Michael on July 6th, 2010
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You: Why are you talking about IRA’s now?

What do you mean?

You: It’s the dog days of summer.

Huh?

You: April is over, Michael.

So it is.

You: Most people only concern themselves, or in your case write about, IRAs during April.  Why is that, anyway?

Because the due date for contributing to an IRA for the previous tax year is the filing deadline of your tax return, typically April 15.  But April 15 is only the cutoff date;  you could contribute to your IRA right now if you wanted to.

You: Why would I want to contribute today if I could wait until next April to do so?

For at least two reasons. First, the earlier you contribute, the sooner you benefit from tax-deferred (regular IRA) or tax-free (Roth IRA) growth.  Second, by not waiting until the very last minute, you may be able to contribute more money.

You: Why do you say that?

The annual maximum contribution allowed is currently $5,000 ($6,000 if you are 50 or older).  But few people have $5,000 laying around right at the deadline.  More likely: a few dollars each and every month.  With 10 months to go before the deadline for 2010 IRA contributions, you could contribute $5,000 to your IRA without ever transferring more than $500 a month in the account.

You: That’s still a lot of money each month.

Indeed it is. But, when you’re struggling to save for retirement, don’t look at an IRA as an all-or-nothing proposition. Whatever you can manage to save is worth it. It will make a difference.  But saving a little bit each month is far more likely than squirreling away a big lump sum in one shot at some point in the future.

You: But then I have to choose between a regular IRA and a Roth IRA. How do I do that?

Fortunately, I recently posted Roth IRA or Regular IRA – Choosing an IRA at my About.com retirement site.  Take a look!

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Michael on June 28th, 2010
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When speaking on college campuses I often give student an opportunity to make some money.

You: Seems nice of you.

To get the cash, they must stay after my seminar for a market research study.  Since I offer $25 for 30 minutes of their time,  nearly the whole audience wants to participate.

You: What do you do then?

I tell them it’s a joke.

You: You do?

Yes – I do it to make a point.

You: And what point is that?

How eager most people are to make money.

You: That’s not terribly insightful, especially given college students often have very little money.

Perhaps, but contrast this with the same audience’s (and just about every other audience’s) lack of enthusiasm for saving money.

You: What do you mean?

Well, a college audience ought to be filled with people who would love to save money. Yet most people lament the idea of working to save.  I find that both unfortunate and ironic.

You: Ironic?

Yes.  If you work hard to save money, you keep 100% of what you save. If you work hard to earn money, you keep only about two-thirds of your earnings.

You: Why?

Because of taxes.

You: Right – argh.

So, as a society, we should actually be more motivated to save money than to earn – but my expereince says most people are not. I bring this up because I moved yesterday.

You: How did it go?

Not bad, but tiring.

You: You did it all yourself?

No, the job was too hard and the items too heavy.

You: So you hired movers?

Yes.

You: That can be expensive.

Exactly – it can be, but it doesn’t have to be.  We got a couple of quotes for moving us three miles, each in the vicinity of $1,000.  As such, I started wondering – can I do this for less without breaking my back (literally and figuratively)? Answer – hire moving labor but not a moving company.  A few web searches later and I have free lance guys showing up and worked their butts off for a fraction of the cost the moving company quoted. What did I give up by not hiring the moving company?

You: A name on the truck that didn’t say “U Haul” or “Budget.”

Correct – and a driver.

On the other hand, my additional expenses were the truck (about $50 all in) and the effort of driving the truck.  Given that I drove the truck 16 miles and saved more than $500 in the process, I saved over $36 a mile.  Since I saved – not earned the money -  the $500 won’t go on my W2 and I won’t pay taxes on it.

You: Cool.

Think about it this way: Saving $500 is like earning $750. Next time you have a decision that might mean a few more phone calls and a bit more effort to save $500, recall how hard and how long it takes to earn $750. If you’re a high-priced Philadelphia lawyer earning that an hour, hire the moving company, but tell me again, why are you reading this blog?) For the rest of you, enjoy the savings.

