The Amateur Financier

Sometimes, life just seems to sync up, and I wonder if perhaps there is some higher power at work.  This week, for example, I donated several dollars to the American Cancer Society.  One of my former professors is going to running in the Relay For Life, and he sent me an email asking for a sponsorship.  So, I decided to chip in a few dollars myself, to help him in his cause.

Then on Tuesday, I got a call from a recruiter from Manpower about a position for which I don’t recall even applying.  It’s only the first step in the process, and I don’t know if it will lead to anything (although I am quite qualified for this position), but it was rather heartening.  And I was wondering if perhaps it was a form of karmic repayment, or just random happenstance.  Of course, then the fun events of yesterday happened, and my thought that I was being somehow rewarded seemed rather out of place.  But I still wonder, is it just random luck, or is there some overarching plan I just can’t see?

And of course, that’s hardly the only thing I’ve been thinking about lately; here are a few posts that got my brain ticking:

Should Your Financial Guru Be Changing His or Her Advice? – On Man vs. Debt, there was the discussion of whether a financial guru should be changing their advice, as Suze Orman did recently.  It’s an interesting question; in theory, good financial advice should be just as good all the time.  However, in the real world, things do change, sometimes dramatically, and I can understand gurus changing their advice to fit changing situations (like our current credit crunch).  That said, I don’t think that Ms. Orman’s advice is necessarily the best; based on interest rates alone, cutting down at least some of your credit card debt (while you build up an emergency fund, if you feel it is needed) is generally is the best procedure.

How to Obtain Your Credit Report – On My Life ROI, there’s some helpful advice about getting your free credit report.  (Here’s a hint: don’t use FreeCreditReport.com, the truly free site is AnnualCreditReport.com)  It’s good advice, and you should be sure to check out our credit report on a regular basis.

Recession Tips for College Students – I do not envy current college students.  Not only are they going to be facing much steeper qualifications to get credit for everything from houses to their student loans, but when they graduate, they’re going to have even more competition from out of work previous grads (like myself).  Luckily, Studenomics feels their pain, and shares a few tips to hopefully get them off to a good start.

The Best Time to Start Thinking About Money – On a much more uplifting note, Stephanie writes a wonderful post about her progress over the past few years.  It’s truly wonderful to hear about someone else’s success, especially given how far Stephanie has come in that time frame.  Kudos to you, Stephanie; keep up the good financial progress, and you’ll have to change your blog’s name to ‘Richer than You’!

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(Warning: This post is going to be a rant; nothing more, nothing less.  If you don’t want to hear about my travails with my health insurance company (with me ranting and raving the whole time), feel free to come back later.  On the other hand, if you want to know what made me the maddest I’ve been in a long, long while, read on…)

It all started nearly a month ago.  I wrote out a check for my April health insurance premium to Capital Blue Cross near the end of March.  I made sure there was enough money in my checking account to cover the check, noted the transaction in my check record, and took it over to the post office to send it out.  In short, I was a good insurance policy holder.

But then, something funny happened.  The check was never cashed.  I kept dutifully watching my checking account, but it was soon April, and still the check hadn’t been cashed.  I ended up calling Capital Blue Cross, and they said the check hadn’t been received and they would try to find it.  I called again a few days later, and was told to just resend the check.

At this point, I was rather perturbed; but, since I didn’t know what happened to my first payment, I decided the best approach would be to simply write another check.  I sent it in, it was cashed within a few days, and my coverage continued unabated.  Luckily, Capital Blue Cross doesn’t charge any late or nonpayment fees, so I thought that everything was worked out.

Fast forward to today.  I sent in my payment for May a few days ago.  It was cashed on Tuesday, leaving me with about one hundred dollars in my checking account.  No problem; I have enough in savings to pay all my bills for May, I’ll just need to transfer some money from my other accounts.

BUT, yesterday the old check was cashed, causing my bank account to be overdrawn.

This infuriates me to no end.  First, the fact that they were able to cash this check after all this time means that it was their fault it was lost initially, and that I had to deal with all this aggravation.  Second, I was following their directives in writing that second check, doing so in good faith that I would not be double charged for April.  And third, because of all this, I had to worry about my bank charging me an overdraft fee simply because I was trying to keep my health insurance up to date.

Luckily, I noticed this problem before the close of business yesterday, so I was able to go to my local bank branch (it’s a PNC, just for the record) and argue my point with one of the service reps.  She agreed that the error was on the part of Capital Blue Cross, and faxed over the copies of the checks that were on file and a description of the error.  As of this writing, I haven’t been able to reach Capital Blue Cross, although I’m hoping for a quick resolution of this problem.

