January 31, 2014

Best of Blogs for Week of January 31st

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

PlanetMoney gives us a look at Who Are The Long-Term Unemployed? (In 3 Graphs)

BLS tells us the Occupations projected to add most new jobs, 2012 to 2022
Nursing and accounting jobs make the list along with a lot of low paid  service jobs.


January 30, 2014

What Do People Heat Their Homes With?

I've seen a couple comments on line lately from people who seemed to think everyone uses natural gas to heat their homes.     Natural gas is actually the most common home heating fuel source.   But there are still a lot of people in the nation who use other fuels.    Electricity is actually quite common in some regions as well as for rentals.

I found the data in the American Housing Survey for 2009 
The specific data is in table 2-5 for fuels.

For all homes the mix of heat sources are : 

I combined the smallest categories into an 'others' group.    The 'others' listed above includes kerosene, coal or coke, solar and other.

Natural gas is indeed the #1 form of home heat.  However its still only barely over half the homes and the other half are heated by electricity and other sources of heat.

The mix for owner occupied homes looks similar to the larger picture.

For renters the picture is a lot different.   Electricity is actually the winner with a fraction of a percent more homes than natural gas :

There are also pretty big differences between different regions of the country.  For each of the four major regions of the country I chart below the top 3 heat sources as well as the % heated by less popular energy.

Most notable are the use of fuel oil in the Northeast where nearly 1/3 of homes still use that : 

And then the popularity of electricity for heat in the South where it beats out gas for the #1 spot : 

The Midwest and West look similar to one another.   The pattern is closer to the national average but natural gas is even more popular out West.


January 28, 2014

List of Merchants for 5-20% Cashback Bonus at Shop Discover

If you have a Discover card you can shop online through their ShopDiscover site to get 5-20% cash back.   The ShopDiscover bonus is in addition to any other Discover cash back bonus you may earn so it doesn't replace the normal 1% Discover bonus (or 5% promo bonus).  

There are a LOT of notable merchants that offer the 5% bonus.   I tried comparing to Ebates but there are so many on this list that I grew tired of looking them up one by one on Ebates.  From the ones I looked at the vast majority of 5% bonus merchants  for ShopDiscover  paid less at Ebates.  But if you are looking at a merchant with the intention of buying I'd recommend checking Ebates as well.  Some merchants do have better cash back at Ebates, like for example Magazines.com is 26% at Ebates and 20% for ShopDiscover.

Each merchant will have terms for the offer so you need to read the details.   From a couple I looked at it seems they don't usually offer cash back for the purchase of gift cards or gift certificates.

Here is the list of current merchants that offer ShopDiscover bonuses categorized by the amount of cash back.

5% cash back from : 

7 For All Mankind Kohl's
A Pea In The od Lancome
ABT.com Lands End
Ace Hardware LeapFrog
Advance Auto Parts LEGO
Aeropostale Lenovo
Ann Taylor Levi's 
Apple Store LivingSocial
Athleta LLBean
Atlantis and More Bahamas Resorts LOFT
Avalon Waterways Lord & Taylor
Avon Lowe's 
Backcountry.com Lumber Liquidators
Banana Republic Luxury Link
Bass Pro Shops Macy's 
Bath and Body Works Madewell
Beauty.com Marriott
Bed Bath and Beyond Mattel
Best Buy Meijer
Beyond the Rack Microsoft Store
Bloomingdales;'s MLB.com
Bluefly Motherhood
Bobbi Brown Neiman Marcus
buybuy Baby Nordstrom
Carnival Cruises Norwegian Cruise
Carson's Oceania
Carter's Office Depot
CB2 OfficeMax
Celebrity Cruises Old Navy
Chadwick's Omaha Steaks
Chefs Catalog Orbitz
Chicos Origins
Clinique OshKosh B'gosh
Coach Palace Resorts
Coldwater Creek Panasonic
Crate& Barrel Paper Source
Darphin Pcrush.com
Dell Perry Ellis
Desination Maternity Piperlime
Dillard's Princess Cruises
Dockers QVC
Dollar Rent a Car Rakuten Shopping.com
Drugstore.com Ralph Lauren
DSW Regent
Eddie Bauer Royal Caribbean
Enterprise SaksFifthAvenue
Estee Lauder Sears
Expedia Sephora
Express Smashbox
Fairmont Sony
FansEdge Sports Authority
GameStop Staples
GAP Starbucks
Globus Target
Godiva Tauck
Gordons The Body Shop
Groupon The Childrens Place
Guess The Container Store
Guitar Center The Land of Nod
Hammacher Schlemmer The Limited
Hanes Things Remembered
Hanna Andersson Thrifty.com
Harbor Freight Tools TigerDirect.com
Hard Rock Resorts Timberland
Harry & David Tory Burch
Holland America Toshiba
Home Decorator's Travelocity
Homedepot.com Tumi
Hotels.com Universal Studios Resort
Hotwire Urban Outfitters
HP Home Vera Bradley
HSN Viking River Cruises
J Crew Vistaprint
J.Jill Walgreens
jcpenney Walmart
Jos A Bank White House Black Market
Justice World Market
Kiehl's Zales

