Growing Money

A friend from work recently received a wonderful job offer from an Australian company and had been contemplating whether to accept it. Let’s call my friend, Nav. The new job offered a competitive compensation package, but the new job would also require Nav to relocate to Brisbane, Australia. Nav was in a dilemma. He had to decide whether to stay in New York City, where he was having a good time or to move to Brisbane, where he was unclear of the lifestyle there.

I asked Nav to weigh the pros and cons of the two jobs, the one he currently had and the new job offer. First, I asked what the Australian company was offering him.

The job offer in Australia was a consultant gig for an Australian government project, with a 6 month trial period, but the project was expected to last 3 years. The Australian company offered him AU$125 per hour (about USD$114) for his compensation. The Australian company also agreed to reimburse him for the first flight to Brisbane, Australia. The working hours were generally from 9 am to 5 pm, which is common for most government-related projects.

Next I wanted to know more about his current position in NYC. I asked about his current compensation package and his thoughts on NYC.

Nav was currently working on a government project for NYC agencies and was offered approximately USD$60 per hour. The working hours were generally from 9 am to 5 pm. Nav was from Toronto and made flights back home almost every weekend. He enjoyed the short trips home and would have to sacrifice this luxury if he were to relocate to Brisbane, Australia.

He had moved to NYC for less than a year and had no plans to leave anytime soon. He lived in a key location in the city and was steps away from work. Furthermore, his home was in the center of a shopping area and was near the hubs to mass transportation. He had gotten used to the nightlife and enjoyed short cab rides home in the middle of the night. He was concerned if he would be able to live the same lifestyle in Brisbane.

I had never been to Australia, but I have been told that the people there enjoy nice lifestyles and night lives similar to NYC. Since Nav was young (27 years old) and single, I told him that there was little he could lose. If anything was at stake, his wallet would get fatter. The Australian company was offering more money, almost double his current rate.

I pointed out that Brisbane, Australia would be a new place for him and it would be exciting to explore new places. Nav agreed with my point and had also heard many good things from people who have been in Australia. He would like to visit a country in the Pacific Coast region and would like to experience the lifestyle there. I pointed out that the climate there would be warm and it would be fun to relax on the beaches during the weekends. Since he worked out often, he could show off his strong physique.

I told him that the decision ultimately lies in his hands. Nav was reluctantly to leave NYC, because he had come to love NYC and NYC had now become his second home. I pointed out that he could always come back to NYC if the Australian project did not work out for him, but he said that he would eventually return home to Toronto.

Comparing compensation packages, I pointed out that the Australian job offered almost double his current pay and in that respect, the Australian job offer would win hands down. As for traveling home, even though the distance was farther from Toronto, I suggested that he could visit his Toronto home for less frequent periods, say once every 3-6 months, but request to stay at home for a longer period, and if possible, to work from his Toronto home during his trip.

The Australian compensation was certainly attractive. At USD$114 per hour, it was equivalent to an annual salary of USD$228,000. He was currently making USD$60 per hour, or an annualized salary of USD$120,000. In my view, the extra money he would make in Brisbane would definitely aid in building a larger net worth and would be resourceful for future investments. However, Nav might have a different perspective, because his long term goals might be different. Regardless, even he might not have defined long term goals, I pointed out that making extra money would never be a negative thing.

I laid out the options of both sides for him. I introduced my point of view and pointed out things that he might have missed. Here’s a summary comparison that lists the pros and cons during our conversation:

NYC
$60/hour, or an annualized salary of USD$120,000
Vibrant lifestyle/night life
Apartment is close to work
Easily accessible to transportation and entertainment places
Closer to Toronto (one-hour flight)

Brisbane
$114/hour, or an annualized salary of USD$228,000
Possible fun lifestyle
Warmer climate
Work experience in the Pacific Coast region

Nav had to make up his mind soon and respond to the job offer by the following Monday. I told him to think about it carefully and focus on his long term goals. I mentioned that it would be a win/win situation for him with either option. If he chose to stay in NYC, then he would continue to enjoy the city he always wanted to live in, and if he chose to relocate to Brisbane, then he would explore a new culture and be well compensated for it.

On the following Monday, he decided to accept the job offer in Brisbane, Australia. However, the Brisbane company would still need to confirm the position on their side, so Nav had to wait for a response. Since the ball was no longer on his court, Nav felt relieved and he would be satisfied with any outcome from the Brisbane company. For the time being, he would continue to live and party like a New Yorker.

Update: Nav received a confirmation from the company in Brisbane and will be departing to Brisbane on March 21, 2008.

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For those veterans who already have a mortgage and are looking to refinance with the VA there are options to consider. What are you refinancing for? Do you want a lower interest rate, or cash out of the equity you have in your home?

The VA offers both Interest Rate Reduction Refinancing Loans (IRRRL) and Cash Out refinancing loans. If you are considering refinancing with the VA you should know the difference between these two types of loans. Here are some difference you should consider:

* An IRRRL is used for veterans who want to refinance an already existing VA loan in order to get a lower interest rate, and a Cash Out is used to pay off any debts or take money out of equity for whatever your needs.

* With an IRRRL the interest rate must be lower than the mortgage loan you have now unless you are refinancing into an ARM or for energy efficient home improvements, and with a Cash Out you can refinance into any interest rate.

* With a Cash Out refinance there is no monthly payment minimum or maximum requirements, and with an IRRRL the new payment needs to be lower than the old payment unless you are refinancing from an ARM to a fixed interest rate or are financing the cots of energy efficient home improvements.

* With an IRRRL you can only refinance the existing loan plus fees and the cost of energy efficient home improvements, but with a Cash Out refinance you can take out cash from your equity as long as it does not go over 90% of the appraised value of the home.

