November 30, 2010

Unemployment by Gender and Industry

Here is a breakdown of unemployment for men and women for each of the major industry categories.  These are the figures as of Oct. 2010 (not seasonally adjusted) :

Men Women Diff
Total, 16 years and over 9.4% 8.6% 0.8%
Mining, quarrying, and oil and gas extraction.............. 11.4% 4.8% 6.6%
Construction 17.5% 15.1% 2.4%
Manufacturing 8.5% 12.0% -3.5%
Wholesale and retail trade 8.6% 10.0% -1.4%
Transportation and utilities 6.8% 7.7% -0.9%
Information 10.1% 9.4% 0.7%
Financial activities 5.9% 7.4% -1.5%
Professional and business services 10.7% 10.4% 0.3%
Education and health services 5.8% 5.8% 0.0%
Leisure and hospitality 11.2% 11.0% 0.2%
Other services 8.2% 9.4% -1.2%
Agricultural and related private wage and salary workers.... 10.0% 14.2% -4.2%
Government Workers 4.3% 4.4% -0.1%

The third column labeled 'Diff' is the difference in the unemployment rate from men and women.   Negative numbers have more unemployed women and positive numbers are more unemployed men.   As you can see the unemployment for men versus women varies a lot from industry to industry.

Some industries are about the same:  professional, education, leisure and government are virtually equal.

Women are hurting more in some areas such as manufacturing, financial and agricultural.

Men are worse in mining and construction.

November 29, 2010

Don't Forget EBates on Cyber Monday

Today is Cyber Monday, the traditional online shopping day after Thanksgiving.   If you're hitting online shopping merchants today then don't forget to visit Ebates as well to add to your savings. 

Some of the current cash back deals on Ebates are :

home depot 6%
Sears 4%
Nordstrom 6%
Disney Store 10%
Kmart 4%
HP Home 6%
JCPenney 6%
Cabela's 4%
Dell 4%
Ebay 2-6%
Walmart 2% 6%
Kohls 4%
Macy's 5%
Newegg 2.5%
Groupon 6%
Eddie Bauer 6%

The Government Will Help You Buy a Mercedes

Did you know that Uncle Sam will help you buy a Mercedes?    Its true.   But it has to be a certain diesel model.  There are federal tax credits for lean burn diesel cars.  

2007 Merccedes E350
If you prefer you could also go for a BMW or an Audi with government subsidies.   I guess if you want to slum it you could buy a VW.   Turns out that most of the diesel's on the road in the US are from European car makers.   Diesel has been more popular in Europe than the US so theres more diesels offered by the European manufacturers.     The point of the incentive is to help put more fuel efficient cars on the road and these diesel models are have significantly higher MPG than the equivalent gasoline engine versions.   Its really no different than the tax credits available to hybrid cars.   (You can get a tax credit for a hybrid Mercedes too).

Here is a sample of the cars that the government will help you buy:

2011 Mercedes-Benz E350 BlueTEC = $1,550
2010–11 Mercedes-Benz GL 350 BlueTEC = $1,800
2010–11 Mercedes-Benz R 350 BlueTEC  = $1,550

Unfortunately thats all the money you can get from the federal treasury.  You'll have to find the other $50,000 - $60,000 on your own.   If you don't have $50,000 lying around you could always go for a VW Golf TDI which qualifies for $850 credit and has a sticker price of $22,810.   The VW Golf TDI gets 30 MPG city / 41 MPG highway.

Photo by Stradablog.  It is 2007 E350 non-diesel which does not qualify for a tax credit shown for illustration purposes.

November 28, 2010

What Majors Graduates Get Bachelors Degrees In

I thought it would be interesting to look at the kids are majoring in in college nowadays.   Turns out the data was easy to find.  Census data shows the number of Bachelors Degrees earned by Field.   You can find it in table 291 in the education data on the statistical abstract [ excel file] or [PDF].   

Here is a side by side comparison of the % of degrees per major / field from 1980 and 2007 :

1980 2007
Business  20.00% 21.50%
Education  12.70% 6.90%
Engineering and engineering technologies 7.50% 5.40%
Social sciences and history  11.20% 10.80%
Biological and biomedical sciences  5.00% 4.90%
Psychology  4.50% 5.90%
Visual and performing arts  4.40% 5.60%
Communication, journalism, and related programs \2 3.10% 5.10%
Computer and information sciences  1.20% 2.80%
Liberal arts and sciences, general studies, and humanities  2.50% 2.90%
OTHER 28.00% 28.20%

There is a large pile of degrees in the "other" category.  I didn't feel like listing all the dozens of separate degree options out there, so I picked out major categories and the most popular choices to highlight.

Heres a few things that I see from the trend between 1980 and 2007:

Engineering down but Computer up :   Engineering degrees dropped 28% as a portion of total.  However at the same time Computer degrees rose 131%.   In 1980 we had 7.5% of degrees in engineering and 1.2% in computers for combined 8.7% and in 2007 the combined amount was 8.2%.  Overall between Engineering and Computer combined the portion is marginally down.

Education down significantly:    The % of degrees offered in education dropped 45% from 1980 to 2007.   I'm not sure but this may be partially explained by some people going to Masters degree programs for education.   But the masters degrees in education are going down as a % of the whole as well.

Psychology, performing arts, communications & journalism degrees growing:   The % of people getting psychology degrees rose from 4.5% to 5.9% up 30%.   Visual and performing arts went from 4.4% to 5.6% which is growth of 27%.  Communications and journalism went from 3.1% to 5.1% so it grew at 67%.   Combined in 2007 these degrees accounted for 16.6%   (1 in 6) of all the bachelor degrees earned.   Its too bad that the jobs and demand for these fields aren't growing as fast as peoples interest.   There are FAR too many people getting degrees in these fields compared to the number of jobs available or the demand for people trained in these areas.

Here is another look where I've piled the degrees into some broader categories:

1980 2007
business, engineer, scientist 33.70% 34.60%
arts and social 25.70% 30.30%
education 12.70% 6.90%
OTHER 28.00% 28.20%

Arts and social includes the combination of : Social sciences and history, Psychology, Visual and performing arts, Communication, journalism, and related programs, Liberal arts and sciences, general studies, and humanities   The 'business, engineer, scientist' group includes Business, Engineering and engineering technologies, Biological and biomedical sciences and Computer and information sciences

Over all it seems that interest in business, engineering and sciences is marginally up if you look at the % of degrees given.    The % of degrees earned in education is down.