10% cash back from : 

1800Contacts Lucky Brand Jeans
Allposters.com Moosejaw
Art.com New York & Company
Blair.com Nike
Brookstone Petco.com
Columbia PetSmart
Eastbay Puma
Fandango RedEnvelope
Finish Line Rosetta Stone
Footlocker Shari's Berries
Fossil Sharper Image
Gaiam Shindigz
GNC Live Well Snapfish
GolfSMith The North Face
GourmetGiftBaskets.com UGG
Jewelry.com Ulta
Lids.com Under Armour
Lobster Gram

15% cash back from :

1800 Flowers
Fannie May Candies
The Popcorn Factory
Wine Enthusiast

20% cash back from : 

H&R Block
Music Space.com

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

January 26, 2014

Every Single Credit Card In America Has Been Hacked. (...Or Might As Well be)

I honestly do think its quite likely that every credit card number in the country has been stolen somehow and somewhere.    Recently Target announced that 110 million card numbers and other data were stolen from their stores by hackers.    But that is certainly not the first major security breach and it seems every month or two we're hearing of a new company announcing that all their customers data was stolen or 'might have been' stolen or was lost, etc.    Its a reality today that your credit card numbers might fall into the hands of criminals.   Not only do we have to deal with hackers stealing information from companies we can also have a card number stolen during its routine use.   Sounds awful right?    But what do we do about it... ?

First :  Don't panic.   For a credit card you have no liability on losses.

If your credit card number is stolen you are not liable for unauthorized use.   

Really its true, trust me or you can read it yourself right off the FTC website.   This is federal law.

While you're not liable for unauthorized charges they can still be a hassle and we'd all certainly want to avoid the nasty surprise of a $1500 charge showing up on your card.   So what else can we do to help avoid unauthorized activity? 

1. Watch your statements.  Watch your statements.   Watch your statements.    I said that three times since its important.   You won't catch fraud on your account if you aren't paying attention to your statements.   In fact you should really do more than just watch your monthly statement (see item 3) but watching your statement is the minimum.

2.  Use a credit card instead of a debit card.    The liability for credit card fraud is zero.  The liability for debit card is potentially unlimited.   What this means is if a thief steals your card number and makes fraudulent purchases then you should pay nothing with a credit card but they could potentially empty your bank account with a debit card.   Its not usually nearly that bad with a debit card but there is certainly more liability.  Again see the FTC rules.

3.  Set up alerts and notices for your account.  Credit card providers often have ways to setup text and email alerts for activity on your credit account.    You should setup up alerts for any kind of suspicious activity.   My Discover card has options to notify me of suspect activity, charges over a $300, charges occurring outside the USA and similar items.  The exact alerts you'll want will depend on your situation but you would probably benefit from some sort of notice if abnormal activity occurs.

4. Get a new credit card number.   If you're particularly worried about identity theft you can simply get a new card number.   In fact getting a new card number on a periodic basis may be a good defensive measure.   No telling when your cards was stolen or who might have it.  Its not as if every security breach is immediately announced in the press since many are never even detected and merchants  are hesitant to admit their security failures.


January 25, 2014

$200 Worth of Jewelry at Blue Nile for $82.56 net via LivingSocial & Ebates

Here's how to get $200 worth of jewelry for $82.56 :

First go to Ebates and look up Living Social.
Then via Ebates go to the LivingSocial and look up the deal for $200 worth of jewelry at Blue Nile for $100.

If you use promo code VDAY14 you get 14% off your Living Social purchase.   That will make your total $86 for the Living Social purchase. 
Ebates will rebate 4% of that or $3.44 after the fact.   So your net cost is $82.56. 
You can then go to BlueNile and buy $200 worth of jewelry using your Living Social code.

There are 19 days left in the Blue Nile deal on Living Social. The VDAY14 promo code expires 1/26.

Some of the stuff on Blue Nile isn't exactly cheap to begin with.  So make sure you do price comparison and see what you can buy elsewhere.   This deal gives you ~60% off so thats pretty good discount so it ought to be pretty cheap.

