April 2010 - Page 2 of 3

Realtors Should Rent

Posted on April 19, 2010 - 9:19 am by Team Dinks 3

Did that get some attention? I hope so. The conclusion that realtors should rent comes directly out of urban economics, an understudied and ignored branch of modern economics. But while it is a cute fact you’d expect to see in Freakonomics– it wasn’t there. I wanted to take some time to explain this counterintuitive fact, and then use this to maybe reshape the question of renting or buying.

One of the reasons why we hear that we should hold a balanced portfolio is that, for whatever reason, it reduces our exposure to risk. If our eggs are in one basket and that basket drops, we have a mess. So by diversification, we’re not so S.O.L. if one of the baskets drops. But that isn’t necessarily true. If, for instance, basket 1 and basket 2 tend to drop together, then we haven’t really diversified as much as we might suspect. Consider an asset portfolio of a typical family(Cash-Like, Stocks, Bonds, Income, House). In the classic portfolio of stocks and bonds, those two tend to trend in opposite directions, so that’s one way of diversifying away risk.

If we consider the house to be a part of our asset portfolio, then we have to consider how it co-varies with our other assets. So if our income moves together with house prices, buying a really big house doesn’t mitigate any risk on our portfolio…it makes it riskier. It would behoove such a person to either rent, or own smaller and put the difference in an asset that doesn’t vary much with income.

The underlying non-economic logic is the same reason why you wouldn’t just buy stock in the company you work for. Your income is very much related to the value of the company. If the company goes belly up, your stock is worthless and so is your job. Change company to house and the situation is the same.

Real Estate is a part of our overall investment portfolio. In fact, it is typically the biggest chunk for most households. If I look at my Net Worth estimate, about 40% is our estimated house equity. So we should consider our house part of our investment portfolio.

Now, let’s go back to our realtor. When house values rise, realtors tend to make a lot of sales and thus money (this is a fairly well established relationship in urban economics). When house values decline, realtors tend to make few sales. There’s a lot of economics behind these simple statements but I’m going gloss over them.

Since portfolio theory tells us to diversify, and since a realtor’s income and home values are very much related, diversification indicates that the realtor should RENT (or own smaller) to mitigate risk. Now how about that for some counterintuitive fun! The person selling your house should be renting theirs, if they’re properly diversifying. HA!

How does this tie in to DiNK readers? For one, the buying vs. renting decision is often thought about in terms of interest rates, time frames, and available down payment. But in addition, whether or not your income is related to house prices should ALSO be a consideration, and this is NEVER mentioned in buy vs. rent guides. Of course, this would imply that a foreclosure specialist should own their home, since their business goes up when house values go down.

Anyways, I hope that adds a wrinkle to the buy vs. rent debate. Can you determine whether your income varies alongside house prices? Sort of. Government employees tend to have income that is little related to house prices. Some banking, investment, and local business owners income may be quite related to house prices. It is worth considering.

And if you do buy, ask for a realtor who rents. They get it.

Man Up and Make a Change

Posted on April 18, 2010 - 11:02 am by Kristina Tahnyak 5

My heart goes out to the Miners in West Virginia and their Families. Every day when I sit in my office and think to myself…I really hate my job, I have to keep in mind that someone always has it worse. Everything is relevant and in reality my job is not so bad.

We sometimes take our jobs for granted. We are spoiled in a way. DINKs are raised in an environment where education is essential. Doors have opened up to us that were not open for our parents. Sometimes we don’t realize exactly how lucky we are to even have a job in this current economy.

So what do we do when we hate our job so much that we want to call in sick every single morning when our alarm clock goes off? Basically we need to man up in the situation. We need to suck it up and stop complaining, or make some changes in our professional lives.

I am 29 years old and I have been working since I was 15. I am definitely ready to retire but that won’t be a reality for another 25 years or so. The mere thought of working in an office for another 25 years makes me feel a bit nauseous. When we are unhappy in our jobs we need to ask ourselves… What exactly is making us miserable? Is it the corporate world? Or is it just my current position?