The portion of people pursuing psychology, arts, communication/ journalism is up significantly.   With all due respect to individuals in those over crowded fields I think this is a bad thing if more and more students are joining already over crowded career fields.

[edit 4/13/11 : I realized the table formatting was not showing all the columns so I fixed them ]

November 26, 2010

Best of blog posts for week of November 26th

Get Rich Slowly tells us about  The Economics of Seinfeld which is a site that uses the show Seinfeld to discuss principles of economics.

Free Money Finance discusses How to Retire at 50 which is right up my alley.

November 25, 2010

Happy Thanksgiving

Happy Thanksgiving!

Photo by stevevoght

November 24, 2010

Is a Roth IRA the Right Choice for the Ms Davis?

Ms. Davis is a single woman.   She makes $75,000 a year as a manager for a large company.  Her employer gives a 50% match on her 401k contributions up to 10% of her pay.   She is in her 40's and has done a great job of saving up over the years and she received an inheritance a few years ago.  Ms Davis hopes to retire early around age 50-55.    Right now between her 401k and an IRA she has $450,000.  She also has another $300,000 in investments and her house is fully paid off.    With low expenses and living frugally she has been saving over 20% of her base salary towards retirement lately.

401k up to the match

If you have an employer match on a 401k then that should be the first priority for your investments.   For every $1 she puts into her 401k she gets another 50¢ from her employer.   Thats like an immediate 50% gain on her money.

Tax situation

Ms. Davis is solidly in the 25% tax bracket.   This is a very middle of the road tax rate.    The tax situation may go up or down somewhat over the years but she is not significantly advantaged with a Roth or traditional IRA at this point.

Early Retirement

Because she wants to retire early this throws a monkey wrench into the retirement savings planning.    401k and traditional IRA retirement savings are not available for withdrawal before age 59 without penalty.  You must be 59 1/2 years old to withdraw your money from a 401k or traditional IRA without a penalty.  However if you put money into a Roth IRA then you can withdraw your initial investment without penalty or taxes at any time.

Ms. Davis' situation is a bit complex.  We have a few factors pulling her retirement savings in different directions.   She should certainly take advantage of her employers 401k match.   That much is a given.   After that though her choices are less clear.   Her current 25% bracket is not very high nor very low so it doesn't push her hard towards either a Roth or traditional IRA/401k savings.     Her desire to retire early gives her an incentive to use the Roth since she can draw out her deposits before hitting 59 1/2 years.

Summary:  Given her desire to retire early and the extra flexibility that a Roth IRA gives, it would make sense for Ms. Davis to use the Roth IRA for her savings after she's maxed her employer 401k match.

November 23, 2010

Is a Roth IRA the Right Choice for the Williams'?

Mr and Mrs Williams currently make salaries of $30,000 each and both of them work full time.   They have $110,000 in retirement and they are in their early 30's.   They have one child and Mrs Williams is pregnant and expecting their 2nd child halfway through the year.  She will stop working for the second half of the year and stay home with their kids after that.   Combined they will end up making $45,000 from Mr Williams $30,000 salary and half a years worth of Mrs Williams $30,000 income.   Mr. Williams will qualify for a pension and Mrs Williams 

Should they put their retirement into a Roth IRA or a traditional IRA?

They have take home total wages of $45,000.  The standard deduction for a married couple is $11,400.   They have four exemptions for the year for $3,650 each or $14,600 total.   This makes their taxable income $19,000 total.    The tax due on that amount is $2,013.   However they will have two children which will give them two child tax credits of $1000 each for total of $2,000 in tax credit.   The Williams should fill out form 8880 because they would also qualify for a credit for their retirement savings.  People in lower income levels who put money into a Roth or traditional IRA can qualify for 10% to 50% credit on the first $2000 of contributions.   The Williams barely qualify as their income is at the top of what does qualify.   But they do get the 10% credit on the first $2000 from each.  That would give them a up to $400 in credit. With a tax bill of $2,013 and credits of $2000 and up to $400 they can effectively eliminate their entire income tax liability.

Zero Taxes Makes Roth IRA a Winner

They are paying NO income taxes this year.      This one is a no brainer.  The Roth IRA is a virtual no lose situation for them given their current tax situation.   They should definitely lock in the 0% tax rate now on their retirement savings.   Going with a traditional IRA would be a bad choice because they would save nothing today and then potentially owe taxes on the money after retirement.

Summary:    The Williams family has $45,000 income this year with two children.   They will pay no income taxes given their situation.   Roth IRA is a definite right choice anyone with zero income tax liability.

November 22, 2010

FREE - $3 in MP3 Downloads at Amazon has Black Friday deals all week.   One of the deals offered is $3 in free MP3 downloads.   Use promo code  GET3MP3S to get the $3 credit.    You can get to the deal following this link :$3 free MP3s

Full details of the deal are at    The $3 is good for MP3 downloads only and has to be used by Nov 29th.

Downsized : Episode #3 'Cruel Cruel Summer'

I've been watching the program 'Downsized' on the WE television network.   I discussed the first episode and the second episode.   The show follows the Bruce family and their seven kids and discusses their financial difficulties after they go bankrupt.

I watched the third episode and below is my take on it.

[SPOILER ALERT : there are spoilers below]

Blew their budget by 7th day of month.  The wife had spent a $1000 merit bonus at work on clothes.   Because thats what bonuses are for, to blow on stuff.   Not to pay the rent bill you can't seem to pay.  At the end of the show they have a family meeting and discuss budgeting.  They show some of the budget items and what they spend: Cable $69, Groceries $200-$500, Rent $1695, Credit cards $125, Cheer $145, Entertainment $200, Eating out $500, Baseball $600, activities functions $200, auto and rental insurance $317, Internet $59.    Overall they cut about $1600 from their monthly spending.

