Sounds fantastic, but the catch is that the interest is a tax deduction, not a tax credit.  So if you pay $10,000 in primary residence mortgage interest during the tax year, you don’t get $10,000 off of your tax bill.  You get $10,000 times your marginal tax rate, or at most a few thousand dollars.  It’s a bit like paying a dollar for a quarter.

On the chopping block.  Is it really a disaster?

Flexo over at Consumerism Commentary mentioned that the mortgage interest deduction was on the chopping block at the national level.  The deduction is definitely in the sights at different levels, from state offices to federal congressional supercommittees.

This could be a personal disaster for homeowners that are depending on the deduction to make ends meet, as it can amount to several hundred dollars or even over a thousand dollars per month (annualized).  For everyone else, it will spell the end of a nice kickback from Uncle Sam.  In the long run, though, the removal of this subsidy (just like the removal of any subsidy) will affect home prices for everyone.  Removal of the mortgage interest deduction makes homes marginally less affordable, which pulls the price down a bit across the board.  So, it’s pay higher prices with a deduction, or pay lower prices without a deduction (and have a lower mortgage payment).

The deduction is irrelevant

What is relevant, though, is that rates are extremely low, still.  As of this post, 15-year mortgage rates and 30-year fixed mortgage rates are 3% and 4%, respectively.  Fixed, as in your payment will still be the same at the end of the mortgage, but it will hurt far less than it does now.  They may go down further, but they can’t go down much further.  (I doubt banks will ever pay us to borrow money.)

So pay no worries to the federal tax deduction for mortgage interest.  Watch instead the rates themselves.  It’s a great time to borrow for the purchase of a house if everything else makes good financial sense.

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After you sign up, they’ll even kick in $5.00 toward your first payout.  Got friends?  If they sign up through you, then whatever rebates they earn will trigger a 20% commission to you.  Forever.  (It doesn’t reduce their rebate at all.  This is a thank-you bonus from Mr. Rebates to you.)

For the Valentine’s Day season, over 200 stores — like 1800Flowers.com, Ghirardelli Chocolates, ICE.com, ProFlowers, and many more — have increased rebates.

Finally, to celebrate Mr. Rebates’ 10-year anniversary, they’ll be giving away $10,000 to one lucky winner who visits Mr. Rebates while they’re logged in.  One entry for one visit per day through the end of February, 2012, so there’s the opportunity for another 22 entries into this sweepstakes if you sign up today!

If not, here’s a quick version.  Let’s say you have a savings account that earns 1% per month.  (Don’t laugh too hard.  My dad had one that paid this rate at one point.)  Let’s say also that you put in $1,000 at the start of 2012, and never add anything more.  According to the Rule of 72, after about 72 months, I’ll have about $2,000.  In another 72 months, I’ll have $4,000.  In another 72, $8,000.  The amount in the account doubles each 72 months it sits there.  This happens because the amount that I’m basing the 1% earnings on increases a little bit each month, until some day, it gets really fun.  Almost like magic.

The amount of magic depends on the amount of the rate

Are you still laughing about when I proposed an account that earns 1% per month?  I wouldn’t blame you.  Some of the higher interest rates for checking accounts now are about 1% per year.  About all we can say about these kinds of rates is that they’re better than nothing.  (If you’re earning nothing on your money, try to earn something on it.)

At rates of 1% per year (or less) the magic still happens, but the magic isn’t exactly making-a-jet-plane-disappear magic.  The doubling would still happen, but it would be almost the end of the century before that happened.  And to boot, your $2,000 might only barely buy a nice suit.  Break out the champagne!

Banks are scared to lend now.  They’re reeling from the shakeout in 2008.  As a result, interest rates on savings accounts and checking accounts goes down as well.  And the fees get tacked on.  It’s just not a magical time to be a saver.

What’s the key to building wealth, then, if it’s not through saving money?

Putting money in the bank is low-risk, but it’s also low-reward.  Now, it’s extremely low-reward.

The key, I think, is to take calculated risks, and work to produce something.  Find a need, and serve customers to fill the need.  If you can deliver on time for the price agreed on, that’s a lot more than many businesses do.

This isn’t “stick money in a bank account and it grows while you watch Twilight” easy, but that’s what the times demand.  There’s barely any reward for doing it this way today.

