If you weren’t a fan of President Bush and believed he, and politicians in general, only pushed for tax breaks for the rich then you’ll want to pay close attention to a recently Fortune that sheds some light onto the little footnote on the 2008 tax stimulus package. Most people focus on the tax stimulus check they’ll be receiving in a month or two, I know I did because that’s what affects us and most Americans. Fortunately, we have people like Allan Sloan focusing on all parts, including the little piece about raising the “maximum size of a ‘conforming’ mortgage to $729,750 from the previous cap of $417,000.”

What the heck does that mean? A conforming loan is one that Fannie Mae and Freddie Mac can buy. Since they can buy them, the interest rates on the loans are generally lower because they’re less risky. If a bank knows it can sell it to Fannie Mae and Freddie Mac, they can charge less in interest. The spread these days, according to Fortune, is a significant 1.27%.

My friends that share a half-million dollar mortgage, and those who own homes that are worth more than $417,000 but less than $729,750, benefit the most from this. Borrowers have access to lower interest rates and thus are able to purchase “more house.” (Nothing changes for those above the $729,750 amount)

For example, for the monthly mortgage payment of $1,500 can get you a $250,188 loan at 6.00% or a $219,448 loan at 7.27% – that’s a difference in the purchase price of $30,740! And, it obviously gets bigger as your amounts get higher. This makes homes in that range more affordable and thus helps increase their value. That’s stimulus people!

Allan goes on to recognize that the boost will expire at the end of the year, since it was designed to help stimulate the economy, but he suspects it will remain. I just wanted to highlight this piece of the package since very few people discuss it and Allan does a great job. His ending quote is a gem as well – “The one thing I liked about the stimulus package was that the government had enough sense to not send money to people like me. But then it turns around and hands me a housing subsidy. I’ll gratefully accept the gift. But that’s no way to run a country.”

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The 149th Carnival of Personal Finance is now available, I submitted my post on laddering CDs for your emergency fund.

When Patrick at Cash Money Life tagged me for this meme, he said that I probably had a couple little “hustles” going on the side when I was in college. I have no idea how he knew, though I had hinted about them in the past (selling stuff on ebay, online poker and blackjack), I don’t think I ever really wrote them all out in their full glory. I had some pretty lucrative things going, in college student terms, and it certainly easily sustained my lifestyle. However, the number one best financial move in college made the rest pale in comparison.

The number one best financial move I did in college was to graduate a semester early. That one move alone saved the cost of one semester’s tuition at Carnegie Mellon University, located in Pittsburgh, PA; which amounted to somewhere in the neighborhood of $15,000 plus room, board, food, whatever. I was able to do that because I always loaded myself up with classes, with AP classes in high school and then regular classes in college, and always pushed myself to the limit for those three and a half years. I don’t think all my little side projects, in total, earned close to that.

Of course, that financial move isn’t at all interesting and is borderline boasting (“oh look how smart Jim is!” we won’t go into what my grades were, shhhh!), so let me tell you about the most interesting of the side jobs I had:

Selling on eBay: eBay had started to get big and the whole “Buy Hot Deals from Fatwallet and resell on eBay” was still in its nascent stages. Whenever I see someone trying to make money, I try to figure out how that person is making money and then try to do it and then improve on it. So I saw these great deals on eBay for brand new products and so I investigated where they must be getting these great deals. Some were getting them wholesale (I didn’t want to get a tax ID and go through that process so I skipped it) but some were just buying stuff that was cheaper after rebate and then selling it on eBay. I did that a couple times before I realized the effort wasn’t worth it.

Eventually, I realized that what you needed to do was find products on sale where the eventual buyer wouldn’t be searching the Fatwallet forums or other deal sites. Computer and electronics shoppers are savvy enough to search the forums for a deal so eBay margins on those items is much lower. If you want DVDs, hats, and sports jerseys… those shoppers go to eBay first. Over the course of a year or so I sold maybe a eighty Michael Jordan Wizards jerseys, fifty John Deere hats (this was after Ashton Kutcher made them popular on Punk’d), and who knows how many DVD sets (my fiancee likes telling the story about how we ripped open a package from Canada of Band of Brother Gift Sets and then shoving them into packages for the post office because I was late on shipping them).

Eventually it got to the point where I was tired of looking at the eBay completed sale pages to try to figure out how much something could sell for and I put that Carnegie Mellon Computer Science education to good use. It took a few hours but I put together a Java application that went onto the eBay website and screen scraped the text off the completed auction pages. It collected the last two hundred auctions and then ran some simple statistic numbers. It told me percentage sold, average sale price, standard deviation, range, and who knows what else. I just wanted to know, in a few seconds, whether I could make money with a deal. It eventually started collecting the names of bidders, repeat bidders, losing bidders, and other information that would tell me how many people out there still want this stuff. So if someone was a losing bidder many times, I know at least one person is going to probably want this.