Kids Sacrifices
A lot of the show was about cutting back on spending for the kids.   In the last episode they said they had been spending $145 a month on cheerleading for their youngest daughter who is 10 years old.   Laura, the wife couldn't give up cheer for the 10 year old.   So she asks the daughter to choose between theatre camp or cheer.   The daughter chooses cheer.  But then Bruce the dad asks about the expense and says that he thought they agreed to cut it.  Laura then tells the daughter that they cant afford it.   They also talk about how the boys are doing summer baseball.   Summer baseball is $200 each x 3 for $600 total.   The boys realize this is too expensive and decide to do without it.    There is also a lot of drama over the two teenage girls going to prom or not.   The tickets for prom are $65 each.   One gets to go because her mom pays for the tickets and the other doesn't go since she can't afford the tickets. 

Coffee Idiocy
Laura is still buying 'gourmet coffee' which we now see means Starbucks or similar.   She tries making coffee at home in a blender but has difficulty making it right.   She says that she "doesn't know if its money saving thing" and "thinks its easier to go buy coffee" and that she is "just done, giving up".  I am not sure if those are exact quotes or not but it was words to that effect.   At the end of the show Bruce buys her some ingredients and a reusable cup and gives her a recipe, which works for Laura.

More work for dad and mom
Bruce has a new company called Stone Canyon Construction.   He prints fliers and posts them around town.  We see him talking to one potential homeowner about doing some exterior painting work.  Laura also lines up some tutoring work during the summer with her former students.   She had 6 students she was going to tutor and expected to make about $190 per week.

My opinion on this episode:
They are doing ok in general as far as cutting their spending and increasing their income.   They cut about $1600 from spending.  Laura should be bringing in $760 a month from tutoring and Bruce will make some money with more work.
They really should have come up with $65 for the one daughter to go to prom.  Its not fair for one daughter to go to prom and the other not too.  $65 isn't all that much.
Cutting cheer for the youngest should have been a nobrainer.
Making coffee at home should not be that hard and if you fail the first time then thats not a license to spend $5 a day at Starbucks.

November 21, 2010

FREE MP3 Christmas Music Downloads

 Want some free Christmas music?   Amazon has some albums for free right now.   You can get all of the following MP3 downloads for FREE! :

The Incredible Singing Christmas Tree
 The Incredible Singing Christmas Tree by Veggietales

Sugo Music Free Holiday Sampler

Chacra World Music Holiday Sampler 
Timeless Christmas (Amazon MP3 Exclusive Sampler)

Are Snuggie Blankets the Next Bubble?

Are college costs the next bubble?   Are municipal bonds the next bubble?   Is gold the next bubble?   Are auto loans the next bubble?  Are soap bubbles the next bubble?  Are iphone contracts the next bubble?  Are Snuggie blankets the next bubble? 

Snuggie Fleece Blanket As Seen On TVLately a lot of people are trying to predict the unpredictable.  Or maybe they are just bringing notice to the obvious.   In either case people ask the question : "Is [insert thing] the next bubble?" about various things.   You can question if anything is a bubble and it seems that people will agree with the possibility. Who can prove that something isn't a bubble?   Part of what makes a bubble before it bursts is irrational denial over the value of the commodity. 

We don't seem to know if something is a bubble until after it pops.   That kinda makes sense cause if we all knew it was a bubble we wouldn't keep buying the stuff and it wouldn't necessarily become a bubble in the first place.   Bubbles are generally marked by irrational behavior by the market.  If you know its irrational you generally don't do it.

What makes a bubble?

Bubbles go through specific stages generally.  The article Five Steps Of A Bubble from Forbes says: 

"Minsky identified five stages in a typical credit cycle--displacement, boom, euphoria, profit taking and panic"

In brief the stages of a bubble are :

  1. displacement - new paradigm comes along
  2. boom - gain in momentum in pricing as everyone joins in
  3. euphoria - caution is thrown to the wind
  4. profit taking - smart money gets out
  5. panic - prices reverse course and everyone sells to salvage some money and the prices crumble

You can see these stages in previous bubbles.   The Internet technology stock bubble had each stage for sure.   First the internet and internet stocks come out and people catch on to buying these new fangled money cow's called .com companies. (displacement)     Then everyone who has money to invest is buying .com companies and everyone looking to start a company is starting internet related companies and taking them public.  (boom)   At the peak of the internet boom any company with .com in its name is instantly valued at ridiculous levels even though it has never made a profit and their business plan is written in crayon with lots of ???'s inserted in the middle.  (euphoria)    Then it all crumbles and people start to sell off (profit taking and panic).     You can see this in hindsight but not necessarily while its happening.   I distinctly recall sometime in the late 90's a coworker saying "it can't go on forever" and at the time I honestly didn't see why it couldn't go on forever.  I was still stuck in euphoria and my coworker was moved on to profit taking.  He was right and I didn't see it.  

It isn't really until step 5 'panic' and afterwards when a bubble is widely identified.   Of course there are some individuals who will point out a bubble before hand, but they are a minority opinion and they are not proven yet in their view.   There are always naysayers at any time so its hard to tell if they are right or just pessimists.

How can we tell if a bubble is a bubble before it pops?    Thats the tricky part.   But there are some tell tale signs.

Signs of a bubble

  • Rapidly increasing prices
  • Increased trading
  • Irrational pricing
 In hindsight we can see these signs in certain well known bubbles.    Internet stock prices increased rapidly, trading in them increased rapidly and the pricing was irrational.

Increasing prices and increased trading are the easier signs to spot.  But what do those mean?

Prices increase in many ways

Just because prices go up does not mean something is in a bubble.   There are a lot of things where prices go up considerably over time yet this is still rationally priced.   Prices generally go up gradually over time with inflationary forces.    If prices go up rapidly (far faster than inflation) then that can be a sign of a bubble, but very fast price increases alone doesn't make a bubble.   Prices may go up and down for a variety of reasons that are not caused by any kind of bubble.   The price of a bushel of corn could go up 40% over a couple years due to a bad harvest due to weather and increased oil prices.   But that isn't a bubble.   Its a fluctuation in prices due to environmental changes.   There was nothing irrational about the price increase and it was a direct result of supply and demand.     Tickets to the original Super Bowl were $6 and today the face value is typically around $500 and up.  Thats a 8% annual inflation rate.   Is there any question why Super Bowl tickets have gone up so fast compared to normal inflation?   Its simple supply and demand.   Lots of people want to go to the Super Bowl and theres limited seating.

Are the prices irrational?

