7 Improvements To The OMB! Blog

As you may have noticed, I have made some updates as follows:

1. Added Amazon as a sponsor to help monetize the site (I hope my readers don't mind, after all, this is a website devoted growing our net worth :-)

2. Updated the sidebar to be more user friendly, show my net worth at all times, and show comments (it's through feedburner, so it's a bit slower).

3. Added a footer to all of my posts inviting readers to subscribe to the feed if you enjoy the content (see below - subscribe to OMB! if you like!).

4. Added quantcast and sitemeter to the page footer to track my progress (click on the buttons if you want to see the site stats).

5. Added star ratings to the top of all my blogs (please rank this post!).

6. Included an OMB! poll that I will update frequently.

7. Added a translator widget for all of my international readers (bottom right corner).

I'd like to hear your comments about these improvements - Love em' or Hate em'?

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The Frugal Father In-Law: The Haircut

Haircuts are be expensive! Some of my more well-to-do co-workers spend north of $30 per cut every 3 weeks. This translates into more then $500 per year!

My father in-law invested in a pair of $20 clippers and let's his wife cut his hair. Most of the time, his wife uses out of the box hair dye for herself too...

I actually cut my own hair, believe it or not, and I've been doing it for years. Nobody has ever said a word to me about a "bad cut". Both he and I are lucky though, because we both have wavy hair, which masks most mistakes.

Even though I save hundreds each year by cutting my own hair, my wife makes up for it a bit, as you may have read in the "Happy Wife, Happy Life" post...sometimes it's worth it!

Anyone else out there cut their own hair, or have someone help them cut it?

No Taxes on Rental Income for 14 Days!

Did you know that you can rent your primary home for up to 14 days per year TAX FREE!?!

IRS Publication 527, which discusses rental income taxation and expenses, reads as follows:

Rental of property also used as a home:
"If you rent property that you also use as your home and you rent it fewer than 15 days during the tax year, do not include the rent you receive in your income and do not deduct rental expenses..."

Frequent OMB! readers may recall that I live in DC. We are trying to earn some extra cash by renting out our apartment during the inauguration for 4 nights at $650 per night. This income would be 100% tax free!

There are even homes in Georgetown asking $30,000 for 4 days use! I've also heard about homes that are rented near Augusta, Georgia for the Masters Golf Tournament every year for $25,000 - $75,000 a pop -- all 100% tax free.

Keep this in mind for your own living arrangements the next time there is a big event in town!

UPDATE: I just found this official DC guidance on taxes as well: http://newsroom.dc.gov/show.aspx/agency/otr/section/2/release/15480/year/2008

Why Is My Bonus Taxed So Much?

If you were lucky enough to receive a bonus this year you may be wondering "How much will my bonus be taxed?" or "Why is the tax rate on my bonus so high?"

The full information is found in Section 7 of IRS Publication 15, which discusses Supplemental Wages.

The short answer answer is that at bonus is taxed by one of three ways as follows:

1. If you make over $1,000,000 then there is a 35% federal tax imposed (but I'm guessing that you don't make over a million dollar bonus if you are reading this blog :-)

2. If you make less than $1,000,000 then you can be taxed at:

--a. A flat 25% or...

--b. Add the bonus dollar amount to the regular salary or wage amount for that period. Calculate the total tax due, then subtract the taxes already withheld from the salary or wages. The balance due is the amount to be withheld.

Don't forget the following additional bonus withholdings as well:

1. Social Security Taxes = 6.2% up to $106,800 of income (2009)
2. Medicare Taxes = 1.45% on all wages
3. FUTA (Federal Unemployment TAxes) = 6.2% up to $7,000 of income
4. State Taxes (lest we forget) = See your local state government website

The Bottom Line: Even though it may seem like you are paying higher taxes now, at the end of the year, your income tax liability is still run through the normal calculations.

If you want, you can change your w-4 so that less or more is withheld in each paycheck so that you are even at the end of the year. Here is a cool calculator that is related to the subject:

http://calculators.aol.com/tools/aol/paycheck04/tool.fcs

I'd be interested to know how much the withholding is for each state - please comment if you know - thanks!

Author's Note: This was a featured post on "Don't Mess With Taxes!" found here: http://dontmesswithtaxes.typepad.com/dont_mess_with_taxes/

The Frugal Father In-Law: The Christmas Spectacular

I'm at my in-laws for the holidays now and my frugal father in-law has pleasantly surprised me with a few instant classics!


