My Favorites - from The Carnival of Personal Finance #132

This week The Digerati Life hosts: Money, Finance and Fancy: The Carnival of Personal Finance #132, Whimsical Christmas Edition you'll find the following post from Teaspoon:

HELOC + ESPP (or 0% Credit Cards) = FREE MONEY (15% to 60%+ returns)!

This was a really big holiday carnival and there's so many good posts to read. Here's some of my favorites:

Spend Less Than You Earn - The Wrong Way To Think @ Brip Blap: Instead of thinking about “spending less than you earn” to make it, why not think about “earning more than you spend?” An interesting perspective that may have you opening up your limits on what you can earn and think of the many endless possibilities!

2007 PF Blogger Net Worth Comparison @ Million Dollar Journey: With personal finance bloggers writing about finance so much, do you ever wonder how much they’re really worth? Here’s your chance to find out what kind of net worth some of us have! OK, this is just car-crash interesting to look at published net worths of some of your favorite PF Bloggers :-)!

Our Credit Limits: Over $1,000,000! @ My Dollar Plan: Madison covers her credit with great detail, slicing and dicing and taking note of her household’s credit accounts and limits. I'm going to keep an eye out for Madison's upcoming posts. This is one person that know's how to manage credit! I'm looking forward to many of the future posts, based on her many comments on this post, to describe the methods she uses to manage the multitude of credit accounts.

I Will Teach You How To Become A Millionaire @ Worldwide Success: Here’s a list of ways to become a millionaire, prioritized according to likelihood of occurrence (from least to most likely). The 10-10-30 formula is one everyone should be employing, then look at all the other 'gravy' ideas Worldwide Success shows for building your million. Don't forget that 'mortgage' for your home can take you pretty close to becoming a millionaire too!!!

Ding Dong - Did Someone Order Groceries? @ The MotherLoad: Grocery deliveries have become very popular as people have become more & more busy. This post offers some tips for shopping at grocery delivery websites as well as a helpful listing of these sites. I'm a real proponent of online groceries. I've often use it to stock up on all those heavy items for parties and such (bottled water, soft drinks, etc.) and have them delivered to the door for an incredibly reasonable fee (often only $10).

15 Money Pitfalls To Avoid @ Millionaire Money Habits: Here’s where you can read about 15 common money pitfalls to avoid becoming another case study. This is a really great collection of common money pitfalls. I encourage everyone to check it out and see if there's any new positive money habits you can build in 2009.

How to Become a Famous Blogger (or) I’m a Closet Millionaire No More @ Millionaire Mommy Next Door: One of us has been discovered by Montel Williams! Woohoo! If you want to see what Millionaire Mommy and her family look like, read her post. And make sure you tune in to Montel Williams this Friday, December 28 to catch this PF blogger on television!

Comparison: Major Presidential Candidates on Monetary Policy and the USD @ Currency Trading: In this presidential race, monetary policy is a hot issue. Many Americans are fed up with government excess, a failing health care system, and faltering personal wealth. This post covers how some of the major presidential candidates stack up on these issues and more.

www.mtgprofessor.com - My Favorite Site for Everything on Mortgages

My 'go to source' for all the best info has been The Mortgage Professor and I'd just like to pass this on to folks that may also have lots of questions on mortgages. I've been spending some time there reading quite a few of the incredibly informative articles and FAQs that Jack has on his site. Let me take you through some highlight articles and faq's that I really enjoyed reading and felt helped to get me informed for mortgage discussions. Another wonderful thing about Jack's site is that you'll find the articles and topics have frequent updates as Jack uncovers new answers to similar questions, examples and info on that topic.

Buying a new house before selling the old one - This was really educational as I'm currently contemplating this scenario and couldn't find any real good info on the web about it. If you're like me, you might have rolled this question around in your head:

"I need to use the equity in my existing house to buy a new one, but it looks like I am going to have to close on my new house before I am able to close on my old one…How do I handle this?"