Before anyone asks, I have learned some things from this debacle myself; chief among them being to keep enough money in my checking account to cover any and all outstanding checks.  Just because a check has gone missing, doesn’t mean it won’t work its way out of whatever corner of the bureaucracy it happens to land, and potentially be cashed at the worst possible time.  I had been assuming the first check would never be cashed, and transferred money out of that account under that assumption.  In hindsight, trying to gain a bit more interest from my online savings accounts while risking overdraft fees was a case of being penny wise and pound foolish.

I’ve also gained a renewed respect for the advantages of online bill payment.  I’ve never had these sort of problem with my credit card bills, both of which I pay online.  I am most definitely going to set up online bill pay for any accounts I hold in the future.  (In what strikes me as a case of horrible timing, Capital Blue Cross did send  my information about their automatic bill pay system after my first check didn’t reach them; it was the first time I had heard about this plan, which could have saved me quite a bit of time and money.  I sent it in, but still received a paper bill for May, so perhaps by June I’ll be able to pay online.)

I’ll keep you posted on how this situation is resolved.  Thanks for letting me rant a bit, and I hope that my experience can be a learning experience, if nothing else.

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Oh, Suze, Suze, Suze.  What are you doing?  If you keep changing your advice like this, it’s going to be hard to defend your recommendations.

If you haven’t heard yet (in which case, you probably are dangerously below your recommended dose of personal finance commentary), Suze Orman has started recommending that  you only pay the minimums on any outstanding credit card debt.  Previously, she had told her readers and viewers to pay down any high interest debt as their second financial priority (after funding a 401(k) up to your employer’s match).

Why the sudden change?  Well, Suze is noting that with banks and other creditors cutting down the credit available to credit card users, you could find that your credit cards are canceled or the available credit severely restricted when you pay off your debt.  In other words, it’s getting tougher to rely on credit being available should you want to use it.  (Whether this is a good turn of events for the nation in general is a topic for another day.)

I’m torn about how to approach debt repayment in light of our current situation.  On one hand, it used to a be a no-brainer that paying down your credit card debt would benefit you financially; you wouldn’t be charged interest on the debt and the credit would still be available if you had an emergency and no emergency fund.   However, now you might find that when you pay off your credit cards, they close down the card and deny you credit.  If this happens and you have a financial emergency, you could find yourself without an emergency fund OR available credit to tide you over.

On the other hand, the mathematically advantageous route is still paying off your credit card debt (preferably, starting with the highest interest rate debt).  Putting $1000 in an account yielding 3% rather than paying off $1000 in credit card debt at 30% will leave you owing more than an additional $270 one year from now.  Plus, as Liz Weston reminds us, paying only the minimums on your debts is the sort of thing that attracts the kind of wrong attention from lenders.  (The sort of attention that leads to said lenders getting nervous and cutting down your credit limits, exactly the situation you’re hoping to avoid.)

My suggestion: keep paying off your debt anyway.  Most debt repayment plans suggest putting aside at least a small rainy day fund (I recommended one month of expenses) anyway, so you are not working completely without a net.  If you are really worried about having a sizable emergency fund, consider splitting your additional money (the amount beyond the minimums for all the outstanding debts) between paying down your debt and adding to the emergency fund.  Put half the extra payment toward cutting down your outstanding debt, and the other half into your emergency fund.  You can cut the amount you put into your emergency fund as it gets higher and put more money towards debt repayment.

This techninique will slow down your debt repayment schedule, and lead you to spend more money in order to repay those debts.  However, we can’t forget the human element of the financial situation.  Hopefully, building up a sizable emergency fund makes you feel better about your situation and keeps you from shirking debt repayment altogether.  If this is the case, I’d say it’s reasonable, if not ideal, course of action for a non-ideal world.

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If you’ve done much reading in the personal finance sphere, you have likely encountered some bad advice.  Not overly broad generalizations, nor excessively optimistic or pessimistic scenarios designed to support the writer’s point, nor even serious debates on the best course of action (as with many of the great financial debates), but simply bad advice.  The kind that, if followed, will leave you poorer and in worse financial shape than you would be otherwise.

