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Monthly Archives: April 2008

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Maximizing Returns

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Hello All,

As frequent readers of DINKs finance will know, we are currently in the midst of paying off our second mortgage. It’s been an interesting journey, but we wanted to update you on where we currently are with the debt payoff progress.

We have managed to get our debt total down to $9,000 and have gotten out of Washington Mutual. This is good news in a couple of respects. First off, thanks to a very generous gift by James’ mom we were able to pay off a big chunk the debt. Second, since we moved most of the debt onto a zero balance transfer card, it’s gotten a lot cheaper to carry.

Here is our Washington Mutual statement, it’s been marked up so you can see what we are talking about.

Now that our obligation to Washington Mutual has been paid up, we’re shifting our strategy. The balance transfer card will charge us no interest for up to a year, so our plan is not to pay off that balance immediately. Instead, we are going to put it on auto pay and let our cash build up in an interest bearing ING account. After we have saved up enough in the account, we are then going to pay off the credit card.

Generally our approach is to throw as much money as we have directly at our debt, or savings, as fast as possible. This means often sending in multiple payments per month. This method might mean more active management of our debt, but it also means that we reach our goals faster.

Now that we aren’t paying interest on our mortgage with it transferred of to a zero percent credit card, the strategy of saving up the cash (rather than paying it off immediately) will help us maximize the total return.

There are two main reasons to take this approach.

1st – Money, we get some nominal interest from keeping the cash rather than handing it over to the Citibank

2nd – Options, we retain the option of having the money with us instead of them. All things being equal, its better to have more choices.

Best,

James&Miel

Happy Earth Day!

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In honor of Earth Day, I thought I’d share a couple of cost savings tips that will save you money:

– Sell your car.
– If you can’t sell your car, take public transportation once a week instead of driving.
– If there is no public transport then carpool.
– Or, ride your bike to work and ditch the gym membership.
– Weatherize your house to keep in that A/C in the coming months.
– Enjoy the fresh air for as long as you can between seasons to reduce your heat and A/C.
– Explore your own backyard and stay closer to home on your next vacation.
– Sell your TV – Cash in your pocket, no cable bill, and more time off the coach.
– Turn off the lights!
– Put your computer, TV, etc. on a strip plug and turn it off at the source to reduce energy.
– Close closets and bathrooms so heat or A/C doesn’t have to go as far.
– Plan ahead and do your errands together to save gas.
– Stop using pesticides on your lawn.
– Use a push mower instead of a gas powered one.
– Buy less $^#*!
– Use Craigslist and Freecycle to reuse the $^#* you already have.
– Take a shorter shower.
– Use the cold cycle on your laundry.
– Use the oven less as the summer comes around.
– Use your own bag at the store and get five cents off!
– Fill up your freezer, since the fuller it is, the less energy it uses to keep food frozen (just think Popsicles and smoothies for summer!

Readers: Feel free to join in on the Earth Day fun and leave comments with tips that you have to save money and the Earth!

Cheers,

Miel

The Coming Collapse of the Middle Class?

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Hello All,

Evidently this is our week to be posting youtube videos on Dinksfinance. This one features a lecture on family finance by Elizabeth Warren, a professor at Harvard Law School.

Her lecture goes something like this: the real costs of housing, health care, taxes and childcare have all increased relative to the 1970s. These higher costs have obliged both mothers and fathers to work to make ends meet. Because both wage earners are on the job market, families are more vulnerable to events like catastrophic illness, job losses or deaths in the family. This heightened vulnerability ultimately results in higher bankruptcy rates, etc. etc.

I find the thesis a bit alarmist. That said, Warren usually has good things to say, so do check out the video. At 47 minutes it’s a bit long, just minimize your browser and let it play in the background – you’ll get the main points.

Best,

James

Tricia Walsh Smith

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Okay, this video really is only tangentially related to personal finance. But, CNN evidently thinks this is a big deal so I’m posting it here.

I think that lady is lying about the no sex part. Check it out and let us know what you think.

New Legislation Could Impact Your Credit Card

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Hi All,

Evidently last years efforts by congress to address abuses in the credit card industry didn’t do the trick. Now the consumerist is reporting that the House of Representatives is considering a proposed credit card holder’s “bill of rights”. While a lot of what comes out of congress is fluff, this legislation is important for the average joe because it would limit some of the worst practices in the industry. Basically it would do the following:

1) Ban arbitrary rate increases, double-cycle billing and lending to subprime borrowers
2) Force creditors to provide 45 days notice of any rate increase
3) Empower cardholders to set limits on available credit and ban over-the-limit fees once that ceiling is reached
4) Require creditors to mail bills at least 25 days before the due date, instead of 14 days as currently required
5) Require creditors to apply payments first towards high interest items
6) Prohibit “fee harvesting cards”

The legislation is controversial. On the one hand, card companies should have the ability to charge more to higher risk borrowers, this is how markets work. The other hand, the business practices of many of card issuers are predatory. This is especially the case with fee harvester cards. And, after all isn’t it congress’s job to protect Americans from being ripped off?

Controversy aside, the bottom line is: for card holders, this bill will likely level the playing field between you and your lender. So it makes sense to pay attention.

