Let’s start this week with JD Roth’s wife Kris’ How I Made My Peace with Hiring a Housekeeper. Her sentiments echo my own when it comes to outsourcing, that there’s little difference in having someone come in and clean your home or cooking and waiting on you at a restaurant. There are so many things we take for granted as ‘normal’ yet a stigma remains on having help come in.
There are times I can see and understand someone’s view and while disagreeing, still respect it. Kyle at Amateur Asset Allocator offered An Argument For Switching To Cash-Only, the title explaining the article well enough. And I do appreciate the main points, credit card perks are fading, the rules are crazy, and, in theory, people tend to spend more when using cards than when using cash. The approach Kyle advocates may very well benefit many, if not most people. I’ll stick with the 2% cash back, added warranty coverage, and convenience of the one or two monthly bills where I can see my spending at a glance.
Craig at Money Help For Christians gave a good overview of the Roth IRA and Traditional IRA Tax Implications in Plain English. This is a topic that, despite all the press, people remain confused about. So I’ll continue to give a thumbs up to anyone who helps others to understand this important financial account.
My friend Jeff at Deliver Away Debt explained How to Adjust Tax Withholdings in an excellent Taxes 101 style article. Simply put, if you owe too much in April, you’re going to owe a penalty as well. Not good. But if you get a refund, you’ve lent money to Uncle Sam interest free, and perhaps could have used than money to pay down high interest debt. An understanding of the withholding process is the first step in getting the numbers right for tax time.
Susan Tiner who writes at Brain Dead Simple! Financial Organizing guest posted this week at The Oblivious Investor. Her article Using Probability to Set the Size of An Emergency Fund offers a unique approach to calculating your ideal EF amount. Anyone who can start assigning variables to dollar decisions and end up with an understandable conclusion has my admiration. Then again, I am a numbers geek and love this stuff.
The last article I’ll look at this week is Why Inflation Doesn’t Bother Me by The Weakonomist. He makes an interesting case for why inflation doesn’t negatively impact the S&P. I’m not 100% in his camp on this, I need to gather my own data and do some more analysis. Interesting read, though.
Last, my prayers and thoughts go to our fellow people in Chile, the quake that hit them was orders of magnitude stronger that that which hit Haiti.
Joe
I think the article title “Using Probability to Set the Size of An Emergency Fund” is misleading. It seems to me the guidance amounts to estimating the probability of an emergency using various rates of return, and then estimating the dollar amount of an emergency. What kind of errors should one attribute to one’s estimate of the probability of an emergency? If one computes 1/5 using the approach above, to me 1/2 is not that far away, considering the errors in estimation. Also the three rates of return named by themselves may vary a lot from one year to the next. In other words, a factor of safety (well known in engineering circles, for one) should be used. This is maybe more famously known as a huge “fudge factor,” because uncertainties are so large and compound when combined in an algorithm.
I think people should continue to plan their EF around their sense of the cost of a worst case scenario. Using a certain number of months of current paycheck makes more sense to me than arriving at a hard number as the alleged algorithm above seems to push. To me, the algorithm is a flimsy disguise for garbage-in, garbage out computation.