Bozo’s Question of the Day
By JLP | May 15, 2008
In light of my dishwasher fiasco that happened yesterday, Bozo sent me the following email along with his question(s) of the day (highlighted in bold):
I sure hope everything works out with your dishwasher and floor. Pardon my cynicism, but it seems these days the manufacturer blames the installer, the hardware blames the software, the designer blames the contractor, and vice versa. Our solution has been to ONLY go with “turn-key” providers (i.e., design, manufacture, install and maintain) so no matter what happens, you have one point of contact and no finger pointing. We also get all those extended warranties, lifetime if possible.
Nothing is foolproof, I know. We had a “50 year” roof installed with a separate ten year warranty on installation. The roofing manufacturer proceeded to go bankrupt. Thankfully, when the roof began to leak, the installer’s warranty was still in effect. Stand-up guy that he was, he didn’t try to blame the “product” and proceeded to fix the leak at no charge.
So the question for the day might be: “Have you ever had a problem with warranties, where the manufacturer blames the installer, the hardware blames the software, the designer blames the contractor, and/or vice versa? Did you change your buying habits as a result? If so, how?”
I suspect that question will spark a bit of discussion.
Again, nice blog.
Yours,
Bozo
I have to say that so far I have had pretty good luck over the years. In fact, I can’t recall a time when I have had a warranty problem other than the warranty expiring. I can definitely see how something like this could happen as people generally do not like to take responsibility for anything. It’s sad but true.
I do think that we should take Bozo’s “50-year” roof to heart and understand that the warranty is only as good as the manufacturer. Lots of people choose one product over another because of the warranty. However, before you buy something because of the warranty, ask yourself what are the chances that the manufacturer will still be around if and when you have a problem.
What about you? Have you had any really bad experiences with warranties and finger-pointing?
Topics: Question of the Day | 3 Comments »
Gas-Saving Myths
By JLP | May 14, 2008
CNN/Money takes a look at six gas-saving myths. One that stuck out to me is number 5: To A/C or not A/C. Although it may be possible to save money by not running the AC, it is a miserable ride and driving with your windows down will ruin your headliner. I know this from experience as the first two cars I owned had air conditioning problems and everywhere I went, I had to have the windows down. There’s nothing quite like vinyl seats and hot, hot weather! LOL! Not only that, as the article mentions, rolling down the windows is a huge aerodynamic drag.
For the other five myths, check out Money’s gas-saving myths. With gas prices as high as they are it’s as important to know what NOT to do as it is to know what to do.
Topics: Budgeting, Cars | 9 Comments »
My GE Café Series Dishwasher Leaked and Ruined My Floor
By JLP | May 14, 2008
How’s that for a post title?
Last year when we did our kitchen and family room renovation, my wife picked the GE Café Series as her choice for appliances. Everything was installed last October and seemed to work fine except for the dishwasher. Apparantly the dishwasher had a leak that we were unaware of and had been slowly leaking for awhile (how long is anybody’s guess). I never saw evidence of the leak until a couple of weeks ago when I noticed some of the joints in our laminate flooring looked like they were buckling. I figured it was a problem with the way I had installed the floor or thought the kids had spilled something and didn’t clean it up. In other words, I didn’t think much about it.
Until today…
This afternoon I happened to walk into the dining room and I heard a squishing noise. I stepped down on the spot again and noticed water coming up from underneath the flooring. This is not good. I called my contractor and he an another guy came over and spent about two hours trying to figure out what the heck was going on. I went ahead and started pulling up the laminate flooring to see how much damage had been done. Meanwhile, one of the contractors looked under the dishwasher to see if he could spot a leak. There was no evidence directly under the dishwasher but the cement floor directly under the pantry which is right next to the dishwasher looked wet.
We eventually found out that the dishwasher had been leaking from the bottom of the door. It was a very slow leak so it wasn’t noticeable. Over time, the water took the path of least resistance and traveled down the grout between the tiles and to the threshold between the laminate flooring and the kitchen tile. Over time, the water pooled under the laminate flooring and sat there unnoticed until it got to be so big it had nowhere to go but up through the flooring.
