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Previously we noted Californian’s who file early may get their refund on time if they file before February 1.  If you haven’t heard yet, California is out of money and can’t pay income tax refunds on time this year. 

Apparently, the door is already shut on currently getting an income tax refund.   See the Sacramento Bee and ABC News stories on this.

It is not known how long Californian’s will have to wait for their refunds.   The information could not be found at http://www.sco.ca.gov, the State Controller’s website.

Times are tight – no doubt about it.  Following up on yesterday’s post where I mentioned how saving $500 corresponds to even a greater amount in earnings since we pay for things with after tax dollars.   So really, a penny saved is more than a penny earned.   Since greater earnings are likely to be harder to come by in the near future, it got me thinking about other ways to save.  Here are a few of tips to help you save fairly large sums of money in very simple ways. 

By all means don’t just try to negotiate your telephone and cable bills, take a shot with any recurring payment that you have.

Don’t pay bank fees.  It’s just not necessary.  Many banks have free checking and no annual fee credit cards.  If you are paying penalties and overdraft charges, just keep better track of your bills and payments.  If you read this blog, you know that there are free services like Quicken.com and Mint.com that help you manage your money to avoid these charges.

Here’s another way most people can save at least $500 per year.  A family of four can save $2000 per year.  It’s not all that complicated.  You can start today.  It won’t just make you wealthier;  it will make you healthier.  You just have to change one simple habit.  Don’t laugh when you read this.  I’m actually serious.  Here’s the big tip.  Drink water.  When you are thirsty, drink water.  When you have a meal, drink water.  When you go to a fast food place, drink water.  When you go to a restaurant, drink water.   Most people drink sodas or other sugared drinks regularly with meals.  Cutting out one $2 soda per day, five days a week, saves you over $500 per year.  I speak only of the financial aspects, but the the health benefits are even more substantial.

If a $2 soda habit can save you that much money, what other habits can you change?  I don’t even want to get into the whole Starbucks/Jamba Juice thing.  A lot has been written by others on that subject.  I think most people know that dropping $3 a day is more than $1000 per year.  I’m not sure you can even walk out of those places for less than $4 now.  By the way, $4 a day is $1500 per year; the same as getting a $2000 raise.  Food for thought.

Please share your ideas in the comments section below.

The Wall Street Journal has a good article about how to save money by negotiating with your telephone and cable company to get your rates down.  They have found you can drastically cut your monthly cost on these bills with just a phone call.  There is a lot of negotiating going on these days for all types of services.  They give an example of someone reducing his monthly cable bill by $67.  If you can take $20 a month off of each of  your cable and telephone bills, you just found yourself another $500 a year.  

Putting it in perspective, since these types of bills are usually paid with after tax dollars, that’s like getting an extra $700 to $900 in income (depending upon your tax bracket.)  It’s probably easier to call the cable company than ask your boss for a raise right now.

There has been a lot of talk in the last 36 hours about a supposed plan by the Treasury Department to create a market for 4.50% 30 year fixed rate mortgages.  They need to either come out with details this morning or say that no such plan will be forthcoming.  Having a rumor out there like this is adversely affecting the market for loans and homes.  I eagerly awaited details yesterday, but none were made public.  It seems like a kooky idea on so many levels.  

Artificially pushing more money into residential real estate comes at a great cost and only prolongs our problems and brings uncertainty to the market.  No one will know the true bottom for a while longer; which needs to be found so people will start investing again.  Left on its own, the market will bottom and start to build a base.  This is the only healthy sustainable course to take.

Underwriting is very tight these days, so new loans are only going to people with good credit and stable employment.  These aren’t the people that are going to need help in the coming year.  These people can get loans at 5.00% right now to buy homes.  And they will buy them when there is a few months stability in home prices that would suggest a bottom. 

If the plan allows for refinancing, there would be lines around the block to lock in these rates for the next 30 years.  But the only people in line would be the ones that aren’t in trouble right now and whose houses aren’t at risk of foreclosure.  And people would get as high of a loan as they possibly could.

The Treasury is in complete control of our financial services system at this point.  Price controls on interest rates would be disastrous.  These rates necessarily and continually fluctuate.  When I was a kid, you had to wait in line for price controlled gasoline.  Price controls on mortgage rates would create similar shortages.  Another government induced money shortage is not what we need.

