Financial Ramblings Wed, 16 Apr 2014 14:23:17 +0000 en-US hourly 1 Do the Math and Save Money Wed, 16 Apr 2014 13:47:49 +0000

Photo of a Student Doing Math on a Chalkboard

Well, those sneaky marketers are at it again…

As you may recall, we recently bought a new car. Included amongst the many bells and whistles was a Sirius/XM satellite radio system.

To entice us to use their service, the system was pre-activated with a free, three month trial subscription. Thankfully, it didn’t auto-renew, but Sirius/XM has certainly been working to convert us into paying customers.

Subscribe and save?

Their latest advance was a mailing promising that, if we signed up today, we’d “get up to 5 months free.” Wow, great. Five free months. Great deal, huh? Well…

Here are the terms of the deal:

Billing CyclePriceYour Savings
6-Month$29.944 Months FREE
1-Year$99.005 Months FREE

Quiz: What’s wrong with that offer?

That’s right. While signing up for a year give you an extra month for free (five vs. four), the annual plan is significantly more costly on per-month basis than the six month plan. Yes, even after factoring in the extra “free” month.

Run the numbers. The base price is $15/month. You can get six months for $30. That works out to $30/6 = $5/month. Or you can get a year for $99. That works out to $99/12 = $8.25/month. So you’ll wind up paying 65% more per month in return for what is supposedly an extra “free” month.

Note: My advice would be to save even more money by skipping satellite radio entirely, but this is still a great example of the games that marketers play.

Lessons learned

The lesson here is that you need to run the numbers and not just assume that signing up for a longer term is a better deal, even if it’s presented by the marketing gurus as such. Of course, the same goes for places like the grocery store, where the per unit price might actually be higher on larger packages. And on and on…

Actually, this reminds me a bit of the flea market we used to frequent when our kids were young and we were just starting out. We attended both as buyers (mostly of baby clothes) and sellers (of whatever junk we wanted to unload). I used to joke with my wife that we should price stuff at $0.25/each or 3 for a dollar just to see how many people would go for the volume “discount.”

Oh, and don’t forget to read the fine print. The prices above are actually subject to a “US Music Royalty Fee” that adds 12.5% to the stated price. Really? A separate royalty fee for the content? When you subscribe to a radio service, shouldn’t the cost of the programming be included by the subscription fee?

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Simmons Mattress Warranty Update and Lessons Learned Tue, 15 Apr 2014 15:54:56 +0000

Remember when I first wrote about getting the runaround from Simmons customer service on a Beautyrest warranty claim? Well, at long last, that’s been settled, and we ultimately wound up with a new mattress. But not without a fight.

Our warranty saga

To recap, I initiated the warranty claim on January 7th. They sent an inspector (three weeks later!) who verified the problem and filled out a report. Two and a half weeks after that, we received a letter denying our claim.

In short, they claimed that our mattress, which had suffered a catastrophic spring failure, was “performing normally” and “contouring to the shape of [my] body.” Only it wasn’t. And so I objected. That’s where the story left off…

After digging up the necessary contact info, which was conveniently absent from the rejection, I called Simmons to complain. I barely had a chance to explain my objection before she reversed course approved the claim. Honestly, it felt like they must reject valid claims so routinely that they are prepared to reverse their decision the moment you object.

From there, they sent us another letter. This one had instructions for shopping around at local furniture stores to find a mattress that we liked at the proper price point. We did so and sent them the requested info, which resulted in us waiting for another letter with further instructions.

When that letter finally arrived, we were instructed to remove all tags from the mattress and send them, along with an $85 shipping fee, back to Simmons so they could proceed with the replacement. We did that and then waited some more.

Finally… Yesterday, more than three months after first contacting Simmons, we received our replacement mattress. Fortunately, the delivery guys ended up hauling the old mattress away, too. Amazingly, this service (haul-away) wasn’t included as part of the warranty replacement.

