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YOUR BOTTOM LINE

Making the Most of Your No. 1 Investment: Your House; How to Score Higher Interest Rates On Your Money; Make or Break Numbers For Your Finances

Aired July 31, 2010 - 09:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


POPPY HARLOW, CNN HOST: From your house to your job, your savings and your debt, we have a lot to get through this morning on the show that saves you money. First off, making the most of your No. 1 investment, your house. From the tales that your contractor tells to do-it-yourself home improvements, we'll make sure you don't get ripped off.

Also, ahead, it is not easy to make money on your money, these days, we've got smart ways to score higher interest rates. Plus, the make or break numbers when it comes to your finances. YOUR BOTTOM LINE starts right now.

Well, lots of news out on the housing market this week. Bottom line, it's a mixed bag, folks. Existing home sales fell five percent in June, but new home sales rebounded 24 percent up from that record low that we saw in May.

Home ownership, though, fell to its lowest level in 11 years. Not a lot of buyers out there. Whether you, though, are a buyer looking to score a great deal on a home and then renovate it or just a frustrate the seller trying to upgrade your current home, decode what your contractor says they can do versus what they can't really do, it can sometimes be a big challenge.

Here with some tips how to tell fact from fiction when it comes to your contractor is Donna Rosato, senior writer with "Money."

Donna, thanks for being here.

DONNA ROSATO, MONEY.COM: Great to be here, Poppy.

HARLOW: This is tough. You know, so many times growing up in an old home my parents were dealing with contractors not following through, charging before they actually made the fixes. You just had your home renovated, so we want to decode some of the myths. You know, they're wanting -- some contractors want to pocket more cash these days.

ROSATO: That's right, you know. I mean, they're businessmen, too. And having just gone through it myself, and having gone through it, you know, this is not something you do every day, so you really have to understand the language that they're speaking to you.

HARLOW: So, what if your contractor says I don't have any wiggle room on this price, this is the final price. What do they really mean by that?

ROSATO: What they really mean by that is that they would actually like you to pay the prices they could have charged you a couple years ago when home prices were doing really well. But the fact is today the best contractors, even the best contractors, even top contractors have had to lower their prices 10, up to 40 percent because of the real estate slump. I mean it's partly supply and demand, but their material prices have gone down, too.

So you don't have to pay the prices that you would have paid a couple years ago. But here's how you handle that situation when a contractor says no wiggle room, you say, well, I'm going to get a couple of bids from several contractors and let them know you want to negotiate, that price is important to you.

HARLOW: Talk about competition out there. What if they tell you I need money up front for my materials?

ROSATO: Well, this is a red flag because most contractors actually, with their suppliers, get 30 to 90 days to pay for their supplies. So, this is a sign that either their credit has been revoked or they're behind on their bills for something else. You never want to pay up front for a whole job anyway.

I mean, there's no reason you should pay up front for your materials. The best solution, offer to pay 10 percent of the materials price and if they balk at that, offer to pay the supplier directly yourself, at least you know what you're going to pay for.

HARLOW: That is a great point. I didn't even know that they didn't have to pay the supplier right away. That's a great point.

You know, you have to get permits for any even little thing that you do to your home or your apartment. So, what if your contractor says to you you're going to save on property taxes if you skip the permit for a small job because of course they get a permit, an inspector comes in, that can make your taxes goes up. So, if a contractor says that, what should you say back or what do they mean?

ROSATO: What they mean is that their life is going to be a lot easier if they don't have the hassle of going through a permit. But, one, you should just be worried about them cutting corners on anything. If they're going to cut corner on permits, what else might they be cutting corners on? Stick by the rules, do the right thing. and if your contractor balks, you probably need another contractor.

HARLOW: Have to play is play it safe. Good advice. Donna, thank you.

ROSATO: Thanks, Poppy.

HARLOW: Well, we all need to play it safe when it comes to our emergency funds. The good news is that on the whole, folks, we are saving more these days. The bad news is that your money probably isn't offering you the returns that you would like to see. Whose is? So, you know, the big question is where can you stash your cash to make more while playing it safe.

Jack Otter, the executive editor of MoneyWatch.com, here to tell us that.

Thanks for being here, Jack.

JACK OTTER, MONEYWATCH.COM: Great to be here.

HARLOW: High-yield savings accounts. Is that a good choice?

OTTER: Absolutely. The funny thing is that the best solution might be right down the street. Local banks, you know, in smaller communities, don't have the marketing muscle of mega banks so they way they attract deposits is offer more higher rates.

