A boring story...

This is going to be a boring story...about making money.
If you do not manage finances in your home, or you are all set for retirement, or simply don't read long boring stories, just move on to something else.

Those who want to read more, grab popcorn :)

It all started about 3-years ago. With money market rates, CD-rates and saving accounts paying practically nothing, I've started looking closely at alternatives.
I already had large diversification in stocks, some real estate, but what used to be monthly bank interest dried up up years ago.
I was looking at Forex for many years, even picked up a book once at the library, but ended up returning, and not even opening it. I guess it was not a right time then.
This time, around summer 2017, I've decided to pay a close attention and started reading...thanks to Google.

Going in that direction, I knew nothing about trading currency. I mean, I knew about buying low, selling high, but common, I knew nothing about it. Not even about US dollars. But, I quickly discovered something that picked my interest - yes, the interest.
It is actually not called that way, but essentially that is what is paid to you when you hang on to those currencies. The interest comes to you daily, whether you are working, sleeping, on vacation or whatever. Passive income. I liked to hear that.

I learned that by buying one currency that pays higher interest and at the same time selling another that hopefully paid nothing or very little, and you've got enough difference between the two for passive income - aka - "carry trade".  All I had to do was find that kind of pair and execute.

So, in early December 2017, I've opened a Forex trading account, sent about $2,100 into it and started searching. The opportunity presented itself very quickly. There were announcements all over that US interest rates were going up, and in 2018, there would be at least three interest hikes.
Well, I figured, with rates going up, US Dollars is something I know well. Now, I had to find the counterpart. Being cautious, by nature, I've decided to pick something solid...and something that barely moves.

Swiss Francs - these "guys" are going nowhere!
Or, at least, that's what I thought at the time.
I had my pair! - USD/CHF

This pair, I've read at the time, does not move much, and Swiss did not pay much interest - no wonder they are there forever!
So, in mid-December, I executed my first trade buying 10K US dollars and selling same equivalent of Swiss francs.
The best part of it - you don't really invest all $10K. I paid only $500 and became the temporary owner of $10,000 in US currency. 20:1 ratio was applied since both USD and CHF are commonly traded currencies and you are buying essentially virtual currency.

Here is the beauty and the music to my ears - "the interest" is paid on the whole $10K, not on my $500 initial investment. So, I wired more money...of course. $20K landed in my account within minutes.

Hey, but I was cautious guy, remember. So, I've started watching my account daily and not making any snap decisions.
I liked my $20K...and my spouse was not informed yet...it had just happened so fast.
So, I watched it for a week. It did not move much, but that retirement started dripping in daily...42-cents....50-cents...45-cents
After a week, I bought another 10K in USD...another $500 investment.

So, my interest started accumulating...$15 in interest for about 1/2 of the month of December.
Just to compare, in December 2017, you would have to have close to $400,000 in your saving account to make that kind of interest for 1/2 of month.
I did it with $1,000 and with my $20K+ sitting idle in the background...earning nothing.

Early January 2018, as soon as everyone stopped partying, USD actually moved slightly higher. So, I was up about $100 + all that daily interest I was already making.
Then, came an announcement for interest rate increase....and hey, according to all I knew from school economics, that daily interest should have been increasing even more.
But, US dollar took a dive.
I don't know, maybe Trump twitted something about tariffs, maybe someone up there had a bad day, but the dollar started dropping.
It was dropping daily and my daily interest could not keep up with the drop.
I started reading more. And, I've realized that they did not teach us any of this in college. But, they should have. It would have helped.
I've learned about what moves the currencies, what affects the currencies, what makes a difference, what does not.

I've learned something about these sneaky Swiss guys too. They are smart. Super smart. They live on easy street...
They want to sleep at night, so those Swiss bastards tied their currency directly to Euro (I think like 1:1.2 ratio) and were sitting and enjoying their smelly fondue.
So, while euro was jumping up, US dollar was falling, and Francs just following the Euro....
Wtf? I did not sign up for the USD/Euro... trade. That's the most traded pair in the World. I wanted only peace and daily interest.

So, now, I needed protection. Margin call is a scary thing. I was not near one, but, suddenly $20K backup belonged where it was.
Dollar did not fall much, by any major standard, just about whole 2-cents. Yes, I freaked out...a little.
Two of my ($10K+$10K) trades falling by 2-cents landed me $200 loss...at least on paper.

But, I was not new to trading in general. What our famous investor Buffett said - "be greedy when everyone is scared; Be scared when everyone is greedy".
He also says to invest in Index funds...but that's a different topic.

So, I invested another $30K....but the dollar continued its fall.
Another 2-cents...and I was down even more...still on paper.
I bought another $20K about 4.5-cents cheaper than my first investment.

