Our $500 Mistake: Pay Close Attention When Negotiating With Contractors

We are having hardwood floors and baseboards installed in our house this week, and since I also wanted crown molding, I asked my boyfriend, who is overseeing all the renovation work since I oversaw the entire purchase transaction, to talk to our flooring guy about installing our crown molding as well. The cost to install the baseboards in our entire house had already been settled on: $350. So when our flooring guy said $325 for crown molding, we said, "done deal." The price made sense since we were having crown molding installed in fewer areas than we were having baseboards installed.

Well, it seems that since we were expecting to hear a number in a certain price range, we didn't listen carefully enough. The price to have the crown molding installed (note that we purchased the crown molding and painted it ourselves) is actually $3.25 per linear foot. Not $325 for the whole house. The difference is going to be about $400-$500. Ouch.
The good news is that I am not terribly upset about this because the only alternative we had explored was doing it ourselves, which likely would have resulted in a lot of wasted supplies from bad cuts and a lot of time and frustration since we've never done it before. I also don't consider myself to be very skilled at things that involve precise measurements, so I didn't really trust myself to do the job well. We probably wouldn't have gotten the crown molding installed for a long time. And it was something I really wanted. I think it makes a huge difference in the niceness factor of a home for a relatively low cost. Kind of like a fresh coat of paint (albiet not quite as cheap).
I'm also not too upset because we've gotten what we feel are great deals on the other work we've had done on the house. All in all, we feel we're still coming out ahead. Plus, we got a great deal on the crown molding itself. If you buy individual strips of crown molding at Home Depot, you'll pay about $1.24 per linear foot, but if you buy the contractor packs, you'll pay about 1/3 of the price. A Home Depot employee was nice enough to tip me off to this fact. The catch is that they only sell a few types of molding in contractor packs, so your selection is very limited.
And honestly, I feel fortunate that the financial mistake we made was relatively small when you consider the big picture. We can still afford to pay the bill and it isn't going to ruin us financially. What this experience has taught is, though, is that making deals over the phone perhaps isn't the best way to go. If we had gone to the store and gotten the deal in writing, we would have seen clearly that the deal was $3.25 per linear foot, not $325 for the entire job. Also, it's important to listen carefully to what the person is actually saying, and not to assume that they are telling you what you're expecting to hear.

Strange New Account Security Questions

I recently opened a new credit card. The company detected "fraudulent activity" on my account, so I had to call them and verify the charges. They asked me the strangest questions to verify my identity.

-Could I tell them the name of a hospital near where I live? Um, no, but I can look it up on Google if you'd like.
-How about a park? Negatory. Do you know the names of the parks you go to?

I ended up looking up the hospital on Google and the customer service rep accepted my response. Yay.

Next question: could I tell them one of my previous addresses? As my freshman-year roommate would have said, "Score."

Could I tell them the nearest cross street? Oh dear. Good thing I had visited the neighborhood recently or I might have missed that one, too! Who knows what questions I then would have had to answer to prove that I did not steal my own identity!

"What color is your underwear?"

This reminded me of when I applied for a new credit card several months ago and they wanted me to answer a million questions to approve me. One of them was, what was the balance on my last credit card statement with a different credit card company? I got the information by logging into my online account and giving them the balance, because I certainly didn't have it memorized. (In case you're wondering, the reason one company could know my last statement balance at another company to the penny is because this information gets reported to credit bureaus credit card companies can access your credit report.)

It was a good thing I had access to a computer when I was on both of these phone calls or I would have failed the tests. I wonder what would have happened then? Would I have been presumed to be an identity thief?

While I appreciate the efforts of credit card companies and other financial institutions to step up their security, as providing my credit card number and the last 4 digits of my SSN surely does not seem sufficient, the questions I had to answer still could have been answered by anyone who had done a good enough job of stealing my identity and had access to the Internet. So what's the point? Eventually identity thieves are going to start collecting the names of people's cats and their fathers' middle names and the makes of people's first cars so they can continue their crimes.

Wherein lies a real solution?

Photo by laffy4k

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Adventures in DIY Home Remodeling

I've had the keys to my foreclosure for two and a half weeks now. We haven't moved in yet, though, because there's so much fixing to do.

We could have moved in immediately if we wanted to live with pink walls throughout the entire house, unfinished drywall in multiple places, filthy carpet, electrical hazards, and myriad other issues, but alas, I've been saving my pennies by living in crappy places for too long and I'm ready for something nice.

What we have been doing to get the house looking nice is not nearly as much work as they do on most house flipping shows, and yet it feels like so much more. We're doing as much of the work ourselves as possible to save money.

-Removed the old, ugly baseboards in every room (that was fun and only required a crowbar)
-The removal partially damaged the bottoms of some walls (see green photo), which then had to be puttied and sanded
-Every room had to be primed with two layers of primer
-Every ceiling had to be painted with two coats of ceiling paint (even the ceilings are pinkish)
-All the rooms had to be painted with two coats of the colors we picked out
-We demolished a pony wall (a pony wall is a half wall)
-We hired someone to repair the previous shoddy drywall work and fix the areas that got damaged in the wall teardown
-We hired electricians to fix the fire hazards and various other annoyances and safety issues
-We bought hardwood floors and hired someone to take out and haul away the old floors and install the new ones
-We went to Home Depot and bought all new baseboards and crown molding, loaded them and drove them home ourselves (those things are 16 feet long--guess how much fun that was?)
-We have to paint it all ourselves (also not so fun)
-The flooring people are installing it all (so it will look good!)

That's just a partial list. I won't bore you with the rest.

