Archives for February 2010

3 out of every 4 people reading this are idiots.

February 24, 2010

IRS Refund Anticipation Loans


That means you, who’s looking forward to getting a tax refund on April 15. It might not be the dumbest thing you can do with your money, but it’s in the top 8.

Congratulations, getting that check means you let the government (definitely federal, probably state) enjoy your money all year long, as your employer dutifully paid the IRS every two weeks before you got your share. Of what you earned.

Remember that packet of papers the HR wench gave you when you started your current job? They included IRS Form W-4, which orders your employer to withhold some minimum amount of income tax from your paycheck. The implicit message from the government is you’re too stupid to budget, Citizen.

(You also can’t handle saving for retirement, and we don’t want you making too many decisions about your health care either. But those are issues for future posts.)

Many people, 75% of you according to some estimates, gladly choose to have their employers withhold more than enough to cover their taxes from each paycheck, thinking of this as “forced saving” in a gross misinterpretation of the term. The logic goes that rather than come up short on April 15, you can spend the whole year not thinking twice about your eventual tax bill. Best of all, when all those other suckers are lining up at the post office on Tax Day, not only will you not have to, you’ll be “receiving” money from the IRS. You outsmarted the system!

You didn’t.

You don’t want to get a big check from the IRS on April 15. You want to incorporate as a business, and send the IRS small checks on April 15, July 15, October 15 and January 15.

If you’re not an entrepreneur – i.e., if most of your income is still tabulated on W-2 forms rather than 1099 forms – you still don’t want to get a big check from the IRS on April 15. If anything, you want to cut them as big a check as possible.

“As big as possible” meaning not that you should give them all your money minus your living expenses, but as much of your tax bill as you can save until the last possible moment.

Look at it this way. Lots of merchants give cash discounts. The auto repair shop would rather have your money immediately than wait until the end of the month to receive it from MasterCard (after they subtract their cut, of course.) Continuing in that vein, the longer the merchant has to wait for your money, the more they expect. That’s why most invoices call for increased payments after 30, 60, 90 or 120 days, which is obvious.

The IRS has the second part of that down, being only too happy to assess penalties if you’re late.

So does that mean the IRS reduces your tax bill if you pay early?

(Sorry, broke a blood vessel from laughing too hard.)

If there’s no benefit to paying early, why on earth would you do it? Let the time value of money do its work. The longer you can hold on to it, the better it is for you.

Retailers use the annual ritual of receiving a check as a seasonal mating call. Come to our car lot, and we’ll double your IRS refund on the purchase of a new Camry! Turn your refund into a plasma screen!

A million years of human evolution, and our brains still haven’t developed to the point where they can instinctively appreciate the wisdom of deferring things beyond the obvious benefit.

Get the minimum deducted from each biweekly paycheck. (You don’t have to wait until the anniversary of your hire date. You can do this at work today if you want.) Take the difference between that and what you would have had deducted otherwise, and invest it in your 401(k). When it comes time to pay your taxes you’ll have enough to buy that plasma screen or Costa Rican vacation and then some.

If you’re not convinced by this point, then you have no willpower and will have to wait until we release a book called Let Someone Else Control Your Cash. Even worse, in the last few months we’ve seen just how hollow the phrase “full faith and credit of the (United States) government” goes.

For instance, the state of Hawai’i recently announced it was delaying its tax refunds until July 1. This isn’t to commemorate Canadian independence day, we’re guessing.

UPDATE: It isn’t. Make that August. Late August.

That leaves 49 solvent states. Well, except for Virginia. Oh, and Georgia, which kept its citizens waiting until mid-July and beyond last year. You knew New York would be a part of this too, right? How about Alabama? And North Carolina, you can step right up too. Etc.

States routinely budget in billions of dollars, making it easy to assume they have giant reservoirs of cash. They don’t. Californians pride themselves on having an economy that would be the world’s 8th largest were California a nation, but their state government doesn’t even temper the news when it announces it’ll be paying its creditors with IOUs.

