Feb 102017

Credit Card Debt will Kill You and Eat Your Children

By |February 10th, 2017|Blog|13 Comments

Credit cards are great.  I’m a huge fan.  More often than not they allow you to obtain basically 1% back on purchases, give or take. (That’s those points people are always going on about).

Unfortunately these are only great if you NEVER PAY INTEREST.  In the case of credit cards this is simple.  Pay your statement balance in full every month and you never need fear paying 15, 20 or even 25% interest.

How Bad is it to Pay Credit Card Interest?

Really, really bad.

If you maintain a $10,000 balance on your credit cards you’ll end up paying something like $200 per month just for the privilege.

If you can’t keep up with the interest, you’ll probably have to declare bankruptcy.  The interest rates on credit cards are so high that your balance will double every 3 to 5 years.

So, let’s say that your $10,000 balance is getting charged interest at a rate of 25%.  After 6 years the balance will be $40,000 and the annual interest will be $10,000.  That’s right, after 6 years your annual interest is equal to your original balance!


So How DO You Avoid Paying Interest

It turns out to be simple, but as with most things, Saturday Night Live said it best.

This is all of Personal Finance

  1. Don’t Buy Stuff You Can’t Afford
  2. If You Don’t Have Money You Should Not Buy Anything

Problems In Life Have Solutions Which Fall on Two Axes

A solution can be simple or complex and the implementing the solution can be easy or hard.  What does that even mean?

Well, it’s best to learn by example, if I have a bacterial infection I can take antibiotics (for the time being anyway).  This is a complicated solution which is easy for me to implement.  I am not clever enough to have come up with antibiotics.  (Seriously, it would never have occurred to me that some mold could be used to fight bacteria.)

A complicated solution that is difficult to implement might be Chemotherapy.  The treatment is complicated, and very hard to do.

A simple solution that is easy to implement is like making yourself a sandwich.  You’re hungry.  You just take some meat, bread and (hopefully!) veggies. Boom, sandwich.

A simple solution that is hard to implement is diet and exercise as a method of losing weight.  It isn’t complicated, burn more calories than you consume, but it is hard.

People hate simple hard solutions, and they love complex easy solutions.  Given the choice between a hypothetical pill that would make you fit and a regimen of diet and exercise who wouldn’t prefer the pill? 

Reality Check

This is exactly why there are so many snake-oil salesmen in the personal finance game, there are a million get-rich-quick books.  There are probably just as many lose-weight-easy books.  There is no complex-easy solution to your finances, there is also no lack of people who will try to use complicated methods to bamboozle you into thinking they have an easy solution for your finances.

There is no easy solution.

There is only the simple solution.

You Must Spend Less Than You Earn

So what if you already are in a significant amount of credit card debt?  Well, my rule of thumb is that you should treat anything you buy as costing 3x as much.  Why?

That’s a reasonable rule of thumb for how much it’ll cost you after the interest.

What does this mean?  Well, food is still worth buying.  Need to eat, I’m willing to pay 3 times for food if that’s what it costs. Need to live somewhere; willing to pay 3 times for that too. I am not willing to pay 3 times as much to go to the movies.  I am not willing to pay 3 times as much to go out to eat.

So if you have credit card debt, excluding your credit card payments and interest:

You Must Spend Less Than 1/3rd of What You Earn


Try reading these posts:

Disease Called Debt

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Feb 102017

Life Insurance Without an Exam?

By |February 10th, 2017|Personal Finance Tips|Comments Off on Life Insurance Without an Exam?

Have you heard of No-Exam Life Insurance? Unfortunately, many people still don’t know about it or may not know how to get it. This might be why studies show that 38% of people who want life insurance put it off.

Sadly, many delay getting life insurance until it’s too late.

The question of whether no-exam life insurance is the right choice comes up a lot. This option isn’t right for everyone, but in the right circumstances, it can be the only choice that makes sense.

So, what are those circumstances?

Age Matters

Age can be a factor in choosing no-exam life insurance, whether a person is young and healthy or “too old” for traditional life insurance.