By the way, I think mortgage rates will come down to 4.50% all on their own.  If they do, it will be a very good thing.  If they don’t go that low, it’s going to better for all of us if the Treasury focuses on facilitating a better mortgage market instead of controlling a lousy one.

Last week I wrote that banks were really starting to limit the origination of new consumer loans and credit cards.  This week we are hearing that more and more existing customers are getting their credit lines and credit card limits reduced.   A story broadcast on Yahoo has some more information.  See http://www.yahoo.com/s/996641.  You really need to be aware of this so you don’t go over your credit limit.  Exceeding your credit limit puts you in a position where you think you are financing something only to find out you need to pay cash for it at the end of the month.  This can also result in higher interest rates, as well as adversely affecting your credit score. 

Do not assume you will be notified first.  I am personally aware of instances where customers were notified after the credit line and credit card limit were cut.  Also, do not assume that your credit card transaction will not be authorized if it goes over your limit.  Many cards allow you to exceed your limit as long as you pay down the card upon receipt of your statement.  Further, do not assume you will be unaffected because you have good credit and pay on time.

Basically, banks are trying to limit the amount of credit they have outstanding to their customers.  So they are cutting back everywhere on all types of credit products.  The first wave of this started 6 months ago when lenders started cutting back and freezing home equity credit lines.  They were cut severely and swiftly without regard to credit history or original loan to value ratios.  Lenders were highly motivated to do this by the rise in foreclosures.  Small and large businesses have seen similar treatment due to the downturn in sales.  Now it is really starting to kick-in for the consumer.  The recent unemployment numbers foretell massive defaults on consumer loans and credit cards.  Banks are therefore very motivated, so expect swift cuts.

Personally, I would approach larger purchases this way.  Pay cash or don’t buy.  If you absolutely need to purchase on credit, make sure the financing is available.  It may not be tomorrow.

It turns out that having an adjustable rate loan is not too bad for many borrowers.  Some people are sitting pretty right now.  At this point it all really depends on the loan index to which your loan is tied. 

If your loan is tied to the 1 Year Constant Maturity Treasury (CMT) and about ready to adjust you could be looking at a loan rate in the 3% to 4% range, down about 3% from last year.  This includes loans tied to the 12 Month Treasury Average (12 MTA) which is just an average of the last 12 monthly CMT rates.  The CMT is around 1% and the MTA is around 2% and dropping.  Check out your loan documents and see what margin you should add to your loan index to calculate your rate.  If your margin is in the 2% range you could be in for a very pleasant surprise.  Combine this almost 50% cut in your mortgage interest with an over 50% drop in gasoline prices, you are talking serious savings for some people.

On the other hand, if your loan is tied to LIBOR or the Cost of Funds Index (COFI), you are looking at higher rates than your neighbor with a CMT loan.  The 1 year LIBOR is just under 3% and the COFI is just over 3%.  So if you have one of these indexes and assuming you have a comparable margin to your neighbor’s CMT loan, you could be paying 2% more for your loan.  Your rate may be in the 5% to 6% range.  On the bright side, your rate should be down about 2% from last year corresponding to about a 25% reduction in your mortgage interest.  Nothing to sneeze at.

In hindsight, getting an index tied to Treasury rates seems like a great decision.   Looking forward, in the very near term, the CMT continues to trend down and the MTA will follow.  It’s any body’s guess what the LIBOR will do.  Eventually these indexes will come back to normalcy and track closer to each other.  Looking farther forward, I would guess these loan indexes will be up considerably a few years from now.  The amount of money being printed and poured into the economies around the world seems like a recipe for serious longer term inflation and higher loan rates.

It may be a good time to evaluate your individual situation and see if you can take advantage of the 30 year fixed rate conforming loans at just over 5%.  If you are sitting on a jumbo loan, it’s a bit tougher to figure out.  The jumbo 30 year fixed rates are in the 7% range and the 5 years adjustables are in the mid to high 5% range. 

Below is a graph that shows how the indexes have started to diverge.  If you click on the graph it will take you to other comparison charts.

Rate Comparison - LIBOR & CMT