Money & Love – A “Heated†Debate Over Energy Costs
I love my wife. My wife loves to be warm. I hate to pay the heating bill. Read on for the gory details. Welcome to the first article in the new Money & Love series at Money Smart Life. This series was inspired by the following statistics from a recent survey, brought to my attention by the Frugal Duchess
Money beats out sex and house-cleaning as the number one issue couples fight about – 37% of young couples report that they fight more about money than cleaning (34%) or frequency of sex (28%)”
Money & Love
These numbers highlight the need for discussion, debate, and some humor when it comes to love and money. The Money & Love series will include financial feuds from my marriage and those of friends and co-workers. I’m also looking forward to publishing reader questions, stories, or complaints on this topic. If you have one to share, let me know here.
A Hot Topic
Growing up we put on more clothes if we were cold, turning up the heat was the last resort. My wife on the other hand is used to being warm and toasty in her house. Needless to say winters can be a bit of a thermostat struggle, she turns the heat up, and I turn it down. This has led to many an argument over the years but over time we’ve come to somewhat of an unspoken agreement.
Degrees of Separation
We’ve gotten to the point where we still play thermostat see-saw but her upper temperature range is lower and my lower range is now higher. I’m willing to turn up the heat a few degrees and she’s willing to put on a sweatshirt. I still think we pay too much for heating bills and she still says she’s cold but we’ve met pretty much half way. I guess compromise is the name of the game and on this issue we’ve done pretty well.
National Debt – One Issue, Two Perspectives
How can we expect the government to be financially responsible if we can’t even stay out of debt ourselves? That’s the question I asked yesterday in a guest post over at Blogging Away Debt.
A interesting comment on the article from Kevin Morris discusses how government debt is okay as long as tax revenue continues to grow.
“Simply put, it is OK for the debt to grow, and continue to be rolled over, as long as the economy grows along with it, so we can continue to pay the interest.”
He references the Steve Conover over at the Skeptical Optimist who has a $1,000 bet that that tax receipts will surpass spending by May – June 2008 if current trends hold.
My Reaction
I understand their point of view. From their perspective, the debt is okay because it funds future growth. Kevin gives an example of how people begin with a starter home and upgrade homes throughout their life as their income grows.
However, if you carry that analogy through, just as consumers borrowed more than they could afford in the housing boom of the last several years, so has the government borrowed more than is fiscally healthy. In personal finance, a home loan is often considered “good debt” as long as the amount you borrow is not excessive. Along the same lines, government borrowing can become foolish if done in excess.
Passing the Buck
The other thing that makes me uneasy with Kevin’s point of view is that it puts a good deal of pressure on future generations. As Steve says,
“By the way, both sides of the bet are now in the hands of a neutral third party, invested in short-term government bonds – i.e., invested in a piece of the national debt. If I win, I will bequeath that piece of the national debt to my granddaughter. Remember, our grandchildren will inherit the national debt; I’m just trying to do my share to further the cause.”
In my opinion, the government is assuming that we will pay off our borrowing in the future, which often means future generations. What happens when tax receipts suffer for one reason or another? Will the Baby Boomers be around to pay the piper? Or will it be Generation X and Generation Y that have to pay the bills that another generation racked up?
In summary, while it may make sense for the government to use debt as a tool to fuel growth, they should do so responsibly and keep the impact on future generations in mind.
Vanguard News Feeds & Podcasts – Taxes, Investing, IRAs, Economic News, & More
I subscribed to Vanguard’s news feeds and podcasts a few months ago and have gotten some useful information out of them.
Below are some of the recent ones I’ve enjoyed:
-Podcast: What you need to know about international investing
–The global economic outlook for 2007
–Stay tuned: Wise investing means ignoring the “noise”
-Podcast: Which IRA is right for me?
–“What’s a 1099?” and other tax form questions answered
How to Save Money and Save Your Spouse from Embarrassment
Do you buy in bulk to save money? We’re not members of Costco or Sam’s Club where it’s assumed you’ll buy in bulk but that doesn’t stop me from loading up when an item is on sale.
