Lower Interest Rates – The Good & Bad of Federal Rate Cuts
When people think of lower interest rates the first things that often come to mind are the benefits of lower mortgage payments, better car loan rates, and reduced credit card interest charges. Of course for those that are saving instead of borrowing the rate drops mean earning less money at the bank.
The Fed has cut the federal funds rate six times since last fall and while some people are taking this opportunity to refinance their homes and other loans others aren’t seeing a rate reduction at all. Some economists have a very negative opinion of the rate cuts, they believe the cuts will contribute to inflation and continue to weaken the American dollar.
Pay Less on your Debt
So what do lower interest rates mean to you personally? If you have any debt, why not take advantage of this time to get a lower rate on the money you owe? Of course this new rate won’t be handed to you, you’ll have to seek it out. If your credit card company won’t negotiate simply explain that you’d be more than happy to take your business elsewhere.
You can also look at refinancing your debt, just be wary of adjustable rate mortgages since they’re what got many people into problems over the last year or two. Keep in mind the low rates won’t last forever.
Earn the Highest Interest Available
Saving money on debt is wonderful but won’t if you don’t have any? The trouble for you is that low interest rates are also creating lower returns for the money you have stashed away in the bank. The online savings accounts often offer the best rates, use bankrate.com to find the highest yielding bank accounts.
Don’t forget about the bank where your current savings are held either, shop around your local banks to see who has the best rate or is offering a promotion. You don’t have to go through the hassle of switching banks, just open a new account and move over your emergency fund or other big chunk of money.
Leverage Some Money
If you have time take advantage of the cheap money available by borrowing some and trying to turn it into more money. You could start off simple by starting your own eBay store or looking into other types of home based business you can run on the side.
Lower interest rates are a double edged sword, bringing along some good and some bad depending on whether you’re borrowing money or lending it out to banks. Obviously we can’t control the economy but we can control how we respond to it’s changes by borrowing at the lowest rates possible and lending at the highest possible rates.
Tax Deadline Today – Tax Day is Here!
As you hopefully already know, today is the deadline for filing your 2007 tax return. Ours have been finished for a while but we’re waiting until the last possible minute to eFile and pay the taxes we owe.
You should request a filing extension if you need more time to prepare your individual tax return. But as the IRS website says, “an extension of time to file your return does not grant you any extension of time to pay your tax liability.”
Remember filing an extension for your personal return will delay your rebate check under the Economic Stimulus Act.
Today is also the last day to fund your IRA for 2007 so don’t delay!
What’s Your Financial Weakness – Where’s Your Trapdoor?
How many of you have seen at least one movie that involves the security of an impenetrable fortress being compromised?
-Sean Connery breaks into Alcatraz in “The Rock”
–Will Smith flies an alien craft into the mother ship in “Independence Day”
–Saruman’s Orcs breach Helm’s Deep in the “The Two Towers”
–Luke Skywalker slides a proton torpedo down a heating vent to destroy the Death Star in “Star Wars – A New Hope”
Okay, so this is just Hollywood, not real life but I think these stories represent a very real concept. No matter how secure we feel about our finances, we all have a weakness somewhere.
In all of these cases, the people on the inside of the protective wall thought they were safe but found out otherwise.
In reality, no one is safe. Given enough time and dilligence, marketers or just bad luck will find the trapdoor into your wallet.
So if it’s inevitable, what can we do about it? First off, don’t be overconfident. Don’t assume, “that won’t happen to me”, or “I’d never do that”. Review your financial defense for potential holes.
- What are the things you’re most likely to spend money on with impulse purchases?
- Are you over-weighted in a certain investment?
- How stable is your job, your company?
- Is your home/apartment and health insured?
Then follow up your analysis by beefing up your defenses in the appropriate areas and making contingency plans for situations where something like a Jedi Knight or nasty orc slips through the cracks.
Saving Time & Money on Yardwork Edition – Personal Finance Review
With rising fuel prices and a falling stock market, who want to spend money on fertilizer? I recently avoided a lawn care salesman who was convinced he could give me the greenest lawn on the block for $60 an application. Seriously, who cares about green grass other than the people selling fertilizer?
Fertilizer Costs
Although our yard is the last thing I want to spend time or money on right now, it turns out our neighbors were persuaded by the same salesman. The fertilizer truck came over the weekend, my wife was worried the “Joneses” were going to make our yard look bad and talked me into breathing some life into our yard.
The first way I saved money was purchasing a smaller bag than I typically buy. In years past, I’ve always had extra left over so instead of spending $40, I bought a bag half the size and paid half the price. I guess I used to always worry about running out and having to make another trip back. From now on I’m sticking with the smaller bag, once it’s gone, it’s gone. The size I had actually worked out perfectly, no leftover fertilizer to store and I covered the whole yard.