Standard Ebates blurb:
To get the cash back you need to be signed up with Ebates.  Then simply go to Ebates to get the referral to the the store before you do your shopping.  I also get a referral bonus if you use my links to sign up with Ebates

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

January 24, 2014

Best of Blogs for Week of January 24th

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

MyMoneyBlog shared 1994-2013 Callan Periodic Table of Investment Returns

PlanetMoney tells us that An Astonishing Share Of Homebuyers Are Paying All Cash

and I'm actually astonished how high the % is.   But nearly half of the increase is from institutional buyers whoa re buying homes to rent out.


January 23, 2014

Limits on Rental Property Income Tax Loss Deductions

You may have heard that rental properties can have some good tax deductions.    One of the major deductions is the depreciation of the property which can add up to a lot of money.    So owning rentals can be advantageous from a tax perspective.   However you may not know that there are limits on how much you can deduct in rental losses or if you can even deduct a loss at all.

We actually ran into this ourselves last year on our taxes.   We had about $9000 total loses that exceeded the amount we were allowed to deduct for the year.

Hows this all work then?    The article Can You Deduct Your Rental Losses? from NOLO covers the topic pretty well.    I'm not going to reinvent the wheel here by rewriting their whole article.   I'd recommend you read the NOLO article yourself.

I'll summarize quickly though: 

  • There is a $25,000 limit on passive losses that you can deduct.  Generally rentals are considered a passive income.   Maybe you don't think its 'passive' considering the amount of work you do but it is in that category according to the IRS.    
  • However if you make over $100,000 MAGI for a couple then that $25,000 deduction limit is phased out.   Above $150,000 and you get no deduction for losses.    Keep in mind the losses we're talking here are the net number out of a Schedule E so it means your total rent minus all expenses.   
  • Real estate professionals get an exception.  To qualify you have to work minimum 751 hours in the year in the real estate business and materially participate in running your properties.

But all is not lost.   For any loss you're not allowed to deduct you can carry it over into future years.   The IRS says: "Generally, losses from passive activities that exceed the income from passive activities are disallowed for the current year. Disallowed passive losses are carried forward to the next taxable year."


January 21, 2014

How Would My Projected Retirement Income Change If We Bought More Rentals?

I recently wrote the article Estimating My Future Retirement Income Based on Age of Retirement in which I figured a rough estimate of our future income at retirement for different ages from 51 to 70.   That estimate was based on the status quo situation for our finances.   However my wife and I do plan to buy more rentals in the future.   So, how would the future retirement income change if we had more rentals?

I figured the numbers for a basic rental in our area.   And then reran the calculation to refigure the retirement income estimates.  I then added more rentals to see how 1, 2, 3 or 4 additional rentals would add up.    [note : I am assuming that we finance the purchase of the rentals and then make mortgage payments while gradually building equity over time. Bear in mind these are very rough calculations with some assumptions and variables that can change over time.]

Here is how the income projection changes based on adding more rentals:

Pretty roughly speaking once I get to around age 55 I could possibly plan to retire 1 year earlier for each additional rental we buy.  

So for example, say I wanted a retirement income of $100,000.   With our current assets I am projecting that I might hit that amount around age 59.    If I add one more rental then I project I'd have $100k income at age 58.  Two more rentals would help me hit the goal at age 57.    Three more rentals and I'd hit it a few months after age 56 and finally with four more rentals I'd hit it at about age 55.5.


January 20, 2014

Get Extra 10% Bonus from TurboTax When You Use Income Tax Refund to Buy Amazon Gift Card

Here's the deal in short.   If you use TurboTax to file your income tax refund they will give you the option to use some or all of your refund to buy an Amazon.com gift card.    If you do so then they'll kick in another 10% bonus gift card on top of that.    So for example if you are due $2000 and use $500 to buy an Amazon GC then you'll get another extra $50 gift card.

Here is the page on Amazon about the deal.

You can also get $10-15 off of TurboTax if you're a Prime member.

"Prime Members save as much as $10-$15 more on TurboTax 2013. Limited time offer. See product detail page for more information.'

If you're not a member you can  sign up for Prime

Details on the 10% gift card offer...

I copy pasted the details & fine print below.