Picking out the right colors for each room proved to be quite the time-consuming and expensive endeavor. I picked the office color on the first try and the media room color on the second try, but all the other rooms have taken at least four tries. At $8 a quart, that's a lot of money wasted on paint I'm never going to use and can't return (you can't return custom colors, which is basically any color that's not white). But given how difficult it is to repaint once all the furniture and stuff is in the house and given how relatively cheap $8 a quart is compared to hating my walls, it seems worth it.

I knew almost nothing about home repairs before undertaking this project, but I saw a lot of potential in this house. It had a half wall (which I have since learned is called a pony wall) separating the living room from the kitchen. I wanted to knock it down to open up the space. I thought we were going to have to hire someone to do it, but it turns out the work mostly just involved a sledgehammer, a saw, and a lot of dust. There were two electrical outlets in that wall, so we had to demo carefully around them and hire an electrician to pull the spare wiring into the attic, which involved creating a hole in a wall we were keeping and then getting the drywall guy to patch the hole. We were able to hire a family friend who was short on work, and while he's apparently not a professional drywaller, I never would have guessed it from the work he's done, which is fantastic (and also came at a great price).

How was anyone living with carpet this filthy? The biggest move-in expense is the hardwood floors we decided to put in. Yes, carpet is cheaper in the short run, especially because Home Depot will install a whole house worth of carpet for $200, whereas the installation on our hardwood floors is costing, well, a lot more than that.

In the long run, however, they should save both money and hassle. They won't have to be replaced in our lifetimes, and supposedly they won't even have to be refinished for a whopping 50 years (so says the warranty). That can't be said of any other flooring option. Carpet would have to be replaced at least every ten years, and wood laminate floors aren't terribly durable (I also hate the way they look). Tile might last as long, and can be inexpensive, but I don't think it creates that warm, homey feel the way wood does.

We also had to tear down the plastic (!!!) crown molding in the living room that a previous owner apparently installed--not only did it look cheap, but the corners weren't even with the sides.

Then there are the little details, like replacing the ugly bathroom light fixture and medicine cabinet, getting the ligh switches changed from the flat push kind to the regular kind, and of course, cleaning the whole house from top to bottom. It was largely taken over by spiders, too, so we have to hire an exterminator (better spiders than roaches, I say). There's also this weird hole in the side of the garage that we have to get closed up.

After starting on all this work, I have a better idea of why people are so fond of move-in ready homes. But for me, I don't think there would be any such thing as a move-in ready home. I wanted to pick my own flooring and my own paint colors for the walls. Those things, which are time-consuming and expensive, would have had to be done no matter what.

I have been exhausted every day that I've worked on the house, and it has been more chaotic and less fun than I envisioned, but I think it will all be worth it in the end.

Coinstar Holiday Bonus

When I learned about Coinstar's holiday bonus promotion on My Money Blog, I decided it was time to finally cash in all the coins I've been harvesting. The promo is that if you turn in at least $40 worth of coins in exchange for an e-certificate or a gift card, you get an extra $10 bonus via mail-in rebate.

I'd never used a Coinstar machine before. When they first came out, I thought they were a rip off because they charged 7 cents per dollar (i.e., 7%) to count your coins for you. Not being one to pay someone to do something I can do myself, no matter how tedious, I continued to roll my coins and carry them to the bank when I had enough.

Nowadays, Coinstar charges about 9% for you to turn your coins into cash, but if you turn them into a gift certificate, you get the full value of your coins. Since there are plenty of stores where a gift certificate is as good to me as cash, I think this is a great deal. Add a $10 bonus and I'll actually take the time to find a store with a coinstar machine and haul my change to it.

The whole process was extremely easy and I would absolutely do it again. It takes the machine a while to count the coins, and it's heavy lugging all those coins to the store, but that was the extent of the hassle involved, if you could even call it that. I got a $56 e-certificate for Amazon.com because I wasn't sure how an e-certificate for Lowe's would work. Would I have to buy something from them online? I only wanted something I could use in-store for them. At the time I was actually at the machine, I could remember the details of the promotion. I just remembered that Jonathan from My Money Blog had gotten an e-certificate for Amazon so I did that, too. I put my rebate coupon in the mail today. And I'm thrilled that I had so much money in change! I had no idea I had that much.

The only thing I would probably do differently next time is to put my coins in a gallon ziplock bag instead of a shoebox. It was awkward to pour my coins into the machine from the shoebox and I spilled some on the floor.

When the machine was done counting my coins, it printed out a receipt on thicker than usual paper that had my e-certificate code. When I got home, I logged into my Amazon account and entered the code. Now I can use it whenever I want. The machine also spits out gift cards if you'd prefer something more tangible or that can be used instantly.

The Hidden Costs of Moving into a Fixer Upper

I bought a fixer upper. I actually wanted to buy a fixer upper. I thought it would be fun. And though it is a whole lot of work that has so far taken at least 9 different people (me, significant other, significant other's parents, contractor, stuctural engineer, drywall guy, two electricians) to accomplish (and we're not done yet), it is fun. I love that I now know how to do various home improvements that I didn't know a thing about before, and I love that I've had an excuse to use a power sander for the first time since the wood sculpture classes I took in college. I love that I know what the wiring inside my walls looks like. I love that I got to use a crowbar and a sledgehammer. I love how incredibly sore and exhausted I feel after working on my house and how wonderful it makes my bed feel.

Buying a fixer upper is supposed to be a way to save money. You buy a house for below market value since it needs so much work that most people aren't willing to do. But buying a fixer upper also has some hidden costs that I've discovered during the process.