I learned that you have many options and what kinds of questions to discuss with your bank/mortgage broker when discussing loan options. You can draw from your current equity via a HELOC and use as down payment on your new place. You can request a bridge loan. Often loan officers will want to know that you've listed your current home before going down this road.

Another article discusses the different scenario options in Buy or Sell First? a similar question is asked:

“I currently own a home which I would like to sell, and then buy another. What is the best sequence of steps in this process?”

I'm not fortunate enough to need an answer to this question but enjoyed the article Sell Now to Avoid Future Capital Gains Taxes?

"If a House Has Appreciated by $500,000, Does it Make Sense to Sell it and Buy Another For the Sole Purpose of Avoiding the Capital Gains Tax That Is Due on Gains Above $500,000?"

Quick Tips on Major Hazards - As much as we are trusting souls when we discuss money matters with professionals that send us quoted estimates, there are hazards to look out for. This is a great article and jumping off point to many other related article topics: Quick Tips on Major Hazards. You'll definitely want to read up on the lender tactics to avoid that try to tack on costs as closing approaches in Legal Thievery at the Closing Table.

I mean an almost 200% increase in quoted fees is outrageous, like this:

"I paid $2240 in lender fees when my loan closed, compared to the $880 I was quoted at the time my rate was locked. It was a total surprise that hit me at the closing table. With my house purchase at stake, there was nothing I could do. This is outrageous…why doesn’t the government do something about it?"

apparently the whole design of the GFE (good faith estimate) is designed and allows for fluctuations like this.

HELOC + ESPP (or 0% Credit Cards) = FREE MONEY (15% to 60%+ returns)!

For anyone that has available Equity in their home and an unused potential in their employers ESPP program should really pay attention! For those that are playing the shell game with 0% credit card interest rate arbitrage and ask, "Hmmm, where could I get a guaranteed 10% or 15% return?", well read on, how about a 40% or even 60% annual return! I've been giving away some free money and I'm not happy about that. I'm correcting that, toot-sweet! I hope all of you will review your circumstances and consider doing likewise, if it makes sense and you have availability to your ESPP that you aren't currently funding to it's max potential.

I have available equity, like most people, that I just realized I could be putting to work. Recently I've pulled back on my ESPP contributions, for at least the last year now, in favor of maxing out my 401k. Of course that's a good option, but I've been thinking and came up with a novel idea. So, no more wasting the potential of my ESPP. Here's a simple example. My employer offers an ESPP that plan with 15% discount on stocks every quarter. So, that's a 60% annualized return. Take a look and see how that works out:

• Jan-Mar: Contribute 0-15% of your income and purchase your companies stock at 10% discount. At which time you can sell immed for 10% gain or hold and sell at a later date. Let's look at an example of $50K (take home pay) after taxes. This would break down to about 4200/month after taxes. Example: 15% of $4200 = $630. contributed montly x 3 months = $1890. Sell immed to lock in 15% gain of 283.00.
• Apr-Jun: same thing as above. Total contributions of $1890.00. 2nd 15% gain of 283.00.
• Jul-Sep: same thing as above. Total contributions of $1890.00. 3rd 15% gain of $283.00.
• Oct-Dec: same thing as above. Total contributions of $1890.00. 4th 15% gain of $283.00.
• Total contributions for year: $1890 from Heloc x 4 (i.e. recycled 4 times)
• Total of 15% quarterly returns: $1132.00
• Total return on initial $1890 HELOC contribution: 60% annual return!!! Now that rocks!

