How Does a Home Refinance Work?
Pay College Athletes Now
Forbes.com has a story today about college athletics and the value of certain college football teams (assuming, of course, they were assets that could be actually sold). Forbes ranks those programs it considers most valuable and continues the list down to number 21. They even explain in somewhat detailed fashion their methodology.
The conclusion is that college football is a growth industey, with some of the top teams, like the University of Michigan, adding over 20% to their value last season. This is consistent with larger TV deals, bigger bowl purses which are usually shared amongst a conference, and a more business -like approach to the sport. Exhibit A for the increasing professionalization of college sports is the massive conference realignment that is ongoing and rocking the sporting landscape. The Big Ten, for example, added two mediocre football teams in Rutgers and Maryland, just so that they could sell more cable TV providers their Big Ten sports channel.
The article also argues that a single additional home game can add in the neighborhood of 15% value to a team in a given year, and $10 million to the local economy.
Yet, of course, the athletes on the field receive none of this increased revenue which they are directly creating. A four year scholarship to a good educational institution is a thing of value, a fair deal considering the academic sacrifices and time put forth by the athlete to represent the university. Yet, clearly, at least mens’ football and basketball go far beyond this commitment and change the nature of the contract. A laborer working in a $100 million dollar growth industry deserves a wage reflecting their value, or equity in the potential growth of the organization they work for. This is a basic human right. Taylor Branch, in an article last year for The Atlantic, makes a more sophisticated argument than I can in this short post, but the conclusion is that elite level football and basketball is not entirely dissimilar to slavery. Players must play here and nowhere else (there are not professional minor leagues in football and basketball like there are in baseball), they are under strict control by their coaches and NCAA rules, and their value and even personal likeness can be sold to create value for tickets, merchandise, and sponsorship deals.
Many reform ideas have been submitted, but here is my modest proposal: split up among the athletes 33% of the revenue from home games in a given year. Moreover, it would be wonderful if the players could also then put this money into some kind of investment that matches the investment strategy of the university’s endowment fund, or finds some way to give them a stake in the growth rate of the athletic department. Such a proposal would be fair to all athletes, and allow them to leverage the sacrifices they make in time and bodily health to their long term success. A free education and a great investment at a young age would be a fair deal. True, the elite teams would probably be able to attract more elite talent with the greater revenue creation they have, but the best athletes already go to these programs anyway, so it would seem to have minimal competitive impact. If such a concern exists, though, there could be a way to pool the game-day revenue of the top teams and distribute it amongst the conference, similar to what is done for bowl game revenue.
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The Best Credit Cards for Travelers
I Get By With A Little Help From My Travel-Blogging Friends!
Gary at View From The Wing.com had a nice post today on which cards he uses, and which he keeps just for the benefits (puts in a sock drawer). I thought I would collect some of the best articles from my favorite bloggers on which travel credit cards are best long term (after the signup bonus has been earned). Here they are:
The aforementioned post at View From the Wing.
Ben at One Mile At A Time has a couple of articles, the first on which cards he keeps and doesn’t put any spending on because they reap big value, and the second on all of his active cards.
Meanwhile, The Points Guy ranks American Express, Citi, and Chase travel cards from most to least valuable.
Related Resources:
- The Three Best Hotel Credit Cards Reviewed
- Stories on Credit Cards
- Christmas Shopping, App-o-rama, and Credit Card Signup Bonuses: A Perfect Team
- Personal Finance 101: Credit and Credit Cards
- Top 4 Sites on How to Use Your Miles and Points
- Personal Finance 101: Credit Cards, The Miles and Points Game
- Are Prepaid Credit Cards A Good Deal?
- Credit Card Points/Miles: How Can I Use My Miles?
- American Airlines AAdvantage Amazing Value
The Old and Wealthy Pay in Fiscal Cliff Deal
It looks as though a deal may be near which is great news for the American economy. Nothing is official but it looks like the two big cost savings devices are coming from 1) tax increases on those making over $400k and 2) changing the way CPI is calculated for those on Social Security and thereby reducing payments and bending the cost curve a little bit.
