Running totals made in cash flow so far (2017-2023)

 

This is the summary from the start to the current time. 

I started experimenting with the markets in 2011. Until 2016 (including 2016) I lost $42,000 in total. 

The first year with profits larger than losses was 2017. 

Since 2017 all years were positive. 

The $ are all rounded up or down to have round numbers.
Included are realized profit/loss, dividends and interest (only "cash flow", no unrealized gains or losses are included).  

2017: $49,000

2018: $146,000

2019: $143,000

2020: $53,000

2021: $79,000

2022: $71,000

2023: $160,000

Total so far: $701,000

Something is very fishy - Is my IRA double taxed?

 

Something is very fishy... I have a strong suspicion that we are double taxed on our ROTH IRA contributions. 

We are using the "back door IRA" by contributing to the traditional IRA and immediately transferring the contributed amount to the ROTH IRA. 

We have two traditional IRA accounts for this purpose. However, my account has $0 in it. My husband's account has about $25,000. That was transferred there from the pervious employer's 401k after he changes jobs. 

This year I noticed that $5,062 of the AFTER TAX contributed $7,000 to the back door ROTH IRA were taxed again. 

I went back and saw that similar amount was taxed in the previous years since the 401k money was placed into the traditional IRA. 

The main point at which the double taxation happens is this: 

Yearly contribution is placed and the pro-rated amount is taxed.
However, the prorated amount for the following year still contains the amount contributed in the previous year.
It is never removed from the calculations and it is counted every following year again and again.  

The below calculation is not for the faint of heart. I tried to explain my findings to the 401k advisor, but he insisted that there is no double taxation. But I am still convinced that the double (and possible even triple) taxation happens. 

This year: 2024

Traditional IRA $25,279

Back door ROTH contribution $7,000

Taxed was $5,062 of the $7,000. 

The $7,000 went immediately to the ROTH. The amount in the traditional IRA stays the same at $25,279 and will be the same at the next years calculations. The taxed $5,062 are still inside the traditional IRA. 

It is difficult to explain. In other words,

That means that next year:

At least the same amount will be used in the pro-rata calculation and will be taxed again. And when traditional IRA grows bigger, the non taxed amount will be smaller.

Since the taxed money is not taken out of the traditional IRA, the same $25279 will be considered as "contributed before taxes", when it should be only $25279-$5062=$20217.

But the next year the calculation will be done with the same $25279 or with larger amount if it grew.

 

So for the ease of the calculations, let's say 

The traditional IRA balance is $100,000 and the yearly ROTH back door contribution is $5,000

Roth $5000 comes in for 2024. Based on the pro-rata rule:

After tax Roth contribution amount ($5,000 is divided by the total IRA balance (traditional IRA balance on Dec 31 previous year balance plus this Roth contribution $105,000). This equals the percent of this years Roth contribution which is NOT taxable. It is 4.8%, or  $240. The TAXABLE amount of this Roth contribution is $5,000-$240=$4,760

That means that after contributing to the ROTH AFTER taxes you pay the taxes AGAIN on most of the same contribution, on $4,760. 

IRS says that this is because the contribution is pro-rated to the amount of the previously established traditional IRA which was contributed before taxes. So you basically pay those taxes on the portion of the already established traditional IRA which should be fair. 

BUT think about this...

1. Only the newly contributed $5,000 will be converted to Roth.

2. Taxes will not be paid from either Roth or traditional IRA accounts.

3. The traditional IRA account amount stays the same and the now TAXED $4,760 is not removed from the traditional IRA and for the next year's pro-rating this amount is STILL in the IRA. 

4. Let's say the traditional IRA amount didn't change during the year. The following year you want to do another $5,000 contribution and immediately convert it to the Roth IRA. 

The calculation will be exactly the same as last year since the taxed $4,760 was not removed from the traditional IRA. The pro-rata calculation will give you the same result and you will be taxed on the same amount the following year. For the year after that the taxed amount is now S4,760 x2. The amounts are still in the traditional IRA account and it looks like $4,760 was taxed twice in two years. But it seems to be worse. Only the second year's $4,760 is taxed x1 but the previous years $4,760 is now taxed x2 and it is all in addition to those amounts being contributed AFTER taxes. 

To me it looks like in the second year your first year's contribution is taxes x3 and the second year's contribution is taxes x2. And every following year the amounts will be taxes multiple times, because they are not removed from the IRA and stay in the pro-rate calculations.   

