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March 2, 2014 09:29 AM
Advancing $12,539, or 0.75%, our net worth closed the month of February at $1,676,362. Trailing 12 months improvement is $190,398, or 12.8%.
Our household balance sheet, along with monthly, year-to-date, and trailing 12 months comparison, are shown below:
February 26, 2014 06:58 AM
I spent several hours this Sunday morning to put some finishing touches to our federal tax return, and the 27-page return is now on its way to IRS this week. I have worked on the tax return since the late January, and by my estimate, I spent around 20 hours on TaxAct to prepare the return, not to count the time throughout the year with Quicken to keep a clean financial record. This is higher than the 15 hours average time burden for filing a tax return on 1040 as estimated by IRS. Maybe I could work on my math in the coming year so I can beat the average :-)
I enjoyed acquiring tax knowledge and preparing my own tax, and I put it to good use in filing the 2013 tax return. 2013 is a year of change for us thanks to the relocation, home buying and car purchase, and throughout the year, whenever I come across a personal finance article on tax that reveals something that might apply to our case, I usually do additional research and put a note to my OneNote so I can remind myself when I start to work on the actual return.
February 17, 2014 08:07 AM
As part of the HELOC application process, we were asked to sign a 4506-T form to authorize banks to get from IRS transcripts of our prior years' tax returns. This makes me think: as taxpayers, can we get such information ourselves?
Yes, we can.
A quick search on the IRS website yields two different options:
1) One may request a tax return "transcript" for free. A "tax return transcript" contains "most line items from your tax return (Form 1040, 1040A or 1040EZ) as it was originally filed, including any accompanying forms and schedules."
2) Or, one may order an exact copy of tax return, which includes all attachments like W-2. There is a fee of $50.00 for each tax year requested, though.
February 14, 2014 03:52 AM
As each of us are making progress in our respective tax returns, this MarketWatch article conveniently reminded us that it has been 100 years since Americans started paying federal income tax.
Many intriguing facts from the article and the slide show covering the evolution of Form 1040 over the past century. Some fascinating facts I learned by reading this article and doing some additional research:
1) The first-ever Form 1040 (of tax year 1913) was only three page long with one page instruction and no additional forms or schedules. Today: it's two pages but with 206-page instructions, not counting additional forms and schedules and their accompanying instructions.
February 13, 2014 04:33 AM
When we purchased the our house back in January 2013, we put 20% down payment to secure an ultra-low 1.875% APR 7/1 ARM. In anticipation of potential carry trade opportunities, I'm also exploring possibilities to cash out some of our home equity through HELOC, or Home Equity Line of Credit.
HELOC offers homeowners the flexibility to borrow against their home equity at a variable rate often pegged to a major lending rate index. It works much like a credit card, so over a pre-defined "borrowing period," the borrower can borrow and repay up to a credit limit multiple times. (Its sibling, Home Equity Loan, works more like a mortgage where one borrows a lump-sum upfront at a fixed rate.)
Back in 2004, I established an HELOC account at my local credit union with a credit limit of $30,000. Although I never got a chance to tap into the credit, I see it as a good insurance against occasional liquidity crunch.
February 12, 2014 05:45 AM
One book I'm reading lately is Early Retirement Extreme by Jacob Lund Fisker. The book asserts that one can have an "extreme" early retirement by accumulating wealth thru only 5 years of work, and choosing to lead a meaningful retirement life while spending low to the tune of $20-30K a year.
If you think it is another personal finance book about how to save, invest and retire, you are wrong. The book is written in a more academic fashion than I thought, full of philosophical discussion and historic references. Even though I'm only 80 pages into this 238-page book, I found enough "nuggets" that are thought-provoking and challenge me to revisit my more "traditional" path toward early retirement. For a quick recap, take a look at this wiki page about Early Retirement Extreme, or ERE.
February 11, 2014 04:00 AM
I have been pondering the idea of USD/Chinese Yuan carry trade for a while now. The investment thesis is one can borrow USD on the cheap and put to investment vehicles denominated in Chinese Yuan with much higher return. And assuming the Chinese Yuan will keep its secular trend to become stronger vs. USD over time, or at least stay flat, one can pocket a decent return from such arbitrage.
Having been exposed to the Chinese financial market for over a decade, I see quite a lot of attractive investment options yielding 8% or higher with minimal risk lately. The other piece of the carry trade puzzle, is how to borrow US dollars at the lowest cost possible.
One source I'm looking at is Interactive Brokers. Interactive Brokers probably is not as well-known as TD Ameritrade, E*Trade, Fidelity or Charles Schwab, but it offers a wide menu of investment options at commission rate as low as $1 for 100 shares of stock (it does charge a monthly minimal commission of $10 if account value is under $100,000 though).
