March 30, 2012

Best of blog posts for week of March 30th

Every Friday afternoon I share some of the more interesting or notable posts that I have seen in the personal finance blogs and other sources for the past week.

FMF tells us Becoming Wealthy May Be Simple, But It’s Not Easy

Yahoo Finance explains How Will the Affordable Care Act Affect You?

Bargaineering warns us to Beware the Monthly Math Trap
they also discuss Business or Hobby? How the IRS Views Your Money-Making Venture


FREE - $2 MP3 download credit from Amazon

For a limited time you can get $2 free MP3 downloads from Amazon.  That's good enough for a couple songs or enough to cut the cost of a discount album from $5 to just $3.

Follow this link :$2 free MP3 download promo from Amazon

You have to use the credit by April 1st, so its a time sensitive deal.

I heard about this deal from MyMoneyBlog

--This article may contain referral links which pay this site a commission for purchases made at the sites.

Protect Yourself Financially When Hiring Movers

I have only paid movers once and it was to move my wife's furniture from her home into our current home after we got married.   My wife did some online research and she found a good company and we didn't have any problems with the move.   However, I'm sure you've heard of someone who has a horror story about a move and complaints about a moving company.   It seems one of the industries that has some problems with fraudsters and poor service.   Now of course I don't want to paint all movers as bad guys or anything and I am sure most of the moving companies are ethical and do their best to keep from breaking all your stuff.

If you are going to move then its best to know what your rights are and be aware of potential red flags for fraud. is a website setup by the U.S. Department of Transportation to educate consumers about the rights and the rules regulating interstate moving.    Note that I said 'interstate moving'.   The rules and regulations that cover interstate moving from one state to another are different than local moves intrastate.

They have many resources on the site for consumers such as information on the following :

Tips for a Successful Move

Moving Checklist

Protect Yourself Against Fraud

Choosing a Reputable Mover

You can also search movers to find complaint history.   If you're bored you can even read the laws regulating interstate moving.


March 29, 2012

How Do Employers Find Hires?

You might know that newspaper job listings are no longer very relevant to job hunting.

I found this report from CareerXRoads that they published in 2009.

Here is their list of 'source of hire' or the route by which the employers found the people they hired  for 2008 :

Referrals 27%
Corporate web pages 20%
Job Boards 12%
All Other 10%
Direct Sourcing 8%
College 4%
Print 3%
Search Engine Marketing 3%
Career Fairs 3%
Temp to hire 3%
3rd party recruiters 3%
Rehires 3%
Walk ins 1%

Keep in mind this is just one survey and the data is a few years old already.  

Job Boards include sites like, Careerbuilder and Linkedin.   Direct Sourcing is described like internal recruiting staff actively going out to find people directly.  

Addendum : I should point out that this survey is not scientifically representative of the entire population.  They surveyed 45 companies and the demographics were not equivalent to the entire labor force.   The jobs in question were all full time positions and mostly salary, exempt.  


March 28, 2012

Services to Help You Maximize Your Social Security

The other day I discussed AARP's Social Security Benefit Calculator.   That is a simple online tool to help you figure the best way to claim your Social Security in order to maximize your benefits.   Such a tool is a good start but for something like Social Security I'd really recommend doing a deeper analysis.

There are some services out there that help you determine how to maximize your Social Security.  Here are 3 options :

Social Security Solutions

They charge $19.95, $49,95 or $124.95 for 3 different product levels.
All their options include a personalized recommendation and a detailed custom report.   Paying more will get you unlimited alternative comparisons, detailed charts and graphs or even a personal live consultation.


They have some free tools for retirement planning.   One of them is their free social security planner.   The tool comes in the form of a downloadable Excel sheet.

Maximize My Social Security 

This is another fee service which charges $40.   They say on their website that : " It takes into account Social Security's earnings test, reductions for early retirement, re-computation of benefits, delayed retirement credit, family benefit maximum, windfall elimination provision, government pension offset provision, and option to file and suspend."

I haven't used any of these myself, so I don't know how good they are.   If I were close to retirement age I would use all of them and compare results and then go with the common or consensus recommendations.   You might question if it is worth spending $20 or $40 on such a service, but I think it certainly can be worth that cost.   Social Security benefits can end up paying out several hundred thousands of dollars over a married couple's lifetime.  Making sure you maximize the benefits can have a significant financial impact over your retirement years.


March 27, 2012

AARP Social Security Benefit Calculator

The AARP website has a Social Security Benefit Calculator.   The calculator helps you figure the best method of claiming social security to maximize your benefits.

Most people apply for their social security benefit early almost as soon as they are eligible at age 62.   The simplest way to get higher benefits is to wait until the maximum benefit age of 70 years old.   For married couples there are other tricks like claiming a spousal benefit early or suspending and later resuming your benefits.