1. Paying rent and a mortgage at the same time. This is probably the biggest hidden cost. You can't live in a true fixer upper while it is being fixed unless you are willing to move twice--first to put all your stuff in storage so it doesn't get ruined (or stolen) during the renovations, and second to move into the house.

If you have pets like we do, you can forget about this plan, because while you may be able to live in a construction zone, trying to keep track of two kitties with strangers coming in and out of the house all the time and leaving doors and windows open is just not an option, nor is putting them in a kitty hotel for 4-6 weeks (which probably costs more than my rent, not to mention how much the cats would hate it).

2. Eating out. My house is about 30 miles from my apartment, so I can't just run home for a quick meal. For a while, I was eating Subway for lunch and Jack in the Box for dinner every day, which was costing me at least $10 a day, not to mention making my pants feel tighter. With no fridge, microwave, or toaster oven at the house and dust flying everywhere besides, preparing food there wasn't possible.

Fortunately, I developed a new system. I pack a cooler at my apartment every morning and take sodas, sandwiches, and other goodies to the house with me so I can pay grocery store prices instead of restaurant prices for my food. That being said, Subway's $5 footlongs are quite the deal if you can stretch it into two meals. Good luck making a footlong sub last two meals when you're working on a house, though! All that manual labor makes a girl hungry. I've taken to carrying around a package of coldcuts and cheese and a loaf of bread so I can eat as often as I want.

3. Work. I am self-employed, and this house stuff is seriously eating into the time and energy I normally spend making money. I'm hoping I don't have a low-income January because of this, but I think I can pull it off. It's been hard shifting my focus to anything besides house stuff, though. And while I frequently work late at night, it's one thing to write articles late at night when you've been watching TV all day, and quite another to write articles late at night when you've been painting and running back and forth between your house and Home Depot all day.

Photo by jetalone

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Save Money by Traveling in the Third World . . . Or Not?

I just got back from a trip to Guatemala. I was expecting that aside from my plane ticket and all the money I spent on travel vaccinations, I would be spending almost no money while I was actually there since I was staying with a friend and Guatemala is a third world country. Wrong!

Third world country though it may be, all the tourist attractions, sites, and restaurants are priced for tourists. The two touristy Guatemalan restaurants I ate at in Guatemala City in the part of town where all the American hotels are (Holiday Inn, Westin, Marriott, etc.) cost me about $25 per meal--about the same as I would have paid in the U.S., if not slightly more. The hotels I stayed in when I wasn't staying at my friend's place were $100 and $120 per night. And the private motor boat trip across Lake Atitlan was about $70. I'm not sure if that would have been the price no matter what, or if that was the price because there were 4 people. For one person it would be kind of expensive, but for 4 people it was a great deal. I also got some typical Guatemalan sweets, which cost about twice as much as the Indian sweets I like to buy at home.

Where was I able to save money? Well, by the end of the trip when I was feeling a little more adventurous about my eating, I went to a nontouristy Guatemalan restaurant off the beaten path and had a semi-all-you-can-eat lunch for about $5. The food wasn't amazing, but it was a lot better than a value meal at McDonalds. It was basically alongside the highway from Panajachel to Guatemala City, which is lined with expensive tourist restaurants, but by going just one street off the highway we were able to eat for cheap. I also saved money by traveling with a small group, so we were able to share the cost of the boat trip and one of the hotels.

I could have saved money on the hotels if I had been willing to stay in a hostel or even a less nice hotel but I'm kind of feeling too old for that. You can get a hostel room in Antigua for just $10 a night. I prefer to stay places where I can have my own bathroom and lock the door when I'm sleeping, though. I wouldn't say the hotels we stayed at were nicer than what we would have gotten for the same price in the U.S., but they did have more character and beautiful interior courtyards.

My transportation was free since my friend drove everywhere and even paid for gas. Otherwise, I could have taken a public bus, but I wouldn't have. They are cheap, but you get what you pay for--an old American school bus absolutely stuffed with people both sitting and standing. There were very few upscale tourist busses on the roads.

The next best option, though it wouldn't have been cheap at all, would have been to rent a car. Since my car insurance only works in the U.S. and Canada, I would have had to buy the rental company's insurance (but I would have wanted to anyway with the way they drive in Guate). Much like the U.S., private car seems to be the fastest and safest way to get around in Guatemala.

I also got a haircut, manicure, and pedicure while I was there, figuring it would be cheaper than what I normally pay (or rather, don't pay--I hate getting my hair cut and I also hate paying for it) but it cost about $66 for all three, not including tip, which wasn't nearly as cheap as I was expecting. I also learned that there is really no reason to pay for manicures and pedicures--I can do them just as well myself for free. (Nope, I'd never had a professional mani/pedi before.)

A few other things I learned on my trip: the travel vaccinations that I spent $150 on really didn't seem necessary. Maybe if I had been eating at food stalls on the street or dirty restaurants, but I was careful to eat only at places that seemed safe, to not drink the tap water and to avoid fresh fruits and veggies. It paid off--I did not get sick once. So I'm not upset that I paid more for food than I probably had to, and I don't think I was at any significant risk of getting typhoid of hepatitis A. I didn't take malaria medication since I was only in areas that didn't have mosquitoes, but I felt the need to bring deet and spray some clothes with permethrin before I left--turns out neither was necessary at all as I only saw one mosquito the whole trip.

