Credit 
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5% Cashback on Gambling Winnings Credit Card

I used to play a lot of blackjack and poker online back in college, before the Port Security Bill in 2006 made it illegal for banks to conduct business with known casino sites, and made some decent cash too. Back then, and even today, casinos would give you 100% matching bonuses on your deposit as long as you put into play six times the bonus amount (nowadays it’s like 20 times). I would put in a hundred bucks, get a hundred bucks, put into play six hundred bucks and walk away with, on average, two or three hundred dollars of profit. I had a spreadsheet and everything, if I only I also had the First Ausus Chance Card from First Ausus Bank, a bank headquartered in Bermuda.

(Click to continue reading…)


 Cars 
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Take Risks, Bear Consequences, That’s Life

It was a pleasure meeting JD this weekend and so I was concerned when I heard that he and his wife were in a car accident after we had parted ways. It appears that all is okay for JD, both physically and financially, which is great news; but all was not okay for the other driver.

If you’ve met JD, or read his blog, you know he’s a really nice guy. He’s very cognizant of others and the impact of his decision on others, so it’s not surprising to read his post about how he feels bad that this event may have tragic consequences for the other driver. Unfortunately, we all take risks in our lives and have the unfortunate burden of bearing the consequences should they occur. If the other driver didn’t have a driver’s license, he shouldn’t have been driving because he hadn’t demonstrated the minimum requirements (he could’ve used a bicycle, rode mass transit, etc.). If the other driver was in the United States illegally, unfortunately he took the risk to enter illegally rather than legally and now would have to face the consequences of his decisions. JD can’t let the decisions others make affect what he should do for himself and his family.

Let’s say that he did what his heart wanted, which was bear the financial brunt of the accident where he was entirely not at fault. What happens if he or his wife develops neck or back problems down the road? Since insurance was never notified, he alone bears the medical cost. If it were his car and it developed significant problems as a result of the accident, he alone bears the cost. He can’t “go back in time” and report the accident. While selfish, the future is a very long time and he has to think about the “total potential cost” of the accident and not just the cost of repairs. I think he did the right, and only, thing.

On the topic of accidents, taking risks and facing consequences, I have a similar unfortunately story (luckily we were witnesses and not participants).

One night my wife and I were driving home when we saw an accident at an intersection with a flashing red and flashing yellow light. This was one of those traffic lights that went from Red/Yellow/Green in the day, to flashing yellow and flashing red at night. The rules are that those who see flashing red treat it as a stop sign and those who see flashing yellow don’t need to stop but should proceed with caution. In this particular accident, the car with the flashing red didn’t stop and hit the car with the flashing yellow. This was a relatively slow accident but the damage to the flashing yellow car (not at fault) was pretty bad, it was undrivable; and the damage to the flashing red car (at fault) was relatively minor.

To make the drama worse, the driver of the at-fault car jumped out of the car and ran into the night! A few minutes later someone else returned (allegedly the same guy), but we were pretty sure he was different because there were two witnesses vehicles and we both thought the same thing. We thought the driver didn’t have a license or didn’t have insurance so he bolted, leaving his pregnant companion (wife? girlfriend?), to get a friend to take his place. Anyway, the true sadness in this story was the fact that the police discovered the driver of the not-at-fault car, who was driving with someone who appeared to be his son, was found to be above the alcohol limit and he was arrested. The other car drove away with a citation.

The man did not appear intoxicated, not that appearances are a good indicator, but ultimately did nothing wrong in that particular accident. However, he decided to risk driving home while he was legally intoxicated and now he had to face the consequences. Would the cops not have arrested him because he was with his son and he did nothing wrong in the accident? No. They couldn’t and now the guy was in handcuffs, sitting on the curb, with his son sitting next to him. It was a sad sight to see but we must all bear the consequences of our actions.