Labor Costs
The second way I saved money was to apply the pre-emergent myself. It took me all of 10–15 minutes, I don’t make anywhere near enough money to pay the $60 the lawn service company was asking for an application. Twenty bucks for the fertilizer puts me $40 shy of their estimate and I’m definitely not paying a lawn service $40 for 15 minutes of work.
Of course they spray it on vs. the granules that I spread but I have that covered. I simply water it in, using our self-installed sprinkler system I save the time it would take to drag the sprinklers around. I forget every year how nice it is to flip that switch and have the water flow, that sprinkler system saves me incredible amounts of time.
Of course, the bad thing about fertilizing and watering is that your grass starts to grow, which means you have to mow it! What a stupid cycle. It’s going to be hard for me convince myself to buy gas for the lawn mower this summer with fuel prices as high as they are. Jungle yard, here we come!
Anyhow, here are some money articles I enjoyed this week:
Fitting for the current economic environment, the Digerati Life talks about how to invest defensively in down markets and The Simple Dollar has a great overview of the current economic situation.
Although the market is having a rough time, that’s no reason to put off fixing your finances. Million Dollar Journey reminds us the best time to start is now. The Lazy Man won’t be doing any saving with SmartyPig and My Dollar Plan covers something none of the stocks I own are doing right now, stock splits 101.
You’re almost out of time to contribute to an IRA for 2007, Sun talks about some last-minute promotions brokers are offering for opening a new account. Generation X Finance asks how much you’re saving in 2008 vs. what you did in 2007?
On the employment front, Brip Blap discourages us from becoming a consultant but then offers the other side of the coin with 15 reasons to be a consultant.
Free Money Finance goes over some ways you can make more money, but of course the IRS wants a piece of the action, so the Mighty Bargain Hunter reminds us we can call the IRS with our tax questions.
No Credit Needed is recycling his way to a new lawnmower, making money from recycling aluminum.
Five Cent Nickel takes a look inside Vanguard’s Portfolio Watch and Jim from Blueprint for Financial Prosperity does a roundup of his clever Devil’s Advocate series.
Open a Separate Bank Account for Your Tax Payment or Refund
Do you hate the hassle of printing out and mailing in your tax return every year? According to the IRS, 80 million people avoided the hassle last year by choosing to e-File their taxes. For those not aware, e-File simply means you send in your tax information electronically using tax software on your computer.
e-Filing Taxes
One of the convenient things about e-filing is that you don’t have to mail in a check to pay your taxes due. Instead, you provide bank account information and the payment is deducted directly from your balance. If you’re getting a refund, the money will be deposited into your bank account.
If you’re going to e-File, I’d suggest opening a separate bank account to use just for tax purposes. I did this several years ago and it’s worked out nicely. Of course you’ll want to make sure your bank doesn’t charge you any money for opening an additional account.
Help Managing Your Taxes Due
The main benefit of having a different “taxes only” bank account is that it helps you stay organized. If you’re going to owe taxes you can deposit some money every month so you’re not hit with a big bill and no funds to pay it come tax season. If you’re putting the money into a separate account you’ll know that money is just for taxes and not to spend it for other things.
Maintaining the Appropriate Balance
Something you want to avoid is opting for electronic payment for your tax bill and then not having enough money in your account to cover the total. Think of the mess you’d create if you gave your primary checking account to the IRS and your credit card payment cleared the exact same day the IRS tried to withdraw your taxes due. If you have a different tax account you can deposit the appropriate balance and just leave it alone, knowing you have enough cash available to pay the taxes.
Tax History Snapshot
Having a separate account can also provide an easy snapshot of your tax bills over the years. If you want to know how much you paid for a certain year, just look back at the account history and you can see the trend in tax payment amounts.
Working with Tax Preparers
Another benefit is having account information you can share with others. For example, we hired our tax attorney friend to do our taxes this year. His firm can e-File the return for us, he just needs the bank account and routing number we want to pay from. We don’t have to worry about giving out our primary checking account since we have one just for taxes.
Flexible Spending Account Claims Strategies for Procrastinators
March 31st was the deadline for submitting our flexible spending account claims for 2007. I mentioned in an earlier post a strategy you might use to spend any extra money in your FSA leftover at the end of the year.
I received some skeptical comments about the idea and someone even pointed out that even though it might work it was against the IRS regulations. To avoid self-incrimination, I won’t publish whether it worked for me or not, all I can say is that it’d be worth your while to try it if you have money sitting around at the end of the year you don’t want to lose.
FSA Pre-Pay Tips
If you were going to try it, one tip is to not submit a claim for your entire balance on the last eligible day. For example, if you had a balance of $345.50 and you send in a receipt for that exact amount with the service date of March 31st that might raise a red flag.
