Advanced Personal Finance

Is there a point to signing credit card receipts?

I was at Home Depot yesterday buying a plumbing part we needed. I used the self check-out (I love self check-out). When I got to the part where you use the little light saber to sign your name, something a little odd happened. The screen where you sign your credit card ‘receipt’ was mounted at an odd angle. As a result, my signature looked nothing like it normally does.

(My signature as far as Home Depot knows)

Then it hit me.

Why the hell do we sign credit card receipts, let alone electronic ones?

Seriously, what difference does it make? Obviously it’s not legally required (e.g. you don’t sign at a gas pump). No one ever checks to see if how you signed looks even remotely like the signature on the card. (For a great post on signing the back of credit cards, see what Money, Matter, and More Musings has to say about it.)

So what’s the point?

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News flash - Having more money will not solve your money problems.

I can’t tell you how it drives me nuts when I hear, “If I just made $10,000 a year, man, I’d be set.”

No you wouldn’t.  You’d just buy $10,000 worth of crap and be back in the exact same place you are now.  You’d still have crappy spending habits and no self control.

Let’s get this straight.  If you have it together now, you’ll have it together with a higher (or lower) salary.  If you can’t live below your means and save a little something for the future now, you won’t be able to with more money.

I’m not trying to sound preachy.  I’m just a regular guy.  Thirty-something with two kids and a mortgage.  My wife and I paid for our college degrees the old fashioned way - with student loans.  We bought our house the old fashioned way, too - by living in a crappy apartment and saving like crazy for a down payment.

Your money decisions are yours alone.  Hell, your life decisions are yours alone.  Regular guys and girls can do it.  You absolutely can live a balanced life, pay your bills, and save some money.

You just have to want to.

Making an extra $10,000 per year - that’s the easy part.  Changing dumb money habits into smart ones - that’s the hard part.

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As if you needed another reason to invest in index funds, consider just how much doing so saves you in taxes. It’s capital gains season. Late in the year, mutual funds must distribute their taxable capital gains amongst their investors. Index funds, by their nature, have very little in the way of capital gains.

Unlike an actively managed mutual fund, index funds change their stock holdings very infrequently. As a result, they rarely take any capital gains (or losses for that matter). What that means to you is, assuming you hold the fund in a taxable account, you can save hundreds or thousands of dollars in taxes every year, year after year, compared to an actively managed fund.

According to Lipper Inc., the average actively managed stock fund gave up 1.4% in returns because of taxes. As an investor in an actively managed fund, you’re already behind.

This year might be particularly hard on active funds. According to this Wall Street Journal article, many funds will likely make dramatically higher capital gains distributions this year. It seems many of them have burned through the capital losses they carried forward from earlier in the decade.

Incidentally, year-end distributions mean you should probably not invest in an actively managed fund late in the year. If you do, you’ll just be handed back part of your investment in the form of capital gains. You’ll be paying taxes on gains you didn’t get the benefit of earning. That’s what is known as a sucky deal.

I keep it simple. In our taxable investment account, we hold only an S&P 500 index fund. Last year, we had no capital gains (we did have taxable dividends, however). I’m a big believer in index funds; I recommend them highly.

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Natural disasters can occur anywhere.  Just ask the people in California running from the fires raging there.  The pain is just beginning for some of them, though.

After all is said and done, people who lost their homes might be in for a big shock.  It’s very likely some of them won’t be able to rebuild their homes, not because they don’t have insurance, but because they don’t have enough insurance.  And it can happen to any of us.

When you buy your home, you obviously insure it.  Thing is, the policy is based on your home’s value right then.  After the recent run-up in home prices, especially in places like California, your insurance may not have kept pace.

Adjusting your homeowners insurance according to the cost of rebuilding your house is a critical step.  It’s easy to do - I did it recently.  Just call up your insurer and ask what your coverage is.  If it’s inadequate based on the selling price of comparable homes in your area, just have them adjust it upward.  (Make sure your not insuring your land, though.) Sure it will cost a little bit more, but you’ll know that your house can actually be replaced after a total loss.

As some people in California are about to find out, after a disaster is a really bad time to find out your under insured.

[Image courtesy Meyer Media]

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Most people know it’s a good idea to save for retirement using a 401(k). But how do you know if your 401(k) plan is a good one? Sometimes it works out to be a better idea to save elsewhere if your 401(k) sucks. How do you know if yours sucks? What does a good 401(k) look like?

For the 53% of American workers who are even offered a defined-contribution plan (of which the 401(k) is but one), it’s not always easy to tell how good theirs is.

Here are the features of a good 401(k)

• Has an employer match - the higher the better. A common employer match is something like 50 percent on the first six or eight percent. Forty-five percent of 401(k)s with a match fell into this category in 2006 according to a study by Mercer Human Resource Consulting. Bonus points - your match is in cash, not company stock.

• Has immediate or very quick vesting. ‘Vesting’ refers to how long you have to wait for the employer match to truly be yours. If you leave the company before you’re fully vested, you forfeit some or all of the matching contributions. That truly sucks, so a good plan has immediate vesting.

• Allows you to participate right away. For the life of me, I cannot figure out why some companies offer a 401(k) but won’t let new employees participate right away. I’ve seen plans that make you wait six months or more. What jackass came up with that idea? As if it’s not hard enough getting people to participate in 401(k)s. Now you have interia working against you. Even if the employee remembers to sign up, some are bound to be deterred by the decrease in take-home pay. Good plans don’t make you wait.

• Allows loans. Look, I don’t recommend 401(k) loans. But the fact is, people are more likely to participate in the plan if they have the reassurance of being able to get at their money through a loan if necessary. Since only 42% of people contribute to a 401(k) plan, any way to increase that number is a good reason. Bonus points - the plan has generous repayment rules. Often, if you leave the company while a 401(k) loan is outstanding, you have some stupid short period of time to repay the loan or it becomes a distribution. That’s bad. A truly good plan will allow a good bit of time before you must repay any outstanding loan.

• Offers a handful of high quality funds. The best 401(k)s will offer inexpensive funds, several different index funds and/or lifecycle funds, and all the major asset categories (stocks, bonds, real estate, cash). I really like lifecycle funds which allow you to choose the date closest to your target retirement date and invest in just that one fund. I think the Ron Popeil ’set it and forget it’ style is appealing. Bonus points - the plan doesn’t offer 40 different funds. Sometimes more choice is not better. This is one of those times.

• Offers a Roth 401(k) option. I think the Roth 401(k) is awesome. These are just like a Roth IRA in most respects. Roths are awesome because you fund them with after-tax dollars, but when you withdraw the money, it’s tax-free.

Probably no 401(k) plan has all of these features. But the more closely your 401(k) matches this list, the better. Saving for retirement can be hard, but having a good way to do it helps a lot.

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