  • Use some (or all) of your federal refund to purchase an Amazon.com Gift Card** and Turbo Tax will tack on a bonus
  • The remainder of your refund will be deposited to your bank account
  • As soon as your refund is received, TurboTax will email you your Amazon.com Gift Card claim code
  • Receive an extra 5% with TurboTax Basic – So $500 would become $525
  • Receive an extra 10% with TurboTax Deluxe, Premier, and Home & Business – So $500 would become $550
  • TurboTax Business is not eligible for this offer
*Amazon.com Gift Card offer is for federal refunds only. Limits apply ($2000 per e-card, maximum $10,000 per customer). Offer available only for TurboTax Online or CD/download versions sold and shipped, or downloaded directly from Intuit or Amazon. See here for full details.
**Amazon.com is not a sponsor of this promotion. Amazon.com Gift Cards ("GCs") sold by Intuit, an authorized and independent reseller of Amazon.com Gift Cards. Except as required by law, GCs cannot be transferred for value or redeemed for cash. GCs may be used only for purchases of eligible goods at Amazon.com or certain of its affiliated websites. For complete terms and conditions, see www.amazon.com/gc-legal. GCs are issued by ACI Gift Cards, Inc., a Washington corporation. All Amazon ®, ™ & © are IP of Amazon.com, Inc. or its affiliates. No expiration date or service fees.”

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

Free TurboTax online for Low Income

If your household income is under $30,000 AGI or you're in the military then you can use TurboTax online for free.

They offer the TurboTax Taxfreedom Edition.

You may also qualify for free filing for your state taxes in the following states : 

For full details visit the TurboTax Taxfreedom page.

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

January 19, 2014

Accuracy of MSN Credit Score Calculator

There is a free credit score calculator on MSN's site.    I can get my actual FICO score through one of my credit card accounts and my score was 816 at last check.   I decided to test out the estimator and see how close it would get to my actual score.   I answered all the questions and it came up with an estimate score of 750 to 810.

Its off a bit then.  Its not grossly inaccurate but its not that close either.   Honestly I could have just assumed my score would be in that range given my credit situation.   Of course this is just one test and it doesn't really say too much about the accuracy of the estimator in general.

 Theres no harm in using such an estimator just don't expect it to be super accurate. 

January 18, 2014

Nonalcoholic beverage prices plummet 1.4%!!!!

OK so that head line is one you'll likely never see and the word plummet is just exaggerating for fun.   But nonalcoholic beverages did go down 1.4% in the past 12 months.

The editors desk article for January 14th at BLS Consumer Price Index up 1.5 percent, December 2012 to December 2013 contains this graphic on the past 12 months inflation : 

source : BLS.gov - click for full size

I guess I'm a 'glass is half full' kind of guy cause I immediately focused on the handful of items where prices dropped.   Nonalcoholic beverages, gasoline, fuel oil, airline fares and marginally natural gas.

When people think of inflation they always seem to think of all the prices that go up and forget about any prices that go down.    The media also seems to think prices going up are a whole lot more interesting then when prices go back down.     I like to remind people of the prices that go down just as a counter balance.   Of course prices generally go up on average for most goods so theres usually only exceptions when prices go down.   


January 17, 2014

Best of Blogs for Week of January 17th

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

DQYDJ says When You’re Young, Work For The Money…

The BigPicture shares Wealthometer: How Does Your Houshold Wealth Compare?

PlanetMoney's article Paper Or Plastic: How Americans Buy Stuff, In 1 Graph
which covers data I talked about with my post Most Popular Forms of Payment - Are Checks Dead?

MyMoneyBlog tells us you can get Free TurboTax Deluxe Online with State Farm Bank Account

Yahoo carried a Business Insider article on  MAP: Here's Which States Have The Most Millionaires Per Capita


20% off LivingSocial and 4% cash back from Ebates

Now through Jan 20th you can get 20% off (max $20) at Living Social by using promocode LSJAN20.   You can also get 4% cash back from Ebates.     

Standard Ebates blurb:
To get the cash back you need to be signed up with Ebates.  Then simply go to Ebates to get the referral to the the store before you do your shopping.  I also get a referral bonus if you use my links to sign up with Ebates

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

January 16, 2014

Estimating My Future Retirement Income Based on Age of Retirement

I wanted to estimate my expected retirement income if I retired at varying ages.   How would our income differ if I retired at 51 or 62 or 67?  The longer I wait to retire the higher income I can expect.   I'd like to retire early if possible but if working a bit longer will ensure us a better standard of living then it could be worth it.  

My figuring below is pretty rough and has a lot of assumptions built into it.   I don't know how well my investments will perform over the next 10-30 years nor do I know how our real estate assets will appreciate so I have to assume some conservative average figures.     I'm also assuming that we don't save extra amounts in retirement or otherwise above the minimal amounts we save now.   Right now I automatically get about 11% of my salary in my pension and 401k accounts between my contribution and my employers.  But we can and do save more cash in other ways in normal years so our actual retirement picture should potentially be better than the estimates here.