Depending on the answer we will have to decide to look for another job or make a major change and become self employed. When making this decision please keep in mind that recent job loss and unemployment rates are at an all time high. There are many qualified candidates who are also searching for a job in this tough economy. The difference is that they are searching for a new job while you will be searching for a better job. There is a huge difference.

If you are like me you have been considering self employment for some time. Finally last year I decided to take a leap of faith. I am going to jump off the corporate finance cliff and hope that it is not personal financial suicide. My business is currently only part time as I am not ready to detach (yet) from the Corporate World. As my business grows, it is becoming harder to manage my day job that pays the bills with my dream job of becoming self employed.

When I decided to become self employed I thought that I was a leader of the pack, as it turns out I am merely a sheep following the pack. Yahoo Finance published an article on the benefits of becoming self employed (Canadian version) and statistics on recent spike in self employment.

If self employment is not the path that you want to walk down then there are several different ways to search for a job. Yes, the market is saturated with qualified unemployed candidates but there are still several companies and industries that are currently hiring.

Visit job boards such as Craigslist and Monster, and if you’re in Canada try out Workopolis and Job Boom. These sites have several resources and it’s all Free. You will find resume writing as well as interview tips, and current industry buzz words that employers love to hear. These types of Job Boards allow you to post your resume live which lets employers search for you as a candidate. This is great because you can find employers and apply online but they can also find you.

The second resource that you can use is a placement agency. This is another free service. Randstad, Kelly Services, and Manpower are all great national services. You can also Google placement agencies in your area for local offices. Placement Agencies do the work for you! They will review your resume and your career criteria, they will then search for available opportunities. You tell them your desired salary and what type of position you are looking for and they will find it for you.

Whether you are unhappy with your job, your employer, or just work in general. Remember that our careers are what we do. They do not define who we are! If you are unhappy, don’t be afraid to make a change.

~ Kristina
Live Life. DINK it up

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(Photo by Y)

Top 3 Things You Need To Know About Life Insurance

Posted on April 17, 2010 - 10:52 am by Team Dinks

For most people, thinking about the possibility of an untimely death can be an uncomfortable experience. However, as we travel down life’s unpredictable path, we will acquire responsibilities and debts along the way that can seriously impact our closest loved ones if we were to suddenly die. Although it may be an unpleasant thought to consider, it is our responsibility to protect our loved ones. This involves making sure they are not left with an overwhelming debt load that impacts their quality of life. One way to protect your family is to purchase life insurance.

Buying life insurance will ensure that your loved ones are able to settle outstanding debts such as a home mortgage, and set aside money for future plans such as the children’s education. When searching for a suitable life insurance policy, it is important to be aware of the following top 3 things people should know about life insurance:

1. The two general life insurance categories are Permanent Life Insurance and Term Life Insurance.

Permanent life insurance is insurance that covers an insuree for life. Term Life Insurance is insurance for a specific time period. The benefit is paid out if the insuree dies during the term of the policy. As well, it is important to note that insurance policies with an investment component will cost much more than term policies.

2. The life insurance industry is a business.

Agents earn more money if they sell an expensive policy. It is important to shop around for an affordable and quality policy. A helpful tool is an insurance online comparison quote service that allows users to submit a bit of personal information and then receive several different insurance quotes from different insurance companies. This allows users to find cheap life insurance quotes. Experts recommend purchasing an insurance policy that pays out no less than 5 to 10 times their yearly salary. It is important to acquire insurance that meets your needs and financial responsibilities.

3. Honesty and good healthy is important when purchasing a life insurance policy.

The best time to buy life insurance is when you are in good health. When you are healthy, including being a non-smoker, you will receive a lower insurance quote. As well, you need to be honest about your health because if the worst happens, and the insurance company finds out that you lied, your beneficiaries will likely be denied compensation.

When people marry and begin to start a family, they should consider what would happen to their family if they were to suddenly die. Unfortunately, life is very unpredictable so it is important that people have life insurance. It will ensure that their loved ones are protected in case an unexpected event occurs.

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Guest post by Joanne Kwan – an insurance industry writer.