As for the new mattress, it’s great. Very comfortable. If only they hadn’t made us jump through hoop after hoop (after hoop!) and continue sleeping on a damaged mattress while they dragged their feet on the way to honoring the warranty.

Customer service lessons learned

I think there are some lessons to be learned here…

First, no matter how good and ironclad it might appear on the surface, many warranties aren’t worth much more than the paper they’re printed on. Second, if your claim is denied, press them for reconsideration. The same goes for insurance claims. And finally, be prepared to wait and to get nickel and dimed (in the form of shipping costs, etc.) throughout the replacement process.

As an aside to companies of all shapes and sizes: If you’re going to (eventually) wind up honoring your warranty, why not strive to make it as painless as possible for the customer? You’re incurring the cost either way, so you might as well turn the hiccup into a positive, loyalty-building experience.

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Money Roundup: Renters vs. Owners Edition Tue, 15 Apr 2014 15:26:51 +0000

In her book “The Myths of Happiness,” Sonja Lyubomirsky argues (among other things) that renters are happier than homeowners. Why? Because homeowners “derive more pain from ownership of their homes, and spend more time on housework and less time interacting with their friends and neighbors.”

Another interesting point: two-thirds of the benefits of a raise are gone within a year. Why? Because spending tends to increase in lockstep with your earnings. As such, your “needs” increase, and you might also start associating with those in a higher income bracket. Keeping up with the Joneses…

And now… Here are some articles that caught my eye this past week:

That’s it. I hope your week is off to a great start.

P.S. Taxes are due today. I hope yours are done. :-)

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The Heartbleed Bug: Are Your Accounts at Risk? Thu, 10 Apr 2014 13:51:58 +0000

In case you missed it, security researchers recently uncovered a major bug (known as “Heartbleed”) in a security protocol that protects much of the encrypted traffic on the Internet. And yes, if you do just about anything online, you’re affected.

In short, secure Internet services typically protect their traffic using a protocol called SSL/TLS. This includes certain websites, e-mail providers, chat services, etc. You’ll know this is happening on the web when you look at the address bar of your browser and see https:// (note the addition of the ‘s’) at the beginning of the url.

Many such services use an open source implementation of this security protocol known as OpenSSL. Unfortunately, OpenSSL was found to contain a programming mistake that makes it possible for an attacker to steal the server’s encryption keys, usernames and passwords, instant messages, e-mails, etc.

But wait, it gets better… Not only is all of this information (potentially) exposed, but there’s no way of knowing whether or not a server has been compromised. Oh, and this bug has been out in the wild for over two years.

As for whether or not you’re likely to be affected by this bug…

“You are likely to be affected either directly or indirectly. OpenSSL is the most popular open source cryptographic library and TLS (transport layer security) implementation used to encrypt traffic on the Internet. Your popular social site, your company’s site, commerce site, hobby site, site you install software from or even sites run by your government might be using vulnerable OpenSSL.”

That’s from, a site put together by the people who discovered and publicized the bug in the first place.

They went on to note that OpenSSL is used in the software that powers more than two-thirds of all websites, and that it’s also used to protect e-mail servers (via the SMTP, POP, and IMAP protocols), chat servers (via the XMPP protocol), virtual private networks (VPNs), etc. So yeah, it’s a widespread problem.

Of course, that fact that you (probably) do business with affected sites and/or services doesn’t mean that your info has been stolen, but it’s possible.

To protect yourself from the Heartbleed bug, you’ll need to go through your various online logins and change your credentials. But doing so won’t do you any good unless and until the service provider patches the bug (yes, a fix is available), revokes the compromised encryption keys, and re-issues new keys.

How will you know if/when this has been done? That’s the tough part. You’re largely dependent on the service providers letting you know that the problem (if they were affected) has been fixed. At that point, you should be able to change your password without fear of it being re-compromised via the Heartbleed exploit.