 Retirement 
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How To: Plan My 401(k) Contributions

When I started working back in 2003, I was introduced to the beauty and power of 401(k)’s and how my employer would match fifty cents on the dollar to the first 6% of my salary I was willing to put towards my own future. I immediately saw it as a way to take advantage and get a 3% raise as well as put a large chunk of money away for the future. The 401(k) was my money time machine, allowing me to send some money to the future, money that could be fruitful and hopefully multiple if I made good sound decisions. The only question at that point was how much I should I put in my money time machine?

Many experts would argue that you should work backwards. Set your goals based on careful thought (“I want $10 million in my retirement fund when I’m 65) and then set your retirement contribution based on those goals, given dangerous assumptions like 10% annual growth. For some, that’s a great way to plan but that’s not something for me. There are simply too many variables for me to say that my target number is this, my growth rate is this, let’s start saving! Instead, I go the other direction, I plow as much as I reasonable can and see what happens! (did you expect something more structured? sorry!)

Setting Initial Contributions

When I started, I did was Paid Twice did, I put in as much as I would not miss. For me, that was the maximum contribution! (it’s crucial to do this when you’re still in the poor college kid mentality!) I went from earning a modest four or (really low) five figure income hawking items on eBay, selling freelance software I wrote, and other little online ventures to a legitimate job with a legitimate salary. My expenses had gone up for sure but I knew I had enough room to put ~20% of my salary (I would later reduce that to buy a new home) and I knew I wouldn’t miss it. This was exactly the same logic that led Paid Twice to set her contributions at 2% when she first started working.

Changing Your Contributions

As your life situation changes, your money needs also change and it’s important to identify those situations. I contributed the maximum amount for two years and then pulled the amount back to the minimum contribution for the maximum employer match. I did this so I could route the difference (minus taxes) to an account focused on saving for a house I wanted to buy within the next three years. It’s important that you make these adjustments so that you can foster sound decisions down the road. Had I kept contributions to the maximum, perhaps I would be tempted to raid my 401(k) funds, which is widely regarded as a bad idea.

You can also change your contributions based on your changing situation on the income side too. Many people increase their 401(k) contributions as they receive raises. If you get a 4% raise, maybe you increase your 401(k) contribution by another half or full percent (or more!). You don’t “feel” it because you still get an increase, though some would argue 4% is cost of living/inflation and not really a merit based increase (I would argue that, which means I’ve never received a “raise,” just COL adjustments!).

Is More Better?

In the very general, I believe so, but I’ve also said that you shouldn’t invest in the stock market (where most of 401(k) money goes!) and that everything should be in moderation. You can contribute too much and put yourself in a situation where you’ll need to take money out, sometimes at a 10% penalty; so please exercise moderation in this and all things.


 Taxes 
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Incorrect Direct Deposit Information on Tax Return

Amy asked a very good question in the comments of my stimulus package post:

Please post information on if you had direct deposit for your tax return but have since closed the account how do you go about removing that information and getting on the mailing list?

This is particularly important for folks waiting on the 2008 tax stimulus check since they may have heard that you can get your stimulus check faster if the IRS has your direct deposit information on file. But, what happens if your direct deposit information was input wrong, changed, or made no longer valid between the time you file and the time the IRS tries to make the deposit? The IRS will send you a check, according to Publication 17.

Unfortunately, there appears to be no way to change that information after you have filed.

While this may be disconcerting for some, even if such a form existed, it likely wouldn’t be processed in time to make a difference anyway. By the time they processed the form, the IRS would’ve tried direct depositing to the old account, failed, and mailed you a check anyway. Sadly, they don’t have a very fast response time on anything.


 Personal Finance 
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Early Mistakes are Lessons in Disguise

Last night I had dinner in San Francisco with J.D., his lovely wife, and Cap and we somehow got on the topic of how JD made the fantastically not awesome decision to buy Sharper Image. Cap lamented about how he was poor and didn’t invest in stocks (to be honest, I forgot what he said so I put in a typical Cap comment :) ), I chimed in about how I erroneous Worldcom (I said Enron earlier but I got the two mixed up) on bad news but that it was a good lesson for me.