I called the place of business that sold us the appliances and she found a phone number for the GE Answer Center (800.626.2005). I called that number, told the lady my story, and she sent me to the Customer Relations Department (800.386.1215). I then told that lady my story and she told me to call the Electric Insurance department AFTER I have the store’s repair department come out and look at the dishwasher. Unfortunately the store’s repair crew can’t come out until next week. So until then we’re going to have a torn up dining room.
I’m hoping GE will replace everything for us since it was a product default that caused the problem. We’ll see… I’ll keep you posted.
Geez, it’s always something…
Topics: Miscellaneous | 9 Comments »
Gas Prices Have People Not Thinking Clearly
By JLP | May 14, 2008
This morning as I was dropping my daughter off at daycare, a lady pulled up in a new Honda Accord. As she was walking into the building I asked her if she got rid of her Lincoln Aviator. She said something like, “Yes. I got rid of the gas guzzler and I’m lovin’ it.”
As I was leaving daycare I got to thinking about this lady’s decision to trade in her Aviator for the Accord. Did she make a wise decision? Well, that’s not for me to say, but I can tell you what the numbers say.
I noticed that she was driving a Honda Accord with a V-6 but I didn’t notice the exact model. So, I’ll assume she went with the EX V-6, which Edmunds.com says retails for just under $26,000 (there are more expensive Accords, but this model will suffice). Using Edmunds.com, I estimated that her Aviator had a trade-in value of just under $11,000. I have no idea what year her Aviator was, so I’m going to assume it was 2003, which was the first year for that model.
Since gas was the first thing she mentioned, I thought it would be a good idea to estimate how much she is going to save on gas now that she is driving the Accord. According to the FuelEconomy.gov, the 2008 Accord V-6 gets between 19 and 29 miles per gallon. The average Honda Accord driver will spend around $2,261 on gas each year while the Navigator driver will spend $3,676 (assuming an average price per gallon of $3.39 and 15,000 miles driven per year split 55% city driving and 45% highway driving). So, she will save roughly $1,400 per year on gas. Unfortunately, that’s just PART of the equation.
Unless she paid cash for the Honda, she probably has a new car note. American Honda Finance is currently running a promotion of .9% financing for 24-36 months. Assuming she financed $15,000 (the difference between the sales price of $26,000 and the trade-in value of $11,000 for the Aviator) for 36 months, her payment would be $422.47 per month or $5,070 per year.
Bottom Line
Not factoring in maintenance costs, this lady is spending $5,070 per year for 3 years to save $1,400 per year, a difference of $3,670 per year. Granted she does have a new car and her savings will increase as gas prices increase. But, she traded in a car that was still in very nice condition and was most likely paid off for a brand new car that will depreciate in value. All else being equal, gas prices would have to go to over $12 per gallon before she broke even.
I suppose there are environmental considerations but I think those are negated by the fact that someone will be driving the Aviator.
I’m all for saving money but I think lots of people are making decisions based on emotion rather than on clear thought.
What do you think? Did I mess up on my math somewhere?
Topics: Budgeting, Cars | 33 Comments »
Bush’s Tax Cuts for the “Rich” Actually Favor the Poor
By Meg | May 13, 2008
It really bugs me when people in the media and (increasingly) in everyday conversation insist on mentioning Bush’s “tax cuts for the rich.” People throw that phrase around a LOT (usually as evidence that Republicans are evil and Democrats are pure goodness), but I’ve found that few actually have any idea what tax cuts they are referring to and what taxes were like before the infamous cuts.
To be honest, I didn’t either. So I did some research; allow me to enlighten those brave souls who insist on arguing about such matters at cocktail parties.
In 2001 and 2003, President George W Bush signed into law various tax cuts. I’d like to quote the following from a May 2008 Kiplinger magazine article by Knight Kiplinger entitled “Fuzzy Tax Talk:”
Those laws slashed tax bills of low- and middle-income families, sometimes down to zero for those with several children (each of whom is now worth a $1,000 tax credit). The percentage declines for upper-income people were much smaller; but in terms of actual dollar amounts, the wealthy received the bulk of the savings because they pay the most income taxes.