Now, please correct me if you think I missed a point, as I'm just thinking about all of this and planning to implement shortly. I plan on starting this Jan 08, so I'll see how it actually works out. Here's how the quarterly draw and money management would work:

• Jan 08: Draw $1890.00 from your HELOC Account that you'll be contributing from your payroll for Jan-Mar contribution period. Deposit that amount in your checking account that you normally use for bills, etc. Make min payments to HELOC every month.
• Jan 08: Max out your payroll contributions so that $1890 is drawn from payroll during Jan-Mar 08 contribution period
• Apr 08: Stock is purchased with your contribution. Sell this stock immed, or put stop loss to increase potential returns even more!
• Apr 08: Deposit the $1890.00 from your stock sale proceeds into your checking account that you normally use for bills, etc.
  remaining $283.00 is your 1st 15% return (use in your checking if you want to help bridge between subsequent stock purchase and sell periods or apply payment to HELOC to reduce principal).
• Apr 08: Max out your payroll contributions so that $1890 is drawn from payroll during Apr-Jun 08 contribution period
• Jul 08: Stock is purchased with your contribution. Sell this stock immediately, or put a stop loss on it to increase your potential returns even more.
• Jul 08: Deposit the $1890 from your stock sale proceeds into your checking account that you normally use for bills, etc. The remaining $283.00 is your 2nd 15% return (use it in your checking if you want to help bridge between the subsequent stock purchase and sell periods or apply payment to HELOC)
• Jul 08: Max out your payroll contributions so that $1890 is drawn from payroll during Jul-Sep 08 contribution period
• Oct 08: Stock is purchased with your contribution. Sell this stock immediately or use a stop loss to increase potential returns.
• Oct 08: Deposit the $1890 from your stock sale proceeds into your checking account that you normally use for bills, etc. The remaining $283.00 is your 3rd 15% return (use it in your checking if desired or apply payment to HELOC).
• Oct 08: Max out your payroll contributions so that $1890 is drawn from payroll during Oct-Dec 08 contribution period
• Dec 08: Stock is purchased with your contribution. Sell this stock immediately or use a stop loss to increase potential returns.
• Dec 08: Deposit the proceeds into checking. Wash ... rinse ... repeat for next year if desired
• Dec 08: pay off remainder of HELOC balance on original $1890 plus interest.
• Dec 08: Count your returns of $283 x 4 = $1132 (i.e. 60% profit, less any interest paid on HELOC probably no more than 8% or 9%).

Considerations and things to think about:

• The one drawback with this strategy is that you can't get an endless stream of high percentage returns (i.e. your limited to your 15%, etc. max payroll deduction amount). But, that doesn't mean you can't offer to loan money to any of your coworkers and teach them how to do it (especially if they don't have HELOC money avail). That's still leaves a great return on investment if you split it with your coworkers. Anyone know if there's any problem with going this route? Obviously the drawback is that your coworker might not be that on top of money, like you :-)...
• If you're not currently maxing out your 401k, then you should definitely do your best to try and max out your 401k contributions
• By concentrating your efforts on maxing out your 401k, then you will likely not have funds to max out your ESPP potential, in that case you should look at using your HELOC to fund your ESPP to it's max potential as above
• Many ESPPs have even more advantages for you to make gains beyond their 10% or 15% (or whatever their discount stock purchase % is). Some companies allow you to purchase at an even lower price, based on lowest price of 1st date or contribution period or last date. So, if the stock price at the beginning was 50% lower than the end, you get to purchase at 50% + your discount percentage 10% or 15%, etc. from the current stock price. This makes even more gains!!! The Wonderful World of Employee Stocks, Part 3: Don't Poo-Poo Your ESPP
• As mentioned above, profiting from 0% credit card offers makes a lot more sense now. Traditional methods discuss putting the money in savings accounts and using that gain, well ... how about the percentage gains above!More on How to Make Money with 0% Credit Card Transfers (And Five Reasons Not to Try). The only thing I'd caution against with 0% Credit Card offers, is that they are real tricky to manage, and I'd still advise going with the more sane cheap money avail to you through HELOC, if you have it.

You'll find this post on the following carnivals:

Money, Finance and Fancy: The Carnival of Personal Finance #132, Whimsical Christmas Edition

118th Carnival of Debt Reduction - Winter Solstice Edition