Archive for November, 2009

Now that you’ve stuffed your face on Thanksgiving and stuffed your cart on Black Friday, the first weekend of the winter holiday season offers up a new form of temptation in the form of Cyber Monday, when people go back to work and use their companies’ high speed broadband connections to surf the web for deals of all sorts. But just like that third helping of turkey, you may not be able to stomach the problems that this can lead to.

The biggest threat is that you overload your virtual shopping cart with things you never intended to buy, suckered in by the allure of the discount. It helps to know exactly what you’re looking for and who the recipient is, so that you’re not browsing the online stores willy-nilly. Financial landmines abound.

It’s important that you remember that no matter how good the deal is, you’ll get 100% savings on the things you don’t buy and never really needed. It’s not likely that you’re in debt because of your self-restraint. Make a list of who you need gifts for, how much you’re willing to spend (and check it twice.)

The other big concern is that by its nature, online shopping means using plastic. And anytime you use a credit card, you are inclined to spend more than you do with cash. You can use your debit card instead, but it doesn’t provide you the same protections that credit cards do in case of fraud. Check out this info from Kiplinger.com regarding the risks of using debit and credit cards.

Your best bet may be to look at any cards you have with cashback options, to help ease the burden of your holiday expenses.

Also, it may be difficult or expensive to return items that don’t quite meet your expectations. Since you can’t see, feel, taste or otherwise sample what you’re buying you can’t be fully sure that it is what you want. Make sure that the online retailer of your choice has a generous return policy (with free return shipping) or you may get stuck with extra charges you weren’t expecting. Not to mention having wasted your precious holiday shopping time.

And for heaven’s sake, beware of the perils of cyber-surfing at work. More employers than ever are using sophisticated tech tools to monitor their employees’ time spent online and Internet sites they visit. Considering the fact that 16% of Americans are unemployed or underemployed, you do not want to give your boss any additional reasons to begin looking for your replacement.

So if you are going to snag some Cyber Monday deals, shop from home, have a plan and a budget and read the fine print. Happy holiday hunting!

Now is the time to start planning your tax strategy for 2010. It’s hard to get out from under debt in a slow economy when your paycheck is being sucked dry by your Uncle Sam, who needs the cash to fund the various stimulus program. The good news is that tax rate brackets and other tax breaks appear to be largely unchanged for next year. This is primarily because of tax rates and programs being tied to inflation, which is practically nonexistent right now.

So here is your 2010 tax table.

Other key provisions of the 2010 tax code include:

• The value of each personal and dependency exemption available to most taxpayers is $3,650, unchanged from 2009.
• The new standard deduction for heads of household is $8,400, up from $8,350 in 2009. For other taxpayers, the standard deduction remains unchanged at $11,400 for married couples filing a joint return and $5,700 for singles and married individuals filing separately. Nearly two out of three taxpayers take the standard deduction rather than itemizing deductions, such as mortgage interest, charitable contributions, and state and local taxes.
• Various tax bracket thresholds will see minor adjustments. For example, for a married couple filing a joint return the taxable income threshold separating the 15 percent bracket from the 25 percent bracket is $68,000, up from $67,900 in 2009.
• The annual gift tax exclusion remains unchanged at $13,000.

From IRS.gov.

So put down the eggnog and head over the the IRS website and start planning for the upcoming year. Remember to contribute the max to your 401(k), take advantage of Health Savings Accounts and make sure that you are keeping records, receipts and notes on all the tax tips you get throughout the year from Debtbeat.

The country is in the worst financial crisis of our lifetimes due lots of bad bets, bad decisions and bad actors on every side of the table. The people at fault range from the criminals (e.g. Bernie Madoff) all the way down to the families who simply failed to save during the boom times and found themselves out of a job when the recession hit. Somewhere along the spectrum are government regulators, investment banks, car companies, real estate speculators and everyone else.

But I have to invent a category all its own for Daverena White, the subject of a recent Washington Post article titled The $698,000 mistake.

To make a long article short, Ms. White, a single mother who had never paid more than $700 a month for rent and who depended on Section 8 housing vouchers over the years, took advantage of every questionable lending practice perfected in this decade to take ownership (albeit briefly) of a nearly $700k four-bedroom house. You can almost write the ending. Foreclosure, unpaid utility bills a stint in a homeless shelter and the hope of another subsidized apartment.

This financial fiasco was facilitated by Wendy Zhang, the seller, who happened to work as a mortgage loan officer and whose husband was a licensed Realtor. They had flipped multiple properties during the boom and made a $200,000 profit on the sale to White. For that kind of money, they were all too eager to grease the skids by connecting White to a subprime lender, inflating White’s bank accounts the day before closing and making her initial mortgage payments.

And why would they need to do that? Because White learned, only at settlement, what her outsized payments would be.  According to the article:

White signed papers while waiting for the one she cared most about: her monthly payment. She had not yet been told what it would be. ”Please let this be something I can afford,” she said to herself. She was pretty sure she could afford $2,000. She told herself that if her day-care business did well, perhaps she could afford $2,500. If it was $2,800, she would struggle. Here, now, came reality: $5,635 a month.

White knew she was in over her head, and even stepped out to call a friend in New York for advice. Their advice? Don’t sign. But after a brief chat with the Zhangs, Ms. White inked the deal. She wanted it too badly, and it was only going to be a matter of time before fate laid the smack down on her dream.

The pictures and language in this pity piece are clearly meant to elicit sympathy for Ms. White. This is much more a human interest story than a cautionary tale, if for no other reason than the fact that companies aren’t writing these kinds of loans anymore.  But the writer did have the honesty to say about her troubles:

It happened in White’s case even though the college-educated day-care provider knew deep down that she was not ready.

I readily admit to my own financial foibles and that’s why I launched Debtbeat as a place for kindred spirits to get right with their money. To put things in perspective, I actually bought a new house a year before the market’s peak. I drive a Jaguar, wear a Rolex, and keep the Joneses in my sites at all times. My debt still needs to cut and my savings need to grow. I should even revisit my life insurance and estate planning.

However, I still have a hard time understanding people like Ms. White. (The first thing I noticed was that  her house was a lot more expensive then mine is, and yet she wasn’t making a six figure income with no kids to support.)

Hindsight is 20/20 and we can all see that she was doomed to fail, knew it in her heart and yet still pressed on to the detriment of her children and financial future.