First I figured the annuity I'd get from my company's retirement pension account.   The pension website has a tool that will estimate pension benefits at various ages.   I figured the pension amount at given ages and then figured out how much of my salary that would represent as a %.  The results are :

Pension income:

age % income
51 11%
55 15%
60 21%
62 24%
65 29%
67 33%
70 41%

I then used the social security estimator to figure the amount of social security my wife and I would get assuming she gets 50% of my benefit.  I took that amount and figured out what % of income it would represent.  Those figures are :

Social Security Income:

age % income
62 26%
67 38%
70 47%

Lastly I figured out how much I might have in cash assets  between our IRA, 401k accounts and the net cash value of our rental assets.   For the retirement accounts I just projected over time with a generic assumption of 7% annual growth rate.    For the rentals I assumed I'd sell them all with 10% overhead, 20% taxes and pay off any outstanding mortgage balances.   For all real estate I assumed 3% annual growth in market value.     I then turned the cash assets into joint life annuity using payout rates estimated from immediateannuities.com

For years before age 62 I subtracted some of the cash on hand to pay 26% of our given income for the year to equate to the value of social security at age 62.

I did not figure the tax rate for our retirement income and the income figures are in pre-tax amounts.  However a good share of the income would be tax protected either by being social security or from Roth IRAs so our tax situation should be better post retirement in general.

I created a chart showing the income for different ages from 51 years to 70 years.

The figures above are in 2013 dollars.      The figures jump from 66 to 67 due to me only having estimates for a few years of social security.  If I had better granularity on the social security then the graph would be smoother.   

As you can see if I were to retire early at age 51 then we could expect an income a bit over $50k.   $50k a year is the target I had aimed for at retirement of age 50 back when I started this blog.   I picked age 51 since that is the first year I'd be officially eligible for my company's early retirement program so the soonest I could get a valid estimate for my pension benefit.  Then every extra year I work after that our projected retirement income just goes up steadily.   That is just common sense since we'll have more money saved and fewer retirement years to plan for.   On average the expected income goes up about 7% for each extra year I work.


January 14, 2014

Minimum Wage History Adjusted for Inflation

Recently I read that if the minimum wage had kept pace with inflation since the 60's that it would be over $10 today.   I think it was on The Big Picture that I saw this but I can't remember for sure.    Anyway theres been talk about raising the minimum wage lately so I thought it would be interesting to check this out and see how the minimum wage rate has looked over time if adjusted for todays dollars.

I got the data from History of minimum wage from DoL and Historical CPU data at the BLS.  I used the annual average CPI where available and then just the October 2013 figure for 2013 since they didn't have a 2013 annual average.

Here's the result :

The peak figure was $10.74 in real dollars for 1968.   Minimum was just $1.60 in 1968 but in todays dollars thats $10.74.   The low was $3.98 in real 2013 dollars from 1944 when the minimum was just 30¢.

I think it would also be pretty meaningful to find out what % of the working population made minimum wage or less but I don't know if I could find that data historically.


Alternative Minimum Tax (AMT) is Not a Bonus Penalty Tax

Have you heard someone who has to pay AMT for the first time talk about AMT?    They act as if they're being punished with a penalty tax.   "Oh no, I made too much and now I have to pay AMT!" is how the complaint usually sounds.   AMT is not really an extra tax paid as a penalty simply because you made a lot of money.   We already have tax brackets setup that cause higher taxes for higher income.  AMT is not a extra tax either in the sense that they don't simply say "oh you made too much money so you have to pay $1000 more" as some people seem think.   It is an alternative way to calculate taxes to set a minimum tax, hence the name.   What in effect AMT does is basically disallow some deductions and credits then figure a different tax calculation of basically 26-29% tax rate after a large exemption.

First lets go back and review some basic info on AMT that I've written before.  In an old article from 2008  What is the Alternative Minimum Tax (AMT) and how does it work?  I gave a basic discussion of the tax.  That article is now a bit dated since the numbers have changed but the basic idea is the same.  Who Pays the Alternative Minimum Tax (AMT)? I discussed how only around 2-3% of people pay it and almost all of them have AGI over $200k.

The key word in Alternative Minimum Tax is MINIMUM.   Its not the Maximum tax.    Its a minimum tax rate.      The AMT tax rate is LOWER than the standard tax rate with standard deductions.

Here's how it works.   First you figure your taxes normally.   You take your income then subtract any kind of deduction you can claim and calculate your income tax rate based on the progressive tax brackets.  Then you subtract credits you're eligible for.    Thats the normal tax calculations.  But way back people realized that high income folks were finding all sorts of tax loopholes to avoid taxes and ending up paying little in tax.  So they implemented the AMT which simply takes your income, subtracts a large exemption then figures a tax % of the rest.   Then you pay the tax which is higher.   If your normal tax figures are higher than the AMT then you don't pay AMT.  

