The bible: "How to Buy a Home in California" by Nolo.  For 2 weeks, I immersed myself in this book, and it gave me a great guide on how to buy a house…in California.  That last part is key, because buying in California is oftentimes much different from buying in other parts of the country.
Some of the key lessons for people just starting out are:
1) How to create a “personal financial statement”;2) Figuring out how much home you can afford;3) Figuring out how much down payment you can/should put down;4) Creating an “Ideal House Profile” and “House Priorities Worksheet” for comparing houses;5) Finding an agent and starting to visit homes-for-sale

The bible: "How to Buy a Home in California" by Nolo.  For 2 weeks, I immersed myself in this book, and it gave me a great guide on how to buy a house…in California.  That last part is key, because buying in California is oftentimes much different from buying in other parts of the country.

Some of the key lessons for people just starting out are:

1) How to create a “personal financial statement”;
2) Figuring out how much home you can afford;
3) Figuring out how much down payment you can/should put down;
4) Creating an “Ideal House Profile” and “House Priorities Worksheet” for comparing houses;
5) Finding an agent and starting to visit homes-for-sale

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I’m now 5 days away from closing escrow on my first home! There’s really nothing left to do but cut that big check over to the title company. I’m really shocked at how fast this whole process has taken from start (early May) to finish (early July). It’s been a whirlwind journey that, in retrospect, has required many fortuitous turns along the way. In the next few weeks, I’d like to take you through my lessons and advice that I’ve culled from the homebuying process, which I hope will be helpful for any first-time homebuyers out there. The first lesson is taken from “The Wall Street Journal: Complete Homeowner’s Manual: by David Crook — “home buying is a reward for financial responsibility, not a path to financial responsibility.” Said another way, you have to have all your ducks in a row before you even think about buying a house. Pay off your credit card debts, ensure your job security, take inventory of your finances, etc.

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The case of the mysteriously shrinking interest rates: Since starting 2008 at 4%, the interest rate in my ING Direct savings account has gradually but continually shrunk.  To 3.4%, 3.1%, 3.0% in the first 3 months of ‘08, to 2.75% in Oct, and now 2.5% in Dec.  Rather annoying, but I suppose it’s happening in all bank accounts.  I guess that’s what CDs are for!
On the flip side, I get some reprieve in my student loan.  When I locked in my first loan in 2006, my term was the prime rate minus 1.125%.  At that point, the prime rate was 8%, so I was paying 6.875% on my loan.  Since the economy went south, the prime rate has dipped to 3.25%, meaning that I’m only paying 2.125%.  That’s a HUGE difference.  I’d rather take gains from the lower rate on my 100K+ investment than the losses on the chump change I keep in my bank account, so I’m not complaining!

The case of the mysteriously shrinking interest rates: Since starting 2008 at 4%, the interest rate in my ING Direct savings account has gradually but continually shrunk.  To 3.4%, 3.1%, 3.0% in the first 3 months of ‘08, to 2.75% in Oct, and now 2.5% in Dec.  Rather annoying, but I suppose it’s happening in all bank accounts.  I guess that’s what CDs are for!

On the flip side, I get some reprieve in my student loan.  When I locked in my first loan in 2006, my term was the prime rate minus 1.125%.  At that point, the prime rate was 8%, so I was paying 6.875% on my loan.  Since the economy went south, the prime rate has dipped to 3.25%, meaning that I’m only paying 2.125%.  That’s a HUGE difference.  I’d rather take gains from the lower rate on my 100K+ investment than the losses on the chump change I keep in my bank account, so I’m not complaining!

