Wednesday, February 21, 2007

Reality versus Appearances

Something that I am personally interested in as a prospective investor are socially responsible funds, or "green" funds. I want to support new technologies, particularly clean fuel initiatives, as well as support companies that treat their workers well. It matters to me what my money does; the return isn't the only thing I care about. This article about green funds digs into what I think is a problem in U.S. society a lot these days -- what is real versus what just looks good.

"As these funds measure how good these companies are, they measure them in terms of whether they have procedures, departments and appointed executives who are responsible for ensuring good behavior," Donaldson says. "But the problem with that is that having all of the offices and departments doesn't ensure good behavior will come out of the process. It just means you have the process."

I think a lot of good ideas have fallen prey to this mentality -- for example, if there is EEO person in an interview, it stops prejudice in hiring. Does this work? Of course not. It doesn't really affect what the interviewers believe or whether or not they hire because of someone's skin color or gender. It just provides a "process" and keeps people from asking blatantly racist/sexist/anything else -ist questions. Take the women's movement: we show women as being powerful on television. But does this change real life? Unfortunately, it doesn't; it gives no answer to the problems that prevent women from being successful either at home or in the workplace. I don't want to get political about this but it looks like the green movement is heading the same way -- paying for "green credits" rather than riding a bike or buying a less polluting vehicle is just one example.


It's difficult to find what is true in life and even harder to fulfill the adage of "first, do no harm." I want truth, not just rhetoric -- and I don't think I'm alone.

Tuesday, February 20, 2007

Tax Hell

Six years ago, June and Ron Speltz got caught by the alternative minimum tax, which triggered a tax bill of more than $260,000 on income they'd never see. Their fight to change the law finally paid off. This article talks about what they did to change the law. Luckily for them, they had $141,000 to pay against the tax credit, although some of that had to be borrowed. How tragic for them! I have never heard of the alternative minimum tax, but I have to say -- it sounds scary. Tax law is quirky and hard to decipher.

Here's more information on AMT
and here are top ten things that cause AMT liability.

Speaking of taxes, the Miami Herald put up a nice list of tax changes and how it affects taxpayers, particularly parents.

Make less than $52,000? You may qualify for free filing. Check out the IRS website on companies that provide free tax preparation (generally through software like TaxAct, Liberty Tax Online and TurboTax Freedom Edition) and e-file for free if your adjusted gross income is low enough. Not sure of your adjusted gross income? At TaxAct you can fill out the tax forms first and at the end, you pay $7.95 to e-file ($12.95 for state). Since I just saw the same package at Target for $52, I think this is a great deal.

Sunday, February 18, 2007

How Money Works in the U.S.

An interesting perspective on money in the U.S. Romany Folk always carry gold, not trusting paper money, and sometimes I think they are right. But, on a grand scale, I think that Ron Paul is pretty much insane, or at the very least, not practical. Having banks hold all their money in reserve is difficult for a variety of reasons. Making the U.S. government stem inflation...that's another matter.

Really, really good luck

Okay, here's the end of the stories about contracts.

Once there was a saga of two friends. Friend No.1 had bought the land from her husband's best friend's father, who had found out he was dying. Friend No.2 bought land from her husband's sister's father-in-law. I am not making up these relationships, even if I sound like the girl from Ferris Bueller's Day Off.

Friend No. 1 bought horse property and improved it. The Ones put in a septic system, ran electricity to the property and put in fencing. They decided to sell but it turns out they had never actually gotten their friends to sign the mortgage contract. There had always been an excuse -- first, it was grieving over the father who died (but charged 9% interest on his deathbed, and wanted 12%). Then it was the son who was constantly out of town. So the Ones paid their "mortgage" for 5 years before finding out the family had other liens on the property, the big one being from the IRS. They had to abandon the property and start over.

Cost of the land: $35,000
Cost of the improvements: $15,000
Worth of the property at time of abandonment: $120,000
Loss, in real dollars, through payments and improvements: $45,000
Loss plus equity: $130,000

Now for the Twos.
The Twos were in a similar situation. They bought a piece of land at $18,000 and put a mobile home on the property. The Twos, however, did get their brother-in-law to sign a contract. The problem was, said brother-in-law didn't actually have the deed to the property. His father had it. The Twos are actually very good with their money, so they doubled up on payments and paid the debt within 2 years. Three years later, there was still no deed. The sister went into a Betty Ford clinic, which made them fear that she had taken a loan on the property to pay for her addiction.

However, through pure, blind, and wonderful luck (I really, really like the Twos, and they are actually very level-headed, they are just too trusting!) the sister came back from Betty Ford facing a divorce and decided they needed that deed before everything fell through, so she got her husband and father-in-law to sign and my friends called yesterday to say they had the deed to their property. I couldn't restrain a whoopee!!! myself when I heard. In fact, I want to say that I am putting these stories on my blog so that other may avoid these errors. Please, please avoid doing either of these things! The Twos won out in the end, but spent 3 years stressed and unsure whether they truly owned the land they were on or if they'd just given an alcoholic $18,000 to spend on her habit.

