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August 2009

Our guest today is Matt Jabs, blogger and founder of Debt Free Adventure, a blog designed to help the author stay accountable for getting out of debt. Debt Free Adventure is one of my favorites among new personal finance blogs.

Today’s discussion focuses on the concept of giving yourself a raise, an important way to improve your financial condition, particularly in an economic environment that is supporting fewer raises from your employer. Tom Dziubek and I explore this concept with Matt Jabs and discover a number of ways you can give yourself a raise today.

To listen, use the player above (Adobe Flash required), download the podcast here, subscribe to the podcast RSS feed, or use the iTunes link. Note: open links in a new window (Ctrl-click or Command-click) to avoid interrupting the podcast.

[00:00] Introduction from Tom Dziubek
[00:33] Interview with Matt Jabs of Debt Free Adventure
[01:10] Matt’s inspiration for writing about personal finance
[02:57] Giving yourself a raise at home
[04:26] How to give yourself a raise
[08:41] Creating a personal trigger to change your mindset
[10:24] Living outside the box
[12:16] Finding and following your passions
[14:29] The journey is as important as reaching the goal itself
[15:59] Dealing with customer service reps
[21:39] Do it yourself
[25:17] How it adds up
[28:04] End

We always welcome feedback from listeners. If you have any comments for this episode or for any other, or if you have suggestions for future episodes, please leave us comments here or email us at podcast at this domain name.

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When I started formally tracking high-yield savings rates, with a shared online spreadsheet, it was common to see banks offering interest rates above 5.0% APY. That was in January 2008, and the economy is in a different situation now. According to the government, there has been no measurable inflation, and now interest rates for lending are held low to stimulate the economy. Savers suffer in these conditions.

Banking Deal: Earn 1.05% APY on an FDIC-insured savings account at Synchrony Bank.

Bankers were livid this past spring when Ally Bank, a re-branding of GMAC Bank which had been tainted by the bailout of General Motors, rose like a phoenix and maintained the same interest rate it had been offering in its previous incarnation. The director of the FDIC got involved to prevent Ally from using its bailed-out position to create an unfair competitive advantage over other banks.

The bank must now be confident that it is no longer on the FDIC’s bad side. Click here for the latest interest rate from Ally Bank. It’s a small increase, resulting in only 50 cents more a year on an initial $1,000 balance. It seems to be a signal, though weak, that Ally wants to be considered a stronger bank than others, but I don’t think it’s a signal that we should expect to see more banks raising interest rates.

I do have an account with Ally Bank and you can read my review of the Ally Bank savings account here.

Today’s interest rate increase should not be enough to convince someone to move all of their money into this one bank, but if you have the inclination, Ally is a good choice for a diversified portfolio of savings accounts because at this time, I would expect they will continue offering one of the highest interest rates for highly liquid accounts and despite FDIC’s funding woes, your money should be safe.

See the review of the best online savings accountsupdated November 13, 2009.

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For the last few years, I have been participating in my company’s stock purchase plan at the maximum level. Every paycheck, ten percent of my gross salary is withheld. At the end of each quarter the funds are used to buy my company’s stock at a 15 percent discount from the lower price of either the first day or last day of the quarter. As my company’s stock declined mostly due to the economy at large and the industry in which I work, this was a losing proposition. I decided not to sell the company stock until prices returned, rather than selling at the first available opportunity as I had been earlier.

So now I have company stock that I have been holding since December 31, 2007. About half of the shared purchased then and since then are in a losing position while half are now in a winning position. My only opportunity to sell this quarter is closing soon, so I should decide what to do. Here are some of my options:

  • Sell all of it. It’s risky to hold so much in one stock, and I already have company stock in my 401(k). I can write off the losses against the gains to reduce tax liability.
  • Sell the shares in a losing position. I can write off the losses against any realized gains if I sell stocks later this year.
  • Sell nothing until they are held for two years. The stock will probably go up, and after two years, they will be long-term capital gains, taxed at a lower rate.
  • Sell the shares in a winning position. This would help my cash flow, but I’ll owe income tax.

What would you do?

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After we got married, my wife and I combined our finances. We moved most of our money from a local brick and mortar bank to a bank that we primarily access online and over the phone.

This arrangement has worked out well for us, but it does mean some accounts that were previously utilized many times a week have now lain dormant for quite a while. We’re not really too worried about the checking and savings account, but we do keep a close eye on the credit card from that bank.

The card is important to us because not only is it the largest line of credit we have available to us (we rent, have no student loans and no car loan), but it’s also been open the longest – it has a major affect on my wife’s credit score.

With the recent increase in banks closing customers’ cards, we started to worry that our card would mysteriously one day disappear, since we don’t use it very much.

According to this recent article from the Wall Street Journal, while ‘surprise’ card cancelations are on the rise, there are risk factors and other things you can be aware of that might help you keep that card in your wallet.

From the article:

“An issuer can cancel a credit-card account without notice when …

* A customer hasn’t used the card in more than a year.
* A customer has defaulted or is delinquent on the account.

An issuer can cancel an account and send written notice within 30 days after the cancellation when a reassessment deems the cardholder too risky.”

In fact, your bank doesn’t even have to notify you about the account closure if your account is closed based on inactivity, default, or late payments. Many people find out about the cancelation only after their card is turned away at a store or restaurant.

So what can we do to keep our cards and avoid damage to our credit scores?

– Pay attention: Double check your bills to make sure you’re not late or in default. Monitor your credit report to make sure it’s accurate, and do all you can to fix any problems.

– Use your card: We use our card for the occasional entertainment expense. Interesting enough, despite hardly using the card over the past few months, our credit limit was increased, helping us our with our credit score. Having a set plan for a card (a small recurring bill or a determined budget category) will help keep the card active.

– Diversify: After reading the article, I realized that even if we do everything we can to keep that card active, we’d really be hurting if it was ever closed. We need another option that will reduce the overall impact of a card closure on our score. Granted, the impact won’t be as bad for someone with a mortgage or student loans, but when a credit card is the only credit you’ve had time to get, it could be a whopper.

I’m much more comfortable now that I know we’re working to keep the card open. I now know that we need to diversify to decrease the impact that each source of credit has on our credit score. Knowing what’s going on with your cards can help preserve your hard financial work and can prevent surprises at the check out stand as well.

Source: Wall Street Journal, Credit-Card Companies Can Cancel Cards Without Customer Knowledge, Aug. 12, 2009.

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