I actually sold the tool, after converting it from a Java app with a GUI to strictly command line, to a PhD candidate friend of a friend for $500, the first, and only, time I had sold a piece of software for money. It was pretty cool! Now eBay’s systems make the tool useless as they now require login, sanitize much of the bidder information, and otherwise make data collection difficult for people who don’t use their API. It was still a ton of fun though and I learned quite a bit from doing it.

So there you have it, both the smartest and the most interesting financial move I made in college. The smartest overall move, of course, was meeting my lovely wife!

If you ever wanted to buy shares of L’Oreal, you probably were introduced to the idea of an American Depository Receipt. American Depository Receipts, or ADRs, are constructs that allow you to purchase ownership interest (stock) in foreign companies on the domestic stock market.

It’s actually a pretty simple construct. The ADR is a certificate issued by a US depository bank and represents a share (could be a fraction, whole, or multiple shares) of a foreign stock the bank is holding overseas. The ADRs are issued in terms of US dollars but the underlying security is still held in the country of origin’s currency. The whole point of ADRs is that it makes it easier and more convenient to own foreign shares. Instead of having to open a brokerage account overseas, transfer the funds, convert them into the local currency, and then make the purchase – you just buy an ADR. (that’s just one-way, so double that headache). You can tell if a stock is traded as an ADR because it will generally have (ADR) next to its name (as L’Oreal does on Google Finance).

From the operations perspective of yourself, the investor, there is no difference between buying and selling shares of stock and ADRs. You just need to be aware that in addition to all the risks associated with investing in the domestic stock market, you’re introducing currency and country risk into your portfolio. Currency risk refers to the exchange rate of the dollar and the local currency. Country risk refers to the risk associated with changes in the local country’s economy. In the domestic stock market, all holdings are in dollar and you’re contained within the US economy (for the most part, though the World Is Flat) so you don’t have to account for currency and country risk (from the local country).

(If you want to get technical, an ADR is the actual certificate where as an American Depository Share, ADS, is the actual share. An ADR can represent multiple ADSs. In colloquial use, ADR refers to both.)

According to Wikipedia, the first ADR was introduced by JPMorgan in 1927 for a British retailer named Selfridges&Co. The largest depository bank is the Bank of New york Mellon.

“I usually keep my card wrapped in a picture of my children to remind me of why I shouldn’t spend … ”
                                             – Trent of The Simple Dollar

If you think money is about dollar and cents and things you can hold in your house or your hand, you’re wrong. Personal finance may seem like it’s all about the numbers, where you have to spend less than you earn, where you have to save up an emergency fund, where you have to invest in the stock market and get your 10% return; but the truth of the matter is that personal finance is more about psychology than it is about mathematics. Everyone knows that you have to spend less than you earn, no one is so disconnected or so poorly educated that they don’t realize how basic math works. It’s like physical fitness, we all know what we’re supposed to do, we just have difficulty remember to do it.

Trent made the above quoted statement in response to my post about how you should write your goals on your credit cards. My tip was a simple reminder, his was a simple reminder packed with the power of psychology. You can easily write the goal on your credit card and then dismiss it when you need to spend. Dismissing a picture of your children, the reason you live, breathe, and work every single day… dismissing that would take a Herculean effort. But it works. Trent knows he shouldn’t splurge on food or kitchen tools or video games, JD knows he shouldn’t splurge on comic books, and I know I shouldn’t splurge on vacations. Slap a picture on it, of either your kids or your cats, and it drives that point home like a jackhammer.

If you think Dave Ramsey Is Bad At Math, you’re not alone. You’re also right. Dave Ramsey’s Snowball debt busting methodology is mathematically suboptimal. For those unfamiliar with it, you essentially pay off your smaller debt amounts first, then roll those payments into larger and larger debts. The payments “snowball” and you are also rewarded with positive feelings about knocking out the smaller debts. It’s suboptimal because you would save more money by paying off the highest interest rate debts first, but you lose the psychological benefit of kicking one of those debts in the butt. While suboptimal mathematically, for many it is the optimal solution because it helps them overcome their debt. It may not be smart math, but it’s smart psychology.

The next time you have difficulty with something personal finance, be it spending less than you earn or saving towards something, try some psychological tricks and you may find that it works out better in the long run.