America’s largest corporations by revenue are ExxonMobil, Wal-Mart, Chevron, ConocoPhillips, Ford and General Electric. Imagine what would happen if any of them decided to pay vendors or employees with postdated checks. Somewhere between the customer boycotts and class-action suits, the state attorneys general would be among the first to publicly call these companies out.

But remember, it’s businessmen who are evil.

Hmmm…if the state, or IRS, doesn’t owe you money (that was yours to begin with) in the first place, you’ve denied the taxing authority the chance to defraud you or make you wait.

Chances are pretty good that in the next year, your municipality will float a bond issue for more money for your neighborhood firemen. Or initiate a ¼% sales surtax. You’ll vote yes, probably because of the residual effects of 9/11. A few months later, when the firemen have spent all the money on lasagna and mustache grooming and matching blue shirts for their daily trips to the gym, try not to draw a correlation to your delayed tax return. Which you shouldn’t be getting anyway, if you learn how to Control Your Cash.

**This article was featured in the Truth or Dare Issue of Money Hackers Carnival #108**

Filed Under: Consumer Debt, Taxes Tagged With: , , , , ,

Invest in Sylver or Platynum before Zync.

February 22, 2010

Ysn't thys clever? Yt's a good thyng our comedyc ynstynct ys so childysh.

We’re still having this discussion?

Listen, the credit card companies don’t owe you a thing. You owe them. That’s how you got stuck in this mess, remember?

You applied for a card. You signed an agreement. No one “preyed” on you. Coyotes prey on ground squirrels. But the ground squirrels never initiated proceedings with the coyotes.

If a credit card company promised you a 7% interest rate, then started charging interest on your balance at 15%, then you can consider yourself preyed upon. Even though you’re idiotic for carrying a balance in the first place. One problem: no issuer has ever arbitrarily raised rates without notice. They’re not going to blatantly lie and run the risk of losing customers.

But they lost me, you say. I refuse to pay their confiscatory interest rates. I’ll never get out of this mountain of debt. Even the White House and Congress want to keep them in check, so clearly the issuers are doing something nefarious.

Then where’s the court willing to hear the inevitable class action suit filed on behalf of millions of defrauded cardholders? Fine, if you’ve got conclusive proof that a credit card issuer dishonored the terms of its agreement with you, let us know about it at info at control your cash dot com. Include a copy of the agreement.

Neither American Express nor Visa nor MasterCard nor Discover has ever held a cardholder at knifepoint and said, “Buy stuff, preferably more than you can afford.” Diners Club and Carte Blanche, we can’t vouch for. Ask your great-grandfather.

Governments routinely change the rules in the middle of the game, but do you seek redress for that? Your elected representatives and executive branch raise tax rates, and your only recourse is to emigrate. Which is somewhat less practical than cancelling a credit card.

In Control Your Cash: Making Money Make Sense, we endorse Discover and American Express Blue Cash as the only credit cards you should look at (and even then, pick only one of them.) Sure enough, the moment we sent the manuscript to the publisher, American Express unveiled a new card: Zync.

It’s got a contemporarily misspelled word and it starts with a Z…the young folks will love it! Zync is intended for people in their 20s and 30s, as evidenced by the patronizing marketing campaign. (Hey, that’s Control Your Cash’s demographic! Only we try to talk to you like adults.)

Anyhow, here’s how Zync works. You pay $25 annually, which immediately sounds like a bad idea, but keep reading. You have to pay the card balance every month. (Until the ‘90s, this was how every American Express card worked. The company made a lot of money on annual fees, and even more on services available only to cardmembers. Convince people that they’re special and you can rifle through their pockets indefinitely.)

On top of the $25, you can pay an extra $20 for what American Express calls a “pack”. “Packs”, just like the way they expand the video games.

Anyhow, packs: (This feels like explaining Twitter to my grandmother.) The Go Pack, the Social Pack, the Connect Pack, the Eco Pack. That pretentious-sounding last one waives the $20 fee, because encouraging something as noble as global-mindedness should never come with a price tag.

