ooma, or how to stop paying for your landline phone

Like arcades and paper books, landline phones are becoming an outdated artifact of the 20th century; many families have opted to cut their landline service entirely, in favor of their cell phones. For those of us that, for whatever reason, refuse to give it up, there’s another option besides suffering the $30-and-up bill that our telecom provider socks us with: Ooma.

What exactly is Ooma? Ooma is a VOIP service, one that provides you the equivalent of landline service, but through your internet connection. It does this through a sleek black box that is placed between your modem and your router; plug your home phone into this box, and voila! Dial tone.

How much does it cost? The box: $200. The ongoing service: whatever your local/government taxes are, say around $3/month. You can also get Ooma Premier, which gets you some nifty features for $10/month.

Can I keep my current home phone number? Yes, for an additional $40 you can port your number to the Ooma service.

How well does it work? Well, obviously it’s not going to work well with anything slower than a broadband internet connection. If you put it between your modem and your router (or between your modem and your PC, if you don’t have a router), it works great — it uses “QoS” (“quality of service”) to make sure that your phone gets the bandwidth it needs. However, if for whatever reason you can’t put your Ooma upstream of your router, you are probably going to experience a loss of quality if you try to make a phone call while e.g. watching Netflix Streaming; you may hear the other person just fine, but they’ll probably hear your voice cutting in and out occasionally.

What gotchas or fine print should I know about? There are a few, some of which I’ve already touched on:

  • The big one I’ve seen complaints about is that there is an ongoing charge, if a small one: you still have to pay your government taxes, and a lot of people who sign up for Ooma aren’t aware of that (though it’s clearly spelled out in several places).
  • As I mentioned above, you may be sacrificing quality depending on your network speed and architecture. Ooma has a 30-day return policy, though, giving you plenty of time to evaluate it.
  • True landlines are traditionally more reliable than internet connections, though the gap between them is very small these days.
  • You will no longer be able to use your home phone jacks; you must plug your phone directly into your Ooma. (Please don’t try plugging your Ooma into your home jack; the fifty volts could fry it.) If you need phones throughout your house, you can easily purchase a multiple-handset cordless phone system like this one, if you haven’t already.

The Financial Geekery household currently uses an Ooma, so if you have any other questions, feel free to fire away in the comments!

Edit: Really weird — between writing this post and publishing it, I got an e-mail from Ooma about a special referral deal which lowers the price from $200 to $150. Now, as I’ve said before, I don’t accept referral money, but I don’t want you to miss out on a good deal, either, so: if you’re interested, send me an e-mail, and I’ll send you the code and my referral bonus (a $20 amazon.com gift card). The deal expires 7/31. Happy Ooma-ing!

personal finance in the internet age

Next week is the beginning of my second Summer Personal Finance Workshop Series, so I’d like to take some time in this post to talk about why I bother doing any of this. It’s a short story with a surprise (at least, it was a surprise to me), so it’s worth reading.

Set the WABAC machine to 2008. That year, I was beginning to learn the ropes of personal finance — mostly investing at the time, but also some insurance and other topics. So I did what any child of the Internet would do: I Googled until I found a particularly promising corner of the Web, and I took the information there as gospel truth.

This was the wrong approach.

Now, had I been looking for something relatively straightforward, like a piece of obscure movie trivia or a particular cat picture, this would have been the right approach. But I failed to consider that personal finance is very similar to religion and politics: many people believe they have the One True Answer, but there are many One True Answers out there. So if you confine yourself to one group, there may be other ideas out there that you may never even know exist.

Luckily, I eat personal finance books and articles like candy (nerd? yes.) and the more I learned, the more I found that while that first little corner of the Internet got a lot of it right, there was a lot that they put forth that was suspect, or at least not Ironclad Truth. So I looked elsewhere, kept learning, and have since tried to incorporate everything I’ve come across.