JD asked his readers today for energy conservation tips after a reader in Juneau wrote in about electricity prices in his state increasing from 11 cents a kilowatt hour to 50 cents a kilowatt hour. Over at the BFP household, we do quite a bit of energy conservation, many of which were documented in a guest by Fred from One Project Closer titled 10 Homeowner Secrets That Save You Money Now!. However, if energy prices were to increase five-fold, I think we need to think out of the box and turn to more drastic measures. That measure… is housepooling.

Simply take the idea of carpooling, where you share a commute to and from work, and extend it to living in the home. Once a week, invite a few friends over for dinner, drinks, board games, and then a slumber party. It allows multiple households to live under one roof, one energy bill for one night. Since the idea would be for everyone to housepool, your friends would reciprocate and you’d get several nights “energy-cost free.” It would cost a little more than usual to cook and entertain, but I suspect the increase would be minimal and you might even find that the heating bill going down with more people milling about your home.

The reader estimated that their new energy bill would be around $750, which is about $25 a day for heating alone. Put in a few housepooling days and you can cut maybe a hundred bucks or two off the cost of your bill, plus you get some time with your friends and have a good old fashioned slumber party!

What do you all think? Feasible when energy prices are 50 cents a kilowatt? Am I off my rocker?

Ever have one of those days where you crank out a bunch of things on your to-do list? I had one of those last week and it had a retirement and investing theme to it (that’s why I’m writing about it!). It consisted of kicking off the 401(k) rollover process, and researching what we needed to do to change the name on a brokerage account and consolidate multiple accounts. These all had to deal with Vanguard and, naturally, they made it painless.

One thing, above almost all else, I love about Vanguard is the fact that I can call their phone number and talk to someone in minutes. I don’t have to play the “hit 0 until the menu system gives up”-game, I just call and wait a few moments until someone picks up. Today, I spoke with a representative named Fred who was very helpful. After figuring out the exact name of the check for the rollover, I asked about changing names on accounts and consolidating them. Since I had called the rollover phone line, these questions were a bit of a curveball but he was able to help me out by linking up with Brian in brokerage services to figure out what we needed to do. That’s service. Oh, and it wasn’t outsourced to someone in a foreign country reading off a script (and they still only charge relative-pennies for their index funds!).

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Tomorrow is Earth Day, so why not start off the week with an environmental friendly post? When most people think of being green, their brains immediately jump to organic foods and recycling. Organic foods can be expensive, recycling can be a pain, and many come to the same conclusion as famed philosopher Kermit The Frog, who once sang, “It’s not easy bein’ green.” In all fairness, what Kermit was singing about was entirely different but it perfectly sums up what many people think of environmentally conscious living – it’s not easy. That’s because many focus on the difficult and expensive aspects of going green, because we commonly associate difficulty and expense with impact, rather than the relatively easy things we can do that can still make a difference. In fact, many of the easy things can save the Earth and a few dollars (and even a few pounds!).

Reuse Plastic Containers

Most people think recycle, recycle, recycle – but remember the mantra is actually reduce, reuse, recycle. Reusing plastic containers, when it’s safe to do so, is a great way to reduce the amount of plastic we consume as a whole. When we order take-out food from the local Indian restaurant, our meals come in plastic containers we can then turn into lunch boxes. While it’s great to also recycle, some municipalities don’t take certain types of plastic so reusing is the only option, besides throwing them away. Reusing plastic containers helps your wallet because you don’t have to buy these containers yourself! Plus, I always get the feeling that those Glad or Tupperware containers are overpriced anyway.

No More Bottled Water

I understand it’s convenient, I understand it’s healthy, and I understand you think your tap water tastes like crap. But every single year 29283094293 plastic bottles are thrown out and the poor penguins are choking on them. If you think my random number is an exaggeration, it’s actually not too far off because the Clean Air Council estimates that Americans throw away 2.5 million plastic bottles every hour (that’s 21,900,000,000 a year). Can you imagine that? No, I can’t either.

Want a good reason for your wallet? The cost of tap water, even if you add in a filter, is microscopic compared to the cost of bottled water. Buy a reusable water bottle, a filter, and fill your own each day and you can save yourself some serious money. If you buy a $1 bottle of water each day, that’s $365 a year you can spend on anything else. And you don’t contribute to this ridiculous level of wastefulness.