  • No-exam policies require less information, but age will always affect rates. According to Ty Stewart, owner of simplelifeinsure.com, “Rates for a young healthy person will be only fractionally higher whether you take the exam or skip it”
  • Beyond age 70, most traditional policies won’t offer coverage. No-exam providers may offer an option called Final Expense life insurance, available to anyone 89 years or younger.

You Don’t Want an Exam

There are many reasons why someone might want to avoid having an exam for the life insurance process.

  • You haven’t had an exam in a while
  • Fear of needles, blood, etc.
  • Just too busy!
  • High-risk health conditions


If it has been a while…

If you were healthy at your last exam, but it has been a couple years, it may be smart to avoid having a new exam, because there may be new health issues the person isn’t aware of. These range from higher blood pressure or cholesterol to elevated blood sugar or urine protein levels.

Some of those are normal as we age, but any increase from the prior exam increases the cost of life insurance. Urine protein in particular can simply vary from exam to exam, but could also be a sign of kidney problems. Insurance companies raise rates a lot higher because of this increased risk.

Even worse, now the exam results are added to the Medical Information Bureau (MIB). Any future life insurance application with a different company will refer to the MIB and see those results.

Afraid of needles or doctors?

You’re in good company. About 20% of people have severe needle phobia. Another 20% have a phobia of doctors. This means that getting an exam can be an uncomfortable, panic-ridden experience.

Fear of needles or doctors can temporarily elevate blood pressure. Higher blood pressure is a top reason life insurance companies lower a person’s health bracket, increasing cost. If you’re trying to get life insurance, higher blood pressure is not what you want.

Do you have [fill in the blank]?

Perhaps you’ve been denied life insurance coverage due to a chronic health condition, or you’ve recently discovered you have a high-risk condition such as diabetes.

In these cases, no-exam life insurance may be the best option available. Policy types exist for these situations, including Guaranteed Issue and Graded Death Benefit policies. The latter type requires answering a few questions but may give a lower price than a Guaranteed Issue policy.

Fast Coverage is Needed

Sometimes, a person may have reasons why it’s not practical to wait the 6-8 weeks needed for a regular life insurance policy.

  • Obtaining a small business loan
  • Divorce decree may require life insurance to finalize proceedings
  • Leaving on vacation, especially overseas
  • Selling a structured settlement (such as a pension) may require a policy to protect the buyer


In these cases, no-exam life insurance is the ideal solution. Many providers will approve a policy in hours or even minutes.

Dangerous Job or Hobby

Life insurance companies will ask about a person’s job, and often ask about hobbies. If the company decides that a person’s job or hobby is high risk, the policy premium goes up. Sometimes, it goes up a lot.

There are some no-exam life insurance providers who don’t ask about these things, and if they don’t ask, they can’t raise rates!


You’ll need to talk to an agent, since most no-exam life insurance companies will only work through agents. But don’t worry–rates are fixed by law. The cost to you is the same whether you use an experienced agent or attempt the process yourself.

Consider the circumstances discussed above. If you fall under any of these, it’s worth looking into this type of policy, especially if you’ve been turned down for traditional coverage.

In all cases, getting a no-exam life insurance policy is faster, easier, and far less intrusive, and probably less expensive than you’d think.


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Jan 302017

Coverdell ESA

By |January 30th, 2017|Blog|6 Comments

The current tax code is a mishmash of law and loophole that’s been built up over many years.  In some cases, like the 401(k) the loophole was later championed by someone and made into real law.  If the 401(k) was kind of an accident, the IRA was pretty much on purpose.  We’re going to discuss something quite similar for educational savings accounts.  The 529 plan is a little more like the 401(k) in this respect.  The Coverdell ESA (Educational Savings Account) was a little more on purpose.

The History

I’m just kidding.  There’s no way you want to know that the Coverdell came out of a big budget reconciliation act in the late 90s.  (Also the one that gave 529’s some of their fun tax benefits!)  You also probably don’t care that it was named after the senator Coverdell.  Eh, even reading into this section this far should get you something.  Enjoy a video I watched today as a reward:

What’s the Benefit of the Coverdell ESA? 

