By John F. Wasik (from my Reuters column)
I can hear the quaver in the voice of my neighbors as they send their children off to college this week. Not only do I sense the emotion of having a child leave home, but the anxiety of what it’s going to cost.
The financial part, at least, doesn’t have to cause insomnia. There are a number of routes to find money for college that few explore. Yet you have to plan ahead to find these sources of cash.
Few comprehend that the rate in increase in college costs has outpaced consumer inflation by a factor of two — from 5 percent to 8 percent. That’s why some 73% of families surveyed by student lender Sallie Mae reported that they were either reducing spending or working more to pay college bills.
With most big states experiencing fiscal crises, state schools, which used to be relative bargains, have been increasingly exposed to college inflation. They’ve had to jack up their tuition bills to cover their expenses.
It’s unlikely that state schools will resolve their fiscal shortfalls any time soon as the housing crisis has devastated state tax revenues.
How about private colleges? They are already charging top dollar — an average $26,273 for tuition alone for the 2009-10 school year, according to The College Board. Combined with room and board and other fees, private colleges are easily billing between $30,000 and $50,000 a year.
But there are a number of ways to cut bills. Here are some of the least known:
* Ask for a Tuition Discount. Most colleges don’t call it this and certainly don’t advertise the fact that they offer reductions from their “sticker” price. Once you’ve completed financial aid forms, ask for additional money off. Always cite special circumstances — loss of parental income, unreimbursed medical care. Put everything on the table and ask for work-study programs and grants (which don’t have to be paid back).
* Go to Community College First. This has become an increasingly popular option. Most colleges have the same core requirements that can be taken at community colleges for a fraction of the cost. Students can also stay at home so you don’t have to pay room and board. About one-third of all college students go the community college route, which charge an average $2,544 annually.
* Grandparents. They can help by either directly paying tuition bills or contributing to a 529 college savings account. While they don’t get a tax deduction for their contribution, the money grows tax deferred in the 529 until it’s withdrawn.
* Hidden Grants and Loans. Do you belong to an ethnic group or service organization? There are thousands of groups that offer scholarships and grants. A great source is the database at www.finaid.com. There’s more than $3 billion available, so do your homework once you get accepted.
* Network. Who in your network can help you? Employers may offer assistance. Affinity groups may have grants. Contact the college to see if departments offer special programs for students in specific majors. Peer-to-peer lending is emerging as an alternative. These networks offer access to direct lending. See www.lendingclub.com, www.prosper.com and www.Greennote.com.
None of these options present easy-money solutions to college financing.
You’ll have to get ahead of the game well before you send out entrance applications; research and negotiations take months to yield results. (Community college is always a viable fall back at the last minute, though).
Going into debt for a six-figure education will set young adults behind if they want to buy a car, home and live a sustainable, happy life. In order to get a decent education, you’ll need to first educate yourself on the myriad opportunities to avoid that debt trap.
John Wasik is the author of “The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream.”
Wednesday, August 25, 2010
Friday, August 13, 2010
Creating Green Jobs the Chinese Way
By John F. Wasik
from my Reuters.com commentary
American politicians campaigning now would do well to stop polarizing the climate change debate and start talking about jobs, economic development and beating China at its own game.
That would mean employing social capitalism to create a powerful national energy plan that ignites the private sector through public incentives. Although the Chinese are faced with horrible environmental conditions, at least they are doing something about it and may win an economic war in the process.
Aided by a currency peg to the dollar — many say an unfair manipulation that has hurt U.S. exports — the Chinese are currently winning the trade battle. Imports from China surged to $33 billion in July, a figure not seen since the dark days of 2008, ballooning the U.S. trade deficit with the People’s Republic.
To date, U.S. policymakers are losing the Earth Race and the only environmental target they can hit are their own feet. The Chinese recently pulled ahead in the contest, announcing through its State Information Center that it would spend $738 billion in renewable energy projects over the next decade.
INVESTMENT-STRATEGIES/
By any measure, that’s a great leap ahead of U.S. clean-tech efforts. The stimulus plan set aside about $36 billion for a host of U.S. Department of Energy-led projects in the wake of the 2008 financial meltdown. In contrast, China’s stimulus investment for reducing greenhouse gas emissions was $221 billion, according to a report by British Bank HSBC.
What’s at stake isn’t whether climate change will be tackled this year by the world’s largest economy. It’s a matter of millions of new jobs that will likely flow to China, Germany and any other country with a comprehensive policy. Even poor, tiny Portugal has a better energy plan — it gets more than one-fifth of its energy from renewable sources, whereas the U.S. only gets 4%.
The International Energy Agency estimates that there’s a $27 trillion market for clean-tech over the next 50 years. If the U.S. just captures 14% of this business, that creates 850,000 new jobs, reports the World Wildlife Fund. Clean energy is not only a proven job creator, it’s relatively recession proof, according to a Pew Charitable Trust study. It declined only 6.6% last year despite one of the worst economic climates since the 1930s.
A tremendous opportunity for America is being lost as Washington has stumbled at every turn this year when it had a chance to launch a world-class energy policy.
DAVOS/GREEN
Despite the passage of a U.S. House plan to address climate change and promote energy projects, the Senate was unable to bring any energy bill to the floor and recessed this summer without doing a thing. Not even the largest oil spill in history was a call to arms.
Misguided deficit hawks have been deriding clean-tech as an expendable line-item. Some $3.5 billion in renewable energy loan guarantees have been rescinded this year, according to the Solar Energy Industries Association, a trade group. And an untold number of clean-tech ventures have been put on hold. If the U.S. doesn’t get in this game soon in a big way, it will be playing catch-up for years.
So, to help our country along, here is what we must do:
• Increase and extend loan guarantees and tax breaks for all clean-tech companies over decades, not year to year. A national energy program shouldn’t be subject to the political climate of the moment.
