Archives for August 2008

Archives: Useful Homebrew Financial Calculators

calc.jpgIf have to repeatedly have to make a calculation and I can’t find it elsewhere to my liking, I usually try and make my own calculator to save time in the future. Below are links to ones that I still use regularly, I wanted to point them out because they tend to get lost in my archives. Hopefully, they can be useful to you as well.

Ultimate Interest Rate Chaser Calculator
A “rate chaser” is someone who move their money to whichever bank offers the highest interest rates. For example, due to various promotions I have over 10 accounts open at various online banks. This calculator helps you figure out how much money you’ll earn by switching.

True Cost of Impulse Buying Calculator
Being smart with money is all about choices and priorities. Would you rather have another $300 iPod, or realize that with compound interest you could have an $2,000 more (inflation-adjusted!) later on. You’re not just saving $300, you’re shaving weeks off your retirement date!

Your Portfolio’s Rate of Return – Estimation Calculator
When trying to figure out your portfolio’s performance, don’t just trust the performance stats of your mutual fund or that number on your statement. Calculate it independently using this simple calculator. It gives surprisingly good estimates.

Your Portfolio’s Rate of Return – Exact Calculator
Slightly more complicated to use, but more accurate. You must know the dates and corresponding amounts of cash inflows and outflows.

Asset Allocation Guide: Percentage Of Your Portfolio In Stocks?
The calculator at the bottom shows you how your stocks/bonds ratio might look if you use popular Target Date mutual funds as a reference.

0% Balance Transfer Profit Calculator Tool
My series of articles on How To Make “Free” Money From 0% APR Balance Transfers has been very popular and many readers have also jumped in. Despite the risks, I’m still happily earning some money from the credit card companies for a change, and haven’t missed any payments.

This calculator is for the analytical types that want to have a better idea of profit potentials. The calculator takes into account minimum payments required by credit card issuers. Use in conjunction with my list of best 0% APR balance transfer offers.

Helping Mom Transfer Old 401(k) To Vanguard IRA

My mom is trying to organize and simplify her financial accounts, which I applaud. A major part of this is to finally move her orphaned 401(k)s and IRAs into one location. I recommended Vanguard, since that’s where all my IRAs are. She was okay with sticking with low-cost and passive index funds, which is Vanguard’s specialty. They are also known to be investor-oriented and have high client loyalty.

If you intend to buy individual stocks or ETFs, I wouldn’t go with Vanguard Brokerage Services because they are relatively expensive. Open an account elsewhere – check out Zecco, TradeKing, or Sharebuilder.

Make A Phone Call To Old Administrator
There are a variety of ways these rollovers can happen. They may want to know the name of the company you’re going with, and also have some various paperwork to fill out. With some companies, you can request everything be done online. Even so, I think the easiest way is to simply call them and ask them the easiest way to do it (my mom didn’t like having to deal with the old company “Why are you leaving us? You can simply rollover to an IRA here…”).

You have to ask for a “direct rollover”, because otherwise you may be subject to a 20% automatic withholding, taxes, and also penalties. If the transfer can’t be done electronically, the old company will liquidate your account and send you a paper check made out to your new company. Be sure to send the check to your new company within 60 days.

Open An Account At Vanguard
Just go to Vanguard.com, click on “Open an account” at the top-right, and follow the guide. We went with “Invest for retirement” > “Roll over a 401(k) or other employer-sponsored plan” and then “Vanguard® mutual funds”.

Choosing Initial Investments
If you don’t know what to buy yet, just choose a conservative money market fund to get started. One popular option is the Prime Money Market Fund (VMMXX). You can switch into other mutual funds later easily as there are no transaction fees.

If you have over $100,000 in assets at Vanguard, you reach their Voyager level which includes a discounted financial plan. The pitch: “Pay just $250 for a plan developed by a Certified Financial Planner™ from Vanguard—a $1,000 value.” I haven’t actually paid for this myself, so I don’t know how customized it is.

Avoiding Fees
Don’t want mom getting hit with crazy fees! Vanguard charges a $20 annual fee for each Vanguard mutual fund in which your balance is under $10,000. Again, if you are at the Voyager level ($100,000+ in total assets at Vanguard) these are all waived. After that, the easiest way to avoid this fee is to sign up for electronic delivery of documents. Most people are willing to save a potential $20-$100 a year by printing out their own statements.

