JoeTaxpayer

Not a major Faux Pas, but one that can cost you if you are playing the float on zero interest credit card loans.

For those of you not familiar with this, let me start with a description of what I am discussing. Despite the state of the economy and credit crunch we are in, a number of credit card issuers are still offering zero interest cash withdrawals for as long as 12 months, and some with no transfer fees. The no-fee deals make it tempting to borrow the money, put it in a CD, and just pay it back when the zero rate comes to an end. Of course, this is not for everyone. You set yourself up for the risk of a missed payment, (in my case I set up monthly automatic payments on line), or the temptation to spend that money instead of putting it into a CD. For others, the credit line offered isn’t high enough to justify the effort.

Now, to my recent mistake. When you have an outstanding zero interest loan, any new charges are typically incurring the standard interest rate. So, with an outstanding zero interest loan, I forgot that I had this same card set up to charge my eBay account seller fees. I recently had a sale that had a fee of $2.47. So this amount will accrue interest until I pay this card off in January. Now, interest on this tiny charge would normally be about three cents per month, but BOA credit cards have a minimum $1.50 per month finance charge. So the account will be subject to $7.50 in finance charges over these five months or about 1450% when annualized. Not enough to cancel out the interest I earned on this deal, but enough to offer this as a warning. If it’s early in the free year, and you accidentally pull out the wrong card to make a large purchase, you may find you’ve just negated the saving for the whole year’s deal.

(To be clear, I have no issue with BOA, their rules are clear, the $1.50 min finance charge is stated on their agreement as well as on the checks I used to draw the loan. This is just one of the ‘got ya’s to watch out for.)

Joe

written by JOE \\ tags: Credit, credit card, credit card loans, credit cards, Finance, finance charges, interest, interest rate, loan, money, saving

I must admit, this only recently came to my attention. The fair tax (not to be confused with the “flat tax”) is a system that does away with income taxes completely, instead it taxes consumption at a 30% rate. Lower income households are “pre-bated” their projected sales taxes, so in effect, they would pay no tax at all.

Many questions occur to me as I ponder such a system. I’ve saved mostly in a pre-tax 401(k). Seems this system with let me access that money at retirement with no further taxes due until it’s spent, same as others would pay with money they’ve already paid taxes on. And therein lies the rub. How are these two sources of funds (one’s savings already taxed vs money in pretax accounts) differentiated? I feel sorry for the retiree who spent the last few years converting all his retirement money from a pre-tax IRA to a Roth IRA, now to only find a 30% sales tax waiting at the other end.

On the other hand, there’s a certain appeal to knowing that those in the underground economy, who are paying no taxes at all, will be drawn in to the system if only when they go to their local grocery store. I’m not sold either way, a lot more discussion is needed on this topic.

Joe

written by JOE \\ tags: 401(k), fair tax, income, income tax, IRA, money, Retirement, roth ira, saving, Savings, Taxes

A regular reader of my blog kindly pointed me to an article in Smart Money titled “401(k) Debit Cards Can Put Retirement at Risk” in which we are introduced to a debit-card like product which taps your 401(k) instead of your checking account. Although I wrote back in May’s “401(k) Loan bad for your (financial) health?” that loans were not absolutely bad, it depended on many factors, I think that such easy access is the flip side of the coin, almost certainly a bad thing. There are times I walk the fine line between wanting ‘big brother’ to establish just enough regulations to protect people from their own irresponsibility and wanting no such laws at all, caveat emptor still applying. Here, I’ll make the distinction between a one-time 401(k) loan used to help with the purchase of a first home, bridge the gap of income for an unemployed spouse, or a refinance of credit card debt combined with a change in lifestyle. Of course, paying off the cards with the loan, then charging up the cards again is no better than using a 401(k) debit card in the first place.

As the post title suggests, my feeling on this product is that it gives the consumer just enough rope to hang themselves.
Joe

written by JOE \\ tags: 401(k) loan, Credit, credit card, Finance, income, money, Retirement

I’ve recently added another link to my List of Lists, this one for 40 Great Minds Share Their Money Lessons a CNNMoney article that offers the “Smartest advice I ever got” from a wide range of people. Enjoy.

If you have a suggestion for a new addition to my list, please submit a comment. As always, thanks for reading my blog.