If you’re going to use the pre-pay strategy what you might do is call up your doctor several days before the deadline and have them charge you some random amount, say $158.30. Several days later, call back and have them bill you the remaining amount, $187.20.
Billing Questions
The person in the billing department may think it’s a strange request; I mean how many people usually call up and ask to pay ahead of time for a doctor’s visit? The billing department is familiar with spending weeks or months trying to get people to pay their bills so a patient request to pay early will likely be a foreign concept. If they ask why you want to pre-pay, I’d just explain your situation and see if they’ll work with you.
Submission Deadline “Loophole”
One other strategy you might be able to use is something I stumbled across by accident. I submitted two separate claims to our flexible spending account provider but when I checked for reimbursement I noticed only one had been paid. When I called up to follow up on the second claim, I was told the fax had been received but some of the pages were too light to read. They couldn’t process the request; I’d have to resubmit my information.
At first I was a little upset since I had submitted the forms weeks ago and they didn’t call to let me know there was an issue. However, I verified that even though it’s now past the deadline I could still resubmit my claim since the original forms came in prior to the deadline.
This information could potentially come in valuable for some procrastinator who’s sitting at work on the day of the deadline and remembers that they didn’t submit their information. One option they have is to fax over a claim form followed by several unreadable pages. Obviously the identifying information will need to be legible so they know it’s you who submitted.
If their flexible spending account administrator has the same policies as mine, they can go home that night, get their receipts together, and resubmit the next day. Since the original request came through before the deadline they might still accept it.
Flexible Spending Account Advice
Of course, none of the things I’ve mentioned are guaranteed to work; try them at your own risk. It’s obviously best to spend your flexible spending account balance prior to the deadline and submit your forms on time.
Personally, I think the current system is not the most consumer friendly. Having to guess at how much you’ll spend, trying to get it all spent by the end of the year, and submitting receipt after receipt make the whole ordeal almost not worth the tax savings. Of course every little tax reduction makes a difference so I’ll continue to use our FSA. Maybe someday my company will offer a Health Savings Account but until then I’ll keep slogging through the FSA swamp.
College Sells Alumni Information to Credit Card Companies
I’ve written in the past how I’ve recieved applications from credit card companies for a card that’s branded with my college name and logo. I can only assume that someone in the university finance department is looking for ways to bring in more money and decided to cash in on their alumni database. I’m not sure if they’re paid for each name & address they give the credit card company or maybe it’s only for people that actually sign up.
However it works, I’m not happy that they’re selling my information to credit card companies. Just yesterday I got the email below asking me to update my alumni information. (Obviously the caps and bold words have been changed to protect the innocent.)
There’s no way I’m updating my information with them so they can just turn around and sell it to someone else. If I had more time on my hands and was feeling devious, I could look up the address of the head of the college finance department and update my record with their information so they’d start getting the junk mail instead of me.
Verification of
XYZ UNIVERSITY
Alumni Information
Please click here in the next 10 days to verify alumni information for:
Ben ALUM
Dear Ben ALUM,
I asked our manager of alumni records to assemble your Alumni Data by cross-referencing the most recent information in your XYZ UNIVERSITY file.
But now I need your help.
Please take 30 seconds to look over the information currently reflected in your streamlined Data Verification Form. (This convenient online form is fully-encrypted using state-of-the-art technology to protect your personal information.)
XYZ UNIVERSITY analyzed the records of more than 26,200 alumni to separate outdated contact and alumni information from the most current data in our files.
Now I need your confirmation of the information listed in this file.
Please review your online Verification Form in the next 10 days. Thank you in advance for your assistance in this important matter.
Sincerely,
GREEDY COLLEGE FINANCE OFFICE
Mobile Banking – Managing Money in Your Car, in Church, or on the Beach
Okay, so those aren’t the best place to manage your money. You really should be giving your attention to the road in your car, to the service in church, and to relaxing when on the beach.
However, if you’re dozing off under a beach umbrella when you suddenly remember you didn’t move any money into your checking account before leaving for vacation, you may be able to take care of it right there from your beach chair.
Mobile banking is starting to become a reality in the US thanks to the widespread adoption of mobile devices. According to a PEW Internet study:
“Sixty-two per cent of all Americans are part of a wireless, mobile population that participates in digital activities away from home or work”
Banks are well aware of the potential for mobile banking and are working on rolling out the capability for their customers. A recent article in FinExtra announced that some Citibank checking account customers will soon be able to access a mobile person to person payment service.
“The Citi Obopay consumer trial will commence in summer 2008 and will allow Citibank customers to receive and send money from their mobile phone directly into or out of their Citibank checking account. New and existing Citibank customers will be able to enroll in the Citi Obopay mobile payment service in a highly secure manner through Citibank.com or in Citibank branches in select markets.”
So if you realized you were short on cash in one of your checking accounts and needed to move money around; you could add money to your Obopay account from your debit or credit card, then turn around and withdraw it into the bank account that was short on funds.
