A report published by the Federal Reserve this past Monday indicates that outside of prime loans, banks are still reluctant to loan money to people or businesses. It seems the consensus is credit will start to loosen significantly by the middle of next year, especially as demand picks up from where it is now. A separate study conducted by the Treasury Department seemed to indicate that mortgage demand has been rising, but demand for business loans continues to lag. It’s hard for there to be capital investment and therefore the creation of wealth when banks are not loaning. In both surveys, the underlying theme is pessimism; most of the executives and loan officers surveyed indicated that it might take another year before demand, credit-worthiness and access to funds return to desired levels.
Following this weeks theme of free stuff. Today we are giving away a free $25.00 gift card from T.J. Maxx. That’s right, its totally free. Just leave a comment on this blog posting and we’ll do a drawing for the winner and send the card along in the mail!
Since T.J. Maxx has been kind enough to front the goods, here is their blurb:
T.J. Maxx was founded in 1976, and together with Marshalls, forms The Marmaxx Group, the largest off-price retailer of apparel and home fashions in the U.S. The store sells brand name family apparel, women’s shoes and home fashions, and differentiates itself with an expanded assortment of fine jewelry and accessories, all at prices 20-60% below department and specialty store regular prices. T.J. Maxx, which operated 874 stores at the end of 2008, has further growth opportunities in the U.S., including new stores and expanding successful merchandise categories.
Don’t forget, if you’d like this free gift card all you have to do is leave a comment on this posting. On Friday, we’ll randomly pick the winner. It doesn’t matter if you’ve already entered one of our other giveaways, you can still win! Best of all, it’s free. Leave a comment, we’ll pick out a winner, and then we’ll pop it in the mail for you.
If you owe your bank a hundred pounds, you have a problem. But if you owe a million, it has. -JMK
This recession that we have been suffering through since essentially late 2007 is not something new; our economic history contains numerous instances of negative-growth economies, some obviously worse than others. However, in many ways, our current situation has perhaps brought to light the name John Maynard Keynes; a name that most likely wasn’t familiar to most people before this recent downturn and even in the midst of our recession, who he actually was and how his writings have influenced our economy may not be well known. Over my next three posts I’m going to be covering John Maynard Keynes; discussing the man, his theories, and finally, his impact on our current economic policy.
John Maynard Keynes was an early 20th century British economist. Born to a middle-class family in Cambridge, England on June 5th, 1883, Keynes demonstrated from an early age an aptitude for mathematics. Ironically, the year he was born was also the year that Karl Marx died; latter in his life Keynes spent considerable time challenging many fundamental Marxist principles. Despite extended periods of poor health when young, he excelled in school and in 1905 earned a degree in mathematics from King’s College in Cambridge.
After graduation, Keynes worked a variety of positions, initially as a civil servant clerk in Britain’s India Office. Despite a promising start to his career that included the publication of his first book (an analysis of the Indian monetary system), he soon left his position to take a job as a lecturer at Cambridge. Soon after accepting that position he took a leave of absence to work for the British Treasury after the beginning of World War I. There he worked on international finances, quickly rising through the ranks to the point where he was the Treasury’s representative during the 1919 Versailles Peace Conference. He quickly became frustrated with many of the conference’s other attendees, who he thought were instituting vindictive, counter-productive economic restrictions on Germany, eventually causing him to resign his post. Upon returning to England he wrote the book that brought him his initial fame: The Economic Consequences of the Peace.
The Economic Consequences of the Peace was a biting criticism of the French and American approach towards the Versailles Peace Conference. Keynes argued that such a hard approach would keep Germany in poverty and could ultimately undermine the goal of the Peace Conference by once again stirring up unrest and creating an unstable German state. At the time of its publication, his book received a lot of attention due to its vitriol directed towards powerful international political figures. However, as Keynes predicted, the 1919 Versailles Peace Conference enacted policies that led to the Germans being unable to recover and rebuild (leading to a period of hyperinflation in 1923), laying the groundwork for the Nazi aggression of World War II. Learning from their mistakes, and at the advisement of Keynes, both the United States and Britain took a different tone at the conclusion of World War II, setting aside vindictive ambitions in favor of more comprehensive assistance, which allowed Germany’s post-war economy to grow in a safe environment.