At some point, my potential loss was as high as $3-$4K.
But, dollar can't fall forever...no matter what Trump tweets.
Dollar went down another 4-cents and stopped!
At least my daily interest was coming...on $70K it was about $4.50/average each and single day, even on the weekends.

Then, something happened again. Mountain collapsed in North Korea, maybe bombing in Siria, maybe snow stopped falling....who really knows...
But, the dollar started going up and up and up.
Nobody could explain why...all these analysts did not know...they were predicting it was a fluke...it was bound to stop and reverse any minute
A week went by and the tone had changed. Dollar was on its greatest recovery.... They still did not know why, but now analysts claimed it go even higher.

This is a long story... I warned you.
If you are done with your popcorn...good, we are almost there.

The dollar recovered and ended up higher than my original investment. Today, I sold it all....
And, with it, I've lost a piece of my retirement...my daily dripping interest.
Next week, I will begin searching for my next pair...I just hope it's not those Swiss guys again.

Mortgage Home deduction that you cannot deduct

Foreign words for some of you - acquisition debt. I bet most of you never heard of it. If you don't own a property, you can sleep better at night. For the rest of you, you need to know this - because your accountant may not know this, nor your mortgage broker, and you might be on the hook with IRS.

Let's use a real example. It would be easier for you to understand an "acquisition debt" gibberish.

You are one of those lucky families that bought a $500k house, taking out a $400k mortgage and you are lucky you did not buy it at the top of the of the real estate market. And in with time, you paid some of your principal down, so you now owe only $200K to the bank.

But, a real estate market has been appreciating, your house is now worth $700k; a good rate to refinance, all stars align for you, and you refinance taking out $500k loan happily paying off previous mortgage bank what you owe - $200k, And you are pocketing $300k in cash to pay for your child's upcoming college education - you are a good parent after all!

Well, here is where your acquisition debt problem begins.
According to IRS, your acquisition debt is the original outstanding mortgage balance of $200k even though you paid it off via refinance. By law, you are allowed to add a $100k equity limit to your acquisition debt, so your acquisition debt limit is now $200k + $100k = $300k. With me so far?

But, you have borrowed $500k, so you are $200k short. $200k is almost ~30% of your refinance amount, so only ~70% of the interest in your primary home interest is tax deductible. I bet you thought you can deduct it all.

Well, IRS had NOT been scrutinizing this little known acquisition debt of yours, but it is changing. If you look at your 2016 tax form (1098) from your mortgage bank, you would see something you have never seen before:
1. IRS is now requiring banks to report mortgage origination date (Box 3)
2. IRS wants to know if an address of property securing the mortgage is same as payer's address. (Box 7)

Believe it or not, IRS is trying to curb the biggest deduction in US tax code.

Verizon "Unlimited" with FINE PRINT

For those who are interested, I have more details on Verizon unlimited plan that just has been introduced. But, before I go into details, let me mention that AT&T is expected to come up with some matching plan quite soon, so don't rush switching the carrier just yet.

So, first of all, there is no such thing, as unlimited plan. All plans are limited...for all carriers.
New Verizon "Unlimited" plan is actually limited to 22GB per device (AT&T-22GB, T-Mobile-28GB, Sprint-23GB), so after kicking the limit, you may see some throttling if towers are busy (how much throttling, Verizon does not say, but you get to be behind in the line).

The plan, multi-line one, in particular is calculated as following:
$110 - for unlimited data plan
$-10 for signing up for electronic statements and Auto-Pay (by e-check, ECH, debit card, but no CC - wow! forget the miles!)
$20 - for each additional device (smart phone, dumb phone, tablet, etc)
~ up to 10-devices on the same plan

So, family of 4 would pay $100+$80=$180 OR same as $45/per device
Sign up 10-devices, $100 + $200 = $300 OR same as $30/per device, not bad if you have a big family.

++ taxes and fees, always!

What do you get besides "unlimited" data?:

* Unlimited texts

* Unlimited talk, including to/from Mexico and Canada (if you are immigrating or being deported into Mexico/Canada, grab a new plan...before you go)

* 10GB for each device /per billing cycle for Sharing data - aka HotSpot. After that, hotspot speed goes to 3G regardless how busy Verizon is, but unlimited...good luck there... who uses 3G now-days? The good part, if you use it a lot, keep switching your Hotspot devices to keep 4G speeds floating..

* 500 Mbg/day data in over 100-Countries; You can buy additional data for $10/day. The fine print says you really have to be a visitor, not living in one of those 100-countries. Otherwise, they kick you out of the plan.

AND

The cream on the cake - this is all introductory pricing, so it is subject to change based on what competition does.

I am sure someone will ask - what about a single line. Hmm, you do not want to be single in this case :)

It would cost you around $80 - just to compare Sprint offers 5-lines for $80.....so much for the competitive pricing.

Education, education, education

No, this post is not about benefits of education. Let's figure out how we can help ourselves paying for it. 

