Underground Economies

On a recent trip to visit our son in the Army stationed in Italy, I started to think about the "underground economy," Greece and their debt problems, and taxes. As we were purchasing items, most if not all places prefers cash (Euros) then take a credit card. Some places even charged you 10% more if you used your credit card. Now I'm sure some of this is to offset the credit card fee but I wonder how many sales do not get reported for tax purposes.

Greece is, in part, in trouble because of an underground economy that deals in cash and where income is not reported to the government. As they implement their austerity measures and cutbacks, have they increased their tax collections and increased reported income? Would they need to cut back as much if everyone, and I mean everyone, reported their income? This may be against their culture and custom, but the Greek government needs every Euro it can get to provide services and pay down its debt.

The same is true in the United States, we all need to pay our taxes so the government can pay for services we use every day. We may think that we "won" by not reporting all of our income, or by claiming more in deductions then we actually earned, but when you do that, we as a country lose. We lose support of our streets, our education system, our libraries, and our national defense.

As April 17th approaches (tax day) lets not lose as a country. Take every legal tax deduction you can, but be honest and report all of your income and don't exaggerate your deductions. It takes us all to do our fair share to keep this country great.

Brown Bag Valentine

It is Valentine’s frugal fun time. In keeping healthy hearts, label one of these healthy snack items and sneak it into your sweetheart’s lunch box. The following are a few sweet (as in thoughtful) sample valentines lunch box label treats for you to consider:

1. Apple: “You are the apple of my eye”
2. Cheese Slices: “Our love is so cheesy!”
3. Cupcake: “You are my little cupcake”
4. Cherries: “I cherish the memories”
5. Almonds: “I am nuts about you”
6. Pepper Packets: “You spice up my life”
7. Turkey Roll Up: “Don’t’ be a turkey, go out with me”
8. Ham Roll Up: “I am a real ham when it comes to dating you”
9. Peanut Butter and Jelly: “We go together like peanut butter and jelly”
10. Sushi: “You are the wasabi of my sushi”
11. Lettuce Salad: “Lettuce enjoy our time together”
12. Relish Salad: “I relish our time together”
13. Tickets to Lunch: “Let’s ketchup”
14. Jar of Mustard: “I mustard enough courage to ask you out”
15. Olives: “Olive you”
16. Pickle: “If I am ever in a pickle, I want it to be with you”
17. Bouquet of 14 Carrot Sticks: “14-carrots for you”
18. Corn Chowder: “It may be corny, but I love you”
19. Tabasco Sauce: “You warm my up with your spice.”
20. Ice Cream Sandwich: “Ice cream with delight when I think of you”
21. Miniature Box of Lucky Charms: “You are my lucky charm”
22. Miniature Box of Corn Flakes: “Just like corn flakes, you are great!
23. Miniature Box of Raison Bran: “You are my Raison Bran, you keep me regular”
24. Jimmie Bean Sausage Muffin: “You are my Jimmie Bean Sausage Muffin, a little ray of sunshine”
25. Mentos and Diet Coke: “Our love is like Mentos and Diet Coke”
26. Maple Syrop: “ I’m stuck on you like syrup”
27. Grilled Cheese and Tomato Soup: “We go together like grilled cheese and tomato soup”
28. Pears: “We make the perfect pear”
29. Sweet Potato: “ You are like a sweet potato and I want to butter you up”
30. Plums: “Plum love into you”



Time to Sell or Buy a House?

Spring is the time for love, the groundhog to see or not see his shadow and time to buy or sell a house. This year we are selling our house. We want to move to the country and have chickens, a goat, maybe a llama, fruit trees, and a big garden. As empty nesters, we don’t need to be close to the schools, and our current home is in the perfect neighborhood to raise a family.

As this is my first time selling a home, I am learning a lot about trying to maximize your selling potential. Here are a few lessons learned:

It takes time, energy and effort to get a house ready to show. We have spent the last few weeks cleaning, repairing, editing, and donating things we no longer need. Good Will and Habitat Restore are great places to take your good-slightly used items that you no longer need. To clean, organize and minimize can be revitalizing.

Make repairs when things break. We had to replace two bedroom doors. It wasn’t a big deal to replace them. To think, we lived with our “slighted bruised” doors for years! Though not that noticeable, we should have taken care of it at the time of injury. Keeping everything in good repair will encourage everyone in the house to maintain that level of polish and care.

