Category Archives: Personal Finance

Free Income Tax Help at Truliant

Truliant is hosting free tax preparation help every Saturday from 9:00 AM to 12 PM starting this Saturday, January 31, through April 11.  From the press release:

The Forsyth Working Families Partnership offers this free tax preparation service through VITA to working families who make $42,000 or less in annual income. VITA started their partnership with local communities to help eligible families collect the Earned Income Tax Credit (EITC). It is estimated that millions of dollars in EITC go unclaimed by eligible working families every year.

Truliant employees are volunteering their time to this program to offer low-income, working families affordable tax return preparation, encourage savings and increase the number of tax returns completed. 

Truliant Federal Credit Union’s Fred J. Sarda Community Pavilion is located at 3200 Truliant Way. The hours of operation for this free tax preparation service are Saturdays, 9:00 a.m. – 12:00 p.m., from January 31 through April 11. 

Individuals taking advantage of Truliant’s free service need to bring the following: picture ID, Social Security card or ITIN and the Social Security card of each independent to be claimed, the employer ITIN or Social Security number of child care providers, W-2 form(s) and or 1099(s), last year’s tax return, amount received from the 2008 stimulus package and if applicable, the amount of their 2008 Advanced Child Tax Credit. 


Protect Yourself from the Credit Vultures

The blog "Get Rich Slowly" has a post on how to avoid five common credit card company "traps":

  1. "As low as 9.99% APR!"
  2. "Up to 5% Cash Back!"   
  3. "0% interest on balance transfers for 12 months!" 
  4. "Your card has a credit limit of $3,000" 
  5. "Any time for any reason" 

The post describes each of the traps and how to deal with them.  Believe me, this is really valuable information.  Most people have no idea how the terms on their credit cards can change and how what seems like a great deal can actually be the stinky end of the stick, at least until they grab the stick and it's too late.

Silver Lining

Just got my quarterly IRA statement. Gak! I’ve been reading that I’m a sucker because I bought and am now holding.  Well, I guess I’m just not a financial playa’.  The flip side of all this financial turmoil is that I now understand much more about the financial system than I ever did before.  Impending doom does do wonders for one’s focus after all.

I was talking to someone close to me, who shall remain nameless to protect his or her privacy, and I was telling him/her that I remembered a few years back when he/she got a LIBOR+margin, interest only loan for his/her house and at the time I had no idea what he/she was talking about.  I misheard "lie-bore" as "lay-bore" and so was befuddled at how my corporate-honcho acquaintance had finagled a loan out of the hated unions.  Well, now I know what the LIBOR is and how cool a loan that really was at the time.  I also mistakenly thought my acquaintance had refinanced with a more traditional loan since then, but was quickly set straight during our chat.  It seems that the loan is very much in place and resets every six months, and in fact just reset on September 30.  The conversation included a "funny if it isn’t your money" story about my acquaintance eating soup at a business lunch a couple of weeks back when someone checked their Blackberry and said, "Holy sh– the LIBOR just went up 7 points" at which point the soup was almost jettisoned.  Luckily the LIBOR dipped again before the reset on September 30 so the rate is at a respectably dismal level until at least April.  Still, the monthly payments on that loan have more than tripled since it was taken out.  At least it’s still affordable for him/her, which some people can’t say.

So I guess you could say that the silver lining of this whole meltdown is that I now know what mortgage backed securities are, what hedge funds are (kind of), what credit default swaps do and, yes, what LIBOR stands for.  Of course that’s kind of like knowing the number of the train that’s about to run you over.

Lenders, Meet the Law of Unintended Consequences

Remember when the banks were so hot to trot on toughening the bankruptcy laws?  This BusinessWeek article looks at why they might now be regretting those tougher rules.