No Prepackaged or Premade Food

We love convenience right? We love throwing a Healthy Choice or Stouffer’s freezer/TV dinner into the microwave and eating it for our lunch or dinner. The only problem is that you introduce a paper box and a likely non-recycleable plastic container into the trash. Plus, to be honest, it’s really really not good for you. The amount of sodium in a typical meal like that, even if you can get it for a buck when it’s on sale, is ridiculous. If you consume that much sodium on a regular basis, it’ll have significant negative effects on your body (high blood pressure, heart disease) which will definitely impact your wallet in medical costs down the road. Instead of going with the prepackaged or premade foods, check out allrecipes.com and try making your own meals. You’ll find them more fulfilling (who eats only one of those meals anyway?), healthier, and perhaps even cheaper.

Carpool

You can’t have a list about being green and saving green if you didn’t throw in carpooling. The secret to cutting your gasoline bill by 20% is to carpool once a week. Brilliant right? That’s because saving on gasoline is not difficult, people just don’t want to be inconvenienced and the best way to do that is to strategically pick the day you’re going to carpool. By consuming less fuel, you contribute less in greenhouse gases, reduce the demand for petrol, and you save yourself some money each time you hop in a rideshare. Considering how many people complain about fuel prices, it’s amazing there aren’t more carpoolers.

Eat Less Red Meat

How could I, editor of Grill Maestro and lover of red meat, possible endorse the idea that we eat less red meat? I do this because I read in a recent Ode magazine article that stated a single cow produces as much as 132 gallons of methane a day! The United Nations Food and Agriculture Organization calculated that the livestock industry accounts for 18 percent of all greenhouse gas emissions, compared to 13.5% produced by all of the world’s transportation. That’s downright amazing. And meat is hardly cheap too, chicken on sale is $1.99 around us and beef is far more expensive (obviously depending on the cut). I don’t think I’d ever go vegetarian, ever, but consuming less red meat is something we’ve done accidentally given the rise in prices and changing food preferences.

Bag Your Lunch

Bagging your lunch is better for the environment because you don’t need to drive somewhere to eat and you don’t have all the waste associated with the restaurant. For your wallet, saving yourself that $6-$10 lunch each day is going to translate very nicely to your bottom line and you’ll probably be eating healthier if you cook the food yourself. There’s a reason why so many restaurants are fighting new regulations regarding nutritional information – their food is terrible for you. Super Size Me may have been a gross exaggeration but the point is still clear, fast food restaurants are horrible for you and the fact that they don’t want to list nutritional information on the menu is proof positive they know it too. So, save yourself a few dollars, save yourself the gas, and save your arteries!

Buy Stuff Online

I once gave 8 reasons I do my shopping online and reason #5 was that online shopping meant less driving. Less driving, of course, means less fuel. Now, the trade-off here is that companies will have to ship you the packages, which will mean more driving on their part. I believe that since they are shipping packages anyway and are on optimized schedules and driving routes, their consumption, after you factor in how they won’t need to ship that product to their stores, will be less than yours. I think there will never be a provable answer to this but I’m confident that shopping online is better for the environment.

There you go, seven easy ways you can be green and save green – just try one this week and see how easy is and good it feels!

The talk of middle class has come up a lot lately, in part because there’s no clear definition of middle class, but Lazy Man shared his thoughts this week on the topic and I thought this quote was a gem: “… unless you love what you do exchanging time for money is a losing proposition.” I think that many of us grew up in situations where money wasn’t abundant and saw education and a job as a way to more money. Whether it was brilliant parenting or actual fact, I grew up thinking we didn’t have much money (books were my toys) but we still considered ourselves “middle class” be we didn’t go hungry, we didn’t struggle to pay bills, and we were otherwise living comfortable and happy lives by any standards. As a result, I saw a job, which was attained through strong academic performance, as the way ensure I could provide for my family. The point of getting a job was to earn money, survive, and then thrive. In my jobs, I was exchanging time for money for something that I enjoyed but can’t say I loved. Now I am exchanging time for money for something I do love and I think I’m much happier because of it. (The italicized sentences in the paragraph were ones that were originally accidentally deleted in the editing process when I first published this post)

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If you’ve ever lamented the fact that you signed a 30 year fixed mortgage instead of a 15 year fixed mortgage (it was one of 8 regrets of 2007 for Trent of The Simple Dollar) because of how much money you could’ve saved, don’t. I’m going to do some simple Dinkytown.net (using this fixed mortgage loan calculator, but you can also use Bankrate’s mortgage calculator) math to show that the difference between prepaying a 30 year fixed mortgage and a 15 year fixed mortgage is not big. The current rates on Bankrate (as of early morning on April 16th, 2008) for a 30 year fixed mortgage is 5.62% and for a 15 year fixed mortgage is 5.20%, so we’ll be using those. Rates have since changed but the analysis still holds.