The other major area of savings would be in reducing payments from Medicare to drug companies and providers.
Still not out of the woods but a deal looks closer.
Related Resources:
- Is the Fiscal Cliff Deal a Good Thing?
- The “Fiscal Cliff” and How It Will Affect Your Money
- Fiscal Cliff: We Have the Politicians We Deserve
- Moving Towards the Fiscal Cliff
- The Fiscal Cliff Deal: The Impact of Increasing Revenues
- Peronal Finance 101: How to Buy Insurance and Get the Best Deal Possible
- Peronal Finance 101: How to Buy Insurance and Get the Best Deal Possible, part two
- Personal Finance 101: Credit Cards, The Miles and Points Game
American Airlines AAdvantage Amazing Value
In looking at my family’s travel plans for the coming year, I stumbled upon an amazing value that I thought would be worth sharing. American Airlines allows a free domestic leg on a multi-city award redemption, and allows stopovers for a rather liberal amount of time. What this means is one can get a couple of trips thrown it at a rather large discount. Allow me to show you and explain:
I was thinking about an international trip to Paris this summer on miles for my family. Sounds like a nice time, and we probably have just about enough to make it happen. American Airlines, though, has generous routing rules allowing for a domestic leg thrown in to an international gateway city. Getting creative, here is the flight I booked:
- HNL to ORD on March 27th, 2013
- ORD to OLY (Paris) on June 29th, 2013
- OLY to ORD on July 3rd, 2013
- ORD to BOS on October 10th, 2013
Now all we have to do is pay for a one way ticket to HNL for our Spring Break trip, and a one way ticket back from Boston for our Fall trip. This is all for just 56,000 miles and $200 in taxes. Even more fun is that we have almost a 24 hour layover in Berlin, and an almost 24 hour layover at London Heathrow. Now I obviously know this may not be ideal for most or many, but it could be somewhat exciting to get out for a bit and see another city on our massive family trip. This is all paid for by some small spending on my American Airlines Visa card and the two big signup bonuses I got (50,000 miles each) on two American Airlines card this year.
I know many miles blogs extoll the virtues of these signup bonuses, and in a way that is a glorified sales job. I just thought you would all like to see the real value that these miles can provide. Paying for a year of travel and trips at cents on the dollar for what it should cost? Score!
Related Resources:
- How To Use American Express Membership Rewards Points
- Personal Finance 101: Credit Cards, The Miles and Points Game
- Credit Card Points/Miles: How Can I Use My Miles?
- Checking Account Signup Bonuses for New Customers
- Christmas Shopping, App-o-rama, and Credit Card Signup Bonuses: A Perfect Team
- The Three Best Hotel Credit Cards Reviewed
The Remarkable Ben Bernanke
The Federal Reserve Bank of the United States, the most important institution in managing our economy yet one that many people don’t understand a great deal about, has always had in its charter, when created by Congress in 1913 to “maintain maximum employment and stable prices”. Yet, it has often been prices, through inflation targets, that have been viewed as the more important core mission of the bank. Additionally, dealing with financial panics and stress on the financial system, was the initial reason for the establishment of the Fed, and an area where it continue to place a great deal of emphasis. It has seemed reasonable to most that the Fed, as a government institution, has a sensible mission in keeping the currency stable and dealing with global panics.
On Wednesday, though, the Fed, for the first time in history, gave a clear employment target as the main driver of its monetary policy, thereby elevating the mission to maintain “maximum employment” to center stage. Employment has always been seen as the job of private industry, or the good result of policy from the political branches of government. In fact, for a long time, it has been seen as somewhat dangerous to stimulate the economy to get employment up as the monetary stimulus could easily wear off and turn into the runaway inflation of the 1970s and early 1980s. Now, Bernanke is saying the Fed will maintain interest rates and aggressive monetary policy until unemployment is at or below 6.5%, a full percentage point lower than it is now.
