Financial Change Starts with Me - Mortgage Interest Tax Deductions

The 1040-EZ was sufficient until the year I bought my first house.  Why?  Because at that point I could itemize and receive a mortgage interest tax deduction.  It is a rite of passage in America.  That year, I had arrived.

However, I was recently introduced to the idea that this entitlement might not be beneficial for America or for me.  What if this entitlement didn't actually encourage home ownership at all?  What if it only helped those in the mid- and high-income tax brackets who would have bought the home anyway?  If you're in the 35% tax bracket, you get $35 of savings for every $100 of mortgage interest you pay, but if you're in the 15% tax bracket, you only get $15.  What if panels under Obama and Bush tried to eliminate or reform this tax, but were shot down due to its unpopularity.  Wouldn't a reformed approach that truly encouraged home ownership improve our falling house prices?  Would such an approach be choked out by lobbyists and closed-minded voters?  Even critics of reform seem to be saying, "Good idea, but not right now."

Maybe this entitlement program worked in 1913, but it is worthy of review.  It is our oldest and largest standing tax deduction.  As voters we have to loosen our grip on entitlements long enough to explore better alternatives.

I Have a Debt-Free Plan

I am certain that few Americans can say, "I have a plan to be debt free", but we can.  The plan involves building an emergency fund, cutting spending, and applying what we can to our debt until it is paid.  Sounds simple?  The plan is, but life really isn't simple.  What about investments, college funds, my 401k, home improvements, having kids, that new shiny car, 0% financing, 1% cash-back offers, market changes, unemployment, insurance policies, going back to school, debt consolidation, wills, prenuptial agreement, etc., etc., etc.?

Luckily we found Dave Ramsey's advice to be refreshing, practical, and just what we needed.  We listen to him on the radio and borrowed his book from the library.  Total investment: $0.  Total benefit: Amazing.  

I guess that is why I feel like I need to endorse him here.  The book is called The Total Money Makeover and it will put an entirely new light on what you used to think it meant to live within your means.  I used to think as long as I was able to pay each bill each month, then I was living within my means.  I was way off.  I was running into a brick wall and didn't even know it.

About 5 years ago I struggled to determine if my month-to-month situation was improving.  I started calculating my net worth, and then recalculated it every month to see if there was any progress.  We are now effectively tracking our spending and, thanks to Dave, we have a plan.

We were like 99.999% of Americans; we spent too much on stuff we didn't even want.  We were addicted to shiny, new things.  Debt-free is king.  Read Dave's book.  Cut the credit cards.

Spending Less is Rewarding

"You can't manage what you can't measure."  Are you tracking your spending?  No?  Then you aren't really managing it.

We have tried various tools to track my spending, but in December we started using Mint.com.  I worried that when Intuit bought them that they would go downhill.  Not so.  It is a great tool, still.  I use the web tool and Android app dozens of times each month.  Here are the results:

Now, I know that there are still 9 days left in the month of May, but I think you can see a trend.  Of course, being able to track the spending is only part of the equation, but for us it was critical because we realized that big expenses (cable, car loans, gym memberships, etc.) had already been cut.  The change that you see graphed above is because we cut the small stuff.  Every month we had literally hundreds of $5-10 items such as lunches out and shopping cart fillers.  We were able to use Mint to see where these small charges were occurring and eliminate them.  Best move ever!

I did not use the words "quick" or "easy", although Mint.com might be the quickest and easiest.  After 6 months, it now run on autopilot.  But it took a while to make sure the numbers were reporting reality.

Give it a try.  Start today.  It is all part of having a plan to be free of debt.

Home Phone Service Savings

Your mission, if you should choose to accept, is to replace your current home phone service with something unbelievably cheap.  Your mission objective is to reduce your current $31 per month service with one that costs $1.50 per month while keeping your existing phones, good phone quality, and features such as caller id, call waiting, voicemail, etc.