Since the amount in the traditional IRA did not decrease by that $7000 (the amount supposedly coming from the traditional IRA, taxed at 37% and moved to Roth), next year those $7000 are still staying in the traditional IRA and will be taken into the tax calculation again.

So basically an individual in a high income bracket will keep paying the 37% tax each year on the ROTH contribution as a back door TWICE. Each year.

To fix that I converted the entire traditional IRA amount to the ROTH IRA this month. 

This way the amount in the traditional IRA at the end of the year will be $0 and there will be no pro-rata calculations and no double taxation. 

Happy 50!!!

 

Wow, 50 already. That is old.  I feel like the tree in the picture above. Is the sun setting already? I hope not yet. But you never know when or how... unless you are PKD (Philip K. Dick).

AARP keeps sending me mail trying to get me subscribes to get the "attractive" senior discounts. 

My father retired with 52 and started his own business. My mother retired with 50 and is now retired for over 20 years. She likes that. 

I don't feel like retiring yet. 

Maybe it is part of getting older but at my current age I know that most of my decisions are correct and my own advice is more useful to me than advice from others.  

My sister is moving back to Russia. Not a wrong decision, since it is better to live in a strong country than in a weak country. Germany is weak and is getting weaker every day. There are not many strong countries to pick from to move to. USA, Russia and China. China is out of question for obvious reasons (not only the language). So only two left to pick from.  

Germany is introducing the 4-day work week and my sister is not winning: She works 4 days a week but her shift was made longer and the vacation days are reduced so that she actually owes some vacation time back to the hospital. 

I wrote enough poems for a small book. If I publish, it will be under a pen name. At 50 I am still very paranoid.  

Credit freeze is needed more than ever

Multiple companies are getting hacked daily (link to the table 2004-2024 breaches in Wikipedia). 

Just the recent AT&T breach - we are not current customers, but per reports, even the data of previous/old customers was taken. 

It is getting too much. 

Last week, instead just keeping fraud alerts, we changed the status to FREEZE at all three credit agencies (Experian, Equifax and Transunion). 

To keep a freeze is free and it doesn't need to be renewed yearly like the fraud alert. 

Also with a fraud alert it is still possible for some one else to open a new account in your name, but the freeze has to be temporarily lifted for a bank to be able to check the credit score to open a new account. 

Since we don't plan to open any new bank accounts or credit cards, it is best for us  to keep the freeze. 

The links to official credit agencies sites are below:

Transunion

Equifax

Experian

College account calculations - will $100,000 be enough?

 

This months our college fund 529 account reached $100,000.

Will that be enough for college? 

Our daughter is 14 years old this year. She will start college when she is 19, or in 5 years. 

Let's see the costs of the local college and project the costs with inflation 5 years forward. 

Current 4-year college costs:

Local college costs per year are $26,997 (including $9,674 tuition and $17,323 in books and on campus room and board). 

Taking out on campus room and board and leaving generous $5,000 for books ect, the college costs per year are approximately $15,000. 

For the four years of college it is $15,000x4=$60,000. 

Now the inflation needs to be estimated to get the costs closer to reality. 

Projected costs with inflation:

With recent inflation going crazy, I will project higher than historic inflation (using inflation calculator).

With 5% inflation in 5 years that will be $76,567

With10% inflation in 5 years that will be $96,630

Hopefully the inflation will not be higher than 10%. 

Looks like with 5% or 10% inflation in 5 years time the sum of $100,000 should be enough. I am stopping the contributions. The balance will still be invested as "aggressive growth" for now, since I don't feel that the market will go significantly down this or the next year. As soon as I feel "uneasy", I will move all to cash (the same as I did in 2022). 

As a reminder to myself, there is no tax benefit for contributing to this 529 plan since we live in a state without state income tax. However, there is still the benefit of growing and withdrawing tax-free for qualified educational purposes. 

If I withdraw to use on non-qualified expenses, I will pay both federal income tax and a 10% penalty on the earnings. 

Update 5/2/2024

The federal government only allows distributions to pay for tuition up to $10,000 per year to pay for elementary and secondary schools. 

There is NO annual limit for college expenses. 

Remaining funds can be rolled over into the a beneficiary's Roth IRA, up to a lifetime limit of $35,000.

The rollover amount each year cannot exceed the annual Roth IRA contribution limit, which is $7,000 for 2024. 