(photo by kevindooley)

Weekly Recap: Budgets, Airline Fees & Taxes

Posted on April 16, 2010 - 9:08 am by Kristina Tahnyak 3

Hey Everyone,

Happy Friday! Today is the day for getting our weekend plans in order and turning off the alarm clock. Some of us are just not in the mindset for serious financial issues so we are going to do a quick weekly recap and then send you on your way to a fun filled weekend.

My heart goes out to the people of Poland and the families of the Prime Minister and other Government Officials who passed away. I know this is not a personal finance issue but it is world news. As I am of Eastern European heritage I feel that this is worth mentioning. If there was ever a time to realize that you never know what tomorrow can bring and live your life to the fullest, during this terrible tragedy would be the time.

Airlines are trying to increase their fees for overweight and extra baggage. However, the senate is fighting strong against the rule change. I don’t know if this extra fee is justified. In my opinion for airplane safety, overweight bags shouldn’t be allowed…not even for a fee.

Secondly, is it just me or are airplanes trying to charge flyers for every little extra thing these days? Do you want a meal? That’s an extra fee. Do you want to bring one extra bag? That’s another extra fee. The travel and tourism industry have taken a big hit over the last few years with SIRS, the Swine Flu, and the economic recession. They are trying to make up their losses by charging consumers. This is such a bad financial strategy it is not even funny. If airline prices get too high then people won’t fly at all as vacations are a luxury not a necessity. I always say that half of your money is better than no money at all.

What could a weekly recap be without mentioning the “return” of Tiger Woods to golf and to the public eye. I’m not sure what he left for, but the bottom line is that he has returned.

Budgets are the key to happy and stable personal finances. It seems that budgets were so faux-pas in the past but now they are sexy ;) Track your expenses and remember… If you don’t have it, don’’t spend it.

Its tax time! A key way to save on your taxes is to prepare as much as you can ahead of time. Sort through your papers and group them together in categories. If you have expenses add them up and give your accountant the total. The less work he has to do; the less he will charge you.

Don’t file your taxes late. This is an unnecessary expense and you will be charged interest if you owe any money. Make time to book an appointment with your accountant. It is worth it.

OK have a great weekend!
~ Kristina

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PS: Here are some other links we found interesting around the pf world. The first half are links from other bloggers in the niche, and the second half are from carnivals that we participated in (roundups of the “best articles” chosen by the hosting blogger that week). Hope some of these get your wheels turning!

Early Retirement: The Extreme Method @ Monevator
The Eternal Question: Rent or Buy? @ Free Money Finance
A Fool and His Money are Soon Parted @ Hope to Prosper
What Happens to the Money we Don’t Spend? @ Frugal Dad
Debt Free News from a Debt Free Reader @ Enemy of Debt
Financial Goals: Can You Have Too Many at Once? @ Budgets Are Sexy
Carnival of Personal Finance #242 – “Famous People With Tax Troubles” @ The Wisdom Journal
Carnival of Money Stories #49 – “The Sakura Spring” ed. @ Foreigner’s Finances
Festival of Frugality #225 – “The Procrastinator’s” ed. @ Go Banking Rates
Money Hacks Carnival #111 – “Don’t Hassle The Hoff” ed. @ Deliver Away Debt

(Photo by Williac)

Interest Rates Soar

Posted on April 15, 2010 - 10:10 am by Team Dinks 1

As our country seeks financial progression, higher interest rates are inevitable. In case you weren’t aware, we’re already experiencing some drastic increases. According to mortgage company, Freddie Mac, the fixed average mortgage rate is now 5.21 percent… after being 5.08 percent last week! So if you’re looking into buying a place, it might make sense to do so sooner rather than later, unless you can wait a whole lot later.

Also, this is the last month for the first time home buyers’ government tax credit. While the increased mortgage rates will likely have an impact on home purchasing, we won’t start seeing differences until after this month. Those statistics are going to look extreme as well, and I’m sure lots of different political writers are going to use them in order to support their claims against government policies. But keep in mind there have recently (last few months) been substantial increases in home buying, so just because there might be a massive difference between home sales this month and next, don’t fall into a state of panic.