The latest lesson for lenders from the housing crisis: Be careful what
you wish for. Banks and other financial outfits spent eight years and
$40 million lobbying for sweeping new bankruptcy rules that would limit
their losses from deadbeat debtors. But it turns out those changes,
enacted in 2005, are forcing more troubled borrowers to walk away from
their homes—even those who didn’t take on risky mortgages in the first
place. And that’s bad news for lenders, which suffer financially every
time they have to take a troubled property on their books.

Before the new rules kicked in, many consumers could find debt
relief—and keep their homes—by filing for bankruptcy protection. Now
the process is much more onerous and expensive and the benefits more
limited, making foreclosure seem appealing by comparison. A July paper
by David Bernstein, a researcher at the U.S. Treasury, found that
800,000 fewer homeowners have filed for bankruptcy since the rules
kicked in. A quarter of those people, says the report, have likely had
to give up their homes as a result—boosting foreclosures nationwide at
least 4%. "[The rules] are directly responsible for the rising
foreclosure rate," notes another report by investment bank Credit
Suisse (CSR). Counters Philip Corwin, counsel at the trade group American Bankers Assn.: "These studies don’t stand up to scrutiny."

The article doesn’t make clear how the studies might not stand up to scrutiny, so I don’t know if the ABA shill offered any details of their scrutiny, but I tend to believe that the tougher qualifications for bankruptcy had to increase the rate of foreclosures over what they would have been had the laws remained the same.  I don’t believe for a second that the tougher standards are solely responsible for the increase in foreclosures, but they certainly contributed.

More Proof That Size Doesn’t Always Matter

You sly little devil, you thought my headline was about, uh, you know.  Sorry to disappoint.  Size, in this case, refers to paychecks.  According to this story over 20% of people that make more than $100,000 a year report living paycheck to paycheck.  For those of you who are math challenged that’s more than one out of every five.

Of course the story features the predictable advice from personal finance "gurus" and you can skip that.  I mean who doesn’t know that you should track all your expenses, eliminate unnecessary expenses, stop trying to keep up with the neighbors, forego that daily double mint mocha latte frappacino swirl and have your 401-K contributions automatically taken from your paycheck?  Apparently a bunch of people who make enough money that they should know better.

For my kids I offer this advice: your mother is a genius at managing money, your dad’s the idiot who spends it.  Listen to your mother, always.

Oh, and if you run a small biz or are a big earner and need a money managing guru to put your finances in order then give me a shout.  I know just the person to help you out. 

Coupons

One of my more often told stories is of my first grocery shopping experience as a married man.  Celeste is a lifelong coupon clipper and I’m not so our first Sundays together I spent reading the Washington Post while she shredded what in our household has come to be known as "her section" of the paper.  After much snipping and planning she announced that we were off to Safeway to shop for our first round of groceries together. 

When we arrived at the store I was mortified to see that she had a whole box full of coupons and a calculator that she stowed in the part of the cart that would later be occupied by one of our rugrats and I just knew that my Sunday afternoon of football watching was dead before arrival.  I groused as we methodically went up and down each aisle and Celeste would look at all fifteen varieties of every item, pull out her coupons for said item and then determine which was the best deal.  I kept saying over and over that the savings couldn’t possibly be worth all the time she, and now I, had invested in this venture.  I was a firm believer that time was more valuable than money, but that’s because I’m inherently lazy so anything that requires lots of the former to save or make the latter just isn’t high on my priority list.

Long story short we get to the checkout line and our food total comes to something like $130 and then Celeste hands her coupons over and I watched the total plummet to $89. Saving 31% is big time no matter what kind of income you have, but when you’re 25 years old and broke that’s a lot of tacos.  Believe me when I say I also started to get excited when grocery stores would announce double coupon days.

All of which leads me to an interesting item I read on The Post Money Value blog.   The blog is written by venture capitalist Rick Segal and you know he’s from the tech-geek pool when you read this:

Back when I could code without creating a hard drive failure (about
the time electricity was invented), I coded up a Coupon Management
System for my own use and, eventually, shareware.  Long long time ago.
You entered in all your coupons and then could enter a grocery list
which got matched to the coupons.  I managed to link all of this to the
local Stop & Shop where we lived at the time and could line the
shopping list up so it matched the flow of the store.  I added other
store layouts and soon was inputting specials from the newspaper to
match coupons.   Yeah, as I said, hard core coupon person. 

