Archives for June 2009

The MPG Illusion: Comparing Fuel Efficiency Can Be Tricky

Posted on June 16, 2009 // 20 Comments

While researching the benefit of swapping one of my 21 mpg cars for a 31 mpg Honda Fit, I came across a site called the MPG Illusion. The easiest way to illustrate their point is via a quick quiz.

Pop Quiz
The full quiz and explanation is here. But the very core of the argument can be summed up below. Assuming that both cars are driven 100 miles per week:

Without breaking out the calculator, you might think that having 50 mpg and 10 mpg together might average out to about 30 mpg, beating out the two 20 mpg cars. The problem is that using miles per gallon is not intuitive. Why?

Miles per gallon (MPG) is more useful for things like calculating the range of your vehicle.

Gallons per mile (GPM) would be better for estimating the actual cost of driving your car, since gallons is directly proportional to dollars spent.

Okay, a little math. Getting 10 miles per gallon is the same as saying you use 10 gallons every 100 miles. 20 mpg means 5 gallons every 100 miles. 50 mpg means 2 gallons every 100 miles. So in one week, the Option 1 uses 10 gallons per week. Option 2 uses 12 gallons per week. Option 1 wins!

If you remember gallons = $$, this chart below shows (also from MPG Illusion), the savings you get from going from 10 mpg to 20 mpg is a lot greater than going from 30 mpg to 40 mpg. In fact, going from 16 to 20 mpg can save as much gas as the shift from 31 to 50 mpg.

Higher mpg numbers are still better, but the benefit is diminishing. Going for the hybrid might get you the most “green” points, but you might be getting most of the benefit for a lot less money by simply switching to a more affordable car with a decent mpg bump. Is it almost used Honda Fit time? Run the numbers for yourself at this GPM calculator.

(Does this make the “Cash for Clunkers” program more palatable? I don’t know, they could still raise the minimum improvement amounts.)

Filed Under: Frugal Living //

Does My Car Qualify For The Cash For Clunkers Program?

Posted on June 15, 2009 // 73 Comments

You’ve probably heard about the new “Cash for Clunkers” bill that is offering up to $4,500 towards the purchase of a new car. The idea is to stimulate demand for new cars as well as raise overall fuel efficiency by promoting the trade-in of “clunkers” for new and more efficient vehicles. It is officially part of the Consumer Assistance to Recycle and Save (CARS) Act, which recently passed the House and is currently in the Senate.

It’s not finalized or sent to the President yet (don’t buy anything yet!), so there is still room for changes. However, here are the requirements in the House Bill:

Old Trade-In Vehicle Requirements

  • Must be in drivable condition.
  • Have been continuously insured to the same owner for at least one year immediately prior to trade-in. (You can’t just buy a $500 beater for the $4,500 voucher)
  • Manufactured in model year 1984 or later. (mostly due to EPA mpg data not going back that far), and
  • Have a combined fuel economy of 18 mpg or less. You can find your car’s combined EPA fuel economy at FuelEconomy.gov.

If you are trading in a “Work Truck”, defined as having a 8,500-10,000 pounds GVWR (gross vehicle weight rating), then your vehicle must be from model year 2001 or older.

Obviously, another common sense requirement would be that your car should be worth less than the $3,500 or $4,500 you qualify for, or else you could simply sell it yourself instead of going for the voucher.

Let’s check out our cars:

1995 Nissan Maxima
The first car I ever owned, which came to me in excellent condition in 2000. Besides the usual oil changes and stuff, I’ve replaced the starter and 3 out of the 4 power windows motors (annoying common flaw in this model). It is nearly 15 years old now and runs great. Edmunds says my car is worth about $2,500 (sold to a private party). $4,500 for it might tempt me.

My combined fuel economy is 21 mpg. Not quite gas-guzzly enough.

2002 Pontiac Grand Prix
Yes, I have a sad little orphan Pontiac. But I took advantage of its horrendous resale value and picked it up when it came off-lease at 3 years old at my workplace for cheap. The interior is really cheap-feeling, but you know what, it hasn’t run into any mechanical problems at all. The only thing that broke so far was a plastic air conditioner knob.

Edmunds says it is now worth about $5,000 Private Party, which means has depreciated less than $1,000 per year since purchase. My combined fuel economy is 21 mpg.