Specifically, with regard to the wealthy, Bush lowered the marginal tax rates for those with incomes over $350,000 (the top tax rate, admittedly on the rich) from 40% to 35%. He also approved the lowering of the capital gains tax from 20% to 15% (which helps everyone who owns stock, real estate, or any other sell-able asset, but admittedly most benefits the wealthiest members of society since they own more of those assets).
That’s what he did for the “rich.” But he also lowered every OTHER tax bracket (from 15, 28, 31, 36, and 39.6 percent to 10, 15, 25, 28, 33, and 35 percent) and added other of tax credits and breaks for the “poor” such as the child care tax credit, AMT, and earned income tax credit. The following data is taken from the articleBush’s Tax Cuts Are Unfair…:
If you and your spouse have a taxable income of $60,000 a year, you’ve had almost a 24 percent income tax cut since President Bush took office. (And ditto if your income was just $20,000.) Meanwhile, the folks who make $350,000 a year got a cut of only about 12.5 percent; those who make $1 million a year got an even smaller cut. Pre-Bush, the $1 million a year couple paid 33 times as much as the $60,000 couple; today they pay more than 38 times as much.
Overall, the biggest percentage cuts went to the poorest of the poor (those with incomes in the $10,000 range) and the next biggest to those making about $60,000. Surprised? I bet not; you’re wondering about the other cuts - the ones on dividends, capital gains, and inheritance taxes that allegedly skew gains to the rich. Well lets add all those changes in, along with all the other Bush tax breaks such as the child-care tax credit, the earned income tax credit, the AMT, etc.:
The biggest percentage tax cut—about 17.6 percent—went to taxpayers in the second-lowest quintile, that is to taxpayers with below-average incomes. After that, the size of the tax cut falls off as you move from the lower middle to the middle middle (12.6 percent) to the upper middle class (9.9 percent). It rises again slightly for the top quintile, but only to a little over 11 percent.
[Click the article above for a chart of this data.]
Here’s the real kicker. The data shows that the tax code has gotten even MORE progressive since Bush took office (skewed so the richer pay a bigger percentage of their income to taxes than the poorer), and that kind of change is really hard to undo. But federal spending dramatically increased as well; eventually (soon and very soon) Americans are going to have to pay for that. Taxes will rise again no matter who next takes office.
And when they do they’ll rise according to the more progressive model. All three candidates want to leave the low and middle income tax breaks alone - the debate is only over by how much to raise the taxes on the “rich” (the highest tax rate, capital gains tax, and estate tax) and where to draw the classification line for “rich.” They used to pay only 33 times more than the average taxpayer; thanks to Bush it’s now 38 times more. Wonder where it’ll end…
See Tax Policy Under President Bush for a great summary of all tax code changes made during his term.
See Taxes: The Candidates’ Plans to find out which of Bush’s cuts each presidential candidate plans to change.
More from Meg at The World of Wealth
Topics: Taxes | 23 Comments »
Homeowner’s Associations Are Hurting
By JLP | May 13, 2008
From As Dues Dry Up, The Neighbors Pay ($), in today’s Wall Street Journal:
Here’s another consequence of the troubled housing market: Some homeowners associations are running low on cash.
The association at Monaco Place, a community of single-family homes and condominiums in Denver, is short $250,000 of its $9.3 million annual operating budget. It can’t pay for needed roof and siding repairs to homes. Potholes in the streets haven’t been filled in order to save money to keep electricity running in common areas, says Dee Tyler, CEO of Colorado Association Services, which manages the association. Monaco Place was already suffering from a high rate of foreclosures before the credit crunch hit. In the past three years, about a third of its 193 units have been foreclosed on.