#     #     #

Thoughts on hiring a moving company vs. getting help only on the hardest parts? I’ve done it both ways and, when the moves are heavy and/or long, a moving company can be worth it. Otherwise, I’ll keep some of the profit thank you.

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Michael on June 21st, 2010
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If you wanted your child to learn how to play baseball, who would be the ideal teacher?

You: Dustin Pedroia.

Okay, I love how the guy plays the game, but let’s just say his current professional career makes him unavailable to teach your kid for the next 20 years.

You: Darn.

Realistically, who would you want to teach your child how to play baseball?

You: A good local baseball coach.

Me too. I’d hope for the best baseball coach around. Ideally, he’d be someone who’d have played in high school, maybe college. He’s a natural teacher – maybe that’s his day job.  He’s really good with kids and knows all about the fundamentals.

You: Makes sense.

Now let me ask you a different question. Who would you want to teach your child about money?

You: About money?

Yes.

You: For my son’s contract negotiations?

Ah – no. He’s got to learn how to hit off the tee first.

You: The kid’s got loads of potential.

As did Drew Henson.  So, who would you want your kid to learn about money from?

You: Not sure.

For my children, it would be someone with the same characteristics as the baseball coach, with an obvious shift in the area of experience. Said another way, I’d want someone who was really good with money to teach my children. Someone who was a proven excellent saver, understood how to use credit effectively, and had a great work ethic. Obviously, someone  patient with a knack for connecting with others would be an ideal candidate.

You: Makes sense.

Unfortunately, the federal government disagrees.

You: Huh?

The government has a different suggestion for advancing financial literacy.

You: What’s that?

Themselves.

You: How so?

Through their own web site.

You: Why is that a bad idea?

It’s kind of like learning baseball from Bloat.

You: Who’s Bloat?

Bloat – you know the kid. He was the 8-year old who really hated sports, especially team sports.  His parents made  him play, but his attitude was horrendous.   So the coach batted him 9th and put him into right field, where the ball never came. Still, he managed to get in the way of his teammates’ efforts, once getting his chewing gum all over the baseball bats.  If you ran into Bloat years later – he’s still looking for that first real job at age 38 – would you ask him to teach your kid everything he knows about baseball?

You: Of course not – he’s the last guy I’d ask.

Precisely. So why would the federal government, an institution run by a group of multi-millionaires, many via the old-fashioned work ethic or marrying money or inheriting money, who collectively spend billions more of other people’s money than they have, be the ones to teach us and our children about money and saving?

You: I wouldn’t choose them.

Doesn’t matter.

You: Why not?

Bbecause they’re the federal government – they decide and they’re confident. It’s like Bloat saying look man, I didn’t care back then, but now I am really into baseball and I am going to turn your son, and both his and your future around. And you’re thinking -

You: Yeah, right.

My exact reaction when I read Is There a Cure for Financial Illiteracy?

Your thoughts?  Who’s going to teach you and your children about money basics?

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Michael on June 17th, 2010
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Online Degrees did Yeoman’s work in compiling a list of the twenty best blogs for 20-somethings.  As she said, I’m not exclusively focused on our young people, much of my writing is targeted at this group and I am glad to be included in this list.   A few of the blogs I read regularly are included there too.  Check out the list.

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Michael on June 14th, 2010
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I just finished reading 15 most hated fees at CNNMoney.com.  Included on their list are many you’ve heard before such as:

  • baggage fees
  • termination fees charged by cell phone companies if you cancel before your contract ends.

Neither of those fees bug me, however.

You: Why not?

Because they’re not hidden.

You: Meaning?

I know about them well in advance and choose whether to pay them.

You: Why would you ever choose to pay a fee?

I typically don’t.  But I have done so.

You: When? Why?

Baggage Fees

For example, I usually don’t check a bag when I travel for business.  Most of my trips are short enough that I can fit everything in a carry-on. (I have always traveled light, even before advent of baggage fees).  But I once had an 11-day business trip.  Carrying everything in one small bag wasn’t in the cards, so I checked my one bag.

You: So you paid the fee.