February 10, 2014 04:15 AM
Back in January when I shared my experience choosing an adjustable rate mortgage (ARM) over a more traditional fixed rate mortgage (FRM), I received the following comment from Adam:
I would be interested in understanding more about why you have better options at the end of the ARM. I have thought about getting an ARM, but the potential larger payments in 5/7/10 years seems like a potential albatross. If rates go up, you can end up paying a lot more, and if they're already increased, I don't see how refinancing is going to help you. Perhaps you could discuss or link to an article that helped your analysis.
Certainly our well-defined timeline of living in this house for slightly over 7 years until we send our son to college plays a huge role and almost single-handedly make ARM a much better choice than a 30-year FRM at an interest rate 1.25% higher -- the interest rate difference means over $70K lower interest payment thru the ARM route in the first seven years on the $852K mortgage we ultimately got -- but it is worthwhile to be more analytical on explaining how we will prepare for the worst case scenario.
February 9, 2014 06:32 AM
In about a week's time, our son will turn 12. This means he will pay adult's price at Great Clips and our favorite buffet restaurant. And it's also time for some systematic financial education.
So our weekend assignment for him: read the CNN Money 5-article series "Financial Education For Kids" and summarize his thoughts in writing.
Here is what he turned in (with no edits from me):
After reading this article, I learn the importance of financial education for kids. Financial is a critical lesson for the kids to learn.
Although managing money is a very hard task to do, I still believe it is very important for teenagers to learn how to manage their money. From managing money, you will learn the concept of savings. Today, many Americans don’t have savings. When there is an emergency situation, they can’t handle it. In college, you will use a lot of money for tuition. So the money you save today, it is for tomorrow. Managing money is also very useful because it teaches you how to do research. From researching, you learn how to compare different values, reading articles, and how to negotiate with sales man about the price. For example, I did a lot of research for buying a new phone. I look up all the different prices and compared them. I learned a lot from doing that. It can also exercise the mathematic abilities of the kids.
February 8, 2014 09:05 AM
Satya Nadella, the newly anointed boss at Microsoft, rightfully called out that this is a "mobile first, cloud first" world. Network connections are ubiquitous and everyone has more than one devices to access, consume and create data. Everything is changing and changing fast!
On this Saturday morning, I took some time to count the number of networked devices in our household. I quickly counted toward 14, and then as I compiled
this post, I was reminded of more and more such devices. Even by now, I'm not sure if I counted them all.
Here is my list so far:
1. My working laptop computer (Lenovo)
2. My wife's laptop computer (Asus)
3. Our son's laptop computer (Asus)
4. Our son's school issued laptop computer (Lenovo)
5. Desktop computer in our den (Lenovo)
February 7, 2014 03:58 AM
Back in 2006, I was among the first group of investors who pumped money into Prosper.com, the pioneer in person-to-person lending in the States. It didn't end up pretty -- my $15K investment turned into a loss exceeding $1,000 due to high number of delinquencies and charge-offs among the 160 loans I invested in.
On the other side of the Pacific, P2P lending is much less regulated in China. One can set up a new P2P lending site by merely registering a business and setting up a web site. In 2013, there were over three dozen such sites closing down for good and many investors losing their shirts along the way. Before they collapsed, they often boasted interest rate exceeding 40%.
My experience in the last few years in P2P lending in China, however, were more successful.
P2P lending exists in very different modalities in China. Here are the several major business models and representative P2P lending sites I tried.
February 6, 2014 06:14 AM
Our analysis indicated that if tuition cost will continue to grow at 9.5% per annum, investment into Washington state's GET program can still make sense for people with a long horizon, even if one will pay a hefty 31% front-end load now.
But for those patient parents, it is worth keeping in mind that past return doesn't guarantee future returns. In fact, the tuition at Washington state's top public universities didn't grow in the past year. And according to some reports, slower tuition growth is becoming the new normal.
The next table shows a scenario of more moderate but still high annual tuition growth of 5%, and how it compares to a DIY investor with 1%, 3% or 5% annual return on his portfolio.
February 5, 2014 04:25 AM
A friend of mine recently asked my opinion of Washington state's Guaranteed Education Tuition (GET) program.
As the Evergreen State's 529 prepaid college tuition program and backed by the state's full faith and credit, GET allows parents to purchase "units" in today's price and guarantees a payout value that is indexed to the tuition of the highest priced Washington public university. (Each unit represents 1/100th of the annual undergraduate tuition and "state-mandated fees.")
The main selling point: in the past 10 years, tuition in this state has increased at an average of 9.5% per annum (source). In fact, GET units bought back in a decade ago delivered handsome return for their investors despite the financial turmoil in between.
February 4, 2014 03:58 AM
My son earns a weekly allowance for doing a number of household chores. Last month, he finally saved enough to buy a smart phone, which he claims that half of his 6-grader classmates already have. With the father-son agreement that he is responsible for 100% of his cell phone expenses, we allowed him to buy a smart phone. Now the next question is: can we find him a cell phone plan that he can afford?
