Taxes, Pay Raises, Investing, Real Estate, and an Interview in the Carnival Roundup
Another great week for personal finance on the web! Here at Money Smart Life I covered the topics of taxes, pay raises, investing, and real estate.
Don’t Mess With Taxes welcomes us to tax season 2007 with the Carnvial of Taxes. Check out my entry if you want to know how to pay your personal property taxes online.
It’s the time of the year for annual pay raises. I complain about mine in The Problem with Annual Pay Increases at the Carnival of the Capitalists at Diary of a Startup.
In The Carnival of investing at Binary Dollar I talk about how a common investing example commonly used to motivate people to start investing leaves out a key point in Learn from Dick and Jane. Don’t Be a Dick!
Financial superheros rescue the world from financial troubles over at the Carnival of Personal Finance hosted by Get Rich Slowly. My recommendation is to use your personal finance super power to stay out of financial trouble by Discounting the Value of Your Home.
I share an interview about my money mistakes, why I write about personal finance, how long I’ve been saving, and things I’ve given up to save money in the Carnival of Money Stories over at Money Walks.
Looking forward to another great week! Don’t forget, you can win free financial advice by participating in the FinaceSpirations challenge. Hurry, it ends 1/22!
Are Your Friends Money Dummies? Here’s a Simple Way to Help Them Out.
Do you have friends that constantly make poor financial decisions? Do you want to help them out but don’t know how? You’re afraid to step on their toes by offering financial advice. You don’t want to come across as pushy or a know it all. However, you care about their future so not doing anything at all doesn’t feel right.
The Gift of Finance
Why not set them up with an objective third party that can give them some financial guidance? It seems like a win, win solution. You won’t feel as though you’re pushing your passion for money on them and they get the help they need. The problem is you don’t have the extra money to save for yourself, let alone pay for a financial professional for them.
Money Smart Life to the Rescue!
That’s where I come in! Send me a story about a personal finance blogger that inspired you in 2006 and you’ll be entered into the FinanceSpirations challenge. If you’re the lucky winner of a 1-hour financial consultation with Beacon Financial Advisors you can transfer the prize to your money dummy friend. If you have more than one, I guess you can just pick the biggest money dummy of them all.
They can have their budgeting, investing, or tax questions answered by a certified financial planner. I’m pretty sure if you can help them get started on the right track financially they’ll thank you for it.
Consumers Know Your Enemy! Save Money by Learning Retailer Strategies.
How would you like to listen in on a retailer’s secrets to getting consumers to spend money? Below is a recent interview with Pam Danziger, a renowned expert in consumer marketing and psychology. The interview was distributed by the Service Core of Retired Executives, a nonprofit organization that offers business advice for entrepreneurs, to help business owners learn from Pam how to be successful retailers.
Not all questions from the interview are included, only the ones I felt gave some insight into shopping from the consumer viewpoint. What consumers can glean from her answers follow each answer in italics.
Q: What’s shaped the changes you see in retailing?
A: The retail shopping experience is so important, because everyone has everything they need and it’s of good quality. From a broader historical perspective, after WWII, Americans acquired a modern standard of living, which included dishwashers, refrigerators and color televisions – there was an incredible accumulation of standard-of-living goods. Today, it’s about comforts of living and luxury experiences.
If we have everything we need, why buy more stuff? How much are you wiling to pay for “comforts of living and luxury experiences”?
Q: How do you appeal to the consumer who has enough stuff?
A: To captivate and acquire customers today, it takes high customer involvement and curiosity. In my book, Shopping, you will find the POP principles – the seven principles to create a shop that pops. You want to transform the shopping experience from ordinary to extraordinary.
Retailers acknowledge that we have enough stuff, now they’re trying to find ways to sell us more! I picture an overweight person gorging at a buffet, then the restaurant owner brings by the dessert menu.
Q: What suggestions do you have about pricing?
A: Don’t compete on price. You can never reduce your price low enough to remain the lowest cost provider. Consumers are savvy. If you deliver the WOW, the value reinforces the price you charge. You have distinguished yourself and your business as unique and valuable, and you can charge more because of the experience.
You may be getting friendly service and a unique experience at your favorite charming boutique but you could probably save a good deal of money by shopping somewhere else.
I think of an article by Anne Kadet in the October 2006 edition of Smart Money magazine entitled “Pottery Barn Unstuffed” that takes a look at whether the furniture sold by Crate & Barrel, Restoration Hardware, and Pottery Barn is really worth the price you pay. In my opinion the article only confirmed what I had thought all along, overrated and overpriced!
Attention Generation Y, Don’t Forget to Rollover Your 401k!
Generation X Finance and Boston Gal picked up on an article yesterday that describes how people from Generation Y tend to switch jobs more frequently than ever before due to a variety of generational factors.
The extinction of pension plans and the rise of 401k plans is one of the signs of this generational shift. Due to the lack of corporate pensions and a failing Social Security System, these investment plans are key to the freedom and financial future these Gen Yers are trying to protect by switching jobs.
An article from about.com discusses different options for your 401k when you leave a job and the pros and cons of each. I’ve listed them below in the order of worst to best options, in my opinion.