Lets look at some examples :
I'll use TaxCaster to estimate taxes.   I'll take an example of a single person living in Texas where there is no state income tax.   Lets say you make $200,000 from your job and you own a house.   Your house is pricey and you have a $25,000 interest bill.    For arguments sake lets say that since you just bought the house this year there is no property taxes due this year but you'll have to pay double property taxes next year.       Your tax situation is simply $200k of income and $25k of deductible mortgage interest.   You would owe a tax bill of $41,201 for that year.   OK.  Then the next year you've got that property tax bill due. So in the next year you've got a $25,000 property tax bill (double the normal).   That gives you $200,000 of income plus $50,000 of deductions ($25k mortgage interest + $25k property tax).   Your taxable income is only $150,000 and your regular tax rate works out to $34,201.      BUT here comes AMT.    When you figure the AMT you don't get that property tax and your AMT rate adds another $1,679 to your tax rate for a total tax bill of $35,880.

Situation A :   $200k income, $25k mortgage interest = $41,201 regular tax bill, NO AMT
Situation B: $200k income, $25k mortgage interest, $25k property tax = $35,880 tax bill including $1679 of AMT

Situation B has a lower tax bill and pays AMT.   Would you prefer to pay $41,201 in taxes or $35,880 in taxes?    Thats an easy one.   Clearly $35,880 is cheaper.   Yet the $35,880 tax bill includes AMT?    This tax payer in situation B is "Hit with AMT" yet has a lower tax bill than in situation A.

Now lets say a few years later you are promoted to VP and your income has more than doubled and you now make a whopping $500,000 a year.  You're still paying that $25,000 mortgage interest and again hit with the $25,000 property taxes.   In this situation you would have $500k income and $50k deduction.  Your regular tax bill would be $138,934.   However you would NOT owe any AMT even though $25k of your deductions from property tax is disallowed in the AMT calculation.

Situation A : $200k income = $41,201 tax bill, NO AMT= 20.6% effective tax
Situation B : $200k income = $35,880 tax bill & AMT of $1679 = 17.9% effective
Situation C : $500k income = $138,934, NO AMT = 27.8% effective

Again, lets play dumb and choose between A,B, & C and decide if we want the one with AMT or not.   Situation B has the lowest effective tax rate, and the lowest total tax bill yet they are still paying an AMT. 


January 12, 2014

Should You Buy Tenant Default Insurance for Your Rentals?

A little while ago I heard about a product from AON called Rent Protect.    Its an interesting concept for insurance.  Basically you're insuring yourself against deadbeat tenants.   One the fears with being a landlord is that you'll run into a nightmare tenant who decides to stop paying rent then squats in your property as long as possible through the legal eviction proceeding.   If you add up the month or two they fail to pay the rent before evict and the eviction process it could add up to easily 2-4 months of lost rent.   The Rent Protect insurance product would pay you that lost rent.

If your rent is $0 to $1200 per month per unit then the cost of the insurance is $250 a year.    It goes up in cost marginally for higher rent values.  They say that "The plan will pay up to six months in lost rent, plus up to $1,000 for legal expenses associated with the eviction process."     And in the coverage details it list a deductible of one month's rent.   They also pay for tenants who die, are called for military duty or vacate a lease due to a hardship.

The idea is interesting and I actually like the concept.    Now I would not consider this kind of insurance at all if your rent is relatively low.  It makes more sense to pay $250 a year to insure a house with $1000 monthly rent than a small studio that goes for $400.     It seems a lot more reasonable for a property with a higher rent in the $1000 range given you could end up losing $5000 or $6000.   But is the risk higher real cost then that $250 premium?

Is the insurance 'worth it'?
To know if insurance is really worth buying you have to consider the potential loss and the risks of that loss.  I recently wrote about how often renters are evicted.  It was my finding that about 0.5% of tenants are evicted each year.      If your rent is $1000 a month then the policy would pay out a max of 6 months rent less 1 month deductible plus $1000 in legal expenses for a total of $6000 maximum payout.   You'd have to have 200 tenants to get one eviction on average.   For 200 tenants you'd be paying $50,000 a year in insurance.   This is pretty rough figuring but if my math is right here then people are paying about $50k in insurance for a likely payout of $6k.   Thats not a good deal.
SO we know that the premiums will cost more than the amount they pay out overall.    If you can handle losing rent for a couple months then you're be much better off on average saving the $250 and just handling the occasional lost rent.   And if you are running a rental then you really should have an emergency fund on hand to handle losses like what you get with a tenant who doesn't pay.  

