The Balanced Spreadsheet-Financial News, Budget Advice, Debt help, Financial Tips, and other advice

October 30, 2009

Penalty for staying out of debt?

Filed under: News Review, Personal Finance — Tags: , , , , — thebalancedspreadsheet @ 11:35 am

I meant to post this article I found in USA Today by Sandra Block last week, but did not find the time.  But I still wanted to post it because it seems like every time you look up your bank is tacking on another fee.  Below is a good excerpt from the article:

You floss regularly, yield to oncoming traffic and use your credit cards judiciously, dutifully paying off your balance every month.

You may believe that your exemplary behavior shields you from unexpected credit card fees. Sadly, that is no longer the case.

Starting next year, Bank of America will charge a small number of customers an annual fee, ranging from $29 to $99. The bank has characterized the fee as experimental. But card holders who have never carried a balance or paid late fees could be among those affected.

Citigroup, meanwhile, has started charging annual fees to card holders who don’t put more than a specific amount on their cards, typically $2,400 a year. Other banks are charging inactivity fees if customers don’t use their credit cards during a specific period of time. You heard that right: You could be spanked for staying out of debt.

For me, this just enforces why I do not have a credit card and especially reinforces why I do not deal with the mega banks.  Bank of America is now going to charge you $29-$99 just to have the right to borrow money!?!?!?  For not using your card an average of $200 a month you will get a charge from Citi?  Imagining having to pay a fee for something that might not get used is just plain crazy.

That begs the question, how long will these banks be able to get away with his customer abuse before their loyal customers revolt and take their business elsewhere?  To me it is only a matter of time.

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October 29, 2009

The Mortgage Interest Myth

Filed under: Goals, Mortgage, Personal Finance — Tags: , , , , , — thebalancedspreadsheet @ 8:33 am

Those of you who have visited The Balanced Spreadsheet for a while now, know that one of our financial goals is to pay off the mortgage as soon as possible.  As I wrote in “To pay or not to pay” some people cite the mortgage interest tax deduction as a reason to not pay down the mortgage.  Today I am going to explain why this reason is a complete myth. 

For our example, let us assume you have a mortgage balance of $200,000 at 6.0%.    That means you will pay $12,000 of interest during the year.  If you itemize your deductions you will be able to deduct the $12,000 off of your income.  If your income for the year was $100,000 you would then pay taxes on $88,000.  This would put you in the 25% federal tax bracket if you are married filing jointly.  This means you would have a tax savings of $3,000 ($12,000 x .25).  So basically you are paying the bank $12,000 so you do not have to pay the IRS $3,000.  That is definitely not a winning game plan.  If you really want the tax deduction just give $12,000 to a charity of your choice, that way you still get the deduction but you do not have to go into debt to get it. 

Bottom line is this:  If you have a mortgage and are able to deduct the interest on your income taxes then do it!  It is a nice benefit to have come tax time.  However there is absolutely no reason to keep the mortgage just for the tax deduction.  Sadly there are some financial and tax advisers, who are other wise good, that will advise you to keep the tax deduction.  If my advisers give me that advice then I am getting a new one.  🙂

October 22, 2009

The Rising Cost of College Tuition

Filed under: News Review, Personal Finance — Tags: , , , — thebalancedspreadsheet @ 11:14 am

The AP ran an article Tuesday, citing date from the College Board, on the rising cost of college tuition.  As someone who paid for school themselves without incurring any student loans, I am always curious to see how much college cost is running these days. As well as how much student are borrowing to pay for their education. 

Some of the more notable quotes:

“Average tuition at four-year public colleges in the U.S. climbed 6.5 percent, or $429, to $7,020 this fall as schools apologetically passed on much of their own financial problems, according to an annual report from the College Board, released Tuesday. At private colleges, tuition rose 4.4 percent, or $1,096, to $26,273.”

“Still, this year’s increases were bad news for the estimated one-third of students who do not receive grant aid and must pay full price.”

When I graduated in the spring of 2004 my tuition was about $6,000 for my senior year.  So $7,000 a year for public college in 2009-2010 sounds about right.  Also that means private school is about 3.75 times more expensive then public.  Unfortunately with these price increases, more borrowing for college has occurred.

“Meanwhile, students also borrowed more to pay for college — but much more from the government and much less from other lenders such as banks. After years of expansion, private borrowing collapsed from around $24 billion in 2007-08 to less than $12 billion last year, the aid report estimated. “

“On average, about two-thirds of bachelor’s degree recipients borrow money, and their median debt is about $20,000 by graduation.”

Obviously I am not a big fan of student loans or debit in general.  To see 2 out of every 3 undergrads with student loan debt before they land their first professional job is troubling especially since half have $20,000 or more.  That does not seem like much of a blessing, but more like a curse.  Going through undergrad debt free is very possible if you do things the right way. 