After the 1919 Peace Conference, Keynes returned to his philosophical and mathematical roots and published his Treatise on Probability. Additionally, at this time Keynes became more involved in journalism and finance as he began to amass his considerable personal fortune. It was also during this time, leading up to the second World War, during Britain’s economic struggles preceding the Great Depression, that he began to develop his theories on responsible government spending during economic downturns, which would eventually become a central theme of what is now referred to as “Keynesian Economics”. During this time, Keynes also advocated against returning Britain to the gold standard, a call which was ignored before finally being heeded in 1931 after it was shown to produce some of the disastrous effects that Keynes had predicted in his The Economic Consequences of Mr. Churchill.
Similarly to his call to abandon the gold standard, his calls in the early 1930s for deficit spending during periods of a stagnant economy were taken seriously but not readily adopted. Perhaps the most famous adopter of early Keynesian Economic ideas, Franklin D. Roosevelt did not initially take to Keynes’ notion that balancing the federal deficit was much less important than using the spending power of the government to stimulate the economy. Soon, however, Keynes would be granted the opportunity to prove his theory, as the advent of World War II left Roosevelt and other world leaders no choice but test Keynes on his ideas.
The economic productivity that resulted from the application of Keynesian principles during World War II proved to be an incredible success. This lead to wide-spread adoption of Keynes’ ideas on an even broader scale that would last well into the 1970s, when economic theorists attempted to formulate a more mathematically formal model of economic development, in comparison to Keynes’s more informal (and at times, disjoint, convoluted and disorganized) theories. In addition, as time progressed, Keynes’ initial assumptions about the state of current economic realities became insufficient as the world’s major powers progressed from an intrastate economic model to an interstate economic model. Regardless, his writings on inflation and unemployment remained relevant and still garnered support in many economic circles, achieving a near renaissance starting in late 2007 during the world’s current economic crisis.
Keynes worked tirelessly through the entirety of his life, leading to a series of heart attacks in early 1946, which eventually lead to his death on April 21st, 1946. He left his wife, ballerina Lydia Lopokova and no children. He died with a sizable fortune, which he had obtained due to an uncanny ability to effectively invest in the stock market. Parts of his fortune were used to continue his life-long patronage of the arts – he was highly influential in establishing the Arts Council of Great Britain after the war. His philosophies continued to resonate after his death: he was influential in the eventual establishment of the International Monetary Fund, his economic theories were adopted by nations across the globe, and his writings on rebuilding failed states became highly influential.
In my next post I will go into more detail regarding Keynes’ economic theories. Stay tuned!
It’s Tuesday. Following on our theme of giving away free stuff, today we are are making a free copy of Asset Allocation for Dummies, 1st Edition available to our readers.
Asset Allocation for Dummies is a part of the very good series on personal finance from the Dummies brand of Wiley Publishers. This particular book focuses on how to select assets. Selecting assets is important because much of one’s portfolio return has to do with what sort of assets one chooses to buy. If you’ve already got the basics of personal finance down and want to move into more advanced investing, this book can be helpful.
It covers the abcs of asset allocation, including an intro to some basic concepts, investment strategies, portfolio maintenance, rebalancing and following up to monitor your results. If you want to graduate beyond the basics or just need a reality check, you’ll eventually have to deal with asset allocation questions. While not perfect, this book can point you in the right direction.
Best of all, its free! If you want a copy of Asset Allocation For Dummies, just leave a comment on this posting. We will randomly select the winner on Friday and mail you a copy of the book. Don’t worry if you have already signed up for another DINKs giveaway, you are eligible for both!
Here is today’s financial tip. Consider riding your bicycle to work.
If you live in an area where it is possible to ride a bike to work, give it a try. This will save you in two ways. First, you won’t have to pay for automobile expenses like gasoline and maintenance. Second, the regular exercise will help to stave off ill health. This means that you could save money on health care in the long run.
It’s Monday on the east coast. If you are interested in picking up a free copy of The Complete Idiots Guide To Personal Finance in Your 20s and 30s, this is the posting for you! We are giving away a free copy of the guide here at the DINKs. Just leave a comment at the bottom of this post and we’ll randomly select the winner on Friday.