This is a game-changer and a victory for economists who have long argued the government should put unemployment front and center, making it as great of a financial ill as inflation or deficits. The Fed is normally a conservative institution, Bernanke is a Bush appointee, and the Board of Governors who must vote on policy like this are all technocrats, academic economists.
We just witnessed a sea change in economic thought, one that will be as noted as Paul Volcker’s fight against inflation, or Friedman’s thoughts on monetary policy, or Keynes’ publishing in the 1930s. You can read more here, here, and here.
Same-Sex Marriage: A Legal (and Financial) Act of Justice
Last week the Supreme Court of the United States agreed to hear two separate legal challenges to laws restricting same-sex marriage. In one case from California, the Court must decide the legality of California’s Proposition 8, which stripped same-sex couples of the right to marry. It is normally not acceptable for a majority to strip legal and Constitutional rights from a minority group, and the Court must decide that there is no “gay exception” to this terrible act of injustice.
More interestingly for this blog, though, involves the second case, United States v Windsor, in which an elderly woman legally married to another woman in Canada, was hit with a $360,000 tax bill after her spouse died because the Federal Defense of Marriage Act did not treat her inheritance as a spousal inheritance. Such an inheritance would not have been taxed at this level. The Defense of Marriage Act bars same-sex couple from being recognized by the Federal government for a host of benefits and programs, even if they are legally married in another state or, in this case, another country.
The New York Times describes Mrs. Windsor’s case thusly:
The second case the court agreed to hear, United States v. Windsor, No. 12-307, challenges a part of the Defense of Marriage Act of 1996. Section 3 of the law defines marriage as between only a man and a woman for the purposes of more than 1,000 federal laws and programs. (Another part of the law, not before the court, says that states need not recognize same-sex marriages from other states.)
The case concerns two New York City women, Edith Windsor and Thea Clara Spyer, who married in 2007 in Canada. Ms. Spyer died in 2009, and Ms. Windsor inherited her property. The 1996 law did not allow the Internal Revenue Service to treat Ms. Windsor as a surviving spouse, and she faced a tax bill of about $360,000 that a spouse in an opposite-sex marriage would not have had to pay.
Ms. Windsor sued, and in October the United States Court of Appeals for the Second Circuit, in New York, struck down the 1996 law. The decision was the second from a federal appeals court to do so, joining one in May from a court in Boston. The Windsor case made its way to the Supreme Court unusually quickly because the parties had filed an appeal from the trial court’s decision in the case, which also struck down the law, even before the appeals court had ruled.
Ms. Windsor, 83, said she was “absolutely thrilled” that the court had agreed to hear her case, adding, “I wish Thea was here to see what is going on.”
There was reason to think that Justice Elena Kagan was not free to hear an appeal from the Boston case because she had worked on it or a related case as United States solicitor general. The current solicitor general, Donald B. Verrilli Jr., gave the court a number of other options, including Windsor, probably partly to make sure that a case of such importance could be heard by a full nine-member court.
The Obama administration’s attitude toward same-sex marriage and the 1996 law has shifted over time. Until last year, the Justice Department defended the law in court, as it typically does for all acts of Congress. In February 2011, though, Attorney General Eric H. Holder Jr. announced that he and President Obama had concluded that the law was unconstitutional and unworthy of defense in court, though he added that the administration would continue to enforce the law.
In May of this year, Mr. Obama announced his support for same-sex marriage.
This is an important issue of morality, justice and fairness.
Yet, perhaps nothing cuts to the chase of the violation of these principles of human dignity more than the grubby business of finances and money. We can easily put a dollar sign on such a thing and demonstrate damages, perhaps only underscoring the greater damages same-sex couple have long suffered for their lack of legal status. How many Mrs. Windsor’s have their been?
