Credit, Debit or Cash - Holiday Shopping

Black Friday is less than a week away and there is no place I would rather NOT be than shopping at 4:00 a.m. when the stores open.  I will be in my bed sleeping off a good Thanksgiving meal of smoked turkey and ham with all the fixings.   But as we get into the season of spending, shopping and giving; here are some ideas to keep in mind.

When shopping for gifts make a list and check it twice.  Find out where you can get the best deal and make a budget for your gift giving. This may be a tougher holiday season financially so it is even more important than ever to keep both hands on your purse strings as you walk into stores playing holiday music and seeing displays that say “buy me!”  Using cash and the envelope system of budgeting keeps you within your budget.

Using credit cards provide some protection, however you may be tempted to spend beyond your budget. Credit cards are governed by the Fair Credit Billing Act which provides you specific rights to dispute your credit card charges when your purchases are not delivered as agreed.  You can also build rewards for using your credit card, whether airlines miles, cash back or points to use how you would like.  The major downside of using a credit card is that if you keep a balance, you could make the holidays last all year long or longer, trying to pay off what you purchased.

Cash and debit cards can keep you from having the credit card holiday hangover.  You will not receive monthly bills of unpaid balances.  This also helps you stay within your budget.  If you don’t have the cash, don’t buy it.  Debit cards do not offer the same as credit cards. Debit cards are regulated by the Electronic Funds Transfer Act (a federal law), and you only have a specified time to dispute charges.  If you wait too long, you may lose all of your money.

If you use cash, be sure you hang on to your receipts and keep track of what and where you spend money.  Sometimes my wallet is like a black hole.  I put money in and I don’t know where it went. Receipts can also help you in returning items.

You can also make holiday gifts if you have the time and talent, but that is a blog for another day. We hope you all have a great holiday season, spend your money, time and talents wisely and -- get a quiet moment to reflect on your blessings. Happy Thanksgiving!

The Stock Market Thriller

“Make sure your seatbelt is securely fastened and keep your hands and feet inside the vehicle at all times.” 

This is what you hear as you get on an amusement park roller coaster. Maybe your stock broker or financial advisor should also say this when you begin to invest in the stock market. In the spirit of full disclosure, should we formally address the stock market by its thrill ride name?

There is Disney’s The Twilight Zone Tower of Terror, Kings Island’s The Beast, Six Flags Great Adventure’s Kingda Ka, the Stratosphere Hotel and Casino in Las Vegas has Insanity, and the king of amusement park roller-coasters, Cedar Point in Sandusky, Ohio has Disaster Transport, Iron Dragon, Maverick, Mean Streak, Millennium Force, Raptor, Top Thrill Dragster and Wicked Twister. Any one of these names fit the gyrations, the ups and downs of the stock market.

Even with your seat belt securely fastened, it is a good time to reassess your risk tolerance and which investment options best fit your personal goals and ‘ride’ tolerance. Monday’s Wall Street Journal (11.7.11) has an entire section titled Investing In Funds which examines mutual fund investing and different opportunities. How to Rest Easy in a Crazy Market provides seven tips to help you “enjoy” the ride and make sure your portfolio stays on the tracks. Here are the seven points:

1. Get real about your tolerance for pain. We have all heard “the higher the risk, the higher the potential return” but we don’t hear “the higher the potential for loss.” Risk involves the ups and downs, and if we are in risky investments, we better be prepared for the downs and possible total loss of our investments.

2. Favor funds that cast a wider net. Spread your risk out by being diversified in your holdings or in funds that are more diversified. In other words, don’t put all your eggs in one basket, but diversify in different baskets composed of different eggs.

3. Hire a pilot who charts a smoother ride. All of the funds are going to have their ups and downs, but look at funds managers who reduce volatility to smooth out the ups and downs. Unless you like the ups and downs, make sure you have on your shoulder belts and HANS devise.

4. Don’t try to wager on where stocks are headed. Face it, you can’t time the market for peaks and valleys. Be a continuous investor, putting money in the market monthly where you don’t have to worry about the highs and lows and trying to time the market. Also rebalance your portfolio periodically to make sure you stay on track.

