Friday, January 25

Get some money in the mail!

You have probably heard the news that your economic stimulator will arrive in your mailbox sometime in May.

If you're married and earning less than $100k per year, you can look foward to a $1,200 check. If you have kids, you'll get $300 for each.

I'm not sure if this stimulus package is going to have the intended effect. News today is that if it doesn't then the government will consider another one.

Some have argued that wealthier taxpayers are more likely to put a $300 check into savings or pay down debt, and that directing more of the stimulus to lower-income households that spend the money is likely to have a greater positive impact on the slowing economy. CNN

I think it is a misnomer that only the wealther taxpayers are likely to pay down debt with this return. Most folks are walking around with some signifcant credit card debt, the average person today has over $9000 of it. I believe that a large portion of these checks will go right to paying down debt. In my case, it's going towards Christmas gifts purchased in 2007!

Not that we should count our chickens before they hatch, but what would you do with $1,200 of found money? Pay a bill? Put it in savings? Retire in Mexico?

Money for Snowflaking

This is a neat debt reduction strategy posted over at I've Paid For This Twice Already. Use the snowball approach to debt reduction supplemented with these extra snowflakes.

All debt reduction strategies and plans have one thing in common; they require discipline. Without discipline, all you have is a plan. You need to take action and be in control, play by the rules. Don't lose site of the prize- No More Debt!

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How many allowances should you claim on the W4?

UPDATE- This post is continued here

Not too many and not too few! The worksheet that the IRS provide with the form is kind of helpful but might still leave you scratching your head.

The more allowances that you claim, the lower the taxes are that are subtracted from your gross pay.

Claim too many, and you may end up paying in to the IRS at the end of the year. To add insult to injury, you might have to pay a penalty too!

Claim too few, and you give the government a free loan for the year.

Many people use their W4 allowances kind of like a forced savings program. This is okay if it is absolutely the only way that you can save money, although you have many other options available to you.

Instead giving the government a free loan for $xxxx.xx, claim a fewer number of allowances to increase the amount of your take home pay. Take this increase and divert it to Sharebuilder or some other type of savings program. This is wiser than getting a big check back from the government. Why?

First, you won't have access to the cash. This is good if you don't need it for something else like paying off bills. This means that you won't spend it frivolously.

Second, you will be investing the money, not just saving it. The difference between savings and investing (in theory anyway) is that saving your money means you're merely holding onto it, not spending it. The cash is depreciating (unless you have it in a high yielding account, like ING Direct). Investing it means that your money is working for you, cloning itself, becoming worth even more over time.

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Thursday, January 24

We need to see you

This notice was on a monthly statement that I received the other day. Could it be that Citibank has had some 'difficulties' authenticating their online customers. Have they had a problem with overseas wires? It's been a few days since receiving this and I haven't read any breaking news, so maybe it's just a precautionary thing. I hope that they're not having regulatory problems on top of their mortgage problems!

Wednesday, January 23

I'm not an economist.... But...

I'm not an economist, so that's why I wasn't able to write it as eloquently in this post as Mr. Schenk, Sr. Economist for CUNA said it in this quote:

"The Fed is essentially asking these folks with unprecedented levels of debt to bail out the economy by running out and borrowing more. This suggests--as Fed Chairman Ben Bernanke argued last week--that fiscal stimulus also may be needed."

Read the entire article here

Is it really this bad?

How bad is it? Taking it all into consideration, it's not all that bad; or is it? I guess it depends on your point of view.

Take for example this post over at Advanced Personal Finance. Some very good points are made about the 'hype' and the reality.

Me? I'm bearish. Moved everything to cash (everything makes it sound like such a big amount, I wish!). Safest bet for you buck is in a high yield money market account someplace....

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Tax Prep Software

I received a full version of TaxCut in the mail a couple of weeks ago. Made it pretty easy to decide what to use to prepare my taxes this year! Now that I have received most of my tax docs, I guess its time to load up the software.

It would be nice if the H&R Block folks would send me a free version! The software that they sent requires payment at some point, probably when you license it during the registration process. The box that it came in says that it is the "Same TaxCut software and at the same manufacturer's suggested retail price as sold in stores". I wonder how it compares to what I can buy it for locally? I'll keep you posted!

Tuesday, January 22

Blame it on the banks!

I read an article by Roger Lowenstein in the February 2008 Smartmoney Magazine called Blame the Banks. Roger opines that banks are the blame for the subprime fiasco. He feels that the bankers acted more like stock brokers instead of lenders. His arguments are compelling.

"... they played a dangerous game. They issued and repackaged loans on the basis of whether they could be resold-not on the basis of wheter the loans were any good. They forgot they were bankers and acted like traders. A Banker loans money with the expectation of getting it back. A trader merely hopes to fob the loan off on the next guy."

Why did the banks do this? Simple answer- PROFIT!

Bankers are struggling to get and keep deposits. What is the one thing that they can do to almost guarantee that we'll deposit our money with them? Pay us high yields for our deposit accounts. Where does the money come from to pay us these high yields? Fee income and interest income earned from loans.

How do bankers get loans to earn income? By lending money at low loan rates.

In a market that requires the paying of high yields to attract deposits and low loan rates to attract loans, it is very difficult to earn a profit for the stockholders. How can you pay 5.00% for a 5 year certificate of deposit, and make a 15 year mortgage loan for 5.25% and not go broke? One way is by selling off the loan and re-investing the cash into another loan. A money recycling mill. Each time the money is cycled through, it comes back with a little more. The more your recycle, the more money you have.

I agree with Mr. Lowenstein, bankers should stick to banking and come up with another way of satisfying their stockholders, as long as it doesn't involve charging their customers a fee every time they exhale. Maybe the bankers should take a look at the way credit unions operate; non-profit financial cooperatives. I wonder what this subprime mess would have looked like if banks were more like credit unions; would it even have happened?

Monday, January 21

Avoiding the Rush- Preparing your tax return early

It's time to start thinking about filing your tax return for 2007. Here are a few ideas to help you get started.

Tax paper depository
January is the month that you'll start receiving all kinds of tax forms in the mail. Get a large manila envelope, small file box, shoe box, something to centralize the collection of these documents. You'll save a lot of time finding them when you're ready to start working on your return, and you'll avoid having to amend the return if you forget something. Be on the look out for W2's from your employer(s), 1099's from your banks, brokerages, etc., and 1098's from your mortgage company(ies).

Purchase some tax prep software
If you're a do-it-yourselfer, there are a number of software programs available on the market today. I used H&R Block's Tax Cut last year and found it to be easy to use. I've also used Turbo Tax and found that to be just as capable. What I like about these programs is that they will 'audit' your return before you finish them, pointing out any not so obvious errors or red flags.

Another option is to file using the IRS's 'Free File'. If you AGI in 2007 was $54,000 or less, you can use Free File to prepare and e-file your taxes online. If you earned over the maximum, you can still use the IRS's E-file to prepare and file your return. If you file the "old way", you'll be receiving a packet in the mail from the Feds and your State. Be sure that you have all the forms that you need! You can pick these up at any Post Office, some libraries, or download them from the IRS's forms website.

Make an appointment with yourself
When you have all of your paperwork together and have installed your software, its time to schedule a couple of hours with yourself to prepare your return. I like to be in a quiet place where I won't be interrupted.

Direct deposit your refund
Having your refund electronically deposited into your bank account eliminates checks lost in the mail. Another benefit; you'll get your money much sooner than you would if it were being mailed to you.

Getting your taxes done sooner than later relives the last minute stresses of waiting, and if you're getting a refund you won't have to wait until May, June, or July to decide how to spend it!