloween shelves at Target. Their garden section has been gutted in Home Depot. All the decorations, ornaments, fake trees, and inflatable Santa's are ready for sale.

Christmas in October anyone? If you ask me, retailers are frightened. They want to extend the holiday shopping season as long as they can because they fear that all the media hubbub about tightening credit standards and foreclosures is going to keep people glued to their wallets. I don't blame them. That's exactly what they should be doing.

"Consumers have the same number of people on their gift lists, and they tell us they have pretty much the same budget every year," Cohen said.

The question is whether the credit crunch and the collapsing housing market will affect how much discretionary income they have.

Cohen expects a spike in the sale of gift cards, which are a convenient way out for shoppers frustrated by a lack of hot items. About 39 percent of respondents said they intend to buy gift cards this year.

Well, don't companies usually release their hot Christmas items around this time? Maybe we haven't seen any hot new items come out because Christmas is still 3 months away. Just a thought. The only real big item we've seen out has been the iPhone, but what kind of lousy gift is that? "Merry Christmas, here's a $150 monthly payment you're stuck with for 2 years."

At the same time, he said gift cards could hurt retailers because they don't promote an impulse purchase on the part of the gift buyer.

But they are great when the gift card is redeemed, because many people buy something with the gift card and end up spending more to cover the difference. Or a balance is left on the card, which the company can steal with clever fees. Or the card will be lost and never used.

What bothers me most is that I love Christmas. But when you start Christmas 3 months early, bombard us with decorations and holiday music (and keep calling it "holiday season", people are going to be utterly sick of it by the time December rolls around. And what happens when people get sick of Christmas? It stops meaning anything to them, they stop celebrating it, which means sales go down, and the whole deck of cards the marketing industry has created collapses.

I say we protest. Put the credit cards away. Make your own gifts, celebrate quietly with your family, and no Santa's on the front lawn until December.

Will you send your kid to college?

2007-10-10T14:21:00.000-06:00

Bankrate has an excellent article about a survey of parents on whether they can afford to send their kids to college. It also looks at why they may or may not be able to.

Most striking is how they intend to pay for their kid's college. Many are willing to forgo their own retirement plans. Almost half of them plan to take out a personal loan, and a quarter of parents want to use a home equity loan. Together, this is a whopping 3/4 of parents who plan to fund their children's college tuition by borrowing money.

Here's a nice college tuition calculator, which shows us that a 4 year in state college will cost around $140k assuming you have a baby now, and he or she will go to college in roughly 20 years.

At a meager 5% with a 20 year term, that loan will cost those parents about $900 a month after their young one graduates. The 40% of parents who plan to take extra jobs will certainly need them to pay that bill.

Now here is the difference between being in debt, and saving and taking control of your money.

That same tuition would be paid in full, with cash, if the parents saved just $250 a month from the time that the kid is born.

Taken as a whole, the results seem to point to an unavoidable trap where parents either secure their children's futures or their own. "The poll illustrates that for many households, paying for college will mean sacrificing their long-term financial security by taking out second mortgages or personal loans," says Draut. "This is particularly true for those parents on the cusp of retirement age, who need to focus on securing their own financial future for retirement."

The real problem is that they didn't plan ahead. They didn't save. They didn't manage their money. Instead of looking at the big picture, they spent all they had and made themselves utterly dependent on the credit industry.

$250 a month vs $900 a month...for 20 years. That's what embracing debt has in store for you. Is that an unavoidable trap? No, this is a trap that you build yourself.

Save on cables, etc

2007-10-10T11:41:00.000-06:00

Cables have an enormous markup in retail stores. I thought I would plug monoprice.com, who I have had nothing but success buying cables and other small equipment from. A $30 USB cable at a retail store is about $2 from Monoprice (plus shipping of course).

I have purchased various things from them with satisfaction, KVM switches, mounts, component cables, USB cables, fiber optic audio cables, and much more.

Don't pay ridiculous prices for cables!

(note: monoprice did not contact me about plugging their company, but I believe in spreading the word about good companies that I am happy with)

Economists fear consumers may start spending within their means

2007-10-09T11:38:00.000-06:00

Here's a depressing AP article about consumer borrowing habits. The Christmas shopping season is already upon us, with retailers begging you to come in and spend money you don't have. Home equity loans are dried up, leaving credit cards as the most accessible way to borrow your way into oblivion. As a result, revolving credit debt is up-up-up! That's not really what depresses me. What upsets me is that the "experts" out there, the economists, whoever they are, are completely happy with the outcome.

Now that Americans have sucked all the equity out of their home, they're diving right into higher-interest debt, with the credit card industry. It's kind of like jumping out of a pool with a couple sharks and into a pool with a dozen piranhas.

During the housing boom, when home sales were hitting records for five consecutive years and prices were soaring, many homeowners tapped the rising value of their homes to finance increased spending by taking out home equity lines of credit.

However, now that home sales are plunging and double-digit increases in housing costs are a thing of the past, home equity lines of credit have become less available. That has pushed consumers back to credit cards to finance their spending.

Hey, heaven forbid people start spending within their means. Let's increase spending even though we aren't increasing income. Let's fuel big companies by borrowing more money. Here's a question, brilliant economists: What are we supposed to do after the home equity has dried up and the credit cards are maxed out? How exactly will we still be fueling economy when we're all freaking broke and three-quarters of our paychecks are getting sucked up by interest charges?

Analysts are watching closely to see if the steepest slump in housing in 16 years could have a more serious impact on the economy through the wealth effect

I had no idea what the wealth effect was so I looked it up.

One problem, home values don't make you more or less wealthy unless you plan on selling the house and living on the street. Instead we get this "perception" of wealth by letting people take out loans.

the fear is that falling home values could cause consumers to cut back on their purchases. Since consumer spending accounts for two-thirds of total economic activity, any serious cutback in spending could lead to much slower economic growth.

GOOD! Fear? Are these experts idiots? How does it help our economy if we're all broke! People need to start paying off their debts and living within their means. Then when they have real capital they can go spend it.

FRB G.19 Release

QuickCert is a telemarketing nightmare

2007-10-09T07:54:00.000-06:00

QuickCert is a company that offers information on various computer certifications. I was at one point considering getting an A+ Certification - just for my amusement. The cost turned me away, but not before I had signed up to receive their newsletter. I usually don't sign up for things online, but I figured it wouldn't hurt.

Well, after getting bombarded with emails, I unsubscribed. That didn't stop them, and they just kept sending more. So I had to blacklist them as SPAM, but they keep sending advertisements from different email addresses.

I can deal with spam, but now they've started to call me. A few times a month I come home to a message on my machine from them. The only problem is that I never gave them my phone number. They must have looked me up!

QuickCert is creepy.

Overcomplicated pricing plans

2007-10-08T12:55:00.001-06:00

I was in a CVS pharmacy the other day having some photographs printed. A while back the only thing to do at these one-hour photo places was drop off your film, which was put into a little bag, and then come back to pick it up. You paid per roll of film.

Now however there are 5 different ways of getting your photos to them, as well as other ways of getting them back...not to mention about 6 different pricing plans just to get a stack of regular 4x6 pictures. To drop off your photos you can give them a CD, a memory chip, upload them online to their website, give them a roll of film, or give them a hard-copy of an existing photo. In return you can get real photographs, or you can get a CD. A combination of these various options of course yield different pricing structures.

On the advertising sign outside they advertise one price for photo printing. On their board inside they advertise 4 different prices. There are actually 6 different prices, however, once you get to the fine print (not on the board, but on small cards near the register.

You now pay by each photo printed. If you print using the little kiosk, it will cost you $.29 each. If you hand them your disc/roll/chip, it costs $.19 each. But only if you get more than 50. Under 50, which is the typical size of a traditional "roll", and it costs $.25. If you want them in an hour, it will be $.19 each, but only if you use their "club card". If you want them in a few days, it will be $.15 each - but after you read the fine print, this only applies if you upload them online to their website first. Otherwise, the few days option costs $.19 each.

Of course, you'll be better suited calculating the cost on your own. My cashier priced it wrong, at $.29, even though I had gone the $.19 route. The machine apparently defaults to the highest price, via the UPC on the little box they give you, and then must be adjusted down using a small card with various UPCs on it that apply "discounts" in the register POS. No doubt many people end up being charged full price because they were not paying attention.

It was a real headache just trying to figure out how to get the per-photo price that was displayed in huge numbers on the billboard. Its enough to drive you to just buy your own photo printer.

Debt horror story

2007-10-08T11:25:00.000-06:00

MSN published a letter to the editor, a real debt horror story. Just in time for the holiday season. It hit close to home because my own parents did not manage their finances very well.

Her parents have gotten themselves into a situation where I just don't see an easy resolution. With $71,000 left on their mortgage, they refinanced and took out $100,000. … They did it again and invested $100,000 in a business venture. ... They then decided to take out a home equity line for $52,000. They have over $20,000 in credit card debt at 16 percent. They put their car up for collateral for a loan for $15,000. They borrowed $22,000 from a family friend, $9,000 from me, and who knows what else. ... They have no life insurance, $18,000 in one 401(k), and are nearing retirement 58 and 62 years of age. Their bills are twice as much as their income.

Adding it all up, we see that they have a mortgage/equity loan of $323k, $20k on credit cards, a $15k car loan, and $31k in personal family "loans". All told almost $400,000 in debt. These parents, in the 50-60 age bracket, seem to be in a generation of debtors who embraced credit and leveraged everything to support an inflated lifestyle. Unless their house is worth half a million dollars, they have little hope of recovering, and zero hope of retiring - especially when you look at their paltry retirement fund.

It breaks the heart to hear about such a couple, especially when you can relate. "This could be my folks!"...but it is a hard lesson that we need to pay attention to, so that we don't end up in the same abysmal place.

Why does every merchant offer cash back?

2007-10-08T10:08:00.001-06:00

I have always wondered why I am constantly pestered for getting cash back at every store I visit. Every store, when using a debit card, prompts for a cash back option. Why? What benefit does turning your cashier into an ATM machine have for the store?

After some searching, I wasn't any closer to a positive answer. I couldn't find any legal requirement (though there may be) so I have to assume there is some other incentive for these stores. On one hand, it doesn't make sense that they would actively encourage cash back. Take a company like Walmart, for example, with banks right there in the store. Sending your customers to the ATM would mean more fees and big profits. What good does it do to offer a free alternative? There must be a reason for this, to either benefit the merchant or the issuing bank. I have a few ideas.

Merchants must treat debit exactly like cash

There could be a regulation that merchants must treat debit as cash. Getting $20 cash back on a $30 transaction would be akin to saying, "I'm giving you a $50 bill, you owe me $20 in change."

Banks want debit purchases higher, to encourage overdrafts

Cash back leads to a higher transaction amount, possibly resulting in more fees for the bank should you overdraft.

research shows that consumers who use debit cards more often are also more likely to overdraw their checking accounts, card-issuing banks can reap an additional $1 million from nonsufficient-fund fees, according to the Mercator report. Another study revealed that customers who used debit cards more than 20 times a year paid an average of $223 in NSF fees annually, compared with $40 for those who didn't use debit cards at all. [source]

Offering cash back encourages debit card use

It could also be that statistically, if you offer cash back, customers are going to use debit more often than their credit cards because of that convenience. This means that the charge isn't racking up interchange fees for the merchant, which improves their profit on the sale.

One place I looked was a company that offered credit/debit services to merchants.

Benefits to Merchants [source]

Provide an additional payment option to merchants' customers
Offer less fraud potential than other forms of payment because of the use of PIN's
Online capture means funds are guaranteed
Lower risks with the reduction of fraud
Provide a cost effective method of receiving payments
Lower transaction cost than credit card processing transactions
Encourage quick checkout
Auto-close with funding within 24 to 48 business hours

There are some big benefits with debit use, but nothing specific to cash back.

Can provide a cash back feature, which can increase store traffic

I wonder if this is the only real benefit, increasing store traffic? I just can't find a solid answer.

The county tax office is in a sound proof cave

2007-10-08T09:29:00.000-06:00

Home values are down. Many houses in my street are for sale, others for rent, and many are bank owned. They aren't selling well and prices are being slashed. Property values are just plummeting. The house down the street from me has gone up for sale 3 times this year. Another one has been sitting on the market for almost 2 years. This year and the next will be a low point in the value of my home, assuming it doesn't get worse.

But why worry about that when you can just ignore it? The county tax office has. My house has continually gone up in value in the middle of a housing crash. Whodathunkit. Its no wonder people are disputing their appraisals in record numbers. Also amusing, they have issued statements claiming a tax cut. Oh, our actual taxes in dollar amount has increased incredibly, but the tax rate has been slashed a meager .2%, and they think we're so stupid that we'll thank them for it. Yes, that sure will offset my 10% appraisal increase and ridiculously over-valued rate.

Disputing your tax appraisal is much the same in every state. You go in front of a panel of government officials, bring as much evidence as you can to prove what you feel is the real value of your property, and then try to make your case. In a few weeks you get a letter with your new (or old) appraised value. From what I hear from others who have done it, they usually lower your appraisal a tiny amount just to appease you and hope you won't appeal.

Of course unless you are a reasonably good public speaker, the whole procedure is pretty darn intimidating. I'm sure it's supposed to be.

Being rich doesn't mean you aren't failing

2007-10-05T12:20:00.000-06:00

Although I would hope that the 3 families that Money Magazine featured are extremities in the typical middle class neighborhood, I am quite certain that their attitudes are all too pervasive.

Read the entire article for the sad state of their affairs. Here are some excerpts that you might want to take note of:

Robert Frank, an economist at Cornell University and author of Falling Behind, calls the desire to match what the neighbors spend, remodeling project for remodeling project, lavish party for lavish party, "luxury fever."

Not only can it prompt you to spend beyond your means, but it can also lead you to a false sense of how you are doing financially.

Nice to know a real economist agrees with me.