The Idiots Guide covers the basic ins and outs of personal finance for people who are at this stage of life. Its also got some practical guidance on things that aren’t usually covered – such as how to buy a car online or how to effectively find a job in the digital age. If you are getting serious about building wealth and want a good place to get started, this book will get you off on the right foot.
Best of all, the text also comes with a workbook full of handy exercises that can help you get your budget and net worth together, as well as better control your spending.
Folks – don’t forget, leave a comment if you’re interested!
“When stocks are attractive, you buy them. Sure, they can go lower. I’ve bought stocks at $12 that went to $2, but then they later went to $30. You just don’t know when you can find the bottom.“
Peter Lynch has always been a favorite and a role model of mine; I’ve read three of his books and they’re all excellent. This is one of my favorite quotes from him, and I think it’s especially pertinent considering we’re in the middle of a recession and a lot of air is wasted talking about whether we’ve hit the bottom or not. His quote for me really illustrates the importance of not trying to time the market, which is possibly the most important lesson any investor could learn.
If you spend much time blogging, you tend to get a lot of gracious offers from publishers and marketers. Since we already have a ton of personal finance books, we wanted to share the love a little bit! Therefore, next week is a giveaway week here at DINKs finance! Stay tuned as we’ll be giving away a couple of great personal finance books, as well as gift cards to TJ Maxx and Marshalls!
So, whats on the agenda:
Monday: The Complete Idiots Guide To Personal Finance in Your 20s and 30s.
Tuesday: Asset Allocation for Dummies, 1st Edition
Wednesday: $25.00 at T.J. Maxx Gift Card
Thursday: $25.00 Marshalls Gift Card.
How do you score the free goods?
Leave a comment in the posting for each giveaway. On Friday of that week, we’ll randomly pick one person for each prize. Then we’ll mail you the goods! Its as easy as that.
The career path of the average worker has changed dramatically over the past few generations. While my generation is more apt to leave a job and work for several companies throughout a lifetime, previous generations are famous for maintaining work with the same company for the entirety of a career. That amazes me, especially considering that I have (barely) three years of post-undergrad experience and am currently on my third job. I like my current job; I believe it’s going to stick for a while, but that doesn’t change the fact that I left my first job out of undergrad in less than 6 months, and then followed that up with a stint at my second job that barely lasted a year. I wasn’t fired from either job; I left voluntarily and on good terms at both locations. My reasons for leaving were due to a hastily run job search process (both times) leading to dissatisfaction with each organization and is material probably better served with its own post. Regardless, leaving two jobs means rolling over two 401(k)s, and the bevy of information and options that is associated with a rollover.
When I sat down to write this post I decided to take a look at the US Tax Code. Officially, I did it to glean background information, but in reality I was just curious to see what it was like. One thing it was not was brief. Or organized in a fashion that I could comprehend and peruse easily. It soon become abundantly obvious how people can devote their whole lives to studying and applying the tax code, and it made me even more suspicious of my neighbor, who, every tax season, puts up a home-made construction-paper sign advertising tax help. I think I’ll stick to Turbo-Tax, thanks though…
Despite the intimidating nature of the tax code, understanding how it is applied in the case where you leave your job and want to maintain active control over your 401(k) is enormously important. You have options when it comes to managing that money, and each option has very different tax ramifications.
As a little background, a 401(k) plan (and similarly, a 403(b) plan) is a Defined Contribution Plan (DCP), which establishes a partnership between an employee and an employer. It allows for the employee to specify a yearly contribution amount and the employer to specify a matching program. The US Tax Code provides tax protections for each party; most importantly, the ability to contribute money pre-tax, thus putting off the income tax burden until funds are withdrawn at the retirement age (59 1/2), or at an earlier time if the employee wishes to make an early withdrawal, which is subject to its own set of taxes and penalties. Now there are special exceptions (“hardship” clauses, for example), and certain types of 401(k) plans where contributions are made post-tax (known as “Roth 401(k)s”), but most people have either a standard 401(k) (or 403(b)) so that’s what we’ll focus on.
