The first thing to take a look at would be the cost of living adjustment itself.  I found an online calculator here that’s pretty good.  According to it, someone making $50k in Orlando needs to earn $110k in Manhattan, just to keep their living standards.  That’s crazy!  Though it looks like housing is the biggest factor, because you would have to spend 357% more on housing there than in Orlando.

The next thing would be the tax difference.  In Florida, there’s no State income tax, but you can bet most places will.  According to Wikipedia, 7 states do not have a state income tax, and 2 others only tax dividends and interest income.  It’s no wonder all the old people migrate to these states.

Anyways, how would you calculate the adjustment?  Lets say you make $50k in Florida with no income tax and are moving to North Carolina, where income tax is approximately 7%.  Would you just multiply $50k by .07 to see how much extra you need?

$50,000 X .07 = $3,500

So you would need to make $53,500?  Not so fast.  Let’s say you made $53,500 and you had 7% withheld for state income tax.

$53,500 X .07 = $3,745

Something doesn’t add up quite right…

In reality you need to take the current tax free income $50,000 and divide it by 1 minus the tax rate, or (1 – .07) = .93… So:

$50,000/.93 = $53,763

AND

$53,763 X .07 = $3,763

There we have it… So summing up:

(TAX FREE INCOME) / (1 – TAX RATE) = (EQUIVALENT TAXED INCOME)

Then take that and multiply it by the cost of living adjustment to get your total income requirement to keep your same income in a different State.

Many times, I’ve heard of people “paper trading” to test their skills in the stock market without actually putting any skin in the game, so I decided to look around to see if a site would allow me to do just that.  Unfortunately, I couldn’t find one that seemed too appealing.  Either the site was very unimpressive, or it seemed like they just wanted to get my information so they could bombard me with ads.

I gave up on the idea.

A few days later, I noticed an interesting article about a new startup investing website, kaChing.  This site allows you to set up a a virtual portfolio of $10 million and buy and sell stocks.  It includes a hint of social networking, since you can see other people’s portfolios and can share information.  While this pretty cool in and of itself, the real kicker is how the site actually makes money.

If you stick with the site and trade, they assign you an investor IQ, which is basically a automated rating of how good a trader you are.   If you meet some other restrictions, you can then become a “Genius” and people can choose to invest like you.  The customer then sends kaChing money to invest, and whenever you buy or sell in your virtual portfolio, kaChing does the same moves with the customer’s money.

As a Genius, you set your rate for managing money (say a %1 fee for people investing like you) and kaChing takes a cut.  The more money you “manage” the more you and kaChing can make.

Am I the only one who thinks this is really cool?  While I doubt I’ll ever become a Genius, the site is awesome for paper trading.  If you want to follow me, my investor ID is 76659.

Right now, kaChing has around $3 million in actual invested money.  If this idea takes off, those guys are going to make a killing.

The other morning the wife asked me what stock futures were. That got me so pumped up just thinking about derivatives, I probably didn’t need a cup of coffee. I can be such a nerd

Anyways, I figured this would be a great topic to get back into the flow of blogging on FrugalJim, so let’s get going.

The reason this topic was brought up in the first place was because the talking heads on TV and/or the web articles written in the morning like to give a shout out to the stock futures.  They do this to try and give an indication for how the market is going to act once they open up for the day.

Digressing a little, stock futures are derivatives.  These aren’t actually a stock you can buy or sell, but are “derived” from actual stocks.  Just like stock options, they allow you to speculate whether a stock will go up or down at some point in the future.  Not only can you do this with less money than you would need if you wanted to buy the stocks outright, but you can do it outside the normal stock market hours.

The talking heads simply look at the futures to get an estimate of which way the market is moving and act like they know how the market will behave.  The ironic thing is they never go back and see if they were right or wrong.  Just because the market starts off strong, doesn’t mean it won’t tank in the afternoon.

Hopefully I’ll have my next post up by this weekend. See you then!

I’ve learned that a CEO of a company can claim loudly that “The dividend is safe!” only to turn around the next week and cut the dividend by 68%.

I’ve learned the government (Senators) can make speeches about the stability of Freddie Mac and Fannie Mae, yet have to take over them to keep them from going bankrupt within that very month.

I’ve learned GM really had no chance of staying “a going concern” even though the executives said they were in the process of a turnaround.

I’ve learned executives at Merrill Lynch still got a bonus even though they lost billions of dollars before they were sold to Bank of America.  And speaking of Bank of America, it turns out they paid way way way too much for both Countrywide and Merrill Lynch and knew it at the time.

