What do I do with my Tax Refund?

With all the curses and frustrations that come with filing your taxes this time of the year, there also comes a blessing (at least for some of us) in the form of a tax refund.  With that in mind, your tax refund can be quite a benefit to your finances if handled appropriately.  It's easy to say that you now have the money to purchase that TV you've always wanted, but it's far wiser to put it towards benefiting your long term financial situation.  Here are my own suggestions:

1.) Adjust your deductions - If you're receiving a refund of more than $500, you should probably adjust your weekly deduction so that you are receiving a little more money throughout the year.  There are better uses of your money such as paying down credit card debt and saving for your future than letting the government take it.  That said, from a budgeting perspective it's always better to receive a refund than having to pay more.  It's a fine balance that you will only really master over time.

2.) Pay Down Credit Card Debt - Now is a perfect time to pay down your credit card debt and get that burden off of your shoulders.  With some interest rates around 20%, paying off this debt will mean more net income for you and your family throughout the year.

3.) Pay Down Other Debts - If you mortgage, student loans, private loans, etc... have interest rates of more than 4%, it probably makes sense to pay these off more quickly than contribute to a retirement account.  You could use your money to make an extra payment on your mortgage.  Over time, doing this every year could reduce the timing on your mortgage by a couple years.

4.) Make a Catch-up Contribution to your Retirement Accounts - If you are not maxing out your 401k contributions to $17,500/year, or your IRA contributions at $5,500 per person, then here is yet another opportunity to improve your future financial situation. 

5.) Make Home Repairs - Besides being mostly likely your biggest asset, your home is where you spend a vast amount of time in so it makes sense keeping it working and in top shape.  Use your money to repair a window, reinsulate a room, and put a new paint job on.  If you plan on moving soon, you might even get a small return on your investment.

6.) Finally, if you've done all this stuff and are in a good financial situation, you should take the family out for dinner and celebrate each other.  Too many families don't acknowledge how special each other are, and a tax refund is a good opportunity to do this.

Try to take the emotion out of your spending habits, especially when small windfalls such as a tax refund come into play.  If need be, give yourself a week to think about the money before spending it.  You'll likely make a wiser financial judgment with some time under your belt.

Wonderful Moment of the Day: Happy Good Friday!

Straight Razor Shaving

Over the weekend, my Wife and I had dinner with a coworker and good friend of hers who has the interesting hobby of shaving with a straight razor.  I have to admit that the idea of holding a large and razor sharp blade to my throat seems a little discouraging to me, and therefore I’ve never attempted it.  However, when I pressed him on why he decided to shave like this, he gave me a number of reasons first of which was the cost.

I’ve praised DollarShaveClub for the affordability of their disposable razors, and have enjoyed using them.  I was in disbelief that there was something cheaper out there other than not shaving.  The basic straight razor shaving kit is comprised of a razor, whetstone (or hone), a strop (piece of leather and canvas), brush, and shaving soap.  A simple Amazon search for these products of mid-range quality yielded the following estimated prices:

Razor = $50

Whetstone = $80

Strop = $26

Brush = $7

Soap = $12

Total Cost = $175

Right off the bat, this seems like a pretty large startup cost just to scrape the hair off my face.  Let’s look into these investments a little more closely.  First, you’ll want to take into consideration whether these purchases are 1 time or recurring.  The mid-level razor is probably good for about 4 years or so, the whetstone will last for life, the same with the strop and brush, and the soap might have to be purchased once a year.  The 4 year cost of shaving in this style is $211.  With DollarShaveClub, I upgraded to their mid-level razor and pay $6/month.  Over 4 years, this will have cost me $288 which also assumes they don’t increase the price.  

Conclusion: It definitely seems cost effective in the long run to shave with a straight razor.  Our friend also mentioned the non-tangible benefits such as creating a morning ritual out of the routine and connecting with his own masculinity.  Either way, I don’t think I’ll be shaving this way anytime soon, especially since my wife walks into the bathroom from time-to-time while I’m shaving and she has some pretty quick arm movements.  Heaven forbid I’m shaving the Adam’s apple during that time!

Wonderful Moment of the Day: Spring has finally arrived!

Financial Tips for Traveling Abroad

Within the next week, my Wife will be traveling to Egypt for 2 weeks on a medical mission trip.  This whole experience has been a good exercise on the financial steps necessary for a longer stay in a foreign country.  Here is a short list of some of the steps we took to prepare her financially for this trip.

1.) Contact your credit card and debt card companies - Make sure you contact your bank and credit card company in order to let them know that you will be traveling abroad, the country, and the dates of your travel.  With modern day fraud protection, your bank might block your card if it sees a whole bunch of strange charges in a foreign country.  I have actually had this happen to a friend while I was traveling with him and I had to loan him some money until he could contact his credit card company.

