Pimp Your Finances

[edit - I changed the title of this article to more accurately reflect my thoughts, and also to point out that these tips are not mine]

Businessweek recently broke away from their traditional audience, and featured an article of Advice for Young Investors. The name is slightly misleading, as it includes all financial facets – from insurance to home ownership – as investments.

The advice is mediocre at best, but it’s an interesting read, because it offers insight into the young financial mind (or at least what the media is telling us to think).

As I like to do with these types of articles, here is their list, along with my commentary.

1. Cash is king

Although cash offers the lowest returns, it’s a good foundation for any financial plan.

Without a cash reserve, your plans are at risk to be derailed by emergencies or a loss of income. Most young people just make up the difference with credit cards, but others could be forced to sell assets at the worst possible times.

Having cash may not help you get ahead, but it will make sure you don’t go backwards.

How much of a reserve do you need? That’s a question of eternal debate, but the most common answers suggest anywhere from 3-9 months.

2. Got insurance?

It’s probably not the insurance you’re thinking about. Most young people don’t need life insurance, but everyone needs disability. You don’t want a lifetime of potential income to disappear because of an accident.

I signed up for as much disability insurance as possible from work, paying extra for additional coverage.

3. To own or not to own, that is the question

The biggest decision that most young people make is whether to rent or buy their home. The common perception is that owning is an investment, but real estate generally doesn’t perform as well as stocks, and it’s a lot more expensive. There is maintenance, taxes, emergency repairs, etc… that are exclusive to owning a house. Not to mention there is a significant time commitment.

In the end, it really comes down to your personal preference. Just make sure that you do the math, and consider all costs in your decision.

Also, don’t buy more house than you need, thinking it will increase as an investment… you’re much better off being modest and saving/investing the extra money you would’ve put into the house.

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I have a confession to make to all of you, and it won’t be pretty. It may even be worse than the time that Quagmire had to apologize to the nation.

My fellow Americans, I have not been entirely truthful with you. I did ga-googity that girl. I ga-schmoigedied her ga-flavety with my googus, and I am sorry.

OK, so maybe it’s not that bad, but I haven’t been honest with myself.

I’ve been allowing myself to feel good about the things I’m doing right, when the things I’m doing wrong are costing me at least tens of thousands of dollars in the long run. Maybe more.

I’m proud of the changes I’ve made, but I’d be doing myself and my readers a disservice if I didn’t come clean about the elephant in the room: there is no reason why I shouldn’t be contributing to a Roth IRA.

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If you really want to see how people are affected by the economy -  look at what they’re buying. Don’t listen to what the media says. After all, they missed the lead up to the crash, so I’m naturally skeptic when it comes to their coverage of the fallout.

Time Magazine recently got it right it right though, and that’s because they asked the Nielsen Company (famous for TV ratings) what people are buying in stores like Wal-Mart and Target. Rather than interpreting the data, they let the numbers speak for themselves.

Here’s a summary of their findings:

Increasing categories:

• Seasonal general merchandise – up 32% (includes thawing salt, body warmers, gift packages, and candy)
• Canning, freezing, and food prep supplies – up 11.5%
• Family planning – up 10.2%
• Fresh meat – up 7.3%
• Vegetables and grains – up 5.5%
• Pasta – up 4.4%
• Cheese – up 1.1%
• Wine and liquor – up, but no numbers given
• Baking supplies/mixes – up, but no numbers given

It seems like people are just cooking at home more in general, and are also downgrading their gift purchases. The “seasonal general merchandise” category includes things like holiday gift sets, so it seems like people may be skipping out on the flowers and jewelery for something a little more economical.

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I’ve been making better choices since I decided to turn my finances around, but I’m not perfect by any means.

Case and point? I recently chose not to participate in a medical flexible spending account, because I didn’t want to be hassled with a small amount of paperwork.

I call this falling for the laziness tax. It’s something that doesn’t affect the things I do or buy – just how much I pay for them.

