General 
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Randy Pausch Passes Away (1960 – 2008)

Randy Pausch, a Carnegie Mellon University computer scientist whose “last lecture” about facing terminal cancer became an Internet sensation and a best-selling book, died Friday. He was 47.



Randy Pausch taught Building Virtual Worlds, a class that started sometime in my sophmore or junior year, at Carnegie Mellon University and was a force on campus even before his famous Last Lecture. I always wanted to take Building Virtual Worlds but demand for the class was tremendous those first few years. I wasn’t going to get in the first few years it was offered but I’m upset I didn’t try harder. The class was well known around campus and it’s not surprising he was able to turn that into the ETC.

In listening to his Last Lecture, I understood where all his passion and his energy came from. He was following every dream he had and is an inspiration. If you haven’t seen it, I recommend watching it, you’ll be inspired.

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 Your Take 
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Your Take: The FSA Loophole

Drugstore PharmaciesWhat’s the FSA loophole you ask? First, an FSA is a Flexible Spending Account and it’s an account where you can deposit funds pre-tax, they’re deducted from your paycheck. You can only use those funds to pay for qualified medical expenses. A qualified medical expenses can be anything from co-pays to prescription and over the counter medications. The only downside to the FSA is that you must spend all the funds within the plan year or they expire. Allocate too much and you find yourself wasting it on over the counter drugs you hadn’t planned on buying; allocate too little and you lose out on some of the tax benefits.

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 Debt 
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Student Loan Forgiveness Programs

My sister is a public school teacher in Boston. She’s participating in a program where her student loans will be paid off after some number of years teaching difficult students in schools in low-income neighborhoods. The arrangement works for my sister because she would be teaching anyway, though as a young female teacher the rowdy students seem like they would be a greater challenge for her, and now she’s also getting sizable debts forgiven. She hasn’t complained once yet, so perhaps things are well.

I don’t know the name of the program she’s participating in but there are several public service programs that offer the same benefits. If you’re in one of these fields, you’ll want research these more as you could get some of your loans forgiven. I don’t know if the pay for these jobs is adjusted accordingly though.

Public Service Loan Forgiveness Program

The Public Service Loan Forgiveness Program is the biggest of the loan forgiveness plans. It offers total loan forgiveness on Stafford, Grad PLUS and associated consolidation loans in the Direct Loan program if you work in a “qualified public service job” for at least 10 years and continue to make payments during that span. Ten years seems like an awfully long time. The standard payment structure on Stafford Loans is equal payments over ten years! However, typical consolidation repayment lengths are often thirty years and consolidation is always a good idea.

A qualified public service job is often determined by the employer, rather than the role you play. If your employer is a nonprofit, tax-exempt 501(c)(3) organization, you’re eligible. If it’s the federal, state, local, or tribal government, you’re eligible. Finally, if you’re in a full-time Americorp position, you’re eligible. If you don’t meet any of those, you can still qualify if your employer is a non-profit type entity that is engaged in public service but is not a political organization, religious organization, or a labor union. Rules are slated to be finalized by the Department of Education in November.

TEACH Grant

The TEACH (Teacher Education Assistance for College and Higher Education) Grant is a grant worth up to $4,000 a year if the student agrees to teach at least four years in the next eight in a “high-need” field in elementary or secondary school that serves low-income students. It’s a new program and you need to apply with your school’s financial aid office. If you’ve already graduated, unfortunately you can’t apply for this particular grant.

If you are out of school, thus ineligible for the TEACH Grant, consider asking your school district’s administration to see if they are covered under The National Defense Education Act. Under that Act, if you become a full-time teacher in an elementary or secondary school that serves students from low-income families, you can get some of your Perkins loans forgiven. It’s 15% of your loan for the first and second years, 20% for the third and fourth years, and 30% for the fifth. My sister may be in this program.

Volunteer Work

Those two programs have been getting most of the press lately but there are several other programs available. Here are some of the other options:

  • AmeriCorps: Receive $7400 in stipends and $4725 towards your loans for 12 months of service.
  • PeaceCorp: You can get deferment of your student loans and partial cancellation of Perkins Loans, 15% per year of service up to 70%.
  • Volunteers in Service to America (VISTA): $4725 for 1700 hours of service.

In addition to the programs mentioned here, there are many more specific programs.

Additional resources:


 Credit 
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Comment on Proposed Changes to Regulation AA: Unfair or Deceptive Acts or Practices

Regulation AA: Credit Card ProposalsI’m a huge fan of credit cards and I’ve never been in credit card debt before. I’ve been fortunate enough to learn the dangers of easy credit and was never seduced by its siren song, or her underhanded tactics like double cycle billing. The latest saga involving credit cards is debate in Washington over the proposed consumer protection rules offered by the Federal Reserve Board under an update to Regulation AA (Federal Trade Commission Act) — Unfair or Deceptive Acts or Practices.