Deal of the Month
Last weekend I found a deal I couldn’t resist at the grocery store, 75 cents off my favorite type of cereal. Since I go through cereal like nobody’s business I knew I could save a good deal of money. Unfortunately, my wife talked me into only buying 15 boxes of cereal. She doesn’t like the strange looks from other shoppers and the inevitable comments from the checkout person and baggers.
Savings Regret
As we made our way out to the car I calculated how much I’d saved $11.25. If I bought every box they had I could more than double those savings. As we reached the car I left my wife to load up the groceries and dashed back into the store. I pulled up to the cereal aisle with an empty cart and cleaned them out. I purposefully went back through the same line just to let the checkout lady know how much money I’d saved.
Everybody Saves
I proudly announced our total savings as my wife shook her head while I loaded the stacks of cereal boxes into the trunk. In the past I had avoided buying enormous amounts of products on sale so I wouldn’t fill up the cart and embarrass her. Now I have a new strategy. We cover all the usual grocery items during the first trip into the store while I scout out any great deals. If I run across a gold mine I simply make a second trip while she’s unloading. She’s saved from embarrassment and I save us more money!
Taxes On My Mind
As tax season approaches and we can feel the breath of the IRS breathing down our neck the Carnival of Taxes seems more and more relevant. The latest edition lets us know why our Adjusted Gross Income is the most important number on our tax return, includes reviews of tax preparation software and a little about The Ernst & Young Tax Guide 2007.
My contribution covered the Streamlined Sales Tax Project and how it will likely affect those of us that shop online. Sales tax is the largest revenue earner for most state governments. They’re missing out on enormous amounts of revenue as the popularity of online shopping increases and they’re working on tapping into it. I say BOOOO!
Why We Should Save As Much Money As We Can
How could you possibly save too much money? There’s been a good deal of discussion in the last few weeks about whether we’re saving too much money. My take is that you can never save enough and I’ll tell you why.
The Unknown Future
Life is an unpredictable journey. We never know what life will bring and how it will change our world. We know where we are today and what we want tomorrow but the truth is that everything we know could be easily flipped on its head.
Best Laid Plans
You can see small examples of this in your life everyday. We find ourselves getting irritated or frustrated when things don’t “go according to plan”. There are many things we don’t know, understand, or see coming that mess with our best laid plans. The small things like slow traffic or an unexpected work assignment are inconvenient but we can adjust and handle them relatively easily. Then there are major changes in your family, career, society, or health that catch you off guard and asking “where do I go from here?”.
Why We Should Save
In these situations, the answer to the question of what comes next has a lot to do with how you’ve prepared for the future financially. Having a money cushion gives you freedom to make your own decisions. The larger the cushion, the more freedom you have. How much cushion do you want to have?
What If?
What if life never changes course on you? What if you arrive at your destination just as planned? What will you do with all the money? Do you really have to ask? It’s yours to use as you see fit. Start a foundation, send your grandkids to college, travel the world, or whatever else makes you happy.
The Alternative
What’s the alternative to arriving at your destination with an abundance of money? Which would you rather have, too much or not enough? Of course, this wouldn’t be a responsible recommendation if I didn’t remind you to live for today but invest for tomorrow. Don’t sacrifice your present at the expense of your future, just remember to keep a healthy live/save balance and to keep one eye on tomorrow.
Reader Questions – Taxes, 401k, and Saving Money
I like to keep track of the questions that readers are asking when they visit Money Smart Life. The most popular questions from search engines for the last few weeks have been about taxes, 401k, and saving money. Here they are with my answers.
Taxes
Is it too late to reduce 2006 taxes?
You’ve missed the boat for 2006. Read tax Lower Your Taxes Big Time
People who paid zero taxes and their life?
Thought this on was a little funny. Some of these people are in jail. The rest are hiding from the IRS 🙂
How much would a $50 tax credit reduce taxes by?
I could never keep tax credits and tax deductions straight so I put together a summary of credits vs. deductions.
What if i give alot of money to church and don’t have receipts?
Donating money is honorable, be smart about it and you can write it off.
How is federal excise tax listed on phone bills?
Don’t miss out on this tax refun. Get back some of the fees you’ve been paying unnecessarily.
Corporations who match charitable donations?
You can double your tax deductible charitable contributions if your employer has a matching program.
401k
How to diversify my 401k?
Here is a summary of good resources on rebalancing your investments.