On the other hand a new landlord with all their eggs in one basket might like the feeling of being protected against a high loss due to a tenant who won't pay and you have to evict.    But I think people have an exaggerated idea of how often tenants are actually evicted.       If you do a good job selecting tenants and handle late rent well then you should lower your individual risk of losing multiple months of rent to tenants.    The policy also has a 1 month deductible and quite often when tenants fail to pay they only get behind maybe a couple months more than not.    OK maybe you'll have to evict someone but its much more likely they'll leave after seeing the first 3 day notice or that they'll leave owing only 1-2 months of rent versus the maximum payout level for Rent Protect.  You're a lot more likely to get a $1000 check from Rent Protect than a $5000 check.  

One possible use of this kind of insurance is to take a gamble on a tenant with awful credit and charge them a little higher rent to cover the insurance.   If you raise the rent by $21 a month that would cover the $250/year cost.    The insurance just requires that the tenant not have bankruptcy, eviction or felony on the record.   But you could still rent to someone who has very low credit score.  But honestly you're better off trying to find a tenant who has decent credit and save yourself the headache that the risk of a poor credit applicant will give you.   

Bottom Line :   This is a nice idea but personally I think this kind of insurance is not really necessary and not worth the cost.

January 10, 2014

Best of Blogs for Week of January 10th

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

Planet money tells us Where The Jobs Are, In 2 Graphs (Hint: Not In Manufacturing)

The Big Picture shares a Gold to Real USD Chart plus I also found this chart for gold and silver at Macrotrends

DoughRoller has a nice list of  DR 014: 20 Ways to Save Money Without Pain or Sacrifice

5% Cash Back Categories for Q1 2014

I now have three different credit cards with rotating 5% bonus categories.    For Q1 of 2014 the bonus categories are :

Citibank Dividend : Macy's, drugstores and fitness clubs
Discover : Restaurants and movies
Chase Freedom : Gas stations, movies and Starbucks

I might be able to buy some Amazon gift cards at drugstores to cash in 5% discount through the Citi card.  I'm not 100% sure they sell Amazon cards but I can check.

We really don't go to restaurants and movies all that much any more but if we do then I will try to remember to use the Discover card.

Gas stations is a good category from the Chase card.   My wife goes to Starbucks occasionally too so she can use that one but it won't amount to that much since the purchases are usually under $5.


January 9, 2014

Free Bonus Cash with American Express 'Offers for You' and Discover Card 'Extras'

For a while now I've been seeing bonus cash deals from American Express where you get a statement credit if you use your Amex to make a purchase of a certain minimum amount at a specific merchant.   For example, I recently got a $25 credit for spending $75 or more at Amazon.com.   I also just barely missed getting a $15 credit for $115 spending at Costco.com but I procrastinated a little and was too late to grab that one before it expired.

If you would shop at these merchants anyway, these deals can be like free cash.  You can also usually buy gift cards at the merchants to qualify for the bonus so if you don't have anything you want to buy today you can use the gift card later.   We routinely buy enough at Amazon such that spending $75 is just a matter of time.  

Looks like Discover card is now offering similar deals.   I logged into my Discover account and noticed a link for 'Extra's which lists offers of a similar nature.

The offers available vary from one customer to another and I'm not sure how they decide to give customers which offers.   

How to find your offers...

American Express: 

1. Log into your account. 
2. Scroll down a little to where your transactions are listed and look for the 'Offers For You' tab.  Looks like this:

3. When you click on the 'offers for you' you'll get a list of offers similar too this :
click for full size
4.   For any of the offers you're interested in you will need to click the 'Save Offer' button to get the offer.
5. Make the required purchase at the merchant in question before the expiration date.    Make sure to read the details of the offer to make sure you qualify properly.   I noticed that one offer seemed to require you to receive the purchase before the expiration date.   So pay attention.
6. You'll get an automatic credit to your Amex card account sometime after the deal is processed.

Discover Card:

1. Log into your account.    On the Home page look for the 'Extras' item in the right hand column :

2. When you click on the Extras you'll then see a list of deals like this :

click for full size
3. Apparently the deals are all automatically registered so you don't need to accept individual deals.   All that is required is to make the purchase in question before the deadline.   However you'll want to click the individual offers to read the fine print.   For example the Red Robin deal says:

"$5 back on a purchase of $30 or more at Red Robin. Savings will be applied as a statement credit.
To redeem this offer, you will need to spend a minimum of $30 at Red Robin, including taxes, after any discounts, and excluding gratuity. Offer valid in-store for one purchase. Purchases made using Near Field Communication (NFC), virtual wallets, or similar technology may not be eligible. Please allow up to 14 days for a statement credit to be applied to your account."


January 5, 2014

Should You Spend Money on Vitamins?

[note: for any health related topic you should consult your doctor as they would have more knowledge of your personal health]

Every day I take a single mult-vitamin and a extra dose of vitamin D.