This is mostly true for the Washington DC metro area; I know places like Florida have not experienced this same surge of home buying. So keep that in mind if you’re looking down there. Sure, you’re going to hurt a little on the mortgage rate hikes, but so is everyone else in the country. At least in places like Florida you’re truly in a buyer’s market and are thus capable of playing with different options.

A good buddy of mine has been looking into purchasing his first home in Orlando these last few months. The house is for him and his fiancée. Apparently he’s seen multiple places, all around the city, most of which have been on the market for many months. Two months ago he made an offer on a five bedroom, 3.5 bath home that’s in one of the top school districts in the state, in a gated community, on a golf course, and with a screened in swimming pool and hot tub. The home was listed for $200,000! He made an offer of $175,000. The appalled seller explained that the price was non-negotiable, after having been forced to drop the price three times already. My friend knew the market, and most importantly knew that nobody else was even looking at this guy’s house, so decided to allow the seller to sweat for a few weeks. After calling his bluff and waiting a month, the seller called my friend with a counter-offer of $189,000. My friend considered the offer, and just countered it a couple days ago with $182,000. Regardless of which he ends up paying, he’s getting a hell of a deal (assuming when he decides to sell he won’t have to go through the same hoops as this seller).

But back to my point… these rises in interest rates will undoubtedly cause a financial burden on our country, and the hikes are necessary in order to get the nation’s economy closer to recovery. So instead of moping about the rates, plan for them and see if you can’t get out there and find something close to an arbitrage opportunity.

Some other hiked interest rates:
Credit card interest rates: up to 14.26%
Car loan interest rates: 4.72% (was 3.26% in December)

Should You Live On a Cash Budget?

Posted on April 14, 2010 - 9:22 am by Team Dinks 12

When I was the manager of a small business, I was always shocked to learn when a new hire didn’t have a bank account. He or she would opt out of getting an electronic direct deposit in favor of a paper check that they’d cash every payday. I guess it surprised me because bank and credit accounts lay the foundation for my entire money management system and make my life so much easier.

You might argue that a cash budget has benefits because there’s no chance you can spend more than you have. Or that spending cash gives you a psychological advantage because it’s more painful to peel off a Benjamin than to swipe a debit or credit card for a purchase. Yeah, that’s true. But on the other hand, you can’t buy online or make a reservation for something like a concert, hotel room, or a rental car with cash. Trying to keep the right amount of cash in your wallet at all times is terribly inconvenient and could be dangerous if you were caught short of funds at the wrong time.

Let’s take a look at four reasons to use bank and credit accounts, instead of cash, and how to find the best ones:

1. You need to track every penny of your money.

Spending with a debit or credit card allows you to automatically track your expenses. It’s simple to import transactions from your bank and credit card accounts into a financial program at the click of a button. Quicken is one of the best-known brands in accounting software. But there’s also free software like GnuCash and Outright to keep you organized. Mint.com is a fantastic online application that automatically aggregates your financial data in one place for easy budgeting and reporting. On the other hand, purchases made with cash can’t be easily tracked. You have to manually enter them into your software or paper register which means they’re easily forgotten.

2. You need to earn interest on your idle money.

Money that you set aside for emergencies, short-term savings goals, and everyday bills and spending, should be working for you in a high-yield FDIC-insured bank account. Funds up to $25,000 in my checking account at Bank of the Sierra earn over 4% APY. To get that currently-awesome rate, the bank requires that I do the following each billing cycle:

Make a minimum of 12 debit card purchases
Have at least one direct deposit or automatic payment
Pay at least one bill using online banking
Receive an account e-statement

Am I happy to comply with those requirements in exchange for earning over 4% with absolutely no fees? You betcha! You can find more high-interest checking accounts at CheckingFinder.com.

3. You can use credit card rewards to your advantage.

I really enjoy getting 5% cash back when I buy everyday items like groceries and gas with my American Express Blue Cash card. I buy everything I can on it (except for the 12 debit card purchases that I mentioned above) and deduct each charge from my checking account balance each week. Then I pay down the card balance in full twice a month—so I actually use it like a debit card. The cash reward is credited to my account every 12 months.