I guess the point of all this is that when people are out for themselves (whether trying to make money or save their reputation) you can pretty much take what they say with a grain of salt. 

…just another thing to try and keep in mind.

I’m in a relatively good financial position right now, but I can easily look back and see a different path I could have taken.  For example, the wife and I could have bought a more expensive house by using an exotic mortgage instead of our modest townhouse financed with a 30 year fixed loan.  

My truck will be paid off in about a year from now, but I could have easily traded it in for a new loan on a nicer car.  I was especially tempted to do this when gas prices hit around $4 and I was paying about $80 to fill up the tank.

If I had done these things, essentially drinking the whole bottle of wine, I would have been asking for a hangover.  My company just announced it will not be giving any cost of living increases this year, and many people are being laid off all over the country.  Right now, if either the wife or me got laid off, we could probably get by long enough to find another job.  

Unfortunately, many people aren’t in this position.  Either they bought too much house, thinking prices would continue rising, or they bought whatever they wanted, assuming a stable job would allow them to pay off the debt later.  

Hopefully, I’ll remember this in the future and practice self constraint when others around me are living it up and getting drunk.

I do however have an update on my 2009 goals.  In fact, I think I’m doing pretty darn good by still thinking about them after a month into the year.  I’m guessing I made it further than a lot of people who vowed “to get in shape in 2009″, and hopefully I’ll stick with it.

Well, the good news and the bad are the same thing: the numbers are down.  

The good news is that I’ve successfully lost about 7 pounds this month.  I’ve made it to the gym 3 times a week and did some form of excercise a couple of other days.  I’m starting to see a very small difference, but I’m continually having to remind myself to not go nuts and stuff my face.

The bad news is that I’ve also lost a lot of money in my investing account.  I got killed by owning a pretty good chunk of Bank of America.  It’s pretty much down around 50%, and is hovering at about $6.  I paid around $15. 

Other than that, the only other news is that I might need to put a little more “frugal” in FrugalJim.  My company just announced that there will be no merit increases this year.  If prices keep going up with inflation next year, it’s going to seem like I have less money in my pocket.  My only chance is to get a promotion (which usually comes with a bump in pay).  It’s a stretch for me to get one this year, but I think I might have a chance… only if I kick some butt here at work.  Speaking of work, I better get back.

A stock option is actually defined as “the right to buy or sell a company’s stock at a certain price”. 

I think that the best way to help understand stock options is to use an analogy:

I live in Central Florida, where we get battered with hurricanes every couple of years.  Let’s say I own a hardware company, and I know that if we get hit with a hurricane this year, I could sell 500 gas generators to people who want to keep their refridgerator and appliances running while the power is out.  The problem is that as soon as a hurricane comes, my suppliers will be bombarded with demands from other companies, and I probably will only get 10 or 20 generators to sell.  Plus I don’t want to buy 500 generators now, because if we don’t get hit with a hurricane I’ll be stuck with 100s of generators in my warehouse taking up space and a lot of my money.

So what do I do?  I go to the manufacturer and I tell him that I’ll pay him $1,000 in return for a guarantee of the right to buy 500 generators the next hurricane season at MSRP.  Even if, all the other hardware stores in Florida are asking him to send generators, he will send the first 500 from his warehouse to me, whenever I ask.

Now, if we don’t get hit with a hurricane this year, I’m out $1,000, but at least I’m not stuck with 500 generators I can’t sell.  The big benefit comes though if we do have a hurricane.  I’ll probably be the only one in town with generators to sell to everyone, and I can probably raise the price a little too.  I’ll make a killing.

Stock options work this way too.  It essentially lets you benefit as if you “own” the stock, without actually having to buy it.  For example, if I buy call options on Bank of America for next month at a $10 strike price, I’ll have to pay around $.50.  If the stock goes up to $20, I can excersize my option to buy the stock at $10, and turn around and sell it for $20, when I only spent $.50.  If the stock tanks, I’ll only be out of $.50.

I hope this helps clear some confusion in the complicated topic of stock options.

What can we expect from this guy?  I’m betting on a bit of a protectionist agenda.  Be on the lookout for new rules against the government buying software from other countries.

For example, there is a Russian software security company out there that offers a competing antivirus solution with Symantec.  Do you think that it will make it’s way onto government computers in the future?

It will be interesting to see who gets nominated for that post.

I figure it might be funny to look at this image sometime in the future and remember the thoughts swirling through my head right now.  We have no idea what will happen in the next four years.

Obama inauguration screen cap