Here are a couple example scenarios that I ran through their calculator and the resulting steps they recommended to maximize the Social Security benefits:

Example #1 ) A married couple with a husband age 40 who makes $120,000 and a wife age 41 who makes $80,000

When your wife is 67 she applies for SS and then requests payments be suspended.
THen you apply for spousal benefits and get $1091 a month
When your wife turns 70 she resumes benefits and gets $2706 a month
You apply for your own SS at age 70 and get $3168 a month

Example #2 ) A married couple with a wife age 35 making $80,000 and a husband age 40 who makes $45,000

When husband is age 70 applies for SS and gets $1979 /mo.
When wife hits age 67 she applies for spousal benefit at $798
When wife hits 70 she applies for her own SS and gets $2678.

If you're nearing retirement age then you should take some time and investigate how you might maximize your social security benefits.   The AARP Social Security Benefit Calculator is one tool to use.  


March 26, 2012

How to Not be "Poor" on $100,000 a Year

 In another of the long line of upper income people whining about being poor, downtrodden or failing to make ends meet I bring you :  First Person: How to Earn $100,000 and Still Feel Poor    I will give the author credit that their sob story is not nearly as bad as if it came from someone making $250,000 or $500,000 a year.  However I still fail to see how the majority of the country which manages to survive on less than $70,000 a year would have much sympathy for someone who makes considerably more money.

One of the worst parts of the article is when they ask : "Is six figures the new minimum wage?"  

No.   It is not.   Making $100,000 is nothing at all like making minimum wage in any way.  There is really no comparison whatsoever.    Minimum wage is $7.25 an hour.  That works out to $15,080 per year if you assume 40 hours a week for 52 weeks.     Making $100,000 a year is not at all similar in any way to making $15,080 a year.  To me this seems like someone asking if caviar is the new Velvetta cheese or if Mercedes-Benz is the new cross town bus ticket.

Lets examine the authors allegedly 'poor' life.

Here are the facts that I got out of their article:
1. Family income "recently topped" the $100,000 level
2. They live in Tampa Florida area
3. Expenses include:
utilities : $350 
car insurance : $300
internet, cable, phone $175
mortgage : $1222
car loan : $300
gasoline : $500
food : $1000
4. They have 2 sons in community college and they're spending $15,000 annually on books and tuition and one son covers $5000 of the costs.
5. They also say : "We bought a new car this past year so our son could earn money for college delivering pizzas."
6. Their house is underwater, which isn't uncommon nowadays especially in Florida.   They are paying extra towards the principal : To try to stay above water on our mortgage, we pay an extra $250 a month to the mortgage company."

Their take home income

First she says that their income recently topped $100,000.   From that I can assume they are only marginally above $100,000 level.    This doesn't tell us what their take home income is after taxes but we can guesstimate that.   A family of 4 with $100,000 gross income would have a federal income tax bill of approximately $10,650 with the minimum standard deduction and exemptions.  They would also have to pay about 5.65% currently towards social security / medicare or another $5650.  Their taxes would be about $16,300 per year.    That excludes any possible deductions or credits.  They live in Florida which has no state income taxes.   I could be wrong on this guesstimate but I'm probably not far off.   That leaves them $83,700 annually or $6975 per month after taxes.


The sum of the expenses they listed is $3,847 per month.   They also have college expenses of $15,000 or $1250 per month.   They put $250 extra towards their mortgage.   In total they document spending of $5,347 per month.

Income - Spending

The monthly income I figured at $6975 and their documented spending  is $5347.    The difference is $1628 per month.    Thats a pretty healthy amount.  Its feasible this money is eaten up by some retirement savings, health insurance premiums and miscellaneous undocumented spending.  

Problem areas

Looking at the areas that they spend money on I see three items right off that appear to be too high.

Food:  They are spending $1000 and she claims "our food budget just provides the basics for four people".
That is about 25% more than average spending per person.   The Consumer Expenditure Survey says that average household with 2.5 people spends $6129 annually on food.   That works out to $204 per person monthly and this family is spending $1000 for 4 people.   The average American household spends about 40% of its food budget on eating out so its not even especially frugal.   She does say she has two boys in college, so maybe those two boys eat a lot.   But I don't really see how someone could say that $1000 per month for 4 people "just provides the basics".   Thats over $8 per person daily.

College:  I'm not sure how they could be spending $15,000 a year on tuition and books for a community college in Florida.   I looked up community colleges in Tampa and the tuition rates seem closer to $3000 a year there for in state rates.  I know college textbooks are pricey but they aren't that expensive.   I think something is missing in this information or they are actually going to some sort of private junior college.  Either way they really should not be spending so much money on community college.  

New Car Purchase She says that they bought their son a new car so he could make money delivering pizzas.   That makes no sense to me.   You certainly do not need a new car to deliver pizzas.

I am not even going to go into their other expenditures like the $350 for utilities, $300 for insurance and $175 for their internet, cable, phone bills.   I think its quite likely they could cut those bills further if they wanted to.

If you are able to save money, pay for college out of pocket, eat well, have a reasonably nice home, drive new cars, and do the other things this family does then there is really no reason for them to 'feel poor'.

Nobody making $100,000 a year should be complaining about being poor.


March 25, 2012

Planning For ALL Possible Future Risks

Recently FMF was talking about  The Safest Retirement.   This prompted some people to comment on possibilities like wars, natural disasters, the government taking all your stuff, hyperinflation or whatever other possible disaster might derail all your future plans.    Those things could happen but they probably won't.   Of course I can't guarantee you that they won't happen. 

