Home > Archive: August, 2007

Archive for August, 2007

Balance Transfer

August 28th, 2007 at 05:24 am

I recently got an offer in the mail for an American Express card with 0% balance for a full year and 0% transaction fee. I applied, and transferred $2500 to each of 2 credit cards that I pay off every I could get the cash. This offer didn't say how much the credit limit was going to be, and it said that if the credit limit you did was lower than what you requested be transferred they would have the discretion to either pay some of it or turn you down. I figured that if it wasn't $5000 at least I would get $2500. My plan was to put the money in an online savings account, pay the minimum every month until next July and then pay off the lump sum before the interest started accruing. Quick and dirty calculations showed I could make almost $200 throughout the year doing this in a 5% savings account, and I figured I would just set it up to transfer the money automatically from the online savings account to a checking account that would then automatically pay this bill. I would keep one month's payment in the checking account as a buffer in case the online savings account transfer didn't happen for some reason.

Well, I just looked online, and the credit limit is actually $22,000. So, I have $17,000 left that I could transfer. For some reason, I'm hesitant to transfer this money over and do the same thing, even though I could make almost $800 during the year doing this with the exact same setup as I was planning on doing with the $5000. So, why my hesitation?

I am figuring that the payment would be 3% of the balance every month, so the first payment will be $660. It would go down a bit after that, about $20 a month at first, but the payment would always be available...transferred from my bank account dedicated to making monthly payments from this.

So, why am I hesitating? Who would turn down $800 for doing nothing except keeping an eye on the automatic payments from one bank to another and one bank to the credit card to make sure they are executed successfully? I already pay everything else on-line except one bill that doesn't accept it, and I already have 4 bills on automatic payment and have never had a problem with them.

Engaged Encounter

August 17th, 2007 at 03:16 am

My fiance and I went to the Catholic Engaged Encounter this past weekend. It was a bit of a waste of time, because we had talked about most of the topics already, but we did get some good out of it. I think what we got out of it most was an affirmation that we weren't rushing into this.

The format of this weekend was that everyone met in a big conference room with two married teaching couples, a priest, and all the engaged couples. There were probably 35 couples there. One of the married couples would tell a story in their lives that had to do with the topic, the priest would tell a story having to do with his congregation, they would go back and forth like this for about 20 minutes. Then, one of us would go to a room and the other would stay in the conference room, and we would write letters to each other having to do with the topic. After about 20 minutes of that, the person who stayed in the conference room would go meet their partner in the room. Each would read the other's writing, and then discuss if you had any problems or issues that needed to be talked about. Then, after about 20 minutes of that, we went back to the conference room.

First we talked about why we were even there. Why did we show up at the weekend retreat? What do we want to gain? I'm sure that a lot of people wrote "so the priest would marry us" or "she wanted me here, so I'm here."

Then, we talked about ourselves, and how each person comes into this union offering ourselves to the other person. Also about how we see ourselves and how other people see us, and if we feel the need to live up to someone else's expectations. We also talked about our family backgrounds, and how the way we grew up would impact our future relationships.

After that, we talked about our relationship. About how in marriage, there will be good times, there will be bad times, and that sometimes, you have to decide to love the other person because you won't like them at that moment. The point of this one was that there is a cycle of romance, disillusionment and joy in every relationship, and that it isn't always going to be rosy and sunny. We also talked about the romance, disillusionment and joy we have already had in our relationship. Just reading his letter to me on this one makes me want to shout out with happiness! I smile every time I read it.

That was it for Friday night. We then retired to our separate rooms (we're at a Catholic weekend retreat, after all) and got up early for mass the next morning. The first talk after that was "Openness in Communication." It talked about how to fight fairly, like no name-calling, no outside influences, no past history, no cheap shots. Don't go to bed angry. And HOLD HANDS. That one was kinda strange; you most likely don't want to hold hands with someone you are fighting with, but they explained that this way you realize that you are not trying to make the other person lose, but you are trying to make the best decision for your family. When we were discussing this one, I realized that I don't listen to what he is saying and take it to heart enough. I hear what he is saying, and I can talk intelligently about it at that moment, but I don't internalize it and remember it.

Next was "Signs of a closed relationship." This helped you realize if you were hiding something from the other partner, so you could spring it on them after the wedding, even if this wasn't intentional. Some of the questions you could answer were "what things to I talk with others about more easily than I do with you? What does that say about our relationship?" or "what doubts to I have about marrying you?" or "What do I expect of myself as your husband/wife? What do I expect of you as my husband/wife?". The one he answered was "Are we in agreement about how to handle the assets and debts each of us brings to this marriage? How will we do this?" We had quite the discussion over at the forums about my fiance having a high interest debt and that he was buying land and a tractor and a combine, and what I suspected is true...that he kept the farm loans current so he could keep operating, and that is why the credit card hadn't been paid. I am starting to realize that farming is going to be completely different from anything I have ever done...that even if you do the right things at the right time, if the rain doesn't come or the sun doesn't shine, you don't make it. With this discussion, I realized that he thinks about money a lot, mostly in the "where am I going to come up with that" line of thinking. He agreed that the high interest rate credit card had to go, but that you had to balance that out with keeping all the bills current. In this section, I talked about how I sometimes don't feel feminine, and that I have been so independent and in control since I have been out of school, I am worried that I won't make a good partner with anybody. And I worry that I won't make a good mother. Those are my doubts.