Enter Frank Curmudgeon.  The writer of the Bad Money Advice blog focuses on identifying and correcting bad advice from other personal finance commentators, ranging from published authors like Suze Orman and Dave Ramsey down to other personal finance bloggers.  And he’s well qualified to do it: an unemployed hedge fund manager, he’s had more financial education than ten average PF bloggers combined.   And he’s not afraid to tear their arguments apart, either.  (With any luck, I’ll be able to avoid being on the wrong end of his analyzes in the future…)

Some of the interesting posts he’s written in the last few weeks:

The Bad Money Advice Financial Literacy Quiz – I have to say, I do love financial knowledge quizzes.  Frank has a good one here, covering everything from FDIC insurance to credit card fraud liability.  I’m not terribly happy about my score (13 out of 20), but I’m glad to learn some new things (and I am reminded that I need to do plenty of research before I post anything in my blog).

How to Create your own Target Date Fund – A guest post over on Get Rich Slowly which discusses the cons of target date funds and how you can go about creating your own.  He raises some good points, some of which I noted earlier today (amazing how these things sync up), about how target date funds tend to be one-size-fits-all and not necessarily appropriate for your particular situation.  I think he overstates the possible dishonesty in the funds, though; given the level of disclosure required by the companies, the opportunity for shenanigans is rather low.

Secured and Unsecured Debt – Frank notes the problems with the common wisdom of not taking out a Home Equity Line Of Credit (HELOC) to pay off unsecured debt like credit cards.  Doing so means that you can lose your home if you can’t pay back the debt (at least in theory), but Frank shows how this is much less likely than popularly believed.  Basically, you are trading higher priority to claim your money if you end up insolvent, in exchange for a lower interest rate; in many cases, such a trade ends up benefiting the debtor.

Are 401(k)s a Bad Idea? – Frank notes the complaints that 60 minutes levels against 401(k)s.  The main argument against the plans by 60 Minutes is the recent losses in the stock market show that these plans are not good replacements for defined benefit plans.  However, Frank notes that widespread use of 401(k)s isn’t the source of our current problems, and that the older style, defined benefit pension plans had problems of their own (including not being that widely available).

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(Welcome as always to another installment of Investing 101, where we take a look at some of the many, many different types of investments in the financial world.  This week’s subject is target date funds, a popular choice for retirement savings, especially in 401(k) plans.  Understanding what they are and how they work is important if you are deciding if they are appropriate for your investment goals.)

Q: What are target date funds?

A: The term target date funds refer to several different products offered by financial companies.  They all share several characteristics, though.  First, they are ‘funds of funds’, consisting of several different mutual funds from the sponsoring family.  Second, all the funds have a target date, when the investor is planning to stop depositing money into the fund and start withdrawing it.  Finally, all the funds of this type gradually become more conservative in their investment holdings as the target date approaches (the fund mixture shifts from mostly stocks towards a higher portion of bonds and cash).

Two major uses for target date funds are to save for retirement and to save for college.  Both of these goals are similar in that you have many years (if not decades) before you need the money.  The target date funds can be more aggressive at the start of the investment period and have lots of time to shift the investment mix every few years and become more conservative.

Q: Why use a target date fund, then?  Why can’t you simply shift your investments over the years by yourself?

A: The short answer is, you certainly can manage your investments on your own.  Target date funds are just more convenient for many people.  They allow you to invest in a single fund and have an investment mixture that is appropriate for your age and the length of time you have before you need the money.  If you want to set up your investment plan and then not think about it again, a target date fund will serve you well.  (Plus, when investing in 529 plans, your ability to shift your investments around is rather limited; using a target date fund will make it easier for your plan to stay on track to meet your college savings goal.)

Q: Sounds intriguing.  What’s the catch?

A: One of the most significant problems is that different fund families follow different investment schedules.  (Although, if Congress has its way, soon this may no longer be the case.)  As a result, a Retirement 2010 fund from Vanguard might have 50% Stocks/50% Bonds, while the 2010 Fund from T. Rowe Price has a 60% Stocks/40% Bonds mix.  If you don’t know what mixture your fund offers, and how it will change over time, you could find yourself holding investments that are inappropriate for your goals and risk tolerance when it comes time to withdraw your funds.

Along the same lines, you might not be able to find a target date fund whose investment progression matches how you want your portfolio to change over time.  If you think that a 50/50 mix of stocks and bonds a year before retirement is too risky, neither of the above funds will meet your needs; the same holds true if you want more stock exposure as you begin retirement.  And of course, the schedule for shifting the asset allocation might not meet your needs, either.

Q: What can I do to get around these problems?

A: Well, there are several possibilities.  If you’ve researched the major fund families, and haven’t found an appropriate fund for when you plan to retire from any of them, you can consider purchasing a plan with a different retirement date.  Funds with later dates will be more aggressive in their composition, while funds with earlier dates will become conservative more quickly.  If shifting dates does not solve your fund composition problems, you could try buying another fund or two to compliment the target date fund.  That way, you could boost your stock or bond holdings while continuing to keep the automatic investment shifting of the target date fund.