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The other day, I was logging into my ING Direct account, and I saw this “Declaration of Financial Independence” that they’re trying to get people to sign as part of their We The Savers marketing program.  I thought it was a good summary of financial principles that I should try to live by.
http://www.wethesavers.com/
1. We will spend less than we earn. Saving a little out of every dollar we bring home is the foundation of independence.  Without it, we can’t build equity in our home, we can’t invest for the future, and we can’t be ready for challenging times.  We promise to pay ourselves first, always.
2. We will use our home as a savings account. Besides shelter and comfort for our family, the role of a house in our financial life is to build equity.  We will have a healthy down payment when we buy.  We’ll choose the mortgage that lets us pay down the principal fastest.  And then we’ll leave that equity safe where it is instead of spending it on things that don’t last.
3. We will take care of our money. It’s not enough to have money in a bank.  We will put it where it will grow.  We’ll keep track of it.  And we’ll check every account we have every year to protect ourselves against fraud or escheatment.
4. We will defend our credit worthiness.  Good credit is going to be precious in the years to come.  We will pay our bills on time.  We’ll borrow only when we need to and in amounts we can comfortably pay back.  And then we’ll do just that.
5. We will ignore unsolicated credit card marketing. We decide when we need a credit card, not some marketer.  And mostly, we probably don’t need another one at all.  We won’t even open those solicitations.  We’ll shred them.
6. We will know the cost of borrowing. The interest lenders charge us is real money, too.  When we buy a mortgage or finance a purchase, we’ll figure out what that interest is really going to cost in dollars, add it to the purchase price, and ask ourselves if it’s still worth it.
7. We will invest for the long term. Futures are built out of patience and prudence, not luck.  We will not put off being a saver because we think there’s a lottery win in our future, in Vegas or on Wall Street.
8. We will take care of the things we have. We work hard for our money, and it’s disrespectful to waste it — or the planet — by treating our possessions as disposable.
9. We will remember what matters. We are not the things we own.  If we have to spend and spend on bigger, more impressive things to keep up with our friends, then they are not our friends at all.
10. We will be heard. Our representatives in government and the corporations we deal with need to know that we are paying attention.  If we’re silent, we’re accepting the status quo, and the business practices that got our country into this situation will continue.  We are not going to accept that.

The other day, I was logging into my ING Direct account, and I saw this “Declaration of Financial Independence” that they’re trying to get people to sign as part of their We The Savers marketing program.  I thought it was a good summary of financial principles that I should try to live by.

http://www.wethesavers.com/

1. We will spend less than we earn. Saving a little out of every dollar we bring home is the foundation of independence.  Without it, we can’t build equity in our home, we can’t invest for the future, and we can’t be ready for challenging times.  We promise to pay ourselves first, always.

2. We will use our home as a savings account. Besides shelter and comfort for our family, the role of a house in our financial life is to build equity.  We will have a healthy down payment when we buy.  We’ll choose the mortgage that lets us pay down the principal fastest.  And then we’ll leave that equity safe where it is instead of spending it on things that don’t last.

3. We will take care of our money. It’s not enough to have money in a bank.  We will put it where it will grow.  We’ll keep track of it.  And we’ll check every account we have every year to protect ourselves against fraud or escheatment.

4. We will defend our credit worthiness. Good credit is going to be precious in the years to come.  We will pay our bills on time.  We’ll borrow only when we need to and in amounts we can comfortably pay back.  And then we’ll do just that.

5. We will ignore unsolicated credit card marketing. We decide when we need a credit card, not some marketer.  And mostly, we probably don’t need another one at all.  We won’t even open those solicitations.  We’ll shred them.

6. We will know the cost of borrowing. The interest lenders charge us is real money, too.  When we buy a mortgage or finance a purchase, we’ll figure out what that interest is really going to cost in dollars, add it to the purchase price, and ask ourselves if it’s still worth it.

7. We will invest for the long term. Futures are built out of patience and prudence, not luck.  We will not put off being a saver because we think there’s a lottery win in our future, in Vegas or on Wall Street.

8. We will take care of the things we have. We work hard for our money, and it’s disrespectful to waste it — or the planet — by treating our possessions as disposable.

9. We will remember what matters. We are not the things we own.  If we have to spend and spend on bigger, more impressive things to keep up with our friends, then they are not our friends at all.

10. We will be heard. Our representatives in government and the corporations we deal with need to know that we are paying attention.  If we’re silent, we’re accepting the status quo, and the business practices that got our country into this situation will continue.  We are not going to accept that.