Cash Out
The article talks about the drawbacks of taxes, penalties, and missing out on decades of tax-deferred capital compounding if you go with this option. The quote below pretty much sums it up
“cashing out a 401k when leaving jobs is the single most stupid decision a working individual can make”
Leave 401k with Previous Employer
Every 401k plan has some type of administration fees. If you leave your current investments behind every time you job hop, you’ll be incurring fees from each administrator, cutting into your investment returns. Plus trying to allocate and diversify with investments spread all over previous jobs could be a nightmare.
Rollover to New Employer
If you’re going to be leaving in a year anyway what’s the point. Seriously, if employment trends indicate you’ll likely be going from employer to employer this option could be a hassle. Every 401k plan has different investment options. With each new employer you’d have to refigure your diversifications and allocations based on new options, who wants to do all that work?
Rollover to an IRA
My employer offers about 30 options in my 401k, sometimes I think it would be nice to quit for a few months just so I could roll my investments over to a Vanguard IRA. In my opinion this is the preferred option. You choose where to invest your money, not your employer. With an option like Vanguard you’ll have many low-cost choices. If you do rollover to an IRA make sure you follow the rules in order to avoid penalties and fees. The article describes these rules
“Once the assets are received by the employee, they must be contributed into the new retirement plan within sixty days; this deposit is reported on IRS Form 5498.”
One other thing to note, you are limited by the government to one 401k rollover every twelve months so if you really hate your job try and stick it out for a year for the sake of your 401k 🙂
Leading with Their Wallets – Personal Finance Leaders
Lazy Man and Money listed his five favorite personal finance bloggers yesterday. I read all of the sites he listed regularly and pretty much concur with his assessment of each. As I thought about the commonalities among these sites I remembered a special report on leadership from October’s U.S. News & World Report that listed common traits of leaders:
The 5 Traits of Leadership
1) Pursing their vision with passion
2) Practicing solid values
3) Leading with their hearts as well as their heads
4) Establishing connected relationships
5) Demonstrating self-discipline
Thank You!
From what I’ve seen, or read, the people highlighted have become some of the leaders in the personal finance blogging arena by exhibiting these traits. In a world of consumers gone wild, it’s nice to see people setting good examples and offering little islands of sanity in a sea of debt and speculation. Thanks to these bloggers for a job well done Boston Gal, Flexo, J.D., Trent, and Jim.
FinanceSpiration
In honor of bloggers like these, and there are many more, I launched a contest a few days ago to encourage people to share which personal finance blogs gave them FinanceSpiration in 2006. The lucky winner gets a free financial consultation with a financial planner from Beacon Advisors.
There has been only one entry so far, the odds of winning look pretty good! Actually, Lazy Man’s post is a great example of an entry so Lazy Man, consider yourself entered.
If a personal finance blogger inspired you in 2006 let me know about it today via my contact form or write about it on your own site. Hurry, the contest ends on 1/22! To keep up to date on contest developments, subscribe to my feed.
The High Price of Job Security
“This is so convoluted, no one is ever going to be able to figure it out!” said one cube dweller to another. The other smiled and said, “I know, job security baby!”
I’ve worked in my current software job for 7 years and suppose I could be considered a “key” employee for our product. I know how most of the system works, who to call when something breaks, and where a lot of the bodies are buried.
Does this scenario sound familiar to you? Sure it’s good for job security
BUT
You’re tired of what you do.
You don’t look forward to going to work.
The grass is greener everywhere else.
YET
You go every day because the job is secure.
You spent too much on your house & car and need the money.
What’s the Cost?
Stress
When you’ve been around for a while the same problems keep popping up. Working on the same issues time and again is frustrating. It is stressful, hard on your body and your psyche.
Knowledge Depreciation
If you’ve been doing the same thing for 5 years chances are your industry is moving on without you. You may now be a commodity in a cash cow product instead of an innovator in a Skunk Works. Your “skills that pay the bills” may no longer fetch the same salary in the market.
Responsibility
When you’ve been in the same place for a long time you often accrue more responsibility whether it’s through promotion or by default through attrition. You’re the one they call when something breaks in the middle of the night or a deadline has to be met by tomorrow. Responsibility = less sleep.
Family Time
While you’re spending hours stressing and being responsible at work, you’re not spending time with your family. News flash, your wife and kids miss you!
Money isn’t Everything
In an effort to build our net worth, job security is a major contributing factor. However, in our quest to enjoy life, job security can be a major pain in the butt! I try to remember some words of advice from an co-worker of mine that’s been around the block a few times, “Work to Live, don’t Live to Work”! How do you balance performing at your job with enjoying life?
Clean Out Your Closets, Sell Unwanted Christmas Gifts. Hurry, Deal Ends Saturday!
eBay is running a promotion for new users that waives the insertion fee for the first three items you list. If you’ve never used eBay before, this is a good chance to give it a go for free. If you have anything valuable sitting unused in your closets or an unwanted gift that’s worth some money try and sell it on eBay.