Cash flow challenge update 2023

 

2023 was OK. 

The cash flow was about $160,000. Had to pay a lot of taxes on that and managed to underpay in the first quarter. Of course there was a penalty, luckily only $58. But still, I need to be careful next time. No one can't get away from this type racket, but at least I will try not to get double racketed.  

Tax advantaged account contributions for 2024 including changes for 401k catch-up

 

Contribution limits for 401k, 403b and most 457 plans are increased to $23,000.

For people over 50 - catch-up contributions are additional $7,500, but there are changes in 2024:

401(k) Catch-up contribution changes

Starting in 2024, if you are 50 years old with earned income of at least $145,000 in the previous year, you can make catch up contributions. The change is, the extra contributions will be after-tax, as Roth. 

So, there will be no tax deductions for the catch-up amount.  

UPDATE 10/5/2023: Catch-up contribution as Roth only is now postponed till January 1, 2026.

Traditional IRA and Roth IRA: $7,000.
For people over 50 - catch-up contributions are additional $1,000.

HSA: $4,150 for single and $8,300 for family.
For people over 55 - catch-up contributions are additional $1,000.

Home insurers are pulling out of Florida and California

 

Home insurers are pulling out of Florida and California 

Recently, the home insurance in Florida and California has increased significantly or is being cancelled. 

That will affect those

- who is buying or building a new house and

- who will renew the home insurance (which happens yearly).

The consequences are 

1. Some people will not be able to sell houses if the insurance for new buyers is too high.

2. Some people will not be able to buy/build a house for the same reason. 

3. And some people will not be able to stay in the house if the house is not entirely payed off and may have to foreclose.  

For a mortgage, banks/mortgage lenders require a home insurance. 

If a mortgage lender discovers that the insurance has lapsed/expired or is not renewed, the lender is allowed to buy one for you and charge you for it. This is called lender-placed or force-places insurance.  

The force-placed insurance usually protects ONLY the lender. But the cost may be double or more. 

The bank has to notify you 45 days before it charges you for a force-placed insurance. 

Watch out for the communication from your insurer. About one month before the renewal, the insurer will notify you of an increase. And the insurer has to notify you in advance, usually 3 month, if they will not renew your coverage.

To look up the insurers in your state  you can go to to the National Association of Insurer Commissioners. 

Most states also provide Fair Access to Insurance Requirements (PAIR) plans, which should offer the coverage in the areas where other insurances don't cover. Those plans usually cost more. 

In addition you can submit a compliant with the Consumer Financial Protection Bureau if you think that your insurance was wrongfully cancelled. I am not sure how much help will come from them, but they will forward it to the mortgage company and work to get you a response.  

What is a Central Bank Digital Currency (CBDC)?

 

What is a Central Bank Digital Currency (CBDC)?

Almost every country in the world is now in some stage of the preparation to introduce, to test or to use "central digital money". 

As usual, I am summarizing the information for myself in a form of a post, to understand it better. This one is not as easy. See it for yourself:

In the U.S. the CBDC, or Central Bank Digital Currency is a digital form of this new money. 

The money in this case is the liability from the central bank, or a digital balance held at the Federal Reserve. It is not held at your commercial bank anymore. 

In the case of CBDC the Federal reserve plans to make it widely available to the general public. 

At the present, there are two types of central bank money:
1) Physical currency issued by Federal Reserve (cash) and
2) Digital balances held by commercial banks at the Federal reserve. 

But the public already uses mostly digital money anyway? 

Well, with the CBDC, the difference will be that the CBDC will be the liability of the Federal reserve and not of a commercial bank you have the account with. 

Per Federal Reserve, (source: https://www.federalreserve.gov/cbdc-faqs.htm)

The Fed's reasons for introducing the CBDC are:

- To promote monetary and financial stability

- To expand safe payment options (and not to reduce or eliminate them)

- To improve the already safe and efficient U.S. domestic payment system

The potential benefits are: 

- Safety and liquidity of the central bank money

- Give a platform to entrepreneurs to create new financial products and services 

- Support faster and cheaper payments 

- Expand consumer access to the financial system 

The risks are (which, per Fed, should not outweigh the above benefits):

- It might affect financial sector market structure 

- Affect costs and availability of the credit 

- Affect the safety and stability of the financial system 

- Affect the efficacy of the monetary policy 

Per Federal Reserve, the CBDC should protect consumer privacy however at the same time it will afford transparency necessary to deter criminal activity.  