The Hot Water
In an effort to save pennies on his gas stove bill, he came to the conclusion that the water was not coming to a boil fast enough because the pot was too far away from the flames. So he removed the grill (that the pot actually sits upon) and sets the pot awkwardly onto the circle plate where the flames shoot out of. Never mind that the water was sloshing side-to-side, about to tip the whole pot over onto the floor... dollars are being saved here!!!


The Heat
He never turns on the central heat - ever - even while his poor 85 year old mother is in town. Instead, he relies solely on a wood burning stove for heat. Never mind that the poor ol' lady is freezing her little bones off... Another day, another dollar.


The Hot Chocolate
In an effort to add humidity to the dry winter air, he sets a very old tea pot on top of the wood burning stove. Ignoring the fact that it's a bit rusty inside, he saves his pennies by using the hot water for his cup of hot chocolate or earl grey tea so that the microwave doesn't eat up his precious schillings...


The Christmas Tree
There is certainly no ceremonial tree buying, that's for sure. He just goes out into the woods in the backyard and chops down the closest thing resembling a Christmas tree. Another dollar saved.

The Turkey
After dinner he puts the turkey in the garage for an hour to cool it down so that the refrigerator does not consume extra energy - he's a true maverick in his time.


The Movie
A Christmas tradition is to watch "A Christmas Carol" with George C. Scott. In a classic "missing the point" moment, his favorite line of the movie is:

"These are garments, Mr. Cratchit. Garments were invented by the human race as a protection against the cold. Once purchased, they may be used indefinitely for the purpose for which they are intended. Coal burns. Coal is momentary and coal is costly."

Every year, like clockwork, he reminds my wife: "Ya' hear that??!!?"


Ahhh the holidays...hope yours are as fun as mine!

PART II: How Much Will Your Bonus Be This Year?

Part II: A follow-up to my previous post about Wall Street and my personal bonus seen here:

http://www.onemillionbucks.net/2008/12/how-much-will-wall-street-bonuses-be.html

So bonus season finally arrived this week. In absolute terms I was quite pleased this year, but in relative terms I was a bit disappointed.


My Bonus in Absolute Terms:

My bonus this year was approximately 49% of my current annual $90,000 salary, which equated to $44,000, making my all-in 2008 comp $134,000 (plus the 5% 401k match and other benefits). My current year salary was frozen and held constant for 2009. I was also awarded a form of shares in my company which, over the next 5-10 years, may produce as much as $30,000 of income, but right now are worth nothing. Bottom Line: I feel lucky to even have a job and get any bonus given how poorly the economy is.


My Bonus in Relative Terms:

Last year I earned 72% of my $68,000 salary or $52,000, so this year's bonus was a 23% percentage decline and a 15.4% dollar value decline. In that sense, it was disappointing to have my salary frozen and to have such a sharp decline from previous years.

I hope Santa Claus or Hanukkah Harry brought you something nice too...

HAPPY HOLIDAYS!

Should I Pay Off My House?

It's a question that has about 15 million answers on Google, so I'll toss my hat in the ring too...

In my opinion, it's mainly just a game of pro's and con's that you'll have to weigh, and see which side you come out on.



What Are The Pro's of Paying Off the Mortgage on Your House?

- Repaying your mortgage is an investment with a rate of return equal to the rate on your mortgage

- Emotionally, many people feel more financially secure, and at less risk with no mortgage debt hanging over their head -- the "sleep better at night" factor

- If the interest rate on your loan is higher than the rate of return on your other taxable investments, then it may be a wise investment decision

- You know exactly what you will earn by paying off your house (the rate on the loan) compared to investing in volatile stocks, bonds, etc.

- You pay off your mortgage earlier, so you will pay less interest expense over the life of the loan and have a lower monthly payment (if rebalanced)


What Are The Con's of Paying Off the Mortgage on Your House?

- You are trading a liquid asset (cash) for a more illiquid asset (home equity), though you could still take out a HELOC if you need to

- If inflation goes up, then the value of your your investment in your mortgage decreases

- You lose the 'benefit' of the interest expense tax write off (assuming that your interest expense is higher than your standard deduction)

- If stocks and bonds turn around then you will have cash tied up in the equity of the house and will have missed up swing


Other Important Points

- You should always ensure that you have an emergency stash (I recommend approximately 6-9 months) of highly liquid assets (cash, savings, CD's, etc.) in case you have a financial problem (job loss, illness, etc.) prior to paying down a mortgage or investing elsewhere.