That takes us to about lunch on Saturday. Only another day to go...but I'll wait for that one for another time.

Beginning Investing

August 15th, 2007 at 11:28 pm

Let's start like this. A stock is a piece of a company. Very simply, a stock is your stake of ownership in that company, and if the company does good, the stock goes up and if the company does bad, the stock goes down. If me, my brother and my sister bought a house together, we would each have one stock of that house, and each stock would be worth 1/3 of the cost of the house. If we fixed it up and sold it for a profit, then the "price" of the stock would go up and we would all make money. If we painted it all neon green and decided people don't really cook, so why keep that pesky kitchen in there? then the house would sell for less than we bought it for plus the cost of fixing it up and our shares would be worth less, and we would all lose money. Now, for a company like Coca-Cola, they have 2.5 billion shares instead of 3 shares like our house venture. But the principal is the same. You buy a share of the company and if they make a new drink that everybody likes, the price goes up. If they make New Coke again, the price goes down.

Investing in only one company is very dangerous. You are putting all of your money into trusting one company and board of directors to do the right thing. If everyone starts drinking Pepsi, you are sunk. So, someone came up with idea of a mutual fund. All a mutual fund is a collection of stocks...a place that you can send money in and they buy different stocks with that money. Let's say that one particular mutual fund is a "drink mutual fund" and it is invested 35% in Coke, 35% in Pepsi, 15% in Gatorade, 10% in Powerade and 5% in Jose Cuervo just for spice. If you were investing in this mutual fund, and you sent in $100, it would buy you $35 worth of Coke shares, $35 worth of Pepsi shares, $15 worth of Gatorade shares...etc... In reality, you have probably heard of the Dow Jones which is a collection of 30 companies, or the S&P 500 which is a collection of the 500 biggest companies in the New York Stock Exchange. So, if you bought a mutual fund that invests like the S&P 500, then you would own a piece of 500 companies instead of 1 when you sent your money in. There are many, many mutual funds to choose from, but that is a discussion for another day.

Now, a bond is really a loan to companies or government entities (like the federal government, the state, counties, cities, school districts, etc). Let's say that Ellsworth County wants to put in an ethonal plant, but doesn't want to raise taxes immediately. So they start selling bonds with 7% interest; that is they want you to give them money now and they promise to pay you back plus 7% in the next year. If you buy $100 worth, next year, you should get back $107. But, what if they can find some poor sucker that will take 4% instead of 7%? Then they will sell another bond to the guy that will take 4% and pay you off, so you will get your $100 back sooner, but you won't get the entire $7 in interest. But, what if the Indians took over Ellsworth County again? Really, what if the ethonal plant doesn't come in, and Ellsworth County spent all this money to make it attractive for that plant to relocate there? You might not get paid at all. Like stocks, it is risky to only invest in one bond. So, there are things called bond mutual funds that invest in a lot of different bonds just like stock mutual funds invest in a lot of different stocks.

That is what people are talking about when they are considering buying stocks and bonds. Lots of people don't know that. Some people think they are gambling, really just playing a game with numbers, and they can't see the connection between what they buy and the company behind the stock or bond. But, if you keep this connection, that you are an owner of those companies, or you are holding a loan for those companies, you will have a healthier view of investing.

It used to be that you would work for one company all your life and when you retired, you got a gold watch and a pension. That is, the company would continue to pay you after you retired, to keep you from starving when you got old. Companies have stopped doing that lately, and so people have to now take care of themselves. The government recognizes this, and wants to give everyday people an incentive to invest for their retirement.

That is where the IRAs, Roth IRAs and 401(k)s come in. There is a fourth type that people forget about, but if people would talk about it, it would make more sense to everybody. That fourth type is the "taxable mutual fund". For, you see, all four of these vehicles invest in mutual funds. The only difference between them is how the money is taxed.

The only way the government can give you an incentive to do something is to reduce your taxes because of that activity. For instance, the government wants you to own a house. So, they let you deduct from your taxes the amount of money you spent on interest to buy that house. Or, the government wants you to own a business. So, you can deduct from your taxes any expenses associated with your business. These things allow people to accumulate money, provide for their families, hire other people, buy more things, and it is good for the economy, or your safety, or something, so the government wants you to do these things.

