2012 January | Global Investors

Archive for January, 2012

January 28th, 2012 | Posted by Global Investors

(In this post, I’m not going to provide all the background information on savings bonds that I normally do. For that, please read the older posts in my Savings Bonds category.)

When the Treasury announced the $10,000 purchase limit for 2012, a few readers asked if you should buy savings bonds in January, or wait until later in the year. Since then, a few things have happened. For one, the Federal Reserve has basically said that they will keep their target fed funds rates at zero until late 2014, while setting a target inflation rate at 2% annually. Translation: Interest rates on savings accounts and similar products will be remain crap while the things we buy get more expensive.

Also, we have another month’s worth of Consumer Price Index (CPI) data which is how the inflation rate is defined for savings bonds. The next 6-month variable rate update will be based on the CPI-U change between September 2011 and March 2012. We are halfway there:

CPI-U
Sep 2011 226.889
Oct 2011 226.421
Nov 2011 226.230
Dec 2011 225.672
Jan 2012 ?
Feb 2012 ?
Mar 2012 ?

You can see that inflation is actually negative over these three months. However, user MoneyOCD of Bogleheads posted this informational chart showing that in recent years there have been many periods of negative inflation from September to December, only to be followed by periods of higher inflation from December to March.

Basically, making predictions now is premature. If you buy in January through April, you will get a fixed rate of 0%, and a variable rate of 3.06% for six months. Given the interest rate environment, this is pretty much one of the best options for “safe” money. If you wait all the way until May, you’ll get something new based on whatever happens to inflation the next few months along with a fixed rate that will most likely be zero again. The inflation rate resets every 6 months based on your purchase month.

In general, if you have the money and are looking to put it in shorter-term, low risk investments that are guaranteed not to lose money (in terms of face value), I would be maxing out my limit on savings bonds for 2012. Keep in mind that savings bonds can’t be cashed in for an entire year after purchase. My personal opinion on the short-term? I don’t see any benefit in waiting until May. If you have money to put aside now, buy Series I savings bonds now. If you don’t, just wait until you do. The rate is already higher than savings accounts or 1-year CDs, and by waiting around in a 0.75% savings account or 1-year CD you’ll be missing out in interest.

If you’re looking to buy in January, I’d put in your order today at TreasuryDirect. It’s better to buy near the end of the month, as you get credit for the entire month no matter if you buy at the beginning or the end.

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<a href= Savings Bonds vs. Bank Savings Accounts from My Money Blog.

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Pay Your Kids To Fund Their Own Roth IRA?

January 27th, 2012 | Posted by Global Investors

You’re probably aware of the wonders of the Roth IRA and how it allows your money to grow completely free from taxes, even upon withdrawal. An added wrinkle is the lack of age restriction, so that even kids with earned income (wages, salaries, tips) can contribute to a Roth IRA up the lesser of their taxable income or $5,000.

Along those lines, I received a PR e-mail from a site called 1417power.com. The idea is that you pay them “tuition”, and in return they pay your kids official job income that makes them eligible to contribute to a Roth IRA. They claim to follow all applicable child labor laws for those aged 14 to 17 (thus the name). Your kids do thing like fill out marketing surveys, but you’re essentially buying them a job. Digging through their fee structure, roughly 50% of what you pay them is skimmed off to go to the site owners.

Naturally, my question was – why can’t I just do this myself? The idea of paying your kids to do things like babysitting, lawn care or landscaping work, or manual labor seems simple enough. However, this Fairmark article argues that paying your own kids for chores is usually not considered taxable income, so you can’t “switch it” to taxable income for Roth IRA purposes when it benefits you. I’m not completely convinced, but for the sake of argument let’s explore other options:

Have the teenager earn money via traditional jobs like grocery bagger, cashier, food delivery, waiting tables, etc.
The child earns income from other neighborhood families doing things like babysitting, lawn care, or painting. The pay rate would have to be at reasonable market rates. You could even work out a “I’ll pay your kid if you pay mine” agreement, if you find a like-minded parent.
If you run your own business, you could pay the child for more clerical or administrative-type duties such as proofreading, delivering documents, or office organization.
If the teenager is especially industrious, they could be doing more skilled work like graphic design or making iPhone apps.