This is the hard one to spot.   If people thought the prices were irrational then most people would not be buying the thing in question.   In hindsight it did not make sense for real estate to go up 10-20% a year in some markets, but at the time people rationalized it to themselves.   Many people consider the cost of college to be irrational but many other people consider the cost of college perfectly rational and well worth the cost given the value received.   You may or may not think that the increase in spot prices for gold is rational.    To try and get a better grasp if prices are really 'rational' or 'irrational' you have to ask if the pricing is based on normal and realistic valuations.   It is easier to spot rational prices versus irrational prices if you understand the good or service and see the causes for the price increases.   We can all understand why corn prices go up after bad harvest and we realize that Super Bowl tickets fetch high prices due to high demand.   But when the situation is more complex or the reason for price increases are not straight forward it is harder to know if the prices are really rational or not.

One question to ask is : Would you pay the price asked today if you don't expect it to increase in the future?    Often times bubbles are speculative in nature so people are only buying it because they think it will go up further in the future.    This was true for internet stocks and real estate.   People didn't buy internet stocks based on the business fundamentals of the company, instead they bought it as a bet that anything .com related would magically turn into piles of cash.    People didn't buy over priced homes because they wanted to live there for 30 years, instead they bought it with an expectation that it would be a good investment due to ever increasing housing prices.    On the other hand people will pay $500 or more for a Super Bowl ticket today regardless of what the price was last year or what it will be next year.    People will pay up to $50,000 a year to go to college in order to obtain a high quality education.

High profit margins do not equate to irrational prices.     There are many commodities and services that have very high profit margins yet nobody questions as being a bubble.   There are other things with lower profit margins that people assume are bubbles simply due to high sticker values.  

Bottom Line:   Spotting a bubble before it pops is very difficult.   Don't assume that high prices or increased prices are the sign of a bubble.    But if prices go up fast, trading increases and there doesn't seem to be good rational justification for the prices then it might be a bubble.

Photo of Snuggie via Amazon and bubble photo by tlindenbaum 

November 20, 2010

20% off and 35% cash back on Entertainment Coupon books via Ebates

[edit: Something appears broken, the blog software thinks its Nov. 20th and its the 19th.  Sorry for any confusion.]

Right now you can get the 2011 Entertainment Coupon book for 20% off with free shipping.    Plus if you buy the coupon book via Ebates you get 35% cash back.

Prices may vary from city to city but here is the prices for many cities:
Retail price : $35.00
Sale Price : $28.00
Ebates cash back : $9.80
Final cost after cash back : $18.20 for total savings of ~48% off retail

Should you buy one?    Maybe.
If you already use these things and like em then you can make your own decision if its worth it to you.
I bought a Coupon book a couple years ago and we didn't get our money's worth out of it.   I think these books can be a great deal for some people.   For it to work you have to use the coupons and I wouldn't be using them just to use them.   In otherwords, saving 50% on a meal you would have bought anyway is a good deal, but going to a restaurant you've never heard of just to get a discount isn't really a good deal.   At least not unless you want to try a bunch of different restaurants and would have liked to do so anyway.   If you're considering buying one then go on the site and look at the merchants who have coupons in your city and see who there you'd actually buy stuff from.

Bottom Line :  Don't get a coupon book unless you're very sure it will save you money that you would have spent otherwise.

November 19, 2010

Best of blog posts for week of November 19th

Dough Roller answers  What is Tax Form 1040 Schedule J?

Also from DoughRoller is a discussion of  The Great Debate Between Disposable and Rechargable Batteries

Pop Economics thinks Investing advice: Just enough information to be dangerous

Consumerism Commentary thinks that  Electronic Cigarettes Might Just Be Ideal

My Money Blog looks at LED Christmas Lights: How Much Money Do They Save?
and they also bring us Why You Shouldn’t Use Debt Settlement Agencies

Money Ning asks Can We Agree That Money Is Important?

Is it Worth It To Pick Up a Penny?

Little while back Dough Roller had an article When Does Frugality Turn Into Cheapness? and they gave an example of bending down to pick up a penny.    That got me thinking about picking up lost pennies. 

Several years ago I was in a bar in Ireland and I dropped a 1 cent Euro coin.  One of the patrons at the bar joked something along the lines "nigh we' see how taght 'e ess".   Thats my bad impression of writing an Irish accent.  Translation : "now we'll see how tight he is" meaning that if I pick up the penny then they'd know I'm a tight wad.   I believe I did pick up that penny.   (at the time Euro pennies were worth about 1.1¢ US)

Lately though I've been finding myself too lazy to pick up a mere penny.   I fully admit that sometimes I'm lazy as lazy can be.   Anymore a single penny will buy you nothing.   All my pennies just get thrown into a jar which sits on the counter.   So it is easy to think that picking up a single penny to throw into my jar would not get me anywhere.  I just can't be bothered to take 1 second to bend down.   Is it worth the time?   I assume many people quickly answer with a positive.  But to me sometimes it just doesn't seem like its worth it. 

Hows the math work?   Is the Time worth the 1¢?

It takes 1 second to bend down and pick up a penny.

There are 60 seconds in a minute.   There are 60 minutes in an hour.   There are 3,600 seconds in an hour.

Making 1¢ in one second is equivalent to making 3,600¢ per hour.   Thats an hourly wage of $36.00 tax free.

Bottom Line:   Yes you should bend down to pick up a penny.   Its equivalent to $36/hr.

Photo by stevendepolo

Is a Roth IRA the Right Choice for the Jones'?

Mr and Mrs Jones have done pretty well with their income and retirement savings.   Right now they make a combined income of $90,000 and they've accumulated $800,000 in their retirement accounts.   They are in their early 60's and just about to retire.

Mrs. Jones is a nurse and makes about $60,000 a year and Mr Jones is a maintenance man at the same hospital and he takes home about $30,000.

Using the Social Security Administration quick calculator I can estimate their SS checks.  Their individual social security checks are expected to be about $1650 and $1050 at age 66.  Thats a combined $32,400 from social security.

Their $800,000 retirement nest egg is spread across a few IRA's and 401k's from different jobs over the years. When they retire they plan to use the 4% rule to pull out 4% a year and hopefully it will last them their lifetime.  That gives them an initial retirement income of $32,000 per year from savings withdrawals.

Altogether with social security and IRA/401k withdrawals they are expecting a retirement income of about $64,400.   That will replace 71.5% of their current working income.