HARLOW: Really? So, your local community bank may be bigger than they global banks.

OTTER: Absolutely, absolutely. So, you can do almost twice what you can do at say Citi or a Bank of America by finding community bank or a credit union often can do even better, about 1.4 percent, sometimes 1.5 percent. That ain't great, but you're doubling your return.

HARLOW: What about a reward checking account? Is that a good bet for safe, kind of big return.

OTTER: These things are amazing. When our reporter at MoneyWatch came through with this, I literally had to go look it up to see if it was actually true. Four percent on a checking account. I mean, my checking account I get about 25 cents a month. Why do they bother?

Now, there is a trick on this one. You have to swipe your debit card, depending on the offer, maybe 10, 12 times a month. So, if you're used to paying for gas and groceries or credit card, no problem. And you have to make direct deposit. And if you don't follow the rules, goes down to .25 percent.

HARLOW: OK, four percent return. That's huge right. Now, I know there are some CDs out there, certificates of deposit, that are pretty good yields in terms their yields, right now.

OTTER: The catch-22 here is, you got to lock your money up, so yes, you can get three percent in a five-year CD, but if interest rates zoom higher, in the meantime you're going to be stuck getting three percent. Or if you need it for an emergency, then you pull it out and you get hit with a six month penalty, you lose six months worth of interest.

So, I love this one, Allied Bank offers 2.94 percent and only a two month penalty. So that's a pretty good risk reward if you do have to take it out, you lose two months.

HARLOW: Of the interest.

OTTER: If not you are making nearly three percent FDIC insured, it's better than Treasury bonds.

HARLOW: Jack, thanks for joining us.

OTTER: Great to be here.

HARLOW: We appreciate it.

Well, the must-read article this week on CNNmoney.com, folks, it is also about your savings. In his "Ask the Expert" column, our senior writer Walter Upgrave, explains how to save a million bucks by the time you're 65. Check it out.

But up next, right there this morning, overlooked tax savings hidden in every day summer activities. We'll be back with them in just 90 seconds.

(COMMERCIAL BREAK)

HARLOW: Well, most folks don't think about saving on their taxes until that deadline is right around the corner, but our next guest has some tips to put into play right now that are going to save you big time come April. Matt Becker is a partner at BDO, an advisory and consulting firm, and he joins us now from Grand Rapids, Michigan.

Thanks for being here, Matt, we appreciate it.

MATT BECKER, BDO: You're welcome, Poppy. Thanks for having me.

HARLOW: Well, you know, your home it's your biggest investment, probably, and you can really take advantage of it when it comes to your taxes especially if you live in a touristy area. Right?

BECKER: Absolutely. And this is one of the rare opportunities to make some money and not pay taxes on it. As you said, if you live in a tourist area, for example, near a golf tournament or an auto race, the internal revenue code allows you to rent your home for up to two weeks and not pay tax on the income you receive for doing so. So, if you can rent your home for $5,000 a week for a couple weeks, you have $10,000 tax-free to spend on your vacation.

HARLOW: What about, you know, a lot of people are doing home improvements right now, especially if they're trying to sell their house, renewable energy, putting solar panels on or even insulation. Little things you can do this summer, your summer home projects that are going to save you on your taxes. Right?

BECKER: Absolutely. Congress was nice enough to extend into 2010 a tax credit for energy efficient upgrades to your home. That can be windows, doors, heating and cooling systems, air conditioning is a big thing in the summer. A lot of times people's air conditioners go out. It's important to remember that this tax credit is available.

HARLOW: This is one I had never heard of, Matt. I don't even know if I believe it. But I'm sure you'll prove me wrong. You can get a tax break for sending your kids off to summer camp? BECKER: You actually can. You know, we all think of summer camp as being something recreational for our children and it most certainly is. But the important thing to keep in mind is that if you're sending your children to a day camp while you're working, the cost of that day camp can be included in your child independent care credit just like the cost of a daycare center or in-home daycare, it's actually what you're accomplishing by sending your kids to camp.

HARLOW: Wow. That is fascinating. I never knew that one. And, also for folks that are getting summer jobs, whether they're students or people picking up some extra shifts over the summer, they really have to know if they're a full-time employee or an independent contractor, right? -- when it comes to tax season because that's going to make a vast difference on what you pay if your taxes on that income. Right?

BECKER: Yeah, absolutely. Independent contractors and employees are treated very differently for tax purposes. First of all, if you're an employee, your employer is required to withhold federal income tax from your paycheck, so you won't have to pay that amount in April when you file your tax return.