4. You need to pay bills on time.

Without a checking account, it would take me so much longer to pay my bills. I remember the old days of writing paper checks, addressing envelopes, and stamping them. Whew! I’m so thankful for online bill pay; now it literally takes me all of a few seconds. Paying bills with cash or a money order seems downright archaic.

To me, living on cash has too many limitations and too few advantages. However, if you’re still convinced that using a cash budget is the only way you can tame your spending—don’t change a thing.

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Laura Adams is the author of Money Girl’s 10 Steps to a Debt Free Life. It’s available as an audiobook at Audible.com or as a short e-book in the Amazon Kindle Store, the Sony Reader Store, and the Fictionwise E-bookstore. Learn how easy it is to get out of debt and stay out of debt for good. Take control of your finances today and create a more secure future.

(Photo by Jeff Keen)

The Benefits of Investment Portfolio Diversification

Posted on April 13, 2010 - 10:02 am by Kristina Tahnyak 1

For my first official post on DINKS Finance I have decided to stay within my comfort zone of personal financial advice. I know that generally all financial planners give similar advice, but this is where I break the black and grey suit mold. Of course you can read about the benefits of portfolio diversification, and of course it is important to understand why you should diversify your investments. However, it is more important that you understand exactly what portfolio diversification is.

Some people say that the number one rule of investing is “Don’t put all of your eggs into one basket.” Some other people say that “You can never have too much of a good thing.” Both of these rules are good pieces of investment advice, especially when they are combined together. This is a strategy that is better known as investment portfolio diversification. Investors should not have all of their money invested in exactly the same place but they should have just enough money in one place to fully benefit from the investment option.

Diversification is an investment strategy that encourages people to invest their money in a variety of different ways. Diversification can be among investment instruments such as bonds, segregated funds, stocks, and mutual funds. This strategy gives the investor exposure to different levels of risk that range from low risk with secure investments such as bonds to higher risk investments such as stocks and mutual funds.

A benefit of having several investments with different levels of risk in the same portfolio is that they will have different rates of return depending on the current market conditions. As the market fluctuates each investment will respond accordingly. This is beneficial to investors because markets are unpredictable and more recently unstable.

For example when interest rates fall, the rate of return on more secure (interest bearing) investments such as money market and bonds will increase. The opposite is true for higher risk equity investments such as stocks and mutual funds. As the market increases the rate of return on equity investments should also increase. Therefore through diversification you can minimize your potential losses. This is why you should always try to have a balanced investment approach.

Diversification can also refer to the currency in which you invest, as well as the country, or the sector such as technology, pharmaceuticals, or precious metals.

It is a common misunderstanding that to diversify means to diversity amongst different financial institutions or with various investment brokers. The rule of diversification refers to how your money is invested, and not with whom it is invested.

Please keep in mind that these are general guidelines. Investors should always choose their personal investment strategy with the assistance of a professional. Having a variety of investment options and choices available is definitely more helpful to investors than it is hurtful.

~ Kristina

Throwing Away Money

Posted on April 12, 2010 - 9:28 am by Team Dinks 4

What do Bill Gates and Warren Buffet have in common? Other than being the two richest men in America; they love trash.

That’s right, hefty bags full of cereal boxes, half-eaten chicken bones, used coffee grounds, and that junk mail that you should have recycled is big business. How big? Waste management is a $50 billion per-year operation. Americans compile 200 million tons of garbage per day, or approximately 4 pounds per person per day.

We throw out more trash today than any other time in history, and we will only continue to throw out more. Think about it, the garbage industry is not going anywhere. You want a business with consistency-look no further than your own waste basket. Does your trash need to go out?

There is little competition in waste management. It is extremely difficult to open a landfill. As the saying goes, “not in my backyard.” No one wants a landfill stinking up their community, and your neighbors and local representatives are going to throw everything but the garbage disposal at you to keep it from happening. Competition? Good luck.