What do you know about deducting the costs of a summer school class your child is going into this summer? Or how about deducting the registration costs for a middle school?

I am sure you all heard about 529 plans. Some of you are very good at it and you are already contributing to one, others are thinking you still have time. Regardless, whatever you are saving into 529 plan or not (shame on you and me, btw), 529 plans cannot be used to pay for your high school or middle school expenses. 529 plans are meant ONLY for higher education - college, university, post-degrees...

Educational IRA - You may have heard that name somewhere. But, not many know what it is or what it does. 

First of all, it's not even called Educational IRA, not since 2012. It has a new name - Coverdell Education Saving Account - fancy name, but it is an IRA, nevertheless. 

It is not a traditional IRA, and you cannot deduct it off your income tax, but it is a very powerful tool to help pay for some of those ever-increasing educational expenses. So, let's get our hands dirty and learn about it and how it can help you save.

Coverdell contribution is limited to $2K per year. So, if you want to maximize the potential, you need to start contributing early. Whoever opens an account becomes its "owner", a custodian - I will explain why it matters a little later. You assign a Coverdell plan to a specific beneficiary, your child. It's okay if you have more than one, just go for the oldest first, trust me.

You can contribute to a specific child's plan until he/she turns 18. From that point on, no more contributions are allowed. And all funds must be distributed or re-assigned when your child turns 30 (no restrictions apply if your child has disabilities).

What can you deduct?
- Any school required tuition and fees; room and board; books, supplies and equipment; 

What can you not deduct?

- Medical coverage or insurance, even if a school requires it; transportation costs; most of the electronic/computer equipment, with some exceptions.

What schools qualify?

- Any public (kindergarten thru K12 grades), private or religious schools, and higher education schools already covered under 529 plans. And, yes, you can have both 529 and Coverdell plans at the same time.

Everyone thinks that these plans are hurting your chances for financial aids, and they do. As long as you are the custodian of these accounts, slightly over 5% of your assets are counted against you in determination for a financial aid, same as 529 plans. But, here is where the Coverdell plan is flexible. You can re-assign the "ownership" to someone else, your relative or even your friend. You can even re-assign it to your company if you have one. Or better yet, set it so your company contributes to Coverdell plan directly.

You can open Coverdell plan at most major brokerages and even banks. You can invest in stocks, mutual funds, money market, etc. You can't invest in annuities, but it makes no sense to do it anyway.

And you can move your plan from one provider to another anytime you want, like an IRA. Something, you can't do with 529 plans.

All your original contributions can be withdrawn anytime, no taxes to pay, no fees and no penalties. Any profit you make is tax free as long as it is used to pay for the qualified educational expenses.

You can also change a beneficiary, like 529 plans do. Just once-a-year. Nothing is perfect. But, this plan is almost is. 

One biggest caveat of the plan, in my opinion, is that you need to pay yourself back for the expenses in a year you incurred them. So, if you are paying for that summer school this year, pay yourself before the year ends. Why is it so bad? Because if you are starting late, as I am, you have not accumulated much of the gains and compounded interest to make enough profit on the account so it pays for itself.

I have not covered all small fine print details, you might have different circumstances, so it is always a good idea to discuss it with someone knowledgeable about it. If you like reading boring IRS publications, like me, here is a reference for you:

https://www.irs.gov/publications/p970/ch07.html#en_US_2016_publink1000178449

Starting somewhere...

I have been avoiding any form of social media for as long as I could, but as everything goes, it all comes to and end at some point. So, you are looking at the result of it, or rather a beginning - and it is not a Facebook page or a twitter account; just a simple whisper sharing some of my knowledge accumulated over the years along with an experience and mistakes.

It is never too late to start doing something if you believe in it. So, I believe I can make a difference by sharing with you some of my learning.

Why would you want to hear it? If you believe in learning, then you can always learn from every experience and if you can avoid some of the mistakes others had made and lived to talk about it, you can consider yourself already ahead and wiser in life.  

This blog would mostly be about family finance, but I would like it to be much more than that. That is something I believe I can do, but it would take me time to learn how. I've never written a blog, so, I would start with something I know; a family finance is something that I do every day: pay bills, find discounts,  save money, rant about high tax bills, wonder where to invest into and, of course, payments of taxes, the less the better.

I do not have any formal financial education, and I am not interested in gaining one. But, as one of my friends once said: "the World lost an accountant in me". Indeed, I do love accounting and I do like investment discussions and money matters. If I had to do this professionally, I probably would not be enjoying it that much. It's only fun if nobody makes you do it.

This blog is also a yell to bring your attention to those who "touch" your money: accountants, money and portfolio managers, IRS, banks, your kids and even your parents and relatives. I'll also talk about those who should not.

If this is something that might interest you, check back and perhaps share this blog with others when you find it appropriate, even with your kids. I bet they can learn a lot and maybe even teach you something.