Wise Bread (Anthony Marrone)

Budget Busters

Anthony Marrone — Tue, 05 Feb 2008 05:47:03 +0000

Every day I read about 60-70 personal finance/frugal living blogs. Through the help of many of our online friends, I have been fortunate enough to put my personal finance position into its proper perspective, and begin to take ownership of my financial decisions and decision-making. However, even after completing a total overhaul of my spending and budgeting, there are some financial pitfalls I cannot avoid.

I often think about the little financial "sea of troubles" many times throughout the course of my day. I acknowledge several times a day, that despite all I learned, and all I am willing to learn, at some point the knowledge must translate into action, and through persistent action, habit. But, the process of financial planning is imperfect, that's why there are so many resources offering sometimes competing advice. This thing of ours (personal finance) is an imperfect science, one we must know inside and out, before we can hope to master it.

A famous Chinese proverb sums up the mess of our struggle with personal finance, "To learn virtue takes three years; to learn evil, one day." While I think three years might be quite optimistic, it is important to take steps toward acknowledging your faults, in order to turn vice into virtue.

With that in mind, I've listed some financial problems or areas of concern for my life. No matter how much energy I put into these areas, I generally cannot reduce the significant amount of stress they put on me and my budget:

Automotive Expenses

Between auto loans, insurance, gas, maintenance, our automotive costs for two people sometimes consume nearly 40% of our entire monthly expenses. This is completely unreasonable. I've considered re-financing the auto loans to take advantage of lower rates, but banks do not like our high student loan balances and the fact myself and the future-wife (more on that below) are both still in school with no full-time jobs. I've also considered trading in the SUV for a compact-car to save on fuel efficiency. However, I have problems parting ways with my truck (especially with all the snow Upstate NY gets) so we are quasi-content to maintain the status quo, but try to carpool or walk whenever possible. I've promised some people a blog post on this topic and apologize for its delay, but I'm also considering how much fuel, i.e. money, I waste using my remote car starter approximately 600+ times per year. Until that post is finished, suffice it to say, the automotive expenses in our household elevate the stress/anger level a good two or three notches.

Dining Out

Let me start by saying I love gourmet food. This flies in the face of almost everything we are trying to accomplish. To that end, we've reduced the amount of times we eat out (down to maybe once or twice per week) and become more conscious of what we buy at the grocery store. The problem is that when you weave our school/part-time work/internship/community involvement schedules together, there is little time left to cook. For some time we were both on Weight Watchers (eliminated as a frivolous expense) at the end of last year and since then we've been eating mostly healthy foods. The limited time for meal preparation + expensive healthy snacks puts a damper on the finances, but it is a welcome problem, because the causes are school (more education = more $$$) and a desire to eat healthy.

Wedding Costs

Planning a wedding is not for the faint of pocketbook. We are both having a great time planning our wedding this June. However, we are not having a fun time dealing with the costs of our wedding. Getting married is expensive, but getting divorced is more expensive, which is why I don't mind spending gobs of money to marry the person I know I am going to be with forever (hope she's reading!) I checked out Myscha's article on going green with your wedding, and was delighted to learn that we were implementing many of her recommendations.

Consumer Debt

This section is the bane of my existence. After implementing the debt snowflake model and porting our one credit card with a high balance over to several smaller cards with long 0% balance transfer periods, I feel this category is starting to come under control. Since we currently only pay the taxes on our house (although we plan on moving and purchasing a new house soon) and our student loans are still in deferment based on our active enrollment in Grad School, the credit cards are currently our only active debt. Admittedly, we'd be paying them down much faster if we weren't constantly setting money aside for the wedding. My goal is to be credit card debt free by the end of 2009, although I think the freedom will come much sooner then that.

Grooming (Damn It Feels Good To Be A Gangsta)

Total vanity point. I love to buy expensive male grooming products. Fusion Power razor blades, Grooming Lounge shaving products, Molton Brown soaps and shampoos and expensive colognes are my weakness. My partner-in-crime over at The Frugal Law Student has even spun-off and started a great new website, The Art of Manliness (check out his article on shaving like your grandfather ). There is nothing that brings me more pleasure then spending the afternoon surfing the web to purchase another over-priced hair care or shaving product. That being said, I'm trying to cut down. Trying is the operative word.