The Steins

In reality, moving to Wallingford hasn't improved the Stein's finances. In fact, despite a seemingly comfortable combined income of $132,000, their cash flow is a little bit worse than before because they have a bigger mortgage and higher property taxes.

All told, their house payments now run $32,000 a year, up from $22,000 in Wayne. Their other big expenditure: $26,000 a year for a full-time nanny for their three children, Eva, 3, and twins Neve and Lila, 2. Then there are all the myriad costs of a young and growing family, from diapers ($70 a month) to groceries ($800).

They now owe nearly $39,000 on five different cards, including nearly $1,200 on an American Express account with an interest rate of 30.21 percent. The minimums alone run the family $700 a month.

The result is that the Steins live mostly from paycheck to paycheck, saving very little.

Yet, they feel they can afford a full time nanny and pay him/her $26k a year.

Still, Marni's plan to solve her family's financial problems is not to cut spending and pay down the debt. Her idea involves going further into debt so that she and her husband can get additional training to help boost their income.

And that is why she will fail.

Marni is working on a Ph.D. that will add $18,000 in student loans to the Steins' balance sheet by the time she finishes next year. Stuart plans to take a $5,000 management course. "I don't think watching our expenses will be enough," says Marni. "The only way we really could be better off is if we make more money."

It won't matter if you make a million a year if you are spending a million and a half. After they get professional advice on how to get their finances on track, here is what they plan to do:

They plan to apply for a $42,000 home-equity loan - that's 40 percent more than the planners suggested - to wipe out their remaining credit card balances and to pay for Stuart's career training and a new fence around their yard.

And this is why they will never be financially secure. They will never make enough money.

The Mendells

Dave, 39, teaches fourth grade in Wallingford's elementary school. Emily, 38, is vice president of strategic affairs for the National Venture Capital Association. Together their annual income is $250,000.

what really diverts cash from their savings kitty is the cool stuff they like to buy...recently bought an $800 custom-made, handcrafted board. He has three guitars, plus a fourth...they bought a trampoline and a swing set for the backyard. Emily, nearly a black belt, spends about $3,400 a year on karate lessons for herself and the boys. Dave prefers yoga classes ($1,200 a year).

The Mendells would also like to finish their basement ($30,000), and Emily wants to trade in the family's minivan for a Mercedes M-Class ($40,000). Then there were the separate vacations Dave and Emily took to Costa Rica over the past year and the family trip to the Grand Canyon (total for travel: nearly $8,500).

This spend-thrift attitude is going to make broke debtors out of their kids, too, with their lack of parenting:

Emily, who says she has a problem saying no to her kids, admits some of it is spent on impulse purchases for the boys, who regularly return from trips to Target with a new toy. "When we're at the mall and they ask me to buy something, what do I say? 'We can't afford it'?" asks Emily. "We can."

Yet they don't think they spoil them.

Should we be enjoying our life more?

Yes, so long as you are okay with working for the rest of your natural life. So after their advising session what will they do?

The Mendells have pledged to boost their retirement savings. "I thought we were on the right path," says Emily. "But we've got a lot more saving to do than I thought." They say that they are also committed to cutting back on their spending but haven't decided how. Meanwhile, Emily is still shopping for a Mercedes.

They are failing themselves, and their children. They recognize the problem but refuse to do anything about it. They must have that Mercedes. They do not see the long term consequences of their actions. Their children will learn good money management by watching their wealthy parent's utter failures. Bankruptcy, foreclosure, repossession is in their future. Their $250k income will not last forever, and when they stumble, they will fall off a sheer cliff.

The Wrights

Read about them in the article, they are the only ones with some sense.

I might need to get divorced

2007-10-04T08:09:00.000-06:00

I had a disturbing conversation with my wife the other night. We were talking about the results of this situation with the medical bills and about our progress on paying down our debt. We threw the idea back and forth of paying off my student loan before her car loan. Now interest-wise this makes no sense, but balance-wise it does. I can pay off the student loan in one big lump payment if I focus all our debt repayment on it for one month. That would kind of simplify things since I would have one less debt to worry about, and would be a nice feel-good victory. The extra interest we would end up paying on the car loan to do this would be negligible. She agreed. Then she gave a reason why she agreed:

"Well, the car loan isn't really debt anyway."

I was floored! What? Not debt? I need to tell the bank to stop charging us interest. She stood her ground; a car loan is not really debt. So I ask her why she thinks a car loan isn't debt.

"Because everyone has a car loan."

I stopped to think about this. Does everyone have a car loan? Of course not. Does anyone need a car loan? Of course not. Very few people absolutely need to buy a car that second...they could easily just start saving a payment and buy a car in a few years. Most people buy a new car when theirs starts having problems, or they just get tired of it. That's certainly not a necessity to borrow money. Rarely do people literally run their car into the ground until the engine implodes and it refuses to move another inch (and those that do have probably been saving for a new car anyway).

Yet there is the mentality that everyone has a car loan, that everyone needs a car loan, and that it isn't really "debt". Why is this? Is it because everyone around us is so addicted to debt that one little car loan doesn't seem like a big deal? Has the automotive industry itself so well marketed buying a car on time that it seems like just another standard process in buying any car? Or are we just so entrenched in this culture of instant gratification that saving money for 5 years for a single purchase just seems outrageous and out of this world?

Followup to unexpected medical bills

2007-10-03T10:28:00.000-06:00

On September 7 I revealed a few medical bills that were put on our credit card. We had some hard decisions to make, and my wife and I had different strategies for tackling this new debt.

Obviously we were not going to carry a credit card balance, it had to be paid off. This left us with 3 options: tighten our belts and attack it as best we could, use a portion of our emergency fund and then repay ourselves back slowly, or use a portion of our debt repayment to pay it out. Her idea was to use the debt repayment (as that is what it is technically for) and I wanted to use the emergency fund, seeing this as an emergency.

Our compromise was to pay as much as we could during the month and see what was left over at the end, then use the debt repayment amount to pay it. Here we are at ground zero and it stands as thus: out of the $1,700 card balance we have paid off all but $400 just by saving a little extra and putting whatever we can into it (and some generous help). It's been tight. But now out of our debt repayment (what we pay extra towards the principles of our debt) we need only use $400, still allowing us to put $900 towards other debt. In the end, I think we both feel pretty good about this result.

Why doesn't this company want my business?

2007-10-03T08:58:00.000-06:00

I was reading a post on Consumerist and came across a comment from one of their registered members about an unfair cellphone policy that resulted in a loss of business for the company. The short of the story was that he had 2 lines, moved one line, and could not retain his other line with them. He was being cut off and charged an early termination fee. This was their "policy", though it was not even in his contract. He will never do business with them again. They didn't care.

Am I surprised? No...there is a good reason why I believe companies, utility companies in particular, are too large and cannot be trusted.

1) When I call SBC, I am not talking to SBC. I am not talking to anyone who gives a rats behind about the company, whether I am retained as a customer, or their ultimate health as an organization. I am speaking with some guy getting paid low wages who only cares about his own job.

"Retention" is only important to him if he has a quota or gets some kind of immediate reward or bonus. If he gets neither, or he has already maxed out his rewards for the pay period, he does not care if you cancel or not. The company could be losing a good customer for life - it doesn't matter, because you really never talk to anyone in the company that cares.
2) Their contracts are a joke. Do you think it matters what is in your contract when you sign up for a cellphone? The only reason the contract exists is to empower the provider. Further, they can break, add, or change the contract at any time with no penalty. They can charge you whatever they want, for whatever reason, or cancel you...or provide lousy service. Even if something is not stated in your contract, they can do it.

Why? Because your only recourse is a lengthy legal process that they know 99% of their customers are not going to deal with. Thanks to new popular arbitration clauses, even the 1% of them that do will only win 5% of the time. If your cell provider charged you an extra $50 for some reason and refused to refund it, what would you do?

Take them to court? The filing fees alone would exceed the balance. Would you not pay it? Then it will go on your credit report - and a collector isn't going to care what your contract says, they will just go back to the company for verbal verification.
3) There is no liability. What can you do if some CSR doesn't hit the right button? Will the next CSR listen to you? Will they believe you, or will they think you are yet another customer calling in trying to pull a fast one? If it isn't on their little computer screens, it doesn't exist. You are at the whim of the CSR and their supervisors. See #1.

Companies have too much power over consumers, and we have too little resources to fight them. Indeed, for just about any dispute it comes down to whether you want to fight it on principle - because it will probably cost you more in the battle than to just relent and pay them.

The Black Death of the 21st Century

2007-10-03T07:44:00.000-06:00

Here's an interesting article from MSN about a recent trend showing up in the wake of recent foreclosures. Mrs Rossman sums it up perfectly (emphasis on the two conflicting concepts added by me):

They opted to let their mortgage payments go while keeping current on all their cards. "I would rather be late on one thing than on several things," said Rossman, who works at a local church, pointing to the "very high interest rates" on their cards and the need to keep accessing credit. "But we can't just incur debt forever," Rossman, 24, also acknowledges. "We're cutting coupons, eating very cheaply and doing everything we can to stay within the budget."

Mrs Rossman gets an F for logic; better to not pay your mortgage than not pay your 6 credit cards. Late on 6 debts is worse than being late on 1 debt right? You are reading this right. This family (with a new baby no less) has decided to stop paying for their house so they can keep current on their credit cards. Why? Because they need them, and they can't stop spending.

The proliferation of no-money-down home loans over the past few years, coupled with the current housing downturn, is giving rise to a new mentality: People will risk losing their homes while doing everything to keep their credit cards.

Credit card companies are ecstatic, of course, because not only does this ensure more profit at the expense of the consumer's security but it opens a whole new market for them. Yes, right when we have ample evidence (via massive foreclosures) that lending money to people with sloppy credit or little income is a bad idea, credit card companies are targeting just that demographic.

As people such as Delana Dowdy in Darby, Mont., found out, falling home prices and tightening credit have made it harder to withdraw home equity to pay off debts such as credit card bills.

"The appraised value (of the house) didn't come high enough to consolidate our bills," said Dowdy, 36, who runs an antique store. Right now, she's behind on both her mortgage payment and card bills.

See, it never occurred to these people to just stop spending beyond their means, they are disappointed that they couldn't sign up for a new loan with some nice home equity to pay off their existing debt. As if that would be some kind of solution?

Teesa Rossman and her husband bought their house for about $135,000 two years ago with no money down. But a subsequent -- though temporary -- job loss and the birth of their first child have strained the Rockford, Ill., family's finances in recent months. Just last month, the couple found it impossible to pay all their bills and had to choose between making payments on their mortgage or their credit cards.

Why would you choose to keep a credit card company happy (and fat) rather than pay for your home? What will they do when they come home and find the locks changed and all their stuff on the sidewalk being picked through by their neighbors?

I have a reason. The same reason why a homeless man will buy a bottle of booze instead of a sandwich. Addiction. The people mentioned in this article and those like them are addicted to credit. They are addicted to creating their own lifestyle regardless of the cost, they are addicted to the materialism and the consumption of "stuff". Spending money makes them feel good, makes them feel successful, and gives them a false sense of security. What happens, then, is the music stops and they are scrambling for a chair, clipping coupons and eating Ramen noodles, but the one thing that put them in this situation - their insatiable need for credit - is the one thing they can't live without.

Credit addiction is the Black Death of the 21st century.

When should you get rid of your car?

2007-10-02T10:10:00.000-06:00

No Credit Needed has a problem that made me think a lot about our relationship with automobiles. In this specific case, a transmission may need replacing - among other things - at a tune of $2,000 on a 7 year old van with 135k miles.

Some of the comments from his readers made me pause. A good many of them considered such a car to be unreliable, and the solution to be to buy a newer one. Here is a van that probably cost $25,000 new, and 7 years later it is unreliable and needs replacing? The math doesn't work well in my head. Over $3,500 a year for transportation. We must be out of our minds to buy these things!

When the automobile was invented, an owner of such a machine could take it apart and put it back together again. They took time to learn how it operated and how to fix it. Today most people can't even change a tire (and not the actual tire on the rim, just bolting it to the shaft!).

This is a recipe for utter disaster. An expensive machine, bought on credit, constantly depreciating, needing more maintenance as it gets older, without any knowledge of it beyond how to operate its controls in the most basic way, and utterly reliant on an industry (mechanics) that benefit from mechanical failures and lack of consumer education.

Now a repair is due...yet when we consider whether to go forward we do not think of how much we paid for it, $25,000, we think of what it is worth now, say $8,000. A $2,000 car repair looks huge. Yet this is something that cost us $25k, needing a repair of a mere 8% of it.

Somewhere along the line we forget how much we paid (probably because we never wrote a check, we just made little payments), and its value is judged not by what it is worth to us, but what it is worth to everyone else. This leads us to terrible financial decisions, like trading in a vehicle for chump change (market value) simply because it needs an expensive repair.

This is not even considering the dependency we have on mechanics. Our lack of knowledge is our enemy here. We are dependent on the trustworthiness and honesty of the mechanic, something we cannot judge unless we have had experience with them. And that experience could be costly.

I just can't imagine buying a living room set, spending $25,000 on it, and then buying all new furniture for $25k again in 5 years. If the couch needs reupholstering, we don't say "Well this job will cost $1,000 and I can only get $3,000 out of this set at a garage sale, so I should just buy all new furniture!" - no, we say "$1,000 is worth it, this furniture cost $25,000!". We expect value out of the things we buy, why don't we expect it from our cars? And when repairs do come up, why do we ignore what we originally paid when evaluating whether the repair is worth it?

UPDATE! Collecting unclaimed property

2007-09-28T15:42:00.001-06:00

On September 12 I reported that I had located $300 in unclaimed money with the state comptroller. Any time a company owes an individual money, they have to turn it over to the state for safekeeping.

You can search online with just your name to find out if you have any unclaimed property by going to http://unclaimed.org/ or http://missingmoney.com/. I did a search myself and discovered a $300 paycheck from an old employer that we had, for whatever reason, not received.