Some areas are worse than others:
At Spanos Park East in Stockton, Calif., owners of about 25% of the development’s 1,500 single-family homes have been delinquent in paying their quarterly dues, according to Adrianne Bretao, a manager at M&C Associations Management Services, which helps to manage the community association. As a result, the association has put off expanding a patio area in the clubhouse and swimming pool this year, says Denise Laven, the association’s president.
Wow! TWENTY-FIVE PERCENT! Wouldn’t it stink to be a resident in that community? You pay the big bucks for a beautiful house in a nicely-kept community only to go down the crapper due to foreclosures.
The article also says that banks are refusing to pay association fees even though they are the owners of the property. Some associations are suing banks to try to get them to pay up.
Of course, as I have said time and time again, this isn’t all doom and gloom. EVENTUALLY the housing market will turn around and the houses in these communities will be sold, which will bring in association dues.
We don’t live in a planned community so we don’t have association dues. What about you? Have you noticed your homeowner’s association having trouble keeping things going?
Topics: Housing Market | 3 Comments »
Where’s My Economic Stimulus Rebate????
By JLP | May 13, 2008
According to the IRS’s payment schedule for the rebate checks, we should have received our payment last week. It never came. So, today I did a little research and I think I found out why:
Q. I filed my return on time, but I haven’t received my stimulus payment, even though the payment date listed for my Social Security number has passed. Why?
A. In general, the payment schedule only applies if your return was received and the IRS finished processing your return before April 15. If you filed your return on time, but close to the April 15 deadline, the IRS may not have finished processing it before April 15.
Processing times for tax returns and stimulus payments vary. If you are getting a regular income-tax refund, the IRS will send you that refund first. Normally, your stimulus payment will follow one to two weeks later.
If you are not expecting a regular tax refund, your stimulus payment should arrive a minimum of six weeks after you file.
I took my time filing my taxes this year because I knew we were going to owe. So, I didn’t file until something like April 12th or 13th. I guess that’s why we haven’t received our rebate. I’m glad they are coming this year because I don’t think we would qualify next year, which is a good thing because it means our income is increasing but a bad thing because it means we HAVE TO PAY MORE TAXES!
Topics: Taxes | 12 Comments »
What Do You Think of This Reader’s Plan?
By JLP | May 13, 2008
Here’s an email I received this morning from a reader:
Silly me…..I have been reading your column and never thought to ask you a question!! I love reading your blog. I have been agonizing over what to do.
Here is the situation…..I am 50 years old, take home $68,000 a year (total of 2 jobs).
I did the Rave Ramsey Financial Peace University in January 2008. Paid off ALL debt ($8,000) but the house. I have $84,000 left on the mortgage which I plan to have paid off in about 3 years time. Yippii!!!!!! I will then be able to start building some real wealth…at least that is the plan.
I work 2 jobs to make up for my idiotic choices of the past. At my part time job I have a 4% match, which I do. At my full time job they give me 6% of my salary. I do not have to match it. I do contribute 15% at this time. Should I not be contributing and put my money (the 15%) in a Roth IRA. I have not yet started any kind of IRA. I have approx. $100,000 in my combined 403 and 401.
I plan on working both jobs till I am 67…….if only I knew what I know now at 18
Thank you,
Toni
She followed up with another email to say that she did have an emergency fund.
Since she didn’t ask any questions I’m going to assume that she wants our thoughts on her plan. A couple of things I noticed:
“I have $84,000 left on the mortgage which I plan to have paid off in about 3 years time. Yippii!!!!!! I will then be able to start building some real wealth…at least that is the plan.”
Although I see nothing wrong with paying off a mortgage early, one thing to keep in mind is that the decision implies an allocation choice. The additional money that you direct towards paying off your mortgage early is money that could be invested elsewhere (like saving for retirement). So, you have to ask yourself if paying off your mortgage early is really the best way to use your resources. I have written quite a bit on this topic in the past. You can find those posts listed under Mortgage in the directory.
“I work 2 jobs to make up for my idiotic choices of the past. At my part time job I have a 4% match, which I do. At my full time job they give me 6% of my salary. I do not have to match it. I do contribute 15% at this time. Should I not be contributing and put my money (the 15%) in a Roth IRA. I have not yet started any kind of IRA. I have approx. $100,000 in my combined 403 and 401.”