I am still trying to understand the details. The highlighted key words above in sections for reasons and benefits versus risks seem to contradict each other.  

New rules for medical debt influence on credit score

 

The new rules regarding medical debt are already in effect starting in April 2023. 

1. Medical debt will only be reported to the credit bureaus after one full year is passed and the debt is still not payed off. 

2. When you pay off the medical debt, the credit bureaus must remove the records of it from the credit report.

3. If the medical debt is less than $500, it is not reported to the credit bureaus. Per multiple reports it applies to any medical collection less than $500, so it sounds like the numbers are per single collection and not the total medical debt.  

Mother's Day wisdom

 

Mother's Day wisdom:

My 13 year old told me today about her mixed feelings toward the Mother's Day. 

She said that it feels fake to her, "If a child loves his mother, he/she will show it every day. Then there is no need for a special day to show the love. But if a child doesn't love his mother it will be very obvious every day, and one day in a year will be not only not enough to show love, it will also be fake because there is no love to show." 

I only had to agree...

House prices over time - the "humble" Warren Buffet's house example

 

According to multiple news outlet articles, the greatest investor Warren Buffet still lives in his "humble $31,500 house which he bought in 1958". 

I heard this several years ago but I never checked how humble that house is...

Recently I was watching a YouTube video related to an older true crime story from the fifties and a "$40,000 mansion" was mentioned, with images of a that particular mansion - a large house with pool and luxury features.  I immediately remembered the "humble" Warren Buffet's house and decided to finally check it out.  

Below is the Google maps image from his house.
It is actually a 6,570 sq. feet house!
Compare the size of the roof or the driveway to the neighbor's house below it and decide for yourself how "humble" that house it really is.
The house below has one car parked in the driveway and has space for one more. How many cars can park in the drive way of the "humble" house above it? 

 

But $31,000 really doesn't sound that much.

How does it look historically? 

Source: https://dqydj.com/historical-home-prices/

If I zoom in on 1958, the blue line (the nominal, non-adjusted for inflation) shows that the average house price in 1958 is below $20,000. Warren Buffet's house was clearly above average house price in 1958. 

Humble or not, the prices keep going up. 

If I calculate the price per sq. foot on Buffet's house, it is $4.8 per sq. foot.

If I enter the $4.8 into the inflation calculator for 1958, then the price per sq. foot in 2023 is calculated to be $50.13. In 2023 it is well above that: the costs to build a house are about $260-$300 per sq. foot. 

This means that the increase for house prices is significantly higher than the average inflation, whatever they measure... 

Source: https://www.usinflationcalculator.com/

Just out of curiosity, I compared some other things, like:

Funeral costs: The increase from 1958 to 2023: funerals now cost about $3,000 above estimate provided by the above calculator. 

Price per gallon of gas: $0.30 in 1958 and calculated $3.13 in 2023 is about at the same level. 

A pound of steak: it was $0.99 in 1958 and is calculated to be $10.34 in 2023. It is actually $14.99 as I checked this week (see my own food inflation "basket"). 

Is recession coming in 2023? Market behavior in times of high inflation

 

There are so many opinions on this topic! 

I have no opinion, because really I don't know. 

But since we have high inflation, I wanted to see, how markets behave during times of high inflation. 

This is the SPX chart for the last 100 years (from microtrends.net). 

The first graph is logarithmic, shows recessions in gray and  is NOT adjusted for inflation. It is just nominal price.  

I drew in yellow rectangular "boxes" where the SPX didn't move much up. 

I put the about 45 degree yellow lines between the boxes in areas when the market moved up. 

It is interesting that the boxes and the lines are similar size in duration. Looks like the market is going up in steps. 

In the image below, I highlighted the years with high inflation. 

One thing I can see that during times of high inflation the markets don't go up in a 45 degree line. They stall. 

Now, I compare it to a chart which is ADJUSTED for inflation.

The highlighted inflationary areas are declining, which means that the real returns are declining in times of inflation. But due to inflationary increase in prices, the non-adjusted returns are flat. 

By the way, officially the inflation in 2007 was 4.1%, which probably should be highlighted too. 

Based on this, the same might happen again. In times of higher inflation the markets will stay flat overall, but the real returns will decrease.

The image below is just a projection. Who knows what is going to happen. 

But if at least the nominal value will not go down much, will make it less painful to look at the the markets.  