Yes, which was no big deal. When I shopped air fare, I knew that the airline I selected charged the fee and, even with it, would prove to be the least expensive option with a reasonable itinerary.  Next month, I am traveling with my entire family and we’ll pay baggage fees on that flight too. So what?  It’s as though the airfare was a bit more expensive, but I included the fee when I determined this was the best option.  Why do people complain about fees disclosed in advance?

Termination Fees

You:  What about cell phone termination fee charges? Those are annoying.

I don’t pay those.

You: Why not?

Because, as you said, they’re annoying.

You: How do you avoid them?

Easy, I just fulfill the contract. Then, if I’m in the mood for a change, I switch carriers.  The carrier can’t increase my rate during the contract term and I can’t quit without a paying them a fee. Seems perfectly reasonable to me.  A contract is a contract. No one forces you to sign it.

Yet there are some other charges we allegedly hate, according to the article, including:

Low/No Activity Fees

I would never pay a fee for not charging enough on my credit card.  Wow – that would annoy me.

You:  Is it fair?

Yes.  But I wouldn’t pay it – I would cancel the card.  More likely, however, is that I would never face that fee in the first place.

You: Why not?

Because I have two credit cards and I  use them both. If I had another credit card and wasn’t using it, I would cancel it, even if I didn’t face the prospect of the fee.

Frequent Flier Mile Fees

I don’t recall ever having to pay to pay to use my frequent flier miles, but I’m pretty sure I’d be annoyed by anything advertised as free that wound up not being so.  This would be especially true if the deal changed over time, which it appears is the case with US Airways.

Annuity Fees

I don’t pay these. I’m not a big fan of annuities for non-retirees anyway so no annuity fees for me.

Credit Card Rewards Reinstatement Fees

Easily avoid: pay your bill on time. You shouldn’t need a reward to do so – basic financial responsibility.  This fee is reasonable.

Closing an IRA Fees

Paying to close an IRA is an evil fee in most cases.

You: How could this not be an evil fee?

I can see it being fair if you open your account on Monday and close it on Friday. The financial services firm is taking a big hit on you there. But, short of that highly improbable scenario, this is not a reasonable fee.  You can still avoid the impact of it, however, as the article suggests, by negotiating for the company to which you are moving your assets to pay the fee to get your business.

You: But -

Not moving your money but instead cashing out your IRA to buy a car you obviously can’t afford? I have no sympathy – you are hereby deemed fee-worthy.

Mutual Fund Marketing On You Fee

The 12b-1 fees charged by many mutual funds do nothing to help existing shareholders.  Such fees are a concept that have passed their time. Yet they, too, are well disclosed. Don’t like them? Choose different funds.  See? Now I even have homework.

Want more? Here are my 10 stupid and careless ways to waste money, Ten Ways to Save Money While Ruining Your Life, and my Top 10 Most Annoying Ways to Lose A Little Money.

What fees do you deem worthy and absurd?

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Michael on June 8th, 2010
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You: You mean there’s a choice?

Not really.  While it’s possible to structure some of your financial affairs to lessen your tax burden, most high-income earners will still pay a lot in taxes while those at the lower end will pay far less.

You: So then why ask what the right amount of taxes to pay is?

I’m thinking on more of a macro basis.

You: What?

As a society, how much tax is appropriate?  I just finished reading “Do Americans Pay Too Much in Taxes?” at Kiplinger.  Like many of the commenters, I believe he underestimates the current tax burden in his discussion, but I’m not as angry about it as they are.

You: Why not?

What’s the point of getting angry at a columnist? If you want to make a difference, talk to someone in a position to make a policy difference. (I generally do neither.) Regardless, it raises the question of how much tax is appropriate.  A typical middle income taxpayer might face:

  • 25% income taxes on his wages (at least for a sizable portion of his income)
  • 7.65% payroll taxes (Social Security and Medicare) that he sees withheld from his paycheck
  • 7.65% payroll taxes (Social Security and Medicare) that he doesn’t see withheld from his paycheck
  • 8-11% income taxes, in a number of states, in state income tax
  • up to 10% (like in Chicago) sales tax
  • thousands of dollars in annual property taxes (paid directly as a homeowner or as part of your rent as a renter)

Add all of these taxes together and they’re often a far higher percentage of your earnings than you might first sense.  Furthermore, there are other, comparably more minor, fees and taxes the typical person pays.