So now she has a funded Vanguard IRA. Next task is to provide her some investment options which fit within her overall portfolio.

5% APY 12-Month CD From Washington Mutual

WaMu has rolled out a new 5% APY 12-month CD, which is a very high yield for that term length. Yes, WaMu has had some issues like other banks, but I’ve already explained why I am sticking with them as long as I’m under the FDIC insurance limits.

Convenience Factor
If you already bank at WaMu, you can fund it easily online with a minimum of $1,000. With their existing Free Checking and 3.75% APY Online Savings combo, it makes a convenient package:

Early withdrawal penalty is 90 days interest. You can fund directly from your existing accounts. I might move some money around for this one.

Combine with 0% APR Balance Transfers
For those that are interested in making some profit using 0% balance transfers, but have been holding off due to the narrowing interest rate spreads, this might be an opportunity to jump back in. Here is a list of no fee 0% APR balance transfer credit cards.

Borrowing the money at 0% and putting it in 5% CD for 12 months gives the following rough math: Gain of 5% interest on $12,000 = $600. Minus $75 fee and taxes to get your final profit. You can do better if you get a larger credit limit. If you can handle the minimum payments of 2% of balance per month ($200 initially each $10,000) with your regular cashflow, then you could stick the entire amount in the CD. The actual terms say that the introductory period lasts “until the last day of the billing period ending during September 2009”.

Trying To Learn From Millionaires In The Making

CNN Money has recently put up a new profile in their series on Millionaires in the Making. This one about the caught my eye because of they share similarities to us. They are married and under 30, with no kids. A relatively high combined income. Lives in an area with a high cost of living. Saves half of their income. But they have a net worth of over $500,000 already? Maybe I could learn a few things.

Jobs. He is a software engineer. She used to process mortgage loans. But now she bought a retail store selling fancy soaps. Combined income is $174k, but they don’t break it down. Their balance sheet lists the store being worth $125,000 with a $72,000 business loan. It is also unknown what this store value is based on – a multiple of net annual earnings?

From what I know about such shops, they are really hard to make successful, but can be very lucrative if you are. With the current economic downturn, I don’t know if I’d be selling $10 soap. All in all, too risky for me.

Housing. They rent a house from his parents for $650. I know for a fact this is at least 50% below market rent, probably much more. Smart move for them, but hard to replicate for the average person.

Real Estate Invesments. They made $110,000 from buying and selling a condo during the boom years. I cannot necessarily attribute this to skill, and I certainly can’t duplicate it. They then went out and bought three rental properties in Arizona and Texas, which have current negative cashflow of $750/month. Their balance sheet says they have $40k in home equity, but you have to wonder how realistic those values are. Previously, one rental sat empty for 9 months. Not mentioned is their mortgage situation; are these adjustable-rate or fixed?

Overall, I’d say they have only broke even in this department. I wouldn’t want those properties.

Stock Investments. $88,000 (37% of portfolio) is in Microsoft stock. Even if purchased at a discount as a fringe benefit, many ESPP participants sell as soon as possible to grab the profit. Rest of portfolio is 99% stocks, though not much other detail. Lots of risk here, much of which is connected with his job as well. MSFT performance has not been impressive. Hmm, not much learned here either.

Spending and Priorities. According to the graphic, their non-housing expenses are about $17,500 per year. This is right at about our spending levels, which is $18,000 per year.

The article then goes into how they never travel and rarely eat out (and split meals when they do). However, she also wears a $20,000 engagement ring, and they own 4 cars including a $30,000 Subaru WRX. Although not what I would do, who cares if that’s what truly makes them happiest. I wouldn’t call them misers. They tithe to their church and still control spending, which is respectable.

Recap

This couple is doing the “big stuff” very well. They make a lot of money, and only spend about half of it. Multiply this by many years and you get a fat net worth. But other than that, I can’t really say I want to emulate them. They have a lot of risk in a boutique shop, cashflow-negative rental properties, single-stock investments. None of these created their high net worth, in fact they might have even detracted from it.

But we do share the same goals of early retirement, so I wish them luck. They might need it!

Assorted Links: Eating Doritos While Doing The ChaCha

Lots of links to share, so I thought I’d do the shotgun approach to blogging tonight.