Inflation rates - Making my own "basket" to check food inflation

 

Inflation is a beast. It eats up the savings and there is not much you can do about it. 

But is the inflation rate really that what they tell us officially? I have a feeling it may be higher. A very strong feeling...

So I started my own "basket". 

In the table below I have the products I mostly use. I will try to update at the beginning of each month. 

The prices are from Walmart, I will be checking the in the beginning of each month. It is easy and fast to do online.

Red is increase in price and green is decrease in price.   

2023

monthly

On the left: all items in red went up if I compare April (when I started to track) till December. 

The total of the basket in April is $74.18 versus $72.32 in December. 

2024

quarterly

Challenge "Cash Flow" update for 2021 and 2022

 

I was lazy in 2021 and did the minimum. The cash flow for 2021 was $79,000. 

However the 2022 was interesting. 

In January 2022 I started feeling uneasy and I went into 90% cash in February.
Then I was watching the market going down. 
Beginning February 2023 I started feeling uneasy again and went back into the market. 

I don't know what the market will do from where we are now, but I don't have the uneasy feeling at this time. The time will show if I can trust my uneasy feelings. 

The cash flow in 2022 was $71,000, mostly capital gains from positions sold in February. 

Socialism shows it's ugly face - Now mortgage borrowers with good credit history are penalized

 

Trying to escape socialism, I moved from Russia to the USA. I left Russia end of 90ties, many years ago. 

From my times growing up there, I remember how people who worked hard were punished. How we were pushed equality and equity down the throat. How nobody was allowed to be different or how difficult it was to be successful in an honest way. I remember the constant censorship and widespread corruption. How we had to worship the government and the system and how those who didn't were punished. 

I thought I escaped that. 

In the last few years I started feeling that the socialism starts to catch up to me again.
This week I realized, that it is here for sure. 

It is here in the US.
There was no revolution. It slowly and quietly crept in. And now it is here.

I knew the socialism is here, the day I heard in the news that the diligent savers who apply for mortgages, will be punished and their money will be given to the less responsible.

The news are: Mortgage borrowers with good credit will face higher costs, starting May 1, 2023. 

Per new Loan-Level Price Adjustment (LLPA) Matrix, borrowers with high credit scores will face higher mortgage fees and those with lower credit scores will face lower fees. 

I can understand how people, careful with money, trying to achieve high credit scores for years, feel kicked with a heavy boot in the gut. An additional effect: they don't just hate that boot, they now also start to look negatively at those who will benefit from that, even if those people have nothing to do with initiating this new rule. That is how the population morale goes down. 

The fee increase is significant. 

Someone with a $400,000 loan will pay $40 more per month/$480 more a year and $14,400 more over the time of the mortgage. 

But if your loan is $600,000 that will be higher. $60/$720/$21,600.

And if it is $1,000,000 - then you will be robbed of $100/$1200/$36,000. 

In addition to that there is another "kick":

The fees will be even higher if you have 15-20% down payment. 

And this is still not all. 

In August 2023 there will be an additional "boot kick" coming. 

Those with favorable debt to income ratio will get additional penalty for their responsible behavior.

After hearing it, immediately I had some thoughts that I need to research how to destroy my credit score in the most effective way but without personal financial damage.  But wait...

At this time, it is still not worth it to ruin your credit score for the mortgage application, because luckily, the responsible borrowers, overall, will still pay less. But the difference between lower and higher scores in their fee calculation schedule will be much smaller. So, I am not destroying my credit score yet. 

This is so sad. The socialism is here and I can feel it's breath of death. 

More things will be coming.  Insidiously more and more stupid decisions will be made. Like the new suggestion from the California. 
Three California utility companies (Southern California Edison, Pacific Gas & Electric, and San Diego Gas & Electric) submitted a joint proposal with the new rate structure. 

The households will pay on a scale based on their household income. 

Households with annual income $28,000-$69,000 would pay $20 a month in Edison territory, $34 a month in SDG&E territory and $30 a month in PG&E territory. 

Households with annual income $69,000-$180,000 would pay $51 a month in Edison territory, $73 a month in SDG&E territory and also $73 a month in PG&E territory. 

Households with annual income above $180,000 would pay $85 a month in Edison territory, $128 a month in SDG&E territory and $92 a month in PG&E territory. 

I don't know about you but if having a low flat rate for something, makes me to think less about how much I would use. Like lights and air conditioning in hotels. That is human nature and most people would stop caring how much they use. Those who will pay less, will not care and those who will pay more may be resentful and use more too. What do you think? 