I
suffered from the occasional "Daddy, are we having chicken pot pies
again?" but we saved tons of money.  I knew this was a big deal for
families with small incomes. My software was designed to save you money
and manage your shopping list. (Geek alert: Paradox, thanks for asking).

That’s some serious geekery, but I can promise you that when Celeste reads this she’ll wonder how she managed to marry me (king of all worthless knowledge) and not the guy who shares her love of coupons and is smart enough that he wrote a piece of software that could have made her life so much easier.  But I digress.

Mr. Segal also points out that coupons have a historically low redemption rate and rightly points out that the main problem is the time you have to spend clipping and organizing them.  As a web guru he thinks the time might have come and his following observations are food for thought:

1. Value for effort.  Not enough people will dance
for a $2 savings on a $40 grocery bill. 5% just isn’t cutting it.  50%?
75%? Different story. For those kinds of savings you get the kids to
input all the stuff and make it a kids game.

2. Big Revenue Stream.
I believe that if you like Pepsi, you will grab the coupon for 50 cents
off.  But I super, really, totally believe, Coke will pay good/serious
money to target that Pepsi drinker with a  super larger coupon to try
to convert that customer over to Coke.  So far, nobody has broken the
code on how to get this done in such a way that protects privacy and
generates big big results.

Enter Facebook.  Will coupon
clippers migrate/be on Facebook?  I don’t know.  Could a Facebook
coupon app, coupon community, etc work? I don’t know.

The larger point of this blog post is this:

Before
the Internet and lots of always on/always connected people, Ebay was
impossible. No chance of mass adoption trying to do Ebay on
Compuserve.  So, with the Internet and "web 2.0" and "Social media" and
all the rest of the buzz words; What’s possible?  What can you do now
that we couldn’t do before.  Walk around and ‘re-think’ it all. All
those ahead of their time projects may have found the right time.

I think there’s huge opportunity here as well.  Some stores are already experimenting with coupons that show up on peoples’ cell phones so that the customer merely has to show the screen to the clerk and the savings are recorded.  Obviously you can’t do this with dozens of grocery items, but what if you had a way to have your coupons fed to you online, already organized so that they could be printed off with bar codes intact and in the order that you want them?  Much like I set up my Netvibes account so that all my information is automatically fed into various "pages" I could just add a coupon feeder and tell it what kind of items I want coupons for. Literally I would set it up so that I get jelly coupons in one batch, canned vegetables in another, frozen treats in another, and so on.  I could print out those that I find interesting and head off to the store and safe lots of time in the process.  I think it would work.

The key here is simplicity and speed.  I think the average consumer is like me: I still let Celeste do all the clipping because I don’t enjoy it (she really does) and I view it as a time suck.  Maybe if Celeste didn’t do it I would, but I doubt it.  On the other hand if I had a service that automatically pulled it all together for me I’d do it in a heartbeat and I think many others would too.

 

I’ve Been Thinking About Taxes

Before I get started I want to say one thing: when I write about taxes I reserve the right to change my mind, just as I do when I write about other topics.  Okay.

I’m in the middle of a little self-education campaign re. America’s tax system.  The reason I’m doing it is that it occurred to me that while I’ve always complained about paying taxes, I’ve never really understood them.  I mean when I entered the work force I had no idea what Social Security, Medicare/Medicaid or FICA was.  I just knew there was a chunk of change being pulled out of every paycheck to be held by the government for when I was an old geezer, and what 16-25 year old cares about that?

Then a few years ago I started reading that Social Security probably wouldn’t be there when I retired, or that the government was dipping into social security to pay for stuff.  My little English-Lit brain kind of went, "Huh?" and then moved on because I had things like kids and work to worry about.

