August 31, 2009

Net Worth Update : August 2009 +$15,234

I track my net worth monthly on NetworthIQ.

For August 2009 my Net Worth is $631,524 which is up $15,234 from July.

This is another record high figure for our net worth.

Again the increase in net worth is primarily due to higher real estate and retirement accounts. My retirement accounts were up over 4% and the real estate values increased more than 2%.

My cash balance was down just a little. I had increase in cash due to a sale of stock and cashing in my employee stock purchase shares. We also spent a lot of cash on some home improvements. We spent over $6000 on insulating our home and over $6000 more to landscape our yard. A portion of the insulation costs were paid in last month. I'm surprised that we spent as much money as we did this past month yet still had a substantial increase in net worth.

August 30, 2009

Unfortunate Example of a Family that got In Over Their Heads

A few nights ago my wife and I watched an episode of the program Flip This House. The episode in question featured a regular house flipper on the show traveling to San Clemente, California to attempt to "rescue" homeowners who were having difficulty finishing their home remodeling job. The homeowners were way in over their head in their home remodel and in serious financial jeopardy. Unfortunately In the end they lost the home along with significant amounts of money they had invested.

Summary of the situation:

The home owners had bought their house for about $600,000. Then put about $500,000 into remodeling the home. Unfortunately they got taken advantage of by a bad contractor and had about $200,000 of their work (or more) go to waste. Then the homeowner lost his job. This put them in a tough spot with a half remodeled house, no contractor, large debt payments and no income. So at this point the show stepped in to try and help. During the show they put another $200,000 into the home and were able to get about $150,000 of debt on a secondary mortgage forgiven. They still owed the banks over $600,000 and owed family about $300,000. During the show they hired a new contractor and got the home completely finished. At the end of the show they were thinking of putting the market on the house for $1,300,000 and the math added up that they would walk away with all the debts paid and a 'profit' of about $50,000. Unfortunately the house didn't sell and they had to drop the price further down to $1,100,000 but it still didn't sell. Eventually they lost the home to foreclosure but walked away with $15,000 cash from their equity.

Basic points:

Family bought home for $600k
Put $500k or more into remodeling
Tried to sell at $1,100,000
Lost home to foreclosure and got $15,000 cash

In the end it seems they lost nearly $500,000 in the deal all together. Ouch.

I should point out that in the 1 hour TV episode you only get bits of the story and the entire picture is not too clear. The TV program is also edited by the producers so we don't now what they chose to show and not show. I'm taking what I saw on TV at face value and I don't know the whole story.

The biggest problems

Job loss: The guy lost his job. If he still had his job he probably would have come out ok. The show didn't go into the couples finances too much and we don't know what his income was, but it seemed clear his problem was currently mainly due to lack of income.

Bad Contractor: The first contractor skipped out and didn't finish the work. Homeowners doing a remodeling job are dependent on the reliability of the contractors and there are a few bad contractors out there.

Bad housing market: The show seemed to be taped late last year and by the time they put their house on the market it was December 2008. If all of this had happened 2-3 years earlier before the housing bust then they may have been able to quickly sell their house for a tidy profit. But the timing was such that they hit the worst of the housing slump when it was not only very hard to sell a house but prices were continually dropping.

Some things that exacerbated the situation

During the show the couple seemed to be living in temporary housing in either some sort of motel or an apartment. So they were paying extra bills for that housing in addition to the mortgage on the home. The couple had pretty high end tastes on some items and the show featured an argument where the wife insisted on getting smooth surface stucco on the home which costs $5,000 extra.

What could the homeowners have done different?

Job losses, bad contractors or housing busts are not entirely within our control and its possible those things could happen to any of us. But what could you do to keep from getting into this kind of situation?

Probably the safest way that they could have avoided this whole mess was to not attempt to build their dream home the way they did in the first place. They should have lived with the $600k home in the state it was and keep their cash in the bank. You shouldn't try and buy or build a >$1M home unless you can truly afford it.

Don't take on too much debt. You really don't want to have a $1M home with a $900k loan on it. That is leveraging too high. You should always consider the worst case scenario such as losing your job and think how you would be able to support yourself. Having high debt level is a invitation for disaster.

Build a bigger emergency fund. He may have had a decent emergency fund but it apparently didn't last a year. If you have a high liability like large mortgage debt then this is a good reason to build up a bigger emergency fund.

Instead of buying a house and undergoing a major remodeling project that you self fund or get additional loans for, they could have just saved up the money and bought a finished home of their dreams. This way they wouldn't get stuck in a bad remodeling effort and theres no risk of having problems with contractors.

Undertake remodeling work in phases rather than attempting to remodel the entire house. They could have redone things a step at a time with cash rather than trying to tackle the entire house at once. Its possible that they did do this in fact, but the show didn't go into much detail on their remodeling efforts previous to the program.

Its unclear how well they investigated contractors but the show did say that they hired the cheapest contractor. Its possible that they could have avoided all their problems by doing more research and hiring a more reputable contractor with a solid established reputation for doing good work at a fair price. Instead it looks like they may have just 'cheaped out' and hired the lowest bidder.

I feel bad for the people but its possible the situation could have been avoided if they hadn't been so ambitious or if they were more careful with things. It really does seem that the problem should have been avoidable.

August 29, 2009

Should I participate in an Employee Stock Purchase Plan (ESPP)?

At my place of work I have the option of putting a % of my pay towards an Employee Stock Purchase Plan or ESPP. With the plan I can put up to 10% of my pay into a fund and then every 6 months I get to buy stock at a 15% discount. Not only that but they also let me buy at the lower of the price of the start or the end of the period. So if the stock starts at $10 at the start of the period and ends at $12 at the end of the period then I get to buy it at 85% of the lower of the two or $10. I'm also allowed to flip the stock immediately and cash in the profits. I do the ESPP at work to the max then sell it immediately.

Many companies have ESPP plans nowadays. How the ESPP works will differ from one company to another. You may or may not get to buy at prices from the start of the period. Some companies make you hold the stock for a period of time before you can sell.

Should you do it?

Usually I think the answer is YES. A 15% guaranteed benefit is nearly impossible to beat.

You could even borrow money on a credit card to pay for it and end up coming out ahead. I wouldn't really recommend that, but it illustrates how good of a deal ESPP's are.

So generally I think the answer is YES you should do ESPP as much as you can.

Reasons You might Not want to do ESPP

1. If your company makes you hold the stock for a long period of time. If they lock you in for 1-2 years and won't let you sell the stock before then then I would look at this as a problem. Your company might be doing fine and then start to go downhill within 1-2 year period.

2. If your company is financially unstable. I really wouldn't want much of my assets locked into a stock for a company that is on shakey financial ground and might even go bankrupt. Imagine if you had ESPP money tied up in Lehman Bros. or Enron before they collapsed.

3. If the benefit isn't that big. My company does 15%, but the discount rate can vary. If your company only offers a 5% discount then that isn't very compelling to me and you may as well just put your money in savings and keep it liquid.

Should You Flip or Hold

Personally I think flipping ESPP shares is the better option. When I say 'flipping' the shares I mean selling them as soon after you buy them. I'd rather cash in that easy 15% profit than hold the stock and gamble that it will go up further. I also don't think its a good idea to hold too much of your own company's stock at any given time.

What if you cant afford it?

Find a way. A lot of people live paycheck to paycheck and can't see how they could live without 10% of their paycheck. I wouldn't look as an ESPP as living without 10% but instead making a 15% guaranteed profit in 6 months. So, figure out a way to make it work. If you have to shuffle around your money or even accumulate some short term credit card debt it should be worth it to get that extra 15% gain.