And guess what, neither Microsoft nor Apple is going to make technological advances in garbage retrieval. Until garbage eating robots roam the planet, count on waste management to pay out consistent, sustainable dividends. Just ask the two richest men in America. They’re not throwing away money.

“I’m in the waste management business. Everybody immediately assumes you’re mobbed up. It’s a stereotype. And it’s offensive.” Tony Soprano

(Photo by D’Arcy Norman)

Moby DINK

Posted on April 11, 2010 - 7:16 pm by Team Dinks 2

Call me Jeremy. Some time ago, never mind the particular date, having no money in my bank account despite the forty hour week that I had just worked, I thought I would start blogging in the financial sector of the world. It is a means of keeping motivation and direction. It is a means of humanizing, or rather, dehumanizing my current state. It is a means of stepping outside of the forty hour week and delving into a blog where assurance and financial security are only a few paragraphs away. I am a DINK. This is my counsel. Please, call me Jeremy.

As you may have gathered, I am by no means a financial expert-quite the contrary. Yet, I see myself as a sailor about to set sail, delayed only by a little patch work on a leaky ship. I will gather the necessary tools, seek the appropriate expertise, and apply the necessary adhesive to finally set sail. I am confident that my research and efforts will not only patch the existing leaks, but will construct a ship as worthy as the Pequod (FYI: that’s Ahab’s ship in Moby Dick).

Please come back soon, and come back often. My first blog will be up shortly and it is bound to be groundbreaking. I will be exploring the world of garbage. That’s right, garbage-waste management’s ugly name. But believe me, Tony Soprano is not the only one making a hefty profit in garbage. You can too! I am a DINK. This is my counsel. Please, call me Jeremy.

“There is nothing surprising in this. If they but knew it, almost all men in their degree, some time or other, cherish very nearly the same feelings towards the ocean with me.”
– Moby Dick by Herman Melville

I do! No wait! I don’t!

Posted on April 8, 2010 - 9:48 am by Kristina Tahnyak 13

Hello Fellow DINKS. My name is Kristina and I am the new daily blogger for DINKS Finance. My blog will follow market trends and report on financial news as well as discuss general business topics. As a Certified Financial Planner I will also provide financial advice and discuss current financial hot topics that are of interest to Couples with Dual Income and No Kids.

I am 29 years old and I have been working in the financial services industry for 10 years. I have done it all from working at an inbound call center, to answering client inquiries by email, and currently I work as a Financial Planner in a bank branch. I manage the credit and investment needs of approximately 385 clients. As with any good Financial Planner, I provide advice to clients in all areas of financial planning and life stages. However, my area of specialty is Investment and Retirement Planning. I have a Bachelors Degree from Concordia University.

OK, now that the black and white is over with, and you have a resume of my resume, let us discuss what makes me qualified to write for DINKS Finance. I have been with my boyfriend Nick for the same amount of time that I have been working in Finance. Actually, I have been with him for 4 months longer. We are in our late twenties and we have no children. We actually don’t have any pets or any living things at all in our home. We used to have a plant but it died and we used to have a fish but it committed suicide. That’s right, one day I came home from work to find out that my fish had jumped out of his bowl and onto my couch. He was DOA.

I work in Finance and Nick works in Computer Programming Management. We are a young couple with Dual Income and No Kids. We don’t have a house in the suburbs; we live on the 21st floor of a high rise building in the middle of downtown. Now I know what you are thinking…Total Cliché. True, except that we own a Honda Civic…Not an SUV.

Yes, you heard me right. After 10 years together Nick is still my boyfriend…and I am not happy about it. I am old school and I believe that people should be married but I also do not believe in forcing someone to do something that they clearly do not want to do. He feels that “If it’s not broken don’t fix it.” Whereas I believe that naturally as a relationship progresses marriage should follow.

Until Nick can say “I Do” to marriage I will be saying “I don’t” to joint anything except the home and the car. Two incomes should not become one bank account until the ultimate commitment is reached. In my opinion the ultimate commitment is marriage. After all, it is until death do us part.