Nearly four years ago my fiancee and I went on our first cruise ever, a four night trip to the Western Caribbean in December that cost us approximately $300 per person (not including airfare). The cruise’s port of call was Miami and we were able to score cheap $70 tickets from BWI to Orlando, both were burgeoning Southwest hubs at the time. We were able to find such a screaming hot deal (a cruise for under a hundred bucks a day is pretty sweet) because we signed up for the cruise about a month before it set sail. It was one of those “Last Minute” deals on Travelocity (or Expedia or whoever, I forget which) and it was possibly only because we were keeping our eyes out for a last minute type vacation. However, with the great reward of a good deal comes a bit of risk.

Last minute deals are so great because they represent revenue that would otherwise be lost to the company offering it. The cruise ship will set sail with a full complement of crew and supplies regardless of the actual passenger count and an empty cabin represents a lot of lost revenue so selling it at a discount to the rack price is something they’re very much willing to do. It’s why hotels and airlines sometimes have last minute fares and discounts, an empty room or seat is lost revenue.

The flip side is the risk involved in waiting. If you really want to go on a cruise, say for your honeymoon, then you probably don’t want to risk waiting for a last minute deal because a last minute deal may never come. For example, we booked our honeymoon flights for Hawaii several months in advance when the deal looked good to us (it’ll run a little under $700 a piece from Baltimore to Honolulu, which seemed like a good price for the time we’re going); we weren’t willing to see if there was going to be a fare sale a month beforehand.

So, if you have a little flexibility, consider waiting until the “last minute,” roll the dice, and maybe you’ll go on a vacation you never expected - say to Iceland to ride some tiny horses and fight in the snow (I had a few friends do that, they have a blast). Many of the travel sites have “last minute” sections or you can always scour deal sites like Travelzoo for great last minute bargains (I’m a fan of their Top 20 deals too).

I wanted to wish everyone a healthy and happy start to the brand new year! This upcoming year I hope to bring back a few series I started a while back such as the PFBlogger Spotlight (I have a nice batch of interviews all set up for your reading pleasure, a chance to meet some other bloggers out there) and some new perspectives on a couple Devil’s Advocate type posts. Anyway, things will be light until the 2nd of the year so everyone have a safe and fun New Year’s celebration!

• MBH got himself a 1966A $100 United States Note at face value just for asking for “strange money.” Pretty cool!
• JD wrote a very timely post on how to buy and sell those pesky gift cards you may have received over the holidays.
• Nickel shares with us his charities of choice.
• FMF recaps how each of the Presidential candidates plans to save Social Security.
• NCN doesn’t want to apply for your stupid credit card, so stop asking. In fact, neither do I - so save some trees and stop sending me letters. I’ll let you know when you have a good enough offer to entice me.
• Flexo explains how index investors >> managed mutual fund investors.
• Jeremy informs us that according to CNN, teens aren’t saving for retirement. So, start shaking the next teenager you find and tell them they have to save for retirement. Actually don’t do that, you’ll probably be arrested.
• Ben is celebrating tax season! I think he’s crazy! Yay!
• SVB interviewed a local IRS agent, it’s actually not as eye-gouging of an experience as you’d expect.
• Lazy Man is starting a new carnival on Peer to Peer Lending.
• Sun discusses Scottrade’s new improved mutual fund center.
• At Daily Gratis, there’s a deal for 50 prints from Snapfish for new customers, a free 20 oz. of Coke and Coke Zero, plus a free subscription to Shape magazine.
• At Daily Money Hack, there’s a new high yield savings account interest rate comparison table, UFB Direct is top dog with 5.22% APY.
• Check out the top 5 retirement mistakes at My Retirement Blog.

(Photo by shan1013)

The basics of personal finance are pretty easy and straightforward, once you navigate all the acronyms, all the terms, all the concepts, and sort it all out. Until you do that, all the concepts swirling around money are actually quite complicated and it’s easy for things to call through the cracks if you don’t have the benefit of a third person point of view. That’s why I think everyone should go for one of those free money advice meetings with a certified financial planner of some kind.

At worst, you figure out that you know more than the average Joe about your personal finances, that you’re all set minus a few more percentage points into your 401(k), and maybe you get a free lunch out of it. At best, you find out you’re entirely clueless, totally behind, and you need to sign up for their services just to make sure you can retire by the time you’re a hundred.

Why am I advocating that you talk to a CFP? When I opened up the floor for everyone to give their advice on these advisers, because I had an underwhelming experience, a lot of people said that I wasn’t the target audience for a CFP. That was partly because I’m all set from the basics perspective (three years of personal finance blogging and tons of people telling me I’m wrong didn’t hurt) and I’m not at a point in my life when planning exceeds the basics (yet). When I met for my sampling of free money advice, I was already free money advice’d out! Of course, that was a bad thing for the CFP because he couldn’t sign me as a new client.

