Financial fire drill

Harvard Law Professor Elizabeth Warren is an expert on bankruptcy and is an outspoken critic of consumer lenders.

On this All Thing Considered interview, Warren argues that two-incomes families are at the greater financial risk than others.

A paradox

A middle-class lifestyle is increasingly out of reach for middle-class families, many of whom are going broke trying to attain it. And they generally need two incomes to make ends meet.

However, it's reliance on that second income (usually mom's) that's putting them in financial peril. By counting on two incomes to fund the basics of a middle-class lifestyle - including modest homes in safe neighborhoods with good schools and high-quality child care, preschool, after-school care, or college - families are without their safety nets.

Safety nets

A generation ago, if the sole breadwinner lost his (or her) job or became disabled, the family had a backup earner who could readily step into the workforce.

Today, families who hit a financial rock in the road often turn to credit cards, mortgage refinancing, and payday lenders - often at ballooning interest costs that drag families into a spiral of debt. More and more, bankruptcy becomes the only way out.

Financial fire drill

1) Can your family survive without the second income?

2) Can you downdrift the fixed expenses?

Don't stretch yourself to buy a house you can't afford.

3) What is your emergency backup plan?

- Protect what you value the most, such as family and home.

Warren encourages families to create a plan - savings to cover the mortgage payment for a few months, valuables to sell, a relative to move in with if circumstances dictate giving up the house - before disaster strikes and debt rages out of control.

Lastly, Warren really discourages families from using credits as safety nets.

Maxed out

Maxed out is a documentary by James D. Scurlock on America's credit card debt.

On average, American has credit card balance over $9,000.

Half of credit card holders only made the minimum payment.

The 2005 bankruptcy reform bill was written by MBNA, one of the top credit card issuers.

On average, credit card debt at the bankruptcy proceeding is $1 in principle & $2 in interests and fees.

Credit card companies do issue credit cards to people who declared bankruptcy because they know that those people can't file for bankruptcy again for another 8 years.

Suze Orman has a deal with FICO's parent company and FICO is the preferred credit score in the consumer lending industry..

Although college students don't have much income, they can get credit cards easily. One student had 12 credit cards!

Collection agencies can call on your neighbors or anyone in order to hassle and embarrass you.

There are no laws to protect your financial privacy from business.

People today have less income to pay for necessities.

Also, one more debt ...

An American family's share of the federal debt is $90,000.

The federal government spends more on interest payments than on homeland security, education, & health care combined.

Stop debt collection agencies calling you

All debt collection agencies love to call you at the most inconvenient hours.

FinanceIsPersonal.com has a sample letter for you to write, and send it certified mail, return receipt requested; telling the debt collection agencies that under the Fair Debt Collection Practices act, they are not allowed to contact you further in regards to the debt in question. If they do illegally contact you after that, you could sue them and will win quite easily.

Below is FinanceIsPersonal.com’s a sample cease and desist letter:

[Date]

To Whom It May Concern:

Your company has contacted me about a debt that you allege I owe, and I am instructing you to not contact me further in regards to this debt in question. Under the federal law (Fair Debt Collection Practices Act), you and your company may not contact me any further as I have notified you not to do so.

Sincerely,

[Your Name]

[Your Address]

Free file program from IRS

Since 2003, the IRS has administered a Free File Program, under which low income taxpayers can file tax returns online, free of charge.

However, TaxProf Blog reported

The Treasury Inspector General for Tax Administration has issued a report slamming the IRS's Free-File Program, charging that the electronic-filing software is replete with errors that affect even the simplest tax returns.

Fairmark.com also has been complaining

We stopped recommending the program on this site when it became apparent that it's run for the benefit of private software companies, rather than for the benefit of taxpayers or even for the benefit of the IRS.

Its purpose is to discourage Congress from requiring the IRS to offer its own free, convenient method of preparing and filing tax returns online while at the same time discouraging taxpayers from actually using the program, so they will continue to buy software and services from private companies.

So far, it has succeeded on both counts...

I too found a major problem with IRS's Free File Program:

Many of its partners do not offer free file for state tax returns.

Taxpayers have to pay as much as half of the regular software price to file the state tax return.

It's no wonder that Free File Program accounted for only 3 percent of the individual income tax returns filed in 2006.

Blockbuster vs Netflix

New plan for Blockbuster in 9/2007



The price for 1 dvd at-a-time will increase by 70%, and no more eCoupons for in-store rental of games.

I think I will try Netflix in September

A Chinese perspective on made-in-China

An article on Sara Bongiorni with Chinese perspectives: A US family's adventure in one-year made-in-China ban.

It has an interesting example on high-end products: Apple's iPod.

Apple outsources the entire manufacturing of the iPod to a number of Asian enterprises.

