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By Kevin M
How is it, that when we put money into commodities or raw land, we’re “speculating”, but when we buy growth stocks or growth stock mutual funds, we’re “investing”? Where’s the dividing line? Is there a dividing line, or is it all marketing spin?
In recent decades, investing in the stock market has become common even and especially among the middle class. We’re routinely guided to “invest” money in stocks for future gain, and inundated with newspaper, magazine, TV and internet ads promising us double digit returns for placing money in this or that mutual fund—albeit with the caveat “past performance is no guarantee of future performance”. But exactly how do we process all of that? Do we process it at all?
In Investing Basics: What Is an Investment? Paul Williams at Provident Planning introduces the concept of familiarity blindness, a state in which “most of the basic questions don’t occur to (us) any more”. This is a valid observation of the human tendancy to avoid challenging assumptions once they’re fixed in our minds. Though we give lip service to the volatility of the stock market, do we also turn a blind eye to it’s clear speculative nature?
Continue reading Are We Investing or Speculating in Growth Stocks? →
By Kevin M
Question: is a car an asset or a liability?
That was a theory question in a sophomore level accounting course I took in college way back when. After some debate among the class, the professor confirmed what we all knew, that the technically correct classification is “asset”, but felt compelled to add, “Of course, in the real world, we all know that automobiles aren’t assets at all, they’re liabilities that cost money and continually drop in value from the moment you drive them off the dealer lot.”
Most of us know this to be true intellectually, but does that reality guide our decisions at buying time?
Cars represent a structural expense, that is, an expense that’s mostly a consequence of an underlying cost structure created at the time of purchase. Once we’ve made the initial purchase, we’re largely stuck with the expense level over a period of years. It’s in our best interest then to make the most intelligent decision at the time of purchase.
With that thought fresh in our minds, I believe used cars are the better choice for most people in most cases.
Continue reading New Car or Used Car – Which is the Better Deal? →
By Kevin M
One of the most compelling reasons for owning a home is the heavily touted tax benefit owing to deductions for mortgage interest and property taxes. Real estate agents will play this benefit for all it’s worth in extolling the idea of homeownership for all.
However for three reasons, this benefit is not what it used to be: a generous standard deduction, low mortgage rates and low marginal tax rates.
The tax benefit of homeownership became an entrenched concept back in the 1970s and early 1980s and at that time it had overwhelming merit. Mortgage rates were in double digits most of the time, marginal tax rates ran as high as 70% and standard deductions were down in the low thousands. Owning a home made major sense even for moderate income earners and was an article of faith in the higher income brackets.
None of that is true today, yet the tax savings pitch remains. Standard deductions can exceed $11,000, interest rates are down around 5% and marginal tax rates cap out at 38% (but are substantially lower for the vast majority of households). Yet the notion of major tax savings remains almost unchallenged.
Continue reading Tax Benefits of Homeownership – Three Reasons Its Over-rated →
And other questions you should ask before buying a home!
By Kevin M
Many articles have been written on the buy-verses-rent question, but most of the analysis tends to center on the dollars and cents side of the question. We read about tax advantages, investment potential, home buyer tax credits, income ratios—all important considerations, but all essentially monetary in nature.
Rather than crunching numbers, I’d like to consider the question from a mostly non-monetary angle, and discuss factors which are of at least equal importance in making the decision to buy or rent a home. Most have to do with lifestyles, attitudes and future prospects.
Continue reading Buying vs Renting a Home – Its Not All About Money →
IS CONVENIENCE OUR SERVANT OR HAS IT BECOME OUR MASTER?
By Kevin M
For most of the 20th Century convenience was pursued as a means to make life easier and to eliminate undesirable chores from daily life. To the World War II generation, the 1950s brought a surge in time saving devices that were a welcome relief to the difficulty they knew well from earlier in life.
Today’s generations however know little of the hardships faced by that generation. Worse, most of us don’t know life before convenience. In our world today, convenience is a given; the only real issues are how much of it we incorporate into our lives and which specific methods we choose among the many options.
More often than not, we’ll pay extra for convenience—anything that will move us along faster, spare us from handling menial tasks or prevent us from being uncomfortable. Though people have always sought ways to avoid drudgery and make life easier, in our own day and time convenience has become an expectation, a norm, and even a right.
Continue reading The High Cost of Convenience →
By Kevin M
This is just my opinion, but I think tipping is kind of a crappy set up. A restaurant relies on tips to pay the staff a decent wage, so the waiter/waitress is caught in the middle, working for a business that won’t pay them fully for what they do, but never certain the customer will either.
That’s why I don’t have a problem tipping, even though there should be a better way. But the reality is that there isn’t, so we work with what we have. It’s worth remembering too that if restaurants paid their staff living wages the menu prices would be substantially higher, so the upshot is that we have some flexibility on the price if we don’t like the service.
Everyone has their own ideas when it comes to tipping, and here are mine.