The Go Pack earns you double rewards on airfare, an annual $50 credit if you book a vacation via American Express (don’t, Orbitz is free), 20% off Hertz car rentals, and 25% off Avis and Budget. (We’d love to know which Hertz employee stood firm on that 20%. Don’t kid yourself: they really are #1.)

Then there’s the Social Pack (social, like networking! This isn’t your grandfather’s credit card.) Double rewards at restaurants and shows, and first crack at seats for the latter.

Followed by the Connect Pack. Double points on your cell phone, cable and internet service; and you get 1/3 more points on cell phones at MembershipRewards.com.

For the insufferable among you, and those who just happen to prefer the illusory to the tangible, get the Eco Pack and American Express will buy $1 of carbon offsets. Amass enough of them, and you too can get a Sri Lankan farmer to metaphorically dig himself an early grave by continuing to plow his yam fields with oxen and a hand tiller instead of saving up for a tractor. As if that’s not enough, you’ll earn double reward points on any item deemed sufficiently holy by American Express’ green-rating service. This includes Chevy Volts, Olive Green loofah dog toys, Aleutia solar-powered desktop computers (we’d never heard of them either), and other stuff we wouldn’t be caught dead buying.

You know what were the first companies to offer reward points for buying more of their product than was good for you? Cigarette manufacturers, and not by coincidence.

American Express gives you “one point for virtually every dollar you spend.” So charge $432,000 to your Zync card, and you can earn a 17” MacBook Pro with a 2.8GHz Intel Core Duo processor, which is a wonderful computer that retails for about $2000. Of course, this assumes you haven’t redeemed any of your reward points for anything else in the time it takes you to spend that much.

Don’t be confused by the hijacking of a word. A “reward” is what you get for lassoing the horse thief to the cactus and holding him there for the sheriff. Credit card “rewards” are really incentives. They’re encouraging you to buy a particular product or service that you wouldn’t have otherwise.

You don’t want that. You want cash. (You really want gold or real estate, but credit card companies don’t offer those.)

So does Zync make sense? Only if you’re in that small group of people who know you’re going to rent $225 worth of car from Hertz this year (or $180 from Avis or Budget.) American Express’ own Blue Cash is a better deal. Blue Cash is not only free, it refunds you $1 for every $200 you purchase. Once you buy $6500 worth of stuff with it every year, they’ll refund $1 for every $80 you spend. You’d have to spend “only” $163,900 to earn that MacBook Pro. Which you should buy on eBay anyway. To paraphrase AC/DC, sink the Zync.

Fortunately, we don’t have to change one word of credit card advice in Control Your Cash: Making Money Make Sense. (And while you’re here, scroll up and to the right and buy a copy or two of our still up-to-the-minute book.)

Filed Under: Credit Cards Tagged With: , , , , , ,

Let’s see how he does with Other People’s Money

February 15, 2010

Meet Anderson Cooper’s phone wallpaper

 

From the London Times, regarding new Massachusetts Senator Scott Brown:

Others question Brown’s man-of-the-people image. ‘I drive a truck,’ he declared in a debate. ‘And, yes, it has 200,000 miles on it now.’ Yet according to The Huffington Post, a review of Brown’s last financial disclosure, filed in 2009, showed he and his wife own five properties…

Granted, the author is a journalist and thus not that intellectually rigorous (note the unattributed copout that opens the quote.) But this week’s post hinges on the egregious use of one word – “yet”. It implies that owning multiple houses and driving a working man’s vehicle are somehow conflicting – when if you’re disciplined enough, one ought to go hand-in-hand with the other.

Irrespective of Scott Brown’s stand on any other issue, this assessment of his financial priorities alone would be enough to earn him our vote.

The author tries to make the point that Brown’s absence of pretention is faux, and that he’s an out-of-touch tycoon with no sensibility for the proletarians in his constituency. To garner respect from the foreign press, presumably he should a) buy a newer and more expensive vehicle (irresponsible), and/or b) sell houses Nos. 2 through 4 and kick the renters out (even more so). Whether his origin is scrappy working class or Boston Brahmin, Brown embodies the Control Your Cash mantra:

Buy assets, sell liabilities.