What to do with this years retirement savings?    They could choose to pay taxes on their income then put it into a Roth IRA or Roth 401k.    At retirement the money in their Roth IRA / 401k would be tax free.   Or they could put their money in a traditional IRA / 401k pre-tax and then pay taxes when they withdraw it at retirement.

Roth IRA / Roth 401k Choice

If they use a Roth IRA they will have to pay taxes on their money but what they save will be tax free.    They take in $90,000 and that would give them an income tax bill of $10,188 today leaving them $79,812.  If they then put $5,000 into a Roth IRA they have $74,812 left over to live on.   Their income puts them in the 25% marginal bracket so they pay 25% taxes on the money they put into their Roth IRA.

This gives them an extra $5,000 in their retirement savings.   Over the next few years lets say that doubles to $10,000 due to investment growth.

If they use the 4% rule on that $10,000 then they will have another $400 per year of tax free income.

Traditional IRA / 401k

They could put their money into a traditional IRA or 401k.    This would be pre-tax money so they could put more into retirement savings and still have the same amount after taxes to live on.   If they put $6271 into a IRA or 401k they would have a taxable income of $83,729  and a tax bill on that of $8,917.   That would leave them with $74,812 take home.

If they invested the $6,271 the same way and doubled it then it would be worth $12,542 at retirement.    If they withdraw 4% o that money then that gives them $501 and change each year.   However this money is taxable.   So they will have to pay taxes on it.

Given their expected post retirement income of $32,400 from social security and $32,000 from their current $800,000 retirement nest egg we can figure their expected retirement income tax situation.    Some but not all of their social security is subject to income taxes.   Their $32,000 in IRA/401k withdrawals is enough to make some of their social security taxable.   You can use the worksheet on page 27 of the form 1040 instructions to figure the amount of social security that is taxable.   This calculator will help you estimate the amount of social security that is subject to income taxes.      For the Jones' I ran it both ways and determined that $9,570 of their social security is taxable.    Combine that with their $32,000 withdrawals from IRA/401k and they have a taxable income of $41,570.   Their tax bill on that would be just $2,593.   If they add the $501 from their additional IRA/401k contribution then their taxable income is $42,071 and the tax on that would be $2,668.    So they are paying a marginal tax of $75  (2668 - 2593) on the $501.   They are in the 15% tax bracket.   That leaves them with $426 after taxes.


The Jones have combined income of $90,000 a year and $800,000 in retirement savings all pre-tax.   They are nearing retirement.    If they put $5,000 into a Roth IRA today they could expect $400 annual after tax income at retirement.   If they put $6271 into a traditional IRA / 401k today then they could expect $426 in after tax income at retirement.   In this example they will come out ahead if they put their money into a traditional IRA/401k rather than a Roth.

November 18, 2010

Is a Roth IRA the Right Choice for the Andersons?

Mr and Mrs Anderson have an income of $45,000 and retirement savings of $145,000.   He is a teacher and she has been a stay at home mom and does not currently work.   Mr Anderson has a pension coming from his job as a teacher that should get him 60% of his current pay or $27,000 a year.   His Social security should come out to about $1,250 a month or $15,000 a year.  

Should they put $5000 into a Roth IRA or $5883 into a Traditional IRA?

Lets compare...

Roth IRA:

With a current income of $45,000 their tax bill is $3,108 and they are in the 15% tax bracket.   So they are paying 15% taxes or $750 on that $5000 for the Roth IRA.   After taxes of $3108 and the Roth IRA contribution of $5000 they would have $36,892 take home

Lets say they retire next year.   They will be able to pull money out of that Roth IRA tax free.   Their effective tax rate is 15%.

Traditional IRA:

If they put $5883 into a traditional IRA that will drop their taxable income down to $39,117.   Their tax bill on that would be $2225 giving them take home of $36,892

Only $1,250 of their social security will be taxable.    That gives them at taxable income of $1,250 plus $27,000 between the social security and pension for a total taxable of $28,250.   Currently that would put them in the 10% tax bracket and their tax on that amount would be just $955.

If they had the $145,000 of original retirement savings plus another $5,883 from the most recent traditional IRA contribution then that would give them a total of $150,883 in retirement savings.   If they withdraw 4% of that in retirement per year then that wold be another $6,035 of IRA/401k withdrawals.   The additional income would make more of their social security taxable so now $4268 of that would be subject to tax.   This would make their total taxable income $4268 of social security + $27000 pension income + $6,035 in IRA withdrawals for total taxable income of $37,303.   Their tax bill would be $1,953 and they'd be in the 15% marginal tax bracket.

Summary:    The Andersons have current income of $45,000 and savings of $145,000.    If they put $5000 into a Roth IRA they'd pay 15% tax rate on it today and be left with $5000 tax free.    If they put $5883 into a traditional IRA and then pulled it out at a 4% rate they'd pay 15% marginal taxes after retirement and be left with $5000 after taxes.    In this case its a wash, they pay 15% today or 15% tomorrow.

Examples Questioning if the Roth IRA is the Right Choice

This week I'm going to do a series of posts looking at some example situations and deciding if a Roth IRA or a traditional IRA is the "right" choice for the individuals in question.    All of the examples are fabricated and not real people.   I'm using common surnames to differentiate the examples.   I'm trying to pick some common situations that families may find themselves in and then examine if they should go with a Roth or traditional given the situation. 

The unknown future

All my analysis in the examples is based on current tax rates.   However we can take it for granted that the tax rates will change in the future. It is the prevailing popular opinion that taxes have nowhere to go but up.  I'm not entirely convinced that is the case.   But if taxes do go up then I really don't think they will go up substantially for people in low and medium income levels.   This is just my opinion of course and I do not own a good crystal ball.   We can look back at the History of Marginal Tax rates at Median Income earners to see what the top tax rates have been over the years for people in the middle income levels.     From 1947 to 2009 the marginal tax rate at median income level ranged from 15% to 28%.   The average was 23.5% and the median 24.6%.  32 years the rate was lower than 25%, 10 years it was 25% and 20 years the rates were 26-29%.    Most of the time over the past 6 decades people making median income paid a top marginal tax rate lower than 25%.  

Whats this Mean to You?