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Frugal Music Options Fade

Anthony Marrone — Tue, 29 Jan 2008 20:54:59 +0000

By Anthony Marrone

When I was living in the dorms during college, several of my peers received threatening letters from the Dean (via the RIAA) specifically identifying movies they had illegally downloaded and were sharing on the school's network. The Dean then instituted a computer-scan policy where the RA's were responsible for checking resident's computers for software which could be used to share files illegally. Our school thereafter subscribed to Ruckus, a service where the school pays a huge flat-fee to the company, and in turn, students may download unlimited files for free. The only two catches were: (i) no iPod compatibility; and (ii) shallow music catalog.

I've long since subscribed to iTunes service which I find sufficient for my music/podcast/movie purposes, but which often has a very negative effect on my bottom line. It's just so easy to click "Buy Song" that you don't even realize how the $.99 add up.

I was overjoyed to read about new legal peer-to-peer software which had struck deals with all the major record labels, and would offer millions of free songs (in a legal fashion) which would be compatible with iTunes and iPods. Then came the shocking news. Qtrax had prematurely claimed they reached deals with the major record labels, and now the site which promised to change the face of the music industry around the world is crumbling under the weight of all the negative press.

This is especially bad news since I've lately been upset about the lack of depth in my music library. With that in mind, I'm going to offer a decent list of some free (or cheap) and legal (or quasi-legal) options for expanding your music options coupled with some pitfalls to avoid, hoping this will generate an open dialogue on alternative ways of legally expanding your exposure to various forms of music:

Use ourTunes (At Your Own Risk)

For many people iTunes is the music software of choice because of its ease of use and compatibility with the most popular mp3 players, the iPod. An open source program known as ourTunes which has faded in and out of existence as Apple constantly modifies its iTunes software, allows you to basically rip music from anyone who is sharing their files on your network and burns the songs you select to your music folders. I'm not positive of the legality of this system, and you should only use it at your own risk. I use it because it allows me to "permanently borrow" music the fiancee has downloaded onto her Gateway and increase the iTunes library on my MacBook.

Lala and other Trading Sites

There is a whole litany of sites like Lala and swapacd, which allow for users to interface with each other and either exchange music online or via snail mail. These systems are usually only as strong as the users who support them, and none of the platforms out there offered the huge library capabilities that Qtrax promised. However, this does provide a secure, generally legal forum for expanding the size of your music library.

Avoid Sites Purporting to Offer Millions of Legal Downloads Once You Pay A Fee

Misleading tags that attract huge crawls from search engines like "free ipod downloads" "free songs" "free music" lead you to sites that look semi-professional and have names like "ipoddownloads.net" or "ipodmusicdownloads.info". AVOID THESE SITES! Through ambiguous information in the FAQ and information sessions, these sites try to convince you that if you pay an annual fee you will have access to millions of legal downloads which are compatible with your iPod. In reality, what you will pay for is access to about 4 illegal peer-to-peer sites that you could access for free anyways. These sites will always throw in some kind of "converter" software to help you port the mp3's into Apple iTunes format, but ultimately all of these sites are scamming consumers.

Buy Used, eBay, Amazon, Etc.

There is a great used music store downtown where I live that buys and sells used CDs/DVDs and lets you listen to entire albums by popping the CD into one of their several multi-disc players, accompanied with nice headphones and even a stool so you can relax. If your city doesn't have a great store like this, turn to my personal favorite Amazon or eBay to buy music at ridiculously cheap prices from users looking to unload CDs cluttering their closets. Of course, Amazon also offers downloads for a fee, but who wants that?

These are just a few of the options (and non-options) I've explored to expand my music library. But I want to know: What works for you?