There would still be some loss, as their gross income would be subject to payroll taxes like Social Security and Medicare, as well as a small amount of federal income taxes (less than 10%). But if your child has the discipline to not touch the money for decades, the tax-free growth could be enormous. You’d have to be comfortable with the fact that they could do whatever they wanted with the money at age 18 as they can withdraw the money after taxes and penalties.

The Parental IRA Match
Another move taken from this Forbes article for those that are already parents of teenagers with part-time jobs is to match their earned income. If little Jane earns $3,000 being a lifeguard, then let her spend her all or part of her take-home pay, but help her fund a Roth IRA to the full $3,000.

Effect on College Financial Aid
From my quick research, it appears that retirement accounts like Roth IRA are not considered an asset by the generic FAFSA form, but individual universities may deem them as a student asset. This could make for example 25% of the IRA to counts toward the student’s expected contribution, which doesn’t seem too bad.

Here’s a question for the parents out there – have you done anything along these lines? What did you do and why (or why not)?

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<a href= Pay Your Kids To Fund Their Own Roth IRA? from My Money Blog.

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Get rid of those that you don’t want.

One friend was planning on coming to my birthday party but he realized that he couldn’t make it because he was wearing some old pair of running shoes. The venue that we were attending had a strict dress code policy on dress shoes. The policy is simple, no dress shoes, no entry. You can complain all that you want, but it’s their property and their rules.

I also believe in being over-dressed instead of under-dressed. My friend was surprised he couldn’t get in with the running shoes. He just didn’t understand the policy.

The venue’s stance on the policy is actually real simple: get rid of those that you don’t want. The venue clearly didn’t want its patrons to be walking around in old running shoes. You complain all you want. That’s just the way it is. The venue is getting rid of those that they don’t want.

You should try the same with your business. Get rid of those that you don’t see eye-to-eye with. Get rid of those that don’t share your views. Get rid of anyone that will only bring you down.

How can you get rid of those that you don’t want?

Bash ideas that they believe in.
Don’t give them any reactions.
Ask them to leave.

Once you lose those that are bringing you down, you can move on and help those that you want apart of your cause.

Focus on helping those you want apart of your cause.

Who do you want apart of your cause? Once you figure this out you can focus on helping these people and having them help you. Chris Guillebeau refers to this group of people as your small army. You will help your small army and in turn your small army will want to help you. I summarized his theory on building your small army with this quick image below:

When you work on helping those that you want to be with you and of your cause you’ll build yourself up towards being much closer to where you want to be. This is a simple formula that I’ve been doing my best to apply ever since I heard of it.

Fake it until you make it.

This is a classic quote and I believe in it totally. You’re not going to make it to where you want to be if you keep on feeling sorry for yourself and simply wishing you were there. You need to pretend that you are there. You don’t need permission from anyone to position yourself the way that you would like to. You just need to be willing to do the work and act as if you already are there.

I hope that you take this article seriously and begin working towards being where you really want to be. There’s usually a huge difference between where you are and where you want to be.

Where do you stand? Where do you want to be in the next few months?

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Affiliate Boosters huge giveaway at the London Affiliate Conference

January 26th, 2012 | Posted by Global Investors

80%
Commission and £1000 Cash Giveaway at Affiliate Boosters

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Citi Dividend Platinum vs. Chase Freedom Visa: Which Is Better?

January 26th, 2012 | Posted by Global Investors

Some of you may not like the idea of trying out a new credit card with an annual fee and possibly having to cancel the card later (even if comes with a big sign-up bonus!), though the effect on your credit score is a lot less than many media articles would lead you to believe. Here are a couple of cards with $200 sign-up bonuses and minimal requirements (indeed, they would have been rock stars in 2008 and 2009) – but are also everyday “keeper” cards with no annual fee. I’ve had both of them for years.

Chase Freedom Visa – $200 Bonus

$200 bonus cash back after spending just $500 in first 3 months.
Earn 5% cash back on up to $1,500 spend on rotating categories each quarter. 1st quarter 2012 categories are Amazon.com and gas stations.
Earn 1% cash back on everything else. There is no limit on the 1% cash back.
Instead of cash, you can also redeem points at Ultimate Rewards site.
No annual fee.