Be careful with taxes

The tax implications on an ESPP can be tricky. I'd recommend you talk to a CPA or at minimum read up on how ESPP is treated in taxes.

August 28, 2009

Best of blog posts for week of August 28th

MoneyNing talks about how they've given up chasing the best savings interest rates with I’m Losing 50 Bucks to Be Happy, and I’m not Crazy

Trent has a guest post Having Enough for Life from Vicki Robin the c0-author of Your Money Or Your Life.

Lazy Man and Money has links for Free Budget Spreadsheets: Over 60 to Choose From

Another example of poor performance from Whole life Insurance

I caught an episode of the Suze Orman show this weekend and she had another caller with a bad whole life insurance investment. It seems there are a lot of people out there with whole life policies that didn't do all that well. Here's a previous example and another example.

For the caller this weekend they had the policy for 20 years and it didn't really gain any value.

Here are the details of their policy:
The policy had a death benefit of $100,000
They paid $300 / per quarter
Held the policy 20 years
Current cash value is $25,000

So they had put in $1200 x 20 = $24,000 and ended up with $25,000. Thats less than 1% appreciation.

What if you'd bought term an invested the rest?

At today's prices $100,000 of term insurance is relatively cheap. I did a quick search on QuickQuote and a 30 year old man could buy a 20 year term policy for around $120 a year. That would leave them $1080 to invest. If you put that extra cash into something safe like bonds at 5% you'd end up with over $38,000 after 20 years.

Its pretty easy to see which option is better:

Whole life : $1200 a year, $100k death benefit & $25,000 cash
Term life + savings : $1200 a year, $100k death benefit & $38,000 cash

Term wins by $13,000

August 27, 2009

How Much Does Watering My Lawn Cost?

One of our recent purchases was a sprinkler system as part of our landscaping project. I've never watered my lawn all that much, but now with the nice new sod and landscaping I'd like to keep the plants from all dying and having it look bad and wasting that investment. Anyway, we'll want to water our lawn and plants with the automatic sprinklers. I figured I should find out how much it will cost.

Our water bill covers 2 months and we just got the last bill. So I won't be able to see the cost of watering the lawn for a full 2 months. I wanted to estimate the cost before hand so that we don't get surprised by a very large bill.

What water costs us:

My city charges $2.5 about / ccf for water and sewer charges (1 ccf =748 gallons). Our water costs around 0.33 cents per gallon. If we use significantly more water then we could hit the next tier of rate and it would get up to about $3 / ccf or 0.4 cents/gallon.

Estimate #1: 30 minutes a day x guesstimate on gpm
First estimate is based on simply running the sprinklers 30 minutes a day and guesstimating the amount of gallons per minute the system would put out. I don't know exactly what kind of hardware they used or what they are rated at but you can find sprinkler heads on the net. This Rainbird sprinkler head says it uses 2.5 to 4.3 gallons per minute (gpm). This Rainbird model does 2.1 to 3.2 gpm. These Hunter sprinkler heads put out anything from 0.3 to 14 gpm. So the range of GPM per head is pretty wide. I believe we've got the smaller type heads that are probably more like 2-4 gpm. There are 5 heads in each zone in our lawn. So I guess we'd be using 10-20 gpm. If the lawn is set for 30 minutes of watering total then that would be 300-600 gallons of water per water. That is 2100 to 4200 gallons of water a week. At a rate of .33 to .4 cents per gallon that would come to about $6.93 to $16.8 per week or $27.72 to $67.20 a month.

Estimate #2: 30 minutes x typical gpm
This page says that the suggested GPM for a lawn sprinkler is 8 gpm. With 30 minutes of use a day that would be 240 gallons a day. Thats $23.76 to $28.80 a month.

Estimate #3: 1" per week method
I probably shouldn't just water the lawn a full 30 minutes a day. AllAboutLawns recommends watering your lawn about 1" per week. For 1000 sq. ft. of lawn that would be about 83 cubic feet of water. A cubic foot of water is 7.48 gallons so watering a 1000 sq ft lawn 1" would take about 623 gallons of water or 2,492 gallons a month. So we'd be spending around $8.22 to $9.97 a month to water our lawn at the rate of 1" a week.

Given the 3 different estimates I come out with estimated costs ranging from $8.22 to $67.20 a month. I think its a pretty good bet that the actual cost will probably end up somewhere in the middle in the $10-$30 range.

Of course the exact amount we spend will depend on how much we decide to water the lawn. If we have it run 2 times a day every day then that will cost more than if we run it once a day every other day.

What do others pay?

This discussion on has some people citing their lawn watering costs.
There is one person paying $150 a month for 7000 sq ft of lawn. Another person spends $100 to $250 a month for 1/3 of an acre.

This article on Slate estimates that average American lawn uses 21,600 gallons a year. AT my 0.33 to 0.4 cent rate per gallon that would be about $71.28 to $86.4 per year.

Photo by °Florian

August 26, 2009

Free Museum admission on Sept 26th

September 26th is Museum Day when you can get free admission to many participating museums around the country. There are hundreds of museums around the country that are participating and probably something near you. To get the free admission you have to fill out a form for an admission card.

I heard about this one on Fatwallet.

Cell Phone for $5 / month

In one of my older posts Can you get a cell phone for $5 a month? I tried to find a $5 / month cell phone plan but came up empty. A reader commented with a way that it can be done via T-Mobile prepaid phones:

Reader Byung Kyu Park said...

By the way, at least for T-Mobile, once you pay $100 or so (best if you pay that up front, since then you get $0.10/min rate as well as 1-yr expiration date on the minutes), your minutes *always* last for one year since your last refill.

So, if you pay $100 first year, and then pay only $10 near the expiration of the first year (note that here you don't really get the same $0.10/min rate; that rate applies only when you are filling $100 at a time), then unless you are using up the minutes, you don't have to worry about it for a year.

Thats a great tip from Byung. I checked out the details on T-Mobile's site myself. If you add $100 in minutes to your prepaid plan then you'll get their Gold Rewards status. That will get you 15% more minutes and your minutes will last for 1 year.

So as Byung said what you can do is first get a prepaid account and add $100 minutes. Now you'll have the Gold status and your minutes will last 1 year. Then about 11 months later when the minutes are nearing expiration you can add just $10 more in minutes and since you're a gold status user those additional minutes will last a year. Doing it this way you can get 22 months coverage for $110. That works out to $5 a month!

Of course you will have pretty limited amount of minutes to use doing it this way. But this is a good way to get dirt cheap cell phone access for emergency and/or infrequent use.

August 25, 2009

$25 Gift Certificates for $2.00 until 8/31

80% off w/every $25 Gift Cert. order. Use code TASTE. Pay $2 thru 8/31/09 at

Info on certificates:

I have used these at my steak house in the past and they worked great. Unfortunately though the steak house stopped taking the certificates. If you're interested in getting a certificate then first check the site and see what restaurants in your area take the certificates. Second be sure to check out the rules and limitations for the gift certificates. For example a restaurant may require a minimum purchase of $50 to use the $25 certificate and a mandatory 18% gratuity. The rules differ for each restaurant so pay close attention to them. Lastly I wouldn't recommend buying them unless you plan to use them shortly. The restaurants that accept the certificates can change over time.

For more on saving money at restaurants see my older posts:

I'm Reconsidering Joining Angie's List

A while back I wrote asking Is Angie's List Worth It? and at that time I figured it probably wasn't really worth the cost and decided against joining. When I first looked at Angie's List I was interested but wasn't willing to gamble on the expense of the membership. I had hoped that they would have had a free trial but they don't. So I decided to pass. But now I'm thinking maybe its worth it to join Angie's List.