“New eBay sellers who create up to three Auction-style or Fixed Price listings will not be charged insertion and Gallery upgrade fees for those listings. In order to qualify for the special offer, the eBay member must not have sold on eBay before, and must list their first three items during the promotional period (January 9-13, 2007).”
See the promotion for full details.
Worth a Shot
One thing to keep in mind is that many people won’t purchase from a seller unless they’ve already earned some feedback. This means you many not get any bids on your item but you never know. It is free to list with the promotion so it doesn’t hurt to try.
Building Feedback
How can you earn feedback if no one will buy from you without feedback? When I first started on eBay, I built up a little feedback by buying shipping materials. Once I had 10 positive comments I started selling things.
Future Sales
Even if no one buys anything from you the first go round, you could build some feedback and bide your time. eBay periodically holds promotions where they feature a 10 or 20 cent listing fee and you could try your luck again at turning trash into cash.
Flexible Spending Account Reimbursements Simplified
Thanks to changes made by the Internal Revenue Service, many of us are able to make claims against our 2006 Flexible Spending Account balance for health care expenses incurred up through March 15, 2007. If only we could find a way to simplify the process.
Receipt Overload
With a new baby the number of receipts for co-pays, prescriptions, and over the counter medicines multiplies pretty quickly. If your FSA account administrator is anything like mine, the process of submitting these receipts is quite a hassle.
Cutting Through the Red Tape
Recently I had 18 receipts to submit for reimbursement but the form only had room for 5 claims. I called up the administrator and asked if there was any way I could submit all the receipts at once without having to fill out and mail in 4 different forms.
The first answer was no, please submit 4 different forms. Irritated by what a waste of time that was I pressed harder. Finally, after arguing my case the representative acknowledged that I could just put all the receipts in one spreadsheet that contained the same fields as the paper form and mail them all in together.
Electronic Records
One current trend in health care information is to digitize health records. I figured; why not follow the trend with our family’s FSA records? I like the spreadsheet approach because it saves time filling out and mailing in multiple forms. Entering the information is simplified, just cut and paste a previous entry and change the appropriate details instead of filling out forms for each one.
In addition, the spreadsheet keeps a running tally so I know how much I should have been reimbursed for the year and it makes it easy to search for a specific claim. Many FSA administrators offer web access to your account. Once a claim has been submitted and/or paid it will show up online. You can double check your spreadsheet against their records to make sure you were reimbursed appropriately.
Flexible Spending Account Debit Card
When my plan administrator first offered a debit card that we could use to pay for health care items I signed up right away thinking it would simplify the process. However, many of the items that I paid for with the card were flagged by the administrator as requiring substantiation. For each claim that was flagged I had to fill out and mail in a separate substantiation form.
After several cases of this I decided to see what would happen if I didn’t mail in the form. Several weeks later, my FSA debit card was locked. For me, it was more of a hassle to keep up and fight with separate substantiations for claims than it was worth. I decided to abandon the debit card and stick with the spreadsheet method described earlier. This approach has worked out quite nicely.
Use It Or Lose It
Whichever system you use, if you still have money left over from your 2006 FSA contributions make sure you use it by March 15, 2007 or that money will go to your employer instead of in your pocket!
Phone Bills Too High? A Tax Refund Will Help Ease The Pain.
This is the one time that a big phone bill may work out to your advantage. The IRS is granting a tax refund to give back money collected for federal excise taxes on long-distance phone calls since 2003. It allows a standard refund you can claim on your tax return. According to an article in the Arizona Republic the standard amounts are based on the number of exemptions you take, listed below:
1 exemption – $30 refund
2 exemptions – $40 refund
3 exemptions – $50 refund
4+ exemptions – $60 refund
However, the federal excise tax is charged as a percentage of your phone bill. So if you run up high bills every month, you may be better off filing a refund for the amount of the tax you actually paid between Feb. 28, 2003, and Aug. 1, 2006.
Of course this means that you have to go through all those long-distance phone bills and add up the total; but the higher your bills the wiser it may be. One thing to note is that you have to file Form 8913 with the IRS if you calculate your actual taxes paid instead of taking the standard refund. See the IRS website for more information.
FinanceSpirations – Working Hard and Spending Very Little
In the first submission for the contest, Iram shares her financial habits. Sounds like ING can be credited with motivating her to start saving. A variety of blogs have inspired her to avoid credit card debt.
Her story is below, I’ve highlighted some parts that caught my eye. Iram, thanks for setting a good example for the rest of us with your financially healthy habits, keep up the good work!
I have always paid attention to my finances. At age 25 I have a 4 flat investment property and a condo that I share with my boyfriend. We are both very frugal but I got my start when I learned about ING savings plan. I did not have rich parents, I paid my own way through college by working hard and spending very little. Needless to say, I didnt have the college life I would have liked to but at least I got out of college with 0 credit card debt. Reading different blogs on fiscal awareness and fitness, I have been able to maintain my 0 credit card debt by paying off my balance each month. I do energy audits on my own house, clip coupons, watch sales and generally try to lead an average life including saving more than I spend. I currently make about $50K at my job.
Iram
Vote for Iram to win the financial consultation by leaving her a comment about her story and check out the other entries here.
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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...