So you’ve left your job and you want to know what your options are for your 401(k). Despite the complexity of the tax code, you essentially have four basic options. You can either keep the money where it is and ignore it, roll it over to a standard IRA, roll it over to your new employer’s 401(k) or cash it out.
*#1 Keeping Your Money Where It Is*
This is typically not a recommended option. It’s perfectly fine to do these; you won’t incur any penalties for doing so, but you won’t be able to contribute any more money to the 401(k), and some employer programs have specific rules set in place to hamper management of the money in the 401(k). I’ve heard anecdotally of individuals who have left their money in their old employer’s 401(k) plans for extended periods of time (years) and when they attempted to withdraw the money or transfer it, they ran into difficulties with their old employer’s fund manager and the transition was less than smooth. When I left my second job I held the money in that account for a couple months, until I found out that I was unable to transfer money between funds in the 401(k). Hamstrung by that severe limitation, I decided to immediately roll it over into a traditional IRA. It is not the best way to manage your wealth, and definitely won’t help you with building wealth. Another issue to be aware of is if your 401(k) contains less than $5,000, your old employer can opt to cash you out of their program. If that is the case, then your money will behave just like option #4
*#2 Roll Your Money To A Standard IRA*
This is the option that I have selected in the past. If initiated as an institution-to-institution transfer, you will incur no penalty and your funds will be placed in a traditional IRA. However, if for whatever reason you act as a middleman between each institution (ie your employer’s fund manager mails you a check, you give the check to whoever is managing your IRA, even if you don’t deposit or cash is prior to doing so) you will be viewed as having cashed out your 401(k) and you will be subject to penalties just like option #4. This option is very similar to option #3; the reason why I’ve elected to go this route is because it allows me complete flexibility in choosing what to do with my money, as opposed to rolling it over to your new 401(k), which forces you to place your money in one of your 401(k) plan’s designated funds. Also note that you can only roll a 401(k) over to a traditional IRA, not a Roth IRA, because of the how each IRA is viewed under the tax code.
*#3 Roll Your Money To Your New Employer’s 401(k) Program*
This is the most common solution, and logistically, it is very similar to option #2. Again, be sure to not act as an intermediary between institutions or else you will be severely penalized. Communication is crucial with this option, as you have to work with fund managers from both your past and current employer. The advantage to this option over option #2 is sometimes certain 401(k) programs have excellent fund options that are unique to that specific employer’s plan. If you’re looking at your options with your new employer and see a nice mix of well-performing options with low expense ratios, it wouldn’t be that bad of an idea to roll your old plan’s money over to your new 401(k).
*#4 Cash Out*
This is widely considered the worst option of the four, outside of a few specific extenuating circumstances. If you decide to cash out your 401(k), you’re looking at that money being taxed as income, as well as a 10% penalty. Additionally, that money may be subject to state and local taxes. Choosing this option WILL cost you a lot of money. Also, if you have loaned yourself money out of your 401(k), you are generally required to pay that money back within 60 days of you leaving the company. Even if you want to take the money out to pay off credit card debt, or a home equity loan, or to pay for a child’s education, I strongly encourage you to consult with a financal professional and reconsider. It may seem like a good idea at the time, but in almost all cases, it ends up hurting you long term. Now, there are some ways to withdraw money from a 401(k) without incurring a penalty, but that money is still subject to income tax. A few of those reasons are: permanent disability, death of the plan participant and in the case of deductible medical expenses exceeding 7.5% of your gross annual income. As always, consult with a tax professional (or your employer’s 401(k) fund manager representative) before making such a move.
When you leave a job, you do have options for how to handle your money. As with any instance where you are considering a change in your financial situation, be sure you understand all of your options very clearly before making a move. If you can’t, don’t be afraid to contact a professional financial consultant or your 401(k) plan representative.
I read an interesting article the other day about the taboo of talking about your personal finance situation. The article can be found here. Its interesting because when I was going through my senior year of college and applying for jobs along with most of my friends, we talked pretty openly about salaries, benefits, financial goals, etc… However, since we’ve all started working we don’t really talk specifics, just vague generalities about our own money situations. There’s something about building wealth that makes it a taboo subject. Has that been everybody’s experience, or are some people more open with their friends?