When you invest in an IRA, a Roth IRA, a 401(k) or a taxable mutual fund, really, you are buying a mutual fund and then checking a box that says "I want to treat this money like an IRA" or "I want to treat this money like a 401(k)" or "I am investing in a mutual fund the government isn't helping me out with". The stocks are the same, the bonds are the same, the idea behind the mutual funds are the same; you are just deciding how the taxes should work.

The first one everyone recognizes is the 401(k). This is a plan where you have money taken out of your paycheck and it is invested in (one or many) stock or bond mutual funds. The money comes out of your paycheck before taxes...that is, if you make $30,000 a year and put $5000 into your 401(k), then you only pay income taxes on $25,000. I guess really, $25,000 is the starting point; from there you take out your personal exemptions, your dependents, your student loan interest, etc. But, it is a great deal. Also, some companies "match" your contributions. They say "100% match on your first 5%". I don't know why they do this...maybe because they feel guilty that they aren't going to pay your pension anymore when you get old. But anyway, that means that if you make $30,000 a year and you are going to put 5% of your pay in a 401(k), you are going to invest $1500 that year and your company is also going to give you $1500 to invest that year. Boom, you invested $1500 and as soon as you do that you have $3000 invested. YIPEE! It doubled! People always say "that is free money" because the company you work for is set up to do that sign up for your 401(k) and put money in there, and the match will show up. There is a limit as to how much you can invest in a 401(k)...this year it is $15,500, but it is going up next year. But, you can invest a little (for my company, I can only invest in percentages, so the smallest I can invest is 1% of pay) or a lot, just not more than that limit. Now, the government gave you this incentive to save for your retirement by not making you pay taxes on that money RIGHT NOW, but you will have to pay taxes on it WHEN YOU RETIRE. AND if you do put money in a 401(k) and you want to take it out again before you retire, then you can, but it will cost you. You have to pay taxes on it then AND you have to pay a penalty - 10%. Remember, you still buy mutual funds with the 401(k), the only difference is when you pay taxes on it.

The second one is the IRA. You buy stock or bond mutual funds with this as well (you'll get tired of me saying this, but you have to remember that !!! ). This is another incentive by the government to get you to save for your retirement. Really, it is just like the 401(k) except that:
1) It doesn't go through your have to set it up yourself.
2) The limit is $4000 FOR EACH OF YOU (if you are married).
3) There is no match

An IRA is the same as the 401(k) in that you can deduct the money off of your income when paying taxes. So, if you make $30,000 and invest the maximum of $8000 ($4000 for each of you), then $22,000 is your starting point for paying taxes. Also, you can take the money out again later before you retire, but with the same penalties - you have to pay taxes on it when you take it out AND you have to pay 10% penalty.

The third one is the Roth IRA. You buy stock or bond mutual funds with this as well. It is another incentive by the government to get you to invest, but it works differently. For this one, you set it up outside of work with a mutual fund company (like Fidelity) and send in your money. The limit here is $4000 this year for each person, but it keeps going up every year. You DON'T write it off on your taxes, and you DON'T get any match, but here is the beauty of the Roth pay taxes on it now and NEVER HAVE TO AGAIN. With the other two plans above, you pay taxes when you take the money out (so hopefully, the stock has gone up and you made a lot of money, but then you have to pay taxes on it), but with this one, you pay taxes on your income now and it grows and grows, and when you take it out you don't pay taxes on it! That is awesome, because presumably you will make a lot more money in the future than you do now, so when you take that money out, you should have paid higher taxes on it, but since it was designated a Roth IRA, you don't have to. Also, taxes were lowered when President Bush took office (almost the lowest ever), and you can bet your booty that if a Democrat is the next president the taxes will go up. Another thing is that if you invest $4000 this year, and $4000 next year (or $2000 this year and $1500 next year and $3500 the year after that...remember, $4000 is the upper limit, not the only amount you can send in) then you can take out whatever you put in without paying taxes and without a penalty. This helps alot of people feel good about investing, because with the other two plans, you think "I can't get that money out for another 30 years" but with the Roth IRA, you can get your original investment out at any time.

For any of these ways, the government wants you to invest, and provides a match if you do. Your AGI is the bottom line on the first page of your tax return. If that is less than $30,000 and you invested $2000 in an IRA that year, then on the second page of your tax return there should be a place where you can enter how much you invested and it will figure out how much of a tax credit you get back. You can at most get 50% back on $2000, so $1000 back is the most you can get back this way. But, YIPPEE!! You invested $2000, you got $1000 back after doing your taxes, so really, you only invested $1000 of your money and there is $2000 in the mutual fund. It doubled!