So I guess neither of our cars qualify, which makes me think that most “beater” cars won’t either. Think of the VWs, Hondas, and Toyotas out there. A 1985 Honda Civic gets over 30 miles per gallon! This law is mostly for SUV and truck owners, and you can qualify for a voucher with as little as 1 mpg improvement (for large trucks) to 4 mpg (for passenger cars). I don’t quite get it.

Indeed, just because you qualify, doesn’t mean you should necessarily go for it. You’ll get some fuel cost savings, but unless you pay cash you’ll also have a monthly auto loan payment. A new car also has higher insurance rates, and you’ll have to carry collision/comprehensive coverage.

Filed Under: Deals & Offers, Frugal Living //

Chase Business Checking: $100 Bonus Coupon Codes

Posted on June 12, 2009 // 12 Comments

Chase Bank is offering $100 Bonus coupons for opening a qualifying business checking account with at least $500. You must print out a unique coupon code and bring it in to a local branch.

First link is good for the following states: IL, WI, MI, IN, NY, CT, NJ, OH, WV, KY, FL, LA, OK, TX, CO, AZ, WA, ID, OR and UT. There is a separate link for California accounts. Limit one business checking account-related premium per customer per calendar year. Cash premium will be deposited automatically into your checking account within 10 business days after the minimum deposit requirement is met. Not a bad deal, you don’t even have to mess with direct deposit for the bonus (though each checking account type has their own fee rules). Expires 7/24/09.

If you are starting a side business or freelancing, it can be a good idea to separate your finances with a business checking account. You can simply open one up with your Social Security Number as a sole proprietorship if you’re happy that way, or you can apply for a free Employer Identification Number (EIN) from the IRS. Obviously, other types like LLCs and Corporations are also valid.

Filed Under: Deals & Offers //

20 Common Attributes Of People Who Improved Their Financial Situation

Posted on June 12, 2009 // 32 Comments

I recently received a review copy of Jean Chatzky’s The Difference: How Anyone Can Prosper in Even The Toughest Times, where she attempts to understand why some people easily move from barely getting by into a life of comfort and/or wealth, while others get stuck or even fall backwards. What are the attributes that set them apart?

From her research, she divided people into four groups: The wealthy, which have on average assets of $2 million, not including home equity. The financially comfortable, who save regularly and have a financial cushion. The paycheck-to-paycheck, who are getting by but are one unexpected expense away from stumbling into the last group, which are the further-in-debtors. Here’s how the population breaks down:

20 Factors

As you can see, plenty of people are living paycheck-to-paycheck. But what about those who only used to live that way? She found that 75% of the wealthy and nearly 100% of the upper-middle class originally came from middle class backgrounds.

Here are what Chatzky says are the twenty key elements of those people who improved their situations. You don’t need to have them all, but she says that you need, on average, ten factors to make your way to financial comfort.

Financial Attitudes
– feel stocks are worth the risk
– devote money to savings
– save regularly for emergencies
– invest for retirement
– reduced debt

Goals
– want to retire comfortably
– want to be financially comfortable during working years too
– always knew what they wanted to do for a career
– made it a goal to accumulate $1 million
– want to own a home

Personality
– are confident
– happy
– optimistic
– competitive
– leaders

Nonfinancial Behaviors
– have a college degree
– socialize with friends at least once a week
– exercise at least 2-3 times a week
– read newspapers regularly
– are married

Sounds simple enough, eh? I call some of these “duh” factors. The rest of the book tries to explore these factors and ways to actually get yourself to really believe and/or achieve them, since simple doesn’t mean easy. For one, there are many levels of “wanting” – do you have the resolve to make it happen? Or, how is exercise related to wealth?

Filed Under: Book Reviews, Career, Frugal Living //

PNC Bank Virtual Wallet, $75 New Account Bonus

Posted on June 12, 2009 // 8 Comments

PNC Bank has a new online banking product called Virtual Wallet which combines multiple bank accounts and online money management tools into one site.

Virtual Wallet is comprised of 3 accounts working together:
• Your SPEND account is a non-interest-bearing checking account.
• Your RESERVE account is an interest-bearing checking account used for short-term savings goals. [currently 0.10% APY]
• Your GROWTH account is a savings account which earns interest and can be used for longer-term savings goals. [currently 2% APY up to $25k]

The SPEND account has a $25 minimum to open, while the other two have no minimum opening requirement. None of them have minimum monthly balances or monthly fees. Online statements are required, and you only get 3 free checks per month. ATM fee reimbursements are available if you keep $2,000 combined in the SPEND and RESERVE accounts. Looks to be available online to any state.