Also, Guatemala takes its tourism business seriously. The people there are so nice, even the ones at the airport. It probably helps that I speak almost fluent Spanish and am not your typical gringo tourist, but I was still impressed by how genuniely friendly and helpful people were. The U.S. State Department would have you believe that Guatemalans are a bunch of kidnappers and theives, but I never experienced or saw any crime or even felt unsafe on my trip. Again, I'm sure it helped that I had my own native Guatemalan tour guide and escort. I saw a lot of poverty for sure, but never felt I was in danger of being mugged, kidnapped, or carjacked.

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Alternatives to Investing in Socially Responsible Mutual Funds

In Investing in Socially Responsible Mutual Funds last week, I explained that most socially responsible funds provide subpar returns compared to traditional funds. I also talked about how you may not agree with many of these funds’ definition of socially responsible. If you’d like to invest only in companies you support or try to achieve better returns than the mutual funds, consider these alternatives.

Pick Your Own Stocks: To find socially responsible companies, you can start by perusing the lists of companies included in the various socially responsible mutual funds. You could also check out the Domini 400 Social Index made up of 400 companies that meet selected social and environmental criteria, look at GreenFestival’s partners/sponsors, or simply research companies you are already familiar with and like. Benjamin Graham’s classic, The Intelligent Investor, is a good place to start learning how to evaluate stocks that will serve you well over the long term.
Of course, successfully investing in individual stocks can be challenging for the inexperienced, and some studies suggest that your stock investing results will be similar whether you spend hours researching your options or draw them out of a hat.

Why Socially Responsible Investing Might Not Matter: I hate to say this, but investing responsibly might not have the impact you think it does. When you buy stock (or a shares of a mutual fund consisting of multiple stocks), you’re purchasing existing shares from another investor. Purchasing this type of stock does not give any new money to the company whose stock you are purchasing, so whether you purchase it or not does not have any impact on that company’s operations. The only time when your investment gives money directly to a company is when you participate in an initial public offering, or IPO.

The main reason you might want to invest only in companies you feel are responsible is so that you do not profit from the unsavory practices of other companies. If a certain company were involved in a foreign war so that they could get access to that country’s oil, and the company’s access to that oil caused your stock to go up, then you would essentially be profiting from a war. If you don’t want an increase in your portfolio to coincide with the death of innocent people, then you might want to avoid owning this company. If you don’t buy that stock, the company will still steal the oil — you just won’t make any money. Even if lots of people don’t buy that stock, the share price will drop, making it an attractive purchase for less scrupulous investors. In this situation, you are profiting from a company’s operations, but you are not directly supporting them.

Invest in a Better World: Because a company will carry out its operations as usual regardless of whether a few socially conscious investors buy their stock or not, a better way to have an impact is by voting with your consumer dollars. Simply put, give your money to companies whose business practices you support, and don’t give it to companies you hate.
If mutual fund or stock investing isn’t for you but you still want to put your money where your mouth is, here are a few options. While your return on some of these “investments” may be hard to quantify, if you believe that a rising tide lifts all boats, you should see positive effects from these choices in the long run:

Purchase free trade chocolate, coffee, and other items.
Don’t buy items produced by dangerous, destructive, and irresponsible industries.
Buy used.
Buy sweatshop-free clothes and shoes.
Donate your time or money to charity.
Contribute to a scholarship fund for underprivileged students.
Do volunteer tutoring work.
Work for a non-profit.

To sum up our two part series on socially responsible investing, here are your options when it comes to harmonizing the way you use your money with your beliefs and your desire to succeed financially.

1. If high returns are more important to you than investing responsibly, stick with the wide array of high quality traditional index funds that offer low expenses and sound returns. Then, find other ways to support the causes that are important to you, which might be the best way to vote with your dollars, anyway.

2. Balance your desire to have a clear conscience with your desire to succeed financially by putting part of your money in traditional funds and part of your money into the best socially responsible funds you can find, even if it means you have to sacrifice some returns. Give it some time and see how things go. If you’re happy with the results, add more money. If you aren’t, you can always take your money back out.

3. Only invest in socially responsible funds, because you just can’t stomach owning companies whose business practices make you scream, and accept that your returns will probably fall in the 6% to 8% range at best. Keep in mind that what seem like very small percentage points today really add up over time and can have a detrimental effect on your long-term wealth accumulation.

4. Get cracking on the ton of research it will take to get good at picking your own stocks (or find some willing monkeys and a dartboard). This option makes the most sense for those who are very particular about their criteria for social responsibility or for anyone who already has strong stock-picking skills. Consider using the money you’d normally mark for donations to invest responsibly. This way, even if your investment performs poorly, you’ll have no less money than you were expecting to.

5. Avoid the markets altogether and invest in other ways, such as investing in your education, finding a socially responsible bank, buying a home, or purchasing an apartment building. When shopping, give your consumer dollars to companies you want to support.

Conclusion: If the low returns and high fees of most socially responsible mutual funds aren’t making you happy, or if you don’t want to own some of the companies these funds own, consider investing in the individual stocks of companies whose business practices you support. If you aren’t up to the challenge, there are still plenty of other ways to follow your moral compass. Your own beliefs and the amount of time and effort you are willing to spend researching your investments should ultimately determine where you choose to put your money.

Photo by Nicholas T

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Home Improvement Rewards Credit Cards

I'm about to renovate my new house. It's a foreclosure, and while it's in pretty good shape for a foreclosure, it's not exactly move-in ready (unless I wanted to live with stained carpet, a broken oven from the 1960s, partially unfinished walls . . . you get the idea). So since I'm going to have to spend a bunch of cash on home improvement, I'd like to take away a bit of the sting by paying for the purchases with a rewards credit card and getting some cash back.

Here are the best options I found if you're specifically looking to save money on home improvement costs.