Lately we've gotten two major home remodeling projects done. We got our lawn fixed up and we got installation added and air sealing done. Both of these cost over $6,000 and researching good contractors took some time. In hindsight I think it really would have been beneficial to have Angie's List as a reference when researching the contractors. Thankfully the two contractors we hired did do a pretty good job for a reasonable price so we're happy enough with the work done. I think the primary benefit of Angie's list is giving you more data on customer satisfaction so you can make a more informed decision.

We'll probably get a heat pump installed soon as well so that will be another major project to undertake. I think it would be nice if we could do some screening of contractors via a service like Angie's List. I've done some Google searches and checked sites like Citysearch to see what I can find for reviews of local HVAC contractors but not come up with too much. Angies List could help us screen out the bad contractors and find a pool of contractors who consistently do a satisfactory job.

Money Smart Life has an article with promotional codes to save on Angie's List memberships.
The current promotional code of FOX will save me $15 on a monthly membership or $30 on an annual membership. So I could either get 1 month for $7.50 or 1 year for $44.00. Paying $7.50 for a month to try out Angie's list and at least check out contractors for the heat pump seems like a pretty fair deal.

Is it worth the cost? I think spending a few dollars to filter out the really bad contractors is a good use of money. If we don't use Angie's list then we'd run a higher risk of getting a poor contractor that ends up costing us more money in the long run. The $7.50 to join for a month isn't much money to spend to try Angies list.

August 24, 2009

Carnival of Personal Finance #219 - Little League Edition

The Carnival of Personal Finance #219 - Little League Edition is up today hosted at Your Money Relationship.

My post Why I Don't Like Giving Friends a Ride to the Airport is in the carnival.

Some other articles from the Carnival that I found interesting:

Moneymonk discusses What is Upper Middle Class?

FIRE Finance has Free Money - Online Bank Account Signup Bonuses upto $850 in all though many of them have requirements.

Amateur Asset Allocator believes that Mortgage Life Insurance Is A Rip-Off and I agree.

Updown Performance : down 4% overall, up 9% in 2009

Practice invest

My Updown account is currently down 4% overall. I'm up about 9% since the start of 2009.

By comparison the S&P 500 is down -24% since I've started on
Updown and its up about 10% in 2009. I've been beating the S&P 500 in July and August.

I haven't done anything with Updown for a few months and I've just held my investments.

August 23, 2009

Taxes on Social Security benefits in Retirement

Did you know that you might have to pay taxes on up to 85% of your social security retirement benefits? If your income level exceeds certain threshold then your social security pension could be taxable.

How do you know if your social security benefits are taxable? First you combine half your social security and other taxable income. Then check to see if its above the thresholds.

If you're single the threshold is $25,000 and if you're married its $32,000. If you owe more than that you could have up to 50% or 85% of your social security subject to tax. There are a couple thresholds to determine if any of your social security is taxable and if so how much is subject to taxes. Heres a table breaking it down for single or married filers:

Single, head of householdMarried filing jointAmount of SS Taxable
$25,000 or less$32,000 or less0%
$25,000 to $34,000$32,000 to $44,000up to 50%
over $34,000over $44,000up to 85%

Lets look at some examples.

Example 1: A single woman makes $10,000 from a part time job and has $18,000 in social security benefits. She also has a pension with income of $8,000. Half her SS is $9,000 and her other income is $18,000 so in total she would be at $27,000. That is $2,000 above the threshold. 50% of that $2,000 is subject to taxes. So $1,000 of her social security is subject to income tax.

Example 2: A married couple has $15,000 from taxable IRA and pensions and gets $20,000 from social security. Half their SS plus other income is $10,000 + $15,000 or $25,000 total. That is below the $32,000 threshold for a married couple so none of their social security is taxable.

Example 3: A married couple has social security benefits of $24,000. They also have an IRA with benefits of $20,000, interest income of $5,000 and business income of $30,000. Half their SS is $12,000 and their other income is $20,000 + $5,000 + $30,000 for a total of $67,000. That puts them above the threshold for 85% tax level so 85% of their social security is taxable. They owe tax on 85% of $24,000 or $20,400.

Even if some your social security is subject to income tax, that won't mean you necessarily owe taxes. You will still get your standard or itemized deductible as well as your personal exemptions.

August 22, 2009

Does Your Car Qualify for Cash for Clunkers?

The main government website on the program is at They also now have a vehicle eligibility guide page up that will guide you through steps to select your car and determine if it qualifies for trade-in for the Cash for Clunkers $4500 or $3500 incentive.

This is the government source so its the best place to go to find out if your car qualifies or not.

Unfortunately I haven't found a simple list of all the cars that do and do not qualify, but such a list might be harder to make than you think. For example a given model of car might have 4x4 and two wheel drive options, 4 cylinder and 6 cylinder engines as well as manual and automatic transmissions and the MPG may differ for all of the differences. So you can't just say that 1994 Ford F150 trucks qualify or not.

I'd also recommend you check the market value or trade in value of your car to make sure its not worth more to resell it on the open market than the $4500 or $3500 from Cash for Clunkers. You can find used car values on

August 21, 2009

Best of blog posts for week of August 21st

JD at Get Rich Slowly talks about why two cycle billing is a bad thing with his story about A Small Mistake: My Introduction to Two-Cycle Billing but then later he realized he actually had one-cycle billing after A Call from Capital One and his actual problem was the grace period. Aren't credit cards great?

My Money Blog has a trick for Finding The Actual Hotel Name On Before Purchase

Wise Bread has an article about the free warranty extensions you get from credit cards but I always forget exist : How to Take Advantage of Free Extended Warranty from Your Credit Card Issuer

Why I Don't Like Giving Friends a Ride to the Airport

It is common etiquette to give your friends and family trips to the airport when they are going out of town. Its taken as a given that if you drive a friend too & from the airport that they will return the favor thus saving you parking costs. I disagree with this idea and I avoid offering to give people rides to the airport. For me its simply not worth the time and effort to drive people to the airport.

I know that refusing such a favor is probably seen as selfish if not outright offensive by some people. Its what friends do for each other right? Well bear with me and let me explain my logic:

For me personally a big reason I don't like the idea is that our airport is on the other side of town. To drive from my side of town to the airport is around 30 miles and at minimum takes 45 minutes. But to allow for traffic and depending on time and day of the trip you should really allow 60-90 minutes to make sure you get there in time. Driving a friend to the airport requires two complete round trips.

Lets compare the two options.

Cost of Driving yourself:
Time: 1 person x 2 hours = 2 hrs
Gasoline: 60 miles = $5 in gasoline
Parking: $10 / day

Cost of Driving a friend:
Time : 1 person x 4 hours + 1 person x 2 hours = 6 hours
Gasoline : 120 miles = $10 gas
Parking : $0

Driving a friend saves $10 / day in parking but costs $5 more in gasoline and 4 extra hours of someones time.

Is 4 hours + $5 worth saving $10 a day? It depends on how many days you'll be parking at the airport.

Here is the savings per hour based on # of days
1 day : $1.25 / hr
2 days : $3.75
3 days : $6.25
4 days : $8.75
5 days : $11.25
6 days : $13.75

In other words if you take a 1 day trip then the airport parking would be $10. You'd spend an extra $5 in gas so the net cash savings would be $5. You'd be spending an extra 4 hours of time to save that $5. So on an hourly basis you're saving $1.25 / extra hour spent for a 1 day trip. For most people 4 hours of their time is worth more than $5 and they could find better things to do to generate more savings. For a very long stay it gets more worth it to drive someone to the airport. But for me and my friends our typical trip is in the 2-5 day range.