The examples are just examples to illustrate the different situations that a Roth or a traditional IRA may be better.   I am not saying Roth IRA's are bad or that you should avoid them.   Nor am I saying that traditional IRAs are good or bad.   Sometimes Roth IRAs are better and sometimes traditional IRA's are better.   Nothing about the future is certain.  If tax system changes considerably one way or the other then todays 'right choice' may turn out to be the worse option.   I don't think taxes will change radically in future decades but thats just my opinion based on what the tax history has been.  

You should consider your own retirement savings options based on your current and expected future tax implications.

November 17, 2010

100 MP3 albums for $5 each

Amazon has 100 MP3 Albums for $5 each

There are some pretty good artists and albums on sale too.   Some of the albums on sale are :

The Very Best Of Prince

Funhouse (Explicit) by Pink

Classic Sinatra - His Great Performances 1953-1960

I Am...Sasha Fierce Beyonce Knowles

Greatest Hits: 1974-1978

GM Stock: To Buy or Not to Buy

I just read a recent Reuters article carried on Yahoo titled GM has orders for $60 billion in stock: sources
I'm a little surprised there is so much interest in buying GM at this point.    It seems there are some good arguments to buy GM stock in the new IPO as well as some strong arguments against it.   As I see it here are some of the pros and cons of a buy:


  • The government has a large stake in the company.
  • GM has very strong overseas markets and is one of the most popular brands in China.   They'll hit 2M sales in China this year and Oct. sales were up 19%.
  • Should be profitable:   If US industry sales hit 10.5 million cars then GM is expected to to break even and sales this year are expected to hit 11.5M.   Sales could easily climb back up to pre-recession levels of 15M.
  • Exited bankruptcy with stronger balance sheet and cost structure.
  • PE approximately 5.1 according to a WSJ article


  • Already bailed out by the government.   Strong, well ran companies don't need government bailouts and subsidies.   
  • Cyclical nature of the auto industry.
  • High competition from a number of auto makers.
  • I'm not convinced they've turned around the culture within the company that lead to the previous failures.

I do not make investment recommendations so I'm not going to tell you if buying GM is a good idea or not.

Personally if I were to buy GM it would probably be as a short term speculative purchase (in other words "gambling").   And if I did buy any GM stock I wouldn't put much money into it. 

Photo by paul (dex)

November 16, 2010

University President Salaries Not A Large Cause of College Costs

The Wall Street Journal put out an article titled 'More Get $1 Million to Lead College' which I read via Yahoo.  It talks about University presidents making $1 million salaries.   I would bet that many people will read this and then conclude something along the lines of "fat cat salaries of university presidents are causing tuition to go up".    But that is really not the case.   You have to realize that even if a university president is making a $1M figure salary that this is not a large amount compared to the total costs of running a typical university.

As of 2006 here are the numbers: 

There were 17.7 million college students.  Source : College Enrollment by Sex and Attendance Status

There were a total of 4,352 colleges and universities.  Source: Degree-Granting Institutions, Number and Enrollment by State: 2006

That is an average of 4,067 students per university.

The WSJ got their information from a study from The Chronicle of Higher Education.   If you look at the chart posted by the The Chronicle of Higher Education in their article on the topic you can see that most presidents have compensation in the range of $200,000 to $600,000.     50% make under $400,000 and 50% make more. 

So if the university professors made a median of $400,000 million in salary then that is a total cost per student would be $400,000 / 4067 students per university = $98.35 per student

$98.35 is a relatively small portion of the money that is spent per student and also very low relative to average tuition bills.    That accounts for 1% or less of the tuition bill at most public schools.   Obviously this 1% does not account for the annual 7-8% inflation in college costs over the past couple decades.

Bottom Line:   University president salaries are not a large contributor to the costs of college.

November 15, 2010

Star Trek Movie Collections on Sale at Amazon

Star Trek: Original Motion Picture Collection (The Motion Picture / The Wrath of Khan / The Search for Spock / The Voyage Home / The Final Frontier / The ... Captains Summit Bonus Disc) [Blu-ray]The 'GoldBox' deal at Amazon right now has the set of Star Trek movies for 61% off.

Star Trek Original Motion Picture Collection : DVD set for $34.99 

Star Trek Original Motion Picture Collection : Blu-Ray for $54.99

At the sets are $45.82 and $72.77 for the DVD and Blu-Ray respectively.

You might be wondering why I think this is noteworthy.   Well I like Star Trek.     If you're not a Star Trek fan then this might make a good gift for someone you know who is.   Don't be surprised if I pass along any good sales I see on Star Wars films in the future as well.

Downsized : Episode #2

Last week I took a first look at the "Downsized" program on WE television network.   The show follows the Bruce family.   The family has gone through recent foreclosure and losing a lucrative contracting business.   Its typical reality TV so its more about drama than actual reality.

I watched the 2nd episode this past weekend as well.  Heres some notes and my impression from the second show.

House Shopping

They spent the first half of the show mostly shopping for a new rental house.   Right now they are paying $1695 for their house which is almost 3000 sq. ft.   That is a big house but they do have 7 kids for a total of 9 people.  All the same, they can't seem to afford their rent so they made the right decision to look for something cheaper.  They showed a few houses that they looked at.  One was $1300 a month and about 2100 sq. ft, but deemed too small for the family.   Another house was $1200 and the right size, but the Bruce's decided too look around.   Unfortunately by the time they decided to go with the house it had been rented to someone else.   They looked at one other house that was about $1000 a month but 45 minutes from Anthem where Laura works and it too was small.   Another problem with moving rental houses would be that they would have to come up with a deposit and possibly 1st and last months rent.  The exact amounts varied but in any case they'd have to come up with a sizable amount of cash up front which they don't really have.  In the end they seemed to have decided to stay where they were.   Frankly the family seemed a little picky about the houses.  I heard "too small" a lot.   Yes the homes in question were not large for a family of 9 but you are broke.   This is life.  

Some Kids do Work

The 16 year old daughter works as a waitress.   She makes about $250 per paycheck.  Two of the boys also work in a concession stand for a community baseball park.   One boy said they get $20 for 4 hours work, which doesn't make too much sense to me since its under minimum wage.   So at least 3 of the 6 teenage kids do have some form of work.    It sounded like the money was supposed to be used by the kids for their own needs and wants.

Wife has M.S.

They revealed that the wife Laura has multiple sclerosis (M.S.).   Not a lot to say about that.  She did say that she is currently healthy.  