1. Chase Home Improvement Rewards Card. Gives you the ability to earn 3% cash back on home improvement purchases and 1% back on all other purchases. What's the catch?

-The merchant has to have categorized itself with Visa as a home supply warehouse store, a lumber/building supply store, a glass/paint/wallpaper store, or a hardware store. (You'll note that floor covering store is not on the list, and one of the major things I'm buying is hardwood floors from a flooring store.) There's no way to really know how your purchase is going to be categorized until you make a purchase, go home, check your statement, and see how it was categorized. Fortunately, Chase let's you see this information online as soon as the transaction posts. So you may want to take your new card, go spend $5 at Home Depot, wait for the transaction to post and make sure it was categorized as a home improvement purchase before you go out and spend another $2,000. This is especially true of smaller merchandisers, which in my experience are sometimes less likely to be categorized the way you'd expect. For example, I recently made a purchase at a small, local pharmacy and Chase categorized it as "other," not "pharmacy." So I'm only going to get 1% cash back on that purchase instead of 3%.

-Maximum point accumulation is 30,000 points annually on home improvement net purchases. At 3 points per home improvement dollar spent (i.e., 3% back per $1), that's a maximum of $10,000 you can spend per year on home improvement purchases that will earn the full 3% cash back. $10,000 can get eaten up pretty fast in a home renovation, so if you're planning to spend more than that, you may want to get more than one home improvement credit card to max out your benefits.

-Maximum 60,000 points annually on all other net purchases. You get 1% cash back on all other purchases, so you can get 1% back on $60,000 of additional purchases, home improvement or otherwise. Not too many households will have to worry about maxing out that benefit limit in a 12-month period.

2. Bank of America Home Advantage Mastercard with WorldPoints Rewards. Earn 2 points for every $1 spent at most home improvement, furnishing and electronic stores and 1 point per $1 spent on everything else. What's the catch?

-This deal only applies for the first 12 months. However, if you're moving into a new place, you'll probably be spending a lot of home improvement money in the first 12 months or less, so this isn't really an issue. It might mean that you decide to ditch the card after 12 months when it becomes less valuable, though. If you have a spouse or significant other, though, one of you could probably have the card for one year and then the other one could sign up for a new account and get another 12 months.

-From their terms and conditions: "Eligible net retail transactions are those made at retail locations classified by the retailer to Visa or MasterCard as being one of the following:
Office and commercial furniture
Home supply warehouse stores
Furniture, home furnishings and equipment stores
Floor covering stores
Drapery, window covering and upholstery stores
Fireplace, fireplace screens and accessory stores
Miscellaneous home furnishing specialty stores
Antique stores
Glassware, crystal stores
Household appliance stores
Electronics stores
Computer software stores
Electrical parts and equipment
Hardware, equipment and supplies stores
Paints, varnishes and supplies stores
Lumber, building materials stores
Glass, paint and wallpaper stores
Hardware stores
Nurseries, lawn and garden supply stores

As you can see, the bonus categories with this card are much more liberal than with the Chase home improvement card. So if you got both cards, you could get 3% back on any home improvement purchases covered by the Chase categories and 2% back on anything covered by the Bank of America categories. There does not appear to be a monetary limit on how much cash back you can earn in these categories at the 2% rate, just the 12-month time limit.

Other Considerations

-Another catch with all of these cards in terms of maxing out your cash back: let's say you can only get a credit limit of $2,000 on the Chase Home Improvement Rewards Card and you need to spend $3,000 at Home Depot for kitchen renovations. You're only going to be able to get 3% back on the first $2,000 of your purchase, and you'll have to pay the other $1,000 either with another home improvement credit card, another rewards credit card (that presumably has a lower reward amount, like 1% cash back), or with cash. So how much you plan to spend and how quickly you plan to spend it will also affect your ability to maximize your cash back rewards.

-How to get around this? Well, if you don't have to make one lump payment, you can always max out your card, run home and pay it off online, and then you'll have a fresh $2,000 to start with. Perhaps you're buying new kitchen cabinets and you can pay for part of them when you place the order and the rest when you pick them up, for example.

-Yet another catch: You can't apply for new credit cards while you're in the process of buying a house because it dings your credit score. The last thing you want to do while trying to get a loan is cause your credit score to decrease, because that could get you a higher interest rate or disqualify you from the loan altogether. So you have to either do it significantly before you start house shopping (so your credit score has time to recover) or after your loan has closed. Well, if you do it after your loan has closed, your credit report is going to show that you just took on a massive amount of new debt, and lenders may not be so inclined to give you a new credit card at all, let alone a new credit card with a high balance limit. So keep that in mind.

Of course, it's also important to keep in mind that if you're not going to pay off your credit card in full and on time, none of these cash back cards are going to help you. The rewards you will earn will pale in comparison to the late fees and/or interest charges you will accrue. These cards do have 0% introductory APR offers, but I don't like to mess with those because I'm afraid I'll miss a monthly payment (you still have to make the monthly minimum payments--you can't just charge your purchase and forget about it for a year) and trigger the maximum interest rate penalty. There are people out there who make great use of 0% APR deals, though, so if you're one of them, consider that an added bonus of these home improvement credit cards.

Photo by booleansplit

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Investing in Socially Responsible Mutual Funds

You may not be able to sleep at night knowing that you own a tiny piece of Halliburton, nor will you be able to sleep at night in 25 years if you can’t afford to send your kids to college. Investing is essential to your future financial security — even if you manage to sock away $10,000 a year for 40 years, you’ll only have $400,000 to show for it, eroded by inflation, if you don’t invest it. Invested wisely, you’ll have more than twice as much and the ability to spend all of your retirement days saving the world. Until that glorious day comes, can you invest your money in mutual funds or companies whose business practices you support while still earning respectable returns?