Three researchers at the University of California recently made a thorough analysis of the cost and profit of all the parts that went into the iPod, and found that out of $299 the retail price of iPod, $163 was captured by American companies and workers, according to a report by New York Times late in June.

While China makes most of the Toshiba hard drives, which are the most expensive component in iPod, and it only does the final assembly.

Chinese workers contribute only $4, about one percent of the cost of the iPod. However, the Chinese export of an iPod to United States directly contributes about $150 to U.S. trade deficit with the Chinese.

More

Economist Joel L. Naroff reminds readers that the "Made in Japan" label caused similar anxieties and introspection in the 1950s, adding, "almost everyone's standard of living is improved by being able to purchase less expensive products no matter where they are made."

Now it's China's turn. And for families whose income has been stagnant for the past 20 years, reaching for the "Made in China" label is simply a reality for getting by.

Mail in rebates (MIR)

The good

Getting products at lower cost

The bad

Paperwork
Mail-in the resquest
Waiting

The ugly

Request denied
Request lost in the mail

Life's firsts

From wsj.com

1st job

-401(k) (to capture full company matching)
-Asset allocation - contact the company managing your 401(k) plan
-To make most of other benefits - seek fee-only planner for an hour or two
-Absent workplace health insurance, shop for high-deductible policy and combine with a Health Savings Account
-Debt-management - especially student loan and credit card
-Other saving / investing priorities - seek advice again from fee-only planner

1st family

-Buying 1st home, stick to what you can afford (30%)
-Budgeting
-Debt-management
-Operate finances together

1st child

-Life insurance
-consider term life
-Estate plan
-Planning for college - 529 plan and other options

Brokers banks

Fidelity Investments
- mySmart cash account
- 3.5% interest rate

Charles Schwab Corp
- Invest checking
- 4.25% interest rate

E*Trade Financial Corp
- MaxRate checking
- 3.25% interest rate ($5,000 in average monthly balances to qualify)

Do these high interests and other perks outweigh the hassles of switching from your local banks?

Direct deposit and automatic payments have made it trickier for consumers to move their primary checking account to another firm.

Clements defenses his contrarian advice

Jonathan Clements (of wsj.com) argued that those people in their 20s should forget the emergency reserve and, instead, focus on things like putting enough in their 401(k) to get the full company match.

If they had a financial emergency, they could always borrow against their 401(k).

What if those twentysomethings borrow against their 401(k) and then get laid off?

The current law says that if you get laid off, these 401(k) loans have to be repaid immediately. If you can't come up with the cash, you would owe both income taxes and a 10% tax penalty on the money borrowed.

Clements suggests that after pay tax penalty, 401(k) loans still going to be ahead than the emergency fund which sits in say, a savings account or a money-market fund.

- 401(k) contribution will get company match.

- 401(k) contribution is tax-deferred and saving for emergency is not.

- 401(k) also gets tax-deferred investment growth and emergency fund gets short-term interest rate that probably exceed inflation rate by 1 or 2 points.

Clements assumes that there is no certainty we will have a financial emergency. Most of us don't regularly get laid off, wrap the car around a telephone pole, or need an emergency appendectomy. In fact, many of us will make it through our entire lives without a major financial crisis.

I disagree with Clements.

We will have financial crisis sooner or later. We will change jobs - planned or unplanned, We will have car accidents.

If you can't amassing an emergency reserve equal to six months of living expenses, save $1000 for for a beginner emergency fund instead.

Also, you're repay the 401(k) loan with after-tax dollars. So, let's say your monthly interest payment is $300 and you're in the 25% tax bracket. You'll have to make $375 to make the $300 payment. Then, when you retire and withdraw from 401(k), you pay taxes yet again.

$99 Zonbu computer

This computer is a desktop preloaded with 20 popular & full versions Linux programs. It comes with free, automatic, online backup of your files, and a design that cuts energy use way below that of a standard computer.

It uses just 10 watts while a standard PC uses 200 watts.

But you've to get your own display, keyboard, and mouse. You also have to have a broadband connection!

The PC is $99 if you get a two-year Amazon S3 service plan. For $13-$20, you get 25-100GB of synched data. It is sold for $249 without any commitment.

WALTER S. MOSSBERG of wsj.com reviewed this pc from Zonbu and found it has many compromises that belie its goal of eliminating hassles.

1) You aren't allowed to install any added software. You seem to stuck with what the company provides.

2) Most Linux softwares ate rough, below the polished level of Windows or Mac programs.

3) The Zonbu crawled much of the time.

Folders took forever to open, email took way too long to appear, and so forth. And it was on a very fast Internet connection. This may be because of the very wimpy processor (1.2GHz intel-compatible VIA C7 ULV chipset) Zonbu uses to save money and energy.