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25 Things I Don't Want to Regret Once I Retire: Take Two

Anthony Marrone — Thu, 24 Jan 2008 09:00:38 +0000

By Anthony Marrone

Since posting the first part of my list of 25 ideas and goals that I want to live by and be able to look back on with pride when it comes time for me to "hang it up". I've reformed the list in the past couple days, especially after reading all of your great comments. Without further ado, the exciting conclusion of "25 Things I Don't Want to Regret Once I Retire":

13. Charity: Not Just For Suckers

I have many clients with some serious charitable inclinations, we're talking people who give away their entire fortune to charitable causes. Now, I have no problem throwing $20 in the basket at church on Sunday, but I've always been speculative about giving away all of my wealth. The reality is, I don't think giving to charity has to be so extreme (although it does seem very nice) and the giving does not have to be cash-focused. Giving away used household items, cell phones, books and electronics not only will satisfy my thirst for social justice, but will also provide me with a nice charitable deduction (assuming I follow the rigid IRS guidelines).

14. Invest

This is open-ended on purpose. My definition of investing wisely probably differs greatly from other people's definitions. I think good investing involves a blend of traditional investing techniques, including stocks, mutual funds, etc. But I firmly intend to dedicate the bulk of my investing in non-traditional areas, including peer-to-peer lending (Kiva and Prosper are great starting points) and community investing. What I mean by community investing is that I intend to pour money into my local community and hope that the investment serves to purposes: urban gentrification and putting a healthy chunk of change in my pocket.

At my church I'm currently spearheading a project where we have arranged to purchase a home in tax foreclosure from the City for $1, and in exchange, we will rehabilitate the house and "flip" it, the only catch is that any prospective buyer must agree to owner-occupy the house. All told we will be doing a great community service by cleaning up a drab property, put money in the church's bank account and provide a fresh tax-base for the city (don't worry the house is vacant, we wouldn't be kicking someone out of their home).

15. Trim Expenses At Every Opportunity

Once I "saw the light" and began creating and living by a monthly budget, one of my greatest joys was to pour-over the budget and look for places where we could cut back. This got to the point where it became thrilling for me to call my cell phone or cable company and haggle with them so we could save $20 a month. I'm not saying that I want to be cheap, because my spending habits clearly indicate that I am not, but I enjoy paying no more for basic services then is absolutely necessary. This is a lesson most millionaires understand, but most of the rest of us fail to grasp.

16. Use Credit Cards Wisely

I can't do credit card arbitrage like My Dollar Plan, but I am making a concerted effort to get the most from the credit cards we do use. Currently the Amex Blue card is "jamming me up" because the balance is rather high and the 0% APR is long gone, so we're struggling to put together either a couple of cards with smaller limits to port the balance over to, or possibly open up a credit card with a new credit union account and convince them to give us a huge spending limit on the basis that we will bring them a ton of business (cross your fingers). Either way, I don't trust credit card companies, and no longer like to pay for things with money I don't have, so not using them makes my life simple.

17. Less Is More

Before I discovered the wide world of personal finance, which was expanded thanks to this post from Clever Dude, I would try to impress people I knew by buying them expensive gifts, or wearing expensive clothes. I rationalized all this with the "it's okay I'm going to be a lawyer" mentality. My revised approach is that I can still dress well and provide for those in my life, but in a frugal manner, which actually makes shopping, spending and saving a lot more fun.

18. Trust Your Lawyer, CPA, Financial Advisor (No This Is Not a Joke)

Sure maybe I have a vested interest in telling people to rely on professionals like attorneys, but the reality is that in most instances you will save time, money and heartbreak in the end if you choose to follow the advice of competent professionals. You've probably seen my post on estate planning, but this advice really extends into all realms. I know we are all personal experts on our finances, but it is no lie that a CPA can find more deductions for you than Turbo Tax. It's great to be able to self-manage your investment portfolio, but in the long run you'll probably experience better ROI if you rely on a broker/financial advisor.

19. Insure Your Future

My next major purchase is a matter of life and death, literally. Within the not-so-distant future I plan on buying a fairly substantial life insurance policy on myself. No, it's not because the fiancee wants to trade me in for a new model (that's not a bad plan though) but I just want to make sure that my family is provided for in the absence of my premature demise. Although I am generally cautious of insurance companies, I feel equipped with the knowledge of what type of plan I am looking for, and am confident this is a wise purchase.