Socially responsible investing (SRI) seeks to achieve just that by putting investment dollars into the hands of companies that are responsible to society and the environment. Here is some background information to help you get started on the path to more conscious investing.
Think about your personal definition of “socially responsible”
Within funds that fall under the category of socially responsible investments, the criteria used to choose which companies’ stocks will make up these funds can vary quite widely. Just because a fund calls itself socially responsible doesn’t mean that you will automatically be happy with the individual stocks it holds or its investment philosophy. One person might think that all socially responsible funds are good options because they generally don’t invest in alcohol, tobacco, or gambling stocks, while another person might wonder how a fund that includes stock in a major pharmaceutical company could ever be considered socially responsible. As Domini, one of the leading socially responsible mutual fund companies, puts it, “Domini may determine that a security is eligible for investment even if a corporation’s profile reflects a mixture of positive and negative social and environmental characteristics.”

Of course, you’ll want to keep in mind that some funds intentionally invest in companies whose practices they aren’t very happy with in order to practice shareholder activism, which you might like to participate in. The best way to learn why a particular fund invests the way it does is to read its prospectus. Sometimes you can even get the information you want directly from the fund’s website. Deciding what’s important to you before you start shopping for investments will help you when whittling down your options.

Despite the common misconception, socially responsible funds don’t automatically have poorer returns then their unscreened counterparts. On the other hand, just because a fund invests in socially responsible companies doesn’t mean that it will be responsible to you, i.e. make a profit. There are plenty of poor mutual funds out there no matter where you look. However, when you want to invest responsibly, your pool of available investment options shrinks dramatically. This is where things start to get tricky.

For most investors, an index fund that tracks the S&P 500 is a common recommendation, and this index has historically has returned an average of 9% per year, which will put you right on track for retirement as long as you’re regularly socking money away. Unfortunately, if you’re looking for a socially responsible index fund, your choices in the well-diversified fund department are pretty limited. A few of the big ones are the Neuberger Berman Socially Responsible Index (NBSTX), the Vanguard FTSE Social Index (VFTSX), and the Calvert Social Index.

On top of the limited selection, there aren’t many socially responsible funds of any kind that have returns averaging 9% over a ten year period. Most either have significantly lower returns or have not been around long enough to show what they’re capable of over the long term. While past performance does not indicate future returns, it can help you get a sense for how volatile a fund is, how well it adheres to its investment goals, and whether the fund has stable management–all important factors to consider when choosing a mutual fund. Of course, you could always take a risk and invest in a newbie fund and hope for the best. Just remember that what goes up must come down.

A couple of funds do show good long-term returns, like Bridgeway Ultra Small Company Market (BRSIX), Parnassus Equity Income (PRBLX), and Pax World Balanced (PAXWX). Like most socially responsible funds, though, all have somewhat high expense ratios (in this case, .67, .99, and .94, respectively). While BRSIX’s high returns, acceptable expense ratio, and low $2000 initial investment seem appealing at first glance, no young investor starting out would want to have a significant amount of money invested in micro-cap stocks, which are volatile and more of a specialized investment used to create a well-rounded portfolio than a good choice for a core holding. Additionally, the fund’s great returns came largely from one unusually stellar year in 2003 (79.3%). Other common problems with socially responsible funds include loads, an overemphasis on growth stocks (which tend to be more volatile), and an overemphasis on specific sectors.

Socially responsible investing can also take the form of investing in mutual funds that invest in foreign countries, particularly those that are considered frontier markets, which are a step below emerging markets on the investing ladder. The idea is that by investing in these countries, their economies will grow and their residents will begin to rise out of poverty. Investing this way can be tricky, though, because it can be difficult to decide whether a country needs more investment dollars to help it get its act together or whether it should be boycotted for refusing to get its act together. Refusing to invest in countries whose regimes you don’t support, or getting other to withdraw their investments in these countries, can also be effective in creating change–it helped end apartheid in South Africa.

A good place to start researching socially responsible mutual funds is the Social Investment Forum website’s socially responsible mutual funds chart. You can then do further research on any funds that appeal to you over at Morningstar.com.

While socially responsible investing may not have caught up to traditional investing yet in terms of the choices or the returns it has to offer consumers, there are at least a few funds you can invest in and earn respectable returns. The more criteria you have when choosing a mutual fund, the closer you get to having to take your chances with individual stocks or start compromising some of your values so that you don’t have to compromise your future financial well-being. Despite the lower returns and higher fees characteristic of many socially responsible funds, for people who have been avoiding investing altogether for moral reasons, investing in SRI funds is a much better option than doing nothing at all.

Photo by Tambako the Jaguar

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Socially Responsible Investing, Part 1
Socially Responsible Investing

Making the Most of my Chase Freedom Card

My Chase Freedom Card is currently my credit card of choice. I got a $50 cashback bonus for signing up, there is no annual fee, and every month I get 3% cash back in my top three spending categories and 1% cash back on everything else.

In order to make the most of this program, though, it is important to read the fine print. (Personally, I'm trying to find out which of my credit cards would be best to buy my hardwood floors with to maximize my rewards.) (And yes, I'm going to pay the bill off in full--trying to maximize my rewards would be meaningless if I was just going to turn around and start paying interest on my purchase.)

-Once you've reached $50, you can redeem your cash back--and you actually get money, you don't have to get gift cards or coupons like you do with many other credit card rewards programs. If you prefer gift cards and the like, though, you do have the option of earning points instead, and you can switch back and forth once each billing cycle.