Joe

written by JOE \\ tags: CNN, cnnmoney, list of lists, money, money lessons

I enjoy the public radio show This American Life, and listen to the podcast, but having fallen a bit behind, I just heard the May 9th show, titled “The Giant Pool of Money.”

It offers yet one more view on the subprime mess, this story centers around a lot of investment money looking for a home. The episode is no longer available as a podcast, but may still be streamed on line. It’s worth listening to. (And I will add it to my list of subprime links page.

Joe

written by JOE \\ tags: investment, Ira Glass, money, Mortgage, Subprime, this american life

CNNMoney recently had an article titled “The smartest advice I ever got, From Bill Miller to Derek Jeter: 40 great minds share the best money lessons they ever learned.” I thought it interesting enough to add it to my List of Lists.

Joe

written by JOE \\ tags: CNN, money, money advice, money lessons

I recently read that Leona Helmsley bequeathed $8 billion to a charitable trust dedicated to “the care and welfare of dogs.” I have nothing against dogs, or other pets, for that matter. When I read stories of people spending large sums of money on their pets, I think it’s their money, to spend as they wish. But enough is enough. $8 billion dollars? Some time ago, I posted about the Global Rich List, a web site that will tell you how well you’re doing compared to the rest of the world. This web site informs me that 1.3 billion people live on less than $1 per day. That $8 billion dollars could have been directed to a trust that could help to double the well being of one million people ($365M/yr is less than 5% of $8B) who are otherwise starving, not just for a year, but indefinitely. Queen of Mean, indeed.
Joe

written by JOE \\ tags: charitable trust, global rich, leona helmsley, money, rich, trust

I’ve seen remarks across the blogosphere that the recent FDIC advertisements are a bad sign. I’m not convinced. I think there are many who have no idea how the FDIC protection works, what its limits are, and how to get more coverage. First, here is one of the ads they are running:

The important thing to understand is that non-retirement accounts are insured up to $100K. If you have more cash than this, you should consider splitting it up among more than one bank. In the case of a failure, you may have to wait some time to access your money, so even if you are below the limit, using 2 or 3 banks is a good idea. See the FDIC Website for more details.

Joe

written by JOE \\ tags: banks, failure, fdic, money, Retirement, retirement account

They say that when the shoeshine boy starts talking about stocks it’s a time to get out of the market. Last week, David Letterman offered his Top Ten List,

Top Ten Signs You Have a Bad Bank

1. Manager giggles whenever he says, “early withdrawal”
2. They made $2 million loan to the Hillary Clinton campaign
3. Most banks are backed by the FDIC; your bank is backed by KFC
4. Bank robbers leave with a sack of IOUs — that’s how bad things are, ladies and gentlemen
5. Loan officer will approve your mortgage only if you let him rub you
6. ATM looks suspiciously like a Ms. Pac-Man machine
7. Interest paid not in money, but in Saltines
8. They promise they’ll have your money if you come back after tonight’s Keno drawing
9. Instead of Andrew Jackson, their $20 bills have a picture of Tito Jackson
10. Teller asks, “How may I swindle you?”

Maybe this is the sign that we’ve reached the bottom in this crisis, I hope so.

Joe

written by JOE \\ tags: banks, david letterman, fdic, interest, loan, money, Mortgage, stocks, top ten list

I usually don’t post on Sunday, so this post is going to be a bit off topic, a few general thoughts. First, I’m happy to see readership growing over the past weeks,

as well as steadily over the past 6 months.

I’ve gotten many comments, most of which are positive, all of which are welcome.

Recently, I’ve started posting about the Money Merge Account, and my feelings regarding that product. Lest this blog turn into my soapbox for ranting, I’ve decided to commit to a steady pattern of posts on Mon/Wed/Fri as I’ve been maintaining, and when I have more to say regarding MMA, I will add an extra post on either a Tuesday or Thursday. Other than that, I am trying to vary post topics, so technical, limited interest topics affecting a tiny percent of taxpayers will not appear more than every few weeks. I think there’s a need to bring those topics up as obscure as they may be. As always, your input is welcome and appreciated. Questions, and/or topic suggestion are always welcome.

Joe

written by JOE \\ tags: interest, irs, mma, money, money merge account, soapbox, tax