And this is what you’ll find today at financialgeekery.com, in my workshops, and in my one-on-one sessions. On my website, as I recognize that you guys are smart enough to handle it, I’ll often put conflicting (or seemingly conflicting) viewpoints out there. I talk about the advantages of going cash-only and the wonders of credit cards. I discuss the two very different investing styles of the businessman and the academic. (Yes, I do have my own opinions — I can’t pretend to be totally unbiased — but I want to make sure you’re aware of what else is out there.) In my workshops, I recognize that different tools and methods work better for different people, and tailor my content accordingly. (In fact, this year I’ve changed much of my budgeting content to reflect what I’ve learned from clients — as it turns out, not everyone thinks the same way I do. Who knew?) And in my one-on-one sessions, you’ll find that I do as much listening as talking, and if I’m not the right expert for you, I’ll point you in the direction of someone who is.

I also recognize how valuable trust is these days. As such, I don’t accept money from anyone who isn’t a direct client. No affiliate links, no commissions, no referral fees, none of that. If I recommend a product or company, it’s because I like them for who they are and what they do. While I have no problems with the aforementioned tools in general, I personally don’t want there to be any doubt as to where my interests lie.

So if you like this, if you think this approach to personal finance is valuable, then, well, Like it. Spread the word. Click the “share” button at the bottom of this post, or simply Like its link on my facebook page. Share a link to the workshop that’s starting next week.

You never know whose life you might change.

die broke: what it really means

So in last week’s post I introduced you to the concepts introduced by Stephen Pollan’s “Die Broke”: quit today, pay cash, never retire, and the titular “die broke”. But what does that all mean? Once you get past the shock value, what’s he actually saying?

To my thinking, what he’s doing more than anything is making you take a hard look at what you want your relationship with money to look like. The general advice financial advisors give is to save as much as you can, and invest as aggressively as you can (up to your risk tolerance, anyway). By positing that we should die broke, Pollan is asking us why we want to do this. What are we saving for? What will all this net worth give us? Without asking these questions, we fall into the trap of mindlessly hoarding, building up our wealth simply because we intuit that bigger numbers are better, because “all the cool kids are doing it”, because it’s easier than building our own dream, blazing our own trail.

And that’s what Pollan wants us to do: be an adventurer. Be Ulyssean, as he says. Quit today; never retire. Don’t tie your life and your identity to your job, and don’t ever stop pursuing your passions; rather, go from adventure to adventure, as the wind takes you. Yes, this takes more effort than simply walking in the well-worn rut that you’ve been in all this time. So? Isn’t it worth it? What — exactly — are you afraid of? That you’ll die broke? Well, in the end, don’t we all die effectively broke anyway? It’s not like we can take it with us.

Of course, that doesn’t mean walking the tightrope without a net. As we get older, the reality is that it the time between jobs may become longer, and we will eventually reach the point when we simply don’t want to put in 50 hours a week anymore. So Pollan does advocate continually building your wealth — but with an eye towards turning it into supplemental income to replace what’s currently coming from your job. Financial geeks among you may see where he’s heading: financial products like annuities and reverse mortgages, where you put up large sums of money or even the deed of your house for a guaranteed monthly check. Speaking as a financial advisor, I instinctively recoiled at this at first — annuities and reverse mortgages are generally quite expensive, compared to investing on your own — but I gradually came to understand that this sort of safety net could be worth the price. For example, your kids likely have no interest in owning your house when you pass on; wouldn’t you rather use your home equity to go on vacations with them, pay off their student loans, help them buy their first house, etc. while you’re still alive?

The bottom line: before you decide what to do with your money long-term, stop to think — really think — about your financial goals. Talk to a friend who’s a financial geek. Drop me a line. Draw a rough map, and then blaze your own trail.

What do you think? Is he crazy? Or are some of you out there already going down this path?

(FYI: replies to comments may be somewhat delayed this week.)

die broke

No, seriously.

photo by patrizio martorana

“Die broke.” This is the central idea behind a book of the same name written several years ago by Stephen Pollan — and it’s a good one. In fact, the four pillars of the book — “quit today”, “pay cash”, “don’t retire”, and “die broke” — form quite a solid personal finance system, when you get past the shock value and dig into what he’s actually advocating. I’ll go over the basics in this post, and then next week we’ll take a look at implementing the system.