The Mercedes

Laura does have a Mercedes as I thought.   However its 15 years old and it was a gift from her father.   The financial planner they talked to at the end of the show referred to it being worth about $1500.   I looked up Mercedes cars from 1995 on Edmunds and a '95 C-class is worth roughly $1700 if sold by a private individual.    Skimming the local Craigslist and Autotrader here it seems more like 90's Mercedes sell for $3000 to $5000 unless they have damage or are in need of repair.  She also has some emotional attachment to it because it belonged to her mother.   In any case the car is older and not worth a lot.   So its not quite "life styles of the rich and famous" and actually closer to driving a beater (not exactly a beater but closer).  

Budget and Financial Planner

Dean Wegner
At the end of the program Todd and Laura met with a financial planner named Dean Wegner.   From his website it seems more like Dean is a mortgage broker by trade but it does say he's a certified consumer credit counselor.   Dean gave the Bruce's pretty good advice and guidance in my opinion.  He talked to them about their budget and gave some recommendations.    They definitely need someone to talk some sense into them about their budget and spending.

Family Income
They said that Todd currently makes about $2000 a month gross but he's not setting aside money for taxes (no surprise).   Dean encouraged Todd to get more work.   (seems little easier said than done)   Laura makes about $40,000 a year at work as a teacher, I think she said it was $39,300 specifically if I recall right.     Combined the financial adviser said they have $4700 income per month which I'd assume is after taxes.

Side note:   Laura again took an opportunity to whine about her teacher salary which she called "pitiful" in the first episode.   This time she said that she was getting paid less than they got in 1970.   (I think she said 1970, but she might have said in the 70's.)   That might be true if you adjusted the wages for inflation. According to this old Dept. of Education report, teachers in 1970-1971 had a salary range of around $7000 to $11,000.   That $7000 starting salary is worth about $39,400 in todays dollars if you adjust to inflation.

Lots of Spending

They are spending $6550 a month.   Yes thats right.   They are spending about $1850 more each month than they are bringing in.   I don't know where that extra money is coming from.   They did say that they borrowed $3000 from their kids.   

What are they spending all that money on??   Specific items in the budget that they mentioned dollar amounts for were:
$500 for eating out
$145 for cheer leading for the 10 year old daughter
$200 for entertainment
$67 for cable TV

Sigh.  So this broke family who declared bankruptcy a year ago, who gets food stamps and can't pay their rent is spending $500 a month eating out and $145 a month on cheerleading for a 10 year old.

They also talked about Laura buying expensive coffee.   They didn't go into details of what kind of coffee she bought or where and they didn't say how much she spent.   Laura explained that it helped her with getting tired from her M.S.   OK so thats  reasonable we all like caffeine but maybe she could cut back on that spending going with cheaper brands.  They also discussed cutting their Internet bill and their cell phone bill but they didn't say how much they were currently spending on those.    We know they spend $1700 a month on rent and the other items mentioned specifically add up to around $900 a month.   That still leaves around $3900 a month of spending unaccounted for.


After the first episode I had some opinions on what they should do:

Sell the cars
Downgrade the home
Cut unnecessary spending
Kids could work

I don't know if selling the cars would really help much given the value of the Mercedes.   The van looks expensive so they could probably trade that in for something cheaper but they still need a large vehicle for their large family.

They looked at downgrading but didn't do it.   I think they should still look more and keep that as a goal.

Some of the kids do work which is fine.

I do think right now that their primary objective should be to cut their spending.   It is crazy to spend $500 eating out and $145 a month on cheerleading if you can't pay your rent.    They really need to get realistic on their spending and cut out the "want" items so they can pay rent and feed themselves.    We don't even know what $4000 of their spending is going towards.   There are probably many other spots they could cut spending.

Photo by michieldijcks (not the car in question, but for illustrative purposes only)
Photo of Dean Wegner from

November 14, 2010

U.S. Household Balance Sheets : Assets vs Liabilities and Net worth from 1952 to 2010

The Fed has data on household finances dating back at least to the 1950's.   They track the balance sheets of households and non-profit organizations.      The latest balance sheet shows that assets are about $67.4 trillion, liabilities are $13.9 T giving us a net worth of $53.5 T.  

Lets look at household balance sheet over history. 

Here is the big picture from 1952 to 2010 showing the household assets, liabilities and net worth in trillions of dollars:

Lets zoom in to just 1980 to 2010:

You may notice that the debt line is going up faster than the asset line.    While net worth is still pretty high, the amount of debt we have versus our assets is increasing.  Here is the ratio of debt / assets:

Keep in mind that this data is the total sum of all money held by American households and non-profit organizations.   This is not a good reflection of typical American households finances.  THe data does include all the assets and liabilities so all of the real estate we own and our mortgages plus things like the pension funds held by non profits and other things that aren't really part of typical households.

November 12, 2010

Best of blog posts for week of November 12th

Christian PF discusses Flexible Savings Accounts (FSA) Changes For 2011

Get Rich Slowly has a lengthy post covering various ways to increase income with  Make More Money: How to Supercharge Your Income

Pop Economics asks How good are you at estimating risk?

Bad Money Advice talks about currency trading and questions  Forex for Everybody?

Doughroller tells us What is Tax Form 1040 Schedule H?

My Money Blog posted  Chart: The S&P 500 Stock Index Priced In Terms Of Gold

Wealth Distribution in America: Perception vs Reality

Last month Businessweek ran an interesting article, The Inequality Delusion,  talking about the wealth distribution in the USA.    Apparently Americans think that our wealth is spread around a lot more than it actually is.   A survey was conducted to ask people how much wealth they thought the top 20% of Americans held.  

"On average, those surveyed estimated that the wealthiest 20 percent of Americans own 59 percent of the nation's wealth; in reality the top quintile owns around 84 percent. The respondents further estimated that the poorest 20 percent own 3.7 percent, when in reality they own 0.1percent."

The graphic on the Businessweek site shows the difference between the survey, reality and what people think is ideal.

Wealth actually owned by 20% = 84%
Survey results what people think the top 20% owns = 59%
Survey results what people think the top 20% ought to own ideally = 32%

November 11, 2010

Topsy Turvey Experiment : Conclusion

This past summer  I stared a little experiment to test out the Topsy Turvey product.  I gave an update and another update.    I then got preoccupied and didn't write further.   I figured I should follow up and post a conclusion.   I'm sure you've been waiting on the edge of your seat. 