If neither of these options goes far enough in fixing the problems you have with the funds’ holdings, you could always forgo using a target date fund at all, and create your own personal mix from the available mutual funds at your preferred fund company.  You’d be giving up the automation of the target date fund for the increased control and effort of a do-it-yourself approach; whether that’s a good trade depends a lot on you and your personality.

I hope you’ve enjoyed this discussion of target date funds, and now have a better appreciation for how they could be used in your portfolio.

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One of the things that I enjoyed about getting a psychology minor at college was seeing just how psychologists attempt to examine and classify people.  Since it’s illegal to subject people to degrading and bizarre tests just to see how they will react (unless you are running a reality show), psychologists have come up with a variety of indirect tests to ascertain a person’s basic characteristics.  These can include every from Rorschach (ink blot) tests and dream analysis to more mundane methods like personality tests.

With the widespread nature of the internet, it should come as no surprise that there are even online personality tests.  Recent, My Life ROI pointed out the results he got from 41 Questions.  And, being the curious type that I am, I decided to give it a spin myself.  Here are my results:

My Take on the Results:

The test seems to be pretty spot on in my case.  I do tend to be rather introverted in nature, and focus more on rational thought as opposed to feelings.  I’ve actually held a few jobs in the fields they recommend as careers that could fit me, as a QC chemist and as an organic chemistry tutor, both of which I enjoyed quite well.

That said, their comments are a bit off; I’m not much of a leader, and have trouble turning plans into action.  And furthermore, the fact that there are no negative comments listed makes me suspiscious about the overall results; surely, someone who is as introverted as me should have some negative qualities as a result.

Ultimately, though, the real value of quizzes like this are that they get you thinking about your personality.  And that sort of deep thinking can lead you to make appropriate changes in your life.

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Big Brothers/Big Sisters of America is one of the perennially popular organization.  It’s hard to disagree with the goal of pairing up young boys and girls in troubled situations with adult mentors.  Heck, they were even the subject of an episode of The Simpsons; you can’t get more culturally relevant than that.  With that, let’s take a closer look at the organization.

Charity: Big Brothers/Big Sisters of America (BBBSA)

Website: www.bbbsa.org

Organization: Big Brothers/Big Sisters is an independent 501(c)(3) organization.  Contributions are deductible from taxable income according to IRS guidelines.

Goals: Big Brothers/Big Sisters matches up low income or at risk kids with caring adult mentors for one-on-one support.  Providing adult mentors lowers the risk of drug or alcohol use and encourages school attendance.

Classification: The NTEE classification on Guidestar lists Big Brothers/Big Sisters as a Children’s and Youth Services charity.

BBB Report:  Big Brothers/Big Sisters of America meets all twenty Standards for Charity Accountability as set out by the BBB.  These standards ensure that there is adequate oversight, methods of measuring effectiveness, use most of the finances toward charitable purposes and engage in proper fundraising.

Expenses: As noted by the Better Business Bureau, Big Brothers/Big Sisters spends 6% of its budget on fund raising and 4% of its budget on administrative expenses.  It brought in $27 million dollars during 2007.

You can donate to Big Brothers/Big Sisters here.

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Ah, it’s a wonderful time of the year.  The sun is shining, the birds are singing, the grass is turning green, and college students are preparing for finals.  And, as a supplemental instructor, I am helping the organic chemistry students at my old school to learn and prepare for their test.

I always find it interesting, seeing just how far the students can come in a semester.  Chemistry that was giving them trouble when I started up my sessions in January is now second nature to them, although I wonder how many of them even stopped to realize it.  Of course, they have also managed to forget much of the material from fall that they haven’t used lately, so I suppose they’ll have some use for me yet.

Of course, out in the real world, there are no final exams or mid terms.  Instead, you have to keep monitoring your progress through life as you go and keep track of how you are doing.  With that in mind (and my awkward segue over), let us see where my finances are this week:

My net worth took a pretty heavy blow this week.  This doesn’t surprise me; on top of my usual expenditures, I also booked a flight, hotel room, and rental car for a trip out to California to visit my girlfriend’s extended family.  It’ll be nice to see her family and have a relaxing time out in the sun, but it does hurt my finances, at least for the time being.

