Monday, February 22, 2010

Tax Prep

This year, I returned to an old favorite web site.

For the past two years, I paid a tax prep firm to prepare my tax returns. The biggest reason for this was because I had been shoveling money into my 401k at an old job in 2007, and then wanted to convert it to a Roth IRA. I had absolutely no idea how to treat that for tax purposes as it was the first year you could do a conversion, so I was forced inclined to get some professional help. The next year, I decided to go back to the same firm because I was pretty busy with work. Easy to justify at the time, but in hindsight, very expensive.

These two years were an aberration for me, after doing my own taxes for a few years. Before that, my Mom was awesome enough to help me out because while I had my first job at 16, I had no clue didn't care how to do taxes at the time.

This year, as I was reviewing my prior tax returns, I realized that I could return to my old ways and save money at the same time. If you havn't filed your own taxes, it can definitely take a while to get used to. Fortunately, there are some easy programs out there that will help you in your tax prep. The comment I have heard (and subscribed to last year), is "why not let a professional do it for you?" The answer to this is actually a question. What does your tax preparer do differently than  you can do yourself?

The answer is a bit of homework, but beyond that, not much! You can use a program that will ask you the questions that may apply to your tax treatment and easily save yourself a good bit of cash. Any parts of the tax code you are unsure of can be remedied by a trip to the IRS website (no fun to read, but think about the money you are saving.)

In most programs, you can easily reference any questions you may have as they directly show which IRS document to use to clarify your concerns.

Taxact is the website that I have used in the past, and decided to use again this year. I saved the tax prep fee that I was paying, and only spend a few hours doing the work. Your tax return may only take an hour, or just a few to prepare, but consider it as paying yourself for doing the work.

In all, I paid $14.95 to electronically file my California tax return. Taxact offers free Federal tax return preparation and electronic filing. That's a pretty decent deal. FREE.

TAXACT is awesome.

Tuesday, February 9, 2010

Justifying a video game console purchase.

Enjoy video games? Well don't buy them because they cost money. Just kidding, but if you don't have a system, which one should you buy? I don't know, but maybe some of my commentary can help you decide for yourself.

There are three choices in a video game console purchase, and each have their strengths and weaknesses.

The Xbox 360 is a great choice for a system, but it lacks a Blu Ray player. Sony makes Blu Ray, so no surprise there, although Microsoft did release an add on HD DVD player before the format died. For online play the Xbox Live service will cost you around $40 for a 12 month subscribtion. This is a definite weakness, as the PSN (Playstation 3's online gaming) is free, but Xbox Live has a better experience in my opinion. Another great feature that was added around a year ago is Netflix streaming. With this fantastic feature you can stream (with very little to no buffering if you have high speed internet) a ton of older movies and tv anytime you want. There are newer movies as well, but the selection is limited. That being so, this is still a great way to revisit some old classics and find some new favorites you may have missed all along. One thing I do not dig about the Xbox is that  Microsoft seems to enjoy making you pay a premium for their accessories and add ons. Unless you buy the Elite bundle, then you pay extra for a hard drive and the headset (so you can talk trash peaceful words of encouragement online). If you want wireless internet you have to buy their adaptor (or come up with a creative solution like sharing your laptop's connection). Bad form Microsoft, and I don't think you will get away with this on the Xbox 72 Billion or whatever it's gonna be called. Since the Xbox 360 was out long before the Playstation 3, many people bought it first, and that's how Microsoft seems to have gotten away with some of it's practices.

The Playstation 3 is another great choice, and may work out better for someone looking for a more complete out of the box system. It has built in Blu Ray, uses any bluetooth headset for online gaming (including the one you use in your car), and has a built in hard drive. Sony definitely seems to have the more complete package, but it just wasn't available when the Xbox 360 was. People buy what is available, and the result is a lot of people that bought a system earlier just bought a 360 instead of waiting for the PS3 (Hint Sony: don't wait so long!). Netflix recently enabled the software on the PS3 as well, but the weakness is you have to put a special software disc in. This isn't a big deal, but the Xbox version is silky smooth software that downloads, so you never have to mess with a disc. The DVD player for Playstation 3 upconverts your DVD's so your older movies will look a little better than you remember, and this is a strength that Xbox does not have.