Of course the exact savings will vary from one situation to another. This whole argument only works if you live far from the airport. My mother in law lives only a few miles from the airport so in her case it is much easier for her to pick someone up from the airport. She can let a friend or relative park at her house and then spend 20 minutes each way to ferry them to the airport. Thats only 40 minutes total in time plus a few cents of gasoline. Since she lives so close to the airport, in her case its almost always worth it to make the trip to drive other people to and from the airport. The closer you live to the airport, the more sense it makes to give people lifts to and from the airport.

The key reason I don't think making trips to take friends too and from the airport is worthwhile in my case is that we live so far away from the airport. The time and extra gas cost to drive across town is significant in my situation. Plus to be honest I really don't like fighting cross town traffic.

How can you say 'no' to your friends?

Of course if your friend asks you for a trip to the airport it is not always easy to refuse the favor. Its considered the duty of a close friend to drive someone to the airport. You could risk offending your friend by appearing selfish. Just to assure you all that I'm not a socially incompetent jerk: I wouldn't just plain refuse to drive a friend to the airport. It really depends on the situation. Most of my friends can afford airport parking. In those cases I might ask them if they think its really worth it for me to drive them. I would politely point out that it would take an extra 4 hours of my time and about $10 of my gasoline and ask them if they think thats really worth it to save them the parking fees. They may readily agree with me that its not worth spending hours of my time to save them the parking cost. In other situations if my friend is not doing well financially then I will go ahead and give them a lift in order to save them the cost of parking.

Everyone has to make the personal judgment if giving a friend a ride to the airport is the 'right' thing to do given the situation and the nature of the friendship.

Other Frugal Alternatives:

Park in discount parking lots near the airport.
These are privately ran parking lots that are near major airports and have a shuttle from their parking to the airport. It will generally take you a bit longer to park at their airport and get to the terminal but their parking is a decent discount over airport parking lots. One lot at our airport charges $7 a day and is about 10 minutes from the airport. So by spending an extra 20 minutes you can save $3 a day.

Take Public transit. Taking mass transit to the airport is a bit of an inconvenience and might take an extra 30-60 minutes each way at worse. But the cost is only a few dollars per person each way. If one of my friends were to give me a hard time about not wanting to drive them to the airport then I'd offer to buy them a round trip transit ticket.

Airport Shuttle vans or taxis. Depending on where you live you might be able to get a shuttle van or a taxi to the airport for less than the cost of driving yourself and paying for parking. Here a taxi or shuttle would cost me about $100 round trip which is not very practical. However they might be more reasonable in your area and would be worth checking into.

You should not let a frugal concept ruin a friendship. But maybe you and your friends or family should discuss it and look at if driving each other to the airport is the most practical option.

Photo by Matti Mattila

August 20, 2009

Electric Cars Coming Next Year

I'm personally looking forward to electric cars. I think that its the inevitable future and it will be good to make a major step towards getting off of our oil dependency. Driving an electric car should also be cheaper. The Chevy Volt is a model I've talked about before and they've recently made some news by claiming the Volt will get 230MPG. That claim seems somewhat dubious but thats another topic. The Volt was one of the first major announcements on electric drive cars. They are still making good progress on the Volt, and you can see a video of a test drive of preproduction model. Many car makers are planning to have either fully electric cars or cars that have electric drive train and a gas backup. Below are a list of all the electric drive train cars currently planned for production that I could find.

Tesla Roadster
100% electric
Top Speed : 125 MPH
Range : 220 miles
Price: $101,500
Availability: Now in limited quantities

BMW Mini E an electric version of the Mini.
100% electric
Currently only available in limited numbers in California.
Top speed : 95 MPH
Range : 96-156 mi.
Price : $850 / month lease
Availability: Now, but all units leased out.

Chevy Volt
Wiki page
Electric with gas extender
Top Speed:
Range: 40 miles electric, up to 640 with gas
Price: $40,000 ?
Availability : Late 2010

Nissan Leaf
Additional info.
100% electric
Top speed : 90 MPH
Range : 100 miles
Price : estimated at near $30,000
Availability : 2010

Tesla Model S
100% electric
Top speed: ?
Range: 160 to 300 miles
Price: $49,900
Availability: 2011 or 2012

Chrysler ENVI line of cars

Dodge Circuit
100% electric
Top Speed : 120 MPH
Range : 150-200 miles
Price : ?
Availability : 2010

Jeep Patriot
Electric with gas extender
Top speed : 100 MPH
Range : 40 miles electric, 400 miles with gas
Price: ?
Availability: 2010

Jeep Wrangler
Electric with gas extender
Top speed : 90 MPH
Range : 40 miles electric, 400 miles with gas
Price: ?
Availability: 2010

Chrysler Town and Country
Electric with gas extender
Top speed : 90 MPH
Range : 40 miles electric, 400 miles with gas
Price: ?
Availability: 2010

There is some talk of other models as well but they had less details. Toyota is planning an all electric vehicle by 2012 and plug in hybrids selling to fleets by late 2009. There are reports that Daimler is apparently working on an electric version of the Smart car.

From the list above, it seems to me that the Chevy Volt and the Nissan Leaf are most likely to be practical mainstream cars first on the market. The Volt and Leaf are both scheduled for 2010 and they have functional test models now.

The Tesla Roadster and MINI E are on the road now but neither is very practical and their availability is limited. The Tesla Roadsters are very expensive. The MINI E is already out there but in such limited quantities and such a high price that it is not really what I'd consider mainstream production level. The Chrysler cars have less certainty in their schedule so I am not expecting they'll be on the road faster than the Volt or Leaf.

I've got my eye on the Nissan Leaf. It looks like a practical solution that will work well in the city. Plus the price is relatively low at $30,000 level. If it delivers as promised then the Leaf might be a good buy.

We'll have to wait and see which car hits the road first and is available to buy at a reasonable price.

August 19, 2009

Major Landscaping Project

My wife recently finished up a major landscaping project. We got a lot of work done on the yard and it looks a LOT better. We first pulled out a couple old fur trees that were taking up half the yard. Then we got a sprinkler system installed and a new concrete walkway put in. Finally we had them put in new sod for the whole front yard and plant some new trees and plants. In total we spent over $7,000. That is a lot of money for sure but we got a lot of work done.

This wasn't a whim
My wife and I didn't just decide one day to pay someone $7000 to fix up our lawn. We got multiple bids and picked the cheapest among several qualified contractors. One contractor wanted to charge about $2000 more. We also discussed and consciously decided to pay people to do the work rather than do it ourselves. I figured the cost of materials and estimated the costs of labor and we both decided we'd rather pay someone to do the work than try and take on all or part of the project ourselves.

We could afford it: I wouldn't have put any money in the lawn if we didn't have disposable income to spend. If we were in credit card debt or otherwise in a poor financial situation then we wouldn't even consider such an expense. You have to be able to afford a luxury expenditure or you shouldn't do it. This kind of thinking is no different than any other major expense. If you're looking at buying a new car, remodeling a bathroom or going on a European vacation you should only do so if you are in a sound financial state.

We wanted to do it: My wife and I fully realize that this kind of expenditure is a 'want' and not a 'need'. We wanted the house to look nice and decided it was a priority to spend the money. My wife enjoys improving our home and she considers it a very high priority for our spending. Everyone spends money on their 'wants' in different categories and this is one area we want to spend our money. We've prioritized lawn improvement above other things like new cars, a expensive clothes or foreign vacations.