Articles like this editorial Enough Is Enough: Stop Wasting Money on Vitamin and Mineral Supplements published in the Annals of Internal Medicine might make me believe that I'm wasting my money.   The editorial seems based on these three studies :
Oral High-Dose Multivitamins and Minerals After Myocardial Infarction: A Randomized Trial Long-Term Multivitamin Supplementation and Cognitive Function in Men: A Randomized Trial Vitamin and Mineral Supplements in the Primary Prevention of Cardiovascular Disease and Cancer: An Updated Systematic Evidence Review for the U.S. Preventive Services Task Force

I read those as meaning that vitamins in high doses won't stop heart attacks, vitamins won't keep you from losing mental abilities in older age and that vitamins don't prevent cancer or heart disease.   OK.   I wasn't expecting that vitamins would stop cancer or heart attacks.    My purpose for using vitamins is to prevent a common vitamin deficiency.   I don't have any specific reason to think I'm prone to have a vitamin deficiency but how do you know?   There are a significant number of people with deficiencies and most don't know it.   I figure vitamins are a fairly cheap way to make sure that doesn't happen.   I don't expect them to stop cancer.  Do people really expect their multi-vitamin to prevent heart attacks or fend off dementia?  

If you do take a multi-vitamin then make sure to shop around and get a reasonably priced one.   If you get store brands like Kirkland or similar or hunt for sales then you can find tablets for about 3¢ each.  

You can get a Kirkland muti-vitamin for $14.49  with 500 tablets or about 3¢ a day. or get it at Amazon for $17 or so if you don't belong to Costco.  Similarly  you can get  a NOW Foods Vitamin D-3 1000 IU  supplement at Amazon for under 3¢.    I'm spending abut $2 a month on vitamins.  Thats not too much money really.

Maybe its a waste of money but I don't know.   In fact I actually hope it is a waste of money because that would mean I'm not deficient in any vitamins.   In my opinion the cost of reasonably priced vitamins is quite small and I think that its worth it just to make sure you don't end up deficient with something like vitamin A or vitamin D or iron for example.  

Whether or not you want to take vitamins is up to you.   

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

January 3, 2014

Best of Blogs for Week of January 3rd.

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

MyMoneyBlog recommends you Save Money: Bring Your Own Cable Modem & Stop Paying Rental Fees

MMB also shares a Big List of Free Credit Reports, Free Credit Scores, and Free Credit Monitoring
and Free FACT Consumer Reports: Banking, Insurance, and Employment History

The Big Pictures shares his My Annual Predictions for the Coming Year, 2014 Edition

Also via TBP Restless America: State-to-State Migration which points us to the source  Restless America: state-to-state migration in 2012 at Vizynary.   They have an interactive graphic that shows you migration from state to state.   If you play around with that graphic you can see the relative size of the migrations.   It also ties in with my previous statements that Everybody Isn't Moving to Texas... Kinda


Half off of H&R Block Tax Software today at Amazon

Amazon has H&R Block tax software half off today.

Here is the link : Gold Box Deal of the Day H&R Block Tax Software

For example you can get the H&R Block Tax Software 2013 Deluxe + State for $21.99

I haven't used the software personally but this seems like a pretty good sale price.

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

January 2, 2014

Organic Food Popularity May be Impacting Food Price Inflation Calculations

A while ago Moneybox wrote Is Whole Foods Inflation or Growth?  discussing expansion of Whole foods and how it might relate to inflation.    He said : " But the question of whether or not humanely raised organic pork is "really" better than factory farmed pork does not strike me as especially something the Bureau of Labor Statistics is well-equipped to answer."   Now that raised an interesting point in my mind.  Does the BLS differentiate between organic foods and regular non-organic?   

I searched for 'organic' on the BLS site via Google and couldn't come up with anything about how organic foods are considered in the price index.   So I honestly don't know how organic food impacts the inflation index.   They might lump organic in with everything else or maybe they exclude organic from the index.   

IF the BLS doesn't differentiate between organic and regular foods then that could result in organic food increased popularity causing an increase in food price index.

The USDA has info on organic food popularity.   As of 2012 organic foods were about 4% of the grocery market.   Thats about double what it was a decade ago.    If we assume (for argument sake) that organic food costs double what regular food does then the increased popularity of organic food may increase inflation.   

The doubling of organic food purchases in the past 10 years might account for a +2% increase in food price indexes in that 10 year period.

Look at it this way:   Do food prices cost more or are we just seeing higher popularity among organic foods which are inherently more expensive?

Again, I don't  know exactly what the BLS does for organic foods.   Maybe they ignore it entirely and just don't count organic food prices. 


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