I also can't guarantee you that Ninjas from New Zealand won't conquer us and enslave the citizens of USA in the year 2025.   Likewise you can't give me 100% certainty that a zombie apocalypse tied with robots overthrowing the government won't happen in August of 2037.  BUT if either of those things DO happen then you'll still be better off with $3m in the bank than $100k.  Maybe our future NewZealander ninja zombie robot overlords will take bribes in the form of obsolete US currency.    They might consider it an amusing novelty to wallpaper their homes in $100 US dollar bills.   It could happen.   You never know what the future could hold.  Hey., even weirder things could happen,  we could EVEN end up with a flat tax!

Wars, hyperinflation, and widespread catastrophic natural disaster are possibilities but they are not probable.  It wouldn't hurt to take some sort of precaution against such disasters like storing some (10%?) of your wealth outside the USA or having emergency food stash in your home.   Past that I wouldn't worry too much about such things.    If you attempt to plan for the worst possible scenario then you'll never possibly prepare adequately.    99.99% of the time that stuff doesn't happen, so planning for it is almost always a waste of time and resources.

Of course nothing is 100% guaranteed.  You can't plan for everything.  But this shouldn't keep people from making reasonable plans for the future.   What we should all do is take reasonable precautions to plan for likely events.

Likely events are inflation, personal illness or disability, future periods of unemployment, and possibly some form of natural disaster.   Reasonable precautions for these events can usually be covered by having some form of insurance. 


March 23, 2012

Best of blog posts for week of March 23rd

Every Friday afternoon I share some of the more interesting or notable posts that I have seen in the personal finance blogs and other sources for the past week.  

Barbara Friedberg says YOU DON’T NEED THE NEW IPAD!

GetRichSlowly hosted Reader Story: I Quit My Passion and Took a Boring Job

Yahoo carried an article Professional Athletes' Big-League Tax Bills
The title of that one isn't great, and implies its whining avbout high taxes for athletes.  But the article seems mostly about how different states charge state income taxes for the income athletes earn when playing in away games.  For example the NBA players have to file state taxes in 20 different states to cover all the away games they play in.

DQYDJ asks What is the True Inflation Rate?

Bargaineering gives a good rundown on How to Calculate Social Security Benefits


March 22, 2012

Nanny's Do Not Make $180,000 a Year

You may be wondering why the title of this article is saying something seemingly obvious that nanny's do not make $180,000 per year.   The reason I'm saying this is because of the article I saw on Yahoo titled Nannies for New York's Super Rich are Earning More Than $180,000 a Year That article cited the New York Times article The Best Nanny Money Can Buy

Between the two articles I see one person named as the single example of a nanny that makes $180,000 annually.    The reporters have a single data point and then turn that into a trend of some sort.    Maybe they have other data about many other nannies that they didn't bother to tell us about but I honestly doubt that is the case.   They almost certainly heard about one nanny that makes a lot of money then spun it into an article.

One nanny making $180,000 does not mean that "nanny's" make $180,000.   

I know of one high school drop out who became a billionaire, but that does not mean that high school drop outs are billionaires.  Johnny Depp may have pulled in $100 million in 2011, but that does not mean that actors make millions.  In fact the median hourly wage for actors was $17.44.

Most child care workers make relatively low wages.   The average across that industry is $10.15 per hour and the top 10% in the field only makes $14.08 per hour..   In the highest paid city the mean wage is $13.97 per hour.

Why do I say any of this?     Well the problem I have with articles like this is that they take an extreme corner case and then present it as if its somehow typical.   This could lead a reader to imagine that they could actually end up making $180,000 (or more) by becoming a nanny.   I'd like to say "you can't" but that wouldn't be accurate since we do know of one nanny who apparently makes $180,000.    Therefore to be accurate, I guess I'll have to settle by saying that virtually no nannies make six figure salaries and nobody should ever expect to make that much as a nanny.   I'm going to assume that the chances of making that much as a nanny are roughly 1 in 600 thousand.   I pick that probability based on knowing that there is 1 nanny making $180,000 and about 600 thousand child care workers in America.

I think that reporting on these extreme cases is kind of negligent.   Would you go to a small rural town and tell all the kids in the high school drama class that actors make millions of dollars and neglect to tell them that most aspiring actors work part time as waiters for years without landing any actual acting work?   Would you tell a bunch of middle school kids who are playing soccer that soccer players make millions of dollars a year and not mention that theres only a few jobs in professional soccer and most of the higher paid jobs are not in America?   No, hopefully you wouldn't do this kind of thing.   Likewise I don't think we should run around telling people that nannies make 6 figure wages because it gives people unreasonable expectations and fails to point out that the overwhelming vast majority of people in the field make lower than average pay.


March 20, 2012

$10 Amazon Giftcard for $5

Today Amazon Local has a deal for a $10 gift card for $5.  

Theres no strings attached but you do need an Amazon Local account.  If you aren't familiar with it, Amazon Local is their copy-cat version of Groupon.