In fact, this turned out to be an old paycheck that was never delivered. We found our information, printed out a form and filled it out, and mailed it in with the appropriate requested identification (copies). On Sept 28 we got a check from the state! A small 1% fee was subtracted, not at all bad considering there were expenses involved in collecting, holding, and mailing the money (although they could also have earned money on it -via interest-, but it is also possible that they are legally prohibited from doing so).

We told a family member about this and they reported having almost $3,000 in unclaimed money!

With the ridiculous state of corporations these days, this does not at all surprise me. Companies can't even communicate with other departments in their own building, yet alone perform complex tasks like locating a customer and calling them on the telephone. Check with your local state comptroller to see if you have any unclaimed money.

How I spend my paycheck

2007-09-28T14:50:00.000-06:00

Above is a table that I use to divide each paycheck (though I usually do it on a sticky note so it never looks so neat!). This helps me keep track of where I need to send the money coming into my checking account so I don't accidentally spend something I shouldn't. The numbers are just made up.

First I deposit my check and subtract 15% for savings (another 15% is already taken out for my 401k). I subtract my readjustment/spread account payment, any bill payments that were made from my bill pay account (a separate high-yield interest checking account - ING), and any budgeted items coming up that week. In the right side I figure out how much I need to transfer to ING, which is the readjustment/spread amount, the bill pay balances, and the savings (my savings is presently being used for maximum debt repayment).

At the bottom I take the current balance of my checking account, add the deposit amount and subtract the ING transfer amount. That gives me my actual account balance. Next to it I subtract the budget amounts, which stay in the checking account until I spend them that week, and I get the "Available" amount, which is what I have for spending on whatever that week.

Of course, this particular table doesn't include nearly as many bills as I usually have - for simplicity, so my available spending balance is rarely so high!

Newflash: When you borrow money you have to pay it back

2007-09-27T08:33:00.000-06:00

What do economists think of the recent credit squeeze? Everyone is waiting for the rising foreclosures and sinking bad debts to trickle down to everyday consumers. Will we experience another depression? Will bread cost $10 a loaf?

"For the past 25 years, America has experienced a period of rising consumer debt," said Steven Fazzari, an economics professor at Washington University in St. Louis. "Up to now the high debt levels have had a positive influence on the economy. In fact, it was a stimulus to economic growth. But now it's likely to become a source of economic contraction."

How is increasing debt a positive influence on the economy? Sure, if you double your income by borrowing money you don't have, you can spend more. Is that good for the economy? Ask a marathon runner if it's a good idea to drink a gallon of coffee and start out in a blistering fast run.

"Our research suggests that we're facing a much more serious problem due to our consumption habits, that could have a much bigger impact,"

When you think about everyone who refinanced in order to cash out equity in their homes, they have been spending money that they didn't really have. Now their equity is gone, they can't pay back their loan, and the supply for their spending surplus is dried out. Now they have to live on their income alone, plus pay hefty monthly payments on all that debt they accumulated. It's no wonder they won't be spending much elsewhere.

"What will people do when offers for new credit cards don't show up in the mail three times a week? People won't be able to simply pay off old loans with new lines of credit. They'll be forced to service their debt, if they can."

Perish the thought.

FNBO advertises a rate that does not exist

2007-09-27T07:47:00.000-06:00

FNBO Direct is still advertising its 6.0% online savings account interest rate. I had an issue with this last week, but I really have an issue with it this week.

First of all, all transfers into the FNBO account have a 3-4 day waiting period (in which I assume the company used to complete the transfer gets their cut by taking the interest in the meantime) between the time the money transfers out of your other bank and into theirs. So even if you already have an FNBO savings account, it has been literally impossible to earn the 6.0% advertised rate. At all! Starting about the middle of this week they have been advertising a rate that no longer exists for new customers.

The rate changes on Sept, 28. Friday. Tomorrow. The real stinger is that FNBO has already announced their new rate of 5.05%. This really isn't bad, considering other banks are reducing their rates almost across the board. ING is down to 4.3% (a .2% difference) and HSBC just lowered theirs to 4.5%, down a whopping .55%. Still, they are advertising a rate that not even their existing customers can take advantage of.

FNBO announces new rate

2007-09-26T15:45:00.000-06:00

FNBO has announced the new rate on their savings accounts. 5.05%. Lower than their previous rate, higher than some (like ING). No doubt this is to recoup their losses from their brief 6% promotion.

Balance out your utility costs

2007-09-25T12:59:00.000-06:00

Gas and electric costs vary wildly throughout the year. According to government sources, these costs will be even higher as natural gas and electric prices increase. This can turn an already tight budget into a catastrophe, or at least a very lean winter. Who needs bigger utility bills near Christmas time? I sure don't.

The easy solution is to adjust your bills and save the difference. You can call your electric/gas company and just ask over the phone if you don't have your statements for a full year, how much it cost you each month. Add them together, divide by 12, and you get an average cost of these utilities throughout the year. This becomes your monthly payment. During the months where your bill is lower than your average, the excess goes into a savings account. During the months that it is higher, the shortage comes out of that account.

This stabilizes your budget and any increases in cost (or accidental overuse) can be more easily managed.

Also do whatever you can to lower your consumption of course.

Perpetuating the lie to college students

2007-09-25T09:24:00.000-06:00

I had high hopes for "Nanny Diaries" after about 20 minutes into the film. The story is this: a young woman graduates college with no idea what she wants to do as a career (shocking), bombs out at an interview, and by chance lands a job as a nanny for a rich family. This is a comedy so naturally the mommy is the typical white wealthy woman who lives off her workaholic husband while shopping and chatting with her friends all day.

But there were some hints of some real interesting social commentary that I had hoped would make this movie a real diamond in the rough. Sadly, I was disappointed.

We start off with the young woman lying to her mother about her new job, because as we all know if you don't get a high paying job right out of college you must be a failure, right?

So she becomes this nanny, and ends up having a pretty good time except for the stuck up mom she has to deal with. She also meets a guy in the building, and during all this we get bombarded with the idea that people who work hard in the service industry are good people that deserve respect, and that being rich isn't necessarily a good thing.

That all falls apart about half way through the film. After the scene of the "guy" always dressed casually and taking the stairs in the building (or going into a side workroom) and hanging out with buddies and taking her to a pizza joint, I assumed he was the building super. A normal guy with a normal job. And a normal girl with a normal job. Perfect match, right? Not in Hollywood. He of course turns out to be a rich trust-fund baby. And by the end of the movie, even after the woman's mom accepting her job as a nanny, uniting the kid and his mom after a divorce from her cheating husband, and falling in love with the rich trust fund boy, she naturally abandons her normal job to enter, for no apparent reason, law school.

So the entire movie degenerates into the tired message for young people: college will grant you entry into a high powered career, and if it doesn't, you are a failure. Also, the guy of your dreams will be rich. I had hoped for an ounce of reality from this movie. When you graduate college you will more than likely end up in a low paying job at the bottom of the ladder. You only climb up through hard work and determination. This is more of the "have it now" mentality. And with baby boomers delaying or even forgoing retirement, your corporate climb is going to be even slower. That's reality.

Oh, and law school? Lawyers are a dime a dozen. It is not a guaranteed path to a great job (and that is what the movie implies, because there was nothing in it that indicated she had any interest in becoming a lawyer - they just tacked on at the end "oh, by the way I'm not in a lousy job anymore I'm going to be successful!").

Cribs recalled

2007-09-25T08:47:00.000-06:00

A series of cribs were recalled recently. Many news sources have been reporting that the cribs were defective in some way. According to the CPSC report, they were not. Consumer Affairs has a decent summary and you can read the full announcement at CPSC.gov. There is also a video (the video is a little weird - they have a little intro and then images of the crib with an incorrect installation and how the babies could get caught, then about 2 minutes of a video of a baby sitting in a completely different crib for no apparent reason while a mom operates the drop-down door).

In short, these cribs failed because of improper assembly. The CPSC has been exemplary in its efforts to inform consumers of the issue. However I disagree with their public statement.

"A crib is one of the few products that's actually designed for a parent to leave a child unattended. When there's a problem of this magnitude with a crib, there's a huge breach of trust with the manufacturer," she said.

Yet the cause of the failure is incorrect installation. I do not know if the instructions itself is incorrect, or whether this is just a failure to follow instructions, but it does seem to be that the supposed problem is that the gate on the crib was not designed to be impossible to install incorrectly. In other words, the manufacturer is being blamed for not making the product so idiot-proof that it would be impossible to mess it up.

A crib is certainly nothing to put together yourself if you don't know what you are doing. If you think it is possible that you can assemble it wrong, and there is always that possibility, you may want to have someone else do it for you. It is ultimately the parent's responsibility to ensure that the products they use are safe and secure for their children.

If you ask me, the drop-down mechanism on the crib is a little strange to begin with. After watching the video, it seems to do offer nothing and the door and mechanism even in the fancy non-recalled crib looks pretty shaky. Buy a high quality, solid crib.

Bill Mauer on cheap goods from China

2007-09-25T08:41:00.000-06:00

After about 1:20 this video does get good, so grit your teeth through some of the flopped jokes. Nice commentary, Bill.

How much more invasive can advertising get?

2007-09-24T07:58:00.000-06:00

Ads seem like one of those subliminal things that you don't realize you're being subjected to unless you concentrate on it. If you don't watch TV, though, a major source of advertising is not being delivered to you and if my own experience is any indication, you become much more aware of advertising.

It is indeed everywhere, from your TV to your mailbox to your commute to work to your email when you get there. Ads direct us towards specific products and services, especially those produced under large easily recognizable brand names. Of course, because of the advertising (which is expensive) all of these products naturally have an inflated price compared to their actual worth.

That's a good enough reason for me to focus on small businesses and generic products, but ads are also evolving as technology allows them to be adapted to the individual consumer. The most glaring example of this is the all too common grocery store "club" membership whereby a store (or rather the corporate office) can track the spending habits of local populations, stock their stores accordingly, and direct more specific local ads.

This new VOIP advertising company is a natural extension of that concept. The cost of this phone is subsidized by advertising that is displayed on the computer screen. These ads are directed by a voice recognition program that listens to your conversation, selects key words, and brings up an appropriate ad.

I personally think this new advertising venue will fail, at least initially. Most people will not want their conversations to be tapped. I also think that the marketing company is making some poor assumptions. Since when do you surf the web or do other things while you are in the middle of a telephone conversation? How would this even be applied to cellphones when the screen of the phone will be at the person's ear, not even visible to the caller?

Further, if it does become profitable, is it even worth it to consumers? These ads exist because they work. They influence us to spend more or make uninformed "brand" purchases. That could cost you more than a free phone call.

And more disturbing?

Mr. Maislos said that during tests he noticed that the content had a tendency to determine conversations. “The conversation was actually changing based on what was on the screen,” he said. “Our ability to influence the conversation was remarkable.”

Real-time advertising has the potential to actually influence our conversations. Good for business, not good for us.

FNBO's new rate is under lock and key

2007-09-21T15:14:00.000-06:00

FNBO Direct, an online bank that the bulk of my savings is in, currently offers 6.0% APY on its savings accounts. That is a limited offer, and the offer is set to expire on September 28. Next week!

No one seems to know what the new rate will be after that. I called customer service and inquired with one of the reps and they couldn't tell me. She implied that she didn't even know herself, so it is possible that FNBO is keeping a tight lid on the news.

The logical rate for them to return to is 5.25%, the same as the rate before the promotion. But there are two problems with that. First is the Federal rate cut, which could trickle down to lower the rate on savings accounts. Second is that they may undercut their previous rate in order to make up for a little on their promotion. Then again, cutting it below 5% would put it below average and may encourage too many customers to transfer their money elsewhere.

What I found interesting was that they are still advertising the rate with less than 5 business days remaining in the promotion. With the time that it takes to sign up for an account, get it verified, transfer funds, and wait for the funds to clear, no one signing up today or anytime next week is going to see that rate! If you are considering FNBO, you need to wait until after the 28th.

If I were to hazard a guess, I would say that FNBO's new rate will fall between 5.00-5.25%.

Food Stamps to buy junk?

2007-09-21T10:59:00.000-06:00

I was in the store behind a woman in line with 2 kids. What I saw made me search out more information about food stamps, food stamp fraud, and shopping behavior. This family bought a couple gallons of milk with food stamps. It took quite a while, because not only did they have to fill out their little ticket and run it like a check through the machine, they had to run it as a separate transaction. You see, I don't think the government would be happy knowing they gave food stamps to this family if they knew what else they were buying.

When I sought out program requirements, I had to ask myself whether or not this particular family looked like someone who would qualify. Assuming she was married, she must have a household income of less than $1,613. The woman in front of me wearing nice clothes, sipping a Starbucks-whatever, and talking on a brand new Treo/Blackberry-type cellphone certainly didn't look like she was insolvent.

I suspect I had witnessed Food Stamp fraud.

Here's a little excerpt from a food stamp program:

Food stamp benefits...can be used in supermarket checkout lines only for the purchase of food.

What I witnessed instead was the food stamps, instead of buying food for hungry people, simply subsidized their other frivolous purchases. This family's cart (run up separately) also contained: a DVD player, several new DVDs, a case of Cola Cola, a case of beer, a few kid's toys, a cordless home telephone, and a bunch of other miscellaneous items that I didn't see.

Food stamps make it possible for such working poor families to stretch their income.

Yes it does. It is giving them free milk so they can buy $200 worth of frivolous junk. Our tax dollars hard at work.

At what point should magazines be paying us?

2007-09-21T08:28:00.001-06:00

I have decided not to renew my subscription to Parenting Magazine. Though we do not have any kids, I thought it would be a good idea to subscribe for various reasons, one being that we wanted some magazines for weekend morning reading material. Money Magazine was among my initial purchase, but that also will not be renewed. The articles in it are fairly fluffy and although sometimes entertaining, there is far more useful information elsewhere.

