The Amateur Financier

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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Once again, it’s time to look into another PF blogger here on The Amateur Financier.  This time, it’s going to be Kevin of No Debt Plan.  He only recently came to my attention, although he’s been writing since January 2008 and is rather more established than me.

One of the features he does that I really like are his Subscriber Swap Saturdays.  He interviews another personal finance blogger, he gets interviewed in return, and then each interview gets posted on the respective blogger’s site.  I actually started to follow his site after I read Stephanie’s interview with him on Poorer Than You.  Who knows, perhaps after I’ve built up this humble little blog a bit more, you might just see an interview with me posted on his site.

(I also realize that my own PF Spotlight posts sound more than a little bit like a poor man’s version of his Subscriber Swap Saturdays.  After all, both are special posts that focus on other bloggers, are published once a week, and hopefully lead our readers to other PF blogs.  (And, if we happen to gain a few more readers ourselves in the bargain, all the better.)  I didn’t discover Kevin’s blog until well after I started these posts, though, so I’m going to plead innocent to any idea napping in this case.)

Some of the interesting posts Kevin has added this past week include:

Does Unemployment Income Change How Much You Save for an Emergency? – Kevin raised the issue of what effect, if any, the existence of potential unemployment benefits should change the amount you put aside for emergencies.  He suggested that you shouldn’t decrease your emergency fund on the expectation of unemployment income.  I respectfully disagree (and said as much on his entry); if you have the reasonable expectation of receiving unemployment, that’s a factor that should affect your emergency fund size, just as with any other financial factor.

How Much More Money Do You Need to Make Up for Being Unemployed? – Another unemployment question, which naturally has appeal to me in my current situation.  Kevin calculated how much the insistence on making the same salary you previously made can cost you, and how much more you need to earn to compensate for that loss.  It’s amazing how much the refusal to take even a small pay cut can end up costing you.

Are You Willing to Sacrifice to Succeed? – A simple, but very powerful, message: success takes sacrifice.  The greater the goal and the longer the path to reach it, the more you need to be willing to make sacrifices in order to achieve your goals.  It’s rather obvious, but far too many people seem to think there must be some magic work around to get all the benefits without the work.

There you have it, some of the interesting posts from the No Debt Plan blog this week.  Read and enjoy.

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It’s that time again, boys and girls, when I put a spotlight on one of my fellow personal finance bloggers to show off some of the other fine writing in this field.  After all, man cannot live by bread alone, and I hardly expect that you, my readers, will only be following my blog.  This week, we’re going to look at ToughMoneyLove.

If you’re unfamilar with the site (and it is fairly new, although not nearly as new as mine), you should be aware that Mr. ToughMoneyLove is rather blunt.  He has numerous opinions, and isn’t afraid to share them.  Roll those characteristics together, and you get a blog that reminds me of talking to a gruff uncle.  He’ll tell you when you’re being an idiot, and won’t pull any punches when he does so, but if you listen to what he’s saying, you’ll be much wiser for it.

And speaking of words of wisdom, here are some of the highlights from the last week of his blog:

Measuring and Wasting Financial IQ – A good post, detailing what many of us already should understand: you can know a great deal about personal finance, but if you don’t apply that knowledge, you are as doomed to financial failure as someone with no financial education.  As Mr. ToughMoneyLove notes, it’s behavior that determines how successfully we will be financially.  Financial knowledge, while important, just isn’t enough.

Quarterly Investment and Net Worth Review – I thought this was pretty interesting, and not just because I have been doing the same thing (albeit, on a weekly schedule).  Mr. and Mrs. ToughMoneyLove kept their losses to a minimum in the continued market downturn with some healthy investments in inflation protected government securities, including TIPS and I-Bonds.  Given the current economic climate, it seems to have served them well.

Consumer Credit Counseling and the Law – In one of the rare shows of good sense on the part of state governments, there is a law that has been passed in several states called the Uniform Debt Management Service Act (or UDMSA).  The UDMSA sets up regulations as to what credit counseling services can and cannot do, most of which will go far in protecting the credit counselees.  I only wish that Pennsylvania would snap to it and pass the UDMSA here.

My Life as a Volunteer Tax Preparer – Week 10 – Mr. ToughMoneyLove has been volunteering for the past few months to help prepare taxes, and has gotten several interesting stories out of the deal. This week was a bit slow, although with taxes being due incredibly soon, the next (and final) column on this subject should be very interesting.

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When I was tagged earlier this week to share 7 things about myself, I received a comment from The Weakonomist.  He was the one who had tagged My Life ROI, and thus is indirectly to blame for me writing that column.  Or, if you prefer, he deserves the credit for inspiring me.