- Generally, chances are good that if your interest rate is materially higher than the rate that you can earn on CD's or bonds, then you should look into refinancing your mortgage into a lower rate (watch out for fees though).

- Rates are at 30 year lows and forecasted to go lower, so now is a great time to consider a refi, especially if you plan on being in your house for more than 4 to 5 years.

- If your house is declining in value, then so is your equity of course

Does that help you make your decision? Do you see any flaws in any of those points?

Let me know by posting a comment below! Also, please rate the quality of this story using the stars at the top of the post.

As seen on: http://www.savingtoinvest.com/2008/12/massive-carnival-of-personal-finance.html

How Much Will Wall Street Bonuses Be This Year? How Much Will Your Bonus Be This Year?

IT'S BONUS SEASON ON WALL STREET!

Bankers will find out if they receive a lump of coal in their stocking or it will be like the days of old, when receiving six or even seven figure bonuses were not uncommon.

I spoke to an investment banking friend who works at Goldman Sachs, the most premier Wall Street bank, who indicated that it would be a miracle if salaries stayed the same this year (they usually go up about $100k each year) and that bonuses would be down 80% from prior year (from say $15 million to $3 million for the partners!). The key directors already announced that they will forgo their bonuses, which apparently will cost NY $178 in tax income!


WALL STREET BONUS STATS:

- Credit Suisse First Boston is supposedly awarding bonuses in a mix of cash and troubled investments that could either pay off big or yield close to nothing.

- Morgan Stanley announced that bonuses would be roughly 50% of prior year.

- J.P. Morgan will slash bonuses by 30% - 50%.

- Merrill Lynch has hacked bonuses by 50%+.

- Wachovia cut bonuses by a whopping 90% from prior year.

- UBS changed the entire way that they pay bonuses out - stretching the payments out over years to encourage long term rather then short term investment performance.


HOW MUCH WILL YOUR BONUS BE THIS YEAR?
I find out my bonus next week, and despite layoffs this year, I am still holding out hope that I might receive something nice. Last year I received a 72% bonus (as a percentage of my salary). If I had to guess I would say bonuses this year will be between 20% and 50%.

That said, I'm just happy to have a job.

Not so lucky for my wife in hospitality. The economy has taken it's toll. She's already been told that she will not receive her customary 10% bonus this year, and most of her senior co-workers, who haven't already been let go, have had to take 5% to 10% pay cuts for 2009.

Now see how much my bonus turned out to be in Part II here: http://www.onemillionbucks.net/2008/12/part-ii-how-much-will-your-bonus-be.html

SO, WILL YOU RECEIVE A BONUS THIS YEAR? HOW MUCH WILL IT BE?

Post as seen in the Money Hacks Carnival - New Year’s Eve Edition

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OMB MONTHLY UPDATE: NOVEMBER NET WORTH: $210,905

Wow - what a crazy month...

We went on our overseas trip. A fascination financial learning experience in bartering in the 3rd world, currency exchange rates, and purchasing power parity.

The good news is that we had already purchased our plane tickets (we earned 15,000 miles on my Delta Frequent Flyer program and putting me up to 36,000 points - enough for a ticket to Mexico!), paid for the hotels and travel, so we only spent about $500 on things like shopping, food, tips, tourist entrance fees, etc. Not too bad for a 10 day trip...

Then, I go back to work, and they do a round of layoffs - 10% of the firm.

Luckily I made the cut this round, and I pray there are no more cuts. My wife's firm is also going through layoffs, but her tenure has protected her as well so far... Hard Times.


Here's the action for the month:


Checking only went down as excess funds were transferred to savings.

Savings increased almost 10% because I am waiting to see how bonus season goes before putting more cash into the market.

Surprisingly, my Brokerage account went up a couple bucks, as did my 401k - the first time in a long time.

Although I have not increased the Real Estate account, my partner and I continue to clear almost $1,000 a month in free cash flow. This cash goes into a business account that I do not report in net worth until we do a distribution, as those funds may have to be used for repairs or CapEx.

I paid off some Credit Cards when I finally receive my $6,700 expense reimbursement, but I now have another $800 outstanding.

Net, we're up 1.6% this month, or $3,300 going into the holiday spending season and then BONUS SEASON in January!!!

I'd love for you to comment and tell me how you did this month?

Is your firm going through layoffs?

How much are you spending on gifts this year?