What to do with 401k when you quit your job?
My advice, roll over your 401k into an IRA, read why here.
How do 401k administrators make money?
Here is a summary of a Smart Money article on 10 Things Your 401k Provider Won’t Tell You.
Saving Money
How To Get a Free Car Wash?
Give this a try.
How to save money on cell phone bill?
I save over 50%, read how.
Unrealized Capital Gains – An Overlooked Cost of Mutual Funds
I received my 1099-DIV today from Oakmark Funds and was unpleasantly surprised when I saw $1,013 of total capital gain distributions. I always look at management fees when considering a fund but haven’t really examined tax implications, probably because most of our investments are in 401k, 403b, or IRAs. I’ll have to start paying more attention to this in our taxable investments.
Tax Liability
I found a good explanation by Jason Fitchner of how investors incur capital gain distributions even without selling any shares of a fund.â€Â
“An individual owns 1,000 shares in Mutual Fund ABC, which were purchased for $10 per share (for a total cost of $10,000). The shares of the mutual fund represent ownership, or various rights to capital assets, in the mutual fund. In the course of the mutual fund’s normal buying and selling of securities, any assets that are sold by the mutual fund at a price in excess of that at which they were purchased creates a realized capital gain and a tax liability.
If Mutual Fund ABC realizes capital gains of $1 per share, the individual investors are responsible for the tax liability even if they themselves haven’t “realized” or exchanged their shares for money. Even though the gains are reinvested, this is considered to be a realized gain to the mutual fund company. The tax liability is passed-through to the individual shareholders even though this is an unrealized gain to the shareholders of the mutual fund.
Even if individual shareholders do nothing more than buy and hold mutual fund shares, they could still be hit with a potentially large tax liability due to the distribution of gains from their mutual funds. Shareholders are then forced to either sell assets to pay the tax liability, or divert funds from other sources. This creates an opportunity cost to the shareholder and can result in lost economic gain due to compounding.”
Appreciation vs. Taxes
Taxable distributions can cut into your overall earnings. Even though my investment in the fund appreciated around $1,500 in 2006, I have total capital gain distributions of $1,013. I won’t necessarily realize the gains from this appreciation because the fund’s value could go down again before I sell. However, I definitely have at pay the taxes.
How to Save Money on Diamond Engagement Rings & Keep Your Fiance Happy
One thing I’ve observed from watching women oogle over each others engagement rings is that for many ladies size does matter. Unfortunately for us guys, the cost of the ring grows exponentially along with the size.
This article talks about the premium we often pay based on which store we purchase jewelry from. The specific example given points out how you can pay $8,000 more for a similar ring at Tiffany’s than you would at Costco.
Location is not the only key price determinant; the size of the ring plays a large role as well. I headed over to Helzberg.com to price some diamond engagement rings by size. The numbers you see show the exponential rise in the cost of a diamond ring based on its size.
So guys, we’re in trouble if she wants a big diamond from a fancy schmancy store, the worst of both worlds. Personally, if I’m going to be spending the money, I’d rather pay for a tangible asset than a name brand so here is what I recommend.
Tell her you’ll get her more ring for less money if she’ll agree to go with the non name-brand retailer. Her friends won’t know where it came from; all they’ll remember is how big the rock was. Remind her of that and you could save some money while putting a smile on her face.
Long Term Care Insurance for Generation X
If you’re part of Generation X then your parents are likely part of the Baby Boomer generation that needs to start thinking about long term care. When Jeremy at Generation X Finance called for guest posts this week, long term care seemed to fit the bill. Head over to his site and read about what I’ve learned recently in the article Do Your Baby Boomer Parents Need Long Term Care Insurance?
I ran across a great summary article entitled “Why Long Term Care Insurance?” over at Hills Personal Finance that can help you out when researching the subject. He tells us 8 things we should look for in a long term care policy and and 5 different factors that effect the pricing of a policy.
Some other resources to check out are the government’s long term care page on the Medicare website, these articles from the National Care Planning Council that in their words “constitute the most comprehensive source of long term care planning information ever published”, and a site by Alexander, Hawes & Audet, LLP on Avoiding Fraud When Buying Long-Term Care Insurance: A Guide For Consumers And Their Families.
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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...