What The World Eats, Part 1. This is a cool piece that shows what 12 different families from around the world eat in a week, and how much it costs. In Time magazine, based on the book Hungry Planet, via Bogleheads.

Speaking of eating… what about the incredible shrinking Doritos bag “Big companies are protecting profits with subtle repackaging, putting a little less into boxes of cereal, containers of ice cream, rolls of paper towels and other products. Guess who’s paying for it.” One thing I’ve also noticed is that means generic packages often hold more product despite the outside box being the same size. This makes store brands an even better buy these situations.

ChaCha is a service where you can call or SMS text a question and a human will text you back the answer. Currently free. You can also apply to be one of those humans (“Guides”) and get 10-20 cents per query answered. Thanks to Frank, who says you can earn a flexible $6-8/hr. Use his e-mail frank.heilig@gmail.com as referrer when signing up.

A related site is Mahalo Greenhouse, where you get paid to research and write up results for the Mahalo search engine. Pay rates unknown, and you only get paid if accepted.

AishCafe is paying college students $250 to take an online course to learn more about Judaism. Interesting idea. Seems like a decent time commitment, must go through interviews.

Frugal Freedom has shared her early retirement budget, and it’s only $600 per month! I’m worried that her healthcare costs are too low, but she is living in an paid-off RV so her housing costs are minimal.

Is tipping really so hard? The Freakonomics blog notices that “out of 59 apps in the finance section [of the iPhone App website], at least 15 of them help you calculate a restaurant tip.” Seriously, what’s wrong with using the built-in calculator?

Most Useless Financial Tip Ever: Nominee #1

I was flipping through last month’s Kiplinger’s Personal Finance magazine when I came across an article about How to Beat High Prices on food, gas, and so on. Okay, timely topic, probably sold a ton of issues. Then the following sidebar “tip” caught my eye:

Who exactly is the target audience here? People who eat $200 meals at Ruth’s Chris Steak House regularly and need advice on how to spend less? And their solution is to… eat an $89 meal. Genius!

If you’ve found some similarly awesome non-tips, send them my way.

Utilizing The Public Library To Complete Some Goals

Have you heard of the Olympics Hangover? It’s when you stay up way too late watching “just one more event” and end up being red-eyed and unproductive the next day. So to counteract this, I used the public library for the first time in a long while. Funny thing: childless friends and co-workers had no idea where the library was. Only the parents did, since their kids use them. Why do we stop using the library as we grow older?

It was a productive visit, helping me to complete both a few short-term and lifetime goals:

  1. Read one financial book per week. Obvious one first. 😉 I put the following books on hold: Work Less, Live More and The Complete Idiot’s Guide to Retiring Early. Hope to find some good nuggets.
  2. Visit a Foreclosure auction. In most areas, listing notices are required to be in the newspaper. I don’t have a subscription anymore, but I was able to look through the last 3 days of papers at the library for free. Looks like there will be one on September 9th at Noon at the county courthouse. Also, I found an announcement that a local self-storage place is also auctioning off the contents of the lockers that have been abandoned and unpaid. That might be interesting to go to as well.
  3. Learn more about financial analysis of potential rental property. Also found the Landlord’s Survival Guide and The complete guide to your first rental property. To judge the quality of books I’ve never heard of, I consider both Amazon.com review (if any) and also the number of copies in the city-wide system. I simply assume (right or wrong) that the better books will have more copies.
  4. Plan international travel. The in-branch pickings were slim, but I found a nice book on Spain. I should be able to find many more online. I’ve actually brought library travel books with me on international trips. (Well taken care of and returned on time, of course!)
  5. Learn a Foreign Language. Borrowed a few Pimsleur language audio CDs (intro to Cantonese and Spanish). The full sets of these often cost over $200. These will go great in the car and in my iPod while jogging.

Of course, not all goals can be done at the library. 🙂 I also recently signed up for a 3-day PADI scuba diving certification course over Labor Day weekend that will cost around $400 altogether. I’m really looking forward to it.

Cost vs. Benefit Analysis: Extra Chest Freezer In The Garage?