Free* 4G Wireless Internet from NetZero

I just read some news recently that NetZero is going to get back into the 'free internet' game.   If you are unfamiliar with NetZero, they were popular at one time for offering free dialup internet.  Dialup has gradually become more and more obsolete so that now its not used much at all.    Now however NetZero is going to offer free high speed internet via a 4G wireless modem.  

I put an asterisk on the word free in the title since the free internet requires you to buy a modem and is limited to 12 months of free service.  The modem is $50 which seems like a reasonable price to me.   The free service they offer is limited at only 200MB per month of download bandwidth.   200MB is not a lot, but it should get you a fair amount of email use and some casual web surfing.  A couple years ago Google measured the average webpage at 320kb.  So you could download about 600 webpages with the 200MB limit.  For a lot of people a 200MB limit would not be nearly enough to meet their internet needs. The news article said you'd tear through that limit with just 30 minutes of full screen video.   So this won't serve you if you want to watch Netflix streaming or Hulu or if you have a Youtube habit.  

NetZero is using the same network that Sprint uses for 4G service.   PCWorld tested 4G speeds and they found that Sprints network was about 2.15mbps download and 0.61mpbs upload.  Thats reasonably fast for anything but online gaming.

After the 12 months of free service you could then sign up for their minimum $9.95 /month plan which gives you 500MB of bandwidth.   Thats still a reasonably cheap rate for a high speed internet connection.

Bottom Line:   While its not exactly free, this new NetZero 4G service could be a pretty decent deal if you only have light internet usage.


March 19, 2012

I've been sick

Sorry that I haven't posted any articles for a few days.    I have been a bit sick with a cold lately.    I'll be back posting again shortly.

March 16, 2012

Best of blog posts for week of March 16th

Every Friday afternoon I share some of the more interesting or notable posts that I have seen in the personal finance blogs and other sources for the past week. 

Bargaineering talks about What Valuing Your Time Is and Isn’t

fivecentnickel shares Underwater Mortgage Calculators: When and How Will You Get Back to Even?

March 14, 2012

Who Plays Video Games?

The other day Trent of The Simple Dollar was talking about video games.   One or two of the readers made comments that sounded like they thought video games were only for children and express surprise that adults actually play video games.   I've seen this attitude from some adults in the past.  Some people seem to think that only children play video games or that adults shouldn't be playing video games.

I expect that this believe held by some people that video games are just for kids is an old perception holding over from decades past or held by people who they themselves do not play video games.    The video game industry has surpassed the movie industry as far as total revenue generated.   This is big business and to act as if its all just 'kids stuff' is quite frankly out of touch and a little patronizing.

I think some people may be confused about what constitutes video gaming.   People may that video gaming is only things like Call of Duty on an Xbox or playing World of Warcraft online.    If you've ever played solitaire on your computer, joined a Words with Friends game on Facebook or played Bejeweled on your cell phone then you too are a video gamer.

Below I share some facts about video game player demographics which are from a 2010 study conducted by the Entertainment Software Association.

First of all, is the common perception that video games are mostly played by children.  That is certainly not the case.  I'm 40 years old and my generation grew up on video games.   I can't think of a single person my age that I know who doesn't play video games.

The average video game player age is 34 years.

25% are under 18 years
49% are 18-49 years
26% are over 50 years

More people over the age of 50 play video games than children under the age of 18.

Not only is video gaming common among adults it is also common in most households.

67% of American homes own a gaming console and/or a PC used for entertainment software.

48% of parents play video games with their children at least weekly.

Video games aren't just for boys either.   Lots of girls and women play video games.

40% of video gamers are female and 42% of online game players are female.

When you hear about 'online gaming' you may immediately think about World of Warcraft, but you'd be forgetting about the plethora of games online like those played in Facebook or simple card games on the internet. 

Puzzle, Board Game, Game Show, Trivia, Card Games account for 42% of the online gaming.

Clearly video games are not just for children and the video gaming population is quite varied.  People of all ages and walks of life play video games.


March 13, 2012

25¢ sales for MP3 Albums on Amazon or Google Play

Lately I've started to see some albums for sale for just 25¢ on Amazon.  For example today you can get Guns and Roses Greatest Hits [Explicit]* album for just 25¢.    A couple days ago there was a deal for Coldplay's Mylo Xyloto album for 25¢ too but its now back to regular price.  

THe 25¢ sales deals appear to occur for the same album on Amazon and Google Play at the same time.  I'm guessing that Google is running promotional sales deals to get some traffic and then Amazon is matching their sales prices for the the album in question. 

In any case 25¢ is a great price for a full album, so keep your eyes out for these deals.

I've seen the deals listed on or    Another way to find them is to monitor the best selling albums list on Amazon as these discount deals quickly become hot sellers.

*  Note there are explicit lyrics in that album, so be warned.

--This article may contain referral links which pay this site a commission for purchases made at the sites.

How Much Does PMI Cost?

My wife and I are still home shopping.   We're planning to put down 20% on the purchase.   Having a larger down payment will allow us to avoid paying PMI and will help protect us from  ending up under water on the mortgage.   I have looked at lower down payment and how that would change things.   

Basics of PMI 
PMI or Private Mortgage  Insurance is extra insurance you have to pay on a mortgage if you do not have a large down payment.  Generally lenders require PMI if you have less than 20% down payment.  PMI allows a borrower to buy a home with a lower down payment, but they have to pay for the PMI.   The insurance protects the lenders investment in the property.  