• Create incentives for all consumers to buy clean power. There’s a reason why Germany is one of the largest manufacturers and consumers of solar power appliances. Utilities buy back home-generated power over time. The U.S. needs a renewable energy portfolio standard to do the same.
• Create financing that favors energy-efficient buildings. That means widespread programs for “green” mortgages that offer lower rates for environmentally friendly buildings. That would stimulate the overall housing market and green building.
• Enact a permanent national trust fund to build/repair infrastructure in an environmentally friendly way. By my rough estimate, we need at least $5 trillion to fix crumbling roads, bridges, water systems and other public amenities. (The estimate is based on what the American Society of Civil Engineers projected should be spent to fix up essential infrastructure in 2009 minus what was allocated by the stimulus plan.)
Washington has battled many enemies over the years and rallied Americans to the cause. When it comes to forging a long-term, job-producing U.S. energy policy, though, their worst nemeses are stateside. So having an external foe may rouse more productive emotion than simply citing numbers and bungled opportunities.
from my Reuters.com commentary
American politicians campaigning now would do well to stop polarizing the climate change debate and start talking about jobs, economic development and beating China at its own game.
That would mean employing social capitalism to create a powerful national energy plan that ignites the private sector through public incentives. Although the Chinese are faced with horrible environmental conditions, at least they are doing something about it and may win an economic war in the process.
Aided by a currency peg to the dollar — many say an unfair manipulation that has hurt U.S. exports — the Chinese are currently winning the trade battle. Imports from China surged to $33 billion in July, a figure not seen since the dark days of 2008, ballooning the U.S. trade deficit with the People’s Republic.
To date, U.S. policymakers are losing the Earth Race and the only environmental target they can hit are their own feet. The Chinese recently pulled ahead in the contest, announcing through its State Information Center that it would spend $738 billion in renewable energy projects over the next decade.
INVESTMENT-STRATEGIES/
By any measure, that’s a great leap ahead of U.S. clean-tech efforts. The stimulus plan set aside about $36 billion for a host of U.S. Department of Energy-led projects in the wake of the 2008 financial meltdown. In contrast, China’s stimulus investment for reducing greenhouse gas emissions was $221 billion, according to a report by British Bank HSBC.
What’s at stake isn’t whether climate change will be tackled this year by the world’s largest economy. It’s a matter of millions of new jobs that will likely flow to China, Germany and any other country with a comprehensive policy. Even poor, tiny Portugal has a better energy plan — it gets more than one-fifth of its energy from renewable sources, whereas the U.S. only gets 4%.
The International Energy Agency estimates that there’s a $27 trillion market for clean-tech over the next 50 years. If the U.S. just captures 14% of this business, that creates 850,000 new jobs, reports the World Wildlife Fund. Clean energy is not only a proven job creator, it’s relatively recession proof, according to a Pew Charitable Trust study. It declined only 6.6% last year despite one of the worst economic climates since the 1930s.
A tremendous opportunity for America is being lost as Washington has stumbled at every turn this year when it had a chance to launch a world-class energy policy.
DAVOS/GREEN
Despite the passage of a U.S. House plan to address climate change and promote energy projects, the Senate was unable to bring any energy bill to the floor and recessed this summer without doing a thing. Not even the largest oil spill in history was a call to arms.
Misguided deficit hawks have been deriding clean-tech as an expendable line-item. Some $3.5 billion in renewable energy loan guarantees have been rescinded this year, according to the Solar Energy Industries Association, a trade group. And an untold number of clean-tech ventures have been put on hold. If the U.S. doesn’t get in this game soon in a big way, it will be playing catch-up for years.
So, to help our country along, here is what we must do:
• Increase and extend loan guarantees and tax breaks for all clean-tech companies over decades, not year to year. A national energy program shouldn’t be subject to the political climate of the moment.
• Create incentives for all consumers to buy clean power. There’s a reason why Germany is one of the largest manufacturers and consumers of solar power appliances. Utilities buy back home-generated power over time. The U.S. needs a renewable energy portfolio standard to do the same.
• Create financing that favors energy-efficient buildings. That means widespread programs for “green” mortgages that offer lower rates for environmentally friendly buildings. That would stimulate the overall housing market and green building.
• Enact a permanent national trust fund to build/repair infrastructure in an environmentally friendly way. By my rough estimate, we need at least $5 trillion to fix crumbling roads, bridges, water systems and other public amenities. (The estimate is based on what the American Society of Civil Engineers projected should be spent to fix up essential infrastructure in 2009 minus what was allocated by the stimulus plan.)
Washington has battled many enemies over the years and rallied Americans to the cause. When it comes to forging a long-term, job-producing U.S. energy policy, though, their worst nemeses are stateside. So having an external foe may rouse more productive emotion than simply citing numbers and bungled opportunities.
Friday, July 16, 2010
The Hidden Details of Financial Reform
This is my first column for Reuters.
On its surface, the financial reform package looks tough on banks and Wall Street. Yet for individuals, the protections are much less pronounced and highly diluted.
Granted, the massive, 2,300-page-plus Dodd-Frank bill may slow down some bank failures. It may even impede avaricious trading desks from tanking the global financial system. For average investors, though, it’s a pyrrhic victory at best. Here are four major problems:
• Brokers May Not Be Reined In. The bill ordered the Securities and Exchange Commission to study requiring brokers to act in your best interest under “fiduciary” rules. The catch is, the SEC can complete its study in six months, but may not be required to impose the tougher, pro-investor standards. Industry lobbying will be fierce to get the agency to sit on, water down or squelch any decision, which is what the agency often does after any big study.