Would you like to contribute? Here’s the press release discussing the proposals, simply scroll down to Proposals for Comment and click on Submit comment underneath Regulation AA.

My thoughts:

Freezing Interest Rates

One of the proposals is prohibiting banks from increase rates on pre-existing credit card balances. At first glance, this makes total sense. When you sign on the dotted line for a mortgage, you are aware of how the interest rate will behave. On a 30-year fixed mortgage, it will never change. On a 5/1 adjustable rate mortgage, it will be set for five years, then change every year after that. While in the last few years this was abused, in principle is makes total sense. You know what you’re getting into. With credit cards, the rate is always variable and can always change. However, you accept that when you apply for and begin using the card.

That being said, I do think that credit cards should be adjusted to reflect the way it’s actually being used and that requires that rates be locked at the time it is being spent. The consequence of this is that all interest rates will rise because it reflects a greater risk assumed by the credit card company and credit cards will be harder to get. You provide no proof of income when you apply for a credit card, perhaps that will change.

Application of Payments

Consumers taking advantage of 0% for life offers recognize this little line item, credit card companies apply payments to the lowest interest rate first. For example, recent 0% for life offers usually require two or three purchases a billing cycle. The cost of those purchases is at the prevailing rate, usually much much higher, and payments are applied to the 0% offer.

Consumers should be allowed to pay down whatever balance they want, not be forced to pay the lower offer. In all cases, this will be the amounts with the highest interest rate. Don’t listen to Dave Ramsey, you want to pay the higher interest rates first, not the ones with the smallest balances.

Double Cycle Billing

This is tactic is just underhanded. If you’re an impartial observer, you can understand variable interest rates because credit card companies put it plainly in their agreements. Double cycle billing? Give me a break. Double cycle billing is when they take the average of your two previous bills and charge interest on that. I don’t even know why this was even acceptable in the first place.

Summary

Obviously, the banks don’t like it:

“We are deeply concerned that these rules will result in less competition, higher consumer prices, fewer consumer choices and reduced consumer access to credit cards,” President and CEO Edward Yingling [of the American Bankers Association] said in a statement.

I don’t agree that they go to far, I think they’re great proposals, but I do agree that it will result in less competition, higher prices, fewer choices, and reduced access but that’s exactly what we need. We don’t need credit card offers piling up in our mailboxes, we don’t need the average family credit debt to be around $10k, and we honestly will survive if there are fewer credit card companies.

Weigh in on proposed credit card laws [CNN Money]

(Photo: thetruthabout)


 Shopping 
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$10 Amazon Prime Promotion

Amazon is running an Amazon Prime promotion where they will give you a one month free trial of Amazon Prime and a $10 credit towards products sold by Amazon.com. This offer is for new Amazon Prime members only and expires July 28th.

Amazon Prime is their fast shipping program that offers free two-day shipping on any order and $3.99 expedited next-day shipping. The program normally costs $79 a year.

It’s likely that signing up will have you automatically renewing. To change that setting, read these instructions from the last Amazon Prime promotion.

Continue to Free Trial Signup


 Personal Finance 
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Fully Fund Your Emergency Fund Now

EmergencyThe New York Times recently released a great series about consumer debt called The Debt Trap. One common thread in several of the videos is the devastating effect “emergencies” can have on your personal finances. A medical emergency, a job loss or cutback in hours, all of these emergencies were weathered, in the short term, with credit cards. In the long term, the credit cards charged high interest rates, piled on fees, and made it extremely difficult to recover. It’s like telling someone to pause for five minutes in the middle of a foot race so that you can strap on a 100 pound rucksack. You might catch up, but probably not.

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 Education 
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529 Plans: Fees More Important than Deductions

529 Plans: Maryland vs. Nevada PlansUsually. :)

My friend just had their first child and began researching 529 plans. A 529 plan is an education savings plan run by a state or an educational institution, it’s named after Section 529 of the Internal Revenue Code. The plan offers tax benefits to individuals saving for future education. In his case, he was looking at a savings plan, rather than a prepaid plan*.

And now he had a choice: an in-state plan with a tax deduction or an out-of-state plan with potentially cheaper funds. Specifically, he wondered if he should open a Maryland 529, which offers a tax deduction to Maryland residents, or a state plan offering Vanguard funds, which is known for lower mutual fund fees. The state plan he found was Nevada’s, which is run by Upromise but offers Vanguard funds. (Plan data provided by Saving For College, run by Bankrate)

College Investment Plan (Maryland)

  • Program Manager: T. Rowe Price Associates, Inc.
  • Residency Requirement: No.
  • Maximum Contributions: No annual limit until account balance for beneficiary reaches $320,000.
  • Account Maintenance Fee: $25 / yr, waived with automatic investments or balance greater than $25,000.
  • Management Fees: 0.28% manager fee, 0.25% once program assets reach $2 billion.
  • Tax Deductions: $2,500 per beneficiary per year by account owner is deductible with a 10 year carryforward on excess contributions.