I decided to browse his blog after he made his comment, and I’ve been impressed by what I see.  He seems to be an interesting blogger, covering some thought-provoking topics in a fair, even-handed manner.  Here are some of his posts from the last few weeks that got me thinking:

7 Things You Didn’t Know About The Weakonomist – Probably as good a place as any to start, since this is the post that (indirectly) got me to start reading the Weakonomist.  As always with these types of lists, there’s plenty of interesting stuff; he likes flip flops, hates scray movies, and he can play three musical instruments.  (Which ones, you ask?  Read the post to find out!)

A Simplified Story of Our Economic Crisis – A guest post by the Weakonomist on SimpleMom.net, detailing how we found ourselves in our economic conundrum.  A simple, succinct explanation, certainly clearer than many of the official renditions I’ve read.  A good read, especially if you keep asking yourself, ‘What Happened?’, without  gettingmany clear answers, here would be a good place to look.

How the Federal Government Prints Money – And no, it’s not by putting special ink on special paper and chopping into wallet sized slivers.  (Although, it does that, too.)  Here, we’re talking about ‘capital creation’, how the government, in the form of the Federal Reserve, can inject additional capital into the system (or remove it, as the situation warrants).  It’s not clandestine, it’s not illegal, and it’s necessary for the economy to function as it does (however well that might be, at the moment).  It’s an interesting read; given how much the Federal Reserve has been in the news lately (Look for any story that refers to ‘The Fed’), it’s important to know what it does.

Tax Week – The Weakonomist spent an entire week covering different methods of taxation, including the income tax, the ‘Fair Tax’, and the Value Added Tax (VAT), which I’ll admit I didn’t really understand before reading this post.  He also concluded that the Fair Tax (or the National Sales Tax, if we use a more descriptive name) would be the best course of action.

I disagree.  I could probably write an entire post (or even an entire week of posts) on how I would structure a tax system if I were in charge, but I think that the best possible tax system would be a hybrid, combining a national sales tax (lower than the Fair Tax mandates) with a progress income tax that has a high deductible, allowing lower income people (those making below $30,000 or so)  to only pay the sales tax.  This would allow us to make the system more progressive, while avoiding the possibility of a ‘negative tax’  for the lower earners (where they would receive more from the Fair Tax ‘prebate’ than they pay in taxes).  But that’s just armchair policy making.

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Another week is upon us, and with it comes another PF Spotlight.  This week’s feature goes to Lazy Man and Money.  Let’s be honest, it’s a cool blog name, and he usually has good commentary; what more do you want from a PF blog?  That said, he’s one of the moderators of the Money Blog Network and works a ‘regular’ job on top of his blogging, so he’s hardly lazy; false advertising, anyone?

Ah, I kid, I kid.  He’s really a great blogger.  Some of the most interesting posts he’s put up recently:

Money’s Seven New Rules of Financial Success (Part 1) and (Part 2) – Lazy Man covers an article in the most recent article of Money regarding the ‘new’ rules of money (which you can read here).  Lazy Man’s conclusions pretty much line up with mine; the new rules aren’t so new, at least if you’ve been reading up on personal finance.  Still, it’s good to get reminders about these rules every now and again, especially now, when there’s so much talk of ‘everything changing’.

Dog Costs for the First Month – A post covering some of the costs that arise when adopting a puppy.  A good list to consider before purchasing a dog.  Not having had a dog since I was quite young (and not paying for that dog myself, obviously), I wasn’t aware how expensive a dog, even a rescue dog, could be.  An eye-opening post for us non-pet owners.

Leaving Full-Time Blogging - Lazy Man is probably unique in having left his previous job for full-time blogging, and then having gone back to work.  (Crazy, I know, but to each their own.)  He notes that he’s spending more money, and also becoming more efficient, as he tries to keep up with his blog, his job, and his new dog.

Giving a Lasting Gift to a Baby…(But Not the Parents) – An interesting post; Lazy Man discusses how to give a financial gift to a child that the parents will not be able to access (in this case, because they aren’t good with money).  One good idea that came up was to open a 529 in the child’s name and donate to it every year.  This works pretty well for a relative, but not so well for the child of a friend; the original questioner wanted a one-time gift that would still be available to the child regardless of how his friendship with the parents proceeded.

Lazy Man’s favorite suggestion is to give the parents a book on managing money, with an IOU promising to contribute a match to a 529 plan when they open one up.  Not a bad idea, but you have to be aware of how the parents will react to that kind of gift; if they’d be insulted by a gift encouraging them to be more financially responsible, it could do more harm than good.  If that’s the case, you might need to find an alternative gift idea.

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Welcome back, my friends, to the feature that never ends. I’m so glad you could attend, come inside, come inside. There behind the glass stands a great PF blog, be careful as you pass, move along, move along.