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About a month ago, I posted this about the possibility of converting your 401(k) over to a Roth IRA.  It only took me a month, but I finally have all the details.  Here’s the step-by-step guide for how to do it:
1) Open a Roth IRA; mine’s at Fidelity, but you might want to check the commissions (i.e. Fidelity is $19.95 per trade, while Schwab is $12.95).
2) Open a “Rollover IRA” — this is basically a Traditional IRA account, that you’ll roll your 401(k) into.  There’s no fee/penalty to do this, as they’re both tax-deferred retirement accounts.
3) Roll your money over.  This is the tricky part.  There are 2 scenarios.  First, if you have a 401(k) with your old company, you will need to call both your new brokerage and old brokerage.  They will most likely need you to fill out a form and fax it back to them.  This step requires the old brokerage to liquidate your investments in your 401(k); they wil then write a check to your new brokerage, which will then deposit the account into your Rollover IRA.  This could be a tricky proposition in this market — naturally you want them to liquidate on a day when the market is up 500 pts as opposed to down.  Work with your brokerage to see if you can time this as best as you can.
Other notes: be aware that if you have ETFs or stocks, you will have to pay the commission to liquidate them.  Whatever you want to buy back in your IRA, you’ll again have to pay the commissions.  You will also want to read off your list of investments to your new brokerage, to make sure that they carry them all — i.e. some mutual funds are brokerage-specific, and your new broker may not over it.
The 2nd situation, and this is the one that I’m in, is if you own a Personal Choice Retirement Account (PCRA) with your old company.  In this case, your old company administers the plan, and the brokerage is just the custodian.  You can execute a broker-to-broker (ACAT) transfer, where nothing has to be liquidated.  You just have to get a letter of authorization from your old company.
4) Convert your Rollover IRA into a Roth IRA. This will require you to pay taxes.  I repeat, this will require you to pay taxes!  Make sure that the amount in your IRA + your adjusted gross income don’t push you into the next tax bracket.
A couple of points here: one, you can choose to withhold 10% (must designate funds to sell) at the time of conversion, OR you can choose to wait until you file your taxes (this is better).  Make sure you have liquid cash on hand at the time.  Two, a "conversion" is separate from a "contribution".  You can convert any amount of an old 401(k) into your Roth.  In addition, you can also contribute $5000 a year into the same Roth, so be sure not to forget!
5) Be happy! You’ve done it!  Doing this during a bear market means you’ve paid less taxes than you would have in a bull market.  As a bonus, the gains that you’ll see when the market turns will grow back TAX-FREE!  And now that you’re in a Roth, any future gains AND withdrawals will not count as taxable realized gains, should you decide to sell anything in your Roth.
High five!

About a month ago, I posted this about the possibility of converting your 401(k) over to a Roth IRA.  It only took me a month, but I finally have all the details.  Here’s the step-by-step guide for how to do it:

1) Open a Roth IRA; mine’s at Fidelity, but you might want to check the commissions (i.e. Fidelity is $19.95 per trade, while Schwab is $12.95).

2) Open a “Rollover IRA” — this is basically a Traditional IRA account, that you’ll roll your 401(k) into.  There’s no fee/penalty to do this, as they’re both tax-deferred retirement accounts.

3) Roll your money over. This is the tricky part.  There are 2 scenarios.  First, if you have a 401(k) with your old company, you will need to call both your new brokerage and old brokerage.  They will most likely need you to fill out a form and fax it back to them.  This step requires the old brokerage to liquidate your investments in your 401(k); they wil then write a check to your new brokerage, which will then deposit the account into your Rollover IRA.  This could be a tricky proposition in this market — naturally you want them to liquidate on a day when the market is up 500 pts as opposed to down.  Work with your brokerage to see if you can time this as best as you can.

Other notes: be aware that if you have ETFs or stocks, you will have to pay the commission to liquidate them.  Whatever you want to buy back in your IRA, you’ll again have to pay the commissions.  You will also want to read off your list of investments to your new brokerage, to make sure that they carry them all — i.e. some mutual funds are brokerage-specific, and your new broker may not over it.

The 2nd situation, and this is the one that I’m in, is if you own a Personal Choice Retirement Account (PCRA) with your old company.  In this case, your old company administers the plan, and the brokerage is just the custodian.  You can execute a broker-to-broker (ACAT) transfer, where nothing has to be liquidated.  You just have to get a letter of authorization from your old company.

4) Convert your Rollover IRA into a Roth IRA. This will require you to pay taxes.  I repeat, this will require you to pay taxes!  Make sure that the amount in your IRA + your adjusted gross income don’t push you into the next tax bracket.