How much is PMI?

The amount of PMI is proportional to the amount of the loan.   PMI also goes up if you have a lower down payment and higher Loan To Value (LTV) ratio.    Other than that I'm sure that PMI rates vary some from one insurer to another and may vary in different areas as well.  

I ran some tests on Amerisave's website to check PMI rates for the purchase of a $100,000 home.   I tested mortgages with down payments ranging from 5% to 20%.

Here are the results :

Loan LTV PMI/mo PMI rate
$95,000 95% $74.42 0.940%
$94,000 94% $73.63 0.940%
$91,000 91% $71.28 0.940%
$90,000 90% $46.50 0.620%
$87,000 87% $44.95 0.620%
$85,000 85% $26.95 0.380%
$81,000 81% $25.65 0.380%
$80,000 80% $0.00 0.000%

so that equates to PMI rates for down payment ranges as follows:

Down payment PMI
>= 20% 0
15%-20% 0.38%
10%-15% 0.62%
5-10% 0.94%

Keep in mind this is just one example from one vendor and the rates for PMI will vary.

Another thing to remember with PMI is that you're paying the PMI rate against the entire loan but the difference in the down payment is smaller by comparison.   So for example look at the table above and we see that with $85k down you have a PMI rate of $26.95 per month or 0.38% of the mortgage.   But with another $5,000 down you could avoid that $26.95 monthly bill.    PMI is 0.38% of the entire mortgage but the bill equates to 6.468% of the $5,000 difference in down payment.     That is in addition to the normal mortgage interests on the extra $5,000 you'd borrow.   With rates around 4% today you'd be paying about 10.4% difference on that $5,000.  


March 11, 2012

H&R Block Tax Software for $18.99 at Amazon

Today you can get the H&R Block tax software with both federal and state filing for $18.99 at Amazon.   This is the price for the digital download.

--This article may contain referral links which pay this site a commission for purchases made at the sites.

Buying a Home for Your Child During College

Once in a while I'll hear about someone who bought a house for their kid to live in while they are attending college.   Its an interesting idea.   The logic is that rather than pay exorbitant dorm room rents you simply buy a house and rent out rooms to some other students and make money in the deal.   But I wonder how easy it is to come out ahead buying a house for a 4 year period and if this makes more sense than simply paying rent for dorm room or an apartment.

Just one example

I'm going to run through a theoretical example of buying a home for your college age son or daughter to live in.   This is just one example.

Lets say you plan to send your kid off to University of Minnesota for four years.   You look at the room and board charges and it runs close to $8,000 per year.   Multiplied by 4 years and thats $32,000 you'd be spending on room and board.    Housing isn't too expensive in that area so you think you might just buy a house for them and they could share it and charge rent to a couple other students.  

I'm going to set the cost of food aside and only consider the cost of housing. 

Dorm Room cost
The rent for a room in the dorms for U. M. costs $2,197 per semester for a shared double occupancy room.   Thats $4,394 room rent costs for one school year.   

Buying a House costs
I found a 3 bedroom home about 2.5 miles from U.M. for sale for $125,000.   The home in question is currently in rough shape, so it might take a little work to fix it up or you could just move the kid in as is and not worry about them ruining the carpet.

Assuming you finance that purchase you're going to have closing costs of around $2300 for a loan with 20% down.   Your monthly bills will be :

mortgage $477
taxes $118
insurance $65
utilities $200
total $860

Annually that gives you costs of $10,320.    But you can make some good money renting a couple rooms.   If you charged $3000 a year each for the 2 extra  rooms that would be $6,000 of income to offset your expenses.   Your costs would then be $4,320 per year.  

After 4 years you would be left with a house.  Lets assume you sell that house.   If it went up 3% a year over 4 years then it would appreciate from $125,000 to about $140,000.   If you sell it you will have to pay a realtor about 6% commission so thats a $8400 bill.    The loan would have been paid down from $100,000 initial mortgage principal to about $92,500.    Altogether that gives you a net profit of about $12,500 for the 4 year period on the investment.   BUT ... of course that analysis makes the assumption hat the value of the property will go up 3% annually.   That is probably not a safe assumption in todays real estate markets.       If the house had stayed flat in value and you sell it at $125,000 then you'd end up losing $2500 over the 4 year period.   Also keep in mind that you've had $25,000 tied up in the home via your initial 20% down payment.    A $2500 return on that $25000 equity is around what you'd net if you put the money in a CD for 4 years.  

Annual costs are a wash
The cost of living in a dorm is $4,394 per school year for room rent.    The cost of the house you buy would be around $4,320 per  year after you pay the $10,320 annual expenses and collect $6000 in rent.  So we're looking at $4394 a year for a dorm versus $4320 a year for the house

Its just Speculating on Housing Market

Since the annual costs are a wash the difference is going to be in how much profit you could make after selling the house.    Four years is not a long time for a house to appreciate.   You have to pay closing costs and realtor fees so you need a minimum appreciation just to cover your purchase costs.   We could hope for 3% annual appreciation, but even then the profit is not substantial given the risks.   If the house goes up in value then you'll profit some but if it goes down in value then you'll lose money.    This amounts to simply speculating on real estate values.