Now that we have a home that we plan to stay in for a while, we are considering buying a chest freezer to place in the garage. Growing up, a lot of my friends with larger families had either a chest freezer or a second refrigerator in the house, and I’d rather not have another appliance inside the house. Also, I love the convenience of frozen foods and our current freezer is always packed. Is the worth the investment? Here is a quick cost/benefit analysis:

Costs

There is the obvious upfront cost of the freezer, monthly electricity costs to run it, hopefully minimal maintenance costs, and I suppose we’ll lose the space in the garage. Here is the rough breakdown for various sizes of chest freezers (Energy Star rated, name brand):

7 ft3: $210 + $25/year in electricity. Assuming 10-year life, that’s $3.83/month. For a 20-year life, that’s $2.96/month.

15 ft3: $410 + ~$38/year in electricity. 10-year life: $6.58/month. 20-year life: $4.88/month.

25 ft3: $710 + ~$52/year in electricity. 10-year life: $10.25/month. 20-year life: $7.29/month.

Potential Benefits

Less Eating Out
To be honest, I really just want to stock up on a large variety of frozen foods so that there is less of the daily question… “What am I going to cook for dinner?”. Too often, the answer ends up as “let’s get take-out”. I want staples like frozen chicken breasts and veggies, as well as having a few Trader Joe’s pizzas and burritos tucked away.

Ability To Stock Up During Sales
If there is a sale on something like frozen vegetables, now I can buy in bulk instead of waiting around for the next sales cycle. You can also freeze everything from bread to milk.

Storing Fresh Fruit
You can do some fun (and cheap) U-Pick at local farms during the summer and not have to eat it all at once. Blueberries, strawberries, peaches, yum. Home gardeners can do the same.

Less Shopping = Less Driving = Less Gas
I try to grocery shop in conjunction with commuting or other errands, but living in suburbia has still definitely increased my fuel usage.

Buying Half A Cow
Although I’ve never done so, it might be cool to buy a whole cow. I guess I’d need one of the bigger freezers for such an undertaking.

Cooking In Bulk
I have tried a few times to cook an entire week’s food ahead of time, but I’d often run out of freezer space. Also, this way one can make their own soups or stocks in large batches. My mom always used to freeze her homemade chicken stock into “pucks” using old margarine tubs.

In addition, there are also the make-your-own-takeout places like Dream Dinners and Super Suppers, which I have never tried before because I never had that kind of freezer space.

I would imagine that I should be able to make up the $5-$10 a month in costs, especially if I can cut down on the dining out. Everyone I know with a chest freezer likes it. Anyone out there disagree?

25% Cashback on Anything* Bought at eBay

An extension of the new Live.com Search Engine cashback system mentioned previously, it has been discussed ad nauseam here, here, and here. At first glance, I thought it would be a short-lived misprint/typo kind of deal, so I didn’t bother. It did disappear, but now it is back, so I guess Live.com is consciously choosing to continue with this promotion (for now).

In short, the cashback system is currently offering 25% off any item purchased on eBay, provided it is bought using the “Buy It Now” feature and using PayPal for payment. There is a limit to $200 in cashback per purchase, with a maximum of 6 purchases. Fine print is here. A quick and dirty walkthrough:

1. First read up on the general idea of Live.com cashback. You’ll need to wait 60 days to withdraw the cashback. If interested, sign up for an account.

2. Click on this link, this link, or this link. Look for the following:

3. Click on the circled link, which will send you to eBay. Find an item that you want with the Buy It Now option and that accepts PayPal. Click on “Buy It Now”. You should see this icon on the next screen:

4. Check out and pay with PayPal. You should get an e-mail or message from eBay with confirmation afterwards.

Clever people have been buying highly liquid items like gold, silver, and popular gift cards at 25% off. However, supply and demand has driven many prices up, making it harder to find profitable opportunities. Isn’t economics neat?

Entrepreneur Interview: Irina Patterson, Balloon Art Entertainer

It’s not every day that you get to interview someone who:

  • started out as an Emergency Medicine doctor in her native country of Russia,
  • went on to be a body double for Cindy Crawford,
  • is a former public relations executive,
  • has been reading my blog for nearly a year 😉 ,
  • … and now spends her time twisting latex balloons.

Irina Patterson is a balloon artist, usually working at upscale events like cocktail hours, galas, art dinners, or yacht events. She is a great example of how following your passions and having an open mind can lead to a fun and flexible self-employed business. Although she admits that it is not passive income, she has managed to build what she terms a “money printing press” since she has all the work she can handle.