I see the motivation, but couldn’t this just be done with two accounts? The SPEND and RESERVE are basically the same… 0.10% APY difference?

If you open an account by 7/4 and initiate a direct deposit of at least $400 by 8/31/09, you can get a $75 bonus. Early closure fee of $25 if you close within 180 days. $75 also available with other PNC checking account types, but you can only get one bonus.

Filed Under: Banking, Deals & Offers //

Mortgage Rate Reset Timeline: Another Wave Coming

Posted on June 10, 2009 // 18 Comments

One of the things I like to read when I get the itch for some stock market opinion (which isn’t very often) is John Hussman’s weekly market commentary. Not that he’s always right, and I don’t own any of his mutual funds, but I like to hear his reasoning. In this week’s 6/8 post, he references a chart that shows us in a temporary lull of mortgage resets. The infamous subprime “wave” is past, but there is another big wave of option ARM and Alt-A resets ahead:

As I’ve noted before, recent months have represented a lull in the reset schedule, which was accompanied until recently by a moratorium on new foreclosures. Those foreclosures are now ramping up quickly, and a fresh surge in resets will add to the difficulties beginning later this year.

The chart originates from an IMF report entitled Assessing Risks to Global Financial Stability.

These upcoming resets may not be as bad as they are supposedly borrowers with slightly better credit profiles, assuming that enough people can refinance their mortgages to something they can afford. But it’s kind of hard to refinance when you’re upside on your house. Even I’m basically upside-down on my mortgage, and I had a 20% downpayment. Thank goodness I have a 30-year fixed, a steady job, and no desire to move!

I’m not changing my asset allocation by selling stocks or anything right now, but I’m also not getting too attached to these recent market gains. Plenty of uncertainty ahead!

Filed Under: Investing, Real Estate //

Microplace Review: Investments, Application, Funding Methods, Bonus

Posted on June 9, 2009 // 21 Comments

I finally got around to looking closer at Microplace, a site owned by eBay that tries to alleviate global poverty by offering investments that enable loans to hardworking poor people. I wrote about them previously in Earn a 5% Return and Help Fight Poverty Too? but never ended up investing.

These microlending investments offered do carry risk to principal, although historical repayment rates have averaged 97%. I have just finished putting in $1,200 across three different loans of different maturities and interest rates. This a decent chunk of money, but again this is both an investment and a charitable gift. As you’ll see below, I have the potential to earn some interest and/or maintain liquidity. I like the idea of this money being repayed and then loaned out again later, ideally over and over again. My own little mini-foundation. 😉

My Investments
This is an experiment for me, so I wanted to try a variety of investments. I believe that if microlending can be both profitable and successful in reducing poverty, it will really take off. I went with some of the higher-yielding notes and also one with high liquidity. We’ll see how the repayment rates are.

Investment #1: Helping Poor Women in Nicaragua, Earns 4% interest per year, Principal repayment on 12/31/2010.

Investment #2: Help Nicaraguan farmers, Earns 5% interest per year, Principal repayment on 12/31/2011.

Investment #3: Called the Oikocredit Global Community Note, this investment enables loans to the working poor in several developing countries. 1.75% return per year, can redeem anytime. This last one is interesting because you can withdraw your principal at any time. I can already redeem only a day later:

Application and Funding Methods
The application process is very similar to signing up for a stock brokerage account. They will ask you identity information as well questions about your income and investment experience because they are selling securities that carry risk of loss. As for funding the loan, you can either use PayPal or a bank transfer:

Since eBay owns PayPal and Microplace, there are no fees for using PayPal. That means you can switch to a rewards credit card and earn some points or cash along with your investment. Why not? Just be sure to change your PayPal funding source. My credit card charge went through fine.

Got Bonus?
You know me and freebies. After signing up I received another e-mail about a Father’s Day promotion where you can even get a free solar-powered flashlight:

Invest as little as $20 in honor of Dad and MicroPlace will send a free solar-powered flashlight, to Dad. This eco-friendly flashlight will remind Dad how grateful you are for his caring and love. And your investment will help fathers and families work themselves out of poverty so their children can get an education.

Filed Under: Giving Back, Investing //

New PineCone Research Sign-up Link (Paid Surveys)

Posted on June 8, 2009 // 15 Comments

PineCone Research remains one of the better paying and reliable survey companies, with a payout of $3 for each 15-20 minute online survey. The hardest part is getting accepted, as they only accept applications intermittently.