The Vanguard 529 Savings Plan (Nevada)

  • Program Manager: Upromise Investments, Inc. and Vanguard Group, Inc.
  • Residency Requirement: No.
  • Maximum Contributions: No annual limit until account balance for beneficiary reaches $310,000.
  • Account Maintenance Fee: $20 / yr, waived if account owner or beneficiary is a Nevada resident or assets in account exceed $3,000.
  • Management Fees: 0.65% manager fee, include underlying fund expenses.
  • Tax Deductions: None.

Comparing just the Nevada plan against the Maryland plan, it appears that the Maryland plan is superior. What you’re trading off is the tax deduction versus the mutual fund fees, but the tax deduction is only available the year you contribute. In Maryland, the $2,500 deduction is worth $125 (5% state income tax) making it nearly a wash between the slightly higher account fees in Nevada.

It’s really a choice between T. Rowe funds vs. Vanguard funds. If you’re an index fund type of investor, the T. Rowe Price Equity Index 500 (PREIX) has an expense ratio of 0.35%. Vanguard’s 500 Index (VFINX) expense ratio is 0.15%, meaning T. Rowe’s ratio is more expensive by 0.20%. On a balance of $10,000, that’s a difference of $20 being whisked out of the account each year for nothing. While $20 doesn’t seem like much, that’s a fee taken out each year and one that will erode your investment’s growing potential.

If it were me, I think the Nevada plan is superior of the two because it offers access to cheaper Vanguard funds.

Five Best 529 Plans

Liz Pulliam Weston of MSN money recently looked at the 5 best college savings plans and listed Nevada as one of the top five. The other states included were Alaska, Nebraska, Rhode Island and Virginia. The Virginia plan offers access to some Vanguard funds too.

* A prepaid plan is an option where you “lock in” the price of an in-state public college education right now. You can always convert it to a private or out of state school later on based on some conversion tables.

(Photo: lednew)


 Frugal Living 
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Air Drying Clothes: Dry Clothes Absolutely Free!

Rabbit in the Dryer!When JD wrote a post about how you could air dry your clothes indoors, I laughed. I laughed because my family growing up always air dried our clothes and always did it indoors. We didn’t even own a clothes dryer!

Our laundry room shared the same space as our furnace so the room was always hot and always dry, the perfect atmosphere for drying clothes. The laundry room also only had washer and two lines that ran across the room, which was only slightly bigger than some walk in closets these days, and we hung all our clothes on that line.

Why did we always air dry our clothes? There were several reasons:

  • Clothing last longer. When it isn’t subject to super high heat and thrown around and around and around, clothing tends to last a little bit longer and the colors are a little brighter. The edges of shirts don’t get frayed but you do get more wrinkles and lint, which can be removed with those sticky garment rollers.
  • Less opportunity to ruin clothes. I’m a pretty simple minded person and I can’t really remember if a shirt or pair of pants has special drying instructions (yes, I could read it but when you’re grabbing clothes in bunches, sometimes stuff gets enveloped!). Is that garment tumble dry low or can I put it on high? Will it shrink? Bah, just air dry it all and you can’t possibly mess something up.
  • Less heat in the home. We tend to air dry clothes more often in the summer because the hot air of the dryer vents into our home. I’ve been meaning to go to Home Depot to get a longer exhaust hose but until then the hot air is vented into our kitchen. In the winter, this isn’t bad because the hot air heats up the house. In the summer, this is terrible because it introduce unnecessary heat into a home we’re trying to keep cool!
  • Less electricity. Obviously air drying consumes less electricity than the dryer.
  • Better for the environment. This goes hand in hand with using less electricity, which reduces demand and the burning of fuel.

If you’re not a fan of air drying, consider air drying part of the laundry load. In the winter, I always pull out towels or other thick materials for air drying. Towels suck up water so they’re especially damp and take forever in the dryer. By pulling them out, you cut down the drying time while not giving up “softness” on the garments where softness matters. I don’t care about soft towel so I use the crunchy towels while my wife uses the softer ones. :)

Finally, you don’t always need a clothes line to air dry your clothes, we have a fold up rack that we stick in our kitchen. It holds most of our laundry and can be bought at a Wal-Mart-type store for a few dollars (and it’s easy to move so you can stick it outside if you have a nice day out). For those items that don’t fit on the rack, we just stick them on random dining room chair backs, hangers on doors, etc. You can pretty much hang them on anything that allows for some air flow.

Give it a try, even if it’s only one a handful of items, you might like it! (and look out for rabbits!)

(photo: TheTim)


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