Joe Four-Pack
During the summer when food inflation was high, there were a lot of news reports about package shrinking. Instead of raising the price, companies just give you less and sell for the same price. That makes it easier for them to hide the price increase. This is still going on even though the inflation pressure tempered somewhat. I recently noticed Pepsi started selling 8-packs instead of the old 12-packs. If this trend sticks, the colloquial Joe Six-Pack will become Joe Four-Pack.
What Does Printing Money Mean?
I was driving around doing errands about a month ago and I heard Paul Krugman interviewed by Terry Gross on the Fresh Air program on NPR. Paul Krugman is this year's winner of the Nobel prize for economics. I couldn't listen to the entire interview at that time because I had to stop at different places. I only digged up the archive on NPR last weekend.
Here's an excerpt of a few Q&A's between Terry Gross and Paul Krugman (not exact words, only my brief notes; NPR does not publish the transcript for free).
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John Bogle on Free Market and Morality
John Templeton Foundation sponsors a "Big Questions" essay series. It posts a philosophical question and invites answers from scientists, scholars, and public figures. A recent Big Question was
Does the free market corrode moral character?
Old Money Versus New Money
If you make a change to your portfolio, say you add some more money into a fund, do you check the price the next day and see if your move made money? I do, and it doesn't make much sense.
If I have some money in a fund, I don't check the prices every day and see if the value of my fund increased or decreased. I let the money ride with the market. But if I add $2,000 to the fund, even if I already have 10 times more in the same fund, I still prefer to see on the next day that my $2,000 move was a good one. It seems I care about the new money much more than I care about the old money, although money is just money. Money has no memory. It doesn't know whether it's old or new.
I don't think I'm alone. I asked a colleague what he would do if he had 100% of his money in stock funds which lost 40%. He said he would hold because the prices are really low today. I then asked him what he would do if he had nothing in stocks but a bunch of cash in a bank savings account. He said he would buy into the market slowly because the prices may go down some more. So if he had old money in stocks, he's willing to let it ride, but he's not willing to do the same for his new money. So what's so special about new money that makes us care more about it? When does new money turn into old money, at which point we don't care as much about it any more?
Too Many Banks
Do you think we have too many banks in the United States? There were 8,451 FDIC-insured banks as of June 30, 2008. Canada, on the other hand, with 1/10th of the population as the U.S., only has 81 banks, which can be listed on one page. On a per capita basis, we have 10 times as many banks as in Canada.
Of course the benefit of having this many banks is competition, which is usually good for the consumers. When I was in Canada a few years ago, I was astonished how hard it was to find a basic free checking account (or checquing chequing account as they spell it). I just looked on a few Canadian bank web sites. It's still the same today. Even the most basic account has a monthly fee. You need to maintain a $1,000 minimum balance to waive the monthly fee. Then they also charge you for each transaction after you use up your allowance of 10 or 15 free transactions per month. That kind of metered checking account is almost unheard of in the U.S.
Solo 401k For Part-Time Self-Employment
In A Non-Deductible IRA Is Worth It For Me, I mentioned I'm going to establish a self-employed 401(k) plan, also known as a solo 401k plan or an individual 401k plan. This is in part for providing a safe haven in 2009 for the pre-tax money in my IRAs, in preparation for converting the remaining after-tax money in my IRAs to Roth in 2010. It will also allow me to shelter a little bit of money from my self-employment income. Every bit helps, you know?
When I tried to figure out how much I can contribute from my self-employment income to the solo 401k, I found that the information on the Internet assumes that the self-employment income is the person's only earned income. For example the calculation worksheets provided by Fidelity, Schwab, and Vanguard all make that assumption. They don't consider the cases like me who work at a day job while earning some self-employment income on the side. Because I participate in the 401k plan at work, the maximum I can contribute to my solo 401k plan changes with what I earn from my day job and what I contribute to the workplace 401k plan. The Social Security tax I pay depends on the sum of my salary as an employee and my self-employment income. The salary deferral contributions I can make from self-employment income also depends on how much I already contribute to my 401k plan at my day job. I would think there are enough consultants, freelancers, moonlighters, and bloggers who are in the same camp as I am, but there is very little resource I could find for people who earn their income from a mix of W-2 salary and self-employment.
You know where this is going to lead to, don't you? I had to create a spreadsheet for myself and I'm sharing it here in case other people like me find it helpful.
$700 Billion Benchmark
It's interesting how the $700 billion bailout number has become a new benchmark. More popular than "cost of X days in Iraq." Everything looks so cheap when you compare it against the bailout.
I listened to a program about children's health insurance on the radio the other day. A guest was talking about State Children's Health Insurance Program (SCHIP). She said basically "if we can spend $700 billion on bailing out the banks, we can afford to spend $70 billion to insure all children in this country." What do you think about this new benchmark?
How Much Should You Put Into Flexible Spending Account (FSA)?
My company is doing open enrollment again for next year (for more info on what to choose in open enrollment, see previous posts). I'm not going to make any changes except I have to re-enroll for flexible spending account (FSA).
If you use flexible spending account, you should be familiar with the use-it-or-lose-it rule. If you put too much in the FSA, you will lose what you can't use. In the past I always estimated conservatively. I've never lost any money to the FSA. However there is also a cost to that approach. After the money in the FSA is used up, any additional expenses must be paid with after-tax dollars. There has to be a point where losing a little pre-tax money in the FSA is less expensive than paying a lot with after-tax money.
This becomes an interesting math problem.
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