We bought a Topsy Turvey mostly on a whim and then planted a tomato plant in it.  We spent money on potting soil, the plant, the Topsy Turvey and some fertilizer.  It was easy to setup and maintain. 

We did get some nice tomatoes out of it.   However our first tomato ripened and we didn't pick it in time before it started to spoil.   Then the weather turned cold.    We didn't actually get a harvest off the plant.  However it did have at least a couple edible tomatoes.  

We started too late in the season and then didn't harvest on time.   That was our mistake.

Conclusion:  Inconclusive

Its hard to judge the Topsy Turvey based on our experience since we planted too late.   I don't know if we'd have had a more bountiful harvest if we'd started earlier but I assume so.   We did get a couple tomatoes that we could have harvested but failed to harvest.  So there was some success. 
Overall I think the Topsy Turvey worked fine.   But as I said the results of the experiment are inconclusive since we started too late and failed to harvest.

Most of the purpose of growing our tomatoes was to have fun and try to grow our own vegetables. 

Money and Time spent:
Day 1: Time spent 1 hour, cost $22
Week 1 : Time spent 1-2 minutes.
Week 2-4 : Time spent 3-6 minutes.
Week 5-8 : Time spent 3-6 minutes.

Total cost $22, Total time 1-2 hr. 
Harvested Crop = nothing.  
Lost crop = couple tomatoes

November 10, 2010

"Downsized" TV Program : First Look

The other day I talked about the show Downsized on the WE television network.   

Here are some financial details I gleaned from the pilot episode:

  • They were spending $15,000 to $18,000 per month.   Wife did not realize they were spending that much
  • He had a "booming" general contracting business.  His business was "taking in" $1.5 M a year.
  • They bought an investment condo
  • Their home and investment condo were lost in foreclosure.   I think the father said they lost their house about a year ago.
  • They used up their savings and 401k
  • They've been married five years and have seven kids.   Five of the kids from her and two from him.
  • She works as a teacher and says her salary is "pitiful" and she feels like she's volunteering.   They are in Anthem, Arizona and in one shot they show the Boulder Creek High School.   That is the Deer Valley Unified School District.   Pay for teachers there starts at $33,090 and she probably makes more than that assuming she has some seniority.
  • The husband still works when he can, but construction work is hard to find.   He is owed some wages from labor.
  • One of the kids talked about going out to dinner every night one year ago.
  • They are on food stamps.    With 7 kids it would not be hard to qualify for assistance.
  • They said something about one of the teenagers having a cell phone.   
  • They were $300 short on their rent bill.   We do not know how much the rent costs. 
  • The father installs shower flow timers to save on water bills.  
  • They are renting a fairly good size house it looked like.   The kids were sharing rooms. 
  • They showed them going to the grocery store and buying what was on sale.
  • The daughter tried to pay for groceries with food stamps but they had used up most of their benefit allocation.
  • One of the teenage daughters was getting a hand me down car from her grandparents.
  • They drive a large van and there was another car in their driveway.  The other car was a sedan.    They blurred out the name badge on the car but if I am not mistaken it is a Mercedes.

My commentary is below.   First let me state clearly that I'm making some assumptions based on what little detail we've got about their finances.    Second I do not mean to bash these people but am simply examining their financial situation.   Third the show is reality TV and I'm sure its mostly contrived to create drama and I'm not sure how much reality there really is and how much is just scripted.  With that said, I'm going to work with the assumption that this may be a pretend situation more than not.

The past

They made a LOT of money in the past and now have nothing to show for it.  Thats the biggest problem with their past behavior.   They spent too much and did not save enough.   If they had simply cut their spending to a more reasonable level then they should have been able to avoid their current situation.   Given their spending level of $15,000 to $18,000 a month they were either making ballpark of $200,000 a year or more or they were overspending.   Either way they didn't save enough and overspent.

They should have cut back on spending a lot faster.   Sounds like they ate out every night which is pretty excessive considering that there are nine people to feed.   And that kind of spending behavior was about a year ago which is also the same timeframe when they lost their house.   So it sounds as if they spent excessively right up to the point that they lost their house to foreclosure.

The past is the past and you can't go back and fix it after the fact.   They made mistakes financially that I hope they have learned from.   The rest of us should look at what they've done and use it as a reminder to not live beyond our means and not let increased income inflate your living standard excessively.

Their attitude

Generally they seem to have decent outlook.   The kids don't come across as spoiled to me and the parents aren't blaming society for their problems.   They are trying to pay their bills and actively working to do so.  

The wife describing her teacher salary as "pitiful" and how she feels as if she's volunteering makes it sound to me that she is a bit entitled and does not understand how the real world works.   Median pay for all workers is $15.95 an hour which equates to $31,900 per year given full time work.   She's getting paid more than 50% of American workers and putting in 9-10 months of labor.    Teachers are not highly compensated, but their pay is not "pitiful" by any realistic measure if you compare to the population as a whole.   Yeah she isn't swimming in cash like previously but she's still doing just as well as most working Americans.   She needs to be reset to reality as far as income.   If she thinks $33k+ is "pitiful" then I bet the rest of her family has a similar attitude about income levels.  

Still need to downgrade lifestyle.  If that is in fact a Mercedes in their driveway then they seriously need to come down to reality.   You don't drive a Mercedes if you can't pay your rent.   The house they rent looks pretty nice.  Maybe they don't 'need' a house that nice, especially if they can't afford it.

What They Ought to Change

They may be spending too much even still.  Their house and cars are very nice.   One of their teenagers has a cell phone.  Does that mean that all of the kids have cell phones?    Paying your rent is a higher priority than teenagers having cell phones.   One of the girls is getting a car and I wonder who will be paying gas and insurance for that car?   

Changes they should probably make now:
Sell the cars (especially a Mercedes)
Downgrade the home
Cut unnecessary spending like cell phones for the kids and anything else
Pay pent, food and primary utilities first.
Kids could work - I'm not saying the kids should pay the family bills, but they could work to support their own spending like cell phones and their own car insurance, etc.

Verdict:   The show is interesting but I would not go out of my way to watch it.  I may try to watch some more episodes out of curiosity about their financial situation.

For another opinion check out another review of the show from Frugal Moms

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