• Watch for More Credit Regulation. Mortgage brokers, student lenders and other consumer-credit firms will be subject to more oversight. There’s a new cop on the beat for consumers, although it will take months for the new Consumer Financial Protection Bureau — housed within the bank-friendly Federal Reserve — to get up and running. Look for financial services firms to pass on new fees to cover their regulatory burdens.
• It may be harder to get a mortgage. As if it wasn’t tough getting one today, Congress tightened the requirements for the “liar” loans of the bubble years, although no bank has been issuing those for some time. “No-doc” loans will not likely be making a comeback, replaced by stiffer requirements for income verification, appraisals and brokers.
• Insurers, auto dealers get a pass. Insurance agents were not even covered. Auto dealers got a “carve-out” or exemption from regulation. That means you’ll still have to be vigilant when signing up for vehicle financing — watch out for the fine print on “extras” and extended warranties.
Still, more regulation isn’t necessarily a bad thing. Credit abuses were rampant and the industry sorely needed more oversight.
How would you gauge success in the new regulatory environment? I’d love to see most credit and mortgage contracts translated into language most folks can understand. It would be a major victory if more borrowers simply understood what they are buying and could avoid trouble.
Yet some of the most pernicious issues in investor protection and megabank finance were not addressed by financial reform. The shadowy $615 trillion derivatives market wasn’t completely regulated. The banks that were too big to fail in 2008 have actually gotten bigger and the mechanism to monitor or dismember them is clunky.
For individual investors, there is no tough supervision of brokers and insurance agents selling income investments like equity-indexed insurance products, which are often oversold to older, more vulnerable investors. Insurers will still be largely policed by weak state insurance regulators.
Aggrieved securities investors are still forced to deal with the industry’s self-regulatory agency FINRA. Those who sign a brokerage agreement give up their right to sue and are mostly funneled through the industry’s captive arbitration system — yet another subject for an SEC “study.” The SEC wasn’t even allowed to finance itself and is still hostage to the Congressional appropriations process. That means it’s still on a short leash.
Another bete noire continues to be on the loose: The twin-headed monster Fannie Mae and Freddie Mac, the quasi-public mortgage entities that were seized by the government during the height of the 2008 meltdown. Estimates on fixing the two entities run up to $1 trillion. Congress did nothing in this legislation to tame this beast, which resides in a financial abyss.
Since most banks are reluctant to issue mortgages while the housing/labor market and economy are still slumping, the majority of the home-loan market was effectively nationalized two years ago. Eventually the White House must decide what to do with Fannie and Freddie since they account for about two-thirds of all new mortgages. Don’t bet on anything happening before Election Day, if it happens at all this year.
In the interim, read all of your major credit, insurance and brokerage contracts with an electron microscope to divine new hidden fees and traps. Better yet, hire a fee-only certified financial planner to read them. The only sure thing is that you’ll be seeing a lot more letters coming from your bank, broker or insurer citing higher expenses that are often veiled in “better ways of protecting yourself.” It won’t all be junk mail, so open the envelopes and protect yourself now.
On its surface, the financial reform package looks tough on banks and Wall Street. Yet for individuals, the protections are much less pronounced and highly diluted.
Granted, the massive, 2,300-page-plus Dodd-Frank bill may slow down some bank failures. It may even impede avaricious trading desks from tanking the global financial system. For average investors, though, it’s a pyrrhic victory at best. Here are four major problems:
• Brokers May Not Be Reined In. The bill ordered the Securities and Exchange Commission to study requiring brokers to act in your best interest under “fiduciary” rules. The catch is, the SEC can complete its study in six months, but may not be required to impose the tougher, pro-investor standards. Industry lobbying will be fierce to get the agency to sit on, water down or squelch any decision, which is what the agency often does after any big study.
• Watch for More Credit Regulation. Mortgage brokers, student lenders and other consumer-credit firms will be subject to more oversight. There’s a new cop on the beat for consumers, although it will take months for the new Consumer Financial Protection Bureau — housed within the bank-friendly Federal Reserve — to get up and running. Look for financial services firms to pass on new fees to cover their regulatory burdens.
• It may be harder to get a mortgage. As if it wasn’t tough getting one today, Congress tightened the requirements for the “liar” loans of the bubble years, although no bank has been issuing those for some time. “No-doc” loans will not likely be making a comeback, replaced by stiffer requirements for income verification, appraisals and brokers.
• Insurers, auto dealers get a pass. Insurance agents were not even covered. Auto dealers got a “carve-out” or exemption from regulation. That means you’ll still have to be vigilant when signing up for vehicle financing — watch out for the fine print on “extras” and extended warranties.
Still, more regulation isn’t necessarily a bad thing. Credit abuses were rampant and the industry sorely needed more oversight.
How would you gauge success in the new regulatory environment? I’d love to see most credit and mortgage contracts translated into language most folks can understand. It would be a major victory if more borrowers simply understood what they are buying and could avoid trouble.
Yet some of the most pernicious issues in investor protection and megabank finance were not addressed by financial reform. The shadowy $615 trillion derivatives market wasn’t completely regulated. The banks that were too big to fail in 2008 have actually gotten bigger and the mechanism to monitor or dismember them is clunky.
For individual investors, there is no tough supervision of brokers and insurance agents selling income investments like equity-indexed insurance products, which are often oversold to older, more vulnerable investors. Insurers will still be largely policed by weak state insurance regulators.
Aggrieved securities investors are still forced to deal with the industry’s self-regulatory agency FINRA. Those who sign a brokerage agreement give up their right to sue and are mostly funneled through the industry’s captive arbitration system — yet another subject for an SEC “study.” The SEC wasn’t even allowed to finance itself and is still hostage to the Congressional appropriations process. That means it’s still on a short leash.
Another bete noire continues to be on the loose: The twin-headed monster Fannie Mae and Freddie Mac, the quasi-public mortgage entities that were seized by the government during the height of the 2008 meltdown. Estimates on fixing the two entities run up to $1 trillion. Congress did nothing in this legislation to tame this beast, which resides in a financial abyss.