2.) Work with a bank that has no ATM fees - This is more of a long term decision, but I currently use Schwab for most of my checking needs, and one of the perks is having no ATM fees.  This is especially useful when you first arrive in a foreign country as you can use an ATM as your currency converter.  Just simply withdraw the appropriate amount of the local currency, and the ATM does all the conversions based on the day's exchange rate.  I find this to be the best and most efficient way to exchange currency.

3.) Stay current on the currency conversion - Before you go on your trip, check the currency conversion rate so you know how much you will need and what your currency is going for.  If you need to use one of the private money exchange kisosks, you'll be much more informed on whether you are getting a good deal.

4.) Acquire travel insurance - I actually didn't know about this insurance until recently, but have developed a new-found love for it.  Most insurance plans will not cover you in foreign countries and that's precisely when this insurance kicks in. Travel insurance will cover all your medical needs, potential losses, or even travel supplies in some cases.  I believe they'll even pay for the shipment of your body back to your country in case of death.  It only costs about $50-60 and save you from a real headache in case something disastrous happens.

5.) Only carry a minimal amount of cash on your person - Depending on where you go, this rule is more applicable than in other places.  You do not want to have a whole bunch of cash on you in case you get robbed.  This is all around a good rule no matter where you go.

Once you take care of all this stuff, you should relax and enjoy your trip an take ease knowing your financial house is in order.  Just don't spend too much on souvenirs.

Wonderful Moment of the Day: My Wife is eating all her favorite foods before she goes on this trip, so we've been eating really well the last few days.

Why Banks are Sometimes Better than a Credit Union

I think we’ve all heard the news in the media on how credit unions are much better than banks when it comes to fees, rates, and motivation; however I think this depends more on your situation.  As I ever quest to be the contrarian, I often try to determine why the alternative opinion might make sense.  Also, on a personal level, I choose banks far more than a local credit union.  In short, here are my reasons why I prefer to use a bank instead of a Credit Union.  I should also disclose that I do in fact work for a regional bank, so take my advice with a grain of salt if you like.

1.)    Convenience – When it comes down to it, convenience is probably the top reason people choose banks over credit unions.  With more branches and ATMs, getting access to your money is probably far easier at banks.

2.)    Digital Functionality – Generally speaking, banks are far more likely to have the smart phone apps, or interesting websites to allow you to better manage your money.  Also, banks are far more likely to be linked to third party software such as TurboTax or Mint.com. 

3.)    Rates – Credit Unions are not always the best options when it comes to interest rates.  True, they have a significant advantage when it comes to paying taxes and general motivation to help their union members, however their operations are usually small and far more cost prohibitive.  With their larger, and usually more efficient size, banks can often make up for the advantages that credit unions have just be shear efficiencies of scale.

4.)    Diversity of Financial Products – Often times, credit unions are too small to be able to offer consumer, mortgage, commercial, and business banking loans all in the same place let alone things like insurance.  You usually only get all these items under one roof when you are dealing with a bank. 

5.)    Restrictions on Credit Union Membership – This reason has been lessoning more and more in recent years, however many credit unions have membership stipulations that could be restrictive to people in your case.  You may not even have the option to use a credit union. 

It’s up to you to decide whether these reasons fit your lifestyle.  Personally, I feel that if you are responsible, don’t rack up fees, and need a diverse array of financial products in the most easily and convenient ways to access them, then a bank is your best bet.  That all said, credit unions certainly do have their place.

Wonderful Moment of the Day: Happy Spring!

Unit Costing your Food Purchases

Everyone has experienced the difficulty in deciding which is the better deal when shopping at the grocery store.  The seemingly endless choices in dish soap or cereal are enough to make a frugally determined person quite frustrated.  Do I choose the generic brand, or do I go with the name brand that is conveniently on sale?  I’ve seen time and time again, price conscious consumers falling for the sale signs and “reduced priced” glamour only to still be paying more for a product in which they are not very brand conscious for. 

There is a very easy strategy to compare all the cereals, or dish soaps; look for the unit cost information just to the left of the price.  All products are required to have this information, and it essentially puts every like-minded product on the same playing field.  For example, what is the better deal, the generic dish soap that is $1.99 or the name brand soap that is on sale at $1.79?  Many people might pick the name brand soap, but what do the unit costs say?  The generic is $8/gallon and the generic even after the sale is $8.75/gallon.  You know that you are getting more product for your money if you went with the generic soap.