He’s doing it close to perfectly. You spend as much as you can on real estate and other things that increase in value, and you spend as little as possible on cash drains like cars and trucks. This is exactly how you should be allocating your money. Drive your vehicle as far as it will go, take the money you could spend on a new vehicle, and instead buy concrete assets with it, like property.

The five houses Brown and his wife own include their primary home (assessed at $549,600), a vacation home in New Hampshire ($472,500), and three condos near the primary home (totaling $471,100). (They also have a dang-blasted timeshare in the Netherlands Antilles worth less than $20,000, but in Brown’s defense he didn’t have a chance to read Control Your Cash while campaigning.)

Brown, or at least Brown’s garage, represents something we like to style controlled frugality for lack of a better term. (If you can think of something more apt, share it with us.) The word “frugal” makes people think of austerity, of abstention – of self-inflicted pain. That’s not what this is about. This is about spending money – a finite resource for most of us – in the right places. Brown is affluent and doubtless has his own indulgences, whatever they might be. But he understands that refusing to spend money on an unnecessarily pricey way to get around town is one of the easiest and most effective ways to Control one’s Cash.

Considering how many miles are on Brown’s 2005 GMC Canyon, he either bought it new, or the original owner sold it to him a few days after buying it. Either way, Brown has spent the last 5 years and 5 months driving his truck an average of about 85 miles daily. For a man with $1.5 million in real estate holdings, to say nothing of his IRAs, Union Pacific stock, bonds and money market account, it wouldn’t be at all remarkable for Brown to have spent $60,000 on another vehicle in that time, if not $120,000 on two.

Most impressively, there’s nothing luxurious about the Canyon (nor its model equivalents, the Chevy Colorado and Isuzu I-Series.) Brown isn’t driving a Cadillac Escalade EXT nor a Lincoln Blackwood*, which look and sound like the kind of things senators would drive. The 2010 Canyon retails for as little as $20,000, which is a far more effective way to spend that money than on a piece of Aruban beachfront that you only get to use 7 days a year and have to pay for 2% of the maintenance of even if you’re responsible for 0% of the damage.

Assuming Brown’s Canyon is in “good” and not “excellent” condition, and that he drives the extended cab (fancier than the regular, plainer than the crew), and that he chose the 5-cylinder model, and that his has 4-wheel drive (not sure what the point of owning a 2-wheel drive truck is, unless you live somewhere tropical and flat like Tuvalu), Kelley Blue Book estimates that a private buyer in Brown’s 02093 ZIP code would buy his truck for $7460.

A lot of America’s financial problems could be solved if our senators were forced to drive vehicles worth less than $7500. Come to think of it, that would make a great rule of thumb – senators’ and representatives’ real estate holdings must be worth at least 200 times what their vehicles are worth. This would still entitle John Kerry to drive the most ostentatious thing Floyd Mayweather has ever fancied, although former Delaware Senator Joe Biden might have had to get by with a Vespa scooter.

This says more about Brown than the obvious, too. Keeping a truck running for 200,000 miles takes care and diligence. Just ask this Control Your Cash author, who followed the maintenance schedule religiously, treated his 2003 TrailBlazer like some people treat their firstborn, and couldn’t sell it fast enough when an out-of-state buyer offered to take it home after 3 years and 130,000 miles.

With a stroke of a pen, and a chronic refusal to accept fiscal reality, the president recently raised the nation’s debt limit to $44,000 per capita. Meanwhile, controlled frugality seems second nature to Scott Brown. Anyone who treats his vehicle with that much care is the kind of person you want with a vote in this country’s current and upcoming (painful) financial decisions.

*Lincoln Blackwood was a short-lived luxury light truck, not the name of a Kennedy family factotum.

**This article is featured at Carnival of Financial Planning-Edition #131 **

Filed Under: Personal Finance Tagged With: , , , ,
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