Since most banks are reluctant to issue mortgages while the housing/labor market and economy are still slumping, the majority of the home-loan market was effectively nationalized two years ago. Eventually the White House must decide what to do with Fannie and Freddie since they account for about two-thirds of all new mortgages. Don’t bet on anything happening before Election Day, if it happens at all this year.
In the interim, read all of your major credit, insurance and brokerage contracts with an electron microscope to divine new hidden fees and traps. Better yet, hire a fee-only certified financial planner to read them. The only sure thing is that you’ll be seeing a lot more letters coming from your bank, broker or insurer citing higher expenses that are often veiled in “better ways of protecting yourself.” It won’t all be junk mail, so open the envelopes and protect yourself now.
Monday, June 28, 2010
How to Avoid Getting Ripped Off
This is my most recent minyanville.com column
Ten Ugly Fees and Service Contract Traps
By John Wasik
The fine print is getting worse.
Whether you have a cable, phone, or credit-card contract, you're going to get overcharged unless you're vigilant.
I wish I could say that you're being nickel-and-dimed to death on these abuses, but we're talking hundreds or thousands of dollars of unnecessary fees.
Bob Sullivan, author of Stop Getting Ripped Off (Ballantine, 2009), which chronicles how companies use hidden contract language, calls pricing schemes "the death of the price tag" -- where companies play games to get you to ultimately pay more than you originally were told.
Here are some common snares that catch millions:
1. Cell Phone Pricing Plans. Are you able to intelligently compare one company to another? Probably not. They're designed to confuse you. "There are a million permutations for cell phone pricing," Sullivan notes.
It's hard to tell which is best unless you keep track of how much you use your phone. Often times, the best plan is prepaid. A related ruse is to only offer the best smartphones with two-year contracts. Only the cheaper phones allow you to save money.
2. Credit Card Fees. Banks will do anything to layer on fees. If you don't pay on time, go over your limit, or use cash advances, you'll pay dearly. The best use of a credit card is to pay within the grace period. If you have trouble keeping track of the due date, use auto-billing that's linked to your checking account.
Also look for cards that pay you back. Because I never carry a balance from month to month, my cards reward me with college savings and airline miles.
3. Auto Dealer Financing. This is the last step of buying a car. You're ushered into the finance office and offered "great" deals on a loan or are pressured to buy a warranty or other extras that are pure profit for the dealer.
Get pre-approved for financing before you walk into the dealer. Some of the best deals are from credit unions. And be ready to walk if you're mistreated. By the way, the new financial reform law offers no protection in this area.
4. Cell Phone Upgrade Fees. You're excited when your phone company allows you to upgrade because you can get a unit with more features, but ask if they'll hit you with an upgrade fee, which can range from $18 to $36. You can always refuse to pay it or jump to another company that doesn't charge.
5. Excess Minutes Charges. If you exceed the number of minutes allotted in your cell phone plan, you'll be charged at a rate 600% to 800% higher than the contracted rate. Make sure you give yourself some fudge room when you select your plan. Some half of cell phone users say they don't use all of their minutes every month, so choose your plan carefully.
6. Insurance Isn't an Investment. Agents love to sell policies and variable annuities that are indexed to the stock market or carry guarantees. These plans are among the most expensive available and pay agents fat commissions. If you want a pure investment
, select an index mutual fund or exchange-traded fund. If you want pure insurance, select level-premium, no-load term-life or immediate annuity.
7. 401(k) Fees. These are among the most-hidden expenses. You'll have to ask your employer to find out how much fund managers and middlemen are getting paid. It's important because the "annual expense ratio" is deducted from your retirement account. Stock-index funds shouldn't cost more than 0.50% annually; bond funds shouldn't charge more than 0.25%.
8. Low Credit Score Costs You. If you have a low credit score, you'll be charged higher loan rates. Always check your score before you apply for credit. You have a right to see your report and make any corrections. You can also raise your score by not spending more than half of your credit limit on credit cards.
9. Cable TV Charges. Cable companies want to sell you everything -- phone, TV, Internet, and movies. They will offer you all kinds of incentives to get you into the largest bundle possible, but you should set a budget for how much you're willing to pay before you sign a contract. Also keep in mind that movies are free at your local library.
10. Negotiate! I've lost track of the number of times my credit card company has tried to slap on a late fee or finance charge when they knew full well my payment came in on time. I just call them and tell them to remove the charge or I'll move my business elsewhere. It works nearly every time.
John F. Wasik is author of "The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream".
Ten Ugly Fees and Service Contract Traps
By John Wasik
The fine print is getting worse.
Whether you have a cable, phone, or credit-card contract, you're going to get overcharged unless you're vigilant.
I wish I could say that you're being nickel-and-dimed to death on these abuses, but we're talking hundreds or thousands of dollars of unnecessary fees.
Bob Sullivan, author of Stop Getting Ripped Off (Ballantine, 2009), which chronicles how companies use hidden contract language, calls pricing schemes "the death of the price tag" -- where companies play games to get you to ultimately pay more than you originally were told.
Here are some common snares that catch millions:
1. Cell Phone Pricing Plans. Are you able to intelligently compare one company to another? Probably not. They're designed to confuse you. "There are a million permutations for cell phone pricing," Sullivan notes.
It's hard to tell which is best unless you keep track of how much you use your phone. Often times, the best plan is prepaid. A related ruse is to only offer the best smartphones with two-year contracts. Only the cheaper phones allow you to save money.
2. Credit Card Fees. Banks will do anything to layer on fees. If you don't pay on time, go over your limit, or use cash advances, you'll pay dearly. The best use of a credit card is to pay within the grace period. If you have trouble keeping track of the due date, use auto-billing that's linked to your checking account.