Product packaging and design is a multi-billion dollar business and one of the main goals (besides enticing you to buy the product), is to make the product look larger than it really is.  No wonder you might have a hard time comparing product prices when all the containers have slightly different amount in them.  This is the beauty of unit costs though; it doesn’t matter the sizes, because you can compare them all just in the same manner. 

Today, my Wife and I hardly ever even look at the actual price of a product, but instead look at the unit cost.  One word of caution though; sometimes the units may be a little different.  On the rare occasion, I’ve seen the unit cost listed (for example) as $/gallon and $/liter.  This may through things way out of whack, but this is usually a rare occurrence.  I’m not promising you that your grocery bills will be smaller with this shopping tactic, but I can guarantee that you will be getting much more for your money if you follow it.

Wonderful Moment of the Day: Been having a relatively easy week at work given that I just came back from a week long vacation.

The Sorry State of Financial Education Within our Schools

Financial education has always been sort of an ancillary topic within the US education system.  Usually covered in "Economics" class or one lesson within some other class, the net effect is to downplay something that is so very important to the survival of any potential graduate.  Think about it this way, you could have a child who is a genius at Math, Science, History, or English, but none of that will be very useful if they don't know how to manage their money.  Alternatively, if your child was rather average, and achieved a decent paying job, but knew how to manage their money, they will most likely have less stress in their life and live a better more fulfilled existence.

The truth of the matter is that our education system in the US is very inadequate when it comes to teaching children the fundamentals of personal finance.  In my own experience, personal financial education consisted of making an imaginary budget and watching movies on how people became millionaires...not very helpful.  

Instead, having every high school graduate go through a course that teaches them about budgeting, saving, investing, and other important financial concepts (such as buying a house, car, or opening a credit card), would pay for itself exponentially.  The net benefit to our economy by having a whole generation of financially literate children enter the workforce would be profound.  Who needs further regulation when all your customers can recognize that a no principal, adjustable rate mortgage sounds like trouble from the get-go.  

Changing the educational culture within the US is not an easy task, but collectively you can start making an impact.  Talk to your teachers, principals, and other educators.  Vote for the necessary funds at your next school budget vote, or even volunteer to teach a lecture at your local high school.  This change won't happen on its own.  

Finally, the most important asset in your child's financial education is the time you spend with them.  Don't rely on the public schools to teach them about personal finance.  Instead, take matters into your own hands and learn the subjects yourself.  

Wonderful Moment of the Day: Family celebration for my Wife's coming mission trip for 2 weeks to Egypt.

How the Toy Companies Get You

Robert Cialdini

Lately, I've been reading the book Influence: Science and Practice by Robert Cialdini.  The book give s the reader a nice glimpse into the many social and psychological reasoning behind persuading and making an impact on people.  I'll do a full book review later in the future, but I wanted to share with you one example that I thought was quite interesting.

In the book, Cialdini talks about a strategy toy companies use to squeeze out a few extra dollars from us in their slow months of January and February.  Their strategy involves displaying adds on your child's favorite TV shows for this years hit toy sometime in November and December.  Think Furby or Cabbage Patch Kids.  After listening to these commercials for a month, your child begs you to buy one this Christmas.  Not wanting to seem like a bad parent, you agree and promise to purchase one.

The shopping season rolls around, and parents across the land are shocked to discover that this year's hit toy is severely under-stocked in all the toy stores.  Uh-oh, what's a parent to do?  Well, you certainly cannot give your child nothing to open for Christmas, so you buy some other toys and pay about the same amount you would have for the hit toy.

A month rolls by and it is now late January.  You see that that the hit toy is now available in your local toy store, and you now have the chance to fulfill your promise to your child.  You purchase the toy, and have a wonderfully thrilled child.  Congratulations, the toy companies managed to get twice the spending out of you.

So what's a parent to do.  The first solution is to never promise your child a toy.  Another strategy is to become better at buying the year's hit toy the first time around.  In the end, the only thing that is hurting in this scenario is your budget.  Meanwhile your child is extremely happy...what's wrong with that?

Wonderful Moment of the Day: Beautifully sunny days in Winter.

Modern Day Muses - Taking a Vacation

In case you are wondering, I am actually taking a vacation this week from my day job and enjoying all that life has to offer.  My days have been filled with some minor chores, leisure activities, and cooking some great meals.  Throughout this week, I've been feeling better both physically and mentally, and it had me thinking about all the benefits taking the occasional vacation can have.  Whenever I do take a week off from work, it's usually to visit family.  This is often a very nice trip, but it's not the same as taking a week off from life and just staying at home.  Here's some of the benefits I've discovered throughout this week.