Cost of the land: $18,000
Improvements: less than $5,000 (they opted not to improve the property until they had the deed in hand -- a smart move, I think)
Worth of the property + improvements today: $85,000
Total gain: $62,000 (this isn't perfectly accurate; there was some loss from interest but I'm not sure how much, as they paid it off so quickly)

Total cost of peace of mind: immeasurable

Sunday, February 11, 2007

Contracts are...binding

This is part II in a series about reading and understanding contracts. Let's review what I went over last time:

  1. In order for a contract to be binding, you must actually sign the paperwork.
  2. Make sure the person(s) signing a contract are the actual parties involved. Do not let someone sign for someone else, and do not accept a contract with someone who does not yet own the item in question.
  3. Read the contract. Read all of it.
These might seem elementary financial instructions, but I cannot believe how many people sign without reading what they are signing for.

I think this problem is exacerbated by the number of contracts (many of them nearly meaningless) that we sign in order to do anything. For example, there is a statement of use policy for nearly every website (including blogger, the host for this one). This policy is several screens long and is pretty standard. Incidentally, I have read it -- more than once. I used to teach a class on blogging, and I made each and every student read it too. It's important to know what's going on.

That being said, I generally skim most contracts of this type, usually because I have already read many versions of them and they are usually all very similar. I look for unusual terms, such as "arbitration" (what is allowed? Are they protecting themselves from lawsuits?) or glance at the privacy policy to see if my e-mail address is being sold down the river. THIS IS IMPORTANT. I have turned down contracts simply because the policy says they are going to trade my e-mail with whomever comes along.

Paper contracts are a different matter. I learned the hard way that credit card companies can withdraw a low-interest deal because of non-payment -- and then charge up to 32% interest. Thirty-two percent! This is an unbelievable amount. My mother was recently surprised that I have a credit card that has a "high" interest rate of 9% through my credit union. Why? Because if, for some reason, we forget a payment, the rate stays the same and they only charge $10. Most cards would charge $32 and raise the rate to 22% the first time you are late, even if it's by a few hours (and for some cards, the cutoff is at 5 p.m. EST on the day the payment is due). Don't be fooled by those "deals" credit card companies give you. They have so many rules, they are just waiting for you to screw up. If you read the policy first off, you'll know whether the deal is really worth it, because they have to disclose all those "hidden" fees. They aren't really hidden -- they are right there on paper, just waiting for you to read them.

Long contracts really are a pain to read, but read them you must. It took us three hours to sign the paperwork for our house when we bought it, but my husband and I BOTH read every single page. The title company rep was rather impatient with us, but I was determined to know what I was signing; thousands of dollars hung in the balance. Another time, a woman wanted us to sign a rental contract without reading it. When we did, we noticed that a crucial escape clause was missing. The woman, up until that point very sweet and accommodating, got very angry. It was fine, she said. There was a sign on the wall saying that the escape clause was there. I pointed out that I wasn't signing the wall hanging, I was signing the paperwork in front of me, and she could redecorate tomorrow. She became furious; didn't we want the apartment? she would say. Did we want to go elsewhere? We went all the way up to the president of the company (it was a large one, incidentally). Every single person refused to change the contract to include the escape clause. In the end we did exactly what she suggested -- go elsewhere. And the people at the next place were perfectly happy to let us read the contract, primarily because everything was on the up and up.

I think the main reason people don't read their contracts is that they feel embarrassed, particularly when someone says, "Oh, it's there." Don't take their word for it. Maybe they are well-meaning, maybe they are impatient, or maybe they are out to take you for all you've got. Remember, though, that most of these people, regardless of their level of honesty, don't care about you. They don't care if you lose $10K. They want to get you in and out so they can get back to studying their nose hairs or, better yet, making money from another client. So don't let what they think affect you! Probably you will never see them again. It's YOUR money. It's YOUR time. Use it well.

READ THE CONTRACT.

Monday, February 5, 2007

Read it and Weep

You know, a couple of years ago I met a woman who was having some trouble with the property she lived on. She and her husband had "purchased" it shortly after they were married. His best friend's father was dying of cancer, and they didn't want the property to be seized after his death, so they asked this couple -- I'll call them the Joneses -- if they wanted to buy the property. The Joneses didn't especially want that property, but they had horses and it was horse property, and so they bought it. The father charged them 9% interest and carried the contract (they argued him down from 12%), which is hard to believe. He was swindling them from his deathbed. Anyway, later he died.

Well, he never signed the paperwork because he passed away, so they called his wife to get her signature, and she said she was too upset to sign but that she would do so after things settled down. Well, a few weeks turned into a few months and a few months turned into a few years. The Joneses moved onto the property, bought a manufactured home, put in a septic system and ran electricity onto the property.

Then interest rates began to drop and the property, originally sold for around $35,000, rose in value. The improvements helped, and suddenly this little property had more than tripled in value, and the family they bought it from continued to give excuse after excuse as to why they couldn't sign the contract. The Joneses were ready to cash in on their investment and move into town, but they couldn't, despite having made a mortgage payment every month.