How I threw away money

An FSA is an employer offered plan that lets you set aside money to pay for things like health or child care on a pre-tax basis. As a result, it’s cheaper for you, because it lowers your taxable income. If you set aside $1000, and your marginal tax rate is 25%, your tax obligation for the year would drop by $250.

A health FSA can use used to pay for a variety of medical and health expenses, including deductibles, doctor visits, prescriptions, and even some over the counter products.

There are two ways to access your money. Some products/services can be paid for directly with a special debit card. For everything else, you have to fill out a form and submit copies of the receipts you want to be reimbursed for.

How I was lazy

I participated in an FSA plan last year. While I was happy with the savings, I was irritated by the restrictions and the paperwork.

It was hard to use the card to pay for doctor’s visits, unless I waited until I was mailed the bill, then returned to the doctor’s office.

I had trouble using the card to pay for prescriptions and over the counter products, because none of the stores near me accepted it.

So when the time came to choose whether or not to sign up for the FSA again, I chose not to. Now I’m regret it, because I’m throwing away money by being lazy.

How much I wasted

The year I participated, I put $600 into my FSA (automatically deducted from my paychecks throughout the year). It was enough to cover my minimum deductibles, as well as other small expenses that might come up.

If I had set aside the same amount this year too, I would’ve saved $150 (according to a free calculator from United Health Care, one of the biggest FSA administrators)

It may not sound like much, but I basically turned down a 25% discount because I was too lazy to fill out paperwork for an hour every month or so.

Are you falling for the laziness tax?

There are all kinds of laziness taxes.

• Paying $5 in ATM fees instead of using an in-network ATM, or just getting cash back from a store
• Refusing to look into other cell phone, cable, internet, etc… companies just because you don’t want to change the status quo
• Getting hit with late fees on bills
• Not completing rebate forms
• Always buying the same brand of groceries at the same store, regardless of what is on sale
• Refusing to start a 401K /IRA because you feel overwhelmed by choices
• Choosing an inappropriate fund in your retirement plan because you don’t want to look into any options
• Always eating out, even when you could cook a better quality meal at home for much cheaper
• Buying albums / books in big chain stores instead of shopping around or buying them used
• Waiting until the last minute to book airfare

These are just a few examples out of an endless list.

What’s sad about the laziness tax is it does not improve our lifestyle or make us happier. We’re still making the same decisions, and still buying the same goods and services.

We’re just paying more than we have to, because we didn’t bother to plan first, or spend some time to save money later.

What laziness taxes are you falling for? What laziness taxes have you overcome?

Top o’ the morning to ya! Hopefully you can use these links to find your pot of gold.

Kyle at the Amateur Asset Allocator gives us tips on Choosing the best IRA for your needs: Traditional or Roth?

Jeff at Stretchy Dollar breaks down Needs and Wants, and how we can improve our finances and lives by prioritizing them.

The Online Investing AI Blog writes about how Tough Times are an Opportunity to Get Better at Managing Money.

The Financial Blogger thinks We are Nothing but Slaves in the Rat Race. And you know what? I agree with him. Something has got to change, folks. When did working to the bone to pay off your bills – if you’re lucky – become an acceptable way of life?

Are you wondering whether to put your hard earned money in boring index funds, or exciting actively managed funds? The Oblivious Investor has some words of advice for you. And they come from some of the brightest minds in charge of actively managed funds. The surprising answer? They all recommend index funds. If Charles Schwab himself recommends index funds, I’m going to believe him.

For the fun link, I’m going back to the Onion. According to their latest exclusive, a Rise in Rent has Forced Taco Bell to Take in a Roomate. Definitely a joke, but a good way to save money none the less.

Welcome to the second edition of my carnival round-up.

I’m a big fan of carnivals… both from the contributing side, and also as a casual reader.

This was a good week for me, and I was included in no less than 9 carnivals – including twice as an editor’s pick!

Please take some time to look at each of the links below… it takes a lot of work to put them together, and I’m sure you could learn something from it.