Continue reading Restaurant Tipping – How Much and When? →
By Kevin M
Conventional wisdom holds that once a car reaches a certain age and book value that the collision coverage portion of an auto insurance policy be canceled. But I may have stumbled upon a compelling reason why you might not want to drop the coverage no matter how low the book value of your car.
My wife and I own two cars, both of which have long since been paid off and at least one of which has a book value low enough that most financial advisors would recommend dropping collision. However, as both cars are of advanced age, we’ve been renting vehicles for the two or three long distance trips where flying doesn’t make financial sense. This saves a small fortune over the purchase of four round trip air fares and gives us use of a late model vehicle a good distance from home.
When renting a vehicle, one of the requirements of car rental companies is current and adequate auto insurance coverage, including collision and comprehensive. Had we dropped our collision coverage, we would be required to pay for coverage through the rental company.
Continue reading One Good Reason NOT to Cancel Your Collision Coverage →
By Kevin M
If you’re living paycheck-to-paycheck, and struggling just to get by each month, that situation won’t improve until you reach the point where you have a cushion to back you up. You might think that the pressure would be eased by an additional income source, but the problem with higher income is that in a short time it tends to get swallowed up by Lifestyle Inflation—the more we earn, the more we spend.
Some financial types recommend paying off high interest credit cards before beginning a serious savings account. They cite math equations pointing out the numeric absurdity of carrying high interest credit cards (13% or more) while earning close to nothing in interest (1-2%) on savings. On paper, backed up by numbers, this looks very compelling.
Continue reading Start and Grow Your Nest Egg, Even if Your Broke →
STRATEGY #9 TO SURVIVE A DOWN ECONOMY
By Kevin M
In the best of times, borrowing seems to be a sensible way to get the things we want but can’t afford to purchase in full right now, but we’re sure we can tackle later with a predictably increasing income stream.
But when economic fortunes shift into low gear—as they are now—the same debt accumulated during better times can become a heavier burden, even one which is impossible to bear. Other than paying debt down and eventually off completely, there isn’t much we can do about the debt already accumulated. But the Great Recession should be a wake up call to all who might have come to view debt as a traveling companion in life.
In 10 Ways To Survive a Down Economy (published on Christianpf.com June 1) we listed ten strategies to help you deal with the bad economy. Our topic for today, Strategy #9:
”Envision a future without debt, and then pursue it.” Gradually pay down—then pay off—your debt. This includes your mortgage. It should go without saying that lowering your cost of living will be a crucial element in this effort as well. (Are you noticing a pattern?)”
Is that even possible any more?
Continue reading Envision a Future Without Debt →
Kevin M
I hate this topic—so why am I writing about it? Because it seems to be a staple topic of the personal finance blogosphere! And almost universally, the conclusion will inevitably come down on the side credit cards as the better deal.
Warning: if you’re looking for that same conclusion here, you’ll be disappointed. Being contrarian by nature, here’s my take on the debate.
I think debit cards are the lesser of the two evils mostly because there’s little chance with a debit card that you’ll end up paying for this months expenses next month, next year or over the next 10 years. That ices it for me, but we can go on.
We can get into the mechanics of which costs more or has better benefits, but those are details that ignore the most important element–the human factor. If we’re all trying to get out and stay out of debt, spending with a credit card is a contradiction in terms.
Worse, for those who have dug themselves out of a debt hole and think that credit cards are now your friend, just remember that like an alcoholic, you aren’t cured, you’re just recovering. Why play around with credit cards when you got into trouble with them in the past?
Continue reading Credit Cards vs. Debit Cards – A Different Take →
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General: Any information in regard to money, credit, personal finance, or in regard to any other monetary topic, provided or shared on OutOfYourRut.com is presented for information and entertainment purposes only and does not constitute financial advice. It is intended to provide general information only and does not constitute personal financial advice in regard to your specific circumstances...MORE-->
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Tax Benefits of Homeownership – Three Reasons Its Over-rated
By Kevin M
One of the most compelling reasons for owning a home is the heavily touted tax benefit owing to deductions for mortgage interest and property taxes. Real estate agents will play this benefit for all it’s worth in extolling the idea of homeownership for all.
However for three reasons, this benefit is not what it used to be: a generous standard deduction, low mortgage rates and low marginal tax rates.
The tax benefit of homeownership became an entrenched concept back in the 1970s and early 1980s and at that time it had overwhelming merit. Mortgage rates were in double digits most of the time, marginal tax rates ran as high as 70% and standard deductions were down in the low thousands. Owning a home made major sense even for moderate income earners and was an article of faith in the higher income brackets.
None of that is true today, yet the tax savings pitch remains. Standard deductions can exceed $11,000, interest rates are down around 5% and marginal tax rates cap out at 38% (but are substantially lower for the vast majority of households). Yet the notion of major tax savings remains almost unchallenged.
Continue reading Tax Benefits of Homeownership – Three Reasons Its Over-rated →