As somebody who is hoping to have children that go to college someday this article is kind of scary.  To think how much college is going to cost in 20-25 years is pretty mind numbing.  The key though is planning ahead.  If you are able to start early enough with college funding the financial blow is not as hard as somebody who starts when their child is 16. 

Reading the whole article just makes me glad I went through college when I did without any debt. This allows me to be able to enjoy the fruits of my labor without any payments and no more worrying about increased tuition costs. 🙂

October 19, 2009

Employee Stock Purchase Program 3Q ’09

Filed under: Excel fun, Personal Finance, Real Example — Tags: , , — thebalancedspreadsheet @ 2:48 pm

The 3rd Quarter for my employer ended on September 30th. That means another stock purchase through my employer stock purchase program (ESPP). You can read a review of the process in my 2nd Quarter report.

3rd Quarter '09 ESPP

3rd Quarter '09 ESPP

 

I didn’t have as good of a quarter as I had hoped as the stock price decreased significantly on October 1st and 2nd. It rebounded a little and I sold at $13.64, which means I have a capital loss of $100.01 for the quarter. Still, a total gain of $455.65 or about 9.11% is nothing to complain about. I probably did sell prematurely however as the stock price is now about $13.91.

This is the last quarter that the ESPP gains will be on 2009 federal income taxes. December 31st will go on 2010’s taxes because that is when the stock will be sold. So it’s interesting to see what my YTD numbers are. For 2009 I will claim ordinary income of $2,222 ($555.67 x 4) and capital gains of $46.41 for a total of $2,268. Considering that I put the same $5,000 in every three months, my YTD ROI is 45.36%! Again, I am not getting rich off this but it still helps to have this money to pay off the mortgage sooner, investing in IRA’s, or just have for extra savings,

October 15, 2009

Traditional IRA v. ROTH IRA

Filed under: Personal Finance, Retirement, Simulation — Tags: , , , , — thebalancedspreadsheet @ 3:01 pm

With the Dow Jones Industrial Average once again breaking past the 10,000 point plateau yesterday, a lot of talk right now is about investing into the market.  Usually people invest in either a 401(K) through their work or an Individual Retirement Account (IRA).  There are two kinds of IRAs, Traditional IRA and ROTH IRA.  I am going to try and give a brief explanation of each and what I recommend to use. 

Similarities

While there are some key differences between the two, there are also some similarities.  First, the maximum contributions are the same.  For 2009 you may contribute up to $5,000 ($6,000 is over 50) into either a Traditional or ROTH IRA.  Also, you can start withdrawing from you IRA with no penalty after you turn 59½.

Differences

There however are some minor differences. You can only fully contribute to a ROTH IRA if you income is less then $105,000 for single filers and $166,000 for married filing jointly.  But there are no income limits for contributions to a Traditional IRA.  But you do have to start making mandatory withdrawals starting at age 70½ with a Traditional IRA, opposed to no mandatory withdrawals with a ROTH IRA. 

The major difference though between Traditional and ROTH IRA is the different tax treatments each receive.  Traditional IRA contributions are pre-tax, meaning that all contributions and growth will be taxed at the time of withdrawals, while ROTH IRA contributions are after tax, meaning contributions are taxed at your income rate at the time you contribute.  But when you make ROTH IRA withdrawals, both the contributions and growth are tax free!

Comparison

For our comparison let’s assume you make $50,000 this year and are less than fifty years of age and contribute the $5,000 maximum.  Under a Traditional IRA you would pay Federal income taxes on $45,000 ($50,000-$5,000), while under a ROTH IRA you would pay federal income taxes on $50,000.  So under a Traditional IRA you would have an immediate tax savings.  But over the long term what would the difference be when you are ready to retire? 

If you put $5,000 each year for 30 years into an IRA averaging a conservative 10% annual rate of return you would have ~ $942,000 at the end of the 30 years!  That means you would have $150,000 worth on contributions (30 x $5,000) and ~ $792,000 of growth!  With a ROTH the $792,000 growth would be 100% tax free, while with a Traditional IRA the entire growth would be taxed on when you make withdrawals from you account.  So while you have to pay the taxes on the ROTH IRA initially up front, tax free growth on a ROTH IRA would be a better long term value at retirement then a Traditional IRA because of the tax implication.

Well that is a short and brief explanation of the difference between Traditional and ROTH IRA’s.   Hopefully this answers any questions you might have before making your 2009 contributions.

October 13, 2009

Unclaimed Funds

Filed under: Personal Finance, Uncategorized — Tags: , , , — thebalancedspreadsheet @ 2:26 pm

MMLogo

What typically comes to your mind at the end of October?  Leaves changing colors? Halloween costumes? Candy corn?  Pumpkins?  Unclaimed Property?  What the heck is unclaimed property you ask?

Unclaimed property defined

Unclaimed property simply put is property that the owner has not used or has had activity on in over a year.  It can include things such as bank accounts, certificates of deposit, security deposits, or even paychecks.  Once a year companies that have these unclaimed funds or dormant accounts are required to submit their unclaimed funds to each state.  The individual states then take the money and set up their own database to try and find the rightful owners.  The owners must then go through their respective state unclaimed department to claim their money.