I advised my friends to consult a lawyer and finally they did. By the time they did so, however, the IRS had put a lien on the property for tax evasion from the family, and suddenly my friends were between a rock and a hard place. The lawyer looked at what they had, declared it worthless and told them to leave the property and start afresh. They did. The family they "bought" the property from had the audacity to call and scream at them for "leaving her with a worthless piece of land." Yes, worthless now, since the IRS was taking it.

The problem here was easy; nobody signed any contracts. Herein lies lesson number one: SIGN THE CONTRACT. ALL PARTIES MUST SIGN THE CONTRACT.

Next story.

A year or two passes and I make another friend, who has bought a piece of property from her sister-in-law (these are all true stories). The problem is, her sister-in-law bought it from father-in-law, and didn't have the title "just yet, but it's on it's way." Now these friends, whom I will call the Smiths, made up a contract and everyone signed it, but it wasn't signed by the person who actually owned the property. Also, the contract was never recorded and made official. Now the Smiths are actually very good with their money, they are just a little soft-hearted. They paid double and triple their mortgage to the sister-in-law and in just five years, paid off the mortgage. Problem is, that title is still "just about here." Later they found out the sister-in-law had a serious alcohol problem and nobody knows where the money went. They are continuing to stay on the property and hope for the best, but they are technically squatters because not only do they not have the title, they have never paid any money to the rightful owner of the property. They essentially paid someone who said she owned the property without any proof of ownership.

Lesson Number 2: MAKE SURE THE PEOPLE SIGNING THE CONTRACT ARE THE PEOPLE ACTUALLY INVOLVED AS OWNER AND SELLER.

Next story.

Fast forward another year and I make another friend. I will call her "Carolyn," since I don't know anyone by that name. Carolyn has been working for the company for 27 years and makes good money. Her husband makes six figures and between them, they should be very well off in Tucson. But Carolyn doesn't like to tell her children "no," and so instead of affluent they are $50,000 in debt with credit cards and living paycheck to paycheck.

Carolyn's middle son is a smart guy but not very practical. He goes to college and runs up $800 in parking tickets, for example, because he can't be bothered to park where he's supposed to. He decides to go overseas and takes out additional student loans (as did I, so I can't lay blame there). He wants to be a lawyer but already has $40,000 in student loans by the time he graduates, so he decides to join the military. They promise to pay his student loans and to give him a sign-on bonus, and he decides to enlist rather than become an officer because of a particular position he can only get as an enlisted soldier.

Middle Son (MS) graduates college and ships off to boot camp. About 2 weeks later Carolyn gets a frantic call. Two things happen:
1. The military takes his paperwork, including his contract, and he has no backup copy, and;
2. The contract now says nothing about paying $40,000 in student loans.

Carolyn is frantic. She realizes that MS never actually read the contract; neither did she or her husband. She raves at work, "Who reads an entire contract? Did you read your contract when you bought your house?" I hate it, but I nod -- Yes, I did.

Lesson Number 3: READ THE CONTRACT. READ ALL OF IT.

I will continue this in the next post.

Friday, February 2, 2007

Still finding new debt

If you follow my net worth calculator, you may have seen the numbers shifting as of late. There is a reason; I both find new money and/or assets, and I find new debt. It is amazing to me how little we've known about our money. I just found another $1095 worth of student loans (and also that we missed some crucial paperwork, causing interest to start accumulating 6 months early -- ouch!). Calculating our net worth every month and actually checking every penny has resulted in my finding extra savings along with extra debt. Incidentally, it will also save us over $500 in accumulated interest as we straighten out the paperwork (and has been a good lesson in communicating with my husband about our money and accounts!).

Despite this and my relative inexperience regarding money, tomorrow I will present my finance class for kids. This is an opportunity for me to grow and learn, as my classes are very interactive and parents are involved as well as kids (for those worrying I might warp the young). These are the things I have decided to focus on:

  • Money, it's origins, and money as an idea
  • Marketing, specifically marketing targeted toward kids
  • Saving, spending and bartering as types of transactions
  • The stock market and what it means to invest in a company
  • Where to find stock prices, indexes and the like
  • How kids can save money and the importance of compounding interest
This may sound dry as toast when I spell it out, but I'm going to do little quizzes; for example, I have a big plastic jug, a pile of paper, a handful of beads and shells, some coins and some precious metals, and kids will get to pick what is money. Of course, it is all money or used to represent money in some kind of form. Kids who get right answers will get a quarter put in a cup with their name on it or the opportunity to "barter" for a prize. We'll have a race to find a stock (they may have to look up the name) and read a picture book about how a smart woman used one grain of rice and compounding interest to save her country from famine. Then we'll look at commercials targeting kids and talk about what is truth and what is fiction, as well as comparing various $40 items (one toy, a pile of clothes, a bag of food, etc.). I think it's going to be fun and informative.

I haven't read as much about saving and investing as I'd hoped; part of this is because I've been sick with strep throat for over a week and unable to prepare. However, I am looking forward to seeing how the kids respond.

For my next post, I want to talk about contracts, mostly about reading them, regardless of how awkward you might feel about it, and I will bring some real-life stories. Stay tuned!