The Internal Revenue Service today issued the 2009 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.   Beginning on Jan. 1, 2009, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 55 cents per mile for business miles driven
• 24 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

The business and medical rates are slightly lower than the current rates, which were raised in July to compensate for spiking gas prices.

One of the most repeated pieces of financial advice I hear is that you should always have a savings goal in mind.  Setting a goal is supposed to focus your efforts and help to ensure success.  Since I’m saving a significant percentage of my income, I wondered why I am able to have success despite not having a savings goal.

My savings success comes from the fact that I have automated the process.  Before my paycheck arrives, sufficient funds are deducted to ensure that I’ll hit the maximum contribution limit to my 401(k).  Regularly scheduled transfers to a 529 college savings plan, taxable investment account, and high yield savings account are also in place.  The remaining money is sufficient not only to cover my expenses, which I keep to a minimum, but also to build up a little bit each month.  When I want to make a purchase, I simply take from this surplus.

Setting a savings goal is useful if you live beyond your means or spend most of what you earn.  In those cases, you need to do something to increase your savings and a goal may help.  But for those with more discipline who automate their savings, pay themselves first, and keep expenses low, the maximum possible savings occurs even without a specific goal in mind.

The latest book review here at Richer by the Day is Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill) by David Cay Johnston.

Author David Cay Johnston followed a similar formula that brought success to Perfectly Legal when writing his next book, Free Lunch.  He again uses extensive research, a breadth of topics, and largely maintains political neutrality throughout Free Lunch, which explores the giveaways, tax breaks, and subsidies that are taking away from the majority to make the über-rich even more so.

Free Lunch covers more topics than time permits me to mention, though everything from Profession Sports Franchises to Eminent Domain, Title Insurance to Exploding Student Loan Debt and many topics in between were included.  Many titans of industry, including Buffet, Bush,

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A combination of factors may have many workers receiving an extra paycheck in 2008.  This is due largely to 2008 being a leap year and partially due to the fact that January 1st, 2009 is a bank holiday and falls on a Thursday.  The leap year means that there will be 53 Tuesdays and Wednesdays this year, where normally only one day of the week has an extra occurrence.  What all of this means is that if you receive a paycheck on a Tuesday, Wednesday, or Thursday, you may have already heard from your employer about receiving an extra paycheck this year.  Whether your pay was scaled throughout the year to reflect this, or if you will simply be receiving one less paycheck in 2009 varies by employer.  In any event, the result could impact your income taxes for the year as well as your 401k

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Paying $1.84 for gas today reminded me that I wanted to revisit my analysis of Chrysler’s Let’s Refuel America Program and MyGallons.com.

Back in May, I discussed why Chrysler’s program was such a bad deal.  As a reminder, the program allowed participants to lock in the ultra low price of $2.99 per gallon for three years.  The main reason it was a bad deal was that you had to forgo other dealer incentives to participate, meaning that you might have to give up guaranteed savings to get potential savings.   I wonder how people who participated in the program feel about it now?  Sure, gas may rise above $2.99 before their deal runs out, but I doubt they’re happy with their decision.

Those who wanted to prepay for gasoline for future use without having to buy an overpriced car may have opted to use MyGallons.com.  Those people are likely kicking themselves as well.  Anyone thinking about joining that site (which lets you prepay for Gas, with some restrictions) today, should ask themselves why

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A reader recently asked how the interest is calculated on Lending Club loans and what her return in dollars might be.

Here’s my answer:

Loans through Lending Club are amortized over 36 months to keep payments fixed.  The quoted rate is the yearly rate, so 1/12 the rate is applied to the outstanding principal each month.  To determine your return, you’ll need to calculate the monthly payment, take out the 1% payment service fee and multiple by 36 months.  I believe that estimated monthly payments are shown when you consider a loan, but if not, you can use the following formula in Microsoft Excel, Google Spreadsheets, or a similar program: =PMT(rate/12,36,-loan) where rate is the quoted rate as a decimal (13% would be 0.13) and loan is the amount that you loan.  For example, 10% interest on a $3000 loan would be represented as =PMT(0.10/12,36,-3000), which returns a monthly payment of $96.80.  Multiplying by .99 is what you would get each month after the 1% service fee is taken out.  So you would get $95.83 each month.  After 36 months, you will have received $3450.01 for a profit of $450.01.  That amount would be subject to taxes as interest income, so your after tax profit would be

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In part 1 of this topic, I discussed different ways to apply historical default rates to small value P2P loan portfolios.  To make more sense out of how historical default rates might affect loan performance, I ran a monte carlo analysis on a select set of hypothetical loans.   Here are the simulation results.

To get a better handle on the effect of historical default rates on P2P loan portfolios, I performed a monte carlo simulation on portfolios lending $100, $500, $1000, $2000, and $5000.  Since I assumed that the money was spread across investments of $25 each, those dollar amounts correlate to 4, 20, 40, 80, and 200 loans respectively.  For each test case, I simulated investing in all A1, C1, E1, or G1 loans (using Lending Club grading terminology) as well as an equal mix of those 4 grades, which I called Div for diversified.  I used the following historical yearly default and corresponding loan interest rates (again from Lending Club’s site):

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Rethinking Historical Default Rates When Applied to Small Value P2P Loan Portfolios

Historical default rates can be difficult to apply to small value P2P loan portfolios.  The first thing to remember is that, much like stock market returns, historical default rates do not necessarily predict future default rates.  The next major problem with analyzing risk in small P2P loan portfolios is that a small number of loans does not meet the threshold for statistical significance.  In other words, if you have one loan with a historical default rate of 5%, you can’t directly apply that rate to your loan.  A 5% historical default rate might lead you to expect 5 out of 100 such loans to default, but what whole number is 5% of 1?  If you estimate high, 5% of 1 is 1 meaning that your loan will be expected to default.  If you estimate low, 5% of 1 is 0 meaning that your loan will not be expected to default.  Realistically, a 5% historical default rate means that you might expect

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I recently discussed how your savings rate can determine when you’ll be able to retire.  To go along with the table in that post, I developed the Saving Retirement Calculator below.  You can enter specifics for your situation to see when you might be able to retire.  Once you have an answer, you can copy the badge code and paste it into your webpage or blog to get a badge that looks like this:

Note that changing income will have no effect on the answer, unless you currently have a non-zero amount saved.  That is due to the fact that calculations are all made on a relative basis, i.e. if you are saving 10% (and thus living on 90%) 90% x 25 is the amount you’ll need to save, which does not need absolute current income to be  calculated.

Here’s the calculator:

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