5. Fine-tune your cash stash to your family’s needs. With any investment, you need to think about when you will need to convert it to cash. Would you need to cash in your investments if you were to lose a job, buy a car, down payment for a house or pay for college? Everyone’s circumstances are different, but money that you will need with a short time horizon should not be in volatile investments.

6. Don’t assume that a stock-free portfolio is risk-free. Bonds, precious metals, commodities, houses, pork bellies as investments all carry risk. Know the risk of the investment and your investment objective before investing, not after the investment has declined in value and it is too late.

7. Don’t be ashamed to seek help. Investments are complicated and if you need help, there are personal finance classes offered at your local colleges and universities as well as financial advisers and planners that can help you determine and reach your financial goals. This is not to say that you don’t need to be concerned with your investments. No one is going to be more concerned about your investments and wellbeing than you. Be financially knowledgeable, financially literate, and monitor your progress towards achieving your goal.

You have the decision whether you are on one of the top 10 thrill masters or want to go for an easy ride in the park. Be knowledgeable, make wise decisions, go for your goals and enjoy the ride.

What is your favorite roller coaster name to best describe the stock market? We invite you to post your response in the comments.

The Rising Cost of Auto Insurance

It seems like every time I turn on the television, I am bombarded with insurance commercials. I see Flow offering discounts for Progressive, a gecko advertising for Geico, Mayhem causing trouble -advertising for All State Insurance and countless others. Most of the insurance companies are advertising their low rates; others make their distinction on service.

Rates seem to continue to increase and it may not be my imagination. In the November 2011 issue if Smart Money, they state that auto insurance has increased 10% from 2008-2010, siting increases are due to the increased costs to repair a vehicle, soaring medical bills, increased probability of being in an accident, and increased number of uninsured motorist (now estimated at 16%).

So what is a person to do, to make sure they are covered with the correct amount of coverage and still keep their costs low? Here are some suggestions:

• Keep an eye on your credit score. Most insurance companies use your credit score to help estimate your risk and therefore your rate. By keeping your credit score high, you can keep your insurance rates low.

• Have the correct amount of coverage. Your state has a minimum coverage you must have. If you don't have enough insurance you could be putting other assets at risk if you get sued. By having too much insurance, you could be wasting your money.

• Shop around for different rates. It takes a little time, but may pay big dividends in savings to switch companies.

• Look at the deductible on your insurance. The higher your deductible, the more money you will have to pay out if you are in an accident, and the less the insurance company has to pay out.

• You could also give up some of your privacy and have your driving habits monitored. Progressive Insurance has "Snapshot" which monitors your driving habits. Your premium will be set on how you drive.

We all need to have insurance and the correct amount of insurance. Shop around on-line and/or talk to your insurance agent to make sure you are covered.

Is Student Loan Forgiveness the Answer?

President Obama announced changes to the “Pay As You Earn” plan on Wednesday, October 26, 2011 that would/could ease the repayment of student loans. According to the College Board, the average public in-state tuition rates are increasing 8.3 percent for the 2011-12 year.

President Obama pointed out that the average college graduate owes $24,000 in student loans and that the 2011 graduates have an average debt load of $27,300. USA Today reported that outstanding student loans will reach $1 trillion ($1,000,000,000,000) before the end of the year. Currently, student loan debt in America has surpassed credit card debt. Is this our next financial crisis?

The highlights of the “Pay As You Earn” plans or income-based repayment plans are to:

·        Start this option is 2012 (vs. 2014)

·        Cap student loan payments to 10% of discretionary income (vs. 15% )

·        Forgive any remaining balance after 20 years (vs. 25 years)

·        Support consolidation of direct government student loans with government-backed private loans helping an estimated 5.8 million people. This would essentially allow refinance the private loans at lower government rates.

According to a White House fact sheet, a teacher $25,000 in debt and earning $30,000 a year will see their payments reduced to about $114 a month.

Student loans do not go away in bankruptcy unless under extreme circumstances and it looks like this could be one alternative to help people who have a lot of student loan debt. Current repayment plans include the options of 1) Standard Repayment plan of 10 years with a minimum payment of $50.00; 2) Extended Repayment plan if you have more than $30,000 in Direct Loan debt -repayment over 25 years; 3) Graduated Repayment letting you start out with low payments and increase your payment amount every two years; 4) ‘income contingent’ and 5) ‘income-based’ repayment plan.