More importantly, someone as wealthy as here can probably make do, but what of a poorer same-sex couple unable to fight the law or pool their collective financial resources which can be of greater significance to those of much less means? Marriage is, as much as anything else, a financial and contractual relationship that two enter into, out of love, to pool their skills and resources to make a better life together than they could separately. Loving couples agree to support each other, yes financially too, in their individual pursuits over the course of a life. This can be important in a host of activities that improve financial lives: from going back to school, to starting a business, to taking time off for an illness, to inheritance of those accumulated assets in order to provide for a stable retirement at a similar standard of living that one has enjoyed.
Same-sex couples must not be held back from this opportunity. This must happen now.
Run a Financial Tuneup in 8 Steps
With the end of the year approaching, now might be the perfect time to “tuneup” your personal finances and improve your personal financial performance for 2013. This is often best combined with a “financial health day” off from work, which can be accomplished by taking a day off around the holidays, taking advantage of a day off you already have scheduled, or just trying to run it from work (your mileage may vary on this and we are not endorsing such behavior) when business often slows during the holiday period.
The goal of a good financial Tuneup is twofold:
1. Reduce your fixed and structural costs of your personal finances by trying to reduce bills you must pay every month (wireless, cable, etc,)
2. Better understand where your money went on discretionary spending and non-fixed costs, ie you realize that you really spend $2k at Starbucks in 2012!
With reduced costs of on a monthly basis, and better knowledge of small spending that you perhaps didn’t realize was so costly, you can gain better control over your finances heading into the New Year. Most importantly, though, you should actually DO SOMETHING with the money you plan to save. I would highly recommend splitting any savings and putting half aside to doing something fun for yourself, your spouse, or your children; and devoting the other half to savings.
Here’s how a financial tune-up works:
1. Look through your bank account and credit card records and find all of the recurring monthly expenses. Have a piece of paper handy or a spreadsheet. Label a section of it “structural costs”. Write down the reason for this expense (ie insurance or car payment), how much the payment is, and finally the company and the customer service contact number for the company. Write down your mortgage and rent payments as well just for reference.
2. Look for your credit card accounts, and if you don’t have online account management for all of your cards, set this up. Then, write the card name, issuing bank, credit limit, and whether or not there is a yearly fee on a “credit cards” part of your spreadsheet. Write down, roughly, how much spending you put on the card per month. Finally, write down the benefits each card provides. Examples could include “5% cashback on gas”, “airline miles earned for every dollar spent”, “purchase protection”, or “emergency contact number for car problems”, etc. If you have no idea what the benefits are, look around online, or call the customer service number on the back for each card and note the benefits each card has on your spreadsheet.
This completes the planning stage, now is time for the action stage where you might save big money.
3. Start calling! Go through each provider on your list of structural costs and see if they can reduce your rate. Say you love their service but are looking to save money heading into the new year. Ask if there is a better plan or program that might help you out. This can be particularly powerful for wireless, internet, and TV providers who always have new product packages and rate changes coming out. When doing this, it helps to have some idea of what you actually really used from this service last year. You are not really doing much good if you cut out something you and your family regularly use just to save $5-$10 a month.
4. Look at your credit card list and see if changes can be made. Generally, it is never good to cancel a credit card account, if you don’t want to use it, just throw it in a drawer. Your credit score does decline slightly if you cancel cards. Cards to cancel, though, might be those with a high yearly fee that you don’t see a value or benefit from. However, if it does have a yearly fee it is usually a sign it is a more powerful card with better benefits and better features, so consider adjusting what cards you put your spending on. When you call to cancel, don’t just close any credit card account outright, instead ask if you can switch to a card with a lower or no annual fee.
5. If you find you are putting more than 20%, and especially more than 40%, of the credit limit in spending on the card every month, consider asking for a credit line increase. Similarly, if you are carrying a balance, try to reduce this below these thresholds, or ask to have your credit limit raised to get that same balance below these levels. When spending or carrying balances above 20-40% of your credit limit you usually take a significant hit on your credit score, preventing you from getting the best interest rates and deals on all financial products. I will not lecture you on carrying a balance, but those interest charges really add up, so try and get that low-hanging fruit and pay off those balances if you can.