Finally, you can buy a taxable mutual fund. The only incentive the government is giving you here is that you only have to pay 15% taxes on the money you make on a taxable mutual fund, instead of your tax bracket. Say you are in the 25% tax bracket. I don't want to get into this now, but if you are married, you pay 10% on the first $15,650, 15% on the next $48,050, 25% on the next $64,800, etc. That is, for the money you earn at your job is taxed this way. The money you make on your mutual funds are only taxed 15%, so if you are married and make more than about $64,000 it is a good deal. If you are single, then if you make more than $31,850 it is a good deal too.

Alright, can change an IRA to a Roth IRA? Yes you can, it is called "rolling". To do that, you tell your mutual fund company that you want to roll your IRA into a Roth IRA. They sell the mutual funds in the IRA, buy mutual funds in a Roth IRA, you pay taxes on the money you rolled (but you don't pay a penalty) and it is now a Roth IRA. Also, if you change jobs, or your company is sold (like mine was this year) you can roll your 401(k) into an IRA (don't have to pay taxes) or a Roth IRA (do have to pay taxes) with no penalty.

One thing you might be confused about is how many of these plans can you have and how much can I invest in them? You can have a 401(k), and you can invest as little as 1% (I'm guessing here...your company may set a different lower limit) or as much as $15,500. If you are married, you can have one at your job and your spouse can have one at their job, each with a $15,500 limit. Also, you can either invest in an IRA or a Roth IRA or both, but only $4000 for each person for the year. So, you can invest $2000 in an IRA for you, $2000 in a Roth IRA for you and $4000 for your spouse for that year. The next year, you can do the same thing, or you can each put $4000 in the Roth IRA. One thing about the IRA and the Roth IRA, you will probably have to invest at least $1000 before a company will let you buy a mutual fund with them. There are exceptions, and we can look into that, but they don't want to piddle around with small amounts of money, so they set that bottom limit. You can put as much money into a taxable account as you can...there is no limit there Smile.

So, which one should you do? Here is what I say: invest in your 401(k) up to the company match. If your company matches up to 5%, then put in 5%. If your company doesn't match, then skip this step. If you are not eligible for your 401(k) until next year, skip this step THIS YEAR. As soon as you are eligible, then invest up to the match.

Then, invest as much as you can in a Roth IRA up to the limit, but not in an IRA. After that, if you have invested $4000 per person on a Roth IRA, and you still have money left over, invest in your 401(k) up to that limit. And if you have money left over after that, open up a taxable mutual fund.

Wheh! Take a deep breath. Don't be scared of all of this, because I've been looking into this and reading about it for 6 years now, and it is kinda complicated, but nothing you can't handle. Just keep a link to this blog, keep asking questions and look around on the internet for some more information. You are just starting now, but you are young! Just thinking about it now and just starting with a little bit of money can really help you in the future.

Finally, how do you juggle this and any loans that you have? I think it depends on what the interest rate of the loans are. I think you should ALWAYS get the 401(k) up to the company match, and if you can get the tax credit for the IRA, then you should do that, because that is 100% return. If you have loans (credit cards, car loans, student loans, anything, really) that charge over 8% interest, then I would pay that off first before investing any where else. If you are having trouble paying the bills every month, then I would pay off some loans to free up some cash flow and then start investing. Personal preference here, but if all your loans are under 8% and you are living without having to depend on the credit card every month, then I would start investing more. It is something you will have to feel out for yourself, cause everyone is different. And it is a marathon, not a sprint, so remember you have to live a little too, not just wait for retirement to get here and then start living!

garden goodies

August 4th, 2007 at 03:41 am

I started my garden late this year (maybe late April?), and was worried that we wouldn't get many vegetables out of it. I didn't have a tiller, so I just cleared the grass out with a shovel and a lot of elbow grease, made holes with a post hole digger, and planted my little seedlings. Because I was lazy, I didn't give the plants enough room, so all the plants are growing over each other...Good thing it has been raining like crazy! So, many things to learn for next year, but it is looking pretty good for a thrown together endeavor. I only spent $35 for all the plants, plus I couldn't find any spaghetti squash seeds, so I bought a squash, cut it open, removed the seeds, ate the squash, and kept the seeds. That thing is growing like crazy!

Even though the plants are growing over each other, I am getting vegetables. I want to keep track to see if I get my $35 back.
7/8/07 - 1 cucumber
7/10/07 - 4 tomatoes
7/20/07 - 2 cucumbers
7/22/07 - 2 yellow squash
7/28/07 - 1 spaghetti squash, 3 yellow squash, 1 zucchini, 1 cucumber
8/3/07 - 2 cucumbers, 2 zucchini, 2 yellow squash, 2 spaghetti squash.
8/5/07 - 1 zucchini
8/11/07 - 4 yellow squash
8/25/07 - 1 yellow squash, 2 zucchini, 1 spaghetti squash

Totals as of 8/25/07:
6 cucumbers
4 tomatoes
12 yellow squash
6 zucchini
4 spaghetti squash