Quit today. Pollan doesn’t mean that in the literal sense. Rather (and here he’s speaking more to baby boomers than to later generations), he’s admonishing the reader not to try and find ultimate fulfillment at work. Work is “just a job” — ultimately, it’s there to pay the bills, not to answer the questions of Life, the Universe, and Everything. Your employer is mercenary, and while you should do your job well, you should be mercenary, too. (I have a slightly different take on the subject, but I’ll save that for another time.)

Pay cash. Again speaking more to boomers — many of whom came of age during the 70’s, when rampant inflation encouraged consumer debt — he points out that debt is a nasty trap for the unwary, while avoiding it allows you to stay financially flexible, which is more important than you might think. And using literal cash makes it painful and difficult to spend money, such that you’re more likely to make sure that what you buy is worth it. (Agreed!)

Don’t retire. Pollan is fond of the metaphor of the Ulyssean adult: the person who forges their own destiny, moving from one adventure to another. As he says, “the only finish line is death”. Now, he strongly encourages socking money away in tax-sheltered retirement plans — but he advocates using that money to allow you to make your own rules, to work your own hours. And yes, he really means don’t ever retire; Pollan is firm in his belief that leisure cannot be more fulfilling than work. (While I personally agree, I met several retirees at a recent “Boglehead” meeting that would argue otherwise!)

Die broke. Pollan presents several arguments for the idea that hoarding for a legacy is a bad idea: it damages your present quality of life, hurts society by locking up your assets, strains families by inserting economic self-interest into emotional decisions, and even erodes your own character by killing your motivation and drive to work. Rather, he says, “your last check should be to the undertaker — and it should bounce.” Want to help your children, or charities? Do so while you’re still alive. Both you and they will appreciate it more!

So now that we see what exactly he’s saying, next week we’ll dig more into What It All Means.

what to do with those annoying prepaid credit cards

If you’re anything like me, you pine for the days when rebates and gifts came in the form of simple checks. Nowadays, however, it’s all the rage to give out prepaid Visas or Mastercards. Which is all well and good, except that most vendors only accept one credit card at a time, not allowing you to split your payment across multiple cards. So what to do? The answer: amazon.com gift cards to the rescue, in three easy steps!

  1. Purchase an amazon gift card in the amount of your prepaid card, using the prepaid card. Edit: You may have to register the card online before the transaction will go through, e.g. for “Vanilla Visa” cards. It’s generally as simple as entering a ZIP code.
  2. Send the gift card to your e-mail address.
  3. Apply the card’s code to your amazon.com account.

It’s completely free, and from that point on, the amount of your prepaid card can be applied against any purchase you make from amazon — from which you can buy just about anything (and the shipping is free).

Problem solved!

Financial Geekery Monthly Reminders: keeping you on track, a little at a time

Remember all that financial stuff you’ve been thinking about doing? You know, like updating your credit report, figuring out when the best time would be to buy a new PC, or backing up your financial information? Yeah, it sits in the back of your head, but it flies out the moment you sit down to your computer (and open up facebook). Well, what if you had an e-mail that popped into your inbox at the beginning of every month, reminding you of just a few of those things. “Next month’s items can wait,” it would say — “just do these things, this month.” After a year, you’d be doing pretty well, wouldn’t you?

As it so happens, such a thing exists: the Financial Geekery Monthly Reminder. No trick, no gimmicks, just a pretty little e-mail in your inbox to give you that little push to get your finances in line. Sound great? Click here — and click on the Facebook icon below, to clue your friends in.

the ins and outs of espp’s, part 3: so now what?

So I gave you a summary of what ESPP’s were all about, then went into detail on the intricacies of ESPP’s and taxes. Now: what exactly are we to do with all this information? Should you participate in your company’s program, or not? And if so, how long should you hold on? Well, everyone’s situation is different, but for most people, I would say this: participate in your company’s plan as much as you are able, and sell as soon as you can. I’ll break down the reasons why, so you can see whether this applies to you in particular.

Participate, because it’s free money. The discounted price at which you get to buy the stock is, if you sell immediately, almost always guaranteed free money. (Among the exceptions are companies with extremely volatile or rarely-traded stock.) If you don’t participate, you are, as they say, leaving money on the table. Obviously you don’t want to go into debt over it, but if you can swing it, do it!