Added value to the home: This feature of the project is more of a side benefit. The sprinkler and walkway are permanent improvements that will add value to the home. The impact on the curb appeal of the home is considerable and I honestly think that if we were putting the home on the market today that we'd get most of that $7,000 back by selling the home quicker and easier at a higher price. But I should emphasize that this wasn't the primary reason we got the work done. If making our home look nicer wasn't the priority then I wouldn't have done it just as an investment on the property. But again, increasing our home's value is more of a nice side bonus and shouldn't be used as a reason to do it.

Why did we pay someone instead of doing it ourselves?
You can almost always save money by doing home improvement projects yourself. So why didn't we do the work ourselves to cut the bill? Most of the work is beyond our capability. Cutting down trees, pouring a concrete walkway and installing sprinklers systems are all things we don't know how to do and are probably best left to experts. I could figure out how to do those things but it would take a lot of time to learn how to do them. I'd have to buy or rent specialized equipment like a chain saw, concrete forms and trench diggers. I have to be honest that I don't trust myself to do it all properly. One small error like having the tree fall on our fence or improperly pouring the concrete could easily negate any savings we get from doing it ourselves. There is also a safety concern for some of the work, especially the tree cutting.

We simply didn't want to do it ourselves. My wife and I did some yard work initially and found it took us two full afternoons to pull out some old bushes. We labored probably 6-10 hours total and it was hard work we didn't enjoy. If we had done the work ourselves it would have undoubtedly taken us dozens of hours. Thats a lot of labor that we didn't have much interest in doing. The amount of work was pretty extensive and it took a crew of guys 4-5 days to get it all done. I'm sure there was in the ballpark of 100 hours of labor total put into it. THis is not to say I don't enjoy doing yard work or DIY projects in general. On the other hand I will happily mow the lawn every week rather than pay someone $25 to do it. Some DIY projects I enjoy doing and some I do not.

Of a much smaller concern is the fact that we get the final result quicker by paying someone else. If we'd done it ourselves it would have taken many weeks total to get the work done. We'd have to fit in 2-4 hours here and there during evenings and weekends. So we'd have to wait months to see the final result of the work.

We're very happy with our new lawn.

August 18, 2009

Net Worth : Cash and Debt trends

I've been tracking our net worth on NetworthIQ for over a year now. About a year worth of the tracking includes the combined finances for my wife and I post marriage. In that time our total net worth has increased by around $34k. Thats pretty good.

Much of the ups and downs of our net worth has been due to the short term fluctuations of the stock market and gradual changes of the real estate values. In the past 6 months our net worth has jumped by over $60k and most of that is from stock and real estate changes. However the value of stocks and real estate are really only "paper profits" and that increase could erode or crumble rather quickly.

I figured it would be a good idea to look at the trend in our net worth by looking at our cash and debt figures. Cash and debt are concrete things that won't fluctuate due to changes in the market environment. If the market crumbled tomorrow we may lose our retirement growth but our cash and debt would be unchanged. Plus both our cash and debt balances are directly within our control and will go up or down based solely on our actions. The trend in our cash and debt is a better reflection of how our actions are impacting our financial state than the net worth as a whole.

Here is the trend for our debt and cash in the past year:

Mortgages Cash
Jul,2008 $ 201,368 $ 85,500
Aug $ 198,505 $ 99,975
Sep $ 196,565 $ 96,700
Oct $ 194,819 $ 87,545
Nov $ 193,167 $ 83,937
Dec $ 191,410 $ 84,980
Feb $ 188,178 $ 95,394
Mar $ 186,403 $ 95,077
Apr $ 184,600 $ 102,812
May $ 182,900 $ 105,505
Jun $ 182,536 $ 106,201
Jul, 2009
$ 180,700 $ 106,811
Change: $ (20,668) $ 21,311

Here is the trend shown graphically:

Our cash balance has grown over $21k and our debt balance has dropped over $20k. Combined that is a $40k increase in net worth. Both our cash and debt are going in the right directions. This is a good affirmation that our net worth is going in the right direction due to our actions and not just from increases in stock or property values.

Changes in Cash
If you look closely at the cash values you'll see that from August 2008 to November 2008 our cash dropped by about $16k. Part of that is due to funding of my Roth IRA for $5k. During the end of 2008 we also had a vacant rental that we were working on getting in shape to rent as well as paying the mortgage on. The rent on that houses is about $1000 a month. A third reason our cash was dropping was normal seasonal spending on travel and such for Thanksgiving and Christmas. On the other hand from December 2008 til July 2009 our cash balances grew by over $22k. In general there are going to be some seasonal fluctuations in our cash balances due to such things as holiday spending, annual bonuses and funding of our retirement accounts.

Mortgage Balances
You can see the amount of debt we have in our mortgages steadily dropped month over month. As we pay our monthly mortgage payments the principal balance in the debt is whittled away bit by bit. Plus we are also paying extra towards the principal on our primary home loan.

I'll continue to track our Net Worth including stock, retirement and real estate values but its also good to check and make sure that the cash and debt are trending the right way.

August 17, 2009

20% off at OfficeMax Aug 16-22

Ebates has an offer right now for 20% off at OfficeMax. The discount applies from August 16th - 22nd.

Details on the discount: 20% off entire order at OfficeMax. Code OMX20 (Excludes Technology, HP Ink and Toner and Clearance items.) (Exp. 08/22/2009)

Carnival of Personal Finance #218: the "Chuck Norris" edition

The Carnival of Personal Finance #218 - "Chuck Norris" Edition is up at this weeks host Budgets Are Sexy.

My post How To Get Thousands of FREE Books is featured in the carnival.

Articles that I found particularly interesting were:

Stupid, Pointless and Worthless Frugality Tips from Financial Methods

The Infomercial Copycat Method of Debt Reduction by Realm of Prosperity

Does a Pleasant Attitude/Personality Help You Succeed? from Free Money Finance

Should You Pay College Tuition with a Credit Card?

I was a bit surprised to read this article that said a National Association of College and University Business Officers (NACUBO) survey found that "of 2,000 institutions revealed that 94 percent of the respondents accept credit card payments for tuition and fees". This article said that they found that a full 30% of students had used credit cards to pay tuition with an average of $2200 in such charges. It never even occurred to me that people put their tuition on a credit card, but apparently its a pretty common occurrence.

I guess most people would want to pay tuition with a credit card for the same reasons they pay everything else with a credit card. Primary reasons people use credit cards : they don't have the cash or they like the convenience.

Credit Cards Instead of Student Loans

Some people might want to use credit cards because they think getting a student loan is difficult or the interest is costly.

The average credit card interest rate is 14.9%. Rates on student cards are at 15.3%.

Student loan rates at SallieMae are : 3.4% to 6.8% for Stafford or 8.5% for PLUS loans. Or private student loans have variable rates that range from LIBOR +2% to LIBOR +14%. Right n
The 1 month LIBOR rate is currently a very low 0.27% so you can actually get private student loans as low as 2.5% level.

Of course the rates charged on credit cards and some student loans will depend on your credit worthiness. If you can qualify for a super low interest rate on a credit card then you should also be able to get a low rate on a student loan.

In virtually any case, interest rates on student loans are lower than credit card rates.

I bet many people don't get student loans since they didn't apply for financial aid. Well the financial aid application isn't that hard to fill out and should be well worth the effort for most people. Most people can at least qualify for the subsidized government loans if not free grants or tuition waivers.

Paying with credit cards for rewards or points.

If your primary reason for wanting to use a credit card to pay tuition is to get rewards or points then you should be wary of fees. Some universities charge a 'convenience fee'. That fee could be a flat amount or a % of the total. This US News article from back in 2006 said that about half of public universities charged a fee for credit cards. Its probably now even higher %. Typically a fee will be in the 2% range which would generally exceed the value of most rewards or points programs.