Every situation is Different

I only ran one example here.   Of course every situation is going to be different.  I think for many university areas the cost of housing would be prohibitive to purchase a home and pay less than rent.   In some other areas housing is going to fairly cheap compared to on campus costs.   One of the colleges I went to you could buy a house for around $70,000 nearby campus and dorms cost $4000 a year.   That would be a lot easier to come out ahead when buying a home for your college age child.    On the other hand the other college I attended charges about $5000 a year for the dorms but houses near campus run closer to $225,000 and up.   It would be a lot harder to come out ahead with a house that expensive versus spending $5000 a year on a dorm room.   If housing is especially cheap near the college then it might be a decent idea to buy a house, but quite often you'll lose money or simply be gambling on housing market.

Food costs could matter
I've only been looking at the cost of housing thus far.  But food costs quite a bit as well.   In the dorms for U.M. the cost of food is $1,769 for their top meal plan.  Thats $3,538 per year.  Thats nearly $400 a month for a 9 month long school year.   It shouldn't be very hard for a single student to feed themselves for something closer to $200 per month if they buy groceries and make meals at home and eat out sparingly.  

Meals in dorms = $3538
Meals at home = $1800
Potential annual savings = $1738

You could see pretty substantial savings annually just due to lower food costs.   Of course this would depend on your child being able to properly feed themselves.  They would need to know how to cook well enough and take the time to do so.    Making their own food would require making trips to the grocery store and the time for preparing meals.   Cooking for yourself isn't a big deal or anything but its not a trivial time investment. 

Other Factors

There are a lot of other questions to ask yourself if you're thinking about buying a home for your college age child to live in.    How mature is your child?     Can you trust them to run a home and manage all the bills as well as collect rent from roommates?    I think most college age children are mature and capable enough to pay some utility bills and collect rent checks from a couple other students.    You should know if your own child is capable of the task and trust worth enough not to blow the rent money on video games.   Would living in a single residence home far from campus be a distraction from studying or would it be conducive to studying?   This could go either way.    When I lived off campus during college it was actually less distracting than when I lived in the dorms.    But it is just as likely that a house shared by a few college kids could turn into 'party house central'.


March 9, 2012

Best of blog posts for week of March 9th

Every Friday afternoon I share some of the more interesting or notable posts that I have seen in the personal finance blogs and other sources for the past week.

Bargaineering points out that the IRS Might Pay You $600+ to File Your 2008 Taxes

The Landlord Protection Agency lists My Top 10 Landlord Mistakes to Avoid!

DQYDJ talks about  Who Gambles in America: Gambling Stats By Income!


March 8, 2012

AARP 1 year membership for FREE

You can get a 1 year membership with AARP for free.

Follow this link for the free membership.

I found this deal via Fatwallet


You Need At Least 45% Equity for a Reverse Mortgage

I was watching an episode of Suze Orman program some time ago and a viewer asked about a reverse mortgage.   The womans mother owned a home worth about $100,000 and she still owed around $70,000.   The woman thought she could get a reverse mortgage on the property.    I don't know if its obvious to many people or not, but you do need a substantial amount of equity in your home to get a reverse mortgage.   

I checked the MetLife reverse mortgage calculator to see how much equity you might need.   I put in some test figures for different amounts of current debt on the property.    I found that about 55% loan to value is around the break even point.   So for example if you have a home worst $100,000 and there is a $55,000 loan then you can get a reverse mortgage that will pay off the mortgage and thats about it.  If the house value and loan value are larger then it mostly scales to the same percentages.    If your debt level is any higher than 55% LTV then you would end up having to pay in money to settle the reverse mortgage.  The banks may let you do that but its not really what most people are expecting to do when they setup a reverse mortgage.

You should expect to have at least 45% equity in a home before a reverse mortgage will even pay off the existing mortgage.

This isn't a hard fast rule, I'm sure it varies based on current interest rates, market conditions, the lender or other factors.   Your own age will of course have an impact on it as well as if theres a spouse in the situation.

I've said before that I think reverse mortgages can be a great solution in some cases.   They should not be your retirement plan and if you can afford retirement otherwise then you should avoid a reverse mortgage.   But if you find yourself of retirement age with little income, not much cash or retirement account assets and a house with a lot of value then a reverse mortgage could be an option. 


March 7, 2012

Rental Vacancy Rates by State for Q4 2011

I previously discussed rental vacancy rates for some major cities.

Today we'll look at state wide level data.  This information is from the Census Housing Vacancy Survey data.   Direct link to the XLS sheet.

You can not assume that the vacancy rate for your state applies to your city.   Individual cities will vary.   If your city is in the top 75 metropolitan areas then you can get the rental vacancy rate for your city from the census site.    But if your city is not in that list then you could use the state level data as a rough guess.   Individual cities are probably relatively close to the state average at least within 2% give or take.   