Yup, I was feeling a bit odd as I wrote this, but I’m serious about my comments. The blogger of the week is Mrs. Micah, who writes the eponymous blog subtitled Finance for a Freelance Life. On top of all the great advice she dispenses in her blog, she also has helped me through the Money Blog Network, for which I am quite grateful. Some of the good columns she has written in the past few weeks include:

Do You Need to Carry a Balance to Get a Credit Score? – Mrs. Micah answers one of the most common misconceptions regarding credit cards. The short version is no, you can get a good credit score even if you pay off the balance in full each month. And it’s a good thing, too, as I have managed to get a great credit score (over 770, if you are interested) without ever paying interest to my credit company. (I take pride in being a ‘freeloader’ in this fashion.)

$7500 HomeBuyer Credit: What Should I Do With It? – Another question, this time looking for suggestions of what to do with the seventy-five hundred dollar credit being offered to first time homebuyers. The ideas are pretty common personal finance fare, covering debt repayment, savings for emergencies, and especially fitting for a homebuying refund, paying down some mortgage debt. All are good ideas for any ‘found money’, and well worth repeating.

Know the Fees on Your Unemployment Debit Card – An entry written in response to a CNN article about fees associated with unemployment debit cards in Pennsylvania. Being a Pennsylvanian receiving unemployment, I felt I should rectify some of the points that were made and clarify the fees that are assessed. I also noted that getting your funds direct deposited can save you from being nickeled and dimed as you collect your unemployment money. I might have to write more on this subject, as there seems to be much confusion at a time when many people are starting to rely on unemployment benefits.

P2P Lending is Not Like High-Interest Savings – Mrs. Micah provides some reasons why you shouldn’t rely on peer to peer lending, in something like Lending Club, as a place to store your emergency funds or other money that can’t be lost. The illiquidity and potential risk to your principle with investments like Lending Club make it ill-suited for savings. Better choices are high-interest online savings accounts like ING, HSBC, and SmartyPig.

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If you follow financial blogs, even casually, there’s a good chance you’ve read, seen references to, encountered quotations from, or at least heard about Get Rich Slowly. J.D. is one of (if not THE) most famous and trusted personal finance bloggers around, and he consistently writes interesting, thought provoking pieces.

I’ll be honest, I haven’t been reading Get Rich Slowly long, and most definitely haven’t had the opportunity to go back through his rather impressive archives, but what I have read is interesting, informative, and helpful. A few of his more recent articles:

Finding a Good Job in a Bad Economy – A reader named Jill writes in to ask whether she should stay in her secure, but not particularly desirable, current job, or take a temporary job with lower pay in her field of choice. I’m honestly not sure what I would recommend to her; it comes down to whether she values safety or job satisfaction more (and how much of each she would get with either choice). On a side note, I do wish I was facing the choice between a full-time, permanent job I didn’t quite care for and a temp job offer (or possibly offers) in my chosen field. At the moment, either one would be a great improvement on my situation.

Some Thoughts on the Return of Traditional Skills – J.D. notes the recent up tick in interest in traditional skills, like gardening, home maintenance and sewing. I haven’t noticed quite as much of an increase, myself (in suburban Pennsylvania, it seemed that most people were do it your-selfers with regards to yard and house work for as long as I can remember). But I can certainly see how, when the economic climate is so shaky, that people would want to be as independent as possible; I’ve been trying to find more time to learn about home maintenance, myself.

25 Useful Financial Rules of Thumb – Just about every one sentence bit of financial advice I’ve ever heard is listed here, from ‘Pay yourself first’ to ‘Your mortgage should cost no more than twice your annual income’ (although, I’ve heard as high 2.5X elsewhere). Some of the rules I actually disagree with (the 100-(your age) rule as a good guide to how much money to have in stocks, for example), but all are at least worth knowing, so you can form your own opinions.

How do Marginal Tax Rates Work – A good explanation of how marginal tax rates work. I’m not going to try to explain the concept in one paragraph, especially as J.D.’s already done an excellent job. Some of the conversations that resulted are worth reading, if only to see the diversity of opinions that exist with regard to tax policy.

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(Update: As of March 16, Nick and Punny Money have returned. Oh, happy day! His latest post discusses the new Burger King ‘burger shots’ in his normal sarcastic tone. Check him out, he’s still as funny as ever.)

Ah, alas, it is with a heavy heart that I write this particular spotlight. I’ve wanted to feature one of my favorite blogs, Punny Money, since before I even started this blog. Unfortunately, it seems that Nick, the proprietor of Punny Money, has gone on an unannounced hiatus.

One of the greatest things about Nick’s blog is the hilarious cartoons he’s been including with his posts. The artwork is fairly simple, largely stick figures and other interesting cartoony aspects. But his twisted sense of humor, and ability to find the funny even in the oddest of places led to some truly, truly funny cartoons. Add in the detailed and insightful articles he wrote, and it’s a wonderful blog.

