Your Take 
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Your Take: What Is Your Dream Vacation?

Elephants!I know a lot of people will probably be on vacation or traveling or whatever today but I wanted to put something up for all the folks staying close to home and still poking around on the web. I didn’t want to make it too controversial or anything like that but still interesting both for me to comment about and for you all to enjoy commenting on too so I ask, what is your dream vacation?

I have three dream vacations, all of which I find equally exciting:

  • African Safari: I just think it’s be wild to go on a safari, perhaps to Kruger National Park in South Africa, and just be out in the wilderness seeing first hand the types of stuff you see on the Discovery Channel.
  • Cruise Around The World: A cruise, or just traveling around the world, and seeing different locations and lifestyles would be a lot of fun too. A cruise might be a little too structured and just wandering around might be a little too unstructured, but traveling the world in some fashion would be really exciting.
  • Philanthropic Travel: This is kind of like traveling around the world but with more of a purpose and a more rewarding experience. Going someplace and helping out the community in some fashion, whether it’s to help build a school or repair things, something like this would have the excitement of travel with the rich and rewarding experience of helping others out in the process.

What is your dream vacation or vacations?

(Photo: jeffchristiansen)


 General 
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Happy Holidays!

Home for the HolidaysI wanted to wish everyone a happy and safe holidays this year. It’s been a pretty hectic and stressful year but we’re nearing the end and hopefully the important things in your life, like your relationships with your family and friends, can be a guiding light in the chaos. At the end of the day, we do all this, all the investing, all the retirement planning, and all the long hours at work, so we can be financially stable and provide for our loved ones. We work so we can live, we don’t live so we can work. While it’s hard to see that when we have our heads down in June, racing towards the finish line so many months away, it’s much easier to do that over the holidays regardless of what you observe.

Turn off the blackberries, shut off the computer, kick off those boots, and hang up your jacket, it’s time to grab a beer (or a glass of wine or a cup of eggnog) and spend some time with the people who love you for who you are and not how much you add to the bottom line. :)

We’ll be taking the rest of the day and tomorrow off but be back on Friday with a lighthearted holiday Your Take, something I hope you’ll contribute to if you find yourself on the Interwebs on Friday. If not, I’ll see you all on Monday!

(Photo: ~BostonBill~)


 Credit 
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Monitor Your Free Credit Reports

Reader David recently commented about how an error on his report had him pay more than he was supposed to on a recent mortgage loan. The gist of the story is that before a credit card company wrongly reported a late payment or some other adverse note on his credit report, his FICO was 830. (he says bankruptcy, but credit card companies can’t put that) Afterwards, his score fell to 750. He called the credit card company in June of this year to fix it, which they said they would, and then he forgot about it. This week, at the closing, he learned that his score was still in the 750 range because the credit card company didn’t do what they said they would and he failed to follow through. The end result is that for the next 30 years, or however long the loan is, he will be paying for the mistake and him not following through. It’s a terrible situation but there’s little left to do.

(Click to continue reading…)


 Education 
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Saving for College – 529 Plans & Coverdell ESAs

Carnegie Mellon FlagI was watching On The Money last week when host Carmen Ulrich touched on saving for college education. She stated that college education costs go up around 8% a year, a figure that was much higher than what I had seen quoted before. She didn’t cite her source but I imagine it was probably FinAid.org, a well-known site that helps families plan for financing education costs, because they state college costs go up between 5% and 8% each year. That outpaces inflation and obliterates prevailing savings account rates… scary thought.

My wife and I are thinking about having kids soon and one of the biggest challenges has been projecting and planning for the cost of college. It’s pretty sobering to use FinAid’s projection calculator. I put in $30,000 a year (just a ballpark figure for a year of private college today), 20 years until matriculation, and left the college cost inflation rate at 7%. The total four year cost? $515,435.35

Half a million bucks for a private college. It’s insane.

Fortunately there’s help available and it comes in multiple forms:

  • Saving for college before college starts: This is the topic of this article, learning more about the ways you can save money by taking advantage tax-advantaged education savings accounts like 529 Plans and Coverdell ESA’s.
  • Tax deductions and credits for when your child is attending college: I won’t be going into detail about these deductions and credits in this article but you can get some assistance through the Hope and Lifetime Learning Credits. They may not exist in 20 years but they’re available today.
  • Financial aid: Also not covered in this article, but financial aid, whether it’s need or merit-based, plays a huge role in helping families pay for college and should always be considered.

Here’s a brief overview of your options (for saving for college) to give you a sense of what your options are. This is by no means exhaustive but should give you a good idea of the landscape so you can do your own investigating.

529 Plans

Named after the section number in the IRS code, the 529 Plan is simply a savings plan for college education and has two options:

  1. Prepay tuition at a qualified institution at today’s tuition rates, or,
  2. Save money in a account where the earnings are tax-deferred to pay tuition at future rates.

All earnings in the account are exempt from federal taxes if withdrawn and used for qualified educational expenses. Your contributions, however, are taxed before you put them in but some states let you deduct a portion of them from your state taxes. The Pension Protection Act of 2006 made the tax exemption permanent.