If you don’t use it in a year, donate it. After living in one location for the past 18 years, we have many things we rarely use. When I first moved to Iowa, I moved once a year for three years. If I didn’t use it in that year, I donated it. I was able to pack light and did not have a lot of things cluttering my life. It feels really good to get to be purged of all clutter.

Take the time to clean daily – really clean. It is nice to be living in a house that is ready to show perspective buyers at any time. We are making a conscience effort to make sure we never leave a room messy. We are doing what we were taught as little kids – put your toys away after you play with them. The little things make such a big difference.

We might have listed our house at the right time. Interest rates are low and the economy seems to be tracking optimistically, at least in our community. So far we have had three showings in the first four days. We will keep you posted on ups and downs of selling a home. And if you are interested in buying our house….you know what to do! (contact us).

New Beginnings and Heartfelt Thank Yous

Hello World-

Tonight, the man in brown delivered to our door steps two copies of ‘Personal Finance: Building Your Future’ Walker & Walker 1e. After three years, hard work and much support and encouragement from the McGraw Hill editors, the 480 page book dropped on our door step and for the techie side of me, complete with QR codes that really work with the blog, which is too cool on so many dimensions.

The book arrival is not an end point. It is a kick-off to a whole new adventure. We look forward to classroom adoptions and interactions with the blog and how social media can influence student learning and help keep current events interwoven with discussion items in the class room.

We want to reach out just one more time to our friends at McGraw Hill. Hugs and cartwheels to Michele Janicek, Jennifer Lohn, Melissa Caughlin, Diane Nowaczyk, Jennifer Jelinkski, Ann Torbert, Bradley Woodrum, Johnna Barto, Elizabeth Hughes and all of the other editors, production staff, and marketing staff who have teamed up with us on this journey. However wonderful and beautiful the hard copy of this book, it is just the start.

And to those who gave us feedback prior to publication, thank you for helping us frame the book so that it is a fair and balanced perspective to personal finance. In this day and age, do you think we can find you on face book to say thank you directly? Zuckerberg would support that approach. In fact, he might throw stock at it.

So finally, in case we can’t facebook friend you, a sincere thank you to Angel Alexander ~Brenda Anthony~Michael Araujo~Sean Basford~Pam Bennett~Ross Blankenship~Karin Bonding~Walter Boyle~Craig Bythewood~Ron Camp~Peter Chen~Margaret (Meg) Clark~Fernando Conde~Barbara Connolly~Nirmalendu Debnath~Beth Deinert~Susan Feinberg~Chuck Finnell~Elizabeth Fletcher~Roy Fletcher~Paula Freston~David Fricke~Wayne Gawlik~Terri Gonzales~Judith Griffin~Jana Hosmer~Sandra Huston~Seonah Kendall~Jim Keys~Lee Kitchen~Juannae Landry~Jeff Livingston~Thomas Lynch~Bala Maniam~John Marcis~Mario Mastrandrea~Diane Masuo~Robert McCalla~Jamshid Mehran~Jim Meir~Tammi Metz~Dianne Morrison~Pattabiraman Neelakantan~Thomas O’Keefe~Dan Oglevee~Diana Parker~Martina Peng~Lori Radulovich~Andreas Rauterkus~Greg Richey~Andrew Salcido~Lawrence Schuffman~Patricia Shaw-Crabb~Michael Slates~Martin Spechler~Edith Strickland~Sven Thommesen~Steve Tolbert~Lilian Nnenna Ukadike~Shafi Ullah~Randall Valentine~Dick Verrone~Rubina Vohra~Andy Whitman~Walt Woerheide~Bruce Xiao

College Debt or a New Car?

I was talking with a colleague the other day about student loan debt. She shared back "Perhaps we are thinking about student loan debt in the wrong way. We will go into debt $20,000 - $40,000 or more for a new car and not think twice. But we start to panic when a student graduates with $20,000 - $40,000 in debt. The car will last 6-10 years, but your education will last a lifetime."

Now I don’t want you to go into debt to finance your college education if you don’t have to, but I want you to think of your college debt as an investment that will last a lifetime. In Chris Farrell’s article “College Degree Still Worth the Cost Despite the Risk”, he quotes a study at the Booking's Institute that shows the return on investment for a college degree has been about 15% a year for the past 60 years. Not a bad return if I do say so myself, given the stock market has only shown a 6.8% return on investment over the same time period.