-However, if you have the patience to wait until you've accumulated $200 in cash back, you can get a $50 bonus, or $250 total cash back.

-However, rebates expire 36 months from the month in which they were earned, so if it it takes you too long to reach that $200 threshold, you'll lose cash.

-There are only 15 spending categories, and everything else is considered "other." So if you're planning to make a large purchase and are expecting to get 3% cash back on it, you won't unless it falls into one of these 15 categories:

1. grocery stores (does NOT include warehouse clubs, superstores, or discount stores)
2. gas and convenience stores.
3. quick service payment/fast food restaurants
4. telecommunications
5. cable/satellite TV providers/Internet service providers
6. movie theaters
7. local and suburban commuter transportation (including ferries, bridges, tolls, parking garages, taxis/limos)
8. video rentals
9. department stores
10. dry cleaners
11. pet supply stores and veterinary services
12. beauty shops (salons and spas)
13. utilities
14. gym/recreation memberships
15. drugstores

-The other catch is that the merchant has to have categorized itself in this category with Visa/Mastercard. In my experience, some small retailers, in particular, may not have categorized themselves the way you'd want them to.

-You do not earn rebates or points on balance transfers or cash advances.

-The maximum bonus rebate is $12 per month, or $600 worth of purchases in the top 3 spending categories/3% cash back category. So if you were going to go to a department store and spend $5,000 on new appliances, you won't be getting 3% of that back.

-However, there is no monthly maximum on the 1% back you can earn, including net purchases in bonus categories after you reach the monthly limit. So on that $5,000 appliance purchase, you would get 3% back on $600 and 1% back on $5400. So your total cash back would be $12+$5.40=$17.40.

$17.40 back on $5,000 doesn't really sound like much, does it? But it's about the best you can do these days.

Photo by Ross C.

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The Long Process of Applying For A Mortgage

Applying for a mortgage is not something that can be accomplished in a day. In fact, unless both you and your mortgage broker/loan officer are highly motivated, you probably won't even pull it off in a week. It is important to take this step before you even start shopping for a house: in today's market, agents are unlikely to work with someone who hasn't been preapproved, and sellers are unlikely to accept offers from buyers who haven't been preapproved.

To illustrate how long the process can take, I'd like to share my experience of applying for a mortgage. You'll see just how long it took. If your situation is a little more bank-friendly than mine (i.e., you're not self-employed), your process may be faster.

Saturday, July 12: Put off by the idea of phoning a large, impersonal call center to apply for a mortgage, I decided to take a Saturday morning to visit several banks and talk to someone in person. I wondered if it was a bad sign that IndyMac was on my list and they had just gone under, but I didn't want to let that stop me. I drove to a part of town with a plethora of banks. GMAC Mortgage was closed. Wachovia couldn't have been nicer, but wanted me to talk to a mortgage specialist who wasn't there on Saturday mornings. After getting the same story at Washington Mutual, I got the hint and decided to call it a day.

Wednesday, July 16: I emailed the mortgage specialist WaMu had given me. (Why didn't I do this on Monday, you say? Well, life gets in the way. It will happen to you, too.) She might be able to meet me that evening. Could I meet her at 6? No, because of my co-applicant's work schedule, but how about 6:30? The bank is closed then. She isn't available again until next Wednesday. I am not that patient, and she doesn't seem sufficiently motivated to meet with me, so she's not earning my business.

Thursday, July 17: Bite the bullet and call Countrywide's Full Spectrum Lending division, the one that gives out FHA loans, because I already know that I want a 30 year fixed-rate FHA mortgage. After about 25 minutes of providing personal information over the phone, the loan officer says he can preapprove me, barely, for the amount I want. He just needs a few pieces of paperwork and he'll send me my prequalification letter. I ask him how I turn the prequalification letter into a preapproval letter, because prequalification is useless. (Prequalification is an estimate of how much a lender thinks you might be able to borrow; preapproval is pretty close to a commitment that you will be able to actually get a loan and allows you to place an offer on a home.) First bad sign: this loan officer tells me they're the same thing. Second bad sign: I send the paperwork the next day. I don't hear from him for two weeks, and that's only because I call his manager. I decide not to go with Countrywide, and I'm guessing they decided to not really approve me after all but couldn't be bothered to tell me.

Friday, July 18: I complete a preapproval application online with Citibank. After 25 minutes of filling out my information, I find out that they just need my credit card number so they can charge me $50 to analyze my information. But don't worry, because if I do take out a loan from them, they'll refund the money. Are you kidding me? You want me to pay you to find out if you can get my business? Yeah, right. What a waste of time. And speaking of wastes of time, every single mortgage application wants the same information. It's frustrating that I can't fill out the information once and transmit it to multiple lenders. Some sites allow you to do this, but they don't really let you choose you gets your info, and I don't like that. I wanted to choose my prospective lenders.

Saturday, July 19: I go down the list of FHA-approved lenders from Fannie Mae's website. It's quite a long list. I visit all the websites of the companies whose names start with A, B, or C. I take notes. I'm only interested in the ones that provide lots of information on their websites and will let me knock out a big chunk of the application online. The only thing more annoying than providing the same information over and over again is having to spell it out over and over again over the phone. "F as in Frank, O, N as in Nancy, T as in Tom . . . ." It gets old at F.