If you had a $300,000 mortgage and made additional payments (~$677) onto the 5.62% 30-year mortgage such that the payments matched the 5.20% 15-year mortgage (~$2403), the difference in total cost (principal and interest) is ~$19,153 pre-tax across fifteen years. After you discount it by your marginal tax rate (say 25%), divide it across the 180 months, it’s only $79.80 a month. $80 difference on a $2403 mortgage payment is 3.3%.

You might say: “Jim, you’re just conveniently ignoring the $19,153 and focusing on the smaller monthly number of $80 – that’s just mathematical hocus-pocus. I’m upset about the $19,153! Also, $80 might not be a lot to you Mr. Money-bags, but I’d rather have that money than give it to a mortgage company.”

To which I would respond: “Ah, good point, but let us calculate the present value of that $80 a month and see how much it’s really ‘worth’ to us today. As for the $80, I too would rather have it in my pocket, but I’m not going to cry over spilled milk.”

If you assume that inflation will be at 4% a year, 180 payments of $79.80 is worth approximately $10,788 today (if I did it right in my TI BA-II Plus calculator). It’s a $10,788 difference on a $300,000 mortgage. Ten thousands dollars isn’t a trivial amount of money, but that’s the cost of having the flexibility to make the 30 year payment into a 15 year payment if you want to. If you have a 15 year mortgage, you are required to make that payment.

Lastly, if you still are bothered about the difference, you can always refinance.

I always read about how Bank of America sucks this, and Bank of America sucks that, but never had experience the suck that is Bank of America first hand. I opened an account with them a year ago with my then-fiancée because they had a branch within walking distance of my house and because they have ATMs essentially everywhere. I looked past the Bank of America horror stories because, honestly, every company has its bad moments. Well, today I met a bad enough moment to make me can Bank of America and go with M&T Bank. (I opened up a personal and business account with them because a good friend of mine works in their new business development side)

No, they didn’t screw me out of $23049823049 in fees or otherwise hosed me by being unreasonable – they did something far worse because it wasn’t some technical glitch or some procedural hangup. They’re going to lose me as a customer because they were rude. When there are as many choices as there are in the world, you can’t even mess up like that. Sorry!

Today, I went to a Bank of America branch to make some check deposits. When I walked up to the counter with my checks, the first thing the teller asks me is if I had counted the amount. I responded “No” because I wanted them to double check my math, as they always do. The responded with a bit of a roll of her eye and then asked me if I filled out a deposit slip. Again I said no, deposit slips are useless anyway. When she counts them up, she’ll print out a slip that goes with the checks and the deposit slip is just a wasted branch on a tree we’d otherwise like to keep around. This is what has happened the other half dozen times I’ve gone in to deposit a bunch of checks (and didn’t want to you the mechanized paper-cut maker of an ATM they have), the teller simply adds them up for you and you’re on your way.

So she pulled out a deposit slip and told me to fill out my name and address on the slip (useless!). Then she put a calculator in my face and told me to add up the checks. All of this was pretty terse and borderline rude but I was content to let it go. As I added up the checks and showed her the calculator, she proceeds to read out the numbers really loudly over and over again. Is there no sense of privacy? I can understand her reading them back softly, but she was speaking more than normal indoor voice.

Okay fine, whatever, at this point the interaction hadn’t gone great but it was hardly worth closing an account over. Then she looks at my balance and tried to sell me on a certificate of deposit. I politely declined. She persisted by saying I was losing money by putting my money in a regular checking account. She’s right, but I still politely declined. Then she proceeded to start talking to the customer waiting behind me! No good bye, no thank you have a nice day, nothing.

That, Bank of America, was the proverbial straw. Keep that lousy $6 you got for giving me an interest rate of 1.0%, which is essentially paying an annual fee anyway, and keep your other worthless products. We’re outta here.

It’s amazing they didn’t make it out of the first round of the Consumerist 2007 Worst Company in America contest (Verizon was a formidable opponent), but you guys should lock up the first round in 2008 against a cupcake like Toys R Us.

Update: Some people have said that I’m being a baby, that I over-reacted, (one guy said he’d punch me) and I respect all of your opinions (maybe I am a baby, but there are plenty of banking options that are more polite) and thank you for sharing them. I actually wanted to touch on the topic of over-reaction. What’s “worse” of a reaction, closing my account or calling out that teller to their manager? If anything, asking to speak to the bank manager and telling them the teller was rude seems to be like a greater over-reaction than closing an account. Thoughts on that?