Here’s how I did it:

1. Purchased an OBi 110 for $50 from Amazon.
2. Day 1:
1. I purchased a Verizon prepaid phone from Walmart for $15.  It included $10 of air time, otherwise I would have had to purchase some.  At $0.25 per minute that is only 40 minutes of talk time, but that is enough to tell people, “let me call you right back on my other phone”, for a week.
2. I began the port of my house phone number from Cox to Verizon by calling Verizon customer service.  They needed my Cox account information, PIN, and security question/answer.
3. Day 5:
1. Verizon port was complete.  I called Cox to cancel the phone service, but they said that they automatically cancel the service for me.  I called Verizon to get my account number which is required when porting the phone number to Google.
2. I created a new Google account with Google Wallet and Google Voice.  I didn’t want to use my existing Google account.
3. I logged into Google Voice and requested that they port my new Verizon mobile number (which was previously my Cox number).  Google charges $20, that’s why you have to setup Google Wallet first.
4. I setup the OBi 110 which gave me a new phone number.
4. Day 6:
1. Google emailed me confirming that the port from Verizon was complete.  Configured Google Voice as SP1 and OBi (using OBiTalk).
2. Threw away the prepaid phone.  The $10 of air time, or any purchased air time, gets cancelled after the port.
3. For 911 service, I created a CallCentric account and configured SP2 on OBi (using OBiTalk).  This requires $5 minimum balance, plus $1.50 setup fee, plus $1.50 per month (e.g. $8 upfront cost).

Total time spent: About 5 hours of active effort over 6 calendar days.
Total upfront cost: $93
Total monthly savings: $29.50 per month

First year savings: $261
Second year savings: $354

Notes:

2. There are plenty of blogs about people who failed at different points in the above process and had difficulties getting back to where they started.  There is a risk that this won’t work for you!  The keys to success include:
1. Go with a standard carrier for your prepaid phone (e.g. Verizon, T-Mobile, AT&T).
2. Each time you port a number, make sure the port completed before continuing with the next step.
3. The quality is very good.  At times, voices were slightly choppy and there was a slight echo.  However, overall, quality issues haven’t been a concern.
4. If the internet goes down, I have no phone or 911, other than my cell phone.  However, since this is a Google Voice number, I can redirect my calls to my cell phone if my internet was going to be down for a while.
5. The whole process is simplified if you are okay with getting a new phone number.  Steps 2 & 3 can be ignored.  These steps were necessary because Google cannot port numbers directly from Cox.  Thank you for being the middleman Verizon!
6. The OBi only has one phone jack.  You can only plug one phone into it.  In my case, I’m using a 3-phone system from Panasonic.  Only one phone needs to have a phone jack anyway.  I have read blogs where people ran a line from their main phone input (outside) so that the OBi makes all wall outlets in the house live.
7. This posting is just to confirm that someone out there was successful.  This isn’t a guide to save you time or headache.  Just be prepared that it is going to take hours of reading documentation and blogs to get through all of the ins and outs, not to mention sitting on hold with customer service.

-- 4/12/2016 Update:
Still going strong!

-- 11/1/2014 Update:
Still going strong! Replaced my router with an ASUS RT-AC66U because the other one died. Excellent router and that issue that caused me to have to power cycle the OBi is gone. I guess the old router was the issue all along.

-- 6/6/13 Update:

After using the OBi 110 and Google Voice (still free) for an entire year, I can't believe we ever paid for our phone service. We have realized our projected savings and it couldn't have been easier (once everything was set up). The only flaw that I've noticed is that after about 2 months caller id stops working. However, a 10 second power cycle of the OBi 110 fixes it every time.

-- 9/23/13 Update:
I can't believe I used to pay for my phone service. I have never regretted switching over. The caller id issue above seems to be gone. It might be that I upgraded my router recently. We are realizing 100% of our projected savings. My total payment is $1.50 per month.

-- 3/26/14 Update:
Still 100% customer satisfaction. Google Voice is dropping their free service so I switched to PhonePower and dropped CallCentric. Now I pay $35 per year for my phone service including 911 and all the bells and whistles.

Has Your Vote Been Bought?

I really enjoyed watching President Obama slow jam with Jimmy Fallon.  That was hilarious!  What is also funny is that everybody, Democrats and Republicans, agree that subsidized student loans are a good thing.  It seems that only Republicans are willing to be fiscally responsible and look for ways to pay for this entitlement instead of tacking it onto the national debt.  Oops!  You have to pay for entitlements?  This pandering for votes has to stop.