Here is the latest state level data specifically for the Fourth quarter of 2011 :

State Vacancy %
Alabama 11.9
Alaska 6.1
Arizona 11.5
Arkansas 14.3
California 5.9
Colorado 6.3
Connecticut 10.2
Delaware 10.4
District of Columbia 8.2
Florida 15.2
Georgia 10.3
Hawaii 10.8
Idaho 7.9
Illinois 11.1
Indiana 11
Iowa 7
Kansas 6.5
Kentucky 11
Louisiana 12.2
Maine 6
Maryland 13
Massachusetts 6.2
Michigan 12.2
Minnesota 6.8
Mississippi 17.5
Missouri 10.9
Montana 4.6
Nebraska 9.2
Nevada 11.1
New Hampshire 8.2
New Jersey 10.8
New Mexico 5.2
New York 6.3
North Carolina 10.7
North Dakota 9.2
Ohio 9.5
Oklahoma 10.1
Oregon 4.5
Pennsylvania 9.7
Rhode Island 6
South Carolina 10.5
South Dakota 10
Tennessee 12.4
Texas 11.3
Utah 5.9
Vermont 2.8
Virginia 10.3
Washington 5.8
West Virginia 6.1
Wisconsin 6.4
Wyoming 4.5

As you can see theres a pretty wide range of rental vacancy rates from state to state.  

The 5 highest rates are :

Mississippi 17.5
Florida 15.2
Arkansas 14.3
Maryland 13
Tennessee 12.4

The 5 lowest rates are :

Vermont 2.8
Oregon 4.5
Wyoming 4.5
Montana 4.6
New Mexico 5.2

So the high is 17.5% in Mississippi and the low is 2.8% in Vermont.   The median value is 9.7%.  


March 5, 2012

Figure Your IRA Required Minimum Distributions

If you have a traditional IRA then you may be required to take what are called Required Minimum Distributions (RMD).   An RMD is required once you hit 70 1/2 years old.   The basic idea here is that the government wants you to 'live a little' and spend some of that money before you pass away (because they want the taxes).    So the laws require that you start withdrawing money once you hit 70.5.    Note :  The RMD rule does not apply to a Roth IRA.

When you hit 70.5 years old the RMDs are required.   The amount of the RMA is based on your age and the amount in the IRA.   You have to take out a certain % of the funds each year and the amount changes.    The RMD will be taxed as normal income.

Avoid 50% penalty
Taking the RMD is required and if you fail to make minimum withdrawal  required then you may have to pay a 50% excise tax on the amount you failed to distribute.   Its far better to take the withdrawal as required and pay regular income tax than to pay a 50% penalty tax.

When do they start?

The IRS says: "you must generally start receiving distributions from your IRA by April 1 of the year following the year in which you reach age 70½."

How much is it?

The IRS says: "Figure your required minimum distribution for each year by dividing the IRA account balance of the close of business on December 31 of the preceding year by the applicable distribution period or life expectancy."

The account balance in your IRA is based on the amount in the account after market closes on December 31st.   That is a fixed amount and won't fluctuate cause business has closed.   You need to look at the amount at the end of the year and not any other date.   This should be straight forward enough.  Just look at the account balance on December 31st at 6PM.   Example:   On December 31st of 2011 after 5PM your IRA balance was $56,000 then that is the account balance you use for your 2012 distribution.

The amount of the RMD is basically based on your age.  Simply put they take your balance and divide it by your life expectancy.  So for example if you're 76 years old your life expectancy is 22 years so they expect you to withdraw 1/ 22 th of the money that year.      Every year you age your life expectancy goes down by a little less than 1 year.   So the actual amount you have to withdrawal goes up as a % of your holdings.  The life expectancy values are based on tables defined by the IRS.   You have to use the IRS tables. 

The IRS tables are in the appendix of pub. 590.

Table I = used for people who inherit a IRA
Table II = used for married couples who are more than 10 years apart in age
Table III = single people and married couples less than 10 years apart.

Here are the values from Table III

Age  Factor %
70 27.4 3.65%
71 26.5 3.77%
72 25.6 3.91%
73 24.7 4.05%
74 23.8 4.20%
75 22.9 4.37%
76 22 4.55%
77 21.2 4.72%
78 20.3 4.93%
79 19.5 5.13%
80 18.7 5.35%
81 17.9 5.59%
82 17.1 5.85%
83 16.3 6.13%
84 15.5 6.45%
85 14.8 6.76%
86 14.1 7.09%
87 13.4 7.46%
88 12.7 7.87%
89 12 8.33%
90 11.4 8.77%
91 10.8 9.26%
92 10.2 9.80%
93 9.6 10.42%
94 9.1 10.99%
95 8.6 11.63%

Over age 95 it keeps going up until you hit a max for age 115.

Example :    Bob is 79 years old and single.  He has $56,000 in his IRA.      The RMD is 1/ 19.5 of the value so he has to withdraw 56000 / 19.5 = $2,871.79.

Example 2 :   Roy and Cindy are married.   Roy is 71 and Cindy is 70.   They have to take RMD from Roy's IRA.  He has $428,000 in the IRA right now.  The minimum withdrawal is 428,000 / 26.5 = $16,150.94

Here are the basic steps to figure your RMD every year: 

1. Are you older than 70.5 years old?  If so then proceed to step 2.  If not then you don't have to do an RMD
2.  Take your IRA balance at the end of the day on Dec. 31st. 
3. Look up your life expectancy value from the tables in the appendix of pub. 590
4. Divide the IRA balance from step 2 by the life expectancy factor in step 3.   This is the RMD value.