1.) Physical Improvements - It might just be due to getting at least 8 hours of sleep a day, but I've found that I do feel much better physically.  Food tastes better going in, I have more energy, and I feel like tackling more of the day's tasks.

2.) Mental Health Improvements - Along with the physical side, my own mental health feels much better (not that it was too bad in the first place).  Using this week for my own benefit has made me feel much more calm and relaxed.  Hopefully this peaceful time will help me going forward when I have to return to the real world.

3.) Improve Relationships - Having the time to do some chores and feel better both mentally and physically has definitely improved my relationship with my own Wife.  We have a really good relationship otherwise, but she has definitely been appreciating coming home to a warm gourmet meal every day.  You know what they say "Happy Wife, happy life"!

4.) Creativity Benefits - Because I'm not focused on my job or any particularly demanding tasks, I've had a chance for my brain to wander.  Whether anything productive actually comes out of these wanderings, it still is important to let your mind do this from time to time.  It may allow you to explore some creative solutions that you would have not thought of otherwise.

5.) Will Improve your Work Performance - This benefit doesn't really help you while you are on vacation, but when you eventually go back to work, you will have much more energy, patience and vigor to complete your day-to-day tasks.  Your coworkers and boss will appreciate that.

With all the "stuff" going on in our lives, it can sometimes be hard to find time to take a full week of vacation off from work.  I've found that a 3 day weekend often doesn't have the restorative benefits a full week can have.  By day 3, you are just starting to feel the benefits when you realize you have to go to work the next day.  Do yourself a favor, and schedule at least a full week for your next vacation.

Wonderful Moment of the Day - Didn't get up until 9am today!

Community Colleges Looking Better

In a recent article from CNN Money, it was reported that the average salary for a person starting out with an Associates degree is about $50,000/year, whereas the average for someone with a bachelor's degree is around $35,000.  How could this be?  Why does having 2 extra years of collegiate education warrant less money?  Something doesn't seem right here.

Upon digging into the article and reading further, you'll find out that most people who graduate with an associates degree are trained in "skills" jobs such as medical equipment technicians, dental hygienists, etc...  These middle skilled jobs have a relatively high starting salary, and there is also a need for these types of workers.

What struck me most was this paragraph in particular:

"Although these figures vary widely by profession, associate's degree recipients, on average, end up making about $500,000 more over their careers than people with only high school diplomas, but $500,000 less than people with bachelor's degrees, the Georgetown center calculates."

If you were wondering whether an associates degree is a better deal than a bachelor's degree, it still appears that those with bachelor degrees end up catching up to and surpassing those with an associates.     Associates degrees are definitely a worthwhile degree to pursue, especially if you are trained in a particular skill, but the traditional 4 year bachelor's still remains on top.

Wonderful Moment of the Day:  Having my brother-in-law, sister-in-law, and their three kids drop bye for the weekend.

Net Worth Realization

I was recently reading this Forbes article on how the combined wealth of 6 of the Walton family (famous for Walmart) have more income than the bottom 30% of Americans, and it started to get me thinking about wealth distribution in the United States.  In its essence, the wealth alignment is a shame with the top 1% having more wealth than the bottom 60% of the nation, but let’s take a closer look into what’s going on here.

It’s important to understand the meaning of wealth in these circumstances.  Just like you would value a company, your own personal net worth is the summation of all your assets minus the summation of all your liabilities.  So, if you, like many Americans, have no credit card debt or any other types of debt except for an underwater mortgage, you could have a negative net worth.  In the corporate world, you would be considered bankrupt and have some more serious issues to deal with.  In the personal finance world, as long as you can keep making your monthly bill payments, you’re fine.  From a retirement perspective, you could have some serious issues in the long term, but the important point is that you recognize these issues and are making steps to rectify them. 

The quote that struck me the hardest was this little excerpt; “If you’ve no debts and have $10 in your pocket you have more wealth than 25% of Americans.”  Another way of looking at this is to think that if 25% of Americans have a negative net worth, then you have more wealth then the 25% combined!  Suddenly, I’m starting to feel a little wealthier.  Don’t weep too hard for some of these people as there is an important difference between wealth and income.  You could have a lawyer making a 6 figure salary, but do to some spending habits, student loans, and an underwater mortgage, could have a negative net worth. 

There’s an important lesson in all this talk, and that’s to think of your own personal finances from a net worth perspective.  Just because you have a salary of $30,000/year doesn’t mean you can’t be wealthier than some hot shot doctor.  Likewise, just because you have a 6 figure salary, doesn’t mean you can’t spend yourself into bankruptcy.  If you start thinking from a net worth perspective, you’ll be better prepared for retirement and have a much healthier financial situation.