Furthermore, the employer, if you're an employee, is required to bear the cost of half of most payroll taxes, like FICA and Medicare. So, if you're treated as a contractor when really you should be treated as an employee, you might end up paying those taxes yourself even though you thought you weren't going to have to.

HARLOW: I know, I went through that once. It's very important to know. Great advice today, Matt. We appreciate it, thank you.

The simple truth a few key numbers can make or break your personal finances. We're going to tell you what they are and how to fix them, coming up next.

(COMMERCIAL BREAK)

HARLOW: Three-hundred-seven, 3510. No, I'm not calling out a football play or announcing this week's lottery numbers, these are pretty important numbers, folks, that can make a big difference when it comes to YOUR BOTTOM LINE. Here to tell us how these numbers could make or break your finances is John Simons, personal finance editorial director for "Black Enterprise."

Thanks for being here, John, I appreciate it.

JOHN SIMONS, "BLACK ENTERPRISE": Thanks very much for having me.

HARLOW: Let's start with 300. That number may shock people. Why is it so important?

SIMONS: Three-hundred is the absolute nuclear devastation that a bankruptcy filing will do to a person's credit score. It's really important because you should know before you file for bankruptcy that it's going to really inhibit your ability to make your way in the financial world for at least 10 years. HARLOW: At least 10 years. It's going to stay on your record for that long. Number seven, why is that important when it comes to bankruptcy?

SIMONS: Seven is the number of years that a debt settlement will stay on your credit report for. So, you know, whenever you go to the bank and you're looking for a loan or whatever, that settlement will stay on your record for seven years.

HARLOW: Thirty-five percent. That's an interesting number, but it is very important for people when it comes to what they spend on housing. Right?

SIMONS: That's right, 35 percent is the portion of your income that should go towards housing, whether it's your mortgage, or whether it is your rent and that includes utilities and property taxes, all the bills, all the carrying costs for that home.

HARLOW: Ten percent. That's another important number for people to know. Why is that?

SIMONS: Ten percent is the amount of your income that should go into savings each year. That's what they recommend at BlackEnterprise.com and it really is a sort of manageable amount that you should put into, not the bank, but into invested money that's sort of working for you at a higher rate of return than you would get with a bank.

HARLOW: Sure, and it's hard for a lot of folks to do that but it will pay off for them big time especially if they're cautious in their investment and invest by their age and are careful about how they distribute that 10 percent. Finally, number two. Simple number two but very important when it comes to controlling your spending, controlling your debt.

SIMONS: Yeah. And this may be a radical number for some people. It's the number of credit cards that any individual, any one person should have. And the reason that we're recommending this is because, you know, we all have busy lives, we all have a lot of bills that we need to pay every month. And why hamstring yourself with more credit cards than any single person can reasonably manage. And that's really what we think the number two is all about. Two credit cards per person.

HARLOW: Two credit cards per person. All the way from 300 down to two. An important list of numbers. Thanks so much, John.

SIMONS: Thank you very much.

HARLOW: We appreciate it.

Well, now that you've got the numbers to keep your finances stable, when it comes to money issues and your mate, sometimes logic and reason just get thrown out the window. Whether it's the check at dinner, the rent or your debt, who pays for what and how much, big, but questions. Manisha Thakor is the author of "Get Financially Naked," she joins us now.

Got to love the cover of your book. Thanks for being here. You know, first question, you just start dating someone, you get the bill at dinner. Who pays? What's right? I feel like I would always rip out my credit card and try to pay for half.

MANISHA THAKOR, "GET FINANCIALLY NAKED": Poppy, it's the most loaded question in dating and it's kind of like when you have your first kiss. There's no right answer. What I like to say, for the first three, five, 10 dates, whoever asks is the one that should pay.

I feel if you have a strong urge to offer, go ahead, but certainly once you think that this is the person you are interested in having an ongoing relationship with, sit down and say hey, I want us to have fun together in a way that doesn't stress either one of us out.

HARLOW: Right, because you can be thinking about that through dinner who's going to pay for the bill. If you're in a more serious relationship, one person may make more money than the other, that often happens, then how do you deal with those bills at dinner?

THAKOR: Increasingly that situation is coming up with layoffs and downsizing. And so, what I tell people is just talk about it. There are a couple different solutions. You can alternate, you can split, you can pay proportionally. If one person is making $70,000, the other is making $30,000, the person making almost twice as much can pay two-thirds of the bill. You work it out together and the way you talk about it with each other will tell you a lot about your financial path.