Also look for cards that pay you back. Because I never carry a balance from month to month, my cards reward me with college savings and airline miles.
3. Auto Dealer Financing. This is the last step of buying a car. You're ushered into the finance office and offered "great" deals on a loan or are pressured to buy a warranty or other extras that are pure profit for the dealer.
Get pre-approved for financing before you walk into the dealer. Some of the best deals are from credit unions. And be ready to walk if you're mistreated. By the way, the new financial reform law offers no protection in this area.
4. Cell Phone Upgrade Fees. You're excited when your phone company allows you to upgrade because you can get a unit with more features, but ask if they'll hit you with an upgrade fee, which can range from $18 to $36. You can always refuse to pay it or jump to another company that doesn't charge.
5. Excess Minutes Charges. If you exceed the number of minutes allotted in your cell phone plan, you'll be charged at a rate 600% to 800% higher than the contracted rate. Make sure you give yourself some fudge room when you select your plan. Some half of cell phone users say they don't use all of their minutes every month, so choose your plan carefully.
6. Insurance Isn't an Investment. Agents love to sell policies and variable annuities that are indexed to the stock market or carry guarantees. These plans are among the most expensive available and pay agents fat commissions. If you want a pure investment
, select an index mutual fund or exchange-traded fund. If you want pure insurance, select level-premium, no-load term-life or immediate annuity.
7. 401(k) Fees. These are among the most-hidden expenses. You'll have to ask your employer to find out how much fund managers and middlemen are getting paid. It's important because the "annual expense ratio" is deducted from your retirement account. Stock-index funds shouldn't cost more than 0.50% annually; bond funds shouldn't charge more than 0.25%.
8. Low Credit Score Costs You. If you have a low credit score, you'll be charged higher loan rates. Always check your score before you apply for credit. You have a right to see your report and make any corrections. You can also raise your score by not spending more than half of your credit limit on credit cards.
9. Cable TV Charges. Cable companies want to sell you everything -- phone, TV, Internet, and movies. They will offer you all kinds of incentives to get you into the largest bundle possible, but you should set a budget for how much you're willing to pay before you sign a contract. Also keep in mind that movies are free at your local library.
10. Negotiate! I've lost track of the number of times my credit card company has tried to slap on a late fee or finance charge when they knew full well my payment came in on time. I just call them and tell them to remove the charge or I'll move my business elsewhere. It works nearly every time.
John F. Wasik is author of "The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream".
Tuesday, June 22, 2010
Time to Reduce Your Debt
Here's my latest minyanville.com column:
Savings Rates Dismal, But Good Time to Borrow Money
By John Wasik
Right now, your motivation should be to repair your household balance sheet by saving. But you may have to borrow to get back on track.
I was shopping around for a decent rate for my daughter's savings account last week. Slim pickings.
I'd have a better chance of getting a deal on a car than finding a decent savings yield. You're lucky to find something yielding 1% now.
When you subtract taxes and inflation, your real return is negative on most saving vehicles these days. Here's a sampling of last week's average savings yields, courtesy of www.bankrate.com:
* Money-Market Account: 0.78%
* Checking Account with Interest: 0.56%
* One-Year CD: 1.37%
You're almost a chump for even trying to save money, although saving is what we need to do after the worst financial crisis since the Great Depression.
It's palpable anger time. Why should we give the banks our hard-earned money -- after a massive $12 trillion bailout -- when they reward us with such awful savings rates? After all, the banks are paying almost nothing for the money they borrow from the Federal Reserve. They get to use our cash to lend it out at a tidy profit while we scrounge to make 1% on our savings.
This sounds counterintuitive, but your motivation now should be to repair your household balance sheet -- just as the banks are doing. You may have to borrow to get back on track.
While savings yields may be dismal, it's an incredibly good time to borrow money. I refinanced late last year into a 30-year fixed-rate loan at 4.9%. I think that was a lower rate than my parents paid in 1955 when they bought their first home. Mortgage rates are even lower now.
Even if you're shopping for a new or second home, mortgage rates are still appealing: 4.8% for a 30-year fixed and 4.18% for a 15-year loan. Even a home-equity loan could be considered for debt consolidation.
Need a new car? Not only are dealers offering myriad incentives, the average rate for a three-year auto loan is about 6.6%.
I'm not suggesting that you go into debt for the sake of buying something you think you need. I still advocate saving money every month rather than going into debt for a car you don't need or a home you can't afford.
My own rule is that you're not getting ahead unless you're saving. A new car and home don't matter if you don't have a cushion for the future.
Think like the banks. They’re fixing their balance sheets courtesy of, well, us. Taxpayers and regulators ensured their survival so that the global financial system would survive.
While I certainly don't believe everything is "fixed" -- the housing market is still a train wreck in many places -- savings should be part of your repair strategy. The guidelines are simple:
1. You should be saving at least 10% of your salary for retirement. Even more is better because medical expenses will be higher in the future.
2. You need at least six months' salary set aside in savings for emergencies and unemployment. Jobs are slowly trickling back yet some industries will still be shrinking.
3. Save for college and any other big-ticket items (cars, second homes, boats, etc.)
4. Any money you gain from refinancing or reducing credit-card bills should be plowed into a rainy-day fund.
5. Check and clean up your credit record. Don't spend up to the limit on your credit-card accounts. That will lower your credit score. Correct any errors in your file. Pre-qualify for any new loan you're considering before you sign the purchase contract (with a homebuyer or auto dealer).
Those who save are buying themselves rather precious: A bit of financial security. It won't stop markets from collapsing, politicians from overspending, or reduce the national debt. Yet it will ensure that you won't be a chump when the next crisis comes around.
John F. Wasik is author of The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream.