I live in New Hampshire, a state with no income or sales taxes.  People from out of state sometimes ask me how my state’s services are.  When I ask them to describe their state’s services, we realize no one is happy there.  Still, I don’t have all the answers, do you?

Do you pay too much, too little, or just the right amount of taxes?

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Michael on June 1st, 2010
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Mariusz Skonieczny is the founder and president of Classic Value Investors, LLC, an investment management company. He is also the author of Why Are We So Clueless about the Stock Market? Learn how to invest your money, how to pick stocks, and how to make money in the stock market.

I recently had the opportunity to conduct an email interview with Mr. Skonieczny. Here is our discussion.

Michael:  In one paragraph, why are we so clueless about the stock market?

Mariusz Skonieczny: We are clueless about the stock market because too often, we view the stock market as a casino instead of a place where people buy and sell businesses Stocks are not just pieces of paper – they represent ownership interests in businesses.

Michael: Can you define what value investing is and compare it to growth investing?

Mariusz Skonieczny: You are either a value investor or you are a speculator. What I mean by that is that growth is a part of the value equation. The faster a company grows, the more it is worth. So, you are either getting a good deal by buying something for less than what it is worth or you are not getting a deal at all.

Michael: Do you believe in market timing? Why or why not?

Mariusz Skonieczny: People are obsessed with market timing. It is difficult to time the market because it requires you to forecast what other market participants are going to do. Because investors are driven by emotions, how can you forecast what people will do next? I can’t, and I don’t believe anyone else who says they can. Market timers use technical analysis, but the problem with that is that it only shows you what happened in the past; it doesn’t tell you anything about what will happen in the future.

Michael: How does an investor really gain an understanding of his/her true risk tolerance?

Mariusz Skonieczny: If you choose to invest in the stock market, you must take risks, but the question is whether the risk that you are taking is worth it. If it is not, then you should not be investing. However, people have a misconception of what risk is. The investment industry defines risk as volatility in prices which is nonsense. Risk is not knowing what one is doing, not doing sufficient research, and overpaying for investments.

Michael: Why did you write your book?

Mariusz Skonieczny: Since I began investing, I have read approximately 300 books, and I wanted to write something that brought together everything I wished I knew when I began investing in one book aimed at those beginning their journey into the stock market. I wanted this book to educate the general public about investing because I believe that the investment industry is taking advantage of their lack of knowledge.

Michael: Who’s your investing role model?

Mariusz Skonieczny: I was introduced to value investing by reading about Warren Buffett, Benjamin Graham, and Joel Greenblatt.

Michael: I see you’re from Chicago. Cubs or White Sox?

Mariusz Skonieczny: I will have to disappoint you because I am not a baseball fan.

Readers: What’s your take on Mr. Skonieczny’s take?

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Michael on May 25th, 2010
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At long last, my wife and I finally bought a home.

You: You started looking a year ago, no?

This round, in New Hampshire, yes.  But we also looked to buy a place in Chicago during 1999 and in New Jersey in 2002.

You: So it took you ten years to buy a home?

Sort of.  But we weren’t looking the entire time.  Still, it’s a milestone we’re very much looking forward to enjoying.

You: So what took you so long?

When we almost purchased a condo in Chicago, we were slightly outbid at the last moment.  Then I graduated business school, got married, and took a couple of months off before starting my job.  Honestly, we got distracted and knew we were going to move to New Jersey so we simply stopped looking.

You: What happened in New Jersey?

We planned on renting for a short time while we figured out what neighborhood we’d like to live in.  A bit later we bid on a home and, despite having the highest bid, did not get the home because of some error on the part of the selling agent.  We figured we’d try again – but never did.

You: Why not?

Two reasons.  First, I became exceptionally busy at work and the town we were looking to move to was 45 minutes from where I worked and where I lived.  I simply couldn’t make the time.

You: What was the second reason?

I became very bearish on housing.

You: Really?