Okay, now we’re getting to the stuff a reasonable person would care about.   The entire point of the Coverdell ESA is that it’s basically a Roth for educational expenses rather than retirement.

Let me repeat that. You know the awesome roth thingy?

The one I’m always going on about?

The one we have a video about here?

You can have that for educational expenses.

"Success Kid" loves the Coverdell ESA

What are the Limitations for the Coverdell ESA?

Well, bad news first.  You can only contribute $2,000 annually to a specific beneficiary.  Beneficiaries have to be under 18, so this isn’t a great way to save money for yourself to go back to school.  It’s really to save for people roughly the age of the kid photographed above.

Additionally, you can only contribute to a Coverdell ESA if your Modified Adjusted Gross Income is less than $110,000 for individuals and $220,000 for couples filing jointly.  If your salary is higher than that, check out our article on how to keep your MAGI reasonable.

The beneficiary also has to use the account for qualified educational expenses before they turn 30.  So that means if you’re putting money aside for your kid figuring they’ll go to school, they need to use that money in their 20’s or earlier.

This shouldn’t be too hard unless their waiting a real long time to get started with school:


How Do I Deal with the Coverdell ESA limits?

Well, fortunately you have some options if you have created a Coverdell ESA and it turns out to be a mistake, maybe you contributed more than your kid would end up needing in school.

Maybe your kid got a full scholarship.  All kinds of things can happen.

Fortunately, you can change beneficiaries. The new beneficiary has to be a related person.  The IRS doesn’t want to create a market for Coverdell ESAs by allowing you to transfer to just anyone.

One major difference between Coverdell ESAs and Roth IRAs is that you can’t just take contributions back out, tax free!  This is a big difference in my view, as a major selling point of Roth’s is that you might as well always max it out. After all if you change your mind you can just take your contributions right back out, no penalties, no questions asked.

For the Coverdell ESA you have to treat each distribution as though the money has been mixed around in the account, and you must pay taxes on a distribution as though it contains representative parts of (non-taxable) contributions and (taxable) earnings.

Best bet with the Coverdell ESA is to only put money in that you’re pretty sure will get used for educational expenses by the beneficiary you have in mind or at least some under 30 relative.

What Expenses Count as Qualified Educational Expenses?

Well, I’m glad you asked.  You can get the story straight from the horse’s* mouth here. I’ll give you a broad brush though:

First off, normal living type expenses are NOT qualified educational expenses.  Room and Board, medical bills (even if they are charged by your university!) do not count.  Nor is the cost of a car to get to school.  Short version is, don’t be silly, you know that these things aren’t educational expenses.  Don’t be an ass about it.

Tuition and mandatory fees ARE qualified educational expenses…very probably. (I mean probably talk to a real accountant, but I’m pretty sure).  Of course this is kind of the well, duh part.  Tuition pays for the education it’s an educational expense, go figure.

Student loans are NOT qualified educational expenses.

I know what you’re thinking.  What’s up with that!?

Well, student loans are a way of paying educational expenses, they aren’t educational expenses themselves.  That’d be like calling your contributions to an ESA a qualified educational expense.

But what about interest on student loans?? Why isn’t that an educational expense???

Those are deductible anyway (at least I’m pretty sure), so you’re paying them with pre-tax money anyway.

Other expenses can depend, like books and that sort of thing, but the upshot seems to be that any expense required by the school for attendance can be counted as a qualified educational expense.  Consult a tax advisor, be realistic.


Disclaimer: I am not a tax advisor.  This is not tax advice.  I’m not even an accountant.  I got a BS in physics.  This is for entertainment purposes only.  I do not believe the IRS to be made up of horses.  Nor do I believe them to be afflicted by the terrible condition known as “horse’s mouth”.

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Jan 192017

When Is The Best Time To Sell Your House And Move?

By |January 19th, 2017|General Personal Finance|Comments Off on When Is The Best Time To Sell Your House And Move?

hand-truck-564242_640Selling and moving can be both exhilarating and a little overwhelming. With so much to do in such a short time, it can be difficult to keep the logistics straight.