So the usage will go up across the board and they will have to increase rates.
I will watch what will happen to them and will put them on my Do not trade list, tickers EIX (Southern California Edison is part of Edison International), PCG and SRE (San Diego Gas & Electric is parts of Sempra). 

Advantages and disadvantaged of credit and debit cards

 

First, is it good to have any card at all, either debit or credit? The general rule is that only people who can handle cards with care and discipline, will use them to their advantage. 

Therefore, all advantages for both card types apply to more disciplined individuals, who don't usually suffer fits of impulse buys, who do care about paying bills on time and who don't forget or leave their cards around unattended. 

Advantages of credit cards (only if monthly balance payed in full every time)

1. Using credit card regularly builds your credit history
A long and good credit history will help you to qualify for car loans, mortgages or other forms of credit with better terms. 

Low credit utilization ratio is a major factor in calculation of the credit score. Using $500 of a $3,000 limit will give you better result than using $500 on a card with $1,000 limit. If you card is in good standing you can call and ask to increase your limit. Many times the issuers send emails with offers of limits increase.

2. Fraud protection
If your credit card is lost or stolen, you are not liable for unauthorized use if you report it promptly to the credit card issuer. 

3. Cash back or rewards
Many cards offer various percentages of cash back or rewards for use, depending on the program. 

4. Purchase protection
Some cards reimburse you for purchases which were lost in mail or stolen within a certain period of time.

5. Extended warranty protection
Some cards offer extended warranty on various products, depending on the program.  

Disadvantages of credit cards (for the less disciplined)

If you don't make your credit card payments on time:

1. You will be charged late fees

2. You will be charged high interest on outstanding debt

3. Your credit score will go down because of unpaid balances and of increasing debt-to-income ratio and bad credit utilization ratio

Credit card versus debit card

Ba aware that credit cads are not the same as debit cards. 

Credit cards accumulate the transactions for a month, at the end of which the statement is generated. Setting up an automating payment is a good option to make sure the bill is payed on time. 

Debit cards are connected directly to your checking account and the money is taken out within moments of the transaction. When the money is gone from the account it is very difficult to get it back. 

Only some debit cards have limited fraud protection and it is not as good as with the credit cards. 
Lately many issuers offer a lock/unlock feature using their phone app. It is safer to keep the debit card locked and only unlock it temporarily if you need to pull cash from the ATM. 

Most common banking scams

 

My daughter will be a teenager soon and I received an email from Fidelity with an offer to open a youth account for her. 

Sure, it is good to learn financial basics starting earlier than later. Especially the traps and pitfalls like banking scams should be learned first. It reminds me of my first trip to Germany when my German was almost non-existent. Before my trip I bought a book of "German Swear Words and Bad Language" and learned that first. I thought as long as I don't hear anything of that bad language spoken to me, I will be fine, even if I don't understand much. 

This post is specifically about the recent most common banking scams. Reading this post will be my girl's first "homework" related to her new bank account. 

1. Phishing

Scammers send convincing-looking emails, text or phone calls that appear to be from a bank or financial institution, asking the recipient to click on a link or provide personal information, such as account numbers, passwords, or Social Security numbers. 

Never click on links or open attachments from unknown senders, and be vary of urgent or threatening messages. Always check the sender's email address or phone number. Don't trust the phone number, they can be faked. Best is to get the original customer care phone number for the secure legitimate bank web site and call them directly to check if there is any issue. Don't use links of phone numbers ion the suspicious email or text. In case of a phone call, hang up and call the official number. 

2. Account Take Over

Scammers gain access to a victim's bank account by stealing login credentials or using malware to obtain access. They make unauthorized transactions or changes the account information. 

To prevent account take over, use strong, unique passwords and enable multi-factor authentication if possible. Regularly monitor the accounts and immediately report suspicious activity. 

3. Card Skimming

Skimmers are small devises illegally installed on ATMs or point-of-sale terminals (like gas station or self-check-out station at a store). They very small and not very noticeable. During use they steal credit or debit card information. 

To avoid skimming, be cautious of ATMs that  look suspicious or have loose parts. Always cover the keypad when entering the PIN. Check bank balances regularly. 

4. Fake Checks

Scammers will send fake checks, asking to deposit the check. They may say that the amount on the check was too large, by mistake, and they "may get in trouble with their boss" and ask you to wire part of the money back to them. The wired money is transferred fast out of the account and a few days later the fraudulent check bounces.  

