Worrying Too Much About Minor Frugality Items

I find myself thinking about saving money in my daily activities pretty frequently.  Three examples that come to mind:  I can get annoyed that a light is left on in a temporarily unoccupied room.   I am worried that the refrigerator door isn't closed quickly less some extra heat get in there.   I am careful with the amount of detergent used for a load of laundry so that I don't use 'too much'.  

If I add up all this stuff it really doesn't amount to all that much money.    Leaving a light on all day will only add up to $5-10 dollars a year.   A 10% increase in electricity use for our refrigerator would add $5-$10 to our electricity bill.   A 20% increase in our laundry detergent is probably $10 a year.  So I add these 3 items up and I'm talking about $30 a year in total cost or savings.  

Saving $30 a year is good.   However the problem I have is that I spend an inordinate amount of time worried about these 3 items compared to the amount of money that I'm saving.  


This is of course not to say that I think everyone should leave all their lights on, open the fridge door and use triple doses of detergent.   Being wasteful is not financially smart.    But its also not smart to worry about small things like this too much.

I shouldn't sweat the small stuff so much. 

Best of blog posts for week of January 29th

Two very interesting blogs found via other blogs.   Psy-Fi blog is about psychology and finances and it comes to us via BadMoneyAdvice.   FreeMoneyFinance points to the blog called PostSecret where people anonymously share their secrets.

Jim W at Bargaineering thinks that Overdraft Protection Is A Good Thing and honestly I agree with him.   I know some banks have abused the system to their benefit to maximize fees, but otherwise overdraft protection is better than a bounced check.

Bargaineering also tells us How Does the IRS Pick Tax Returns to Audit?

Real estate prices versus REIT prices

I talked about my experiences with the rental properties that my wife and I own recently.   For the first and second rentals we've seen about 7% annual appreciation and 5-8% return on equity.   Thats a pretty good investment.   But then I wondered  "hmmm.. what if I'd just bought a REIT instead?".   Might I have also seen 7% appreciation and a 5-8% return via dividends?   Possibly.   That line of thinking brought me to the general question :  How do REIT prices correlate to real estate prices in general?   I'd assume that the market price of REITs will go up and down roughly equal to the increase or decrease in real estate values in general.   Seems like common sense, so this should be an exercise of proving the obvious.

To test this I decided to compare a REIT index fund to a general real estate price index.   For REIT prices I chose to look at the Vanguard REIT index (VGSIX).    For direct real estate values I used the data from the S&P Case-Shiller index off the S&P site.   I then normalized both indexes to 100 starting in 1996 and plotted both up until most recent data for Nov. 2009.

Below is a graph showing the price of VGSIX versus the Case-Shiller index:  

You can see that the correlation between the two is pretty strong.  However the REIT index prices are a bit more volatile.  That should be expected since the market can easily react and dump a very liquid REIT but actual physical property is much less liquid.    If you exclude the last 13 months post Oct. 2008 then the trends of both are very similar.   In the fall of 2008 the values of REITs dived drastically as a reaction to the real estate bust and credit crisis.


The performance of REITS has been worse in this arbitrary snap shot mainly because of how badly REITs were battered during the recent recession.    I could break down the numbers a lot more but I don't want to read a whole lot into this.  The point was to see if theres a close relationship between REITs prices and real estate prices and I think the graphic shows that to be true in a general sense.

REIT prices and real estate values are close in performance but REITs are more volatile.

Can you Keep Your Home if You Declare Bankruptcy?

(Disclaimer:  I'm not a lawyer and this information is only as accurate as the sources I got it from.  If you need legal advice then talk to a lawyer.)

Chapter 13 bankruptcy will allow you to keep your home but you have to make arrangements to repay your debts including your mortgage.   If you restructure your debts under chapter 13 then you can hang on to your home.

If you file Chapter 7 bankruptcy you will wipe clean all your debts.   You can exempt some property from chapter 7 if is considered "exempt".   Each state has set up different limits in their laws on what can be considered exempt property.   Most states have some protection for your home from bankruptcy and allow some level of home equity to be treated as exempt.   So depending on what state you live in and/or how much equity you have in your home you may be able to fine Chapter 7 and keep your home.    But it doesn't seem that you can do Chapter 7 and keep a home that has a mortgage or lien on it.   You can only exempt home equity if you own it outright.


How much home equity can you exempt from Bankruptcy?

I found a list of all the individual state exemptions for how much of your home equity (homestead) you can exempt from bankruptcy.


A few states allow you to exempt unlimited home equity: Florida, Iowa, Kansas, Texas

New Jersey, Pennsylvania & Washington D.C. allow NO state exemption for your home.   However for these states it looks like you can instead elect to take the federal exemptions of $18,450.

About 2/3 of the states listed allow you to exempt only a portion of your home equity with figures ranging from $5,000 to $50,000.   

The rest of the states allow varying other exemptions in the range between $50,000 and $500,000.

Married couples may be able to double the exemptions.  

This information is subject to change of course.