However, I think that if you don’t know if you’re getting the basics right, consider talking to a CFP because you might learn that you’re missing something in your personal finance planning. It’s difficult to know what you don’t know, as the saying goes. I am not advocating that you “use” a CFP for the sake of filling the details for free because you won’t learn anything if you go into the meeting with that attitude. Go in with a clear mind as to what you may get out of it and you never know, you might build a strong relationship with a CFP that can help with all sorts of money planning into the future (not just a “fill in the blanks” one-time meeting).

Coffee, Cigarettes, Alcohol, Bottled Water, Manicures, Car Washes (full detailing), Weekday Lunches, Vending Machine Snacks, Interest Charges on Credit Cards, and Unused Memberships… do you know what all those items have in common? They are the top 10 money sinkholes according to Bankrate. Now, one could try to commit that list to memory and see if they can cut out any of those items to find a little extra cash (cut out a one-pack-a-day smoking habit and reclaim, on average, $1660 a year), but what you should be doing is looking at that list and seeing what all those items actually have in common: they are all wants, not needs, and they can all be reduced without significantly impacting your standard of living (in theory!).

The fundamental idea behind frugality is to reduce how much you spend while still maintaining a sensible standard of living (some folks take this to the extreme). There are two parts to achieving this. The first part is trying to find cheaper ways of getting the things that you want, such as making your own cleaning solutions (which, coincidentally, may be much better on the environment than the industrial chemical stuff). The second part is cutting out the things that are not absolutely necessary to your life.

Coffee, bottled water, manicures, car washes, weekday lunches, vending machine snacks, interest charge on credit cards and unused memberships fall into category 1 - things that you can find cheaper alternatives for. Cigarettes and alcohol fall into category 2 - things that you can cut out that are not necessary to your life. You could argue where each of those stands but you can’t honestly dispute that any of those items wouldn’t fall into one of those two categories. Now, the trick is to find the things in your life that aren’t on that list that you can trim from your life.

The hardest part about doing something like this, trimming the fat so to speak, is to muster up the motivation required to keep cutting that coffee from Starbucks or that beer with lunch every single day. A great way to do this is to take that money saved and put it towards something and constantly remind yourself of that. What do you get for cutting out that pack of cigarettes? You don’t get an extra $5 in your pocket for something else, you get an extra $1660 for your week-long cruise for two to the Caribbean. Would you rather smoke a pack of cigarettes or go on a freaking cruise?

Image by selva.

All of the major Wall Street firms, save Goldman Sachs, have been taking a pounding this year after their investments in structured investment vehicles and the sub-prime market tanked amazingly. Goldman expects Citi to cut their dividend, bonuses at the top are being slashed, and overall the credit crisis is making a lot of people whisper the R word and discuss the erosion of the Fed’s power. Through all this, one thing I haven’t heard much of is how Vanguard was faring and whether or not they were taking any write-downs. I use Vanguard a lot (our taxable investing account, my SEP and my Rollover IRAs are all with Vanguard and in mutual funds) so I tried to dig a little to see whether I just wasn’t paying attention or if they escaped largely unscathed.

Luck would have it, they discussed it and it sounds like Vanguard’s Fixed Investment Group portfolio manager, Bob Auwaerte, did his homework. Instead of relying only on credit grading services, which graded many of those mortgage backed securities as AAA (highest), Vanguard dug deeper and analyzed the underlying factors (and then passed on the securities!):

What is the loan-to-value ratio? Vanguard purchases pools with lower loan-to-value ratios—meaning that there is more of a cushion between the size of the loan and the value of the house securing the mortgage.

How many loans are issued with documentation of the borrower’s financial data? If a high number of loans are not fully documented, Vanguard avoids that pool.

Where were the loans made? Many pools sold in recent years were based mainly on loans made in California and Florida, two markets where speculators fueled home price gains.

Is the home a primary or secondary residence, or purchased as an investment? Defaults tend to be lower on loans for primary residences.

Were the firms that originated the mortgage loans known for sloppy lending standards?

I was surprised to read this because I was under the impression that this sort of information wasn’t available for mortgage backed securities, because so many of places claimed to be blindsided by inaccurate grading and loose lending. In reality, the investment houses didn’t care - they saw a AAA, higher yields, and bought into it.

I’m not saying that Vanguard will be able to dodge every crisis but I think they avoided this one pretty well because they did their homework, it says a lot about the culture and that my money is safer in their funds. Good job Vanguard.

I love travel accommodation search engines like Kayak because they allow you to search almost the entire pantheon of travel providers to bring you the best deals. Kayak is doubly good for places like hotels because they have integration with Google Maps to give you an idea of where all the places actually are, crucial for hotels and rental cars. If you use them as much as I have, you’ll probably being to notice one important detail - the prices listed on Kayak (and other sites like Expedia, Travelocity, etc.) are $5 higher than on the airline site itself. That $5 is Kayak’s cut for sending them your business and you can save that by simply going to the site itself and booking the ticket.

One word of warning, sometimes the airline’s site won’t have the same price. It might be that the search engine has a special deal of some sort with the travel provider (or it could be something else, who knows) but this trick doesn’t always work. I’ve also found that this trick doesn’t work as often with hotels and car rentals, there doesn’t seem to be as clean of a $5 markup.