Maybe the magic will come back into compounding, but until then, make your own magic.

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We’ve gotten into the habit of letting each other know before we’re about to purchase something big — something that costs in the neighborhood of $150 or more.  When I tipped my plans to get a rather expensive 10th anniversary gift, my wife thought that we had better uses for the money at this time.

This leniency extends to other gift-giving occasions like Christmas, birthdays, and even Valentine’s Day.

She lets me off the hook.  But there’s a catch

One of many tricks that master copywriter Bob Bly shared with the readers of his newsletter was with regard to giving holiday gifts to clients.  He doesn’t feel pressure to give his best clients a gift each year.  These are people who spend five and six figures (or more) a year for his services.  If anyone should get a gift at the holidays, it would be these folks.

How does he get away with it?  His trick is to give gifts at totally unexpected times.  He might send a book to a client on June 13th as a gift.  “Just because.”  This gets him off the hook for a slew of Christmas gifts because there’s no expectation of one.  He gives gifts that are more memorable for the recipient — and he gets to give them when he wants or when he’s inspired.

I’ve adopted that trick a bit.  I’ll bring home flowers, just because it seemed like the right thing to do.  $10/year around once a month buys a lot of slack around Christmas, anniversaries, and Valentine’s Day.

So it’s not that I don’t get my wife gifts.  I just get them at different times, when they’re not marked up horrendously.

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This particular one-minute clip features four extreme cheapskate tactics:

• Cutting open toothpaste tubes to get at the last bit of toothpaste
• Sharpening the blades from disposable razors on the striking surface of a box of matches
• Pulling apart two-ply toilet paper to get two one-ply rolls
• Hanging up paper towels to dry

Life is a giant exercise in opportunity cost

Learning how to do more with less, and how to get by with less, is a great skill to learn.  What happens most of the time with doing more with less, though, is that it takes precious time to do more with less.

TLC ends this clip with Roy, the money saver featured in the clip, saying the following:

“Toilet paper is a lot like life in general.  The closer you get to the end, the faster it seems to go.”

I’ll give him clever points for that statement, but am I the only one who thinks that this statement drips with irony?  There is an opportunity cost associated with every activity we do.  The time that we spend doing one activity we can’t spend doing another.  The time we have is irreplaceable, and is consumed at the alarming rate of twenty-four hours each and every day, never to be consumed again.

Or, put another way:  You can make more money, but you can’t make more time.

To apply this to the activities in the clip, there’s a point of diminishing returns for these activities.  Cutting a tube of toothpaste open when the tube is almost empty is probably all right.  It takes two seconds to cut the tube and another ten to wash the toothpaste off of the scissors.  Sharpening a disposable razor on a matchbox is probably fine if you do it right.  Keeping it in a glass of mineral oil probably works too.  Splitting up a roll of two-ply toilet paper is borderline too much.  I mean, it works, but … ?

Reusing paper towels, though, seems way more trouble and time for the potential gain.  Roy says that he’s saved $2,000 over the past ten years on paper towels alone.  Let’s take this at face value and call it $200 per year.  First off, that’s a lot of paper towels anyway.  We buy maybe two big packages a year for $40 total.  Secondly, what about a package of shop rags?  Those would last for years and they’re meant to be re-used.  (Isn’t the purpose of paper towels to throw away the germs?)  Or go even cheaper and use old cut-up shirts.  Lastly, and most importantly, it looks like a part-time job wringing out and hanging that paperware on that makeshift drying line in the living room.  Just the time spent squeezing another three to five uses out of a paper towel means that he’s working for about 1.4 cents per hour.  (Approximately.)

“Making it do or do without” is fine, but doing so shouldn’t fly in the face of common sense, should it?

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Some of the more outspoken posters got tweets back from Orman’s Twitter account.  20 and Engaged has a history of the interactions here.

Am I a Suze hater?

People don’t reach prominence by trying to please everyone.  Suze Orman has been in the financial realm for a long time — certainly longer than any personal finance blogger I’ve met — has nine consecutive bestselling books under her belt, as well as successful radio and TV gigs.  She has a wide following mainly because she gets in people’s faces about the soft spots in their financial lives.  This doesn’t resonate with everyone, and that’s to be expected.