While I hope that Nick will be back to writing and drawing for Punny Money soon, but in the meantime you can check out some of my favorite articles from his blog:

Adventures in First-Time Homebuying – Nick wrote a series of articles about the joy and peril of buying a house. It’s easily one of the most comprehensive and complete series of homebuying articles I’ve seen, covering everything from mortgage rate explanations to finding a realtor to getting a loan and closing. There are over twenty articles in the series, and they make great reading, even if you aren’t currently in the market for your first house.

The reason it’s the most commented on post is pretty simple; just about everyone has an opinion on the issue of foiling tip inflation. Numerous commentators wrote in to call Nick cheap and paranoid (accusations that weren’t helped by the fact that his example had a tip amount of 10%). Angry waiters and waitresses wrote about the number of times that people would give them poor (or nonexistent) tips, and decried the implications that their profession was crooked. Several loyal readers and money nerds commented about how neat the concept was, and expressed their support of the idea. Nothing like raising some controversy to spark an involved conversation.

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One of the most interesting new blogs I’ve encountered is MyLife ROI. (The ROI part is Return on Investment, just so you know.) He’s interesting, amusing, and has an excellent grasp on personal finance math. He’s also the first watcher I’ve gotten, and so has a special place in my heart for that reason.

It’s also one of the newest PF blogs I’ve come across, and one of the few that’s younger than mine. As such, there aren’t too many posts there yet. But, here are a few of the highlights from the posts that are already up:

Why Canadians Are Dumb – One of ROI’s unique features is its weekly comic strip. It’s a rare addition to a PF blog; it reminds me of the late, lamented Punny Money, and Nick’s great strips there. That said, I’d say out of the way of any angry Canadians looking for ROI…

How Government Spending IS Different – An interesting argument in favor of government spending to lift the economy, which seems to be a rare position to take in the PF blog community. ROI apparently got into a (surprisingly civil) debate with rocketc about the latest government bailout. Besides being a reminder of how to have a healthy, friendly, and informative debate (even if you fundamentally disagree with the other person’s position), ROI points out some interesting facts about the stimulative effects of government spending, and backs them up with some hard numbers.

How to Fill Out a W-4 – Pretty much exactly what the title says, a complete walk-through of how to put all the needed information into a W-4 Form when starting a new job. He adds some helpful commentary about how many exemptions to claim (not too many, but not too few) and gives some advice on using the part-year method, if you work less two-thirds of the year (something to think about if I don’t get another job until the summer).

Student Loans Driving Your Career? – A thought-provoker, looking at the connection between how much job dissatisfaction students are willing to tolerate in order to increase their earnings. Making a trade between job satisfaction and money you earn is tough to figure out, even if you have all the needed information; when you aren’t sure how much you’ll enjoy the job, it gets even harder. But the advice ROI gives, to keep student loan debt in check so that it isn’t the driving factor in your job decision, is a good one.

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One of the most entertaining blogs I’ve encountered is from Stephanie, of Poorer Than You. She’s an interesting writer, with a unique perspective as a young woman finishing school and facing plenty of educational debt. She seems like a strong, fascinating person, and it’s nice to have her perspective out there in the blogosphere.

Some of the most interesting posts she’s done in the last month are listed below; be sure to check them out:

Is It Ok to Bridge the Gap with Credit Cards – This is an interesting post, considering the possibility of relying on credit card use to make up the difference between what she’ll be able to earn and what she can afford when she gets out of school. She’s looking into using her credit cards to help make up the difference between her earnings and her spending. It’s a difficult decision that shouldn’t be made lightly, but between the blog entry and her comments, it seems like Stephanie has thoroughly thought about her situation, and has determined that using her credit cards will be the best solution. If everyone put as much foresight into their credit use, we wouldn’t have nearly as many problems with excessive debt in this country.

Review: The Boglehead’s Guide to Investing – Stephanie takes a look at a book I’ve been looking to read for a while now, detailing the investing strategy and philosophy of the Bogleheads. (The people who follow the investment strategies popularized by John Bogle, founder of Vanguard.) She has high praise for the book, a very detailed and thorough treatment of a variety of financial topics, and strongly encourages everyone over their mid-twenties to read it (which, sadly, is a group that now includes me).

Checking the Status of my Health Insurance – One of the biggest worries for most people, especially those just getting out of college (or as in my case, losing their jobs) is ensuring continuing health coverage. Luckily, it sounds like Stephanie’s got coverage for the next few years, so that’s one load off her mind.

College Money Tip #8: Know What You Owe – Stephanie has been doing a series of tips for college students regarding their money lately. This tip in particular is right on target for college students and recent grads: knowing what you owe (particularly in this context, for student loans) and whom you owe money to is vitally important, if you hope to have a handle on your expenses.

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