A couple of points here: one, you can choose to withhold 10% (must designate funds to sell) at the time of conversion, OR you can choose to wait until you file your taxes (this is better).  Make sure you have liquid cash on hand at the time.  Two, a "conversion" is separate from a "contribution".  You can convert any amount of an old 401(k) into your Roth.  In addition, you can also contribute $5000 a year into the same Roth, so be sure not to forget!

5) Be happy! You’ve done it!  Doing this during a bear market means you’ve paid less taxes than you would have in a bull market.  As a bonus, the gains that you’ll see when the market turns will grow back TAX-FREE!  And now that you’re in a Roth, any future gains AND withdrawals will not count as taxable realized gains, should you decide to sell anything in your Roth.

High five!

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The only source of knowledge is experience.  I posted the quote, now I have to live up to it!  I placed my first orders after the market closed on Friday. They’ll place when the market opens on Monday, provided that they hit certain prices.
I bought the following:
Bank of America, 22 shares @ $23,00,~$500Citigroup, 33 shares @ $14.90, ~$500 Blockbuster, 800 shares @ $1.25, ~$1000 GE, 50 shares @ $19.15, ~$1000   I did limit orders, so that they’ll only place at certain prices.  Mostly they are under today’s closing prices, but hopefully the volatility in the numbers will allow me to lock in those prices.  I couldn’t decide between BoA and Citi, so I just split my $1000 down the middle.  I’m hoping for Blockbuster to regain at least some of it’s value when the recession ends — at $1.30, I believe that it must be underpriced.  I’m a little nervous about GE actually. This is my 401(k), so I guess I look at these as money I can play around with a bit more.  Hopefully all these stocks recover nicely.  If anyone thinks that either of these buys are ludicrous, let me know before Sunday night! I still have about $5000 in my 401k that I need to put somewhere…maybe I’ll look at ETFs or more mutual funds.  I’m not so sure about paying $12.95 per trade!

The only source of knowledge is experience.  I posted the quote, now I have to live up to it!  I placed my first orders after the market closed on Friday. They’ll place when the market opens on Monday, provided that they hit certain prices.

I bought the following:

Bank of America, 22 shares @ $23,00,~$500
Citigroup, 33 shares @ $14.90, ~$500
Blockbuster, 800 shares @ $1.25, ~$1000
GE, 50 shares @ $19.15, ~$1000

I did limit orders, so that they’ll only place at certain prices.  Mostly they are under today’s closing prices, but hopefully the volatility in the numbers will allow me to lock in those prices. 

I couldn’t decide between BoA and Citi, so I just split my $1000 down the middle.  I’m hoping for Blockbuster to regain at least some of it’s value when the recession ends — at $1.30, I believe that it must be underpriced.  I’m a little nervous about GE actually.

This is my 401(k), so I guess I look at these as money I can play around with a bit more.  Hopefully all these stocks recover nicely.  If anyone thinks that either of these buys are ludicrous, let me know before Sunday night!

I still have about $5000 in my 401k that I need to put somewhere…maybe I’ll look at ETFs or more mutual funds.  I’m not so sure about paying $12.95 per trade!

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Man, Citibank is making me look bad!  I put some money in a 1-year CD with ING Direct this September at 4%.  Now I see that Citibank is offering a 6-month CD for the same rate.  A 6-month CD would have given me a lot more flexibility.  I think that interest rates on CDs are getting more and more attractive.
By the way, keep a careful watch on your CDs as they reach maturity — they will get automatically renewed unless you tell them you want to take the money out. Usually they only give you a 7-day window to take action.

Man, Citibank is making me look bad!  I put some money in a 1-year CD with ING Direct this September at 4%.  Now I see that Citibank is offering a 6-month CD for the same rate.  A 6-month CD would have given me a lot more flexibility.  I think that interest rates on CDs are getting more and more attractive.

By the way, keep a careful watch on your CDs as they reach maturity — they will get automatically renewed unless you tell them you want to take the money out. Usually they only give you a 7-day window to take action.