However, everything can be distilled down into three phases: First, consider planning when you will move out after you sell your home; second, consider finding the best movers for the job; and third, consider timing your move to reduce your costs.

After you’ve figured out how to take care of these three big issue, create a plan of action to prepare for the move in the most efficient way.

Let’s take a closer look at these four steps:

  • 1. Timing the sale of your home.
  • 2. Finding a reliable mover.
  • 3. Timing your move to reduce costs.
  • 4. Preparing to move in the most efficient way.
  1. Timing the Sale of Your Home

Usually, funding and closing occur at about the same time. In some cases, funding might follow a few days after closing due to technical issues. In addition, buyers often specify in the property and sales contract when they want to occupy the property. So, you should plan to move out of your house shortly after closing.

  1. Finding a Reliable Moving Company

Next, you have quite a few things to think about when selecting your moving company. Find a company who has an established track record. A company like North American has done it countless times, assisting people and organizations with personalized household moves, long distance moves, company relocation moves, and international moves.

  1. Timing Your Move to Reduce Costs

If you can be flexible on when you close and move, then you will be able to slash moving costs. Two primary factors that affect moving costs are the season and the day of the week.

Two Worst Times to Move:

  1. Moving during a major holiday. The reason this is a popular time to move is because people are off work and can spend more time packing and moving. However, there are two problems with picking this time.

The first problem is that it takes away the joy of spending quality time with family and friends during a holiday.

The second problem is that a large number of people choose this time. It is the most convenient time for them because the kids are out of school and they don’t have to ask for time away from work to make the move.

However, due to the fact that many people choose this time to move, there is a shortage of moving helpers and trucks, which raises the rates charged by moving companies.

  1. Moving during the summer. Again, while this works out well for many personal reasons, it also results in higher moving costs because demand is higher than supply.

One reason summer is popular is because the kids are out of school and moving in summer gives them plenty of time to get used to their new environment before they go to a new school.

Moving companies consider the months from July to August the busiest in the year. As a result, the can charge top dollar and have their work scheduled well in advance.

Two Best Times to Move:

  1. Yes, you guessed it—winter. At this time of the year, demand is low so moving prices are at their lowest. This is not only a good time to move but also a good time to rent an apartment or buy a condo or house. In short, everything is more affordable when it is cold and miserable. While it can be difficult to get motivated to pack and haul all your household belongings to another location when the weather is bad, from an economic point of view, it’s the best time.
  2. The second best option is fall or spring. Again, there is less competition and it’s easier to get lower moving costs. However, this often doesn’t work out well for personal reasons if you have a busy work schedule or have kids. Choosing this time in the year can result in schedule interruptions and breaking the flow of busy routines.

Best Days to Move:

Finally, according to the Money Saving Guide, “The best days of the week to move are during the middle week — from Monday to Thursday — because most people plan their moves for the weekend.”

Moving in the Most Efficient Way

Naturally, the more efficiently you can move, the more likely you are to hit all your target times from the sale of your house to the season when it is cheapest to move.

With that in mind, here are 4 tips to move as efficiently as possible.

  • 1. Start as early as possible and work out your move in detail on a calendar.
  • 2. Declutter your entire home to avoid paying the cost of moving things that you no longer want to keep anyway. By trashing, donating, or giving away things, you reduce the bulk of what you have to pack or transport.
  • 3. Take care of all your paperwork ahead of time like paying a variety of expenses, arranging services, and canceling subscriptions.
  • 4. Get professional help with packing. By working with a professional staff, you will be able to choose the right boxes, packing equipment, and inventory all your belongings.

When selling your house and moving, consider using these four steps to organize your move.


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Jan 182017

Your Worthless 401k

By |January 18th, 2017|Blog|6 Comments

One of my favorite stories in tax law is how the 401(k) came to be.  I realize the bar here is pretty low.  I mean, what’s your favorite tax law story?


I’m a nerd.