Anyway, the reason that I will not be renewing Parenting is that it not only contains very few real parenting tips, but it is almost entirely a mechanism of product advertisement. All magazines have ads, but even the articles in Parenting are usually little more than cleverly disguised product placements. Nearly every "solution" in any article involves the purchase of some commercial product. Even the recipes, which should be fairly inoculous, suspiciously include brand names or processed/frozen goods.

I can ignore the blatant disregard for the male role in parenting in this magazine, and the frequently useless (and rare) male-focused article and the general tone of the entire publication that men do little to nothing in the way of child rearing, making way for "super mom" because as my wife says they are just embracing the stereotype.

I can ignore it because the entire magazine is insulting. When they are not hawking merchandise and "must have" lists that are overflowing with junk that no practical parent could ever possibly need they are filling pages with reader-contributed materials and common-sense tips. Apart from actually putting all the material together, I am at a loss to figure out what content the editors actually produce. I feel violated that I have essentially paid to be advertised to while trying to trick me into believing they are delivering original and useful information.

This magazine, and others like it, should just be made available on the free rack.

How to ruin a household brand name

2007-09-21T07:58:00.000-06:00

I have discovered 5 easy steps to taking a million dollar brand name and run it into the ground so it not only loses credibility, but becomes synonymous with the exact opposite of its original intention.

Step 1: Create a fantastic concept and sweep it nationwide. Base your concept on giving folks tips on making beautiful household decorations, foods, and crafts out of everyday items. Become so popular that your very name brings to mind a do-it-yourself can-do attitude and quality and sophistication. Be the model by which all domestics aspire to.
Step 2: After your reputation is established, begin licensing your name to mass produced merchandise sold in big box stores known for low quality cheap goods sold largely to low income markets. Add a shred of credibility to the project by at least selecting colors, patterns, and themes.
Step 3: Abandon the DIY attitude and focus on themes that encourage people to buy more mass produced products instead of making things on their own with everyday household items.
Step 4: Overprice these goods so that the low income market they are catering to will not want to buy them, and the high class market that they would appeal to won't have them available because they are sold in stores that they wouldn't step foot in.
Step 5: Abandon all pretense of class by taking an existing product already in popular and in mass production and slap a label with your name on it and jack up the price for no apparent reason.

As a big wine drinker, I am appalled that Martha Stewart is "rebranding" Ernest & Gallo wine. Not only does Martha bring nothing to the wine business by doing this, but she has yet again chosen a product that is known for it's cheap availability. She could have only done worse by putting her face on a box of white zinfandel.

It is sad that Martha Stewart, who was once the "diva of all things domestic" has become a poster child for commercialization and brand consumerism. I would probably try Martha Stewart wine if it wasn't for one important thing, she doesn't have a vineyard, so Martha Stewart Wine really doesn't mean anything.

The good news is that if you already enjoy Ernest & Gallo, you're already drinking her "new" vintage.

Don't like late fees? Try paying your bill

2007-09-20T11:39:00.001-06:00

Are you upset that credit card late fees are staggering and out of control? I'm not. Sure, I've carried a balance in the past. I even had some significant credit card debt. But I've never paid a late fee. Why? Because I pay my bills.

Right now, the late fee on a Discover card is $15 on balances up to $500 and $39 on balances over $500. For billing periods after Oct. 1, the late fee will be $19 on balances up to $250 and $39 on balances over $250.

I understand that late fees for these cards are pure profit for these companies and they are ridiculously high, but you only get charged when you don't pay on time. With all the buzz surrounding these fees there has to be a huge number of people paying their bills late.

That’s a real stiff penalty to pay for being as little as one day late...when consumers mail in their payment seven to 10 days in advance and they still get hit with a late fee, something is really wrong.

The problem here is that there is no way to verify when your bill arrived. Yes, I have sent letters out first class that took over a week to arrive. It is somewhat unrealistic also to believe that when you send your payment via regular mail that it will be processed on the same day that the company receives it. Though large, these companies probably have many thousands of bills arriving per worker employed to process them each day. If your bill lands in someone's box at 3PM when they have a pile of payments waiting to be processed, it makes sense that it wouldn't be posted the next day. Do I think it's right? No. Do I think consumers can protect themselves fairly easily? Yes! Direct electronic bill payments are the only way to send a secure payment and have a receipt of that payment. Your alternative is to send everything by certified/receipt request mail, which of course costs quite a bit more.

How would you describe an interest rate of 28 percent to borrow money through your credit card

Why on Earth are you borrowing cash from your credit card? Further, the rates they charge are clearly listed on each bill that arrives in the mail. If you don't like paying 28% interest to borrow cash, don't do it. It's that easy.

Rather than blame the credit card industry for their crooked ways, take control. Want to avoid late fees? Pay the bill. Want to avoid high interest charges? Don't use the credit card. Don't want to pay 30% to borrow cash? Don't borrow cash. Stop feeding the beast. The only ones who can stop this madness is us: the consumer. Otherwise we are left to the regulation of the government. Like a parent disciplining a young child, it will only behave when mommy and daddy are watching (or when they think they'll get caught). And who do you think pays for that strict regulation? Is it free? No. You pay for it. Taxes.

This one nearly killed me:

If you do not have any liquid assets, consider tapping the equity in your house, through a home equity line of credit. This really makes sense if you already have an established line of credit.

What an idiotic suggestion. You are going to eat away the equity of your home and risk losing it in order to get cash? That isn't the solution. The solution is to stop borrowing money. How many of these people facing foreclosures (and crying fowl) can't refinance or sell because the value dipped below what they borrowed? How many are because people sank their other debts into home equity loans? You have a spending problem. You have a living-outside-your-lifestyle problem. Borrowing money is only going to make things worse and extend your misery because, sooner or later, you are going to have to repay it. What makes you think your situation will be any better then? You'll just have to borrow more, and extend it further. See where this is going? See where the perpetual cycle of debt leads? Utter dependency on an industry designed purely to efficiently bring more money in than it sends out.

This is a scam, perpetuated by rampant consumerism to feed off the ignorant. There is only one way to use a credit card and if you are paying late fees and interest charges, you aren't using it correctly. Government regulation is not the answer. Consumers educating themselves and making wise financial decisions are the only things that will bring the beast down.

Are homeowners entitled to a bailout?

2007-09-18T10:00:00.000-06:00

According to Sheila in this Fox News article, you bet taxpayers should bailout homeowners facing the possibility of not paying their bills.

Do I agree? Heck no. Here's Sheila's letter (emphasis added by me):

We were shocked to learn that our mortgage is going up nearly $500 a month. We knew that buying this house a couple of years ago would stretch our finances to the limit, but we really wanted our kids to attend this school district so we decided to bite the bullet and keep to a very strict budget in order to make this work.

We both have jobs, but there’s no way we can come up with another $500. And home prices have really come down since we bought our house, so if we have to sell, we’d probably take a loss.

I’m just sick over this. I heard that President Bush has announced a program to help people like us. What can you tell us?

They "bit the bullet" and stretched their finances to the max with a home they could not afford by signing a loan with an introductory interest rate so their angel could attend a particular school. I sympathize with the feeling; you want your kids to grow up in a good school district. The problem is that if your two jobs can't afford for you to accomplish that goal, why exactly should government (taxpayer) funds subsidize your income?

That's exactly what this is for people like Sheila. They want the government to subsidize their income so they can live in a neighborhood with a good school.

Further, should people really be given tax free debt forgiveness because they paid too much for their house and now owe more than it is worth, and have a loan payment they can no longer afford? Hey, if the government wants to get rid of the forgiven debt tax, I might take a look and stand behind it - but not when it is exclusive to people who made bad choices when buying a house.

There are some people out there who are victims of mortgage fraud. Sheila sure doesn't sound like one of them. She just bought a house in a neighborhood she wanted, regardless of the terms or cost, and now finds herself in a financial hole. The consequences of the "have it now" mentality caught up with her, and she feels like a victim.

She is a victim. Of her own irresponsibility. I sympathize, and I wish her best. My advice to Sheila? Rather than standing on the street corner of Congress with your hand out, sell your house at a loss, take out a personal loan for the difference and start paying it off, and start living a lifestyle you can actually afford. Last time I checked, accountability and responsibility were in the dictionary, so she should have no problem looking them up.

Are you prepared for a power outage?

2007-09-13T08:20:00.001-06:00

A small hurricane slammed into Louisiana last night, because Louisiana hasn't had enough of them yet. Over 75,000 homes went dark. As I live to the west of Louisiana, we were also watching this little storm tumble its way through the Gulf of Mexico. A popular financial blogger, AllFinancialMatters, was right in the middle of it.

So what, if any, provisions do you keep should you have an extended power outage? When flooding occurs, there is also the possibility of contaminated water. The basic supplies that we keep on hand at all times include:

A battery powered flashlight
Candles, matches
Oil burning lamps and a few containers of oil
Small bottles of water (we have about 15 in our fridge that we always refill - we like to drink water)
Gallon jugs of water in the garage, we have a few of those
Canned foods

These are the supplies we always have. They would tide us over for a few days if we are stuck without water/electricity. This is all we keep on hand, unless there is a major hurricane definitely heading our way. Frankly, I prefer not to subscribe to the "rush to the store and buy a ton of supplies" at the last minute kind of planning.

Don't trash blank pages in your bill

2007-09-13T06:13:00.001-06:00

This is probably a no-brainer, but I am guilty of improperly disposing of some of my private information. Occasionally when I receive a billing statement from So-and-So Corporation, they will leave a blank page at the end - or a page with unimportant information. Sometimes I shred them, sometimes I just ball them up and toss them.

But you need to always shred these documents. On one I noticed that my full name and account number were displayed on the header of the page. Not good information to have out there. On another I noticed the name and account number in tiny print at the bottom corner, not where you would expect to look, but there it was. So far I have yet to see account information on the bill itself, but I would not put them passed adding at minimum the account number to the originating address portion of the return envelope.

So now, as a precaution, I shred the entire bill - envelope and all - except the main pages that I keep for filing.

Collecting unclaimed property

2007-09-12T12:17:00.000-06:00

States hold onto unclaimed properties on behalf of the owner. Such property includes life insurance policies, tangible goods, and unclaimed employment paychecks.

You can search online with just your name to find out if you have any unclaimed property by going to http://unclaimed.org/ or http://missingmoney.com/. I did a search myself and discovered a $300 paycheck from an old employer that we had, for whatever reason, not received. Though we have not yet gone through the process, we are going to file a claim tonight and I will post a review.

Be very wary of scams, however, as this information is public and various firms may try to charge you to claim your money. The state comptroller will charge you a small fee (my state charges 1% for up to $5,000 and 1.5% above, zero for less than $100). Some however will try to get up to 10% out of you, or charge you to do the search. Don't fall for it - the information is free and filing your own claim is easy and cheap (so far as I can tell, it can all be done online).

Acting in the best interest of consumers, each state has enacted an unclaimed property statute that protects your funds from reverting back to the company if you have lost contact with them. These laws instruct companies to turn forgotten funds over to a state official who will then make a diligent effort to find you or your heirs. Most states hold lost funds until you are found, returning them to you at no cost or for a nominal handling fee upon filing a claim form and verification of your identity.

If in doubt, call your state comptroller or visit your state's official website and search it for "unclaimed property".

Are speculators a blight in your neighborhood?

2007-09-12T11:12:00.000-06:00

There is a house just down the street from ours that has remained vacant for over 2 years. I say over 2 years loosely, because it has been vacant since we moved into our house. It is a nice looking house - if it were taken care of. The yard is dead and only the weeds grow (it is mowed by a mowing service every other month or so). 2 large trees in front of the house are overgrown and lay partly on the roof, leaving the whole thing a dark blotch on the street. It's the kind of house that you always would think was haunted when you were a little kid. But instead of being an old rundown house, it's one less than 10 years old.

It once had a for sale sign, but was apparently purchased sometime last year. The sale sign is gone, but it remains empty. Undoubtedly the back has been broken into, because if you walk by and look in the windows you can see that kids have spray-painted on the walls (fortunately not gang related, more like funny cartoon pictures). It is supposedly worth $200k, but of course it only sold for $125k (less than my house that is half its size).

It is simply a blight on our neighborhood. A house bought by some investor and left to rot. Why they would do this baffles me, but I expect to see a for sale sign up again soon with no improvement to the property at all. It is just likely that the speculator will foreclose.

The sad thing is that they have no investment in the neighborhood, so they could care less how it makes the street look.

So, are broke speculators leaving eyesores in your community?

Unecessarily complicating a simple product

2007-09-11T08:22:00.000-06:00

I just bought a new wall clock. It's a pretty typical clock - the analog kind with a second hand and a quartz movement, battery powered, in the back. As you can expect, these clocks take a AA battery and last, well, forever.

Not anymore. Whoever made this clock thought it was too simple. So they added a small LCD indicator on the back to set the date/time/zone so that it would automatically change to a new time during daylight savings time. Because really, turning the gear on the back of the clock is more work than the average consumer can do twice a year.

But they were too lazy to actually make a new clock with this fantastic design, so they just screwed on a MORE complicated LCD box that is simply wired into where the original AA battery. Now it needs 2 AA batteries. AND the LCD box needs its OWN small lithium battery (those coin-like batteries).

So we went from a simple quartz timepiece with a AA battery to a quartz timepiece with a second LCD clock attached to the back that now requires 3 batteries - all so I don't have to spend 10 seconds changing the time twice a year.

Thanks!

Product registration cards

2007-09-11T07:11:00.000-06:00

Buy any electronic device and you are likely to find with the warranty card a product registration card. After my wife recently bought a toaster oven she asked me whether she should fill it out and send it in - to make sure she could use its manufacturers warranty if needed.