New method college

I studied at 新法書院 from F1 to F5 ...

How the school started

1953年，創校人王澤森博士在加路連山道買地擴建校舍，加路連山道分校遂於1956年落成。而太子道分校、大坑道分校、文褔道分校分別於1964、1966、1971年落成。當時該校連同英文專修日、夜校的學生 曾接近二萬。

How the school going to end

於一九四九年創校、至今已有五十七年歷史的老牌學校新法書院，突然宣布六年後 (2012) 停止辦學，該校將於明年 (2007) 九月起停止招收中一級新生，成為本港第三間停辦的直資中學。該校校長黃廣威解釋，辦學團體在檢討過現有校舍的空間及地理環境後，認為現有的校舍無法為學生提供足夠的配套及學習環境，他說︰「校舍只有三千平方米，根本沒辦法與其他擁有千禧校舍的學校相比，暫時未有在其他地方重新辦學的計劃。」

近年收生理想

位於何文田文福道的新法書院是本港其中一間老牌學校，四九年創校後經歷過「私校」及「買位」兩個階段，該校於九七年加入育統籌局推出的「直接資助計劃」，轉為「直資學校」，新法書院近年不斷透過電視廣告宣傳學校，又推出中一至中三免學費優惠，近年收生情況理想。

But

校方前天發出通告，指校方因為「未能再進一步為同學提供更佳之學習環境」所以決定停止辦學。黃廣威強調，停辦是以學校發展為大前提，與財政問題無關，現時學校一千二百名學生不會受到停止辦學影響，他說︰「學校會等所有學生畢業後才停辦，現有學生不會受影響……宣布停辦後，校方預計今年的中一收生情況會受到影響。」統局發言人指出，局方早前已得悉新法書院以「營辦上的考慮」為理由，將於0七年九月開始停止招收中一級新生。

I still remembered ... those 新法書院的校服

夏季時, 女生穿藍衣白裙的水手服, 男生純白襯衫和白褲。

Rebalancing your portfolio annually

Source: When It Comes to Rebalancing, a Little Means a Lot By PAUL J. LIM of nytimes.com

Over the long term, stocks tend to outperform bonds.

If you have not rebalance your portfolio for several years, chances are that you probably have more exposure in stocks than you intended.

Moreover, you are probably overexposed to the most volatile types of stocks.

So some rebalancing may be better than no action at all.

Example of asset allocation

Over the last half-century, the worst one-year stretch for a portfolio of 60 percent stocks, 30 percent bonds and 10 percent cash was a loss of 24.1 percent. That occurred in the 12 months that ended in September 1974.

By comparison, the worst one-year loss for a more conservative mix — 40 percent stocks, 40 percent bonds and 20 percent cash — was just 15.5 percent during the same period.

Yet to achieve this lower risk, you would have to give up a decent amount of gains. The switch in asset allocation strategy would have reduced your average annual returns to 8.3 percent from 9.2 percent.

Rebalancing your portfolio once a year

Say you started investing at the end of 1984, in a portfolio consisting of 60 percent stocks, 30 percent bonds and 10 percent cash. And further assume that you never rebalanced this portfolio back to that 60-30-10 ratio. Instead, you let the market take your investments for a ride.

Through the end of June, this strategy would have earned an average annual gain of 11.1 percent since 1984.

Now, had you started in 1984 with the same strategy, but this time rebalanced your portfolio annually, you would have earned nearly as much on your investments: 10.7 percent a year, on average.

But at the same time, that portfolio would have been 18 percent less volatile, based on standard deviation.

The buffering effect of rebalancing might have been enough to let you sleep better at night.

More on rebalancing

Rebalancing is not just about resetting your mix of stocks and bonds. You should also consider periodically resetting the types of stocks you own.

For instance, over the last five years, many of the best-performing areas of the stock market have also been among the most volatile.

Those include the basic materials, telecommunications and technology sectors, all of which have a “beta” of more than 1.0. (Beta measures the tendency of an investment to go up or down, relative to the market — in this case the S&P 500 index. So a beta of more than 1 implies that if the S&P 500 were to rise or fall 5 percent, for example, that investment would rise or fall even further.)

On the other hand, two of the lowest beta sectors in the market — health care stocks, with a beta of 0.6, and consumer staples stocks, at 0.5 — have been the market’s worst performers over the past five years.

One way that investors might consider rebalancing the stock portion of their portfolios is to gravitate toward areas with lower volatility, like health care and consumer staples, while avoiding those highly volatile areas that have already done exceptionally well..

Another way to rebalance — without selling any holdings — is simply to take your new money and invest it in areas that many investors have ignored in recent years, like large-capitalization domestic growth stocks and stock funds. These may be worth buying now.