Archives for August 2006

Top 3 Alternatives to the Citi Dividend Card

Bah. I still haven’t gotten my cancellation letter from Citibank regarding the discontinued Dividend card. I don’t want to assume, but I think it’s likely just a matter of time. According to the people who have the letters, you still get 5% until October 13th, so another month and a half. Here are what I see as the top 4 3 current alternatives, in no particular order as each has it’s own pros and cons:

1) HSBC Direct Rewards Card

Pros: 5% back at groceries, gas, and drugstores with $500 annual cap. 1% back on purchases over $3,000.

Cons: Rewards only paid out annually. Only 0.5% on first $3,000 of purchases. Relatively unknown card issuer. People report having FICOs of above 700 and still being denied.

2) Citi Driver’s Edge Platinum MasterCard

Pros: 6% back at groceries, gas, and drugstores with $1,000 annual cap. 1% back on all other purchases. You also get Drive Rebates of $100 for every 10,000 miles driven, increasing potential cashback to over 7%.

Cons: Rewards redeemable in cash only towards car expenses (tires, repairs, parts, etc.) or student loans. Otherwise redeemable as gift cards or gas cards. 6% only for first 12 months, 3% after that.

3) Chase Cash Plus Rewards MasterCard

Pros: 5% back at groceries, gas, and drugstores with $300 annual cap. 1% back on all other purchases. $50 bonus after first purchase.

Cons: I thought they killed this card. Like the Citibank card, there is no mention of it on the website. This specific application link appears to work, although it is unknown if the rewards on this card will also become extinct in the near future.

I already got the Citi Driver’s Edge card before all this Dividend doom and gloom, so I’m already switched. It’s working out well since I’ve already sent in my first mileage documentation and I’m going to be driving a good deal this summer. According to my calculations, I’m getting over 7% cash back due to the mileage rebates. Instead of trying to time it to get free tires, I’ll probably just take the easy route and get gas gift cards.

A possible strategy to get to $50 cashout mark for Dividend owners is to buy some gift cards at the grocery store you usually shop at anyways. For example, I could just buy a $100 Safeway card, get the $5 back, and wait until after October 13th to use it.

Remembering the Big Picture

As I’ve been frantically trying to finish multiple projects before my planned Labor Day road trip, I haven’t spent as much time online. I think this has allowed me to sit back and remember the Big Picture. In truth, the one thing I’ve learned since starting this blog about striving for financial freedom is that it’s actually pretty simple.

1) Save at least 10% of your income. 15% is better than 10%. And so on. Try to make it tax-deferred in an IRA or 401(k).

2) Invest it into low-cost index funds. Let capitalism work for you. For the simplest portfolio, buy the lowest cost Target-dated retirement fund you have access to. There are tons of books on why and how.

That’s it. You don’t need random free money or try to optimize your portfolios or even play credit card tricks. I find it fun and profitable, but #1 and #2 are still by far my top priorities. In fact, you don’t even need to read this blog (gasp!). But I’d prefer it if you did 😉

Added: I’ve added a counter-post about the why I choose to do the little things too and how much I make from them.

Backup Your Important Files Online For Free

Everyone hears this sage advice: back up your files regularly. I am horrible at this, except for occasionally e-mailing files to myself. One solution is Mozy:

Mozy is a secure, automatic remote backup service for any PC in any home or office. It’s simple to install and configure. No external hard drive, expensive subscription services, CD’s or DVD’s to burn. All you need is a broadband connection and you are ready to go!

I’ve been trying out Mozy for the past week or so, and I must say that overall I like it. It tries hard to be stupid-proof and lazy-proof, and mostly succeeds by backing up your files on its own when your computer is idle so you don’t have to do anything.
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Pay Down First Home, Convert to Rental?

So you may be wondering, how did I go from wanting to put only 10% down to thinking about 15-year mortgages? Well, mostly idle mind exercises since I still have about a year before purchase. But here’s my idea. I would like to get an investment property somewhere down the line, but the gap between rent and most mortgage payments is just enormous. I would really like to get a cashflow positive property, where the rent covers all my expenses (mortgage, insurance, maintenance).

So what if we buy a smaller 2-bedroom place, and get a 30-year mortgage on it (instead of the 15-year as I was thinking), but pay it down as fast as you can (like a 15-year). After 5 years or so, we could check out current rents. If they are high enough, we could just leave the 30-year mortgage on it, rent it out, and buy a second house. If they aren’t we should have paid down the principal enough to be able to refinance the loan to a low-enough mortgage payment.
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Carnival of Investing

Welcome to this week’s Carnival of Investing! I haven’t been able to commit the time needed to do what I wanted to do with this Carnival coordinating thing, so it is in the process of being moved elsewhere.

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Mortgages: 15 Year Fixed vs. 30 Year Fixed + Prepayment?

I should preface this with the fact that I’m still very new to mortgage loans in general. I’ve been considering getting a 15-year loan instead of a 30-year fixed loan. The general consensus seems like if you can afford a 15-year fixed mortgage, you should go for it. The interest rate will be lower, you own your home in half the time, and the payments aren’t actually that much higher (definitely not double). But what if you just took a 30-year fixed mortgage and had the discipline to pay enough extra each month to equal the 15-year payment? Would you really be that far behind? The results surprised me.