20. Family Matters

As much as I gripe about family problems, I do enjoy their company (most of the time) and look forward to being able to spend more time with them when I am finished with school. At the end of the day there is nothing more enjoyable then being with those you love and those are the memories I feel I will truly look back on and cherish.

21. Clip Coupons (Or At Least Recycle Them)

I used to just throw the coupon section into the recycling bin on Sunday morning. While that is still not an awful plan, I've started following the advice of several sites (including The Grocery Game) by stock-piling coupons for at least four weeks in order maximize my savings once items go on sale. I'm not as committed as some savvy CVS shoppers (you know who you are) but I like the idea of using little pieces of paper to save big pieces of green.

22. Set Goals You Can Live By

This is a big deal, especially for those of us who follow GTD (Getting Things Done). I generally tend to survive to-do list by to-do list, so getting my tasks, goals, dreams organized and on paper is important to me. I'm not suggesting or thinking about making a grand production of my goals, I just like to know what my actual goals are, so I have something tangible to work towards.

23. All This Can Be Yours

Someday it would be nice to have children. At that point, it would be nice to pass along a lifetime of personal finance knowledge (including what mistakes not to make) to my children, I'm thinking something in the context of The Frugal Dad. I think that one of the most under-discussed issues in America right now is individual personal financial decisions. Although we discuss them often in PF blogland, these issues are rarely seriously addressed and confronted in Mainstream USA (unless your name is Suze Orman). I'd like to be open and honest with my children about finances, and how they can get into, but hopefully avoid trouble.

24. Tomorrow Is Today

Putting things off until tomorrow is one of the worst decisions you can make in planning your financial future. When I receive the bills in the mail, I try to pay them the same day, when someone sends me an e-mail or calls me (except my friends who I am notoriously tardy in responding to) I try to return the e-mail or call by the close of business. I believe that these lessons should always carry over to my financial life, to the extent possible.

25. This Is Fun, Isn't It?

I always try to keep my sense of humor near the surface of finance issues, because like many other things, these topics are a lot easier to deal with when everything is kept in its proper context. I find it important to be serious about my money, but serious enough to know when to laugh, joke and let some things go (being transferred 25 times when I'm on the phone with Bank of America is a major pet peeve). All in all, it seems a lot healthier to laugh then it does to cry.

That's my list, I hope you enjoyed it and I really continue to look forward to seeing your reactions in the comments...

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25 Things I Don't Want to Regret Once I Retire...

Anthony Marrone — Tue, 22 Jan 2008 04:12:10 +0000

By Anthony Marrone

I met with an elderly couple today in their home to execute some planning documents. While neither of them ever had jobs as professionals and neither inherited any money from family members, they have amassed quite a respectable sum of money as they continue to progress through the Golden Years. The lesson that they passed on to me today in our short meeting was that you have to proceed through life without regret, and live each moment so that you will not later look back with regret.

After meeting with the couple, I returned to my office and put together a list of 25 ideas, goals, etc. that I want to look back on when I reach retirement age, and say that I fully accomplished or successfully practiced each of these 25 goals. So without further ado, here is part one of my list, with part two coming tomorrow night when I return home from class (feel free to add to my list or share your thoughts in the comments):

1. Start Saving Money Now, and Continue to Save Money Forever. One of my major problems before I discovered the world of personal finance is that I would pay everyone, but I would never pay myself. I had no problem sending the cable, car insurance and energy bills each month, but I always forgot to pay myself, i.e. save. Now I've opened a high-interest savings account, and plan on saving even more as my income continues to grow.

2. Stop and Think About Prospective Purchases for at Least 30 Seconds. I'm an impulse buyer, I always have been. This might be the "typical male shopper" shining through, but when I see something I want, I typically convince myself that I can afford to purchase it. This is especially easy when buying gifts for those I love. I've taken to thinking about purchases before I make them in the stores, or if online, I like to leave the website I am about to buy from and do some research to confirm the utility of the product or search for a better deal.