But for the record, no, I’m not a Suze hater.  She’s helped many, many people get on the right track with their finances through direct advice and education.  It’s clear that she engages with people, listens to them, and genuinely wants to help them.  This can’t be taken from her: She’s done well for herself on this earth by helping a lot of people.

Now, back to the prepaid debit card.  Piece of junk?

Suze Orman’s message is clear, but what’s also clear is that she is a sharp businesswoman and a tireless self-promoter.  (She’s the latter because she’s the former.)  She’s in a position to use the leverage of her large audience to spread her message, help even more people … and sell more products.  The Approved Card is the newest product.  Is it better than cash?  Maybe.  Is it a good long-term solution for managing personal finance?  Possibly.  For people who need a shorter leash for a season, a prepaid debit card with a healthy dose of Suze could be part of the solution.  Is it without risk?  No, but nothing is.

Regardless, I certainly don’t fault her for offering this product.  She should be free to do so, just as people should be free to sign up or not.  Time will tell whether it was a good product or not, and the market will decide whether the $3+/month is worth the value that Suze Orman adds.

Postscript: Are my blogging colleagues idiots?

Absolutely not.  I’ve met many of them personally, thanks largely to Phil’s work.  (Phil was the closest recipient of this barb from @SuzeOrmanShow.)  But since we all just live in Clay Shirky’s internet. and since now consumers of the media have not only the ability to talk back easily but also to talk with each other easily, repercussions from bad PR can be swift and long-lasting.  Ticking off bloggers in one’s niche is rarely a good idea.

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Let’s throw good financial sense to the breeze

Let’s say that for whatever reason, you still buy lottery tickets.  It could be ignorance of the above, or because you feel deep down in your heart that this is the week for the big payout.  Or, more reasonably, you could buy lottery tickets as an entertainment budget item, because you enjoy it.  Whatever the reason, those lottery tickets are in your hands.

Now let’s say that lightning strikes and you beat the odds.  You win.  A lot of money.  As in a life-changing lot of money.  You turn the ticket in, and get a picture with the state lotto commissioner holding a giant check as a capstone to your fifteen minutes of fame.  Congratulations.

Let’s say now that you’re concerned about having that giant lump sum beckoning you and all of your new-found “friends,” so you instead opt for periodic payments for 10 or 20 years.

Would you expect your lottery payment to bounce?

That would really suck, wouldn’t it?  Well, that’s exactly what happened to dozens of people who won prizes in Illinois over the tail end of the 2011 holiday season.  The checks bounced for a brief period of time due to a computer file being sent late.  The oversight has since been fixed, and the affected people even got free scratch-off tickets as part of the apology.

This situation taken by itself is probably nothing more than “oops, sorry” and was easily fixed.  But let’s not forget that this is Illinois – a state that is developing a reputation for not paying its bills.  Organizations are going bankrupt due to missed payments from the state, legislators are being evicted by their landlords, and the state Department of Corrections is needing to pay up front for the bullets that help to protect their officers.

When will the deadbeat philosophy creep over to the lottery?  Lotteries are sponsored by most state governments, after all.  The fact that this mishap occurred in Illinois is merely convenient, though: Illinois is certainly not alone with its fiscal problems.  The risk of having promised payments go away presents itself in any state where there is a lottery.

The way around this is to take a lump sum payout if it’s offered, but that introduces a whole new set of risks — the biggest one being that the people managing the lump sum are usually ill-equipped to do so.  But it’s hard to argue that this is better than being stiffed.

I guess if you get enjoyment out of scratching the lottery tickets, so be it.  But the promise of “$1,000 a week for life” is little more than that: a promise.  A promise that rests on the solvency of the state government that runs the lottery, and its willingness to honor that promise.

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What is the dollar worth of an 18″, 14-karat, 14.38 gram weight gold chain?  No formulas please.

Before working out the answer, it’s important first to discuss the sentence that follows her question.

She doesn’t want me to giver her formulas.  She just wants an answer to her question.  Customers in general are more than welcome to ask for whatever they want.  I don’t fault her for just wanting an answer.  I don’t even assume that she is intellectually lazy for just wanting an answer.

Therein lies the time-vs.-money tradeoff of obtaining a valuation

If I were a pawn shop owner and she brought it in to me to see what she could get for it, I’d probably look at the chain for the purity marking, put it on a balance, check the spot price of gold, whip out my calculator, figure out what the gold content was worth … and offer her $100.  If she accepted the offer — if she had walked in expecting that it was worth about $50, she might jump at $100 — then I’d buy it, and sell it to a melter for at least three times that.  But first, I’d try to sell it for $500.