For the overwhelming majority of people you'll be better off paying not paying your tuition with a credit card.

August 16, 2009

Home Energy Cost Cutting Project : Insulation Work Done

I've been working on a project to cut our home energy costs. First I laid out my plan to improve our homes heating energy usage. We started with a home energy audit and then we got air seal and duct seal testing done. Next we got bids on the work and picked a contractor.

It took a couple weeks to iron out details with the contractor but they've now finished all the air sealing and insulation the work.

The insulation work included all of the following:

Get an air leak test
Get a duct leak test
Air sealing and weatherstripping
Duct sealing
Increase insulation in attic from R18 to R38
Increase insulation in crawl space from none to R30
Increase duct insulation from R2 to R11

The total up front cost for all of the insulation work is around $6,300. We'll get much of that back via federal tax credits, state tax deductions and rebates from our energy utility. The total of all tax benefits and rebates is around $3,100. So in the end our out of pocket cost should be roughly $3,200.

I really don't know how much this will save us on our energy bills. Previously I had estimated something in the 20-40% savings. But those estimates might have been optimistic. Even if I assume just 10% savings then thats $120 a year. Our payback period for the insulation could be as low as 7 years and as high as 27 years.

Next Step

Next we'll probably move ahead with the next stage of the project and get bids on having a heat pump installed. A heat pump should cut our heating costs significantly. I find many sources citing energy savings of 50% range. After the insulation savings, such a 50% cut in costs from installing a heat pump could potentially save us $350 to $550 ballpark.

The cost of the heat pump will likely run us $4,000 to $5,000 range. We can get something around $800 to $1,500 in tax incentives and rebates. Less the credits our out of pocket cost would be in the $2,500 to $4,200 range. With energy savings of $350 to $550 and a cost of $2,500 to $4,200 our payback period for a heat pump would be as low as 4.5 years or up to 12 years.

Plus we don't have air conditioning now and a heat pump would add that to our home. Given the energy savings I think a heat pump will be a good investment.

Photo by Andrew|W (the image is not my attic)

August 15, 2009

Check to find out "what people are paying"

How much does it cost to remodel a kitchen? What does it cost to hire someone to video your wedding? Whats it cost to sign up for a small business merchant account?

Sometimes its not easy to find prices on those kinds of questions. The website CostHelper has data on what people pay for a wide variety of things.

CostHelper usually quotes a range of prices and will give prices at the low, average and high end. For example if you look at what it costs to remodel a kitchen they give an average range of $17,000 to $19,400 and a high end range of $50,000 to $100,000.

They generally cite figures based on research from industry sources. The site also has input from individual users who quote what they've paid.

If you're looking for a good ballpark on what people pay for things then CostHelper can be a pretty handy resource.

August 14, 2009

Best of blog posts for week of August 14th

Bad Money Advice wonders Why are Roth IRAs so Confusing?

Jim at Bargaineering provides a nice little calculator to answer the question What Tax Bracket Am I In?

Trent chooses a topic that guarantees there will be an argument in the comments by posting How Much Do Taxes Matter To You?

Lots of Hotel Deals in Vegas Right Now

I've mentioned once or twice before that I enjoy going to Vegas. There are tons of fun things to do and its an easy and relatively inexpensive vacation spot. I'm not even much of a gambler myself.

With the economy the way it is, the traffic in Vegas has gone down. As a result, many of the casinos are running pretty good deals to get more visitors in and improve their revenue. Below are a sample of some of the various deals you can get through Vegas hotels right now. I've found these over the past couple days. Keep in mind that all rates here are subject to change at any time and these are the prices that were quoted to me recently.

First of all you can get some pretty good rates through Orbitz. Here are the nightly rates including taxes on Orbitz for a 3 night stay Sept 21-24 that I found in one recent search :

Sahara = $22.55 /night
Luxor = $61.99
Riviera = $30.21
Stratosphere = $39.35
Imperial Palace = $59.99
Excalibur = $40.57
Hooters = $34.00
Harrah's = $114.35 (cheaper other days)
Bally's = $73.86
Caesars Palace = $172.45 (much cheaper other days)

These rates include the taxes but don't cover extra surcharges or 'resort fee's added by the hotels. Those resort fees are an important detail to pay attention too since they can add a surprise $3-$11/night to the bill.

Note that Sept. 21-24th is a Monday through Wednesday midweek stay. You'll get cheaper rates in Vegas hotels if you travel during mid week.

Hotel Website Prices and Promotions

Below are some deals that I found by going straight to the hotel website. Some of these deals are better than the Orbitz price and some aren't really. I make my picks for best frugal value, best 4-star price and best family hotel. I also note some negatives for hotels I've stayed at personally. I do that in the interest of full disclosure rather than to scare you off and I'd be happy to stay at any of these hotels myself.


I've stayed in Sahara a few times and I like it. Its not fancy but its a good deal for the strip and I've never had a problem there. They also have a monorail stop. The Sahara the rate on their hotel website was as low as $25 a night on weekdays. Thats $28/night with tax.

Its hard to beat $28/night on the strip.

With a 2 night minimum stay and their 'Rick Thomas Package' you'll pay $50 rate ($56 with tax) but also get :

  • 2 tickets to the Rick Thomas Show
  • 2 Roller Coaster Rides
  • 4 Buffet Passes
The tickets for the Rick Thomas magic show are normally $44 each. The roller coaster rides are typically $8 each. The buffet passes are worth about $9 each. However, in my personal opinion their buffet at Sahara isn't very good. Overall though the value from this promotion is pretty good if you're interested in seeing the magic show and taking the roller coaster ride.

One oddity about Sahara is that they seem to charge extra for non-smoking rooms.

The rates on Orbitz were $1-2 cheaper than the hotel website.


If you want to splurge a bit for a little more upscale hotel then Luxor is a good value. Luxor had the best price I found for 4-star level hotels. I've stayed at Luxor once or twice and its a pretty nice hotel on a great location. Noise level in the pyramid rooms was a bit high for my tastes but they quiet it down by 11pm or Midnight.

The rates on the Luxor website are as low as $55 a night ($61.60 with tax) plus a whopping $10.95 / night 'resort fee'. Their resort fee is the highest that I found among all the hotels. That brings the total to $72.55 a night with tax + fee.

The Luxury Getaway promotion includes:
One $30.00 Food Dining Credit for Tender Steak and Seafood Restaurant
• One $20.00 Spa Credit for Nurture Spa services
• One 2 for 1 admission to Nurtur
e Spa at Luxor
• $10.00 in Free Slot Play for New Player Club Members.

The promo runs about $10 extra per night. So a cheap weekday stay would cost $83.75 / night with taxes and fees.

The best deal I found for Luxor was on Orbitz for $73 / night including tax + fee and they threw in a $25 dining credit.


I've been to Excalibur a couple times and I've been happy enough. The hotel is a bit more family focused than most with a more kid friendly theme, games arcade and family oriented Tournament of Kings show. Overall its a decent value with a good location. However I should note that my friend had a problem with cleanliness in his room once and many of the games in the arcade frequently malfunction.

Normal room rates are as low as $31 a night or about $34.72 with tax.

Their Stay and Play promotion available on their website gives you a $25 dining credit with room rates as low as $41. Most August & September weekday nights are in the $41-$51 range. So this would give you 2 nights and $25 worth of food for about $80-$100 range.Thats a pretty good deal.