March 4, 2012

More Proof that Rich People are Evil

I'm in a cranky mood so I'm going to make fun of media articles some more.

First lets start with the case of the class warfare inciting tip.

It seems that a "wealthy banker" left a 1% tip to some 99%'er in Newport California.   Here's the article :
Banker’s Insulting Waitress Tip Incites Class Warfare Between the 1% and the 99%
The credit card receipt had the note "get a real job" written on it with that insulting 1% tip.   This is pretty solid proof that rich people are evil.    You can read all about the atrocity yourself in the article.   They also have a video that probably says stuff, but I can never get Yahoo videos to do anything but show me an ad and then crash.  I'll have to take their word that video of this class warfare salvo exists.

In other, far less important news... that 1% tip article was quickly revealed as a hoax and reported on by the same media outlet the next day.   Update: Banker’s Insulting Waitress Tip Is a Hoax    The lower class can return to defcon 3.

While we're talking about evil rich people, who doesn't love to hate the rich guy who thinks he's poor?    We can add Andrew Schiff to that list.  You can read his story in :   Bonus Withdrawal Puts Bankers in "Malaise"
Well at least when Yahoo presented the article it gave the strong impression that Schiff thought he was struggling.  If you read the article itself he's not exactly complaining about being poor or anything.  " "I'm crammed into 1,200 square feet. I don't have a dishwasher. We do all our dishes by hand."  He makes $350,000 a year, but only takes home $200,000.   Stop hating on him.   Shifff explains that "I wouldn't want to whine." and "All I want is the stuff that I always thought, growing up, that successful parents had."   And let me repeat... he doesn't have a dishwasher!!    The same article also relays the harrowing tale of a guy who decided against going to Mardi Gras for a wet t-shirt contest and instead had to settle for buying a $50,000 foreclosed house, presumably as an investment property.  The horror!    You poor people should just think about that for a second  :  that house you couldn't afford and were kicked out of is a poor replacement for the debauchary in Orleans that this man wanted instead.  Lastly theres a guy that calls his Porsche 911 "the Volkswagen of supercars."   If you call your $80,000 sport car a Volkswagen then does that qualify as frugality?

In other very unimportant news Andrew Schiff later responded to criticism over his whining and complaining that he was poor.   Banker Bonuses: Wall Streeter With $350K Salary Responds To The Outrage Over His Comments (complete with another video that doesn't work for me).
Schiff explains how the article basically misrepresented him.  "In the accompanying video, Schiff stresses he never complained to the Bloomberg reporter about his lifestyle, realizes he's one of the lucky ones and "understands why people feel bad reading about what I'm saying.""   he also points out "When he said "I feel stuck," Schiff says he was referring to a specific incident involving a major traffic jam, not a commentary about his bank account."     HA!  Next he'll probably try and tell us that he doesn't even steal candy from babies.

Since you've undoubtedly stopped reading by now in order to go muster your next class warfare offensive strike I won't bother to comment on this story.

March 2, 2012

Best of blog posts for week of March 2nd

Every Friday afternoon I share some of the more interesting or notable posts that I have seen in the personal finance blogs and other sources for the past week. 

DoughRoller compares FICO vs. FAKO–Does it Matter?

MyMoneyBlog does a TaxACT 2011 Review: My User Experience With Screenshots

March 1, 2012

Example of Exaggerated Impact of Advertisement on Children

I was in the doctors office a while ago and they had a poster that claimed that a child sees 19,000 advertisements for fast food in a year.    Where do people come up with these numbers?  

I previously discussed the topic of how many ads we are exposed to daily and my opinion is that the numbers we see cited are usually exaggerated.  Lets look at the claim in the poster in question.

19,000 advertisements a year comes out to an average of 52 ads per day.   This was specifically ads for fast food.   If a TV commercial is 30 seconds long then thats 26 minutes of TV fast food commercials per day.   I guess if you plopped your 3 year old kid down in front of the TV for 8 hours every day then they could very well see that much fast food advertisements but it seems unlikely.

I found this report from University of Illinois, Chicago researchers which found : " Children aged 2 to 5 and 6 to 11 years saw, respectively, on average, 10.9 and 12.7 food-related television advertisements daily in 2009"

The 2-5 year old kids saw fewer ads.  If you round that up to 11 per day then it is 4,015 per year.   But even the older 6-11 year old kids only got 13 a day or 4,745 per year.

Where else is a 3 year old going to get fast food advertisements?   Radio ads?   Reading their local newspaper?   Using the internet?   I don't think toddlers tend to read the local paper all that much and the vast majority of them are a little too young to be using the Internet.   I'm sure a toddler may see a few ads from things like ads on buses or billboards, but it certainly won't add up to dozens per day on average.    Among all the misc. ads they may see posted in public the majority won't be for fast food either.

Again, I have to wonder here do people come up with numbers like what that poster claimed?


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