It is interesting that, either by good placement or how it looks or is worded, people assume they must fill out the product registration card in order to validate their warranty. The top portion does look pretty authentic, asking for the date of purchase, retail store, serial number, model number, name and address and phone number. Then the registration card gets ridiculous, diving right into a survey of what kind of hobbies you enjoy and what magazines you would be most likely to subscribe to.

But if you look closely, somewhere on the card in really fine print (below the other fine print) it says the card has nothing to do with the warranty.

So unless you feel like dishing out your address and phone number so the manufacturer can sell it to a marketing company, throw the product registration card in the trash.

Looking for a fuel sipping hatchback?

2007-09-07T19:26:00.000-06:00

We're getting more hatchbacks in the US that are great on gas mileage. Unfortunately, most of them were already being built but still not available here. Take for example the Smart car, which has been wildly popular in Europe and has only recently planned on releasing in the US.

I saw a hatchback in the neighborhood where I work and LOVED it. It's a great looking little car, and it appeared to have a Ford brand on it. Curious, I checked the Ford website. Nothing. Maybe I was wrong?

So I kept seeing this car, and finally I got fed up and ran after it while at a stoplight and caught the brand (the owner likely thought I was psychotic) - yep, it's a Ford. Huh?

Turns out Ford only sells this car outside the US. Our own domestic brand sold us out! Here she is: the 2007 Ka. Here's an English review of the car.

FACTS AS A GLANCE
CAR: Ford Ka range
PRICES: £7,095-£9,995 [exc. Streetka] - on the road
INSURANCE GROUPS: 2-6 [exc. Streetka]
CO2 EMISSIONS: 147-189g/km
PERFORMANCE: [1.3] Max Speed 104mph/ 0-60mph 13.7s
FUEL CONSUMPTION: [1.3] (urban) 35.8mpg / (extra urban) 58.8mpg /(combined) 47.9mpg

A bit pricey at $14k US, but hey...I'd buy a used one! Get your act together, US auto makers...bring us some efficient cars! I knew it was a Ford, I knew I wasn't crazy. Sell it in the US, dangit, Ford!

Can you become too obsessed with your debt?

2007-09-07T09:15:00.000-06:00

Probably.

So my wife and I were sitting down last night discussing a few of our current money problems. Namely, a couple a medical bill forced us to dip into our emergency fund and we have a follow-up that is going to cost us again. We still haven't replenished our emergency fund, mainly because I haven't taken our debt repayments to reimburse it. Instead, I've been nickel and diming the fund to slowly bring it back up - using any spare income we have.

Needless to say, our fund is not back up to $2,500 yet. Actually, it is $1,900 now because of that bill. This new bill will set us back another $600. Ouch. Not a good month for the emergency fund.

Of course this discussion lead to how we are going to repay our emergency fund and pay our upcoming medical bill. We have very different approaches.

1) Her plan. She wants to take our debt repayment amount (about $1,200) for this month and pay these medical bills with it. That will of course cover the whole thing and bring our emergency fund back to where it should be, but it leaves us with little extra to put into the debt (not including the regular payments - our debt is a closed term loan and a student loan) for the month of September.

2) My plan. I want to pay the bill out of the emergency fund and slowly build it back up out of our discretionary income without reducing our debt repayment amount.

This lead her to the following conclusions about me:

1) I am too obsessed about repaying our debt.
2) I am wrong.

I don't like the idea of using our debt repayment to pay these medical bills because I feel that's what our emergency fund is for. I don't see the debt repayment as optional. In reality, this would only set our goal of being debt free back a month. Not the end of the world.

This also lead me to once again showing her a simulation of our debt payoff plan, how much we are sinking into this debt, and how wonderful it will be without debt. None of this affected her conclusion that I am wrong.

So, we compromised. We will wait it out until the end of the month and put as much as we can into the emergency fund to bring it back to snuff and save extra for the upcoming bill. If we're short, we'll use a portion of the debt repayment.

I think my bank stole 54 cents from me

2007-09-06T13:39:00.000-06:00

There has finally been a resolution to my auto financing problem. To sum up, the bank decided I didn't have insurance charged me for some of their own, a total of $83.87 that they helped themselves to out of my last payment without telling me (thankfully I always check my payments online).

After faxing over the appropriate paperwork showing no lapse in insurance coverage, it took 33 days to get it corrected - oddly, a day before my next payment was due. $83.87 has been credited to my account and correctly applied to the balance of the loan (the interest was unaffected).

But here's the thing. The insurance payment they took left me with an inflated principle from 8/3 to 9/5. An inflated principle $84 more than it should have. Thus this next payment in which they are going to charge me interest, based on the 33 day billing cycle, is going to be more than I should owe. By my calculation that is a full gain to the bank of 54 cents.

I wonder why it took a whole month to get the problem corrected? I guess they had 54 little incentives to drag their feet.

Charged for bill pay? Let the bank pay you

2007-09-06T07:55:00.000-06:00

I was being charged $7/mo for online bill pay by my brick & mortar bank. For a long time it was worth it. Bill pay is just plain convenient. But now online bill pay has come to be expected from any major bank.

Some have started to offer free bill pay to all their normal checking. I thought seriously about switching to one of those until I took a look at my existing account with the online bank ING Direct.

ING Direct has a checking account with free bill pay and 4% interest. That worked out for me! Since I keep a lot of money reserved for annual bills, I have a bit of cash sitting in the account at any time. By transferring the amount of my bills from each pay check and then paying them from ING, I also get to earn a little interest on my bill before it gets sent out. Now that the system is running smoothly, I see that I am earning about the same that my old bank was charging me.

This is how banking should be!

The obsession with department store cards

2007-09-06T07:04:00.001-06:00

It seems like just about every retail store, big and small, is getting into the credit card business. This is no surprise. All a store needs to do is team up with an existing issuer, negotiate a percentage, and hawk the card in their stores to their hapless customers. Who wouldn't want to have a hand in a 30 billion dollar cookie jar?

These cards, as well as their VISA counterparts (which most of them are converting to anyway) represent clear profit. The benefits are immediate. I will use Target as my example, since I recently witnessed something there that surprised me.

Target originally went through Household Financial, as I recall. Now apparently they have either a new division or their own in house financing called Target National Bank. Anyway, by teaming up with a bank they can negotiate or eliminate many overhead charges associated with using plastic at their POS stations, namely interchange fees. Further they get to earn interest on the purchases long after the sale is finished for those customers who carry balances.

That 10% discount they offer? Assuming they have their interchange fees (2-3%) waived and/or the corporation earns commissions from the issuing bank for the number of accounts they open, they've already recouped that loss. If you include the average markup on these items, the store is still making money even with their 10% discount.

So it is no surprise that every time I end up at the Target checkout lane, I am asked to sign up for their card. But we're not the only ones being harassed on a regular basis. Imagine working there!

Back to my experience. I was in Target and noticed a large group of redshirts in a circle dominating a clothing aisle having some kind of meeting. What caught my ear was that they were talking about the Target credit card. Apparently this Target wasn't meeting its quota for the day, so the manager was going around the group asking the employees if any of they had the Target credit card.

At the end (this all happened very quickly) the manager started in on how valuable the card was to the company and that all those employees who did not have a card (he pointed out a couple) should sign up that day and they would get 20% off their purchase, instead of the regular 10%. He then passed around a clipboard (presumably the same one the employees carry around asking customers to sign up).

Imagine! Working at a store and being forced to sit through a meeting where they point you out for not having a credit card and then being coerced on a regular basis to fill out an application.

And Target? It's the clear winner here. From my very short eavesdropping on their meeting I gleaned the following information:

Employees get 20% off when they open a new card, not just 10% like the customers
Stores have daily quotas they must meet for these cards
All employees go through a hard-sale of the card during their employment
Employees get some discount just for being employees (they did not say what amount in the meeting) but don't get their discount if they use a debit card or a credit card other than the Target VISA.
Store "meetings" will sometimes in reality be sales pitches for high interest credit cards

Shame on Target, I say! Their employees make barely above minimum wage and - in their demographic of low-income families and college students - are more likely to carry balances and be in credit card debt.

Stores used to offer discounts to their employees as a perk. Now the discount system is designed to earn more profit for the company by coercing their employees to run up debt on their affiliated credit cards!

Complain about bad loans, then advertise them

2007-09-05T11:57:00.000-06:00

My local paper loves the subprime mess. They love reminding us that people took out horrible loans, ARMS, IOs, and that the resulting foreclosures are affecting the economy overall as well as the housing market. Not a day goes by that we don't get an article about it. At face value, it looks like the paper is doing its best to educate the public about these bad loans and the consequences of buying more house than you can afford.

Yet on their website right below the articles, on EVERY page (literally every page) they post advertisements for - you guessed it - bad loans. They are just random feel-good numbers with links to creepy lending sites asking for your social security number and other personal information with things like: $250,000 loan for $650 month! 4.9% interest rate!

Um, even at 4.9% a $250k loan at $650/mo would be paid off...well...never. A $650 payment would be adding around $250 to the balance of the loan every month. After 30 years you'd end up owing like $400,000.

The sad part is that just about all these news outlet websites have the same ads. Some are text, some have dancing aliens, all are outright lies. Where is the accountability in the advertising department? How can a credible newspaper claim to help educate the public in one hand and simultaneously trick them in the other hand?

A real saver...

2007-09-05T11:15:00.000-06:00

This guy makes $20,000 a year. I consider him rich. Why? Because unlike most people, he is set to retire with more money than he earned during his working years. In a safe portfolio he is looking at an income of around $40k not including social security. If someone making $100k/yr lived by the same principles, let's say, we can safely assume they would have a few million in the bank (adjusting for inflation) to draw from for retirement.

This just doesn't happen enough. Though we can attribute some of this man's earnings to wise stock investing, the meat and potatoes of this story is that the man saved. He didn't spend all of his income and he likely did not dig himself into debt (though the article doesn't say, this man is from a generation that frowned on debt so I safely assume he has little to none). You save your money and make it work for you, not borrow it from a bank and pay them for the privilege. That is how you build wealth. That is how this man making $20k a year has more money than many fresh retirees who are applying to Walmart because their savings portfolios consist of a company 401k that they already borrowed from to buy a new kitchen for their house.

Money does not build wealth.

Not to worry, maybe you can turn your hobby into a career (video) instead of retiring. Meanwhile, the parking lot attendant you smirked at from inside your BMW is working on his backhand.

How much do we spend on wheels?

2007-09-05T10:55:00.000-06:00

Bankrate.com has a brief article about how much our cars cost us. We have a figure here of about $28k for the average brand new car. Americans typically trade cars every 3-5 years.

A car is an incredible waste of money. Between the age of 30 and 60, the averages show that we will spend over $170,000 on automobiles. What's really upsetting is that after you've spent all this money on cars and you're 60 years old you have nothing to show for it. Maybe some photos. All your cars are sitting in junk heaps.

Is it worth it? Why do you buy a new car? Why do you waste so much money on something that you will probably sell in 5 years and have nothing to show for?

Bush on the subprime market

2007-08-31T12:34:00.001-06:00

If you haven't read/heard Bush's recent address on the subprime mortgage market, I suggest you take a look. While I'm not a Bush fan, I do like his general plan better than, say, Hilliary Clinton's. At least he doesn't just come out and say that he's going to funnel our tax money to pay people's mortgages.

Here are what I think are the highlights:

This market has seen tremendous innovation in recent years, as new lending products make credit available to more people. For the most part, this has been a positive development, and the reason why is millions of families have taken out mortgages to buy their homes

Hmm, but isn't that also why we've got this problem in the first place? There are really only 3 things that make a home (and the loan for it) more affordable and thus increasing homeownership overall.

1) Home prices drop
2) The loan price drops (lower interest rates)
3) The median income increases

None of these happened. The only thing left to do, then, is to extend the repayment period. That means funky loan products. The same products you, Bush, are so happy about created this problem.

This has led some homeowners to take out loans larger than they could afford based on overly-optimistic assumptions about the future performance of the housing market. Others may have been confused by the terms of their loan, or misled by irresponsible lenders. Whatever the reason they chose this kind of mortgage, some borrowers are now unable to make their monthly payments

Well, duh. The whole point of the ARM is to extend the loan period. Same with interest only. You get a low monthly payment for a period, then when you have sufficient equity to lower your LTV ratio and qualify you for a standard fixed. This is of course a nightmarish trap if you can't refinance, because your interest rate hikes to something more reflective of your risk to the lender and suddenly you can't pay the monthly dues. I'm no expert, but that's how I see it. Now instead of a 30 year loan you have a 35 year loan with a 5/25 ARM, thus allowing you to buy a house you can't afford.

You simply can't get more people into homes without either increasing their income or lowering the cost of the house. The math doesn't work. Instead you just encourage people who can't really afford homes to go into perpetual debt just to get one.

the government has got a role to play -- but it is limited. A federal bailout of lenders would only encourage a recurrence of the problem. It's not the government's job to bail out speculators, or those who made the decision to buy a home they knew they could never afford. Yet there are many American homeowners who could get through this difficult time with a little flexibility from their lenders, or a little help from their government

I agree, but that is the root of the problem: people bought more house than they could logistically afford by using all these stupid loan products. They can negotiate with their lender but it all comes down to this: you owe X dollars, how are you going to pay it back? If you owe more than you can realistically pay back in, say, 30 years with some interest tacked on, you can't afford to stay in your house. Period. There is no room for negotiation, the only thing a lender can do is forgive some of the debt or extend the payback period.

Neither of these looks like a good solution. The first one means we're giving money to people who bought more house than they could afford. How is that fair to everyone else paying their mortgages in full? The second one means that they will be paying even MORE for the house AND will probably NEVER own the thing. Changing the tax code to help them even more sounds like welfare.

This administration will soon issue regulations that require mortgage brokers to fully disclose their fees and closing costs. We're pursuing wrongdoing and fraud in the mortgage industry through the Department of Housing and Urban Development, the Department of Justice, the Federal Trade Commission, and other agencies.