HARLOW: It's true, you have to be able to talk about these things. Paying down debt or who has how much debt. That is a really touchy issue for people individually and especially with their mate. You have to be up front about it. How should that conversation go, when should you be open about that or ask your partner about that?

THAKOR: Poppy, so I tell people if you're willing to take your clothes off with each other one way you should be willing to take your clothes off each other financially. And I mean that in all seriousness, because debt is one of those things that comes into a relationship like a propensity to snore or in-laws (INAUDIBLE), so you want it up front on the table, not to judge each other, just to know from where you start your relationship.

HARLOW: Not a romantic topic, debt, but you've got to talk about it. Also, you know, when you look at the amount of people that live together before they get married, it's huge, about 6.7 million people according to the University of Virginia's National Marriage Project, so you know, you making that step, you're move in with someone, you're not married, you're not engaged.

What do you do about the rent? Do you split it down the middle if you make different amounts of money? I have friends that deal with this all the time. THAKOR: This is another hugely controversial subject. So, my feeling is this. If a person owns a home and someone else moves in to that home, and half the mortgage would be equivalent to the rent that they would be paying elsewhere, there's a very straightforward situation, it makes total sense, if the renter is not interested in buying their own home.

HARLOW: Co-signing on loans, leases for cars, a house, et cetera, it's complicated enough if you're married. What about if you're not married? Should you really put your signature down and be responsible for half of that loan?

THAKOR: Poppy, I am so glad you asked that because a lot of people I'm seeing are doing that because they're kind and they want to help. But debt lasts forever even though your relationship may not. And if you co-sign you are on the hook. So I say don't do it unless you are willing to pick up that entire debt in a worst case scenario.

HARLOW: And that's also how your mate responds to that. If you say no he is going to tell you a lot about that person.

THAKOR: Exactly. Exactly. These questions are very telling and we're not encouraged to think about financial compatibility as a component of our relationships, but it's key.

HARLOW: We're supposed to think about he called or he didn't call or he's just not that interested. Yeah, but this is much more important. Manisha, thank you.

THAKOR: Thanks Poppy.

HARLOW: Thank you.

All right, well, they say if you want something done right, do it yourself. We've got the tools you need to fix up your home, straight ahead.

(COMMERCIAL BREAK)

HARLOW: Well, so many homeowners these days, looking to save a buck or two by doing their home improvements themselves. And you can do it yourself. Our next guest has some great tools to make your DIY project sweat free, not sure about sweat free, but Amy Matthews is a co-host of "This New House" on the DIY network. She joins us now, again.

It's great to have you here.

AMY MATTHEWS, THIS NEW HOUSE: It is great to see you.

HARLOW: I try and to do all this stuff myself in my tiny apartment. So I don't have that much to do, but when it comes to your bathroom, you can make it look a lot better not in an expensive way, right?

MATTHEWS: For sure. Changing out your fixtures is one of the most basic things you can do, it's easy and the one that I brought today is kind of cool, because it gives you the best of both worlds. Instead of having a regular stationary shower head, this is actually a handheld, but it attaches right here to the existing stub-out from your pipe.

And all you have to do is takes a wrench, I actually use two, one to stabilize the existing pipe and one to take off the old one. You put a little Teflon tape on that nozzle and then you screw that right on and this sits right where your old one did and it's got -- this one's got four different jets in it, so you...

HARLOW: Rain shower.

MATTHEWS: Exactly, it's got a rain shower, whatever you need, you need a good massage, you need deep tissue, this thing will do it for you. Forget the massage therapist.

HARLOW: It looks great, not expensive. Paint can really add to a big house or a small apartment.

MATTHEWS: That's huge.

HARLOW: People have a hard time choosing the right color, though.

MATTHEWS: People ask me that all the time. In fact, two days ago someone said, how do I choose the right color, I'm so confused. And this thing does it for you. So, this is called a color helper. Actually I am putting one in my tool box, because I'm going to use this all the time. It costs about $180.

But what it does is it gives you advice, it gives you suggestions and it has an unbelievable array in the computer system of all these different colors. So, what you do is you turn it on, you'll press it on one of these fabrics. Let's say you want to match that particular couch.

You'll press it on there and then it'll give you -- it'll tell you what that is and then it'll give you suggestions. Like I'll press on this one and it'll give me a big thumbs up and say those two go together, for sure. It thumbs up the (INAUDIBLE).

HARLOW: It thumbs up, that's great.

MATTHEWS: And if I've done something that was not advisable, it would give me suggestions. It wouldn't say, bad idea.

HARLOW: You can be color blind and that's very important. Sometimes people just can't match things up in the house.