Savings Rates Dismal, But Good Time to Borrow Money
By John Wasik
Right now, your motivation should be to repair your household balance sheet by saving. But you may have to borrow to get back on track.
I was shopping around for a decent rate for my daughter's savings account last week. Slim pickings.
I'd have a better chance of getting a deal on a car than finding a decent savings yield. You're lucky to find something yielding 1% now.
When you subtract taxes and inflation, your real return is negative on most saving vehicles these days. Here's a sampling of last week's average savings yields, courtesy of www.bankrate.com:
* Money-Market Account: 0.78%
* Checking Account with Interest: 0.56%
* One-Year CD: 1.37%
You're almost a chump for even trying to save money, although saving is what we need to do after the worst financial crisis since the Great Depression.
It's palpable anger time. Why should we give the banks our hard-earned money -- after a massive $12 trillion bailout -- when they reward us with such awful savings rates? After all, the banks are paying almost nothing for the money they borrow from the Federal Reserve. They get to use our cash to lend it out at a tidy profit while we scrounge to make 1% on our savings.
This sounds counterintuitive, but your motivation now should be to repair your household balance sheet -- just as the banks are doing. You may have to borrow to get back on track.
While savings yields may be dismal, it's an incredibly good time to borrow money. I refinanced late last year into a 30-year fixed-rate loan at 4.9%. I think that was a lower rate than my parents paid in 1955 when they bought their first home. Mortgage rates are even lower now.
Even if you're shopping for a new or second home, mortgage rates are still appealing: 4.8% for a 30-year fixed and 4.18% for a 15-year loan. Even a home-equity loan could be considered for debt consolidation.
Need a new car? Not only are dealers offering myriad incentives, the average rate for a three-year auto loan is about 6.6%.
I'm not suggesting that you go into debt for the sake of buying something you think you need. I still advocate saving money every month rather than going into debt for a car you don't need or a home you can't afford.
My own rule is that you're not getting ahead unless you're saving. A new car and home don't matter if you don't have a cushion for the future.
Think like the banks. They’re fixing their balance sheets courtesy of, well, us. Taxpayers and regulators ensured their survival so that the global financial system would survive.
While I certainly don't believe everything is "fixed" -- the housing market is still a train wreck in many places -- savings should be part of your repair strategy. The guidelines are simple:
1. You should be saving at least 10% of your salary for retirement. Even more is better because medical expenses will be higher in the future.
2. You need at least six months' salary set aside in savings for emergencies and unemployment. Jobs are slowly trickling back yet some industries will still be shrinking.
3. Save for college and any other big-ticket items (cars, second homes, boats, etc.)
4. Any money you gain from refinancing or reducing credit-card bills should be plowed into a rainy-day fund.
5. Check and clean up your credit record. Don't spend up to the limit on your credit-card accounts. That will lower your credit score. Correct any errors in your file. Pre-qualify for any new loan you're considering before you sign the purchase contract (with a homebuyer or auto dealer).
Those who save are buying themselves rather precious: A bit of financial security. It won't stop markets from collapsing, politicians from overspending, or reduce the national debt. Yet it will ensure that you won't be a chump when the next crisis comes around.
John F. Wasik is author of The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream.
Thursday, June 10, 2010
Getting Back on Track & Saving Money
This is my minyanville.com column from June 7.
Aren't you tired of seeing surveys where Americans say they aren't keeping up with their financial obligations?
How about this one from TD Ameritrade: Some 57% of those surveyed said they were behind in their retirement savings.
Although TD Ameritrade's survey has suggestions for investors, many of these press releases fail to mention that there are a number of things you can do to improve your financial condition that aren't terribly complicated.
The majority of these polls are designed for folks like myself, who are often more attracted to bad news than positive developments. It's like a moth circling a streetlight. It works nearly every time, even though it's common knowledge that most Americans are hurting financially.
Midyear is a good time to take some action. Here's where you can start:
Avoid the Sucker Credit Bait.
The first and most important thing is to stop falling for the sucker bait that banks are giving us on credit.
The best credit isn't necessarily based on the lowest-rate card or the best introductory offer. If you have a no-fee card that you pay back within the grace period, the credit is pretty much free. Even better is a card with a fee that pays you back.
If you can live within your means and aim for a monthly payment that you can cover in full every month, that's the absolute best use of credit. Of course, that means spending less and avoiding discretionary purchases you can do without. Each month take a look at your bill and do a quick audit. What was on your statement that you didn't need?
Monitor Your Deductibles, Adjust Your Insurance.
With insurance, it's the biggest risks you want to cover -- home damage, autos totaled, catastrophic health costs -- not the little stuff. That means living with deductibles you can afford.
My rule of thumb is having money in the bank to cover deductibles on all of my policies. In general, the higher the out-of-pocket cost you assume, the lower the premium.
My family carries a $1,000 deductible on auto and home policies. I've placed coverage with one insurer to save even more. Our second car is 15 years old, so years ago I dropped collision and comprehensive coverage, leaving only liability, which is essential.
On our major medical policy, we carry a high deductible ($5,950 this year) to keep premiums down. Because I'm self employed, I put money in a savings account to cover the out-of-pocket costs.
The other option is to put that money into a health-savings account, which is funded with tax-deductible contributions. If you don't use the money in the account for health bills, it can compound tax deferred. It's yours to keep.
With this high-deductible approach, you can cover your largest costs and save thousands. Yet this approach only works if you have sufficient savings to cover your out-of-pocket costs. On the car and home insurance, if you can live with not fixing minor storm damage or fender dents, you can save even more.
Health insurance bills, on the other hand, need to be paid. The drawback here is that by yourself you have little or no negotiating power. Find a high-deductible insurer who will "reprice" health bills that you have to pay.
That means if the health provider is within an insurer's network, they will apply a discount to your statement before you pay (for amounts under your deductible).