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You might have noticed that over the past few weeks, I’ve been posting about good charities on Sundays, and subtly urging people to contribute.  I’ve been feeling as if I haven’t been giving back enough lately, and these posts have been part of my attempt to change that pattern in my life.  And, if I happen to encourage a few readers to contribute to the charities I support, all the better.

However, you might find that you want to check on charities on your own.  After all, you probably have causes and organizations that are important to you, and you might like to ensure that these charities are going to use your money properly, to achieve the results they state and accomplish the goals you want them to pursue.  Fortunately, there are several good resources out there to check out your potential charities:

JustGive.org – A basic website listing over one thousand charities, powered by Guidestar.  It lists the charity’s mission, the programs they sponsor, and classification of the charity.  It also provides some financial data, including the revenue and financial data for the most recent year.  It’s a good one-stop place to get a better understanding of any charity that catches your attention.

Give.org – The branch of the Better Business Bureau that oversees charities, you can get an even more detailed view of the charity’s finances, including a pie chart that graphs the relative amounts the charity spends on adminstration, fund raising, and the programs that is provides.  That way, you can have a better idea of where your money is going.

More importantly, the BBB determines whether the charity meets its 20 standards of good governance.  These standards cover every aspect of the charity’s activities, from the board of governers and how they are compensated, to how the charity goes about raising its funds and the proportion of donated money spent on fund-raising.  A charity meeting all these criteria is a good candidate for donations, while one that misses on some of them (or even worse, doesn’t have a BBB report at all) should be avoided.  (With exceptions allowed for churches or other local organizations that aren’t big enough to merit a BBB report; for these, you’ll have to do your own due diligence.)

IRS.gov – Why look up a charity through the IRS?  Well, if you are looking to take a deduction on the donated income, what better source to double-check the charity’s tax-deductable nature than on the website of the tax collector?  The most useful feature offered by the IRS website is the ability to search an online version of Publication 78, a complete list of charitable organizations on file with the government.  You can search for a particular charity, and see (a) if they are listed in the directory (if not, you probably want to reconsider your donation) and (b) just how the IRS has them listed, as different types of charities are eligible for different amounts of deductions.

With these resources in mind, you should be able learn all the vital facts about almost any charity to which you’d care to donate.  Happy giving!

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I normally don’t post links to major financial news sites on my Thoughtful Thursday posts.  After all, part of the reason I do these posts is to draw attention to other small bloggers, or at least, to other personal finance bloggers.  After all, we bloggers have to stick together.

But occasionally, there are posts on mainstream sites that just impress me.  One such post was by Liz Pulliam Weston on the 100 most useful Web sites.  The sheer number of good sites on the list, used many of them to good effect in the past, but had not heard of many of them prior to reading this list, all meant that I just had to post this.  Plus, she did include several blogs on her list of useful sites, so I thought I should return the favor.  Perhaps if she keeps doing this, I’ll end up on the list as a worthwhile blogger (hey, everyone has to have goals).

Other worthwhile posts I’ve come across this past week:

Earning More Money of Optimizing Spending? – Over on Studenomics, the question was raised of whether you should focus on optimizing spending or taking a second job as the best method to increase your available money.  He recommends focusing on savings first, but I think that trying to earn more money has greater potential.  You can only cut your expenses so much, and hopefully you’re already living pretty frugally.

How Bad Credit is Always Bad – My Life ROI lists several areas where having a low credit score will hurt you, even if you aren’t applying for a loan or other form of credit.  It’s interesting, if a bit disturbing, to see just how many areas of your life rely on your credit score, from insurance companies to potential employers.  All the more reason to know your score, and do everything you can to increase it.

On Salaries: Why We Want More Money – This is a simple one: more money allows us to acquire more goods and services, which in turn makes us happier people inside.  But on the Writer’s Coin, we learn that a big influence on how happy or unhappy we are with our salary depends on how much we make relative to our coworkers and the other people in our lives.  If we are making a small salary, but it’s the highest of our friends, we’ll be happier than if we are making more money in a company where we are being paid the lowest relative amount.  It’s an interesting concept, although I think it can be taken too far (if you go to the extremes of ensuring you only date or hang out with people who make less money than you, for example).

Bad Stock Performance Raises Insurance Premiums – The title of this blog entry pretty much says it all, but the Weakonomist elaboarates the connection between the stock market and your insurance company.  Rather than holding all your premiums in a big vault until it needs to pay them out (a la Scrooge McDuck), the insurance company will invest your money, hoping to profit when the market rises.  But, given the recent downturn, they are getting hammered as badly as the rest of us.  To make up for the shortfall, there’s going to be an increase in premiums for many consumers this year.

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