6. If you couldn’t reduce the costs from calling the vendor in part #4, now is the time to shop around! Compare all other companies offering the product and see if they can cut your costs. This is often most productive with insurance which is broadly similar but often has big savings when you move your business from one company to another. Do watch out for teaser rates that go up after time, particularly popular with TV and internet providers.
7. Consider a refinance or moving to lower rent. The biggest cost everyone has is housing. With interest rates low, consider using the tune up day to contact a few lenders and mortgage brokers and see if you can save money by doing a refinance. Similarly, if your lease is up soon, it may be worth a call to the landlord on what her plans are, or looking around for new apartments that might be a better deal for you. Obviously, reducing housing costs by a small percentage can yield big savings in raw dollars because it is most peoples largest expense.
8. If your credit score is good, signup for a few new credit cards. Limit yourself to one card from each bank, but look around and see what cards are offering the best deals. Many may be willing to give you enough points to get you on a spring trip, a nice payoff indeed for your day of financial housekeeping and tuning up on your day off!
Top 4 Sites on How to Use Your Miles and Points
Below is a collection of my favorite articles from around the web on how to use your miles and points. Note that these are almost universally advice on which airline program to transfer your miles to. This can be done with American Express Membership Rewards, Chase Ultimate Rewards, and Starwood Points. Also each airline has its own loyalty program that often comes with very lucrative sign-up bonuses. Currently, for example, there is up to a 100,000 point award for the Chase British Airways Visa. What the average person probably does not realize is that major airlines are all a part of various airline alliances or have multiple airline partners, allowing you to book on one airline with points from another. This can of course get very confusing but with a little research and commitment you can get thousands of dollars out of your points and far superior results than the $.01 per point common in cashback schemes.
While many people prefer fixed point plans, like Capital One Venture Rewards or Southwest Airlines Rapid Rewards, where each point simply acts as cash to buy airline tickets; the more complicated airline programs based on mileage charts provide a better return. The advantage of fixed points programs, however, is that you can always find availability, even if the value proposition is much less.
Anyway, on to the sources:
Lucky at One Mile At A Time has a great series on the best uses of American Express Membership Rewards. Bookmark it and refer back if and when you would like to redeem for an award. It will explain the ins and outs of which airline partner to transfer your points to that will best position you for travel to various regions in the world.
Gary at View From the Wing also has a great post on which program you should target if you are eyeing travel to a specific region of the world. This assumes you are proactively planning on how to best position yourself, different from Lucky’s post which assumes that you already have an Amex points balance and are not sure the best place to transfer those points to.
The Points Guy has done great work on how to use British Airways Avios points, providing useful posts on the best features of the program, and how to use them to avoid the often nasty fuel surcharges British Airways often levels when crossing the Atlantic Ocean. He also has a great post for family travelers and how they can best manipulate their points balances and play the game.
Finally, Starwood allows for transfers of their points to many airlines, which is fairly straightforward and then you can use those airlines rewards charts and partners for your travel. This is a simple post, but it explains this relatively unknown program quite nicely.
Related Resources:
- How To Use American Express Membership Rewards Points
- Credit Card Points/Miles: How Can I Use My Miles?
- Personal Finance 101: Credit Cards, The Miles and Points Game
- Christmas Shopping, App-o-rama, and Credit Card Signup Bonuses: A Perfect Team
- The Three Best Hotel Credit Cards Reviewed
- The 7 Sites You Need for Cyber Monday
- American Airlines AAdvantage Amazing Value
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What You Can Learn From Big-Spending Baseball Teams
Earlier last week, the Los Angeles Angels shocked the baseball world by signing marquee free agent Josh Hamilton to a massive 5 year, $125 million dollar contract. This was surprising because offense did not seem to be a weakness for the Angels, their pitching had more holes to fill, and because Mr. Hamilton played for a division rival and is famous for being recovered drug addict. Across town, the Los Angeles Dodgers perhaps made an even bolder move by signing pitcher Zack Greinke, rarely an ace in reality although rumored to be one in name, to a 6 year, $147 million dollar contract. Pitcher Anibal Sanchez, whom few casual fans have probably heard of, got 5 years and $80 million from the Tigers, and Ryan Dempster 2 years at $26 million dollars from the Red Sox.