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My friend Josh had an interesting piece of advice for me: take this opportunity to roll my old employer’s 401(k) into a traditional IRA, then switch that into a Roth IRA.  The rationale:
1) 401(k)s have taken a beating as the economy has tanked; if I convert to a Roth now, the taxes would be less than they would be in a bull market.
2) I’m only working 5 months this year, so presumably, I’m in a lower taxer bracket than I would be next year.
3) Roth IRAs are usually better investments than 401(k)s and traditional IRAs.
4) Hmmm…the IRS only let’s you contribute $5K a year to a Roth…to be able to roll over my whole 401(k) would be the equivalent of maxing out my Roth starting at age 23…that’s huge.
Other considerations:
a) I think I’m firmly planted in the 25% tax bracket this year, but if I were to do this, I have to make sure it doesn’t land me in a higher bracket (whatever you rollover counts as income);
b) This is ideal if you think your tax rate now will be less than where you’ll be at when you retire;
c) You have to pay taxes when you roll the IRA into a Roth.
I’m going to think about this some more.  Anyone have any thoughts?  I might be overlooking some critical details here.
But if any of you are in school, and have some money in your savings to pay the taxes, this would be a great move because you’re essentially in the lowest tax bracket.

My friend Josh had an interesting piece of advice for me: take this opportunity to roll my old employer’s 401(k) into a traditional IRA, then switch that into a Roth IRA.  The rationale:

1) 401(k)s have taken a beating as the economy has tanked; if I convert to a Roth now, the taxes would be less than they would be in a bull market.

2) I’m only working 5 months this year, so presumably, I’m in a lower taxer bracket than I would be next year.

3) Roth IRAs are usually better investments than 401(k)s and traditional IRAs.

4) Hmmm…the IRS only let’s you contribute $5K a year to a Roth…to be able to roll over my whole 401(k) would be the equivalent of maxing out my Roth starting at age 23…that’s huge.

Other considerations:

a) I think I’m firmly planted in the 25% tax bracket this year, but if I were to do this, I have to make sure it doesn’t land me in a higher bracket (whatever you rollover counts as income);

b) This is ideal if you think your tax rate now will be less than where you’ll be at when you retire;

c) You have to pay taxes when you roll the IRA into a Roth.

I’m going to think about this some more.  Anyone have any thoughts?  I might be overlooking some critical details here.

But if any of you are in school, and have some money in your savings to pay the taxes, this would be a great move because you’re essentially in the lowest tax bracket.

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The September Issue of Money had a great heads-up on a class-action lawsuit against TransUnion, one of the big three credit reporting agencies.  As a result of the suit, you can get free credit monitoring from TransUnion for 6 months (usual cost: $60), which includes copies of your credit report and credit score on demand.
The only requirement is that you’ve had a credit card any time in the past 20 years (uh, every single one of us?).  To register, go to listclassaction.com or call 866-416-3470.
I signed up a few weeks ago, but haven’t heard anything — hopefully it comes through, because I had some problems with annualcreditreport.com.  Two out of the 3 agencies “couldn’t verify my identity”, which was pretty annoying.  Despite their omnipresent TV commercials, freecreditreport.com is sketchy to me because it’s “free” as a 7-day trial.

The September Issue of Money had a great heads-up on a class-action lawsuit against TransUnion, one of the big three credit reporting agencies.  As a result of the suit, you can get free credit monitoring from TransUnion for 6 months (usual cost: $60), which includes copies of your credit report and credit score on demand.

The only requirement is that you’ve had a credit card any time in the past 20 years (uh, every single one of us?).  To register, go to listclassaction.com or call 866-416-3470.

I signed up a few weeks ago, but haven’t heard anything — hopefully it comes through, because I had some problems with annualcreditreport.com.  Two out of the 3 agencies “couldn’t verify my identity”, which was pretty annoying.  Despite their omnipresent TV commercials, freecreditreport.com is sketchy to me because it’s “free” as a 7-day trial.

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The only source of knowledge is experience.
Albert Einstein.  Like in most things, I have a fear of the unknown when it comes to investing.  I’m not totally risk-averse, but I’m a slow adopter.  I’m slow to try new things because I get stuck in my own way of doing things.  I’m scared of things that I don’t know about.  For example, when I browse a new website, sometimes I’m scared of clicking one article, because there are a couple more that I want to read on the first page and I’m scared of forgetting them.  I think I just have to get my feet wet and my hands dirty and invest a 1000 bucks or so!

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