Now, though, I want to take the time to understand.  I want to know what income taxes are, why we have them and why our tax system is so complicated.  So I went on-line and bought a bunch of used books and I also went to the library to check out one book in particular, David Cay Johnston’s "Perfectly Legal."  It’s been a real eye opening experience.

Side note: I don’t agree with some of Johnston’s recommendations but I
found a lot of his background information fascinating and some of his
arguments compelling.  Definitely a worthwhile read, as is his coverage
of the IRS for the New York Times.

I still consider myself on the front end of the learning curve on income taxes, but after reading Perfectly Legal and starting in on a history of taxes in America (Federal Taxation in America: A Short History, by W. Elliott Brownlee) I can say that I think the following:

  • Income taxes are absolutely necessary.  While we can all argue about how much we should pay in taxes and about how much government we should fund (i.e. what the government should do with the money) I think we can all agree that part of being in our society is contributing to the common well-being of the nation and income taxes are an effective means to that end.
  • Income taxes can be fair, but currently aren’t.  I’ve read a lot of arguments for flat taxes and federal sales taxes, but I have to say that if the income tax system is fixed properly I think it has the most potential to be the most equitable.
  • Republicans and Democrats are both responsible for the current state of the income tax system. 
  • Our income tax system is unnecessarily complex, and that complexity hurts the middle class most and helps the upper class most.
  • The system is complex because the various loopholes and incentives that create the complexity benefit Congress’ most influential constituency, what Johnston calls the political-donor class.
  • The reason that the middle class is hurt the most by this system is that most people within the middle class have what I’d call normal income; wages and salaries.  They also have a higher share of their income taxed for Social Security.  The wealthy, especially the extremely wealthy, get most of their income via interest on their equities, stock options, etc.  Also, the average middle class person is taxed before they get their money while the wealthy are taxed after they’ve had their money in their pockets for a while.
  • The debate about taxes needs to start with a debate about defining income. We need to define income before we can get serious about tax reform.
  • We also need to debate the goals of the country, the fiscal priorities of the country, while we debate tax reform.  We may discover that we can reduce all of our taxes if we get serious about cutting back on what we expect the government to do.
  • The average American is woefully ignorant of the tax system, how it works and its history.  I’m willing to bet that the vast majority of Americans don’t know that income taxes didn’t exist until 1913 or that the top income tax rate during WWII was 90%.  Puts the current top tax rate in a different perspective doesn’t it?
  • Finally, there is no one in power that has an interest that would be served by fixing the system.  I wouldn’t count on anyone in power today to fix this thing.  It will have to be a remarkable grassroots effort.

Here’s the biggest thing I’m struggling with: should the wealthy pay a higher percentage of their income in taxes?  The rationale for this "progressive" taxation is that the wealthiest have accrued the greatest gains from our society and thus should pay a requisite share.  On the other hand if I make $100,000 and you make $1,000,000 and we both pay 20% then I’m paying $20,000 and you’re paying $200,000.  It looks to me like you’re already paying more.

Of course the reality is that in today’s system my $100,000 is actually less because I’ve had Social Security taken out of a huge chunk of it.  In fact you paid the same amount of Social Security on your one million as I did on my 100k, so right there I’m playing catch up.  And you’re much more likely to have loopholes to exploit and to have paid a tax lawyer to find them for you.  So in today’s system maybe we need you to pay 35% to make it equitable.

But if we redefine income to include all money we gain in the year no matter how we gain it, and do away with the loopholes and then come up with a tax rate that will serve the country’s needs, do we need to have a progressive tax?  One point here is that we’d probably want to have a lower rate (or  no tax) for the truly poor, but above that line we might be able to have one fair rate.

I’ve also read the argument that if we went this route we’d kill the incentives for investing in public companies, which is a key driver of economic growth.  I don’t know if I buy that though, since you’re still basically making money for doing nothing other than gambling on a company’s success, and that’s pretty easy money.  Can’t see the possibility of paying income taxes on easy money reducing its allure.  (I’m thinking that Greensboro blogger David Boyd might be prepared to debate/educate me on this point).