I wanted to learn more, so below is an e-mail interview that I recently conducted with Irina:

How did you get started as the “Balloon Lady”?

Believe it or not, I have never seen balloon animals until about 4 years ago. I don’t have kids and I don’t go to the malls. I saw balloon animals for the first
time at a private party and totally fell in love with the process. I love bright colors. It just made me happy. I guess it makes happy many other people too. Otherwise, how can you explain the demand for balloon art entertainment even now, when people cut down on everything.

How long did you practice making balloons before you started to earn money doing it? Did you worry about not making enough money at it?

I practiced at home for about a week. Then I went to a strip mall. Paid them $75. That was their monthly fee for allowing me to make balloon art
for tips. I made that $75 in tips right back on the first day. At the time, I didn’t know better at the time. I only paid fees like that for about 2 months.

You can find places where you can make balloon animals without rental fees. You can find restaurants that will PAY you to entertain their customers. In Miami restaurants usually pay $50-100 per 3-4 hours on a weekend + most customers will usually give a tip. You can expect to make about $ 150 for about 4 hours as a restaurant balloon artist.

But the best part is this. While you are entertaining at a restaurant, you are also marketing your private party entertainment. Private parties will always give you better return on your time. In Miami, on average, a balloon artist can earn $100-200 per hour at a private event. And you are usually booked for more than one hour.

I didn’t have to worry about making money as a balloon artist. At the time I was full time employed as a PR executive. But I couldn’t believe how easy it was to make money as a balloon artist.

[Read more…]

Writing Down Some Short-Term Goals

Watching the Olympics has been both inspiring, entertaining, and also taking up a lot of free time. I can’t believe the amount of dedication these people have towards their goals. I am trying to go back to setting regular monthly goals, and writing them down always helps.

A rough list:

  • Visit a live foreclosure auction at county courthouse, just for the experience.
  • Buy a term life insurance policy.
  • Learn more about long-term disability insurance.
  • Read one financial book per week, and take notes.
  • Learn more about financial analysis of potential rental property.
  • Investigate solar water heater credits, and get quotes from contractors. Also look into solar fan for roof/attic.
  • Have a series of dinner conversations about finances with wife. Teach her the details of managing all household finances if I am incapacitated. (Show her where I stashed all the money in all these bank accounts…)
  • Help parents firm up outlook for retirement based on current assets. Help them complete rollovers of 401k/IRAs to Vanguard.
  • Plan international travel somewhere. Currently thinking of hiking the Inca trail in Peru.

Focusing On Your Circle of Financial Influence

In an effort at personal development, I am currently reading the long-time bestseller The 7 Habits of Highly Effective People: Powerful Lessons in Personal Change by Stephen R. Covey. I got the book years ago from some sort of corporate team-building workshop but never finished reading it.

I think that many ideas within the book have applications to personal finance. The first habit is to Be Proactive. This is not the same as simply going out and doing many things – that’s being active. Instead, think of proactive as the opposite of reactive. One should consciously choose how they respond to external events. Even being angry is a choice. “Nobody can hurt your feelings unless you let them.”

Circle of Concern vs. Circle of Influence
The Circle of Concern is everything we might be concerned with – from world peace to lunchtime. The Circle of Influence is what we can actually do something about.

Where do you think you should focus your energy? Consider these “if only” thoughts:

  • If only I didn’t lose my job due to downsizing.
  • If only gas wasn’t so expensive.
  • If only my house didn’t plummet in value.
  • If only I had a great pension plan like my parents had.
  • If only someone could teach me how to invest.

Getting sucked into such thoughts is to dwell on the Circle of Concern; It is a waste of energy and won’t help you at all. The only thing that can help you is to focus on your Circle of Influence. Spend as much time each day on finding a new job as you spent working at your old one. Examine your habits and consume less. Borrow some books on investing. Move forward with a business idea. Then, you might be able to expand your Circle of Influence:

I know, it’s a bit cheesy. But if you listen to yourself carefully, I think you might catch some of these “if only” thoughts popping into your mind. I know I do. There is a very applicable prayer from Alcoholics Anonymous:

God, grant me the serenity to accept the things I cannot change, courage to change the things I can, and the wisdom to know the difference.