Note: There are some tools out there to check whether or not a website is affected (or has been fixed). I can’t vouch for any of them, but this one, which attempts the exploit and then report the results, looks pretty good. It was developed by cryptography consultant Filippo Valsorda. If a site appears to have been “fixed or unaffected,” it should be safe to change your password.

That being said, I haven’t heard a peep from anyone about whether or not their site/service was affected by this bug, or how they’ve responded to the problem.

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Free Access to Your FICO Credit Score + $222 Signup Bonus Wed, 09 Apr 2014 15:56:30 +0000

Barclaycard Arrival World MasterCard (No Annual Fee)

Awhile back, I told you that Barclaycard had started offering free FICO credit scores to holders of their Arrival World MasterCard. If you have this card, you can see your credit score whenever you want via their online interface.

Not only that, but new customers could (and still can) get a $444 signup bonus by signing up for the card, which also offers 2x cash back rewards. The downside of this card is that there’s an $89 annual fee, though it’s waived for the first year.

Not long thereafter, Discover started printing FICO credit scores on the monthly statements of Discover it cardholders. This card doesn’t come with a juicy bonus, but it also doesn’t have an annual fee. The only downside is that you need to use your card on a monthly basis to generate your statement.

Now… Barclaycard is back at it, having added the free FICO credit score feature to the no-fee version of their Arrival card. This card comes with a 20k point signup bonus that’s worth as much as $222 as well as 2x cash back on travel and dining and 1x cash back on everything else. All with no annual fee.

And yes, we’re talking about your real, TransUnion-based FICO credit score, not a “FAKO” score like many other services are offering. Not only that, but they’ll also monitor your score going forward and send you an e-mail if/when it changes.

Related: I’m offering credit report reminders as a free service to readers.

If you already have one of these cards, you can access your credit score from within your online account. If you don’t have one and would like to get one, you can get started by clicking this link or the button below.

Apply Now Button
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Taxation of Bitcoin and Other Virtual Currency Tue, 08 Apr 2014 16:45:00 +0000

IRS Logo

As a followup to my recent post about IRA rollover rule changes, I wanted to share another bit of news from the IRS…

In Notice 2014-21, the IRS has declared that Bitcoin and other virtual currencies are to be treated as property for federal tax purposes. This means that such currencies are subject to capital gains taxes.

More specifically:

“Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value. In some environments, it operates like ‘real’ currency [...] but it does not have legal tender status in any jurisdiction.


Virtual currency that has an equivalent value in real currency, or that acts as a substitute for real currency, is referred to as ‘convertible’ virtual currency.


In general, the sale or exchange of convertible virtual currency, or the use of convertible virtual currency to pay for goods or services in a real-world economy transaction, has tax consequences that may result in a tax liability.”

And, finally, from their FAQs:

Q: How is virtual currency treated for federal tax purposes?

A: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.

From an investor’s perspective, the basis of the virtual currency is the fair market value on the date of receipt. And when it comes to exchanging virtual currency for actual dollars, the tax treatment is straightforward…

If you receive more than you paid for it, you have a capital gain. In contrast, if you receive less than you paid for it, you have a capital loss.

Going forward, if the fair market value of goods or services received in return for payment with a virtual currency exceeds your basis, you are liable for a taxable gain. And if you get goods or services worth less than your basis, you’d have a loss.

While this seems (relatively) straightforward, I can envision it getting rather messy for an individual investor. And, as a result, it could represent an substantial impediment to widespread adoption of virtual currency.

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Money Roundup: At the Beach Edition Tue, 08 Apr 2014 16:18:44 +0000

I’m not sure what you’re doing this week, but we’re kicking back at the beach. The weather hasn’t great, but I’d rather be dipping my toes in the ocean between rain storms than sitting at home.

And… Wow. As I was writing that passage, it just hit me. Our oldest is a sophomore in high school. That means we only have two more Spring Breaks before he’s off to college and who knows what after that.

Like I said. Wow. We better enjoy this while we can… :-)

And now… Here are some articles that caught my eye this past week:

That’s it. I hope you’re having a great week!