For more on the story, check the Consumerist and the Library of Congress’ webpage.

Best,

James

APR, APY and Your Money

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Hello People,

This posting is on one of the finer point of interest: the difference between APR and APY. You might be thinking that interest calculations are boring – and you’d be right, but in this case understanding the difference affects the amount of cash in your pocket.

APR is the Annual Percent Rate or the simple annual percentage paid on something. For a credit card, its usually 23% or for a 12 month CD its about 2.5%. According to the Consumer Credit Protection act of 1986 this has to be displayed in bold on every consumer loan agreement.

APY is the Annual Percent Yield, also known as the effective interest rate.

Wait, you say, what is the difference between APR and APY? Good question. The difference between the two has to do with the rate of compounding. The APR assumes that your interest compounds once per year. The APY can be compounded, daily, weekly, monthly or whatever.

Lets illustrate with an example:

Assume you borrow a thousand dollars at 6%.

The APR would be .06 * 1,000 or $60, assuming that you compounded once per year.

The APY would be (1 + .06/12) 1,000 or $61.68, assuming that you compounded once per month.

The distinction is subtle, but understanding it can impact your bottom line. For example, many credit card companies will advertise their APR, but instead will compound your card balance using an APY that adjusts daily. This means that you will be paying marginally more than you think based on the cards advertised APR. Typically the amounts are small, but hey – small leaks sink big ships.

Best,

James

DC PF Bloggers Happy Hour

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Hi All,

Last Wednesday was the long waited DC personal finance bloggers happy hour. A bunch of us met at a local Irish pub in Chinatown and chatted for a couple of hours over drinks and snacks. DC area pf bloggers are a likable bunch and these get togethers are good opportunities to network, chat and make jokes. Since this DINK had a great time here are the websites of the bloggers who attended:

Jaylin, You are Not Your Wallet

Donna Jean The Weight of Money

Mike Clever Dude

MapGirl MapGirl’s Fiscal Challenge

DebtHater, Debt Hater

Ms Micah, Mrs. Micah.com

J Budget, Budgets are Sexy

Mortar Board, Mortar Board Blog

We missed Jim over at Bargaineering.com, but otherwise a good time was had by all!

Thanks all!

James

Rethinking Social Class

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Hello All,

Both my wife and I recently returned from a wedding in Eugene, Oregon. The trip was a wonderful opportunity to reconnect family, as well as a chance to celebrate the life journey that our friends were about to undergo with their new marriage.

For me however, the trip has been cause for some reevaluation of my thoughts on social class in America.

A part of me would like to believe that America is a meritocracy, and that one’s wealth and social position in life depend largely on their own merits. This is a strong theme in American society, as evidenced by the popularity of Horatio Alger stories and our celebration of great personalities who have come from nothing to achieve wealth or fame. There is also a lot of variability in social mobility, so one might be forgiven for assuming that wealth comes from merit, rather than class background.

However, my trip to Oregon has given me cause for reevaluating the importance of class. In Oregon, I was struck by the differences in wealth and class background of our respective social and family circles. For example, the married couple both come from west coast entrepreneurial families. Their parents tended to spend more time on business and maintained close associations among their respective business communities. On the other hand, my parents are a doctor and an attorney, but they socialize mostly with other professionals. Finally, my wife’s family is more working class from a rural part of Oregon and enjoy outdoor activities like target shooting or fishing.

What was striking about the contrasts of the trip was how similar we had all become to our parents. For example our friends were both small business owners. I am on my way to a professional academic career and my wife, while a professional still, shows her country roots sometimes. The parallels between this and building wealth are obvious, so I won’t say much about them here, save to note that if you have same job as your parents, you’ll likely have the same level of wealth.

Finally, I have to conclude that although merit plays an important part in building wealth, my experiences on our most recent trip suggested that social class reasserts itself in consistent ways, even in a small town in Oregon.

Best,

James

Cost of Travel Delays

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Here I am on day three of four in my journey back to Afghanistan.

I should already be in Dubai but we were held at the gate for too long last night and those of us on flights to Dubai and Delhi missed our connections. At first none of the airlines wanted to take responsibility, but eventually the group of about ten managed to get hotel, shuttles, dinner, and breakfast out of the airline.

I’m now online to cancel my reservation in Dubai, as I arrive at 11pm and must be back at the airport at 5am. In my book it isn’t worth three hundred dollars for around 4 hrs of sleep. Plus, after staying up all night in the Boston airport, the night before last, I managed to sleep the entire flight across the Atlantic. Last night’s sleep was also blissful.

The lessons here in travel and money are:

1) Make sure to get adequate compensation in the case of delays and so forth – this is likely to increase in frequency in the future.

2) It is worth the time/money to arrive early. Two of the guy on the Delhi flight missed their own engagement parties. Plus, if you travel early with some flexibility then you can also take that time to get bumped on a flight and earn you travel vouchers.

3) Take time to consider what things are worthwhile to you in travel. For me, I would rather not spend so much money for a few hours sleep – though luckily I can sleep on flights

I did however have to pay three pounds for a half hour of email to cancel my rez. To me this was well worth it.

Wish my luck on the last legs of my travel.

Cheers,

Miel

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