An unlimited plan from a major carrier like AT&T or Verizon Wireless is out of the question -- the monthly charge will take the poor kid's entire monthly income away, and more. My wife and I are currently on prepaid monthly plans. Her unlimited plan from StraightTalk costs $45 a month. I, normally using less than 100 minutes voice, 10-20 texts and less than 200MB data, keep an AT&T GoPhone plan at about $35 a month. Both options are still too expensive in the eyes of our son.
So we embarked on a journey to find a plan for a cheapskate. "Mobile virtual network operators," or MVNOs, seems to be the way to go. They are wireless service providers who doesn't run the infrastructure but instead buy bulk block of voice, text and data at wholesale rates from AT&T and alike and resell to individuals. Back in 2004, I used Virgin Mobile, also an MVNO, at less than $7 per month (of course, no data back then).
February 3, 2014 04:52 AM
In the latest quarterly earnings release call last week, Amazon's CFO Tom Szkutak indicated in his prepared speech that the online retailing giant is thinking of raising the price of Amazon Prime (transcript from SeekingAlpha, emphasis is mine):
We launched Prime in the U.S. nine years ago with free, unlimited two-day shipping on 1 million items in an annual membership priced at $79. Today Prime Selection has grown to over  [ph] million items.
Even as fuel and transportation cost have increased, the $79 price has remained the same. We know that customers love Prime as the usage of the shipping benefit has increased dramatically since launch. On a per customer basis, Prime members are ordering more items across more categories with free two-day shipping than ever before.
With the increased cost of fuel and transportation as well as the increased usage among Prime members we’re considering increasing the price of Prime between $20 to $40 in the U.S.
February 2, 2014 06:37 AM
Our net worth logged a meager 0.3% increase of $4,273 to ended January 2014 at $1,663,823. Trailing 12 months improvement is $183,444, or 12.4%.
We saved about $5,000 from our wages. It is larger than normal and is helped by 1) $1,250 year-start employer contribution to Health Savings Account (HSA), and 2) my year-start lump sum HSA contribution of $4,050, which lowered my federal tax deduction.
On the investment front, our USD based accounts took a hit about $9,700 due to recent market situation. This is partially offset by $6,200 gains in our CNY-based accounts.
As we prepare our 2013 tax returns, the current estimate is we will receive around $10K refund thanks to some foreign tax credit on my bonus and stock awards attributable to my services in Asia. In this month, we made an conservative accrual of $5,000 to partially account for the expected refund.
February 1, 2014 06:12 AM
It's tax season again! I started the annual chore of collecting tax forms and piecing together information over the past weekend. Happily being a bean counter, I plan to share some personal experience of tax preparation in coming weeks.
Today I'd like to discuss sales tax deduction. Sales deduction was allowed starting in tax year 2004. (Back then, PFBlog covered the topic in many posts here, here and here.) It allows taxpayers in certain states to take itemized deduction for sales tax they incur.
One can generally consult the IRS Sales Tax Deduction Calculator for the task (unfortunately, as of today, the calculator hasn't been updated with 2013 tax year information yet), and the calculation is also embedded in most tax preparation software, like TaxAct which I use.
For most people who don't have the habit of collect receipts, IRS provides a simplified way to estimate your annual sales tax payment based on your income and number of exemptions taken. TaxAct reported that we can claim $3,215 under this category.
January 31, 2014 04:21 AM
Since he first announced myRA at Tuesday night's State of the Union speech, President Obama wasted no time in signing the executive order to make it happen the second morning, before he started his road trip to tour his newest idea. What is myRA?
Whitehouse's fact sheet gave more details. And a quick summary from WSJ's Damian Paletta explained the key points:
1.) The accounts would be aimed at workers whose employers do not offer traditional retirement accounts like 401(k)s.
2.) The accounts would function like a Roth IRA and have government backing like a savings bond. This would give the investments principal protection, meaning the account balance cannot go down.
3.) There will be an initial pilot program for companies that agree to enroll by the end of this year. Workers can invest if they make less than $191,000 a year.
4.) Businesses will not administer or run the accounts. They will simply offer them to their employees if they decide to participate.
5.) There will not be a tax penalty if the investments are withdrawn.
6.) Initial investments could begin at $25, and subsequent investments could be as low as $5. The idea is to have investments added through payroll deductions.
7.) Accounts can be taken by the employee from one job to the next, and they can be rolled into an Individual Retirement Account at any time.
8.) The accounts would have the same variable interest rate return as the Thrift Savings Plan Government Securities Investment Fund accounts that federal employees enroll in.
9.) Once someone’s account grows to $15,000, the myRA must be rolled over into a private-sector Roth IRA.