* With a Cash Out refinance you are guaranteed $36,000 to be insured by the VA on your new loan, and with an IRRRL you are guaranteed 25% of your loan amount.

* An IRRRL can have points on the loan but only 2 points are allowed to be financed into the new mortgage. With a Cash Out refinance you are allowed to have any amount of negotiated points in your loan as long as you stay below the 90% home value limit.

Both of these VA refinancing options are available to veterans who have their entitlement intact. If you have a current loan that is not guaranteed by the VA then you should consider refinancing with a VA loan in order to possibly get a better interest rate and more favorable terms. Be sure to consider the attributes and guidelines of each type of refinancing option before you choose which one to use. For more information on the VA Home Loan refinancing options go to www.va.gov

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Broke Grad Student is hosting the latest Carnival of Personal Finance, the 141th edition. This particular student blogger applied a college theme to the Carnival. Here are the articles that graduated summa cum laude:

Seven Pairs of Easily-Confused Money Terms
Perfection is the Enemy of Progress
My Sources of Alternative Income and How I Make Them Work For Me
Five Advantages and Disadvantages to Online Banking
Wedding as a Status Symbol

My article, Health Savings Account is posted on Carnival Of Personal Finance #141- The College Years Edition.

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The Financial Bloggers is hosting the 140th edition of the Carnival of Personal Finance. If you like the FOX show Prison Break, you’ll like this roundup of articles. Here are the Editor’s Choices:

What Price are you Paying to Have it All? The Supermom Myth
Ask the Readers: Talking About Money
You are Not Your Stuff, Your Stuff is Not You
The Parent Trap: They Give and Give and Give…
What is a Certified Financial Planner?
Ways to Save Money
Insurance Poor and Self-Insuring

My article, Financial Bookkeeping – Advantages is posted on Carnival Of Personal Finance #140.

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My article, Consolidate Accounts and Save Time is posted on Carnival Of Personal Finance #139.

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“A Health Savings Account (HSA) is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a High Deductible Health Plan (HDHP). The funds contributed to the account are not subject to federal income tax at the time of deposit. Funds may be used to pay for qualified medical expenses at any time without federal tax liability. Withdrawals for non-medical expenses are treated very similarly to those in an IRA account in that they may provide tax advantages if taken after retirement age, and they incur penalties if taken earlier. These accounts are a component of consumer driven health care.” [Source: Wikipedia]

Since I am self-employed, I am responsible to get my own insurance. I have signed up with the HIP Select PPO plan. The monthly premium is $365.58 a month. The plan has a $1,000 deductible for in-network and $2,000 for out-of-network. The copays are $20 for a primary care physician and $30 for a specialist. The copay only comes into play when the deductible has been met. That means, I have pay the full price to see a specialist, usually around $100 a visit, until I have spent $1,000 out of my pocket for in-network doctors in a calendar year, before I get to pay copay of $30 to see a specialist.

HIP Select PPO Overview
Deductible: In-Net $1,000
Deductible: Out-Net $2,000
Copays: PCP $20, SPEC $30, ER $50, 20/30 RX, $50 NF
$365.58 / month

I did some research on HSA plans because I wanted to put my deductible of $1000 in a tax-deductible medical savings account. I found many websites talking about HSA plans, but very few that actually offers one. I finally stumbled across a few websites, such as HSA Insider that helps you to search for HSA Plans in your area. The search produce very few results. One of HSA providers is Sovereign Bank. The plan looks good to me so I called them.

I spoke to a representative in Sovereign Bank, who was very helpful, and she help answered my questions about HSA plans. It turns out that my medical insurance does not qualify for a HSA plan, because it is not a High Deductible Health Plan (HDHP). She specified that HMO and PPO plans are not eligible for HSA plans, and only HDHP plans are eligible for HSA plans.

I was disappointed to hear that I was not eligible for a HSA plan. The medical insurance monthly premiums are already costly and I still have to pay high prices for doctor’s visits. I think we really need an answer to health insurance in this country.

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The primary advantage of tracking financial accounts and transactions is that it allows you to continuously monitor the status of your financial health. It helps with budgeting and year-end taxes. Money serves as a database for all my expenses and income and investments. I use Money to track my stock trades, asset allocation, and trading history.

One of my favorite features of Money is the reporting tool. I can run reports to see how much I have spent for selected categories during a specified time frame. I can also see my net worth over the time. These reports give me a very good understanding of my finances and allow me to see where I am with my goals.
It is also good to be able to see all my accounts in one place. With credit cards, savings and checking accounts, investment accounts, mortgages, and loans, I have over 20 accounts. It would be a disaster to keep track of these accounts by hand. I wouldn’t remember all the credit cards or investment accounts I have opened. But with Money, I have all my accounts listed in one place and I can see which ones are still active. I can always look back at which accounts I no longer need and I can close them.

There are many other features in Money, such as Budgeting and Bills Summary. Budgeting allows you to set up a monthly or yearly budget and the software alerts you when you have exceeded your budget. Bills Summary keeps track of when your bills are due. I have already set up email reminders for myself from the individual companies so I don’t use the bill payment reminders feature in MS Money.

Keeping track of your expenses is a good way to see where you have spent that paycheck. And you can compare how much percentage of your paycheck goes to rent, food, travel and other categories. This way, you will know where your money is going, as opposed to guessing where the money has gone.

The bottom line is that having a program, such as Money to keep track of your financial accounts will make your finances much more organized. Whether it’s budgeting, reminding yourself to pay bills, or to run reports to see your monthly expenses, financial bookkeeping allows you to be constantly updated with your finance.

Related:

Financial Bookkeeping - Products (Part 1)

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