Most states required their annual filing to be completed by November 1st.  I am in charge of my companies unclaimed filing process and it is not the most enjoyable thing to do.  Once the money is transferred to the state there is a ton of bureaucracy and red tape to go through to get your money.

Search for and claiming unclaimed property

The National Association of Unclaimed Administrators (NAUPA) has a website that will link you to all 50 state’s website where you can search for unclaimed property.  The website is http://www.unclaimed.org/.  Be prepared though to jump through a lot of hoops to get our money.  Often times you will need to get a specific document signed or notarized, and even have to provide proof that you had lived at the last known address or had a business relationship with the company in question.  Considering these funds are sometimes 5, 10, 15, or even 20+ years old the odds are you probably do not have documentation from then.  However if you are able to claim your money it can be a nice little unexpected bonus.

With all that said it is probably worth it to put in your name in your states search engine and see if anything pops up.  Has anybody ever found unclaimed funds?

October 9, 2009

Cash Breakdown September ’09

Filed under: Excel fun, Personal Finance, Real Example, Uncategorized — Tags: , , , — thebalancedspreadsheet @ 2:27 pm

It has been almost three months since I have done on of these breakdowns on our cash balance.  I do not do this monthly, but it is good to check every once in a while to see what your cash is earmarked for.

Cash Breakdown 09-09

Emergency Fund-No changes here with the amount staying at the same at $10,000.  It is great to know that we have ten grand in the bank in case of medical emergency or job loss.  Currently there is no desire to increase or decrease this amount.

Working Funds-As always with a quarter end month, the balance is zero.  As described in June’s cash breakdown update, because I participate in my employers stock purchase program, I need to cover the $1,667 that is withheld from my pay check each month.  Next month this amount will reset. 

 Insurance Accrual-Foolishly I did not include this last time.  Since we pay our car insurance semi-annually (June and December) and the our life insurance annually (June), I need to “accrue” monthly the cash needed to pay the bill when it is due instead of having to come up with the full amount on the month it is due.  I simply just take premium due and divide by 12 for my accrual.

 IRA Funding-This is for both my wife and me.  It is part of our financial goals that we put 15% of our gross pay into retirement accounts.  Already this year we have contributed $250.00 each into a ROTH IRA for 2008.  The maximum for 2008 that you can individually contribute is $5,000.  The rest of our retirement funding goes into a 401(K) where our employers match.  I hope to contribute this amount sooner rather then later.

Car/Vacation-The remainder of the cash balance goes in this fund.  It’s nice to see the balance increase ~$1,750 in three months, which is an average monthly increase of over $575!  We are planning on taking our one year anniversary trip in May to a yet to be determined location.  There are no plans to purchase a new car but it is nice to have the money in the bank just in case.

October 1, 2009

September ‘09 Net Worth update (+7.66%)

Filed under: Excel fun, Net Worth, Personal Finance, Real Example, Uncategorized — Tags: , , — thebalancedspreadsheet @ 10:36 am

Like August, September was another good month, mostly due to increases in retirement accounts as well as a triple mortgage payment.  We like seeing these $5,000 a month increases in net worth.   After going through last autumn and winter with sharp decreases it is definitely something I can get used to.

 

Networth Sep '09

Networth Sep '09

Cash-Cash decreased slightly.  This is mostly due to contributions to my Employee stock purchase program (ESPP) as well as paying an additional $1,450 on the mortgage.  Currently we have a nice cushion but some of that is going towards a trip and possible IRA funding down the road.  

ESPP-This is a quarter end month.  That means the $5,001 I have in the account will be used to buy company stock which I will turn around the next day and sell at an 11.11% profit!  This will occur during the first week of October, so I will post an update how it goes like last quarter.

House-A few condos have sold for more then the $95,000 that is on the balance sheet.  I think we have might have hit the bottom of the real estate market.  With that being said I am still leaving the condo valued at $95,000 for now.  I would rather be conservative then jumping the gun.

Retirement-It is nice to see our retirement accounts continue to rebound.  Starting this month, instead of contributing 9% of my paycheck to the company 401(K), I am only contributing 6% which is the company match.  The extra 3% will now be going to my ROTH IRA. The wife and I did each open up a ROTH IRA for 2009.  We only contributed $250 each, but will contribute more before the year is up.

Pension-The increase is larger this month due to a lump sum raise paid out by my employer this month.  I should cross the threshold in November which will bump up my contribution in December.

Mortgage-A reduction of approx ~ $1,750!  I have discussed our decision to pay down the mortgage pretty as quick as we can before. It is really cool to see the principle reduced by big chunks every month.  At our current rate, we will pay the mortgage off on July, 2013.  I have decided against refinancing for now due to the breakeven point being 24 months.

You can see past net worth updates at my net worth history page.

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