- or -

Their Family Package has a bunch of discounts:

2-FOR-1 tickets for Tournament of Kings dinner show
2-FOR-1 tickets to Adventuredome at Circus-Circus
2-FOR-1 tickets to our Magic Motion $-D movie ride
10 Free Play passes at the Fantasy Faire midway
20% Off on Bodies, the Exhibition at Luxor
20% off Titanic, the Exhibition at Luxor
Buy one, get the second admission for 50% to Shark Reef at Mandalay Bay

There are a lot of good discounts in that package. The Tournament of Kings show costs around $40 a ticket and includes dinner. The Titanic exhibition is $27 / adult. Both are good shows.

The weekday rates for the Family Package are in the $56-$66 range per night or about $63-$74 /night with taxes. There is a $5/night resort fee also.

Rates on Excalibur website are marginally lower than Orbitz.

More Good Values


Room rates are as low as $27/night on their website. With taxes of 12% the rate comes to $30.24. They have a $3.92 / night energy surcharge. I didn't see any compelling promotional deals.

The rate at Riviera is about the same as Orbitz.


Regular room rates are $38/night on their website. With 12% taxes the rate is $42.56. Their 'resort fee' of $7.50 a night is added as well.

Or with breakfast for 2 the rate goes up to $52/night or $58.24 with tax.

The plain non-promotional room rate is about $5 a night more than Orbitz.

Imperial Palace

I've stayed in Imperial Palace a couple times. Its a bit older and smaller than most major casinos but the price is fair and they have a great mid strip location. Their decor might be a little depressing and dated. They have a Three nights for $89 deal (promo code : PIF89). That comes to $99.68 with taxes. Plus a coupon book with the following deals:

· 2 for 1 Tickets to Penn & Teller, Jubilee! and Legends in Concert
· 2 FREE Admissions to the Eiffel Tower Experience
· 2 for 1 Entrees at Martorano's and other great dining discounts
· 20% of Grand Canyon Tours

The Eiffel tower tickets are normally $10 per adult so 2 free tickets is a $20 value.

The 3 night deal for $89 is a better deal than Orbitz.

Hooters Casino

You can get 2 breakfast coupons and 2 tickets to the Todd Paul show. (Promo code : AUGDEAL ) The deal is good for August 13 to Sept 3rd.

Weekly rates are as low as $20 a night ($22.40 with taxes) + $5.60 resort fee.

Rates on Hooters website are marginally lower than Orbitz.


You can find weekday prices as low s $45 a night ($50.40 with tax). Harrah's prices on Sept. 21-24 that I searched Orbitz for are pretty high. I am guessing they are hosting a convention or other event that week. Other days are much cheaper.

Classic summer fun package (promo code PHCSF) includes 'classic' room accommodations plus:
  • 2 complementary drinks at the pool
  • 2 for 1 tickets to Legends in Concert
  • 2 for 1 tickets to the Mac King Comedy Magic Show
  • 2 for 1 tickets to The Improv
  • $5 off your meal at Flavors The Buffet
  • Plus, many more discounts all across Las Vegas!

The price on Orbitz is cheaper than their website by a few bucks a night.


The standard room rate on Ballys is as low as $39-$49 per night ($44-$55) on their website.

Jubilee! 28th Anniversary Package (promo code PBGGTWY) has:
  • $50 Dining Credit
  • Two Jubilee! Tickets
  • Two-for-one Spa admission
2 Night Min/7 Night Max
Offer Valid Through Mar 15, 2010

The tickets to Jubilee start at $52 each so two of them would be a $104 value. I found 3 nights for about $328.

The rates on the Bally's website are within $1 of the rate on Orbitz.

Caesars Palace

To me Caesars seems to be the quintessential Vegas hotel. I wanted to include them in the list even though the price isn't as great as the other hotels.

Standard room rates start at $90 per night ($100.80 with taxes).

Juliette promotion code: JULIETTE
  • Price starts at $119 a night.
  • Two nights Classic accommodations at Caesars Palace
  • $50 dining credit, good at any of our outstanding restaurants
  • Two Roman Rituals spa passes to Qua Baths & Spa (a $90 value)

Valid for stay February 28, 2009 - January 20, 2010. I found rooms on The Juliette promotion on Sept 1 & 2 for $279 total.

Rates on Orbitz are within $1 of the hotel website.

You can save some serious money on a fun trip to Vegas with some of the deals they are running. Just be sure to be careful with your gambling budget.

Photos by Dave Alter, chad davis and otzberg

August 13, 2009

Rate of Inflation for College Costs

I think we all know that college is expensive. But whats worse is that its getting more expensive at a pretty fast rate.

The BLS tracks the cost of college as one of the components of the consumer price index (CPI). So we can easily go the BLS and see what their data says about the rate of inflation of college over the years.

I pulled their data from 1978 to 2008 showing the price index of college tuition and then figured the annual % increase per year. Charts for both of these are shown below. First the index of college cost.

You can see that the costs for college have been rising over the past couple decades. The rate has been going up pretty steady and has not dropped in any single year.

Now lets look at the annual % change of the index for each year:

The % increase ranged from a low of 4.0% to a high of 13.4%. The average annual increase in college costs was 7.8% in the 30 year period.

Now keep in mind that these increases are also a reflection of inflation as a whole. Lets compare the inflation of the cost of college to inflation as a whole. Here is a chart showing the annual % increase in college index versus the CPI as a whole:

As you can see the Consumer Price Index increased at a much lower rate then inflation in college costs. The CPI as a whole grew at an annual rate of 4.1% in that same 30 year time. The cost of college has increased at a rate 3.7% higher than the rate of inflation.

August 12, 2009

How to Get Thousands of FREE Books

I just got myself a free copy of The Adventures of Sherlock Holmes by Sir Arthur Conan Doyle. No strings attached and it was perfectly legal. You can get that book or thousands others like it for free too.

Project Gutenberg has the text of over 30,000 books for free to download.

For example you can get works from great authors such as Mark Twain or William Shakespeare among many other great authors. You can get books like Pride and Prejudice by Jane Austen or Ulysses by James Joyce just to name a couple.

The books come in multiple formats. You can get books in plain text, HTML or in ebook formats readable with Palm or many mobile phones. You can even get many of the books in audio book format.

Are they really free?
The books are those which are in the public domain, generally older books where the copyright has expired. I should note that while the copyright is expired for the books in the United States, the copyright may still be valid in other countries. If you're in a different country then you may want to check into the details.

How does it work?
Project Gutenberg is a non profit organization that uses volunteer labor to scan or transcript books into electronic format. They then proofread and post the material on their website. Its made available there for people to download for free. Project Gutenberg
is a non profit and you can donate your time or money to help support them.

August 11, 2009

A Lot of People Waste Money Going to College.

I want to preface this article by being clear that I think a college degree is usually one of the best financial moves that you can make. A college degree can be worth a lot. However, going to college isn't necessarily a good move for everyone.

We probably all personally know people who either aren't utilizing their degrees or didn't graduate from college.
One of my friends went to a private college and ended up with significant loan debt. He got a liberal arts degree and has not yet found work that actually required a degree. My sister went to college for a couple years and quit. A cousin of mine went for maybe a year before dropping out. In my family we have 5 people from my generation who went to college and only 3 of us graduated.

This is a common occurrence. A lot of people go to college but many of them do not graduate. 68.6% of the population goes to college out of high school according to the BLS. When I graduated high school about 80% of my graduating class was headed to college. Thats a lot of people going to college. Unfortunately many of those people will end up wasting their time and money in college.

According to WSJ, only 60% of students of 4 year schools graduate within 6 years. At less competitive schools the graduation rate is even worse dropping as low as 34.7% at non-competitive schools.