However with college, like any investment, there is risk involved. If you are looking at college as just a way to get a higher paycheck, there is a risk that a job may not be waiting for you when you graduate. In fact, your financial return may differ based on your major. So the question is “How much should I borrow to finance my education?”

Think about it this way…what kind of car do you want to drive, and be able to afford 10 year after you graduate? Look at others in your future profession to see what they drive. If they are driving Mercedes, BMW, Audi and Lexus, then they have a relatively high income and therefore they can go into greater student debt based on their future earnings potential. However, if you see professionals in your chosen field driving used cars that just get them from point A to point B, your profession may have a lower earnings potential and you may not be able to repay high students loans easily.

My suggestion is not to borrow any more money than 1-2 times the cost of the car driven by the professionals in your field 10 years after they graduated from college. Yes, I know, many who are 10 years out of college are driving a mini-van, SUV or crossover to haul the kids around, but is it a new loaded car or used-vehicle? This rule of thumb will help you keep your student loans to a reasonable amount based on your future earning potential.

There are many different calculators you can use to see what your earning potential will be, the likelihood of employment, what your take-home pay will be, cost of living, etc., but I like looking at cars. Let me know what you think this 'calculator' to estimate a reasonable amount of student loan debt.

‘Like'-ing IPOs

So you want to buy shares of Facebook with their Initial Public Offering (IPO)? Good luck. An IPO is where a private company or closely held company, like Facebook, offers shares to the general public for the first time and that stock is then traded on a stock exchange. Friday’s ‘All Things Considered’ on National Public Radio did a great job of explaining how IPOs work and why companies go public in their article “Facebook’s IPO and the Average Investor.”

When a company goes public, it works with an investment bank to price shares of its soon-to-be issued stock and to decide how many shares to issue. The initial price is a combination of science and art. The science is calculating the value of the company including potential future income (part art), and the real art is forecasting what investors will pay for the stock.

Investment banks will sell large blocks of stock from the IPO to its best customers. These are usually large institutional investors and their high dollar customers. The average person can only purchase shares when intuitional investors and high dollar customers start trading their shares in a stock exchange. This means we have to wait until after the IPO to purchase shares.

Most companies go public with an IPO to raise money for expansion and growth. The company could also go public to cash in on the company’s value and distribute it to the shareholders. It is estimated that that the valuation of Facebook will be in the neighborhood of $100 billion and according to the Washington Post, expects to raise as much as $5 billion in the IPO. This means that Mark Zuckerberg, founder and CEO of Facebook could hold as much as $28.4 billion of Facebook stock after the IPO.

Facebook is almost forced to go public because of Security and Exchange (SEC) rules on how many stokeholds (500 shareholders of record) a company can have before it has to issue disclosures as a public company. Facebook is at that point where it has to issue these reports and since they have to issue reports, they may as well go public.

What will Facebook do with the $5 billion it raises? Only time will tell- $5 billion is an incredible amount of seed money. We also wonder if Zuckerberg will change his Facebook status from 'Private' to 'Public' at the time of the IPO.

Prenuptials for All?

‘Kobe Bryant's Wife to Get All Three Houses, Worth $18.8 Million’, ‘Mel Gibson Loses Half of His $850 Million Fortune to Ex-Wife in Divorce’. As these headlines spam the news, it gives us pause to consider, should prenuptial agreements be made a requirement prior to granting a marriage license? No one goes into a marriage thinking this has a 50-50 shot. Hurt is the last thing you want bring onto this special someone—but unfortunately, 50% of the marriages end is divorce – so many suffer significant financial distress in dissolution. It is especially difficult to stay civil during this time which is unfortunate to each other as well as impacted children, family members and friends.

Sweetheart day is just around the corner. Looking for the perfect Valentine’s gift? Just as every business partnership goes into a contract agreement with a dissolution (sell out, buy-out) clause, should every marriage engage in a prenuptial agreement? Do you state up front in an agreement the steps you will take to keep your partnership strong; but if all else fails, maybe the greatest gift you can give the one you love is a commitment to an elegant, fiscally responsible exit so you can remain friends (at least civil) after dissolution of the marriage. So much emotional and fiscal hardship takes place during a divorce. How much of that pain would be spared if in the bliss of every-lasting love, both parties contractually agreed to a fair dissolution option?

Your partner is your friend. Making a pledge to keep your partnership fiscally fit through thick and thin, could be considered a loving, caring Valentines gift --along with a small token in a Tiffany blue gift box. Something to consider.