Lastly, all those search engines won’t have two important budget carriers in their results - Southwest and AirTran (and maybe a few other smaller outfits). To get those flights you’ll have to go through the site’s own website (though some of their partners will appear in the results, such as ATA, a partner of Southwest’s).

In my recent research of buying flights for our honeymoon, the question of the value of how much our time is worth has come up every single time we’ve compared flights. Do we want to spend an extra $100 each on flights and cut the travel time down by two hours each? The answer, in part, depends on how much we believe our time is worth and we use a simple calculation to determine that.

Take your annual salary, divide it by 2000, and then divide in half - that’s the number I use to determine how much my time is worth. The 2000 reflects the number of hours in a year for your average professional, 50 weeks of 40 hours days (assuming 10 holidays sprinkled throughout the year), and then you divide that by half because of taxes, medicare, social security, and then tack on a little bit of a premium (and mostly because dividing by half is easy). So, if you make $50,000 a year, the value of an hour of your time is worth $12.50 after taxes.

The value of your time isn’t a strict financial calculation though because not all hours are created equally and not all decisions are made strictly on dollar amounts. An hour on my honeymoon is worth far more than an hour sitting at home playing video games. An hour on my honeymoon is worth far far far more and making a decision based on a calculated dollar amount would’ve been a mistake (and no one, except actuaries, makes decisions based only on money anyway). However, knowing the dollar value of your hour is a useful number to keep in your mind as that can almost be a minimum for you.

So, let’s say I know that the salary value of my hour is $12.50, I can easily make a decision on whether I want to fly somewhere or drive somewhere. I did this on flights home to Long Island and here’s the comparison. By car, I would pay around $30 in tolls, $20 in gas, and it would take approximately 3 hours to drive. That’s a total cost of $87.50, if each hour were worth $12.50. Flying costs me about 2 hours, including airport time, with negligible costs in gas (airport is ten minutes away). If I can get a flight for under a hundred bucks back home, easy via Southwest, then it’s about equal from a dollar perspective. In reality though, I can do other things when I’m on a plane whereas I’m focused on driving when I go by car.

There you have it, a quick easy calculation of the value of your time so you can easily make comparisons like the car vs. plane choice above. Again, not everything is strictly dollars and cents, but knowing that number can be helpful.

Do you calculate the value of your time? If so, how?

The other day my fiancée received a letter from the Insurance Program Management office of Marsh Affinity Group Services, a service of Seabury & Smith, out of West Des Moines, IA. According to the letter, written by an Associate Benefit Specialist, Marsh had not received my fiancée’s premium payment for her AICHE-sponsored life insurance plan and her coverage was about to lapse. This letter would’ve been great… if my fiancée had AICHE-sponsored life insurance!

If I didn’t know better, or if she didn’t know better, she likely would’ve called the toll free number in the letter and asked to speak with Samuel Batterson to renew her life insurance policy if she was too busy to recall she didn’t actually have a policy with them. Is this a new style of fishing for clients or just a new style to us? I had seen this type of letter before in which webmasters were sent letters that looked like bills from Domain Registry of America in a scam to get them more business, but I’ve never seen it outside of that instance.

With so many different policies in our real lives, it’s easy to get confused as to which company holds which policy so it’s not entirely impossible for someone to get tricked by this. So, the lesson of the day is to be wary of these types of letters and do your homework. While it’s very likely my fiancée had some sort of AICHE policy while she was at school (and a member of AICHE), that’s a few years back so the coverage probably lapsed long ago anyway. Either way, when you get one of these just double check everything before calling (or sending a check!).

If you celebrate Christmas, today is a perfect day for you to take advantage of the huge after-Christmas markdowns that are certainly happening over at stores like Macy’s, JC Penney, and basically every other major store out there. Anything from decorations to ornaments will be heavily marked down as stores look to unload their excess inventory because the demand for Christmas items, surprise surprise, drops after Christmas actually happens.

Seasoned shoppers and bargain hunters probably already know this but this is a cycle that happens leading up to and after every single major decorating holiday. Anyone silly enough to buy seasonally linked decorations at full price will often see the price of those items fall significantly as the holiday approaches, usually in the last week you can see pretty big markdowns as stores recognize demand waning. Immediately afterwards, prices are slashed because no one is going to be putting up new decorations after the holidays so the demand is significantly lower (even procrastinators won’t be buying decorations they intend to use after the holidays passes!). Then the bargain hunters, such as ourselves, swoop in and buy up decorations for use next year.

What’s nice about Christmas (and Thanksgiving, and many of the other holidays) is that the decorations don’t change from year to year. While you may augment your collection, it’s not like this year’s hot new ornaments are going to be fashionably or functionally or conceptually different any other year’s ornaments. Santa looks the same every year, reindeer look the same, wreaths look the same, and colored string lights have looked the same for eons.

So, check out your local department stores for huge markdowns when you go to see their after Christmas sales!

(Photo by njchow82)

Happy Holidays and Merry Christmas to you and your family and friends and people you hardly know! I’ll be taking a break from writing until after Christmas, so look for some fantastic personal finance posts on Wednesday. (I know, a one day break! it’s so long!)