The Wii is an interesting system that is targeting a different audience than the other two. The main draw is the interesting controls, where you actually move the controller to see movement on screen. Very cool, but can feel a bit gimmicky after a bit, unless you find a game you really love. Nintendo seems to have taken a page from Microsoft's book in that you will pay extra for the Nunchuk (required for some cool boxing type games) and the Wii Motion Plus (required for some really cool new games). Not that big of a deal, but if you are expecting to have everything out of the box you may be miffed to find out you have to go spend more money. The price point for the Wii is definitely a strength, as it is the cheapest system, but you may be disappointed with the graphics. The graphics do not hold a candle to some of the lifelike visuals you will see on the Xbox or the PS3, but Nintendo is banking on their controls and immersive gameplay to make you not care.

All three of these systems are a great choice, but if you are buying one for a teenager, I would probably not buy the Wii unless specifically requested. The Wii just doesn't have the best variety of titles, and the controls can be funky, especially for first person shooters.

Buying a video game console is a big expenditure, but can be a good entertainment purchase if you will actually enjoy and use it. As long as you do not go crazy buying all the new games, you can probably keep your entertainment budget down. Most games have a ton of hours of gameplay in them before you will be done with them. This can bring the "per hour" price much lower than other entertainment choices. Read reviews on sites like and and only buy games you really want, or use (here's a link to an older post talking about Gamefly and other ways to save money) to reduce the money you spend for games.

And you thought this was gonna be a "never buy video games because they cost money" hatefest!

Friday, February 5, 2010

An alternative view on home buying.

I very much doubt this article would have been written a few years ago during the go-go times, when everyone was convinced buying a home was the best thing since sliced bread.

A few points for discussion:

A big reason that individuals and families are encouraged to buy a home is the idea that it "forces" you to save. If you rent a place, you are told you are "throwing your money away." This statement really does not tell the whole story.

If you save the difference between what you might spend to rent a small place and what you might spend to buy a larger house, you are doing yourself a lot of good by saving. If there is a big differential, it could be wise to save the money you may be spending on a (larger) mortgage payment for a few years. This will also get you in the habit of saving and investing in the first place. This tends to dispel the "advantage" of buying a big house because it forces you to "save" more money by making you pay the mortgage. Just rent a smaller (cheaper) place, and invest the difference. Do you have the discipline to stick to your plan?

Not every American has to own a home. This is the American dream argument, that it is somehow the birthright of every American to be indebted to a house. The term "own your own home" gets thrown around quite a bit, but many Americans do not truly own their homes. The bank does! A mortgage is debt, albeit a tax advantaged debt.

Do you need a home? One of our longer term goals is to buy a home. We think it makes sense for us to move into a house when we have kids, but not really before. We don't need that much space (to buy and store more stuff...the usual result of more space), maintenance (one of the most underestimated costs of a home), or decreased cash flow (we pay a much lower amount for rent than a mortgage...this lets us adjust our budget as needed).

Many people just don't care understand that there are other options, and that just because you havn't put yourself in the most debt of your life for a non liquid asset with high frictional costs...doesn't mean you aren't cool! (In plain ol' English..."buying" a home is expensive, ties up a huge amount of your current and future earnings, and is always going to cost you to "get in" (buy) and to "get out" (sell) due to real estate agents/mortgage brokers/banks/fees/loan costs/increased maintenance/increased utilities/property taxes etc.)

If any of this makes you think twice about jumping in to a big monthly payment...good!

Find your own best answer!

If you're still this interesting piece from before the "Great Recession" hit!

Being a long term investor, either in a house, or in index funds, will likely lead you to more financial freedom.