Citi Dividend Platinum Select Visa – $200 Bonus

$200 bonus cash back after spending just $500 in first 3 months.
Earn 5% cash back on rotating categories each quarter. 1st quarter 2012 categories are fitness clubs, health care, and utilities (including electricity, gas, water, garbage, cable, phone, cell phone).
Earn 1% cash back on everything else. There is no limit on the 5% categories, but instead there is an overall limit of $300 total cash back.
No annual fee.

Which one is better?
Both offer a $200 bonus after spending $500 on the card for anything (40% back). Both offer 5% back on select categories, and the good thing is you can benefit from having both cards since their categories often don’t overlap. Both require you to “activate” the 5% online each quarter, which is a bit annoying but only takes a minute. Both cap their rewards at similar levels (5% of $1,500 is $75 per quarter = $300 per year). Both have no tiers on their 1% back on everything else. The Chase Freedom has no expiration of rewards as long as the account is open, whereas the Citi Dividend rewards do not expire as long as you have activity once every 12 months. Last I checked, the minimum redemption amount was $20 for Chase, $50 for Citi. Overall, they are both very similar in my opinion.

However… in my credit card survey a few weeks ago with over 3,000 reader responses, there was an open-ended question asking which card was the “best credit card on the market today”. The #1 most popular answer was the Chase Freedom card, beating out everyone including travel cards. Where was the Citi Dividend card? Not even in the top 20. The people have spoken, but I’m really not sure why! Better commercials?

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<a href= Citi Dividend Platinum vs. Chase Freedom Visa: Which Is Better? from My Money Blog.

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Exploring the Connections Between Happiness, Stuff, and Money

January 25th, 2012 | Posted by Global Investors

The Daily Beast has an article Consumption Makes Us Sad? Science Says We Can Be Happy With Less by Barry Schwartz (author of The Paradox of Choice) that serves as a nice compilation of various psychological and behavioral economics findings about money and happiness.

The first main topic is hedonic adaption. When things are awesome, we eventually get used to it (celebrities, lottery winners). When things are really awful, we tend to get used to that as well (disabled persons). This is why it’s hard for people to achieve a constantly higher level of happiness. We get a nicer car/house/toy, we get used it, and then soon we want an even nicer car/house/toy, never getting anywhere as if we are walking on a treadmill.

Simply knowing that the good feeling from that purchase is only temporary may help you cut back on your spending. In addition, author Dan Ariely suggests you deal with the hedonic treadmill by pacing yourself when it comes to experiencing pleasure, and (when needed) making painful cuts all at once. For example, you might not buy a entire home theater setup all at once, but perhaps upgrade one component and wait until the shine completely wears off before buying a new couch. If you need to cut costs, it may be better to make a big spending cut by downsizing your house rather than cutting things you’ll miss repeatedly like your daily coffee or selling your stuff on eBay piece-by-piece.

The second main topic is how most of us get more pleasure out of doing stuff than out of having stuff. This especially applies to activities with other people and/or activities that we find important and worthwhile. A nice result form this is that those activities often cost very little or nothing. I think this concept is related to the research by Daniel Kahneman that found that happiness did not increase past earning $60,000 a year.

Below 60,000 dollars a year, people are unhappy, and they get progressively unhappier the poorer they get. Above that, we get an absolutely flat line. I mean I’ve rarely seen lines so flat. [...] Clearly money does not buy you experiential happiness, but lack of money certainly buys you misery,” he said. But the real trick, Kahneman said, is to spend time with people you like.

We all need a certain amount of “stuff” (and thus money) to make us feel physically healthy and safe from harm. Past that, adding more stuff doesn’t seem to help. Schwartz suggests that at some point, one might even stop looking for a job that pays more, but instead go for a job that makes us feel valued and doing something important. Of course, more money can get you to early retirement faster if you’re into that sort of thing, so there is a balance to be made.

Chase Freedom® Visa – $200 Bonus Cash Back” border=”0″></a> 
 
<a href= Exploring the Connections Between Happiness, Stuff, and Money from My Money Blog.