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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