That got me thinking to something my father told me many years ago. He said, and I’m paraphrasing, that you either learn a lesson in the classroom or you learn it in real life, the one in real life is far more expensive (in both time and money) and dangerous. The best analogy I can think of were the “fights” I saw on the fraternity quad in college. Ever see two “tough guys” step up to each other, bump chests, and challenge each other? That, in part, goes back to when people would fight for territory and weakness meant someone else was going to swoop in on your livelihood.

On the fraternity quad of a private engineering school, you probably didn’t learn the lessons of the street growing up and probably didn’t realize that if you bumped up against the wrong chest, you’d be floored. In the fraternity quad of a private engineering school, the chest puffing stopped at just that, chest puffing.

Then my friend Howard from New York City showed up, a real cool Asian kid who stood all of 5′ 7″, but he had street smarts; where he came from, chest puffing and “go ahead, hit me” statements were soon followed by the very thing you asked for. One night he had a run in with some punk, there was shouting, some “go ahead, hit me”s were thrown around, and he swung. The guy didn’t fight back, but bless his bravado, he said “hit me again!” And he did. And again. Until the guy ran. (He later returned with five of his fraternity brothers, at which point we called him a [not nice name] and told him to [go home])

That other guy, he got a lesson he should’ve learned in the classroom – don’t pick a fight if you aren’t going to fight. Howard used his fists, depending on the street and the circumstances, it could’ve been clubs, knives or guns. The other guy got off cheap.

After that little trip down memory lane, it struck me, losing money on Worldcom was very good for me. At the time it was catastrophic, a loss of a thousand dollars in a Roth IRA that had only three or four; but it taught me that I really need to do a lot more due diligence before I’d be ready to invest any money in individual stocks. Due diligence is not an hour reading news stories, due diligence is poring over financial records, understanding how markets price stocks (biggest lesson is that it’s about growth, not intrinsic value; don’t quote me though because I’m terrible at investing), and a whole pantheon of factors I can’t even begin imagine, let alone enumerate. That’s precisely why I like index funds (though I’m waiting for the research that says index funds suck, you know it’s coming!).

That thousand dollars has probably saved me countless dollars over the years since and it definitely was the main reason why I didn’t buy Bear Stearns this past month.

Those who cannot remember the past are condemned to repeat it.

                – George Santayana, Reason in Common Sense


 Investing 
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The 10% Return on Equities Myth

According to historical records, the post-war return of the stock market has been around 12%. It’s a number that has used over and over again (more often people use the 10% value) as the benchmark for stock returns and project of future results, since it’s better than pulling a number out of thing air. However, yesterday afternoon I had the pleasure of reading Warren Buffet’s 2007 Letter to Shareholders of Berkshire Hathaway (if you’ve never read one, you should because it is both informative and entertaining, 2008′s is a mere 21 pages long and chocked full of fun facts).

On Page 18, right after Buffett chastizes 498 of the Fortune 500 for not recording stock options as expenses on their books, he starts talking about the Dow returning 5.3%, compounded annually, in the 20th Century. Wow, what happened to this 10% business? Why are we using it as a benchmark if the Dow’s return over the last hundred years (arguable, the last hundred years starting 8 years ago) is a meager 5.3%? I don’t know, but even assuming 5.3% is pushing it.

Buffett goes on to illustrate that a 5.3% annualized gain going forward would mean the Dow would have to pierce 2,000,000 (that’s two million!) by the end of 2099. That’s working with only 5.3%. If you want 10% annually then you’ll need the Dow to hit 24,000,000 by 2100. Twenty four million…

Though, nominal numbers are merely that, nominal. If you asked someone at the start of the 20th Century if the Dow was going to grow from 66 to 11,497 (especially after you told them the horrors that would come during the Great Depression), they probably would’ve laughed too. So, will Warren Buffett’s prediction that a 10% is outlandish and unreasonable hold true?

