Truckee Rental House

Kristen and I were invited to hang out with my Bay Area buddies at their Truckee rental house.

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Trip to Star Idaho for Bea Boucher

My parents and I made a trip to Star Idaho to see my grandma Bea earlier this week. My aunt Pam flew in from Wisconsin to spend a week with Bea. My cousin Tiffany and her fiance met up with us as well.

Boucher Family Tiffany

Frank and Bea

My mom found a baby in the hallway and brought it in to try and cheer up Bea.

Stolen Baby

One of the staff members is helping Bea create a scrapbook of her and her family.

Bea Book Cover Bea Book Epilogue

Bea Book Fountain Bea Book Family

Bea Book Justin Jeremy Carolyn Frank Bea Book Pam

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EnCompass Academy 80s Prom Fundraiser

Kristen and I attended the EnCompass Academy 80s Prom fundraiser on Thursday. The evening consisted of dinner and drinks, a Cha Cha lesson from Gerzon Chavez, and a raffle.

Kristen and Justin Raffle Table

Justin and Luke Dinner

Dance Lesson

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Credit Lessons From My Dad

If my father has taught me one thing in my life, it is how to properly use credit. Credit cards have a terrible connotation, but they are not evil if used properly. Don’t spend what you don’t have, pay off the card in full every month, and exploit rewards to the fullest.

A lot of people claim that they prefer to use debit cards, because that ensures that they don’t spend what they don’t have. In reality someone can check how much they spent on their credit card just as easily as their checking account online. The difference is that a bank account charges ridiculous fees every time an account is overdraw, but a credit card will just charge a percentage on the amount that isn’t paid.

Credit Cards

Credit: Sean MacEntee

I have heard a rumor that leaving a balance on a credit card helps improve your credit score. Do not leave a balance on your credit card, it does not help your credit score and costs money. One part of increasing your credit score is having more credit available to you than you use. Part of the argument for why the credit card companies want you to carry a balance is that this is how they make money. Credit card companies make money by charging a fee to retailers every time you swipe your card. The primary reason interest rates on credit cards are so high is because it is unsecured debt. Unlike an auto loan or mortgage, the bank has no collateral for the loan.

Credit cards are an extremely lucrative business and because of that, companies are willing to pay you a lot to use their card. You can earn hundreds of dollars in sign up bonuses just for starting to use a particular credit card. In addition to sign-up bonuses many cards offer miles and cash back for continued use. If you do the majority of your spending on credit cards this could mean hundreds or thousands of dollars each year in rewards. Personally, I will sign up for just about any no-fee credit card that offers a sign-up bonus. I have a couple of credit cards that I use for just about everything. A credit card can be a great financial tool if used correctly.

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What is your financial advisor worth?

Post Department of Labor ruling, financial advisors of IRAs are required to be fiduciaries. As I described in A Brave New World with the DoL ruling, the ruling essentially makes it so financial advisors have to manage funds on a fee basis. For example lets say that a financial advisor charges a 1% fee. Is that 1% fee worth it?

1% in vacuum doesn’t sound like a lot, but on $250,000 you would be paying your advisor $2,500 every year. If you meet with you advisor twice a year for about an hour that means they are charging you about $1,250 per hour. That sounds very expensive, but the ways to lower that hourly rate are to manage the money yourself or utilize your financial advisor more to make that fee more worthwhile.

Financial Advisor - April 2014

Credit: Mark Zhu

In my experience, especially in 2008, the people that really got burned were the ones who either didn’t have a financial advisor or disregarded their financial advisor. I haven’t had too many people come to me complaining that their current advisor is charging them too much, but I have had a number of people who did not understand or feel comfortable with what they owned and went to cash near the bottom. If you advisor was able to maintain your confidence and keep you invested through 2008 that 1% fee paid for itself in spades if it meant not realizing a 30%+ loss.

The second option to reduce the hourly rate is to utilize your financial advisor. Any good financial advisor has a lot of experience financial planning. Instead of looking at a financial advisor as the person that handles investments, lean on your advisor for any financial decision like when to take social security, what pension election to take, or what insurance is necessary. Many financial advisors realize the value of each client and would be willing spend the extra time. If you are paying for a financial advisor, don’t be afraid to get your money’s worth.

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F is for Finance

If you are looking for some financial vocabulary or a good book to read to your kids try F is for Finance.

Cover

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It is a great time to be young

Quite often I have older people coming in romanticizing yesteryear and the interest rates they used to get at the bank. At this point it has become a joke with many people, and yet I still see people moving from bank to bank trying to catch an extra 0.10% in interest. Two things that these same people don’t remember is that interest rates work both ways and that inflation plays a big roll in interest rates.

When most people who are now retired or are entering retirement were in their prime working years, we were in a much different interest rate environment. JP Morgan’s Guide to the Markets has a great chart that shows real and nominal yields of the 10-year Treasury bond.

jp-morgan-10-year-yield

In 1981 the 10-Year Treasury yield was 15.84%. That is a great interest rate if you are looking to generate income or grow your savings. Unfortunately for most people that are now around retirement age, in the early 80’s they were just starting to accumulate wealth and buying their first home. Can you imagine if banks tried offering 16+% mortgages nowadays? No one would be buying houses.

The second side of the equation is inflation. Inflation is how much the price of things goes up each year. Generally speaking, when interest rates are high a lot of it is due to inflation. This was the case in the early 80’s. JP Morgan has another great chart showing historic inflation.

jp-morgan-cpi

We see here that inflation in the early 80’s was extremely high along with interest rates. This means that a person back then would have been paying huge mortgage payments while at the same time losing buying power to inflation at an incredible pace in their savings account.

The bright side is that today we have the exact opposite situation. We have super low interest rates that make housing much more affordable. The buying power in our savings accounts is almost flat with such little inflation. For those millennials with substantial invested savings, they can afford to take the risk with equities that provide good long-term returns. So next time you here someone complain about today’s interest rates, remember the benefits that come with it.

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