Using the current average mortgage rates at (5.68% for 15-year fixed, 5.96% for 30-year fixed):
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T-Bills Still Good Bank Alternative at 5.29%+ APY

For those subject to state income taxes, Treasury Bills continue to be a good alternative to online banks since their interest is exempt from state and local income taxes. For example, at their current rates my personal tax-equivalent yield is over 5.70% APY. You do lose some liquidity though, so I don’t keep every penny in there. For more information, please check out the following posts in my T-Bill category:

How To Buy A Treasury Bill Online
Taxable Equivalent Rate Calculator
Calculating and Comparing Treasury Bill Returns
28-Day Treasury Bill APY Calculator

Get Access to DFA Funds For Only $50 A Month

While searching for cheap access to Dimensional Fund Advisors (DFA) funds, I ran across the fact that you can get access to them via West Virginia’s SMART529 Select Plan. If you are a WV resident, the contributions are even tax-deductible!

They have various aggressively allocated portfolios with an expense ratio of about 0.20-0.50%. The killer is that there is also a management fee of 0.55%, which can up the overall annual expenses to over 1%. Depending on how much you think DFA will outperform similar Vanguard funds, you may want to go with a Vanguard-based 529 like Nevada’s. Check out their Aggressive Growth/Age-Based 0-3 Portfolio (total expenses of 1.02%):
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Estimating Future Investment Returns: 30-Year Forecast

It’s very hard to estimate exactly how much we’ll have to save for retirement, as that would require knowing how much our investments will grow in the future. Even if we try to do long-term trends, this can be difficult. But Richard Ferri, author of All About Asset Allocation and founder of Portfolio Solutions, LLC has done his best by layering risk premiums to estimate market returns. You can find the article for free online – ‘Portfolio Solutions 30-year Market Forecast’. An excerpt:

At the end of each year, we analyzed several economic and market risk factors including Federal Reserve forecasts, inflation forecasts derived from inflation protected securities, and the volatility of asset classes, styles, and categories. From that data, we developed estimates for longterm future returns.

Here are some of the results:
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Opening A Business Brokerage Account at Fidelity

Ever since starting my own small business, I’ve been on the look out for ways of holding cash in a business account but still earning a competitive interest rates. Now, if you are a sole proprietor, you can just use consumer savings accounts at places like Capital One 360. But the choices narrow quickly for LLCs or Corporations. By law, checking accounts for these entities aren’t even allowed to pay interest.

Now, there are some banks out there that offer decent rates on business savings accounts, but I didn’t really find any that offered everything I wanted – a historically competitive interest rate, ability to link and transfer money online to other accounts, and good customer service. HeritageDirect came the closest with a good rate and linked accounts, but in the end I decided on opening up a Fidelity Business account.
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Get A CLUE! … Report … For Free.

If you would like to know what the insurance companies are saying about you behind your back, you definitely want to get a free copy of your CLUE report. Short for Comprehensive Loss Underwriting Exchange, it’s basically the insurance version of your credit report. In the past it used to cost you $20 a pop, but you can get it now for free courtesy of the FACT act, which also brought you free credit reports.

You get both a Personal Auto Report and Personal Property Report, which show how many insurance claims you’ve made on your car insurance and homeowner’s/renter’s insurance, respectively. Insurance companies use this data to decide your premiums, so you’ll want to clear up any mistakes right away as they are probably costing you money right now!
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How To Add A High-Yield Savings Account At Washington Mutual Bank

Washington Mutual quietly rolled out a new high-yield savings account bundled together with the WaMu Free Checking account. When you click on ‘Start Now’ you’ll get both applications at once. You should then see this:


It may not be the very tip-top highest rate, but the convenience may be worth it for current WaMu customers. If you already have an account with them, you definitely won’t want to miss this. You must apply online for both the checking and savings to get the 3.30% savings account. Walk into a branch and they’ll feign ignorance (they are not allowed to tell you about it). But, since the checking is free with no inactivity fees or minimums, there is no harm in getting another one. You can transfer instantly back and forth between them and maximize your interest. You even get one free overdraft a year with WaMu in case something goes wrong.

Finally, if you already do online banking with WaMu, you can do it all in 5 minutes! I just did it myself.

Here’s the process:

1. Go to the online application page.
2. Click on ‘Start Now’ and apply for a Free Checking account.
3. Apply for both another Free Checking and the 3.30% Savings (you should see both). Where they ask you ‘Do you have an online ID?’ click Yes and type in your existing username and password.

4. Fill in the usual personal information and answer some identity verification questions. Since you logged in first, most of it should be filled out already for you, saving time.
5. Here’s the cool part, you can fund it instantly with your existing WaMu accounts! Here’s a screenshot:


I just transferred $1 from my existing checking account into the new one.

6. You should get this message:

Your WaMu Free Checking and Statement Savings accounts have been created and will be available online in the next 10-15 minutes. Please log in to at that time.

Print out the sheet with the new account numbers for your records.

7. Wait a few minutes, and log back in. Voila! 🙂 You should see your new 2nd checking account and new savings account. To verify that you are getting the higher rate, on your left menu bar go to View my accounts > Account details. You should see the 3.30% rate.

8. If you have money sitting in other WaMu accounts that wouldn’t mind some extra interest boost, start moving money there! It’s instant. My old statement savings account only paid 0.25% – let’s just say it’s empty now 🙂

There you go. Nothing to sign, nothing to mail in, no deposits to wait for. Money that was previously earning essentially nothing is now earning a lot more. This could also work well with 0% balance transfers if you don’t like dealing with other online-only savings accounts.