But, here we come to another sticking point for me: how do we tax someone who hasn’t realized the gain yet?  In other words if I’ve invested in Microsoft and the company gains 10% on the year, should I get taxed on the capital gains now or should I get taxed when I actually sell the stock and get the cold, hard cash?  I guess I could pay the capital gains now and then if I lose money the next year claim a deduction, but then we start getting back into complexity don’t we?

So like I said, I’m on the front end of this process and I have a long way to go, and I’m sure my thoughts will evolve on these matters.  But one thing I’m pretty certain will not change is my feeling that the system is broken, it’s not fair and we need to fix it for the good of our country.

Glad I Didn’t Do It

Some times being a conservative investor really pays off (my investing conservatism is analogous to Jesse Helms in politics).  As I wrote last month I was invited, along with a few hundred thousan other customers, to invest in Vonage at a bargain $17/share when the company went public.  I decided not to invest and man am I glad.  The Vonage offering has been one of the biggest busts in recent memory and now the company’s pre-public investors are suing the company over the whole fiasco.  Now as long as my mattress doesn’t burn I’ll look pretty smart.

Lewisville Businessman Selected to Participate in Vonage IPO

That headline sounds impressive right?  Until you consider that all Vonage customers who meet certain criteria are invited to participate in Vonage’s IPO.

This morning the "Lewisville Businessman" mentioned in the headline, that would be moi, had a voice mail from the Vonage folks re. the IPO.  The message pointed me to www.vonageipo.com to see if I qualified for inclusion in the IPO.  So I visited the page and clicked on the button to register and was directed to this page which listed the following criteria I need to meet to participate in the IPO:

  • You opened an account with Vonage on or prior to December 15, 2005.
  • You have maintained your Vonage account in good standing through February 1, 2006.
  • You are a U.S. citizen.
  • You will be a U.S. resident as of the date of the consummation of Vonages initial public offering.
  • You have a valid U.S. social security number.
  • You are a natural person. No entities, such as companies and trusts, are eligible to participate.

                Other conditions to participation also may apply.

The one about being a "natural person" worries me because, you know, sometimes I get that "not-so-natural" feeling…but I digress.  This is my first opportunity to participate in an IPO which means I’m a little worried about Vonage’s future.  I mean if they want me then there has to be something wrong, right?

***Update 5/31/06*** I’m very glad I didn’t go for this deal.  Here’s a NY Times article that describes the IPO as disastrous.   Here’s an excerpt:

Vonage,
tarred by a disastrous initial public offering last week, is scrambling
to reassure investors. The company, which provides Internet phone
service, said yesterday that it would reimburse the bankers who handled
the sale if any Vonage customers refused to pay for shares that were
allotted to them.

Vonage gave its customers a chance to
buy as much as 15 percent of the 31.25 million shares that were offered
last week. About 10,000 of the company’s 1.6 million customers
ultimately received shares, which were sold at $17 each, according to a
person briefed on the deal. Customers had until yesterday to open an
account with a specified broker and pay for their shares.

Some
customers who participated in the "directed share program" were
reluctant to pay for their shares after the stock fell. The shares have
lost more than 26 percent of their value since their debut last
Wednesday. They fell 52 cents, to $12.50 yesterday.

   

Got a new ATM card for no reason? Here’s why.

Citibank recently revealed that thousands of customers’ PIN numbers had been obtained by scam artists and that it had to freeze PIN-based transactions for customers in Canada, Russia and the UK and then reissue cards to those customers.  They also apparently didn’t inform their customers about what was going on.  And now it looks like they aren’t the only bank dealing with what one expert calls "the worst hack ever."  Finally, if you used your debit/check card at Sam’s Club or OfficeMax you might want to check with your card company since it looks like the leak might have occured there.