That being said, here are the ones I was featured in.

Money TLD hosted the Carnival of Twenty Something Finances – Last Hour Edition. I loved this theme. I hated giving up my hour of sleep this weekend, when I could have used it most! My article on 13 Things to Never Share with your Co-Workers was chosen as an editor’s pick! Thanks for the honor!

The Penny Daily hosted the 5th edition of the Carnival of Everything Money, and did a great job. There are 40+ articles. They even chose my article on How Much is $787 Billion as an editor’s choice! Thanks!

Mighty Bargain Hunter hosted the Carnival of Debt Reduction, Spring Forward Edition. He included my Get Out of Debt – February Update! post, and even gave me a compliment on my progress! Many thanks!

Money Ning – one of my favorite sites – hosted the Carnival of Money Hacks, and was kind enough to include my post on the Top 43 Songs About Money.

Funny About Money hosted the Festival of Frugality, and included my 10 Tips for Saving More at the Grocery Store.

The Military Finance Network hosted the Carnival of Financial Goals, and chose my post on how to Trick Yourself into Saving More. Please check out the site…he’s helping military families, which we can all respect.

Stock Trading To Go hosted the Carnival of Personal Finance, and included a whopping 91 links! One of them was my article on whether or not the recession will lead to A Generation of Risk Aversion?

Life Made Great hosted the Carnival of Personal Development, and includeded one of my favorite articles I’ve written so far: The Escalator Not Taken.

Kavmerica hosted the Carnival of Economics, and included my post questioning How Did Your 401K Really Stack Up in 2008? Not only did he include my article, but he corrected it after I totally botched the link. Thanks!

I hope you enjoyed my posts, and especially the Carnivals themselves. Please check them out! The hosts put a lot of effort and pride into it.

PS – wear something green, and try some black and white pudding in honor of March 17th!

One of my worst flaws is organization, especially when it comes to my wallet.

Yesterday, when I went to put another receipt away and couldn’t snap it shut, I was reminded of George’s wallet from Seinfeld.

George:  “Important things go in a case. You got a skull for your brain, a plastic sleeve for your comb, and a wallet for your money.”

[Jerry holds up George's wallet next to a hamburger]

Jerry:  “But look at this thing! It’s huge! You’ve got more cow here than here.”

George:  “I need everything in there!”

[Jerry looks through the wallet]

Jerry:  “Irish money?”

George:  “I might go there.”

Jerry:  “Show this card at any participating Orlando-area Exxon station…to get your free ‘Save the Tiger’ poster?”

George:  “All right, just gimme that.”

While my wallet isn’t quite that bad, it’s definitely full of crap I don’t need. To get an idea of how bad it is, I decided to take a full inventory.

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Tonight is the night we’ve all been waiting for!

Instead of back-and-forth cheap shots, we got too see a live debate between Jon Stewart and Jim Cramer.

To help you prepare for their showdown, I put together a summary of their fight so far.

Round 1 – The Daily Show takes on CNBC

On Wednesday, March 4th, Jon Stewart launched a scathing attack on CNBC. Blistering though it was, it was fairly level-headed, mostly using clips from CNBC itself (although some of these were taken out of context).

(view clip here)

The commentary was especially harsh on Cramer. Among other things, Stewart singled out his advice on Bear Stearns, Bank of America, his advice to accept and buy things that are overvalued.

Round 2 – Cramer responds in an online article

On Monday, March 9th, Carmer responded in a post on Mainstreet.com.

He defended himself on four points:

• His video clip was taken out of context
• His advice was actually right, because it referred to the safety of deposits, not the value of Bear Stearns
• He never recommended to buy Bearn Stearns
• He told viewer that Bear Stearns stock was worthless in a timely fashion

While I agree that the clip was taken out of context, I can’t say that I agree with the rest of his points. For more details, check out my post on Cramer’s response. It contains the full text of his rebuttal, as well as a critical analysis of his arguments.

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