Sell immediately, because to do otherwise is to greatly increase your risk. Holding onto these shares is, in most cases, a highly risky proposition. Yes, holding onto them for long enough to make a qualified disposition may give you some tax advantage, but is it really worth dealing with the ups and downs of your company’s stock?

Moreover, if you think of an “investment” as a “source of future income”, you’re already highly invested in the company you work for. For diversification’s sake, do you really want to put even more eggs in that basket?

“OK,” you may say, “but what do I do, then, with this sudden influx of cash?” Well, your first instinct may be to splurge — and if so, that’s OK. Set aside some amount you feel comfortable with — say, 5 or 10% — and go for it. Consider giving some of it away, as well; chances are, if you have access to an ESPP, you’re in a position to help other folks out. Set the rest aside — either for basic financial goals or long-term ones, like retirement or your children’s education.

Of course, I know several engineers who quite simply and literally have more money than they know what to do with. You know who you are — and that’s perfectly OK. I may go into more detail on recommendations in a future post, but for now (assuming you’re already maxing out what options you have in the way of tax-advantaged accounts), I’ll just recommend parking the money in a well-diversified balanced stock-bond fund, such as the T. Rowe Price Balanced Fund, the Vanguard LifeStrategy Moderate Growth Fund, or the Fidelity Balanced Fund. Any of those will give you a nice, simple, inexpensive compromise between returns and stability until you decide you want to pull that “mad money” out.

Now that I’ve said that: what do you currently do with your ESPP, if you have one? Has this post given you any new ideas?

Announcing the Summer Workshop Series!

That’s right, the “Freedom from Bondage” personal finance workshop series is back! Know any Austinites who’d like to get a handle on their money, whether it’s automating their bills, breaking the debt cycle, or even reconciling their faith and their finances? Then send them here: http://www.financialgeekery.com/summer2012.

(If you want to nudge your friends in this direction in a more subtle manner, just click one of the “share” buttons below!)

the ins and outs of espp’s, part 2: fun with taxes!

Howdy! This is proving to be a popular post; I’m glad folks have found it useful. If you’d like other useful stuff in your inbox without having to go search for it, click on the “subscribe” button on the right, and if you like useful stuff on Facebook, like us here!

In the last post, we talked about the basics of ESPP’s, and I warned you that the tax situation warranted a post in and of itself. Well, here it is! With a few pictures, hopefully it will come clear.

Let’s start with the basic diagram below. At this level, the tax situation is rather simple: the difference between the price at which you bought the stock and the price at which you sold it is income, and thus is taxed.

Sounds simple, right? Well, the trick is how it is taxed. There are three options:

Compensation (ordinary income): Part of your ESPP income is taxed as compensation, i.e. at your normal income tax rate.

Short-term Capital Gains: If you held your shares for a year or less after you purchased them, the part of your ESPP income not taxed as compensation is taxed as short-term capital gains. Currently, that means they’re taxed at the same rate as compensation.

Long-term Capital Gains: If you held your shares for more than a year after you purchased them, the part of your ESPP income not taxed as compensation is taxed as long-term capital gains. As of September 2017, that means they’re taxed at 20%, 15% or 0%, depending on your income.

OK, that doesn’t sound so bad. So that means that all we have to do is figure out how much of the income is compensation, and we’re home free, right? Well, yes…and that’s the tricky part. There are two situations we need to go into: “disqualifying dispositions” and “qualifying dispositions”.

Disqualifying Dispositions: If you did not hold your shares for more than two years after the “grant date” (beginning of the offering window; see previous postand more than one year after purchasing them, this is a “disqualifying disposition”. In a disqualifying disposition, the difference between the amount you paid for the shares and the amount they were worth when you bought them — in other words, your discount — is counted as compensation income. The rest — the difference between the amount the shares were worth when you bought them and the amount they were worth when you sold them — is capital gains; long-term if you held the shares for more than a year after purchasing them, short-term otherwise.