She might find a cash-for-gold place on the web, and send it there.  They may have a calculator on line that accepts the numbers she gave me, and spits out an answer right there.  She might get a pretty good deal, or she might not.  If she just takes their word for it, how will she know?  She won’t.  She’ll know only if she took the time to try to answer the question herself.

But whether she goes that far depends on how much money is at stake.  She wouldn’t go into the same depth of analysis to sell a used coffee maker that she bought a year ago.  If she could sell it for $3 instead of $2, she’s already invested too much time worrying about it for it to matter.

The main point of all of this is that if you don’t understand how a valuation is calculated, you’re doing the deal in a position of weakness rather than strength.  The cost of this can be great or small, and itself is a tradeoff of money vs. time.

OK, great.  Just tell me what the darn chain is worth.

The gold content of this chain is worth about $430.  Here’s the math.  The fractional purity of 14-karat gold is 14/24 = 0.5833.  For a 14.38-gram chain, this means 14.38 times 0.5833 = 8.4 grams of gold.  (The length of the chain doesn’t factor in.)  One troy ounce of gold is worth about $1,600 now.  There are 31.1 grams in a troy ounce, so this translates to $51.44 per gram of gold.  Multiply this by 8.4 grams to get $432 and change.

There’s the answer.  Now you can enter deals from a position of strength.  And hopefully the reasoning was clear.

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One possible opportunity for further savings, especially if you enjoy fresh produce, is through community-supported agriculture.  The way this works is as follows:

• A farm offers shares of his production for sale, ahead of the production and growing season.
• People buy shares for a set price.  This offsets the farm’s operating expenses prior to the production season.
• As the crops are harvested (or the products made) each person receives their share(s), usually over several months.

There are some advantages of getting produce through community-supported agriculture arrangements.  First, the food is fresh.  It doesn’t get much fresher.  Second, there is the opportunity to understand exactly what goes into the food:  what kind of fertilization, what kind of feed, what kind of pest control, what kind of irrigation methods, etc.  This creates confidence that the food is wholesome because the growing method is transparent.  Third, it supports the local economy through job creation and maintenance.

All well and good, but is community-supported agriculture a bargain?

This arrangement is certainly good for the farm.  A share might give a lot of produce, or only a little produce, or possibly nothing, depending on weather and other acts of God.  That’s an inherent risk of the purchase of a share.  Regardless, the farm gets the money.  It’s a bit like the farm selling a futures contract, but the quantity is left undetermined.

But let’s say that the weather cooperates, and the crops grow well.  Some other factors come into play:

• Are the crops what you like to eat?  You might end up getting eggplant and turnips at 3 cents per pound, but if you can’t stand eggplant or turnips, you’re out of luck.  Check into what the typical crops are.
• Is the typical amount of food too much?  Your share is your share.  Can you go through all of the food that you’ve already bought?  If not, then it may be more economical just to buy it in the store.
• Is the typical amount of food too little for what you pay?  A CSA arrangement should be able to give information about what was delivered for a share in previous seasons.  Check out what was given, and see if the typical quantities are worth the price.
• How far do you have to travel to pick up your share?  One CSA arrangement we looked at was from a farm about 45 minutes away.  The farm wouldn’t deliver the food; we would have had to pick it up.  The gas would have nearly doubled the cost of the produce.  If the farm were nearby, then this wouldn’t have been an issue.  With gas north of $3 per gallon, this can be a significant consideration.

Buying a share in community-supported agriculture may be a bargain, but it can just as easily not be.  In either case, though, there are the indirect benefits that come from supporting a local farm that might be very important to an individual.  Then, cost may not be the big consideration.

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But that’s not all!  Head over to Mr. Rebates, sign up, and score an additional 35% off cash back when you click through to Restaurant.com over there!  That makes 65 cents for a $25 voucher for qualifying purchases at thousands and thousands of restaurants nationwide.

(Too much work?  There’s nothing against heading straight over to Restaurant.com to get one for a buck.  No-sir-ee!)

Just double-check the terms and conditions which will be clearly visible next to your chosen restaurant.

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