3. Make and Stick to a Budget. This is difficult enough for myself and the fiancee now, with no children and relatively little worries beyond our lovable dog. However, I anticipate budgeting will become even more complicated and necessary as our family grows, which is why I've taken such a strong liking to the You Need A Budget system.

4. Max-Out Your Retirement Plans Annually. This is the first year I've committed to maxing out the plans my employer offers, but I haven't even graduated law school yet, so I think there's time here. What I do know is that I would horribly regret not electing to max out these plans 40 years from now.

5. You Own Banks, Not The Other Way Around. I'm essentially lending banks my money every time I make a deposit. There's no reason the banks shouldn't be paying me interest in the same manner they expect to earn interest. I've committed to only doing business with banks that offer competitive rates (although I'm not trolling for the best rates) and offer great customer service.

6. Carpool More. I feel this could be a great way to not only save on expenses and help the environment, but also become closer with those I work/go to school/spend time with. Therefore, carpooling becomes a win-win-win situation.

7. Dryclean Less. If I told you the amount I spend at the drycleaner each week, you would probably be sick. There's not a lot of chatter around the PF blogs regarding the high cost of drycleaning, but it is one of my biggest monthly expenses. I'm currently in the market for a professional-grade steamer for my suits/pants/shirts and hope this will trim large amounts from my monthly bill.

8. Purchase Quality Blankets. Living in Upstate New York, I pay gobs of money to heat my home through the long winter. As I have not yet decided on the electric fireplace as a supplement to our energy-efficient, but still overpriced furnace, we are using blankets more so we can keep the heat lower (although it is buzzing furiously right now). Plus, the blankets allow for more snuggling!

9. Volunteer More Often. This is a personal-maintenance issue for me. I grew up volunteering in my church, and now I'm using some of my skills to give back through VITA by helping prepare tax returns for low-income individuals and families.

10. Never Pay Retail Price. I like to haggle with people, but that's just in my nature (thank you Law School!) Plus, there's nothing better then feeling like you beat the system, and got a great bargain. I've been getting better at not accepting "we can't go any lower" for an answer, and also being willing to push the envelope as far as necessary to get the best deal. When push comes to shove, it's all about not being "sold" on a product or service when you are negotiating for it, and being able to walk away if the price is not agreeable.

11. Prepare for Roadblocks. The first step to prepare for emergencies is to save for emergencies. This is why I've been frequently trying to stash money in our Emergency Savings account. Only once I've created/maintained/replenished this buffer will we truly be on the road to financial freedom.

12. Live on Less Than You Earn. This is difficult because the fiancee and I are both in grad school, and the earnings are not that great. However, through modifying our expectations and expenses, we've managed to live pretty comfortably and still be able to afford to plan for parts of our upcoming wedding without plunging ourselves into mountains of debt (with the exception of our growing student loans). Living on less than we earn will become increasingly important as we will both work in professional settings and likely face the peer-pressures that accompany higher-paying jobs, including wardrobe updates, fancy cars, big houses, etc. As long as we can continue to live on less than we make, I believe the long-term payoff will be enormous.

That's all for Part One! I look forward to reading all of your comments and hope you will tune in tomorrow for Part Two...

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Debunking Common Estate Planning Myths

Anthony Marrone — Sat, 19 Jan 2008 18:51:58 +0000

By Anthony Marrone

Given the tens of millions of Americans nearing the Golden Years, the fields of retirement and estate planning are expanding by leaps and bounds. Along with the growth of work for financial advisors and estate planning attorneys, has come the advent of self-planning. From managing your entire investment portfolio from your home computer, to preparing your own Wills, Trusts and advanced-directives using an online document-preparation service, the "do-it-yourself" sector of financial and estate planning is enjoying huge growth.

As more and more Americans rely on websites like LegalZoom to help them prepare pre- and post-mortem documents, it is important to understand the several "myths" of estate planning, and how these online sites fail to convey the risks involved with self-prepared documents.