I submit three applications. Two are with so-called up-front mortgage lenders who are supposed to disclose all of their fees when you apply and disclose them accurately. The other is with CTX Mortgage. One of the up-front lenders spits out a "preapproval" letter for me as soon as I finish the application. Hooray, I'm approved for the amount of mortgage I want. . . but the monthly payment is about 20% higher than it should be, and there's no explanation as to where that number came from. Does it include property taxes, homeowners insurance, and private mortgage insurance? What interest rate are they offering me? Why will they give me a good faith estimate of the closing costs, but not break down the mortgage payment amount? And how can I possibly be "preapproved" if they haven't analyzed my tax returns and all that other good stuff that proves my financial worthiness? So that's out.

Aimloans, one of the up-front lenders, seems to be offering a pretty good deal: their website has a chart that lets me easily pick the combination of interest rate and points that fits my financial needs. So they move to the top of my list. (As I will learn later, these numbers are meaningless, because interest rates and buydown rates fluctuate multiple times a day, and you can't lock a rate until you've got a property under contract, anyway!)

Monday, July 21: I start trying to get all the paperwork that Aimloans needs to give me a real preapproval. Tax returns, W2s, statements from every bank and brokerage account I have. This is no easy task, and scanning the things with my 3-in-1 printer takes forever.

Thursday, July 24: I've been reading a mortgage book all week. It says something about investigating mortgage companies. This didn't really occur to me before--I'm not sure why, given that I tend to research the heck out of everything. So I look up Aimloans online and find a ton of complaints about them. I decide I'm glad that I took my sweet time getting my paperwork together, block their email address, and decide not to do any business with them.

Also, at this point it's been several days and I haven't heard from CTX Mortgage, which I couldn't find any dirt on, so I send them an email.

Friday, July 25: I hear back from CTX. The woman says she never got my application. She checks with her tech support people and tracks it down. This doesn't seem like the greatest start.

Saturday, July 26: I meet my future real estate agent. He wants me to talk to his two lenders that he likes. I know all agents have people they like (or may get illegal kickbacks from). I tell him I'm not opposed to talking to his lenders, but I'm still going to shop around. He has no problem with that, which is a good sign.

Wednesday, July 30: I talk to one of my agent's lenders, who does not want to approve me for various reasons that I cannot surmount without making unacceptable sacrifices in my quality of life (i.e., forgoing self-employment and going back to work full-time for someone else in my previous line of work). This news totally ruins my day.

Thursday, July 31: CTX, on the other hand, has prequalified me for way more money than I actually want to spend and thinks I have a great shot at getting a real preapproval. I am highly skeptical based on my experiences up to this point, but I would rather keep applying for mortgages and seeing if I get a different answer than accept the alternative, which is to wait for who knows how long. Who knows if housing prices will still be affordable in my chosen area by then, or what interest rates will be? I don't want to take that risk. I also hate where I live currently. Since I started getting all the paperwork together the week before, I just have to gather a few more documents, and then wait to see what the underwriters have to say. I have a slight spark of hope, but I'm not holding my breath.

Friday, August 8: I finally get all my paperwork submitted to CTX first thing in the morning. They say I'll have a response as early as Monday evening. I know they are legally required to give me a good faith estimate (GFE) within 3 days. I'm using this as one of many tests to see if they meet their obligations properly. Depending on if I'm being generous or not, three days could either be Tuesday or Wednesday.

Wednesday, August 13: My loan officer requests more info from me. I am not really upset that I don't have a GFE yet because my situation (self-employed) doesn't fit the mortgage application mold. I'm just glad that they're working with me and that my loan officer has been in contact, keeping me updated on things.

Thursday, August 14: My loan is approved, contingent upon receiving a year-to-date profit and loss statement (PNL) for my business. I can actually put an offer on a house if I want to. But I want to review the GFE and submit the PNL first. The PNL should not change anything as they already have my income information for the year via email; they just want it formalized.

Friday, August 15: I receive my GFE. I guess I could give them a hard time about the three day thing, but that seems pointless. Overall, I am very pleased with my loan officer. Granted, she is really only doing her job, but apparently it is hard to find a loan officer who actually does their job correctly.

Friday, August 22: After discussing the GFE with various trusted advisers and asking my loan officer many questions about it, I decide that it's safe to proceed. Besides, the GFE that counts is the one the lender gives you when you've actually got a property picked out. This one is just to give you a general idea of what to expect and make sure the lender isn't already trying to pull shady tricks on you. Not that they can't do that later.

From start to finish, the process of securing a mortgage took me almost a month and a half. You'll notice that there are some gaps of several days between steps; if I didn't have a job, yes, the process could have been speeded up, but realistically, most people will be trying to balance their full-time obligations with the mortgage application process. The mortgage application process, however, can feel like a full-time job. Also, when requesting paperwork from other institutions (like W2s from former employers), you'll generally have to wait a few days to get it.

Another thing that slowed down the process is that I do not fit into the W2 mold that the mortgage industry prefers. If you do, the process will probably be a lot faster.

Regardless, I think you get the idea that applying for a mortgage and getting a meaningful preapproval that actually allows you to go out and make a serious offer on a home isn't something that can be done in a day or even a week. So if house shopping is in your future, make sure to give yourself plenty of time to secure financing.

Photo by brycej

Related Posts:
Signing Loan Documents for Our House
How I Feel About Locking My Mortgage Rate
Looking At New Real Estate Listings When You're Under Contract
Making Home Ownership Affordable
Navigating Real Estate Listing Lingo
Why You Should Use A Buyer's Agent
Understanding Closing Costs

P.S. Please ignore any political ads that are appearing on my blog over the next few days. I generally try to avoid politics on this blog. Google is putting the ads there, and unfortunately I'm too busy with work and house stuff to deal with their removal.