All right, we have a special treat for all of our viewers this morning. Let's pull it up, guys. Check out our dogs. My dog, bruiser. My bulldog, there. Christina's black lab, Tazzi (ph) and of course, Michael's golden retriever, Baxter.

All right, we love our dogs but they are a hairy mess. And my dog hair will not go away.

MATTHEWS: I'm telling you.

HARLOW: So, what can I do myself to help.

MATTHEWS: I have a golden retriever and my mother terrified every time she comes over because there's dog hair everywhere. I can't keep up with it, so this is a new device, it's called the Roomba. And I hear that there's a little black lab that came over and shed all over the place just for us, today.

HARLOW: Not Tazzi, right? Come on Tazzi.

MATTHEWS: So this thing is a computerized system. It's a robot that sweeps your floor. You can set a timer on it so that it cleans your floor when you are gone. It goes around the floor and actually picks up the dog hair. Hopefully, you dog doesn't shed that much or it might have an issue.

(LAUGHTER)

HARLOW: So, it works really well, you think?

MATTHEWS: Yeah, and it actually has a censor that tells you when it is clean. It goes through and tells itself when it is clean.

In my house, it actually has a sensor that tells it when it's clean. So it doesn't just make one path and then be done, it actually goes through it and it tells itself when it's clean.

HARLOW: In my house, it's always an argument over who's going to vacuum the dog hair (INAUDIBLE). I'm getting that next.

That's great. All right, also, all of these tools out here, they look really expensive and I don't know if I need them, but I kind of do, right?

MATTHEWS: You kind of do. There's a kind of basic set of tools that you need for big home improvement projects. Now, if you're going to be putting up, you know, pictures and doing a few basic changes in the house, you can use, you know, get a basic drill like this one. But Riches is one of my favorite brands. I actually have this exact set in my house that I use in my tool room, it's all orange and black.

But this set comes together. It is a little under 500 bucks and it's got everything you need for the basic projects.

HARLOW: They're hard core, I mean, you only have buy these once in your life.

MATTHEWS: That's the key. You don't want to have to replace your tools, especially as a homeowner. You shouldn't have to be recycling your tools. But they come with a removable battery that is rechargeable, a charger. They come with three different batteries on this, which is great, so you don't have to be charging all the time. It's got your basic drill, it's got an impact driver over here. Even comes with a radio.

HARLOW: I don't even know what an impact driver is, but I believe you.

MATTHEWS: I will show you how to use one. And then a reciprocating saw, a circular saw and this one little light, which I absolutely love, because you never know when you're going to be working in weird spaces, right?

So, this is kind of the perfect tool case that all comes in one for any homeowner. And it is also kind of a nice gift.

(CROSSTALK)

HARLOW: A great wedding gift.

MATTHEWS: ...a new place.

HARLOW: That is a great gift, all do it yourself. I'm getting the Roomba this weekend.

Amy, thank you, as always. We appreciate it.

MATTHEWS: Thanks so much.

HARLOW: All right, last but certainly not least for us this morning, the top consumer complaints of 2009. Plus, what you can do about them. It's our "Free for All," it's coming up next.

(COMMERCIAL BREAK)

HARLOW: At long last, the list you have been waking for, maybe not, but here it is, just out this week: the top consumer complaints in 2009. Generating the most complains for retail experiences, problems with utility companies and home improvement or construction woes taking the No. 2 spot, credit or debt mostly comprised of billing fee disputes and finally the top spot on that list, car-related complaints, once again, coming in at No. 1.

Among the frustrations, misrepresenting vehicles for sale, faulty repairs and also issues with leasing and towing disputes. If you want to see the full list, you can head to CNN.com/YourBottomLine, check it out there.

But we want to help you, this morning, so what can you actually do if you've tried and tried again and are finally just feeling tired and need to get some professional involved to help you out with one of these disputes? Well, there's a lot of folks that you can contact. The Federal Trade Commission, that's the nation's consumer protection agency. They collect all these complaints about companies, businesses, practices and identity theft. They can help you out.

You can also contact the Better Business Bureau with your complaints. They're going to forward those to the appropriate law enforcement authorities. You can also, of course, contact your state attorney general's office for help. A lot of help out there. Well, that's going to wrap things up for us this morning on YOUR BOTTOM LINE. Don't forget to tune into YOUR MONEY with CNN chief business correspondent, Ali Velshi, it is today at 1:00 p.m. Eastern. But right now, it's time for a check of your top stories, this morning. CNN SATURDAY continues, right now.