I think it’s awesome that you are working two jobs! No, it’s probably not fun but nothing says you have to do it forever.
I think a Roth IRA is a good choice because it gives you some “tax diversification.” You won’t get the tax deduction now, which means your current taxes will be higher. However, income from the Roth will not be taxable (assuming the money has been in there at least 5 years and you are over 59 1/2 when you begin taking withdrawals) AND it Roth income doesn’t count against you in deciding the taxability of Social Security. This is a nice benefit of the Roth that doesn’t get discussed too often. Also, remember that there are no required minimum distributions with a Roth IRA so you could let the money sit there and grow as long as you didn’t need it.
One advantage to working longer is that you can put off taking social security, which means you can expect a larger check when you do begin taking it.
If you would like me and AFM readers to comment on your retirement plan contributions, send me an email and I’ll be happy to take a look at it. There’s just not enough information to be able to tell you how much you could possibly have at retirement. I will say that you seem to be on the right track.
Topics: 401(k), IRAs, Retirement Planning, Roth IRA | 9 Comments »
Thoughts on my Thoughts
By JLP | May 13, 2008
I have been getting a lot more emails from readers lately asking for advice or help with their financial situations. While I am ALWAYS happy to help out (a lot of the questions make great blogging material), I do need to make something clear to readers:
My responses to these requests MUST NOT be construed as advice. I’m not getting paid for my thoughts. Therefore, my thoughts should only be the beginning step on your financial journey. Unless you are comfortable making your own financial decisions, you should always consult a paid financial planner (I prefer fee-only planners but that’s just me) for specific advice.
Also, if you send me a question and I don’t post it, it’s probably due to the fact that the topic is either too complex to blog about or I just don’t have time to get to it. In addition, I like to post questions that draw reader participation. So feel free to add your comments to any of the posts I write.
And please, no hard feelings if I don’t address your question.
Thanks for reading.
Topics: Blogging | 2 Comments »
How Should This 44-Year Old Invest $18,000?
By JLP | May 12, 2008
I received this email last week:
Hi JLP,
I found your blog thru real simple magazine. Props to you. Nice.
So here is my question, 44 years old, female, broke my whole life, no savings, wanna change. Came into 18K (my Dad died) and I don’t know what to do with it. It has been sitting getting like 2% since December 07. So if you can help or have a suggestion great, if not I understand.
Thanks,
DG
First things first. If you’re broke, you probably need an emergency fund. If you don’t have access to 3 months of expenses, you need to save towards that goal first. Just make sure that you treat your emergency fund as just that: an emergency fund.
After that…
I try to refrain from giving specific advice on this blog. That said, I would DEFINITELY put this money away for the long-run by opening a Roth IRA and depositing $4,000 per year for the next 4+ years. As far as where to open your Roth IRA, I would say either a discount broker like Scottrade or a mutual fund company like Vanguard (I’m NOT necessarily recommending these companies). The easiest route to go would be a fund company like Vanguard. Vanguard offers lots of low-cost index funds as well as exchange-traded funds. The simplest route to go would be to go with a target retirement fund. Since you’re 44 years old, I would considering looking at Vanguard’s Target Retirement Fund 2030 (other mutual fund familes have target date funds that are worth looking at).
I wouldn’t stop there.
Based on some simple math, I figured that your $18,000 lump sum will be worth somewhere in the neighborhood of $65,000 at retirement (assuming a 9% rate of return minus a 3% inflation rate). That’s hardly enough for a comfortable retirement. I would make saving for retirement a big priority. If you have access for a company-sponsored retirement plan, use it. If not, you should try to save at least $4,000 per year towards your retirement. Doing so could give you nearly $184,000 at retirement (again, adjusted for inflation). It’s not a lot but it’s better than nothing.
Good luck!
Topics: IRAs, Investing, Mutual Funds, Retirement Planning, Roth IRA | 10 Comments »