Coverdell Education Savings Accounts (ESA)

The Coverdell ESA was once known as the Education IRA and was revamped in 2002 with some major changes. Again, the account is like a Roth IRA in that you make non-deductible contributions into an account that can grow tax free if used for education. Like the Roth IRA, your contribution limit is affected by your adjusted gross income. For single filers, the range is $95k – $110k, and for married filing joint, it’s $190k – $220k; the contribution limit for 2008 is $2,000 per beneficiary.

Unless Congress makes changes to the existing law, some ESA benefits will expire in 2010. The key ones are that K – 12 expenses won’t qualify, the contribution limit will lower to $500, and withdrawals won’t be tax free if you claim Hope or Lifetime Learning credits. I don’t know if they acted yet on this and I couldn’t find anymore information about this.

Treasury Bonds

Earlier this year I bought some Series I bonds because of the favorable interest rates. One of the benefits of Series I bonds, and Series EE bonds, is that earnings are tax free if used for education. The rules are that “qualified higher education expenses must be incurred during the same tax year in which the bonds are redeemed.” There are several other requirements but they are all spelled out in the education planning section of Treasury Direct.

The benefit here is that you can get a lower guaranteed return, unlike the stock market investment returns for Coverdell and 529s, on education savings but the rules are slightly stricter. Also, you are limited in how much you are allowed to purchase.

Difference Between 529s & ESAs

There are some major differences, and lots of minor differences, between these plans.

The first has to do with control of the account. With a 529, the owner always retains control and can change beneficiaries at will. With ESAs, the money gets transferred to the benficiary (your child) if it’s not used for education when they reach a certain date. With 529s, the money is returned.

Another difference has to do with contributions, the limit for Coverdell is $2,000 a year subject to the contributors’ modified income. With 529′s, the limit is usually several hundred thousand and depends on the state program you join.

The last major difference is that a Coverdell has to be used up or transferred by the time the beneficiary turns 30, or the funds have to be withdrawn and tax and penalties must be paid. With the 529, there is no age limit. This is significant because that means you can open a 529 for your child before they are born. You simply open one for yourself, contribution, then change the beneficiary when the child is born. You can’t do this with a Coverdell.

As for similarities that may affect your choice, the Coverdell and the 529 are the same for financial aid purposes. They are considered assets of the custodian, which would be you, and the withdrawals are not income when they are tax free. Both plans are transferable, meaning you can change the beneficiary fairly easily.

Have you taken a deeper look at these types of plans? If so, what made you choose one or the other? Are there major differences, advantages, or disadvantages that I overlooked?

(Photo: duruk)


 The Home 
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LendingTree Not As Fast, or Good, With Refinancing Quotes Now

When I bought my house three years ago, I used LendingTree to get some financing offers to get a better feel for what rates for someone like me. Within an hour or two of when I submitted the request, I had someone from LendingTree call me to tell me they were coordinating the lending offers. Within an hour of that I had a response from LendingTree that included several rate quotes from multiple lenders, I was genuinely impressed with how quickly that process was.

Today was a totally different story. I submitted my request in the morning and it wasn’t until 5 PM that I saw some “quotes” roll in. I put that in quotes because it was one lender with three quotes depending on what loan I wanted. By then I had talked to a local lender and a loan officer from BB&T, where my current mortgage is. The loan offer was from a lender in Kentucky and it was far inferior to the one offered by BB&T (the local lender will get back to me tomorrow). Maybe it’s because we’re so close to the holidays, maybe it’s because we’re in a sagging housing market, or maybe because I’m a weak borrower, but it’s overall a pretty lackluster response.

Here are the offers so far on the table (obviously pending credit checks and whatnot):

  • BB&T Mortgage said that I could get a 20 or 30 fixed year mortgage at 4.875% or a 15 year mortgage at 4.75%, with no points. The closing costs, which would include all the document fees, escrow setup, and title insurance BS would run about $3,100 to $3,200.
  • SurePoint Lending had three offers – $4.875% on a 30 year fixed with one point, 5% on a FHA 15 year fixed with no points, and 5.25% on a 30 year fixed with no points.

Assuming the closing costs are going to be similar, the SurePoint offer doesn’t come close to the MM&T Mortgage and I’m inclined to stick with the bank I’m already with. I didn’t set up my loan with BB&T, they bought it, but I haven’t had any problems and they’re offering a much cheaper option.

Perhaps tomorrow will bring more quotes but I’m not holding my breath, it looks like the number to beat is 4.875% with no points.


 The Home 
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Loan Modifications Reamortize, Don’t Affect Fixed Rates

I just got off the phone with Patty at BB&T Mortgage, who walked through all the options I had with them with regards to my mortgage. She was extremely courteous and explained everything in great detail, great loan officer. The one big bit of advice I learned was that a loan modification isn’t what I thought it was. Loan modifications, at least by BB&T’s definition, are for scenarios in which you want to change the amortization of your loan and thus your payments, they don’t affect the interest rate on fixed loans. I was reading Jonathan’s post about his refinancing/rate reduction experience and somehow managed to get it in my head that he did a loan modification, but he just got a rate reduction from his bank. (It would be nice if BB&T would just ask for $500 and drop the rate!)