As you take on student loan debt, you have to decide if and how you will be able to repay your loan. These new changes may not be right for everyone, especially if you do not have a lot of student loan debt and you get a high paying job after graduation.

Borrow wisely, study hard, have fun and pick the right repayment plan for you.

Making Sense of Occupy Wall Street

As a business professor I am torn about the Occupy Wall Street protest (OWS).  On one hand, the capitalism and free market economy enable people to “pull themselves up from their bootstraps” and become wealthy by inventing, creating, developing and delivering new and creative products and services that meet a need.  Doing this at a price consumers will pay while making money is an art and science.  For those who have this talent and gift, should they not be compensated for taking risks?  Isn’t that what makes American business great?  This is the land of opportunity….right?  Just look at what the late Steve Jobs did to help make your life better.  We didn’t have to buy an overpriced MP3 player, but Jobs had the gift to make the i-anything what we as Americans wanted to buy.

On the other hand, I read about executive compensation in the millions while the business is laying off workers or not giving them a raise and I wonder how many line jobs those millions of dollars to one person could pay for. I wonder what is “fair” compensation for CEOs who run corporations.  Is anyone worth $1 million a year, $5 million a year, $30 million a year or even $4 billion a year? Does greed cause us to “bend” the rules, influence decision that our more about us and not so much for the greater good?  Is it the corporation that should be concerned with the greater good?  I can argue with myself all night long about these issues and not come to a clear conclusion. 

Maybe that is what I am struggling with the OWS protest, I don’t know exactly what they want and when they will be satisfied enough to unoccupy Wall Street.  I don’t know if they have clearly stated what they want to see changed. 

From my desk, here are my suggestions for clarity of goals:

1.      Deal with executive compensation and fair pay. Limit executive compensation to a times average salary.  Whole Food touts CEO John Mackey’s salary and cash bonus to no more than 14 time the average worker’s salary.  This should also include stock options and differed compensation.  If the people on top want a raise, everyone should get a raise. This may develop a sense of teamwork, community and doing good for everyone.

2.      Limit the amount of contributions to political campaigns, politicians, and political organization.  Isn’t America to be governed for the people, by the people?  Take the all corporations out of politics and limit individual contributions so no one can buy influence.

3.      Make the tax code fair.  When Warren Buffett is saying it is not fair that he pays less in taxes as a percentage of income than his secretary, things need to be changes.  We need to simplify the tax code by getting rid of loop holes to where anyone can do their own income tax.

I know that these three things take time to work through and have to be done through corporate boards and acts of congress. Maybe the Occupy Wall Street protest will grab the attention of the civil unrest in this nation and steps can be taken to save our democracy and do good for the greater good.

National Document Shredding Day?

There is not an official ‘National Document Shredding Day’ yet … And maybe that’s ok, because it is a good habit to take on daily. If you do not own a shredder, watch for local ‘shredding’ days that may be sponsored by a local bank or your city. On September 30, 2011, the whole state of Tennessee sponsored a document shedding day to promote identify theft awareness.

What should you be shredding? Anything that may contain personal identifying information such as Social Security numbers, your address, date of birth or passwords, cancelled checks, check registers, bank statements or receipts, loan documents, mortgage documents, brokerage statements, school records, credit card, mortgage and finance solicitations, credit card statements, contracts, personal business papers, and credit applications.

Not only are you protecting yourself from identity theft or fraud, often the shredded material will be recycled into items such as commercial grade paper towels, toilet paper and other paper products.

Free Checking a Thing of the Past?

The day has come. We are beginning to see the ramifications of the Durbin Amendment - Dodd-Frank Act, which became effective October 1, 2011. The amendment imposes limits on the fees that banks can charge merchants for each customer debit card purchase. To compensate, some banks are looking to make up for the lost revenue via other means, such as charging you a fee for the use of your debit card and/or checking account. You have options as to where you do your banking. It is important to select an institute where the service and products best match your needs.

ABC News has compiled a list of the 10 largest banks and how much each is charging for basic checking accounts and the debit cards. Additionally, you can learn about your local bank and credit union options online.

It only takes a few minutes to do a side-by-side comparison as to your options but can save you significantly over the long run.