Wonderful Moment of the Day: This wasn’t exactly wonderful, but it’s nice to work for an institution that allows you to have a sick day.  Not every place looks kindly on these things.

6 Month Ting Update

If you haven't been an avid reader of my blog here, then you may be unaware of the potential benefits of switching your phone plan over to a discount provider.  About 6 months ago, my Wife and I switched over to discount service provider called Ting, and the results have been pretty great thus far.

Here are the previous posts on the subject:
Post 1
Post 2

It's time for a 6 month checkup to see if the results have been fruitful as I have hoped.  Over the past 6 months, I have spent a total of $352.29 which includes purchasing two refurbished LG Optimus's (Optimi??).  Taking away the cost of the phone, this works out to a bill of about $40/month.  Previously, I had been with Verizon, had 2 simple feature phones and was paying over $88/month.  If I had stuck with them, I would have spent a total of $616.

If there was ever any doubt on whether you should switch, consider what you would do with another $264 in your pocket.  Overall, the service has been great, and the phones have been working fine.  The only downside I can see is that the phones work on the Sprint network which is rather sub-par when compared to Verizon or AT&T. 

While we're on the subject of cost cutting and bill reduction, here's another concept that as saved my Wife and I tons of cash...get rid of your cable bill.  I know, I know, the thought of only having a set of bunny ears on your TV may be terrifying, but think of what you are currently paying.  Cable bills can range anywhere between $20 - $200/month and can literally drain you of money.  The promise of more entertaining shows is a hard thing to give up, but try this exercise when deciding what you want.  Write down a list of all the TV or movie channels/shows you actually watch.  Don't write down the ones you would like to see, just the ones you currently watch.  Does this start revealing a picture of your actual usage?  Chances are, you don't make much use of the 200+ channels at your disposal.  Possibly downgrading to a more simple package might be worth it.

If you want to take a more extreme step, you can consider cancelling your cable TV altogether.  There are many more ways of fulfilling your entertainment needs today then there ever was.  As a first stop, try this sub-reddit.  My Wife and I have been off of cable for over 4 years and haven't looked back since.

Wonderful Moment of the Day:  Rides from friends!

The Skyscraper Index

Here's an interesting pseudo-economic theory to start your Monday morning.  It's called the Skyscraper Index, and was originally theorized by researched Andrew Lawrence back in 1999.  You can read more about it here.  The general theory is just like it sounds; as higher skyscrapers are built, this would signify the peak of an economic cycle.  Soon after these skyscrapers are built, a global economic downturn occurs.

Lawrence examined a series of skyscraper builds throughout history such as the Empire State building, the World Trade Towers, and their seemingly predictable economic downturns immediately following.  The most recent example of this trend has occurred with the 2009 completion of the the Burj Khalifa in Dubai.  This was right around the collapse of the housing market.

These types of correlations are just fun to study and could play in the back of your mind when you are thinking about investing, but don't let it dictate your moves too much.  As the article suggested, there are studies that have found no correlation between skyscraper size and economic downturns.  In any case, this little tidbit of folk-economics still remains entertaining.

Wonderful Moment of the Day - Restaurant gift certificates, YUM!

Rolling With the Punches (Part 2)

On Wednesday, I posted this article which highlights one of my most recent failures with the hopes of portraying some helpful advice and wisdom in your own efforts to overcome the occasional failure.  We have all been there, and learning to deal with these when they come is an important life-skill.  There is one more financially related point I want to touch on while the topic is still fresh in my mind.

The importance of an emergency fund – By definition, an emergency fund is a liquid form of currency that is large enough to cover all of your living expenses for 6 months; the goal of this, being to help you survive a job loss or large unknown expense.  In the case of my large water bill, the shock to my finances was essentially a non-event.  Had I not have 6 months of reserves handy, I probably would have had to charge it to my credit card and suffered an extremely high interest rate. 

An emergency fund is not only important for your financial well-being, but it is essential for a better psychological being.  By having an emergency fund, you are essentially self-insuring your family against the unexpected life expenses traditional insurance doesn’t cover.  What if you need a new washer; a new roof; new car; or even worse, what if you have a large medical bill even after your insurance payment?  All these things should scare the heck out of you if you do not have an emergency fund. 

The lesson here should be pretty straight-forward, however it’s incredibly hard to have a semi-large amount of cash waiting on the sidelines while there are many potential things you could be doing with it.  Trust me though, in the long run, and the occasional financial hiccup, you will be much better off.

Wonderful Moment of the Day: After my Wife reset the thermostat, I woke up to a house at 57 degrees F.  It made me really appreciate waking up to a nice toasty home every other day.  Needless to say, I could only put up with that for one day.