Myth #1: You Need a Will
This is an absolute lie, perpetrated by online companies and sometimes unethical attorneys looking to generate business. Don't get me wrong, most people could benefit from a Will, but not everyone needs a Will. If you have minor children, you will want to prepare a basic Will as soon as possible to ensure guardianship of your children passes to a trusted family member or friend in the event of your premature demise. However, if you have no minor children, there are other ways to assure the meaningful disposition of your assets when you pass other then a Will.

For example, let's say Robert Jones is a widower with two adult children. Robert owns his personal residence that he's lived in for several years, has a life insurance policy, a small bank account and a rather large IRA account that pays him income on a quarterly basis. Robert also has a pension and receives income from Social Security. My advice here is that, in the absence of extreme family matters, i.e. his children are divorced, he is expecting to inherit a large sum of money from a relative, etc., there is no pressing need for Robert to have a Will. The personal residence can be re-titled (in most states) to give Robert a Life-Estate and pass the home to his two children when he passes away (outside of probate). Also, Robert's life insurance, bank and IRA accounts can all pass to his children by either naming them as Beneficiaries (in terms of the insurance and IRA) and also making the bank account payable to his children on death. Now, if we were to mix in several equity accounts, multiple pieces of real estate and different gifting ideas, Robert's planning becomes more complicated. But, for now, you can see that the idea that everyone needs a Will is simply misleading.

Myth #2: A Trust Automatically Avoids Probate
Trust planning is becoming more and more popular in the U.S., mainly because it is a creative way to meaningfully pass along large assets to your descendants while hopefully avoiding a probate proceeding. Without getting into too detailed a discussion about the different kinds of trusts available (they vary by state) it's important to note that having trust will not automatically avoid a probate proceeding when you pass. The first step after you execute your trust is to re-title your assets that you wish the trust, vis-a-vis the trustee to manage. If you pass away without re-titling all of your trust assets, then those assets which remain outside the trust will be subject to disposition according to your Will, and a probate proceeding will be likely.

Myth #3: Everyone Needs A Trust
This is nothing more than a ploy for business. Playing on the example from Myth #1, Robert Jones does not need trust-planning at all. While it is true Robert could have some type of trust to ensure the proceeds from his IRA account are managed/distributed according to his wishes, the truth is most of Robert's assets will pass to his descendants by operation of his beneficiary designations. Trust planning is advantageous in several situations, including second marriages, families who wish to provide for adult/minor children, including a child with a disability, high net worth individuals and those who hold certain types of assets, i.e. large investment funds, several pieces of real estate, etc. However, for most Americans trust planning will do little beyond cost you a chunk of money annually (trustees are entitled to annual commissions for managing your property in most states) and create more of a paperwork shuffle in managing and distributing your assets.

Myth #4: Giving Away My Money Is The Only Way I'll Qualify for Medicaid
Many online sites and attorneys advise elderly clients to actively give away their money in order to lower the available resources and qualify for Medicaid (to defer the cost of nursing care or placement in an assisted-living facility). The truth is, most baby-boomers are very independent when it comes to managing their finances, so while this type of strategy may have worked in the 1980s and 90s with the Depression-era babies, it will serve little utility as the baby boomers reach retirement age. There are several different ways to qualify for Medicaid without giving up total control to your money, and if anyone tells you otherwise they are flat-out lying. However, based on new federal regulations placed into effect almost two years ago, Medicaid will now require you to provide financial history account statements for five years prior to your Medicaid application. The lesson for those who feel they may need nursing-care and placement within the next decade, purchase long-term care insurance, and start keeping accurate details and records of your finances.

Myth #5: I Should Name My Estate As Beneficiary of My IRA/Life Insurance
Don't do this. I cannot think of any benefit here, especially because estates generally pay higher taxes than individuals, this type of planning will have serious tax consequences for your estate. The reality is a lot of people name their estate (i.e. Estate of Robert Jones) as the primary beneficiary of their IRA/life insurance/annuities, etc. This is bad for tax-planning purposes, and also because now those assets are forced to pass through your estate (rather then directly to your intendend beneficiaries) and will be subject to probate. This is a bad idea all around.

I hope you enjoyed my first post, and will look forward to many more posts which intersect the areas of personal finance, taxes and estate planning.

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