Well good! But the disclosures are already there on the mortgage contract. People who don't understand the terms or the contracts they are signing should hire a lawyer to explain it to them. If they can't afford a lawyer (who would probably charge a few hundred bucks for such a task) how can they afford a home?

So here's a glimpse into his plan, apparently.

Sixteen months ago I sent Congress an FHA modernization bill that would help more homeowners qualify for this insurance by lowering down-payment requirements, by increasing loan limits and providing more flexibility in pricing. These reforms would allow the FHA to reach families that need help, those with low incomes and less-than-perfect credit records or little savings...Congress hasn't acted this year. It would be a good task for Congress to come and get FHA modernization done so that we can help these people refinance their homes, so more people can stay in their homes

Am I reading this right? You made a bunch of reforms that sunk people into loans they can't afford so the solution is to make more reforms to keep them in those homes? If they have bad credit, low incomes, and no savings, they should rent! Build up savings, improve your credit, make more money, then buy a house you can afford. Don't game the system just so someone can have a house without putting in any actual effort to get it.

Homeownership is a splendid goal...when you've earned it.

Entertain yourself for less

2007-08-30T10:52:00.001-06:00

When I think of things to do, I also consider how I can save as much money as possible doing it. If anything is too expensive I decline. With all the inexpensive or free entertainment out there, there's little reason not to plan ahead to maximize your savings. Here are some tips for entertaining on the cheap:

Museums and zoos: Not many people bother checking their museum and zoo schedules before planning a trip there. Almost all of these institutions have sponsored days where you can visit for free. Sometimes this is once a month, but often it is once a week. Just avoid the gift shop.
Movie Theaters: Going to a movie with a spouse on a Friday evening can easily cost upwards of $50. Many are also getting into the dining business, attaching restaurants to their buildings and serving pricey entrees. Check around to different theaters for their pricing. Everyone knows about the cheap matinees, but many also have an even lower price for the early morning crowd. Have a big breakfast that morning and (being that it is before lunch) you'll be less tempted to go for the popcorn and soda. Though the clerk might give you dirty looks, they will serve you tap water with ice in a small cup at no charge. Tell them you are allergic to Dasani.
Farms: Pick your own fruit and vegetables. You're not going to save any money on the food itself because of the gas it takes to get there, but you can spend almost an entire day with the family picking fruit at a farm for often less what it costs at the grocery store. Check the Internet for farmers near you that do this. Many also have plenty of land for bringing along a picnic lunch where you can sit and enjoy some of the fruits of your labor.
Dog parks: Even if you don't have a four-legged pal, bring a few tennis balls and a gallon of tap water to your local dog park and you'll instantly find yourself surrounded by half a dozen furry friends. Just about all the owners encourage their dogs to play with other people and you are helping out those who forgot to bring extra drinking water for their pets. Young kids will go nuts!
Dining out for two, for one: American portions are really large these days. I find that if we just go out and order bread/chips and a single entree we are both full. Sometimes we even have a drink and appetizer at home before going out, avoiding those overpriced items. Mexican restaurants are the best, as almost all of them serve free bottomless chips and salsa. If you absolutely must have liquor, go early and hit the happy hour.
Sushi on the cheap: My wife and I love sushi, but it is a very expensive treat. What do we do? First, we try out as many sushi restaurants as we can, because you'll find that prices on individual sushi/sashimi pieces vary wildly. Then we order the sashimi (cheaper) with a bowl of white rice on the side (which they usually give for free). You can get a mouthful of rice and fish for less!

Any other tips for staying entertained without breaking the bank?

The wine debate

2007-08-30T08:00:00.000-06:00

We've all heard that drinking a glass of wine a day is good for you. The limit, I've read, is 2 glasses for an adult male and 1 glass for an adult female per day. It is supposed to do all kinds of nice things to your body and to your heart so long as you consume it in moderation.

I'm sure there is a debate on this, but as big wine drinkers I was interested in how this would impact our budget. Let's assume that we can stomach a cheap $10 1 liter bottle of red wine. If we each consume 6 oz of wine every night over dinner (that's 1 glass apiece) we will have emptied 2.5 bottles a week, or 10 bottles a month for a total of $100.

Ouch. Over our lifetime (assuming we live to, say, 75) we will have spent $54,000 on wine. That's just the glass of wine over dinner! That's an opportunity loss of $500,911 assuming 8%.

Of course we could also save the money and buy all the wine at the back end. Given 2% inflation, each bottle will cost $24 and we can buy 20,871 liter bottles of cheap red wine. That would definitely encourage the grandkids to stop by.

Credit card holders affected by subprime - good!

2007-08-28T18:49:00.000-06:00

This is a good lesson in credit card use. Unfortunately, if you carry a balance, you will be affected by the mortgage crisis. Apparently banks that also have mortgage divisions are hiking interest rates to keep profits high.

Capital One, which is among the largest credit-card issuers in the nation...said it was raising rates because it could and because of unspecified economic conditions

Shocking! A company whose only interest is in making money off of the money you borrow decides to use the clearly defined terms to make more money to offset its losses elsewhere. Hilarious is that the customer mentioned in the article seemed upset about this. Why? You agreed that they can change your rate whenever they want and you borrowed money from them anyway. If you don't care what they charge you, fine. I imagine most people do care.

This is the same kind of whining that came about when they raised the minimum payments. The immediate logical response? Good! Raising the minimum means that any idiot paying the minimum will be in debt for a little shorter time.

Now I have some sympathy for someone who is deep in credit card debt and struggling to become debt free. They made a mistake, are paying for it, and hopefully will learn for it. Of course if you are neck deep in credit debt and you charge a single dime to that card, my sympathy evaporates.

Here's the thing about credit cards. You borrow their money for a month and pay it back, you get charged nothing. That is the only way to use credit cards, unless you like playing with fire and you're borrowing money to invest in the market. Any balance you carry you will pay interest and you will pay whatever rate they want to charge you.

If you are paying interest on your card, cut it up. Now. You do not know how to use them.

17 year old sells modded iPhone for depreciating good

2007-08-28T14:02:00.000-06:00

When I heard about the 17 year old hacking the iPhone to work on the T-Mobile network, I was pretty impressed. If you are not familiar with the story, the boy spent about 500 hours over the summer physically modifying the new Apple phone with the help of 2 online friends. Someone give this kid his engineering degree, already. No doubt he has a fine future in the technology industry ahead of him.

But I was disappointed to hear he just gave away gadget for a car. The Nissan Z Roadster starts at $27k, though is probably worth a few thousand less now that it has been titled. I don't think a 17 year old would balk at $50/hr as a summertime job, but I just can't help but think a much better deal could have come out of this.

The real question is what Apple's response will be. If they keep their phone locked, the company that bought the teen's idea could stand to make a lot of money. Much more than a Nissan Z. On the other hand if Apple renegotiates with at&t and unlocks their phone, the $27,000 invention could become worthless.

Still, I can't help but plug in $27,000 in cash and think that this kid could have had a million by retirement without putting in another dime.

The advertising bombardment

2007-08-28T10:03:00.000-06:00

Ads are everywhere. They are so pervasive that most of the time we register a product, brand, or message without even paying attention to the ad itself. I am a firm believer that if you want to cut a very large chunk out of your spending, the first thing you should do is stop reading magazines and turn off the TV.

It takes a long time of being unplugged into these consumerism machines before you realize just how insidious they are. Open a magazine and you will likely find more pages of advertising than actual content (remember, you paid them to subject yourself to this). Worse, many of the ads are often disguised as articles. Even some of the genuine articles themselves focus on what products you should buy.

I spent about 2 hours watching television recently, which is more than I've watched in the last 2 months. What struck me most is how very little content is on television anymore. Flip between the channels and you will encounter an advertising bombardment on a mind boggling scale. Liquor ads (that have little to do with liquor and all to do with projecting an image), kids toy ads for electronic gizmos hawked to toddlers as educational, overpriced jewelry on entire channels dedicated to shopping. It's endless. And it's all television is anymore. It's one giant advertisement to get you to spend more of your money. And the shows? Look carefully and you will spot your favorite actor drinking a bottle of Fina or driving a brand new SUV (despite the character being a poor single mom).

Worse, we pay money for more channels of advertising! My opinion? Shut it off.

For more ways to save money, No Credit Needed is hosting a "33 Days and 33 Ways to Save Money" collaboration.

See also: Cable TV gone too far? and Throw out your TV and save.

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Discover motiva

2007-08-26T21:38:00.000-06:00

I found an ad for the Discover Motiva card interesting. The ad focused on how the Motiva card gives a reward by paying you a month of your interest if you pay your bills on time for 6 consecutive months.

The actual benefit is slim. They're just offering a slightly lower APY across the entire year by waiving the interest for 2 months. What struck me is that the really encourage (and happily assume) that people are going to be carrying balances on their credit cards, thus enticing them with this deal. I also found myself wondering if there really were so many people out there who can't pay their bills on time 6 months in a row. The idea of "paying your bills on time" as a reward suggests that many don't, in fact, pay on time.

Bad news always comes in threes

2007-08-23T11:41:00.000-06:00

First, my wife is laid off from her second part time job. Second, my car breaks down on the way to work. And finally third, our cat poops on the floor.

This morning.

Here is how we dealt and are dealing with these problems. First we list them by urgency, come up with a plan, then execute said plan.

Priority 1: Cat poop on our floor. Above losing a job and the car breaking down, the most urgent situation is that there is now a pile of poo on our carpet. This problem is two-fold. One is that the poop is there, which has now been cleaned up. The second is the smell is there, which may attract the cat back and send guests into a coma. What we need is a good disinfecting cleanser and let it soak in. When cats poop, they pee, which means we have pee soaked into the under-padding. Will do this evening.
Priority 2: The car. I believe this is going to be a relatively easy fix, but unfortunately it had to be towed back to the house and put to sleep in the garage for the day. My estimated cost for parts will be $100. At least that is my projected maximum costs. If it is greater, I may have to delay the repairs. I will go into phase one of the repairs this evening. Projected labor: 1 hour plus travel time to the auto parts store.
Priority 3: A job loss. This one can't be remedied quickly, but we are already looking in the paper for a replacement - even if it is a temporary one. This could go either way, it may be resolved fairly quickly or may take a bit of time.
Other Additional Costs: Flowers for wife. Nice ones. First she lost her job (albeit her second part time one) and second, she called AAA - with whom she has membership - and added me to the club so I could get a tow. It actually was cheaper than me just calling a tow truck, especially since I called 3 and couldn't find anyone to come out to get me. She took care of it by phone while I was sitting on the side of the road playing "Snake" on my cellphone.
Other Short-Term Consequences: Will probably hear "I told you so" several times after being reminded how many times I said "We don't need to add me to your AAA, it's not worth the money!"
Other Consequences: Possible residual cat pee smell and seeing wife's face when I tell her about said cat incident.

How to eat less and spend more

2007-08-23T11:30:00.001-06:00

My wife and I went out to dinner last night at a decent asian restaurant. The bill for the two of us? $67 including $9 for tip.

You might expect this from a restaurant that starts off with $23 plates. What you wouldn't expect is such a large bill when my wife and I split one of those plates. Some friends invited us out and such a sudden impact to our budget wouldn't have been pretty, so we agreed to split the meal. Unfortunately what we didn't plan for was buying a couple glasses of (their cheapest) wine each, which ended up costing more than the food!

Alas, it is the alcohol that breaks the bank at restaurants, not always the food. And at $5-6 each, it is easy to nickel and dime yourself to death.

Couples - how do you divide chores?

2007-08-22T12:09:00.000-06:00

How do couples split up the household chores? Does she cook and clean while you drink beer? Do you handle all the finances while she just complains about not having any money?

Although we really didn't have a defined chore list when we got married, we had been living together for 2 years prior so we had settled in to assigned chores based on our skill sets and - well - tolerance.

Me: Cooking, household maintenance, vehicle maintenance, finances.

Her: Cleaning dishes, organizing our social schedule, laundry, litterbox.

This is the big category. We have many things that we just like doing together.

Us: Cleaning the house (vacuuming/disinfecting/dusting/etc), lawn/gardening, basically everything else.

How did you come up with your chore arrangement? Are you happy how things are, or do you feel you do more/less than your fair share?

Envy thy neighbor

2007-08-22T11:32:00.000-06:00

Here's a fun article from MSN about how the wealth around you can make you feel poor. We get to hear a couple of stories, sounding very typical, of young people entering the workforce and finding themselves surrounded by rich, successful people. So what do they do? They spend themselves deep into debt to keep up.

When you hang around people who spend lots of money, you're probably going to do the same (or be miserable that you can't). Odds are also good that it will leave you broke.

it is a daily struggle to keep it from skewing her financial perspective. "I find myself looking at something and saying, 'Oh, it's only $200.' Then I look at my accounts, and I have to remind myself, 'You can't afford $200!'"

Personal finance has a lot to do with perspective. Especially for younger generations, sometimes its hard to focus on what the true value of a dollar is. We grew up with parents who spent, spent, spent. New cars, bigger houses, leveraging loans. What we didn't realize was that many of them weren't saving enough for retirement, were eating up all their equity, were deep in debt, or were just not thinking far into the future.

many of us might hesitate to admit, you strive to buy your way into the lifestyle of Mr. and Mrs. Jones, even when you can't afford it

We want to live like our parents. We want to live like our neighbors living like their parents. But sometimes we forget that as Baby Boomers they were having fewer children later in life, so their careers were already well established. By the time we were preteens our parents were in their peak earning years. That'll really distort the perspective on what's "normal" for a 20-something just out of college.

Adam once worked with a woman who had "lived the good life" but was so broke at age 46 that her parents refinanced their home to bail her out.

The lesson is to watch what you spend and happily accept a lifestyle you can afford. While your friends are all out living it up, will they be happy when they're flat broke and can't retire?