Scammers may also claim that you've overpaid, won a price or they "hire" you as a mystery shopper.  

In most cases you are liable for the money received from a fake check. If you spend it before the check clears the bank will get it back from you. Your account can be flagged for suspicious activity and even frozen. 

To avoid, make sure the check is from a legitimate source. No one will send you a check just like that, with no reason.  If you have the suspicions, let the bank know and wait for 30 days to have the check cleared definitely. 

5. Charity Scams

Scammers will contact you and ask for donations to a charity that doesn't exist. They may also ask you to provide your personal information, such as your bank account number or credit card number, so they can make a donation on your behalf. 

Don't donate to charities that you're not familiar with. Instead, go directly to the charity's website if you want to make a donation.

6. Imposter Scams

Scammers will call you and pretend to be from your bank, the IRS, or another government agency. They'll ask you for personal information, such as your Social Security number or bank account number, to "verify" your identity. 

Don't give out any personal information to someone who calls you unexpectedly. Instead, hang up and call the company or agency directly to verify the call.

7. Lottery and Sweepstakes Scams 

Scammers will contact you and tell you that you've won a lottery or sweepstakes. They'll ask you to pay a fee to claim your prize, but the fee is just a way for the scammer to get your money. 

Don't pay any fees to claim a prize that you've won. Instead, contact the lottery or sweepstakes company directly to verify that you've won.

How to get your money back if you never receive your item

 

About a week before Christmas I was in a very Christmassy mood. 

I was watching some videos on YouTube and an add appeared. It showed beautiful furry winter gloves with cute foxes. The exact gloves are in the image above.
I wanted to buy them immediately and thought, YouTube probably checks companies who advertise on their site. I was so wrong!

I ordered the gloves and received an email from the merchant giving me a tracking number.  After 3 weeks I got the update that the item was delivered. 
Only the item was never delivered.
On the same day I received a small package with a very, very cheap costume jewelry ring in size 10. 

My daughter was very disappointed. She asked me, how I, usually so careful, fell for a scam? 

After getting over the rotten feeling of being scammed, I did some research. The website existed, but if you wet to "Contact us", there was no phone number and no email address.
They gave a physical address somewhere in Netherlands and when I plugged the address into the google maps, it couldn't be found.
Then I googled the store name and "scam" and the store was mentioned on a website www.scamwatcher.com, with a few people describing the same problem.

The signs were there, I just never checked them. Trusting Youtube. 

What to do?

The return was out of question. 

I called the credit card company, explained the situation and they emailed me a link to file a claim for order which was not received. 

I also asked the credit card support person, if I now need to replace my credit card, since the scammers got my card number. I was told, most likely no. There was no fraudulent activity since the order was placed and I just should  monitor.  

On the online form, I described what happen in the appropriate field.
My explanation was very short, because the field was small. The form said that I will be contacted if they need more supporting information. 

A week later the charges were refunded without any additional questions. 

For the next time I am in Christmassy mood and want to shop spontaneously, my plan is following:

1. Don't just trust advertisers on YouTube. 

2. Pay with Paypal, the process of refunding and reporting scam is easier and the scammers will not get your credit card number. 

3. If the merchant appears suspicious, google if anyone had bad experience with them.

If something still went wrong:

Call the credit card company and explain. They will ask you if you tried to solve the issue with the merchant.
In my case I was not able to contact the merchant. That counted as a try.

Usually, if the merchant is legit, they will try to solve the problem if you mention that you will use charge back. They don't like chargeback, because of the penalties. The penalties for the merchant range from $15 to $50 per transaction and can even reach $100 if the merchant is considered to be high risk. 

 The charge back is used can be used for:
- an unauthorized transaction
- if you were charged twice
- being charged after cancelling a recurrent service
- you were charged incorrect amount
- you never received the item
- the item you received was significantly different from described  

Submit your dispute to the credit card company in writing. Lately it is easier with the online forms. The claim must be submitted within 60 days with most credit card companies. 

If your claim is rejected you can

1. Appeal the decision. You have 10 days for that. 

2. If your appeal gets denied, file a compliant with the CFPB (Consumer Financial Protection Bureau). The company will have 15 days to respond after the CFPB contacts them regarding your complaint. 

3. Last resort is to get a lawyer. This might be worth only with large ticket items.