We only talked about it briefly but loan modifications are for when you want to change one or more terms on the loan and can only lower your interest rate if you have an adjustable rate mortgage. There are cases where loan interest rates can be modified as well but those are usually for when you can’t make payments, they won’t just drop it just because you ask nicely (too bad). In my situation of having a fixed rate mortgage, a loan modification wouldn’t help me. The only thing I could do is pay a big chunk of principal and have the loan re-amortized.

So option one of a loan modification is out but the rate I was quoted from BB&T for a refi is 4.875% APR on either a 30- or 20-year fixed with closing costs of around $3,100 to $3,200.

The game continues!


 The Home 
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Researching A Refinance

Refinance now, secure your future!When the Fed dropped its target federal funds rate to 0.00% – 0.25%, one of the other things it said was that it would be buying up long term debt. This, coupled with other moves, has pushed mortgages rates down to the lowest I’ve ever seen in my entire life. Wells Fargo has 4.875% APR listed as its 30 year fixed rate (as of Dec 22, 2008). When I heard about an earlier Treasury plan to take action that would lower interest rates on mortgages to 4.5%, thoughts of sugar plum refinancing fairies danced in my head, but I was reminded of how that was only for new mortgages. The Fed has opened the door for refinances too.

The rule of thumb in refinancing has always been that you don’t want to try it unless the rates differ by a percent or more, it looks like we’ve hit that sweet spot to at least warrant investigation.

Our Mortgage Situation

My current mortgage is $217,488 at 5.875% APR with BB&T and we’re about three years in with minimum payments of $1714.85 a month. Our appraisal was for $299,999 so our current loan to value is 72.5% and we have flexibility to get that value lower. Our home, very fortunately, has not lost value compared to homes sold around us. In fact, in the same strip of townhouses, two homes sold for more than our appraisal price (by about 5-7%) so I conservatively think our house has kept its value despite home prices falling nationally.

Our Strategy

My approach to this will be to check what the actual prevailing rates are by putting in a request with LendingTree, then calling up BB&T to see what my options are with a loan modification, then calling up a few mortgage lenders I know to see what their best deals are. My preference is for a loan modification because those are the cheapest, my number two is working with local lenders because I’ve done so in the past and they’ve been awesome, and the third option is with a “stranger” lender via LendingTree. LendingTree is there mostly to give me a baseline idea of what I should be able to get but you never know what can happen.

I’ll be working on this most of the day and as I make these calls, I’ll write posts throughout the day with updates (and post them to Twitter). If you have any words of wisdom, please let me know either here in the comments, email, or on Twitter. Already, jeffrosecpa told me that some of his clients were getting 4.5% 30-year fixed mortgages with 60% LTV… that’s not bad!

(Photo: thetruthabout


 Frugal Living 
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Please Don’t Give High Upkeep Gifts

Red Bow on Mercedes BenzI don’t know when car companies started running commercials where people, usually spouses, bought each other cars as gifts, but it always struck me as a little ridiculous. A car purchase isn’t something that should be entered into lightly and, if I were to give one to my wife, she probably wouldn’t like it if I ran off and bought her a car without talking it over with her first. It could be a gift but, let’s be honest, it would never be a surprise in our household (and in most households, I’d imagine).

One of the reasons why it wouldn’t be a surprise is because cars are both expensive to buy and expensive to maintain. Most gifts cost little to maintain relative to how much they cost to buy, but cars are in the category where the upkeep costs are significant. They aren’t alone, it’s very easy to get a gift for someone that will end up costing them quite a bit just to enjoy it!

In our troubling economic times and with people looking to tighten up their belts, it might be a good time to think about the gifts you’re giving and making sure they don’t entice your friends or relatives into a bad financial situation.

Here are some other gifts that are high upkeep:

  • Apple iPods – The iPod itself is expensive but if you want to put music on it you need much more.
  • Cars – This is the most obvious one and gifters know this (and it’s usually not a big deal because the gifter and giftee are often related somehow).
  • Pets – These little guys are expensive, as I learned when I calculated the total cost of owning a dog, and this is another common mistake people make. The gifter gives a furry little guy as a gift but then the recipient ends up not being able to support him and he has to return them to the pound. :(
  • Cell Phones – Gifting a cell phone is normally not going to be a big cost to maintain unless the cell phone starts offering features that require higher service plans to take advantage of. A prime example is an Internet enabled phone where the recipient has to get a monthly data plan to take advantage.
  • Video Game Systems – It’s definitely cool to get a Wii, XBox 360, Playstation 3, or PSP but games are pricey. As a gifter, you could always get them a year’s subscription to Gamefly or some other game subscription service.

Just a thought as we enter the home stretch of the gifting holidays! (and, if you want to get a gift that shows real spirit and is usually quite economical for both gifter and giftee, consider one of these homemade gift ideas from Nickel).

(Photo: sheeshoo)


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