Do you hide your spending?

2007-08-21T16:59:00.001-06:00

In a completely unscientific survey by Parenting Magazine, editors asked

"What's the largest amount of money you've ever spent without talking it over with your partner?"

Although called "Parenting" this magazine is geared almost entirely towards women, so we can assume most of the respondents to the survey were female.

6% said $25, 8% said $75, 11% said $150, 22% said $250 and a staggering 53% responded with "It's my little secret".

Do you hide your spending from your spouse? Have you made a major purchase decisions without consulting them? Do you think that's okay?

Living like a king - when you're not one

2007-08-21T08:04:00.000-06:00

Tricia over at bloggingawaydebt.com recently posted a link to an article in a Kansas newspaper about a couple deep in debt. This couple has 1 kid and a second on the way. They are only 24 and 26 and already in almost $100k of debt. Their total debt, including their mortgage, is $187k.

The question this couple has is

“How can we get caught up with our bills and get our expenses together to start saving?”

and the answer, apparently, is

“Reducing your big tax refunds will almost correct your negative cash flow. But cutting expenses and paying off credit cards will be critical for longer term success.”

What? What kind of useless advice is that? This couple is completely broke and in debt. Adjusting their withholding isn't going to help much. Worse, they sugar coat their situation by claiming a net worth of $24k. But when you look at their "assets", they include $55k of "stuff" and $150k in home value. Though we don't know how they calculated their home value, the market is tanked. And the stuff? I guarantee they could not liquidate everything in their house and raise $55k at a garage sale, unless they have some seriously valuable antiques or collectibles.

How much do you want to bet they have a big plasma screen TV? They have only $1k in actual cash and $1k held up in a retirement account. They have $23,000 in car loans with cars supposedly worth $25k.

I think this family has a problem with living beyond - way beyond their means (all this debt was accumulated before they were making $60k/yr, and she has yet to finish school). Sell the cars and buy small older ones, sell any expensive appliances or electronics, cut up the credit cards (and try to find lower interest balance transfers if their credit isn't already trashed), and forget about saving. You've got a small emergency fund, you have negative net worth, you're still young. Get those credit cards and the personal loan paid off, then start saving a tiny bit for retirement while you attack the student loan. Then save up for a car and buy one with cash. But most importantly, stop living like a king.

Surge in subprime advertising?

2007-08-20T15:47:00.000-06:00

Back from vacation! With all the problems of the subprime market, is it just me or does it seem like advertising for these horrible loans has actually increased? I cannot visit a single website without seeing an add for a $500,000 loan for $900/mo. or some other such deal. The dancing green aliens and wide-eyed cute animal Flash ads are everywhere. Out of curiosity, I tried clicking on a few but none of them would disclose the terms of their so-called loan without entering an SSN. But it's quite obvious that these are not good loans. The payments they claim would not even cover the interest on a 50 year loan even if I assume a ridiculously low rate, like 1%, with the balances they are advertising. Further, they sometimes include interest rates that are so far below the actual rates being assigned to mortgages it isn't funny.

I wonder why these ads exist, and worse how reputable online news outlets can display them next to an article about someone foreclosing on their house after their 2/28 IO ARM readjusted.

Near as I can tell, every single one of these ads is full of it. So why do they exist, and why are sites willing to display them?

Reader inquiries: bankrupt mortgages and the Texas car credit

2007-08-14T09:32:00.001-06:00

I have been getting a lot of directs to the site with questions input into Google. I thought I would make some comments on the two most common.

First, a common question is "What if my mortgage company goes bankrupt?" - some people, from their searches, seem to think that their mortgage might be forgiven! Actually, it will just be sold to some other bank. Your lender in bankruptcy should send you a letter notifying you of the transfer. In any case, it is up to you to continue making payments to the right place. So if you see your mortgage company about to fold, call them up. If you send the check to the old bank after your mortgage transfers, it won't be applied to your mortgage. The bank might even cash it, leaving you scrambling for 2 payments in a single month while waiting for a refund (because as we all know, once a company gets your money they will drag their feet giving it back). Maybe they are legally required to pass on the check, who knows. If you assume they'd send on the check instead of cashing it just because they are legally required to, I guess you haven't dealt with big banks very often!

The good news is that whatever bank buys your loan will be forced to fulfill the terms you signed with the first bank. Some things, like how they handle extra principle payments may change, so if you are paying down your mortgage make sure to inquire about any new rules. Escrow requirements might also change, but I do not know how the new bank is legally bound to those terms. Insurance requirements might also change, and again I would call the bank and ask. If you do find changes to your loan terms, it might be a good idea to contact an attorney if the bank refuses to play nice. Whatever you do, keep paying your mortgage!

Second, there have been a lot of inquiries about the new Texas car credit coming into effect in December. Some news outlets have been giving slightly incorrect or missing information, so go to the source, http://www.tceq.state.tx.us/. Details can be found here. Only certain counties, in which your vehicle must be registered, apply. San Antonio and El Paso, for example, do not appear to be participating in the program. Please note that this is not a new program. Actually, it has been around since 2001, they are just increasing the voucher value that you can get.

Suddenly it's all clear

2007-08-14T07:29:00.000-06:00

So my pond has been a monumental struggle, and it seems like everything we did could not help. It was just dirty, cloudy, and mucky. Our solution was to just empty it and start over. We did water changes, vacuumed it, threw money at it left and right with chemicals and cleaning tools - it was exhausting! Then this morning I woke up and it was completely clear!

I thought this was so much like getting out of debt. You struggle, throw money at it, get frustrated, make mistakes, sometimes just want to throw in the towel and start over...but eventually after all that work, you'll wake up and it'll all be clear!

Hard work does pay off. Becoming debt free is hard work. You are going to struggle. It is not going to be fun. But the end result? It is all worth it.

Hillary wants you to pay your neighbors mortgage

2007-08-13T14:25:00.000-06:00

What would you do if your neighbor knocked on your door and told you that his ARM is adjusting and he can't afford his mortgage anymore? Would you write him a check? Hillary Clinton thinks you should.

Direct from her website:

Hillary will establish a $1 billion fund to support state programs that help at-risk borrowers avoid foreclosure. Some state programs help borrowers make the single payment necessary to become current on their loans; others help borrowers renegotiate their loan terms, or simply provide financial counseling. These foreclosure mitigation efforts are more important than ever right now. Federal assistance for state programs that assist at-risk borrowers supplements Hillary's call earlier in the year for "foreclosure timeout." At-risk borrowers and lenders should be encouraged to work out alternatives to foreclosure.

In other words, your tax money is going to help pay other people's mortgages so they can keep their homes. Never mind that the borrowers chose to dive into risky loans, never mind that it is the banks that took the risk, not the other taxpayers, never mind that this completely flies in the face of personal responsibility. They can't pay their mortgage, so she thinks you should.

And let's not forget that 1) it won't work and 2) we're not just talking about a "single payment". To be in foreclosure, you need to be behind several payments. I've heard of people not having paid their mortgage bill for many months before getting a notice of the banks intent to foreclose. When you are behind on your mortgage, you can't make a single payment. They want all the money you owe up until this date, or nothing at all. They'll send your single payment check back to you. So to save someone from foreclosure, we're actually talking about a few or more months of payments to bring them current.

And that doesn't even solve the real problem: they can't afford their mortgage. So more money comes out of our pockets to help them refinance into better loans, loans they don't deserve because they have a history of not repaying their debts - which is why they accepted a loan with lousy terms in the first place.

People like that don't need a hand-out, they need education and personal responsibility. My thoughts? Just let banks know they won't be bailed out, and that consumers won't be bailed out either. The lending standards will tighten and poor people with bad credit won't be borrowing money they have no hope of repaying. These people are not going to be homeless. They will just end up renting.

Take that billion and fund some school financial education courses. I'll pay for that!

FICO score no longer includes authorized users

2007-08-13T10:36:00.000-06:00

This was a given when the news came out about companies that were artificially boosting people's credit scores by attaching them to the credit of others who, for payment, have excellent scores.

Now the typical "sign up a dependent" for a credit card to help them establish credit will no longer work.

FICO 08 rolls out in September. Other scores like the VantageScore do not include authorized users either.

I personally agree with their decision. For students with no credit, a secured credit card will do fine.

Here's an article with more information.

Democrats and subprime mortgages

2007-08-13T10:12:00.001-06:00

The word from the democrats on subprime mortgages is an all too familiar one: We need more regulation, its not your fault, someone else is always to blame.

I would be upset if my bank gave me a higher interest rate than I deserved. You protect yourself by shopping around. Does that lead me to foreclosure? Of course not, it just means I'm buying less house and paying more interest. Foreclosures are up because of one thing: homebuyers can no longer afford their payments. This is a combination of poor loan terms, inflated appraisals, and lots of easy credit. However all of this comes down to the person signing up. Your payment is right there on the document. Is it an adjustable rate? Then why are you signing up for a monthly payment you can barely afford knowing it will increase in 2, 3, or 5 years?

There are many people taking (and who do bear) the blame: brokers, lenders, Wall Street. See anyone missing from that list?

Instead, they call for more regulation. Isn't a bank supposed to make money? Shouldn't they be charging what the market will bear and what customers will pay? Why should the government regulate how their commissions work? Doesn't competition between banks already regulate that?

Some other things they would like to get rid of.

Prepayment penalties: I didn't sign up for one, but I know people who did. Isn't this an incorporation into the expected profits of the lender? If I don't plan on moving for 5 years, and they will lower my rate or origination fees if I accept a prepayment penalty clause, isn't that good for me the consumer? If I suddenly want to move after 3 years, why shouldn't I fulfill those obligations that I agreed to? If I don't want a prepayment penalty, I can just refuse it. If one bank won't agree, another will.

Tighter underwriting standards: Judging a persons ability to repay the loan is a risk factor for the bank. If they are willing to take the risk, I say let them. When they cry to the Feds that they are going bankrupt, tell them to pound sand. Taking on a mortgage you can't afford is a risk for the consumer. If you take a loan with a payment based on a teaser rate that you can barely afford, and you can't afford the new payment with the teaser rate goes away, you gambled and lost.

Require escrows: I have an escrow account. But why force lenders to use them? Consumers would be better off saving on their own, accumulating interest and paying taxes/interest themselves.

Eliminate no-doc loans: If a consumer wants to state their income, and a banker is willing to take that risk, why is this a concern? If the customer lies on the loan, prosecute them.

None of these solves the underlying problem - people buying more house than they can afford. Maybe instead of more regulation we should be promoting more consumer education?

Things my home office can't do without

2007-08-13T08:32:00.000-06:00

Everyone needs a home office. Even if you don't work at home, you need some place where you can quietly go over your budget, bills, and finance management. Even if it is just a desk in a room. We have a library/office in my home that we use to do the budget, pay bills, research, and talk about finances. The most important thing, in my opinion, is good organization. Here are some elements of my home office that I couldn't live without.

A computer: Just any desktop computer with some good software programs. These include spreadsheet (either MS Excel or the free open source OpenOffice), a desktop calendar (I use Active Desktop Calendar), an address/contact book (Outlook for me).
Online access: I would be lost without the Internet. Via email we can quickly contact companies, through the net we can find corporate phone numbers instantly, conduct research, and manage our bank accounts.
A filing cabinet: We use a large 5 drawer steel filing cabinet to store our documents, all well organized into categories and labeled folders. Such documents include our bills, statements, declaration pages, copies of outgoing letters - essentially everything up to 2 years old. A couple of drawers are dedicated to older documents like tax papers, contracts, and other "archived" statements/bills/etc. Filing cabinets are expensive, but you needn't buy them new. I purchased mine from an old supply warehouse for $20. For about $5 you can buy a can of "Appliance Paint" to make it look brand new.
A safe: We keep our credit cards, personal identification, and titles in a fireproof safe.
A desk with plenty of space: I can't stand a cluttered desk or one that doesn't let me lay out my paperwork.
Sticky notes: I'm a big fan of sticky notes. I use them to jot down paycheck disbursements and leave notes on my monitor about pending transfers or balances.
A phone: I like having the phone right on my desk when I need it, next to the computer and my filing cabinet so I can quickly get to information I need.
Office supplies: The essentials, like scrap paper, pens/pencils, a calculator, stapler/scotch tape, scissors, etc.
A shredder: A good one that will take whole envelopes. I use mine mostly for shredding unwanted solicitations, but also for those courtesy checks, expired credit cards, old documents, and incriminating photographs.

FNBO locks my account

2007-08-10T12:33:00.000-06:00

I received a satisfaction email yesterday from FNBO. I filled it out as being very satisfied with their service. So I found it incredibly funny that the day after I fill out this survey, they send me an email telling me they've locked my account.

Apparently, they want my employment information to comply with the "Patriot Act". I find this amusing, since I bank with 3 other banks and none of them have this.

So, I have to call them up. Why? Because I'm locked out of my online account - I can't even sign in. Why? Because even though I have my user name and password, the online website is requiring me to answer 2 security questions. Security questions are more of a hassle than a benefit. Especially when one of the questions they are asking is "What's your favorite sports team". Hey FNBO, not everyone likes sports. And I don't even remember answering that question.

Do you hate the phone trees that companies have now? Do you hate being on hold? At least when you are on hold with most companies, there is some music, with the occasional reminder that you are on hold. Want to piss off your customers? Put them on hold for 30 minutes while you play a recording over and over again repeating the terms and how to visit and navigate your website until your customer gives up.

Um, can I get that survey again? I need to make a few corrections.

Embracing the debt culture - auto financing

2007-08-10T11:19:00.000-06:00

I think financing an automobile is absurd. This is my opinion after having dealt with financing vehicles myself and currently being indebted to a financial institution for my wife's car. Financing a car, let alone financing a new car, doesn't add up. You pay more for the price of a purchase that is constantly depreciating. By the time its done depreciating, it's nearly worthless and you've spent thousands of dollars while paying interest on top of it to a bank.