What if our elected politicians can not agree on a course of action and the rate for student loans doubles?  Well, I'm willing to share my personal case.  I have a year left before graduation and my employer is no longer offering tuition reimbursement (ouch!).  If rates double, and it takes me 10 years to payoff my student loans, I will have paid $3199.14 in extra interest.  $3200!!!!  That's...that's...that's really not that big of a deal.  That is less than $27 per month.  Here is a great loan calculator.  See for yourself.

Obama could not have executed that slow jam any better.  Millions of Generation X & Y will race to the voting booth because they believe he will "save" them $27 per month.  Oh well, everybody has their price.

-- 6/6/13 Update:
"History doesn't repeat itself, but it does rhyme." - Mark Twain

The New York Times has an Op-Ed titled "Playing Politics With Student Debt" that notes that this problem is three times worse than I had calculated: "In the end, the one-year extension cost taxpayers nearly $6 billion, but saved a mere $9 a month in future repayments for the 40 percent of student borrowers who receive subsidized Stafford loans."

Immigration Report Card

You are most likely familiar with the following selection from Emma Lazarus' sonnet: "Give me your tired, your poor, your huddled masses yearning to breathe free..."  Lazarus was more of a poet than a policymaker, but many people repeat this phrase as if it came from the Declaration of Independence itself.

I am one who believes that the United States of America has a moral responsibility to help those we can.  Immigration is critical for those in need and for our own well being.  But certain questions have to be answered (and then asked again, and answered again, and so on):

• Who gets to immigrate?
• Do we have an open-door policy or can we be selective?
• Can we tied the number of immigrants per year to GDP?
• What do we do about illegal immigration?
• Do we only allow the tired and poor?
• Do we allow the tired and poor?

Immigration policy aside, how are we doing?  If this is a report card, would you give the USA an A or would it be closer to an F?  Well, let's compare the USA to other countries.

Here's an interesting site.  They take the raw data from the United Nation population reports and average it into 5-year intervals to normalize inconsistent peaks due to short-term political instability and natural disasters.  As of this writing, the most recent data is up to 2005.

Which country allows the most immigrants?  The US comes in first at almost 5.7 million net migrants every year.  That's almost 24% of the world's immigrants.  That's more than the next 3 countries combined.

Now look at the path to citizenship.  The US comes in first for making these immigrants citizens.  In fact, the US allows more immigrants to become citizens than the next 9 countries combined.  Worldwide, almost half of all new citizens are American citizens.

Unless I'm missing something, the US gets an A+.  Way to go!  This isn't to say that we don't need immigration reform.  Let's secure the borders, but let's keep them coming in.

As a side note, which border do we secure first?  Answer: Which country emigrates 2.7 million every year?

Primerica (PFS) is Multi-Level Marketing (MLM)

I am amazed that Multi-Level Marketing (MLM) still exists.  Are there that many people who are willing to believe the empty promises?  Is the deception that good?  In short, MLM exists so that someone can sell a product or service without having to pay employees.  Also, it prevents having people shop around for a better product or service.

I'm a magnet for MLM offers, which is pretty impressive because I wouldn't think that my introverted programmer demeanor is really that big of a draw for those who claim to be looking for someone with "great customer service skills."

www.primerica.com

Today I was the target for Primerica Financial Services (PFS).  I got a call on my cell phone letting me know that their company was looking to grow quickly and that they had opportunities available.  That's the beauty of MLM; they are always looking to grow quickly.  The lady on the phone wouldn't identify herself or the company.  She just called it PFS and that I should join their interview session at 2633 E. Indian School Rd Ste 270, Phoenix, AZ.  She asked what kind of work I was looking for and said that they were looking for entry level to upper managers.  The answer to every one of my questions was, "We would love to have you come to our office so that we can go over that."  My creep-out meter was registering an eleven.

After the call, and a few Google searches, I confirmed:

• That PFS was Primerica Financial Services.  See superpages.com.
• That Primerica is doing MLM.  See http://www.consumerfraudreporting.org/primamerica.php
• That Primerica is still doing MLM.  See http://articles.businessinsider.com/2010-04-01/wall_street/30092130_1_primerica-recruiter-mlm

I'm afraid to admit that back in college I actually went and "interviewed" at a Primerica office.  I was selling TVs at the time and a would-be customer complimented me on my customer service skills (again, remember I'm an introverted programmer) and thought I would be interested in an offer he had.  I was younger and dumber then so my creep-out meter probably only hit an eight, but I'm happy to say that I walked out.