Advanced Personal Finance

The 110th Carnival of Personal Finance is up at Fat Pitch Financials.

Two of my favorite submissions this week:

Single Ma talks about how to close credit cards without affecting your credit score.

Free Money Finance asks the question how much of your net worth should be in your primary residence. Our number is about 46% of our net worth is our home equity. We got lucky and bought before the big run-up in residential real estate prices.

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Shortly after our daughter was born, my wife and I decided she would quit her job and become a stay-at-home mom. It was tight, but we made the budget work and my wife really wanted to be there those first couple years. We had a lot of changes to make, among them was life insurance.

Like a lot of people, both of us get a good bit of our life insurance coverage through our respective employers. We also have life insurance through USAA, where we do almost all of our financial business. When my wife quit, she obviously lost the benefit of life insurance.

Having adequate life insurance for a stay-at-home parent is critical. We realized that, though unpaid, raising our daughter was not ‘free.’ If something were to happen to my wife, I would have to provide alternate arrangements and be able to pay for them. We evaluated this need for adequate life insurance and decided to add spouse coverage through my employer (which is one way to get more life insurance if it seems too costly).

So if your family is considering or already has a stay-at-home parent, please take a look at your life insurance coverage and get more for the stay-at-home spouse.

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Identity theft can be a problem for anyone - even kids. Among the most novel directions for identity thieves recently is their preying on children. As any parent knows, you have to get a social security number for your child when they’re born. The thing is, they won’t actually need that number for anything remotely associated with Social Security for a long time.

Remember, your SSN isn’t supposed to be used for identification, right? It says so right there on the card. The card that every business, bank, or government agency requires as identification. Yeah, that card.

In the meantime, identity thieves can use that number and other information to do all kinds of nasty things in your kid’s name. Your kid (and you) will never know until potentially years later when they go to open a savings account or apply for a credit card. Then the unpleasant news of their trashed credit at age 10 becomes all too clear.

Selling Your Kid’s Information

I didn’t know this until recently, but schools routinely sell student information to marketers (and anyone else) without consent. And I’m not talking about colleges and their unending onslaught of alumni credit card offers. I mean elementary and high schools. This is directly from the U.S. Department of Education:

Schools may disclose, without consent, “directory” information such as a student’s name, address, telephone number, date and place of birth, honors and awards, and dates of attendance.

You can stop schools from disclosing your kid’s personal information by filling out a Family Educational Rights and Privacy Act (FERPA) form. You have to get it directly from the school.

Remember, you can, and should, shred your credit card statements and other personal documents, but an identity thief can be just as effective, and is much less likely to be caught, by stealing a child’s identity.

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The whole concept of PMI is irritating to me. Where else do you pay the insurance premiums to cover someone else’s risk? That’s exactly what’s happening with private mortgage insurance.

PMI is required when you buy a house with a mortgage but don’t have 20% for a down payment. It is actually insurance for the lender, but you pay the premiums. Nice, huh? In the event you default, the insurance pays the lender the difference between 20% and what you put down (they also still get to repossess the house of course).

Rates Vary Based on Down Payment

What I didn’t know until very recently is that the PMI rates you pay vary depending on how close you come to putting 20% down on your house. The closer you are to 20%, the less you pay. I know it makes sense, but it just never occurred to me.

You can use this quick estimate to figure your approximate premium:

If you’re down payment was: Divide your mortgage amount by:

5% 1500

10% 2300

15% 3700

Here’s an actual rate card from a PMI provider, but it’s a lot more detailed.

Canceling PMI

It used to be that insurers could keep charging you PMI even after you owned 20% of your house. That changed in 1999, though, and now insurers have to automatically cancel PMI once you get to 22% (with some exceptions, see below). But why pay those extra premiums? Pay attention and cancel your PMI as soon as you get to 20%. You have to request the insurance company cancel your coverage in writing.

Insurers don’t have to automatically cancel your coverage if any of these are true:

• It’s a VA or FHA loan
• You’ve been late on a payment
• Your loan was originated before July 29, 1999

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A while ago, I decided I was going to keep track of my own personal rate of inflation.

I’ve decided I’m going to gather the prices for the goods in my basket at the beginning of the month. I did that, but just didn’t post it until now. So here’s the baseline for the first month:

Gas: $3.11

Grapefruit: $0.50

DVD: $2.50

Wipes: $1.27

Chick-fil-a: $5.49

Milk: $2.69

Eggs: $1.25

Waffles: $0.99

Apples: $0.99

Bananas: $0.49

Juice boxes: $3.00

Chicken breast: $2.99

Electricity & Gas: $217.71 (July 2007) / $166.82 (July 2006)

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