There are 2 winners here: the bank and the dealership. The dealership wins again when you trade in your $30k car for $10k and they resell it for $13k!

But, consumers are more than willing to accept these terms in order to get into a new car. In fact, they are accepting even worse terms than our parents did. Compared to this, spending $500 on "rust-proofing" sounds like a good deal.

Buyers are paying more, extending loan terms and making smaller down payments, according to a recent study by the Consumer Bankers Association. Many buyers are also wrapping old loans -- for vehicles they haven't yet paid off

Way to go consumers!

According to this survey, 60% of buyers are opting for loan terms greater than 5 years. That's a staggering number. The average loan is 65 months. That could mean about a thousand extra in interest over the whole loan. Ouch!

Worse, while car prices are going up, down payments are going down. 1% was the average this year, or $3,000 on a $30,000 car leaving you with $27,000 financed. That must leave the bank salivating. Since your car probably depreciated more than that just by driving it off the lot, you're upside-down in the loan before you even park it in your garage. This also means when you turn it in, you'll probably be financing your old car along with your new one. The average amount a car buyer is upside-down when trading in their 2005 clunker? $2,600. I think we can safely say that 1% down payment is going nowhere towards the principle of the new vehicle.

It gets better. Apparently blind to the subprime mortgage crisis, banks are lending big loans to people with worse credit. Maybe the departments don't talk to each other? Or it could be that Americans are obsessed with their shiny vroom-vrooms, often skipping house and revolving credit payments to pay for shiny.

I was also surprised that a whopping 21% of people lease - ie, rent their cars.

"Overall there's a lot of debt," says Elmendorf. "And if you add that to credit card debt, and home equity debt, consumers are pretty tightly leveraged these days."

No kidding. I wonder what percentage of consumers just pay cash? I bet it's not very high. I often hear a car loan is, along with a mortgage, "normal debt". I guess normal is "leveraged", ie, "broke". When you think about the numbers, paying cash for a used car just makes sense.

$3,000 state voucher to buy a new car

2007-08-09T12:04:00.000-06:00

Representatives of the state of Texas feel that the way to curb pollution is to get older cars off the roads. This isn't a bad idea, but I'm not so sure about the way they are doing it. I've discovered other states, Vermont specifically, have offered this as well.

Here's how the program works. Say you are a family of 4 with a pre-1996 vehicle. If your annual income is less than $41k, you qualify. You can take your old car to a dealership where you can get a $3,000 voucher towards the purchase of a new or 3 year old used vehicle. The dealers get no money for your trade, which is given to a salvage yard at no cost, and there is no indication that the dealer offers any trade in value other than the state sponsored voucher.

You can then use that voucher to purchase a 2004 and up car or light truck.

Here's the problem. The cheapest 2004 vehicle in the state of Texas (from autotrader.com) is $4,500 plus TT&L (remember this is a dealer, so you will likely be paying many fees on top of the asking price). A small number of cars in this year range are below $10k. Most are above. The maximum you can buy is a $25k vehicle. The very idea that a family of 4 making less than $41k a year should go out and buy a brand new car is absurd, but at least they allow used.

Regardless, it is more than likely that the family is going to have to take out a loan to get this new vehicle. I find it incredible that the state is encouraging people with low incomes to go out and buy brand new cars by dangling a check for $3,000 in front of them. If they are driving a pre-1996 vehicle, isn't it safe to assume that they can't afford a new car to begin with? Is $3k going to make any difference? Is the state of Texas encouraging debt? Will the state of Texas help them if their car is repossessed because they can't make the payments?

In reality, the people who will most likely take advantage of this is people who were already planning to trade in their clunker for a newer vehicle, or were planning to. Thus, we have a state funded car purchase - the funds for this program were collected by raising vehicle registration rates.

Have $80 million to spare? Buy a sub

2007-08-08T13:40:00.000-06:00

No, it's not an expensive sandwich. For only $80 million dollars (a bargain if you ask me) you can have your own luxury 5,000 square foot submarine. Expect your friends to trade in their private yachts for one of these in the near future. If you don't have at least the base model, which starts at $25 million, please don't bother showing your face at the billionaire's country club.

Each sub comes with a custom interior, extravagant viewing windows, and even a carport to park your Bugatti and a minisub that you can take afternoon jaunts in.

Sales information is not known, but there's a good chance this guy has one. Nothing says "living off the backs of stockholders" like buying a submarine with your $200 million severance package after 5 years of doing a mediocre job. If you can't afford it, chances are good that American Home Mortgage will lend you the money.

Torpedoes not included.

Auto Loan Problem Revealed!

2007-08-07T14:09:00.000-06:00

Mystery solved! The finance company no longer had my insurance information. My insurance company no longer had my finance company information. The declaration page didn't get sent for the insurance renewal, and the finance company charged me their own insurance.

The interesting part is that this isn't at all reflected on the payment. The numbers simply don't add up. If I had not checked it, found the problem, called to determine why the money was missing, and called both companies to get the paperwork back in order, I would have continued to be charged this extra insurance while already being covered. I do not know how long the finance company would have done this before bothering to notify me that there was a problem, but I am guessing that they never would have.

In fact, this happened before at the beginning of the loan, but was apparently corrected after 2 months. However instead of taking it from the monthly payment, as they did this time, they just tacked the insurance (I did not ask why their insurance was $2,200 a year) onto the balance of the loan. Supposedly I had not been charged interest during those two months, but I have asked for a full history report so I can check the math myself.

Hopefully this will be taken care of by the end of the week. I have updated the information with my insurance carrier, and with the financier, and had them fax the declaration. It should take 24-48 hours for the fax to go through, plus another 2 days for the financier to update their system and make the correction. I also requested a hard copy be mailed to me so I can fax it to the finance office myself.

Then, I will be having fun all next week checking the account to make sure the remainder of the payment has been properly applied.

So the lesson here is always check your payments, review your statements, and don't finance stuff!

Mismanaged Auto Loan

2007-08-07T11:25:00.001-06:00

As if I needed another reason not to want to do business with loan companies, my wife's auto loan has been misapplied this month. I have vowed never to take another loan or finance a car again. When you pay in cash, you aren't dependent on some guy in an office somewhere entering your information into their computer. The more businesses you work with, the more problems you will inevitably have. You will always have human error.

Since I hate my debt and I distrust companies, I always double check my payments and make sure the companies are doing their jobs. Since I started to handle my wife's auto loan, I began checking the deposits made each month. The payment I just made has a problem, a big problem. Out of a $300 payment, only $175 was applied to principle with a $30 interest payment. $95 vanished.

So I went back and looked at all the payments all the way back to the origination of the loan. No other problems. However, I noticed another huge issue.

2 months after she signed her loan, the finance company increased her balance by over $2,200, then credited the $2,200 back 2 months later. For 2 solid months (59 calendar days to be precise) she was being charged interest for an artificially inflated balance. I ran the numbers and determined that during that time, they overcharged her around $25 in interest!

We are calling them this afternoon to try to get this straightened out. Certainly people make mistakes, but knowingly collecting interest that isn't owed without informing the customer of the mistake? That sounds negligent to me. And disappearing money? The numbers don't look like they could be a simple typo, and its quite possible an employee somewhere pocketed it.

Always scrutinize your payments to be sure they've been properly applied. You can't trust other people with your money.

Want to go broke? Build a pond

2007-08-06T16:52:00.000-06:00

I am exaggerating, but I never knew a pond could be so expensive! When my wife and I moved into our house, we set about redoing our backyard. We literally had a clean slate; the whole yard was mostly dead grass and mud pits. Our first project was building a small pond, which is 5x6 kidney shaped. Around it we extended our patio with natural stone and added beds around the entire yard. 2 years later we have just started adding foliage. It's been a long project.

Unfortunately, our pond has been a real money pit.

As it turns out, some drainage problems resulted in a lot of mud from a failed and unfinished elevated flower bed to wash into the pond. So for several months it has been completely clouded. We only see the 3 big fish and half a dozen babies they spawned when they come up to feed. So, this winter we are going to have to empty it all out, clean it, refill it, put the fish back in and start over. Let's not forget the huge string algae problem that developed over the summer.

Otherwise, the pond has been really expensive while we have tried everything imaginable to clear it; from chemicals to scrubbers to water changes to vacuums. Nothing has worked!

Not living paycheck to paycheck

2007-08-06T13:20:00.000-06:00

When my wife and I married 2 years ago, we were literally living paycheck to paycheck. A paycheck would come in and we would pay the bills we had received, the minimums on the cards and loans, buy the essentials like food, splurge a little, and then try to save whatever was left over.

After we were married we decided to tackle our finances. We wanted to manage our personal finances, not just sit along for the ride.

One of the best feelings I got was when I realized we no longer lived paycheck to paycheck. We started saving off the front end of our paychecks instead of the back end, saving money for bills that did not arrive regularly (like insurance), saving for retirement, delegating a huge chunk of our savings rate to paying off debt after having established an emergency fund, stopped carrying balances on the credit cards, and only splurging after all those things (and food and bills) had been paid.

Now that we have money sitting in a bank in emergency fund and our bill savings, we have funds sitting there that we use to pay the bills. This is our "bill pay account", formerly what I called our "readjustment account" - still trying to come up with a good name for it. Now when we get a bill, we just pay it. When a big bill like insurance comes it, we just pay it. No sweat.

It's a great feeling, because we really feel like we're making progress.

Broke making $150k a year

2007-08-06T10:17:00.000-06:00

Here's a depressing story from CNN about a couple with 4 kids who are now neck deep in debt and broke. They had 1 kid, planned on having a second and instead had triplets (another reason not to use fertility drugs!).

The real tragedy of this story though is that they had $175k in savings and an income of $90k a year entirely from one spouse. After their triplets came, their savings vanished and they went into debt. I wondered how 3 healthy babies could drain $175k in such a short time when you have $90k a year in income and a stay at home mom!

Now 4 kids is a lot. But many families have more and make it just fine. Yet this couple was spending $2k a month on 3 part time caregivers! Then they had real estate investments, which began to become unprofitable (or even break even). In 2 years they went from $90k a year and $175k in the bank to over $155k in DEBT plus a loss of the $175. 3 extra kids had cost this couple $165,000 a year! That's $55,000 PER CHILD.

It gets worse. They sold some giant farm mansion they were building, cashed out some unpaid leave, yet they were still $127k in debt. They worry about paying preschool tuition (are you kidding?) and saving for college. At the same time, the husbands income has increased a large amount and yet they still can't get by!

They should sell all their real estate (ticking time bombs), stop sending the kids to preschool, get rid of all the nannies, stop contributing to the kids college funds, rent a small house, live off of $50k a year and pay off the debt within one year and slowly begin increasing their lifestyle while socking away most of their income. In 5 years they could be better off than when they started.

This couple has about $150k in income and a 12% employer-provided retirement savings, yet they are wallowing in $120k of debt.

Why is this couple in so much trouble? In my opinion, its because they can't admit they're totally broke.

Dennis says he agrees with the advisers that the couple should pay down their debt and create a cash reserve. But he's reluctant to diversify as much as they suggest and wants to keep enough free cash on hand to cut real estate deals. "I'd like to have $75,000 in my foxhole waiting for the next thing to jump up and buy," he says.

There are so many families that have more kids than these folks and live off of a fraction of what they do. This is a perfect example of how money does not create wealth.

Mortgage loans are hard to come by

2007-08-06T08:37:00.000-06:00

With less than perfect credit, mortgage loans are becoming scarce. Even prime mortgages are facing harder scrutiny in underwriting. It is a situation that has been growing slowly over the last couple of years as defaulting subprime loans everywhere hit lenders hard. Foreclosures, I read in a recent news article, are up around 50% now. So it was not surprising to me when a family member of mine called to tell me that getting approved for her mortgage was like trying to squeeze juice from a turnip.

Indeed, this article on the mortgage crisis perfectly described this situation. Some are just not funding any loans, even for those who had been already approved. And no doc loans? Forget it!

Wells Fargo, my mortgage lender, recently took themselves out of the jumbo loan market with a voluntary rate increase that is, needless to say, not competitive. Still others are downsizing their lending departments or getting rid of them altogether. American Home mortgage is in bankruptcy. Another laid off most of its workforce. Countrywide, one of the nations biggest lenders, has seen its stock value crash. The whole picture just looks awful.

I don't like dishing out advice to members of my family, but I did recommend finding an apartment to take time securing a loan. Even in this market, I'm sure you can find something just by taking your time. It just won't be as easy as it used to be. Lenders seem to be looking elsewhere, especially in areas that have been hit hard.

In the meantime, hold on to your houses. Based on a few people's experiences that I know of, its not fun to buy OR to sell right now.

Online security questions - ugh

2007-08-05T14:58:00.001-06:00

Am I the only one who finds online security questions completely annoying? As near as I can tell, the only purpose of these security questions is so that I can lock myself out of my own account.

First, many of them are case sensitive. So inevitably even if I know the answer, it doesn't recognize it.

Then most of the time the questions are all things that I don't even remember. Mother's middle name? Hmm, how is it spelled? My first cat? I can't remember the name of my first cat! Well, I can remember the name of a cat, was it the first? Or does the first one I remember count as first. Sure, but what if I remember some other cat 2 years from now when I actually need to answer this question again?

Others, like the ones I'm trying to figure out, are so ridiculous that no thief could know the answer. Because there isn't a chance in hell I'd remember it either. What were my wedding colors? My bosses first name at my first job? My spouses nickname (gee, isn't it lucky that everyone in the world only has one nickname for their spouse?). The name of the first foreign country I visited? Um...Nebraska maybe?

I'm trying to fill out these security questions, and I have to answer 3. Yes, 3! But all the questions I don't have a clue what the answers are! I could make something up, but that just means I'll get myself locked out of my account some time in the future.

Please, online people, a user name and password is sufficient. If I forget my password, I'll call you.