At least, that’s how I undertand it after reading the Obopay overview page. In addition to moving money around, you can also use Obopay to make payments to other people. One scenario I could see this coming in handy is when you’re out to lunch with a big group of people. It seems there’s always some problem splitting up the bill because people only have credit cards or don’t have the right change.
Of course, there are definitely concerns about security but I’m sure as the technology progresses those will be addressed. Personally, I just sent my first text message a few weeks ago so I’d say I’m in the 48% 38% of people that aren’t really taking advantage of mobile capabilities. The ability to use mobile banking is definitely something that would push me to make better use of my cell phone. I’m not a Citi bank customer so I’ll probably signup for Obopay on my own just to try it out.
Smart Money Choices Don’t Always Feel Right
Do you follow your “gut instinct” when making money decisions? Often times that’s a great policy but in some cases, going against your mental reflex is a smarter move.
College Basketball Lesson
This came to mind as I watched the NCAA basketball final last night between Mephis and Kansas. With seconds left in the game, up by three, and without the ball, the Memphis coach and players were faced with a situation that seemed obvious. Play good defense for a few seconds and you win the game. Don’t foul, certainly not on the three point line, just deny Kansas a shot.
It turns out, Kansas did get that shot, “Super Mario” Chalmers tied the game with a buzzer beating three pointer and Kansas won the match in overtime (congrats to Kansas on their National Championship!) In the post game analysis the commentators pointed out how Memphis could have won the game if they’d fouled Kansas as soon as they crossed midcourt, putting them on the free throw line. Even if Kansas makes both free throws, they’re still down by 1 and Memphis gets posession with only seconds left.
This move goes against the natural reflexes of a college basketball player. Typically when you’re winning, you don’t want to foul the other team, stop the clock, and give them a chance to score some points. However, had Memphis followed this plan, they may well have been national champions.
Buy Low, Sell High
I think there are good examples of this in personal finance as well. In the stock market, everyone knows you’re supposed to buy low and sell high but it’s not always psychologically easy to do. It’s hard to sell your winners, stocks that have been making you money. Plus, some of the best opportunities to buy low are when a good company has hit a rough patch. It may not be easy mentally to buy stock in a company that’s experiencing hard times.
Tax Refunds
Another scenario that comes to mind is tax refunds. Many people over withhold taxes from their salary and look forward to getting a money back at tax time. From a financial perspective, it’s better to actually owe some money instead of getting a refund. The money you didn’t give Uncle Sam all year can be put to work earning interest for you, instead of the government. Although it may be nice getting a check come tax season, your money is better off in your pocket all year long.
Middle Class Squeeze Edition – Personal Finance Review
With real wages stagnating or declining, rising health care costs, expensive college tuition, and record-high gas prices many people are feeling their bank account squeezed by rising costs without an associated increase in income.
I’ve heard this referred to as the middle class squeeze and came across an example of it this weekend. One of our neighbors is pregnant with her second kid and her husband just started a second job to pay for the coming increased costs of parenthood. I don’t know all the details of their financial lives but they both work, they live in a non extravagant duplex, and don’t seem to spend money irresponsibly.
As expenses go up the only way to get your family budget in the black is to earn more money. While their approach is definitely more fiscally responsible than going into debt, it does mean the husband won’t be around his family on evenings and weekends.
Now that we have our own son, I’ve come to realize those evenings and weekends are the most precious time of all. I have a somewhat similar plan to avoid the middle class squeeze in that I’m working on earning more money. The difference is that I’m trying to earn it by working at home so I can work on my own schedule and still have family time. Anyhow, one key to this whole thing is managing our finances responsibly, here are some articles from this week that might help with that.
– Million Dollar Journey is giving away the book Every Family’s Business.
– Lazy Man & Money discusses his alternative income streams.
– My Dollar Plan has an IRS agent answering tax questions and Generation X Finance talks about filing your taxes.
– The Sun’s Financial Diary looks at Vanguard’s new Global Stock Index fund, Brip Blap lets us know about money for nothing, and The Digerati Life has some advice for entrepreneurs.
– Mighty Bargain Hunter asks if you’re just doing the easy stuff and No Credit Needed gets the whole family involved with their finances.
– Free Money Finance shows how much people could save by controlling wedding costs and Five Cent Nickel reports that late payments are on the rise.
– Blueprint for Financial Prosperity looks at outsourcing taxes, hiring a tax preparer is something we did this year.
– Get Rich Slowly gives an introduction to diversification and The Simple Dollar has a good article on developing new skills.
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I'm Ben Edwards and I've been addicted to personal finance since I was 12 years old.
That passion for money has paid off for my family - so in 2006 I founded Money Smart Life to help you afford the life that you want. Read My Story...