Sounds relatively straightforward, but what if your stock drops after you buy it? Well, the sad fact is that it the discount still counts as compensation income, even though you didn’t see a red cent of it! To be sure, the capital losses offset your income — but only up to $3,000. (The rest must be carried over to future years.)

Qualifying Dispositions: If you held your shares for more than two years after the grant date and more than one year after purchasing them, this is a “qualifying disposition”. In a qualifying disposition, your compensation income is equal to the difference between what you paid for the shares and what you sold them for or the discount (difference between what you would have paid for the shares and what they were worth) on the grant date, whichever is lower. The rest is long-term capital gains since, by definition, you held the shares for longer than one year. So an ideal situation would look like this:

That’s good — more of your income is taxed at the (lower) long-term capital gains rate. But here’s a bizarre twist: in the following situation, you would actually pay more in taxes for a qualifying disposition than for a disqualifying disposition!

Note that if this were a disqualifying disposition, your compensation income would be much smaller (look back at the second graph), and the capital gains much larger. Ouch — good things do not, apparently, always come to those who wait!

And that’s how ESPP taxes work. You’ll remember that forever, right? Well, if perchance you think something more important might displace its spot in your memory, feel free to bookmark this article and refer back to it later. (Heck, I’ll probably end up doing that myself!)

So…now what? This theoretical knowledge is all well and good, but what we should actually do with our ESPP shares? Do we participate in our company’s ESPP, or no? Do we sell some or all of the shares immediately? How long should we hold on to them? I’ll discuss all of these questions in the final post in this series.

the ins and outs of espp’s, part 1

Employee Stock Purchase Plans are, like much in the stock-related world, a double-edged sword. Depending on how you swing them, they can either be a handy supplement to your paycheck or just another source of complexity and, in the worst case, a way to flush income down the drain. As many of my fellow geeks have access to them — though not as many as a decade ago — I’d like to take some time to talk about them. Even if you’re already familiar with ESPP’s, it’s a good idea to know what’s out there — not every company’s plan works the same as yours, and it’s handy to know what the possibilities are when you’re job-hunting!

The idea behind the ESPP is relatively simple: as part of the benefits your employer is showering upon you — like manna from the heavens — you are given the opportunity to buy their stock at a discount. Nothing in the world of employer benefits is ever that simple, of course, so I’ll walk through the caveats.

The money for purchasing this stock is withheld from your paycheck. In this way, ESPP’s are much like 401(k)’s: you allocate a certain amount of your paycheck to be withheld, and that amount never graces your bank accounts. Also, there are heavy restrictions on when you can change that allocation; generally you can jump out if you like, but you can’t jump back in until the beginning of the next ESPP period.

The stock is often (not always) purchased in one chunk, at the end of the ESPP period. In this case, rather than buying stock each time you get a paycheck, it’s all purchased at the end of an ESPP period (generally 3 or 6 months). You can expect to see fun little jumps in your employer’s stock price on that day, as some/many/most employees (depending on the company) turn around and sell their newfound shares (and speculators buy or sell in response to this).

There is a cap on how much you can purchase. The cap can be either a maximum percentage of your paycheck, or a maximum number of shares bought, or both.

The discount varies greatly with the employer. Most common is a range from 5%-15%; alternately, the company may “match” your contributions to the ESPP up to a certain percentage of your income. Also, the discounted price is not always the fair market value on the day the stock is bought; it could be the lower of that price and the price at the beginning of the period, or even the price at the beginning of a window of periods! For example: say your employer’s stock price was $10 when you joined a year ago, $20 at the beginning of the last period, and $30 today, the end of the latest ESPP period. Depending on your employer, the buy price could be 5%/10%/15% of $30, $20, or even $10!

Depending on the company, it may not be a guaranteed win. In most cases, if you sell immediately you’ll lock in your profit and get a nice bonus. However, if you work for a company with a highly-volatile stock price (e.g. a “microcap”), you can lose your discount (and more!) by the time you sell your stock.

The taxes on ESPP’s are…interesting. So interesting, in fact, that I’ll be devoting my entire next post to them!

See you then! In the meantime, tell us about your ESPP — has it done well by you? And does it fall into one of the above descriptions, or is it a variant that wasn’t covered?