I don’t know but I’ll tell you what… while historical returns are not indicative of future results, Warren Buffett’s historical returns are better than my historical returns so I’m siding with him on this one.


 Investing 
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Gift Your Depreciated Stock Shares

Stock Market All RedI heard this “tip” the other day involving how you could take advantage of the market downturn. Each year, you’re permitted to give up to $12,000 to someone else as a gift absolutely tax free. If you give more than $12,000 to one person, you’re personally obligated to declare it and pay taxes on the gift (yep, it’s in reverse of what you’d expect). So, the suggestion is then to give your depreciated shares as a gift now, before the shares are likely to rebound, so that you can make the most of your gift.

Sound like a crazy idea? (It sounds crazy to me) It’s not so crazy if you subscribe to the idea that the stock market will always appreciate in the long run (if you don’t, then you better not have any shares of anything!), but it’s certainly one way to find a silver lining in this ugly stock market cloud we’ve been under!

The Mechanics

If you are actually going to do this, this is how you do it right. These steps are different than if you gift appreciated property (stock is considered property), so please follow them carefully. You will need to do the following to properly document the gifting of your shares:

  1. Obviously, give the shares to your beneficiary.
  2. Document the fair market value of the shares by writing a gift letter that indicates the gift and its fair market value at the time of the gifting.

Appreciated vs. Depreciated

The is a big difference between donating appreciated stock and depreciated stock. If the stock has appreciated, the recipient has to claim the appreciation when it is sold. People often take advantage of this by gifting appreciated stock to their children, or family members in a lower tax bracket. With depreciated stock, no one gets to claim the loss. So, it might make more immediate sense to sell the stock, recognize the loss, then give the money to your beneficiary and then have them buy the shares back.

To be honest, I wouldn’t do it. I like crazy, out of the box thinking as much as the next person, but this one doesn’t seem to make much sense to me. It makes more sense to claim the loss against any gains that year, then give the money. The recipient can always buy the shares on the open market and pay the commission.

(Photo: rednuht)


 Credit 
9
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Stealing RFID Credit Card Data Is Easy!

Remember when someone actually needed to have your card before they could steal your data? With RFID, or radio frequency identification, all they need to be is near your card, with an $8 RFID reader, to get your information now! If you watch this episode of boing boing TV, you can see a $8 reader pull your card’s details from you without actually having your card. What can you get? Card name, cardholder’s name, and expiration date (probably more, you can transmit about 2 kB of data) – or essentially everything off the face of your card.


If you remember back to physics class, electricity and magnetism are inter-related. A magnetic field around a conductive material will generate an electric charge. If you want to get real nostalgic, remember the right hand rule? :) Anyway, RFID works off that principle. The reader sends out a magnetic signal that generates a current in the RFID chip. The current powers the chip and gets it to send out a signal that the reader will detect. The signal is encrypted, that’s not the problem, the problem is that it can be decrypted by the reader, a reader you can buy for $8. The security flaw has nothing to do with RFID technology, the failure is in the implementation by the credit card industry.

The technology expert in the clip, Pablos Holman, does point this out by saying the decryption should happen back at a secure location rather than at the point of sale and I suspect this is a cost cutting measure on the credit card industry’s part. By decrypting at the POS, they get to reuse their systems (i.e. use RFID on the cheap) as-is rather than building a mechanism for decrypting the data somewhere down the data stream. I’m 99.9% sure that someone in the entire industry has thought of the scenario in which someone buys an $8 reader and starts stealing data but it’s cheaper to fix the fraud than develop a better system.

As to the concerns that you could walk into a Starbucks and steal everyone’s data with a reader augmented with a powerful antennae, that’s not 100% accurate because an RFID tag has a read range based on its frequency. Smart cards are said to use high-frequency tags, which have a read range of 3′ or less. So while you could activate every card in the room, you’d have to wander within 3′ of everyone (still easy, just not as easy as turning it on and standing there) to grab the data.

If you want to learn more about RFID, check out the Association for Automatic Identification and Mobility’s FAQ on RFID.


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