Well, the setting is the late 70’s.  It’s the middle of the Carter administration.  For years rich folk had been attempting to play a shell game with their earnings.  This is an important thing to remember about the income tax code in the post WW2 period before the 80’s.  Some folks (alright, lefties) like to point out that the top tax bracket used to be, like, 90%.  What they fail to point out is that massive amounts of income could be sheltered from the income tax one way or another.  One of the ways was for rich employees to have their company defer their compensation into the future, but also to invest that money on their behalf.  That way the employee effectively gets control of the money, but doesn’t actually have to pay taxes on it because it’s not income yet.  This was an ongoing debate between corporations and the IRS for 20 years or so.  (Apparently this is covered in Hicks vs US but I can’t seem to track down the actual cases as it seems that people named Hicks sue the US all the friggin’ time).


So in 1978 the government tries to put a limit on this loophole once and for all, they introduce section 401(k) to the tax code to limit the amount of money that companies can defer on behalf of employees.  The next few years are pretty quiet until a benefits consultant by the name of Ted Benna figured out that it could be used to create a retirement plan as a general benefit for employees.  Johnson and Johnson then installed one of the first 401(k) plans.  There were some changes to the law after congress saw (or was lobbied regarding) what was going on and promoted the status of the 401(k) from what was essentially a loophole to a cherished part of the tax code.

It’s hard to remember what the retirement situation was for people before the 401(k).  When I ask people about it I usually hear idiotic things like, “everyone had a pension”. This is just incorrect, what it’s so disappointing to see blog posts like this one from slate: Even the People Who Pushed the 401(k) Think it’s Been a Huge Mistake. Go ahead, and read it.

I painted this self-portrait while waiting.

I’ll wait.

For those of you that can’t be bothered the article basically reads as, the 401k is so bad even the people who suggested it wish it hadn’t happened, the 401k isn’t working for most people, suggested fixes for 401k’s won’t work, “life has become too expensive for people to save adequately”,


and, to top it all off, we should just increase social security payments.

To be fair this article was written Helaine Olen, who seems to be a relatively well-respected columnist who writes about, among other things, how the personal finance industry takes advantage of people. One hopes that this article doesn’t reflect the overall quality of her thinking, let’s deal with the article point by point.

The People Who Supported the 401(k) Now Oppose It

This simply isn’t true.  You can certainly get most of them to say something negative about 401(k)’s.  Benna was at one point quoted referring to the 401k system as a “monster” that “needs to be blown up”.  It takes a little digging to discover that Benna actually thinks that 401(k)’s are superior to the system that they replaced.  He was merely saying that most companies offer too many confusing options for their employees, and that educating employees on investing was probably causing more problems than it was fixing. Of course, reasonable people explaining the issues with 401(k)’s make for terrible headlines.  The fact that most of those issues are mostly under your control makes for terrible headlines.  “You should probably save money for retirement: make sure you buy and hold“.  Does not generate many clicks.  Some variant of: “The System Is Stacked Against You: Perfect Excuses for Any Situation!” tends to work better.

I can't seem to sell any prints of this.

I can’t seem to sell any prints of this.

The 401(k) isn’t Working for Most People

This is the closest Helaine comes to the truth.  It’s absolutely true that most people haven’t saved enough for retirement to continue to spend the same amount of money they spent before retirement.  Unfortunately, that’s kind of a bonkers standard.  The important question is, does the 401(k) work better than the system it replaced?  If so, how do we continue improving?

Can we all go ahead and remember that the 70’s were not a magic time where there was no poverty, everyone had a pension, and money grew on trees?  Back when “everyone” had a pension before the 401(k), “everyone” turns out to be: 38% of private sector workers.  Yup, 62% of those workers weren’t covered by a pension.


Today 13% of workers have access to a private sector pension.  So, when “everyone” lost those pensions, what we really mean is 25% of private-sector workers, who might have had pensions in the past, don’t.

Switching jobs under a pension scheme caused some issues.  Occasionally companies offering the pensions go bankrupt.  In principle if you have a pension from a company that went bankrupt you should be covered by the Pension Benefit Guarantee Corp, but this corporation only existed for 5 years before pensions peaked.