Also keep in mind that in addition to major medical, you'll need disability insurance and life insurance if you have dependents. You have a far greater likelihood of becoming disabled than dying during your working years. This is essential if you're self employed.
The sweetest deals I've found on disability and life are through group pricing. In many cases, I found the best prices from my college alumni association. Trade and professional groups also offer low-cost policies.
It's All About Saving.
I know how tough it is to save when you don't have money coming in the door or your monthly bills exceed your income.
Obscured in all of the dour economic news is a time-tested reality: You can always adjust your spending to your income and start saving money. Do you need cable TV? Can you cook more meals at home? Can you automatically invest more in your 401(k)?
The beauty of auditing and paring down expenses is that this process creates savings. That's money you can put into an emergency money-market fund, which will help you keep up when bad times come around and fund your own recovery plan when things perk up.
John F. Wasik is author of The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream.
Aren't you tired of seeing surveys where Americans say they aren't keeping up with their financial obligations?
How about this one from TD Ameritrade: Some 57% of those surveyed said they were behind in their retirement savings.
Although TD Ameritrade's survey has suggestions for investors, many of these press releases fail to mention that there are a number of things you can do to improve your financial condition that aren't terribly complicated.
The majority of these polls are designed for folks like myself, who are often more attracted to bad news than positive developments. It's like a moth circling a streetlight. It works nearly every time, even though it's common knowledge that most Americans are hurting financially.
Midyear is a good time to take some action. Here's where you can start:
Avoid the Sucker Credit Bait.
The first and most important thing is to stop falling for the sucker bait that banks are giving us on credit.
The best credit isn't necessarily based on the lowest-rate card or the best introductory offer. If you have a no-fee card that you pay back within the grace period, the credit is pretty much free. Even better is a card with a fee that pays you back.
If you can live within your means and aim for a monthly payment that you can cover in full every month, that's the absolute best use of credit. Of course, that means spending less and avoiding discretionary purchases you can do without. Each month take a look at your bill and do a quick audit. What was on your statement that you didn't need?
Monitor Your Deductibles, Adjust Your Insurance.
With insurance, it's the biggest risks you want to cover -- home damage, autos totaled, catastrophic health costs -- not the little stuff. That means living with deductibles you can afford.
My rule of thumb is having money in the bank to cover deductibles on all of my policies. In general, the higher the out-of-pocket cost you assume, the lower the premium.
My family carries a $1,000 deductible on auto and home policies. I've placed coverage with one insurer to save even more. Our second car is 15 years old, so years ago I dropped collision and comprehensive coverage, leaving only liability, which is essential.
On our major medical policy, we carry a high deductible ($5,950 this year) to keep premiums down. Because I'm self employed, I put money in a savings account to cover the out-of-pocket costs.
The other option is to put that money into a health-savings account, which is funded with tax-deductible contributions. If you don't use the money in the account for health bills, it can compound tax deferred. It's yours to keep.
With this high-deductible approach, you can cover your largest costs and save thousands. Yet this approach only works if you have sufficient savings to cover your out-of-pocket costs. On the car and home insurance, if you can live with not fixing minor storm damage or fender dents, you can save even more.
Health insurance bills, on the other hand, need to be paid. The drawback here is that by yourself you have little or no negotiating power. Find a high-deductible insurer who will "reprice" health bills that you have to pay.
That means if the health provider is within an insurer's network, they will apply a discount to your statement before you pay (for amounts under your deductible).
Also keep in mind that in addition to major medical, you'll need disability insurance and life insurance if you have dependents. You have a far greater likelihood of becoming disabled than dying during your working years. This is essential if you're self employed.
The sweetest deals I've found on disability and life are through group pricing. In many cases, I found the best prices from my college alumni association. Trade and professional groups also offer low-cost policies.
It's All About Saving.
I know how tough it is to save when you don't have money coming in the door or your monthly bills exceed your income.
Obscured in all of the dour economic news is a time-tested reality: You can always adjust your spending to your income and start saving money. Do you need cable TV? Can you cook more meals at home? Can you automatically invest more in your 401(k)?
The beauty of auditing and paring down expenses is that this process creates savings. That's money you can put into an emergency money-market fund, which will help you keep up when bad times come around and fund your own recovery plan when things perk up.
John F. Wasik is author of The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream.
Thursday, June 3, 2010
Want to Dump Your Big Bank Account?
Here's Where to Put Your Checking and Savings Account Funds
An "important notice" came in the mail from my bank the other day.
They wanted to tell me that I needed to sign up for overdraft coverage -- something I already had. But there were some nasty twists.
If I didn't sign up for it and I went over my checking account balance on my debit card, they'd ding me $35 for each transaction.
Under my present set-up, I had a $1,000 line of credit that would cover any potential overdrafts. If I went over, I'd essentially be borrowing from the line, then paying it off plus interest within a week or so. For the handful of days I took to pay it off it didn't amount to more than a few dollars.
Here's where it gets nasty. My bank tells me that they may "approve everyday debit card transactions for you at our discretion," and charge $34 for each overdraft and returned check under their new plan.
Maybe you've received a similar letter from your bank. It's called "cost shifting." As banks have cut back on lending and tried to clean up their balance sheets, they've been hitting retail customers with new fees.
What about that federal credit card protection act that went into full effect recently?
While banks have to give you plenty of notice of new fees (on credit cards), there's no limit on what they can charge you. They're not restricted as to rate or number of fees.
Debit cards, which used to be these direct conduits to your low-cost checking account, have become productive little profit centers for banks. Some 89% of New York banks surveyed by the New York Public Interest Research Group, charged point-of-sale fees on debit cards. The charges ranged from $0.10 to $1.50 per transaction.
Why would banks charge fees on something that was previously devoid of fees? Because there's nothing in current federal law that prevents them from doing so.