While these numbers may seem so staggering that you can only a) watch with your mouth agape in amazement, b) shake your fist at the insanity of men being paid so much to play a game of little redeeming social value, or c) wonder how supposedly successful businessman who own these franchises can waste so much of their own money; there actually is a lot to be learned and applied to your own life.
Lesson #1, Capital Moves To Where It Is Most Productive
In an economically rational world, capital assets (land, labor, human capital/intelligence, and physical capital/equipment) tend to move to where they are most productive. In baseball, it would therefore make sense that the true marquee talents (Josh Hamilton perhaps among them when healthy) should go to markets where there is the greatest potential for winning and profit. In short, it would make more sense for a player like Hamilton to go to a team like the Angels who will likely have a massive local TV and radio contract, and will be able to put a marquee name like him in front of a star-studded town with lots of free money to burn. Perhaps more importantly, the Angels were probably the best team in the American League not to make the playoffs, so adding even just a couple of wins is of more marginal value to the Angels than it may be for someone like the Cubs.
This is true of your financial life as well. Spending a little bit of money on a credit card balance transfer, for example, would be of more productive value to someone who can save a great deal of money transferring off of a high interest rate. A piece of real estate in Manhattan is more productive to a large developer who can build a high rise, than it would be for someone to build a single family home. Investing in an elaborate kitchen with top line amenities makes more sense in a home that would be in the $1 million dollar market value than it would in a home worth $100,000. Finally, considerations of where you should work, or whom you should hire, depends largely on how much productive value the labor will have. Sometimes this can even work in strange waves, as a particularly insightful software developer would probably be more productively used at a startup than wasting away in a corporate hierarchy.
Lesson #2: You Should Always Look 4-5 Years Out
These contracts only really make sense if a baseball team considers itself to be otherwise in a competitive environment. A marginal return of a few wins is of vital importance to a team in the 85-95 win range, where divisions are often decided. If a team is so good they can figure to produce over 95 wins, it would probably make more sense to keep your powder dry than spend big on a free agent. Similarly, if a team is likely to be below this range, it is probably best to wait for some future time to spend on talent acquisition. This is fairly easy to do in a one or two year window, but becomes increasingly difficult as time intervals increase. We have no real way of knowing what a baseball team will look like in five years, so each of these deals must anticipate that the team will still be competitive and the player will still provide value down the road.
In your own life, similar lines of analysis should always be applied. Spending on the higher range for a home purchase would make sense if you are reasonable to suspect you will still be using the home in five years, and your income situation is constant. Likewise, although many might knock the car lease, if you are the kind of person who likes a new car every three years and doesn’t like a large financial commitment, a lease may make a modicum of sense. In your small business, if you suspect that an expensive new investment will continue to pay dividends down the road, then the acquisition probably makes sense.
Lesson #3: Depreciation Kills
The biggest risk of any major purchase is depreciation, meaning that the asset declines substantially in value or usefulness. This is broadly the tragedy of the 2008 Financial Crisis as just about every person’s largest investment, their home and property, depreciated at a massive rate. You buy an item primarily based on its present condition, but you must consider and try to understand its likely future condition. Many items carry a large price tag with a strong depreciation rate, making them perhaps difficult purchases. Electronics and furniture are strong examples of this, whereas a not too extravagant investment in a home’s infrastructure through remodeling might be a better use of money.
Baseball is crazy, but its craziness has many lessons that a smart personal financial manager can apply to their own life.
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