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Marginal vs. Effective Income Tax Rates Wed, 02 Apr 2014 12:51:17 +0000

Image of Percentages on Falling Dice

Do you know your income tax bracket? I know ours. For 2013, we were in the 25% federal tax bracket. But what does that really mean?

For background, since I’m married and we file jointly, that means our taxable income fell somewhere in the $72,501-$146,400 range.

If you want to narrow things down a but further, our income fell north of the so-called Social Security wage base, or the income ceiling on which FICA-OASDI taxes are levied. That’s $113,700 for 2013.

This comes after having reduced our taxable income by deferring a substantial chunk via multiple retirement plans, as well as holding tax-exempt bonds on the taxable side of our portfolio, etc. But that 25% tax bracket only tells part of the story.

As I’ve mentioned in the past, tax brackets reflect marginal rates. You only pay that percent on the last dollars that you earn. Taxes on your earlier dollars (i.e., those that fill the lower brackets) are at a lower rate, and investment income is also often taxed at favorable rates.

So, to arrive at your effective tax rate, you divide your total taxes paid (line 61 of Form 1040) by your total taxable income (line 43 of Form 1040) and multiple by 100. In our case, this worked out to an effective federal income tax rate of 15.2%, considerably lower than our marginal rate of 25%.

On the state side, the difference was much smaller. We’re in the 6% state income tax bracket and paid an effective rate of 5.8% of our taxable income to the state. Why? Well, yes, we do have graduated tax brackets (1%-6%) but the lower brackets are very narrow so the majority of our income is taxed at the top rate.

What about you? Which tax bracket are you in? And what was your effective rate?

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Money Roundup: Taxes Done Edition Mon, 31 Mar 2014 14:26:04 +0000

Late last week, I gathered up all of our tax documents and took them to our tax guy. And yesterday afternoon, I got an e-mail saying that our returns are done. I’ll delve into this in more detail in the future, but here’s a quick summary…

It looks like we’re on the hook for about $5,600 in additional federal taxes and another $3,200 to the state. Yes, this resulted in a small underpayment penalty on both our federal and state returns.

On the state side, the underpayment was intentional. We’re bunching our deductions into alternate years, so I wanted to hold off on making those state payment until 2014. But on the federal side? I was just lazy.

I should also note that, while I’ve previously created an artificial overage such that we could buy an extra $5k in I-bonds with our tax refund, I’m not sure it’s worth the headache. I probably won’t bother this time around.

And now… Here are some articles that caught my eye this past week:

That’s it. I hope your week is off to a great start.

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IRS to Modify IRA Rollover Rules Thu, 27 Mar 2014 13:16:52 +0000

IRS Logo

In the past, the IRS limited you to one IRA rollover per year per account. But, thanks to the Tax Court’s recent ruling in Bobrow vs. Commissioner, that will be changing.

Indeed, as of next year, you will be allowed just one IRA rollover per year. Period. This change was made made public in Announcement 2014-15, though it won’t actually go into effect until next year.

For background, a rollover is said to occur when you take a distribution from an IRA and re-deposit the proceeds into a qualifying account within 60 days. If you fail to re-deposit within that timeframe, you’ll be liable for taxes and/or penalties.

Note that a rollover is thus distinct from direct trustee-to-trustee transfers, in which case the money is passed directly from one custodian to another. These sorts of transactions, in which you (the account owner) never touch the money, do not count toward the once-per-year limit.

The once-per-year limitation on IRA rollovers exists to prevent people from stringing together a series of multiple rollovers, effectively giving them ongoing access to funds that should be locked up in an IRA. The proposed change will strengthen this rule, though it will also make things more complex for IRA custodians.

For their part, the IRS says that it will “revise Publication 590 to the extent needed” to follow the Tax Court’s interpretations. However, they “will not apply the Bobrow interpretation [...] to any rollover that involves and IRA distribution occurring before January 1, 2015.” So if you’ve run afoul of the new rule this year, it’s all good.

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