If you combine those two statistics that means that 68.6% of the population goes to college and only 60% of those graduate so 41.1% of the population attends college and graduates but 27.4% of high school graduates attend college and do not graduate.

With 68% of the population going to college and 60% of them graduating that means that 40% of the population will end up with a college degree. There are not enough jobs out there that really require the skill level for a degree. Many of the people getting college degrees today will end up in jobs they could have gotten without a degree.

If you or someone you know is on the road to college then it would be smart to stop and make sure that college is a good financial move. A college bound person should honestly ask themselves : What are the chances that you'll graduate? What do you plan to do with your degree? Will you be able to make a decent living based off your degree? If you don't have a good plan for college that will lead to a reasonable income level then maybe college isn't the right move just now. Whether or not college is a good financial move depends on the details of your financial situation, what career field you're going into and what your personal motivations are for college.

Of course the financial benefits of college are not the only benefit. Going to college is a learning and growing experience that is worthwhile in itself.

August 10, 2009

Example Variable Annuity Return

A while ago I caught an episode of Suze Orman's show and she had a caller with a Variable Annuity.

The caller had invested $600 a year for 24 years. That is a total of $14,400 paid in premiums. The value of the annuity was $13,200. So she lost money in the investment over a 24 year period. That is a pretty bad investment return.

Its possible that they had made very poor investment choices to cause the losses. But what if you'd simply thrown $600 into an S&P 500 index fund every year for 24 years? You'd have around $27,000 dollars. That is on top of the S&P500 dropping nearly half its value from its highs 2007. We all know how poorly the stock market has done lately and if even an S&P 500 index fund can get you twice the returns of a variable annuity then why pay for something like a complicated annuity?

Some might think that the annuity is tax protected so it would have benefits in that way. That may be true in some situations but the gains on annuities can be taxed at the full income tax rate while investing in a simple stock fund can get you the lower capital gains rate. You might come out ahead as far as taxes are concerned simply buying stocks directly. But in the case of the example they actually lost money with the variable annuity so any tax benefits of an annuity are unhelpful.

If you aren't familiar with Variable Annuities The SEC has a page on the topic of Variable Annuities with all sorts of useful information. They give a good basic explanation of what Variable Annuities are so check out that page for more if needed.

Carnival of Personal Finance #217: The French Money Quotes Edition

The latest Carnival of Personal Finance is up. Carnival of Personal Finance #217: The French Money Quotes Edition The theme for this week's carnival is French quotes about money and the carnival is hosted by Almost Frugal.

My article You Probably Won’t get Paid $100,000 to do that is included in the carnival.

A couple other articles I found interesting :

Darwin at Darwin's Finance got an editors pick for : Are you Efficient? Save Time by Applying Lean Thinking to Everyday Life

Affine Financial Services points out something I wasn't aware of about Mutual fund performance charts from Yahoo & Google with Benchmarks behaving badly.

August 9, 2009

Is the Southwest Rapid Rewards Visa card a Good Deal?

I've had an airline rewards credit card in the past. They have pros and cons and generally I think that the cash value rewards cards are going to be a better value over all. But there are situations where an airline miles card is a good deal. So I've decided to evaluate a few airline miles cards and see if any would be a good deal for me. I'll start with the Southwest Airlines Rapid Rewards Visa card.

I've flown Southwest Airlines a number of times and they often have the cheapest fares. I usually only fly it to locations around the West coast. (that means going to Vegas) My wife has a friend on the East coast but unfortunately Southwest doesn't go to her city. Generally with Southwest I'd be expecting a fare in the $200-$300 range.

The Southwest Airlines Rapid Rewards Visa card works like this:
When you sign up you get 8 Rapid Rewards credits.
You can also get up to 8 more credits for balance transfers (1 credit per $1200 transferred)
You get 1 point per $1 spent.
1200 points equals 1 Rapid Rewards Credit
There is a $59 annual fee
You get 2 bonus Rapid Rewards credits per year.

Those are the basic elements of the card.

Note that I'm not looking at the % finance rate since I don't think you should be carrying a balance and if you have credit card debt then you should focus on paying it off. A rewards card should be used only if you're paying off the balance monthly. I'm also not sure about the quality of the bank that offers the card nor am I going to consider whether Southwest is a 'good' airline or not. If you don't like Southwest or the bank that handles their credit card then don't get the card.

What constitutes a Good Deal?

To evaluate if the Southwest card is a "good deal" or not you have to figure out what % return you are getting on the money you charge. Normal cash back rewards cards will get you 1-2% return. So for every $100 you charge, you will get $1-2 back in cash. If the Southwest card has a better % return on your use then its a "good deal". But if the Southwest card is 1% or less then its not a very good deal since you can find better deals with cash back rewards cards and not be locked into spending money at Southwest.

There are 2 key variables you'd have to figure : your annual spending and the dollar value of an airline ticket.

What is your annual spending?
This is the amount of charges that you put on your credit card per year. If you spend $1000 on most months then your annual spending would be $12,000

What is the expected dollar value cost of a trip on Southwest for you?
If your trips usually run $200 then the value of airline rewards are much less than if your trips cost you $500. So its important to know what your ticket costs would realistically be. This is how much it would cost you to buy a ticket on Southwest for a flight you would expect to take. This amount can be used to figure the dollar value equivalent of the Rapid Rewards. So for example if you'd only take Southwest to Vegas and those tickets run you $250 then thats your expected value. But if you routinely take Southwest form Arizona to New York then your tickets might run $450.

Value of rewards you would get in a year would equate to the points you'd get from expenditures / 16 * the value of a ticket. You get 2 free Rewards per year so you'd want to add those into the equation. You'd also want to reduce your cash value by the $59 annual fee. To find the annual % return on your spending you'd figure the cash value of the annual rewards and then divide by your total spending.

The full equation would look like this:

% return = (Ticket Cost * (((Spending / 1200 ) + 2 ) / 16 ) - $59 ) / Spending

Lets look at a couple examples.

Lets say you charge about $550 a month to your credit card and your typical fight on Southwest will run you $300. Then the formula would be :
% return = (Ticket Cost * (((Spending / 1200 ) + 2 ) / 16 ) - $59 ) / Spending
= ($300 * ((($6600/ 1200) +2)/16)-$59 ) / $6600
= ($300 * ((5.5+2 ) / 16) - $59) / $6600
= (300 * 0.46875 ) - $59 ) / $6600
= $140.625 - $59 / $6600
= $81.625 / $6600
= 0.01236
= 1.236%

Example #2.
Lets assume you spend abut $2000 monthly on your card and your trips usually run $400. This time I'll skip the full math. Then the equation would be:
% return = (Ticket Cost * (((Spending / 1200 ) + 2 ) / 16 ) - $59 ) / Spending
= ($400 * ((($24000/1200)+2)/16) - $59) / $24000
= 2.04% << == good deal

But on the other hand if your tickets run only $250 a trip then you'd get:
= ($250 * ((($24000/1200)+2)/16) - $59) / $24000
= 1.18% <<>

But if you only charge $300 a month then you'd get:
= ($250 * ((($3600/1200)+2)/16) - $59) / $3600
= 0.5% <<>

Roughly speaking if your typical ticket on Southwest is in the $250 range or less and your spending is over $9,000 then you're return on the rewards return on your spending is going to be around 1% range. To hit over 2% return on the Rapid Rewards card you'd have to be getting tickets than cost $400 or more. The exact answer will depend on the combination of your spending and the ticket costs.

If you would expect to fly on Southwest with a fare that is around $400 or more than a Southwest Rapid Rewards Visa is a good deal. But if your ticket costs are lower then there are better rewards credit cards.

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