Many people don’t have access to a 401(k) at their work, but those that don’t can still save in an IRA like everyone else.  Yes, the contribution limit is low (currently $5,500), but it’s not as though you literally have nothing (as you would have in the pre-401k and IRA days).

One last quibble, Helaine acts as though the stock market crash permanently damaged portfolios.  If you just sat on a diversified mutual fund, like a target-date fund or almost any sort of index fund, you have recovered far more than you lost in 2008 at this point.

Yes, some people panicked and sold at the bottom.  Some people kicked up their contributions at the bottom.  Why do only the people who did stupid things with their money count?  Retirees sometimes waste money gambling, that doesn’t create a retirement crisis.  The fact that some people did stupid things with their money isn’t the fault of the 401(k).

Still cheaper than panic selling.

Still cheaper than panic selling.

Poverty rates among seniors are at all time lows, and that’s relative poverty rates, if you use measures of absolute poverty the picture is even better.  The percentage of american’s covered by retirement plans of some sort are at all time highs. The percentage of men over the age of 65 working sits at 23% compared to 35% in the 70’s.  This despite the fact that people are now healthier and more capable of work.

Suggested Fixes for 401(k)’s Won’t Work

Economist Richard Thaler suggests some fixes:

  • Auto-enrollment
  • Auto-escalate
  • Company match
  • Low fee default
  • Offer to employees without plans

Helaine responds:

Unfortunately, it’s more complicated than that. Many companies already do auto-enroll their workers, but as of now employers aren’t required to even offer a 401(k) and they’re certainly not required to offer a match—and if they do match, they can stop at any point. Given the political climate in Washington, it’s hard to believe any of that will change soon.

Yes, many companies already do auto-enroll their workers, but Thaler doesn’t suggest this thinking that no one has ever tried that.  It’s precisely because auto-enrolling workers has shown to be effective, that he suggests it.  The whole second part of her point is that employers aren’t required to do any of these things, therefore they will never happen, because it’s not politically feasible. That’s just completely bonkers, especially considering her alternative:

Just Increase Social Security Payments

Yeah, the lady who two paragraphs earlier had just dismissed 401(k) plans to have a low fee default as politically untenable is suggesting that raising social security payments is the real solution to the retirement crisis.

Let me break down precisely what’s wrong with this.  Your social security contributions go into the social security trust fund.  This fund is invested in government bonds which on average have returned 1.6% real over the past 100 years.  Over the last 100 years the stock market has returned about 7% real.  If you plan on funding retirements from contributions people will have to “save” (be taxed) much more through social security than they ever would with a 401(k) to maintain the same standard of living.  The fact that money in a 401(k) is invested productively as opposed to government bonds is just too great a gap.  If you don’t believe me, do the math yourself.  How much do you need to be taxed for a 1.6% real return to pay for a 30 year retirement at the same standard of living you had pre-retirement.  (The fun part is that you don’t need any extra information to solve this particular puzzle).

The upshot is that the author would prefer to supply seniors with money through an expansive welfare state disguised as a pension program, therefore any progress 401(k)’s have made when compared to the pension world of the past is simply ignored.  Any reasonable improvements to the current system are dismissed out of hand.


Astute readers will note that I skipped her other point, “life has become too expensive for people to save adequately”.  That’s a whole ‘nother blog post.


You may want to check these out:

Disease Called Debt

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Jan 122017

Is the Trend Your Friend While Trading?

By |January 12th, 2017|General Personal Finance|Comments Off on Is the Trend Your Friend While Trading?

symbol-1757582_640Trends in Forex Trading are divided into three major categories.  They can be either long-term trends, intermediate trends or short-term trends.  Understanding how to use these different types of trends to your benefit will make them your friend.  Being able to identify a trend and which category it belongs to will serve you well in your Forex Trading.

The Forex market is driven by trends in macroeconomics, and these often take years to establish.  The best use of these trends is to help you make long term projections.  Traders often check the strength of a trend using a combination of three moving averages.  A moving average is when the total of the trades is divided by the number of trades and this gives you an average price for the trades.


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