Yes.

You: Can you prove it? It’s like your claiming that you predicted today’s stock market activity.

No, I can’t prove it. But it is the truth. Anyway, I was wrong.

You: Wrong?! How so?  Housing prices have plummeted since then.

Prices have plummeted since 2005, yes.  But we were looking during 2002.  So I was a bear a bit early.  Anyway, when we came up to NH in 2005, we also wanted to rent to learn the neighborhoods.  All the while home prices kept falling, albeit slower here than in CA, AZ, NV, and FL.  Also, mortgage rates were low and getting lower so the pressure, financially speaking, wasn’t really on.

You: So what finally got you into a home?

Our desire.

You: Seriously.

Okay, that and the fact that our oldest starts school in the fall and we really wanted her to start with the group of kids she’d be with for a while rather than make her switch at some point. (Of course that’s still possible, but at least it’s not something we’re planning on doing.)

You: So what next?

We had the inspections last week.  We’re signing our names a million times for the mortgage paperwork.  We’ve researched insurance companies and learned a lot about both septic and sewer. Turns out, no one wants our shi– er, stuff we flush.  Lots of details to research and prepare for.  But we’re very excited to close in just foiur weeks.

For those new to our housing search, here are some educational backgrounders:

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Michael on May 17th, 2010
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After a very successful trip to Annapolis, Maryland speaking at the University of Maryland’s Personal Finance Seminar for Professionals, I returned to an enormous box on my desk.

I approached in cautiously.

You: Did you fear it was a bomb?

Of course not, why?

You: It’s possible.

I think you’re watching too much TV.

You: What does that have to do with anything?

Nothing, just an independent observation.

You: So what did you do with the box?

I picked it up.

You: And?

I almost threw it to the ceiling!

You: Because you thought it was a bomb!  I was right!

No, because the box weighed a LOT less than I thought it was going to weigh. When I opened up and searched through the approximately 30″ x 18″ box, contained exactly one 6″ x 9″ book.

You: That’s it?

That and a ton of packing material.

You: Was it a good book?

Yes, it was Beyond Paycheck to Paycheck, but that’s not the point.

You: Now who would return Beyond Paycheck to Paycheck?

Better question, but also besides the point.  One distributor returns books from time to time often because a book was damaged in transit.

Anyway, shipping one book in a box big enough for two toasters is a total waste of money.

You: I agree.

So this got me thinking . . . what other stupid and careless ways are there to waste money?  Here’s my list.  Please add some of your own stories of witnessing or <gasp> occasionally partaking in the “I just don’t care anymore” attitude.

  1. Playing lottery
  2. Printing your airline boarding passes in color
  3. Not recycling ink cartridges at Staples ($3 for something that would otherwise wind up in a landfill?  Works for me.)
  4. Paying for parking at a meter or a lot when there is ample free street parking nearby
  5. Skipping the complimentary breakfast at a hotel
  6. Ignoring routine maintenance (car, house, spouse) in the short-term so it costs you much more (engine overhaul, new furnace, jewelry) in the long-term.
  7. Putting way too many stamps on an envelope (related to introductory above)
  8. Buying the enormous package of some perishable item at a warehouse club because it’s SO much less per serving . . . then throwing half the thing out after you realize you have enough mayonnaise to eat said condiment at every meal for 6 months.
  9. Paying sticker price for a car to avoid the inherent conflict and uncomfortable situations sure to arise
  10. Saying “yes” to the $4.00 extended warranty on a $15.00 set of workout gloves (I was offered this yesterday.)

What can you add to this list of stupid and careless ways to waste money?

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This is post #450 on this blog.

You: I can’t believe it.

Me neither.

Gary: And you still haven’t sold the suckers anything.

They’re not suckers, Gary.

Gary: To you, maybe.

Just trying to teach, man.

Gary: Good luck with that.

It’s going rather well.

You: I’d agree.

Thanks, but before we get overconfident, take a look at the CBS News video below which had my jaw wide open for a couple of minutes.  This was news to me. To you?  Got an easier way to make a few bucks and destroy somebody’s life?

Gary: No comment.

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