Banks realize that millions of customers have shifted to debit card use and they want to profit from those transactions the same way they nick you for using out-of-network ATMs for withdrawing your own cash!
While hardly surprising, debit card fees are onerous and the last straw as big banks seek to recoup their losses from meltdown.
In the case of my bank -- JPMorgan Chase (JPM) -- it's not as if the bank desperately need to impose these fees. Although I haven't noticed any transaction fees on my debit card statements, the line of credit on my account is certainly not free and I didn't originally ask for it.
To its credit, Chase was actually fairly well managed during the 2008 debacle and returned the $25 billion in Troubled Asset Relief Program funds with interest in the middle of last year. Chase CEO Jamie Dimon said the bank "didn't need" the government's bailout funds.
I'm not singling out Chase, per se. All big banks have constricted their lending and are trying to maximize their revenue now at the expense of consumers.
Still, I know I can get a better deal, and I'm going to search for one.
There are lots of options to banks. One place to look -- and one I haven't explored recently -- is a credit union. These entities aren't banks, didn't buckle during the 2008 crisis, and are owned cooperatively by their customers. Their fees and loan rates also tend to be lower than large banks. (You can find a local credit union by going to www.ncua.org.)
After a neighbor suggested I check out a local credit union, I found some surprising offers: Free online banking, competitive rates on loans, and rebates on out-of-network ATM charges. They even pay up to 3.59% on checking (my current bank pays nothing).
Picking a financial institution that meets your needs can be best accomplished by going through a brief checklist:
Lending. You can shop anywhere on the Internet for a loan or try local credit unions for the best rates.
Checking. If you automate most of your bill paying, you can find free banking services. If you keep a large balance in your account, find interest-bearing programs with no fees.
Savings. Most banks are paying awful annual rates. I'd shop around aggressively. Go to www.bankrate.com. Don't get into long-term certificates of deposit right now. When rates rise -- and they will -- you'll be stuck in a poorly paying vehicle.
The days of doing all your business with one bank in town are over. If you put your bank on notice that you're taking your business elsewhere, that's the best kind of banking reform.
This was my 6/2 Minyanville.com column
John F. Wasik is author of The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream.
An "important notice" came in the mail from my bank the other day.
They wanted to tell me that I needed to sign up for overdraft coverage -- something I already had. But there were some nasty twists.
If I didn't sign up for it and I went over my checking account balance on my debit card, they'd ding me $35 for each transaction.
Under my present set-up, I had a $1,000 line of credit that would cover any potential overdrafts. If I went over, I'd essentially be borrowing from the line, then paying it off plus interest within a week or so. For the handful of days I took to pay it off it didn't amount to more than a few dollars.
Here's where it gets nasty. My bank tells me that they may "approve everyday debit card transactions for you at our discretion," and charge $34 for each overdraft and returned check under their new plan.
Maybe you've received a similar letter from your bank. It's called "cost shifting." As banks have cut back on lending and tried to clean up their balance sheets, they've been hitting retail customers with new fees.
What about that federal credit card protection act that went into full effect recently?
While banks have to give you plenty of notice of new fees (on credit cards), there's no limit on what they can charge you. They're not restricted as to rate or number of fees.
Debit cards, which used to be these direct conduits to your low-cost checking account, have become productive little profit centers for banks. Some 89% of New York banks surveyed by the New York Public Interest Research Group, charged point-of-sale fees on debit cards. The charges ranged from $0.10 to $1.50 per transaction.
Why would banks charge fees on something that was previously devoid of fees? Because there's nothing in current federal law that prevents them from doing so.
Banks realize that millions of customers have shifted to debit card use and they want to profit from those transactions the same way they nick you for using out-of-network ATMs for withdrawing your own cash!
While hardly surprising, debit card fees are onerous and the last straw as big banks seek to recoup their losses from meltdown.
In the case of my bank -- JPMorgan Chase (JPM) -- it's not as if the bank desperately need to impose these fees. Although I haven't noticed any transaction fees on my debit card statements, the line of credit on my account is certainly not free and I didn't originally ask for it.
To its credit, Chase was actually fairly well managed during the 2008 debacle and returned the $25 billion in Troubled Asset Relief Program funds with interest in the middle of last year. Chase CEO Jamie Dimon said the bank "didn't need" the government's bailout funds.
I'm not singling out Chase, per se. All big banks have constricted their lending and are trying to maximize their revenue now at the expense of consumers.
Still, I know I can get a better deal, and I'm going to search for one.
There are lots of options to banks. One place to look -- and one I haven't explored recently -- is a credit union. These entities aren't banks, didn't buckle during the 2008 crisis, and are owned cooperatively by their customers. Their fees and loan rates also tend to be lower than large banks. (You can find a local credit union by going to www.ncua.org.)
After a neighbor suggested I check out a local credit union, I found some surprising offers: Free online banking, competitive rates on loans, and rebates on out-of-network ATM charges. They even pay up to 3.59% on checking (my current bank pays nothing).
Picking a financial institution that meets your needs can be best accomplished by going through a brief checklist:
Lending. You can shop anywhere on the Internet for a loan or try local credit unions for the best rates.
Checking. If you automate most of your bill paying, you can find free banking services. If you keep a large balance in your account, find interest-bearing programs with no fees.
Savings. Most banks are paying awful annual rates. I'd shop around aggressively. Go to www.bankrate.com. Don't get into long-term certificates of deposit right now. When rates rise -- and they will -- you'll be stuck in a poorly paying vehicle.
The days of doing all your business with one bank in town are over. If you put your bank on notice that you're taking your business elsewhere, that's the best kind of banking reform.
This was my 6/2 Minyanville.com column
John F. Wasik is author of The Cul-de-Sac Syndrome: Turning Around the Unsustainable American Dream.
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