January 30, 2014 05:42 AM
Once we decided that adjustable rate mortgage (ARM) should be our cup of tea, we wasted no time in looking for the best lender. To be more specific, we wanted to shop for the best rate when it came to 5-year or 7-year jumbo ARMs -- the price range of our shortlisted properties dictated that conforming loans wouldn't work for us.
The internet resources we used in our previous home financing experience were still very useful. Our inquiry thru LendingTree got us several quick quotes, and Bankrate also provided us with other names. Most of the competitive quotes back then were at 2.50% or 2.75% for a jumbo 5/1 ARM with zero points. Sweet enough already!
I was always under the impression that biggest banks usually don't put their best rates online, but in the spirit of comparison shopping, I took some extra efforts to browse the home loan pages of some large banks. To my surprise, Wells Fargo offered a super attractive 2.125% rate for 5/1 ARM.
January 29, 2014 05:45 AM
The moment we started the house hunting in late 2012, we also started the mortgage hunting. Compared with getting the dream house at the right price, getting the right mortgage is at least equally important, if not more, to secure a solid financial foundation of home ownership.
Deciding the most suitable type of mortgage is the first step in this process. Usually, the choice is between fixed rate mortgage (FRM) and adjustable rate mortgage (ARM). There are some other niches like balloon loans or interest-only loans as well.
We used different types of mortgages in our brief homeownership between 2003 and 2005. We bought the house with a 7-year balloon mortgage at the rate of 4.25%, which we later refinanced to a 5/1 ARM with at the rate of 3.50%. (The refinancing experience was documented in this blog here, here, here and here.)
(01/28) Buying A House with Flat Fee Realtor
(01/27) 2013 Year-End Update ($1,659,549)
(01/26) Act II: Back to the (Blogging) Business …
(01/02) 2011 Year-End Update ($1,212,450)
(04/09) Monthly Update - March 2011 ($1,149,008, +$2,362)
(03/05) Monthly Update - February 2010 ($1,146,646, +$19,373)
(02/05) Monthly Update - January 2010 ($1,127,273, +$4,906)
(01/01) Monthly Update - December 2010 ($1,122,367, +$37,499)
(12/03) Monthly Update - October/November 2010 ($1,084,868)
(10/05) Monthly Update - September 2010 ($1,067,889, +$47,223)
(09/17) Monthly Update - August 2010 ($1,020,665, +$34,678)
(08/02) Monthly Update - July 2010 ($985,987, +$24,773)
(07/09) Monthly Update - June 2010 ($961,214, -$4,421)
(06/07) Monthly Update - May 2010 ($965,329, -$45,686)
(05/09) Monthly Update - April 2010 ($1,011,016, +$6,626)
(04/07) Finally, A Million!
(03/12) 1-Year and 10-Year Mutual Fund Performance Figures Skewed
(03/10) BofA Put an End to Overdraft Fee
(03/08) Shiller vs. Siegel
(03/07) Warren Buffett's 2009 Annual Letters to Berkshire Shareholders
(03/03) Monthly Update - February 2010 ($984,687, +$14,331)
(03/02) A Price Hike from Citi and One Less Customer
(02/05) Monthly Update - January 2010 ($970,356, +$452)
(02/05) Fidelity Offers $7.95 Commission and Free ETF Trades
(01/25) Losing 37% a Year for 10 Years Straight
(01/21) Berkshire Hathaway Completed 50-for-1 Split
(01/11) Income Tax Law Changes in 2010
(01/11) Maximizing Stock Option Value: The Tax Consequences
(01/08) Morningstar Announced Fund Managers of the Year 2009
(01/06) Writing Option to Improve Option Value
(01/06) Maximizing the Value of Expiring Employee Stock Options
(12/30) Net Worth Trend: '07-'09
(12/30) Decade's Winners and Losers
(12/28) Decade of Progress
(02/04) How Much Are Credit Card Issuers Charging Merchants?
(02/03) 100 Best Companies to Work For (2009 Edition)
(02/02) What You Should Know About 2008 Individual Income Tax Returns
(02/01) Monthly Update - January 2009 ($796,679, -$11,654)
(01/31) How A Year Is Lost
(01/20) Investment Plan 2009, Part 1: The Macroeconomic Assessments
(01/10) What Is the White House Worth In the Market?
(01/09) Why Did I Sell All My Stock? (And Not)
(01/07) Best and Worst Performing Stock Markets of 2008
(01/03) Free Credit Score for Everyone
(01/02) The $1M Goal Revisited: Should I Take Risk?
(01/01) Annual Update 2008 ($808,333)
(12/31) Bye Bye 2008
(06/03) Monthly Update - May 2008 ($885,297, +$12,932)
(06/01) Portfolio Update - May 2008 (Up 0.12%)
(05/10) Monthly Update - April 2008 ($872,365, +$39,068)
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