Here is an updated application link at Pinecone. (It probably won’t last long.) Looks open to all ages and sexes. Only one person per household can sign up. Thanks to reader Elena for the link.

I shared my thoughts on Pinecone and paid surveys in general here. I call them Bored Money – not terribly efficient but you can do it at your leisure and occassionally get to try some neat things.

The three survey sites that I have been most active with besides Pinecone are NFO MySurvey, e-Rewards, and SurveySavvy. I like it them because they consistently offer me paid survey opportunities, they pay upon request reliably (important!), and they don’t mind if I don’t do every single survey offered.

Filed Under: Bored Money //

How To Be Happy With Your Work

Posted on June 7, 2009 // 12 Comments

Bud Caddell shows us how to be happy in business with a clever Venn diagram. Very insightful and concise!

Which is harder? Saying no to work that pays well, getting better at something you’re not, or learning to monetize? It was definitely tough for me to say no to something you do well and get paid good money for. I had to save up enough money first to be comfortable with getting better at something else I like better. Via Daring Fireball.

Filed Under: Career, Entrepreneurial //

WT Direct Savings: $75 Bonus For Direct Deposit

Posted on June 6, 2009 // 6 Comments

WT Direct is running a new “Stay Financially Fit!” promotion for their savings account. Ostensibly it’s to help you build your emergency fund with regular savings deposits, but of course you have to do it with WT Direct. 😉 To participate, you must open a new account first or log into your existing account and look for this banner on the Account Summary page.

Now WTDirect can help you stick to your savings plan and bulk up your savings account. Simply take a few minutes to set up Direct Deposit from your earnings to your WTDirect account.

Act now and receive a $75 BONUS*. All you have to do is maintain a balance of at least $10,000 on July 31 and make direct deposits of at least $300 each month between 7/1/09 – 9/30/09.

Equivalent APY?
Finding out exactly how good this promotion is tricky, but I’ll make some simple assumptions. Let’s say you put $10,000 in on 7/31, the interest rate stays at the current 1.76% APY, and take everything out on 10/15. Then you take out everything including the three $300 direct deposits. This roughly equates to 4% APY during that 3.5 month period. Not bad if you can change or split your direct deposits. It seems questionable if other electronic transfers will count as direct deposit:

Bonus will be credited to your account on or about October 15, 2009. A direct deposit is defined as a recurring and automatic electronic deposit transaction of at least $300 per month initiated by a third party source of income, such as employment, pension or social security income. Direct deposit must be from a source not already being direct deposited into any existing account with Wilmington Trust or its affiliates.

Filed Under: Banking, Deals & Offers //

Buffett: Wealth, Estate Taxes, and the Ovarian Lottery

Posted on June 5, 2009 // 49 Comments

I’ve finished reading The Snowball, and one of the things that struck me was how Buffett thought about individual destiny, meritocracy, and wealth. For one thing, he is a wealthy person who supports an estate tax for those with very large estates (currently for those greater than $3.5 million). Here’s a glimpse of why:

Wealth is just a bunch of claim checks on the activities of others in the future. You can use that wealth in any way that you want to. You can cash it in or give away. But the idea of passing wealth from generation to generation so that hundreds of your descendants can command the resources of other people simply because they came from the right womb flies in the face of a meritocratic society.

I also connected strongly with a related concept Buffett termed the “Ovarian Lottery”.

I’ve had it so good in this world, you know. The odds were fifty-to-one against me born in the United States in 1930. I won the lottery the day I emerged from the womb by being in the United States instead of in some other country where my chances would have been way different.

Imagine there are two identical twins in the womb, both equally bright and energetic. And the genie says to them, “One of you is going to be born in the United States, and one of you is going to be born in Bangladesh. And if you wind up in Bangladesh, you will pay no taxes. What percentage of your income would you bid to be the one this is born in the United States?” It says something about the fact that society has something to do with your fate and not just your innate qualities. The people who say, “I did it all myself,” and think of themselves as Horatio Alger – believe me, they’d bid more to be in the United States than in Bangladesh. That’s the Ovarian Lottery.

He also made a comment that if born several hundred years earlier, he and Gates probably would have been some other animal’s lunch because they did not see well and could not climb trees well. I’ve had the exact same thought, as my eyesight is really horrible. If was born in the 1700s, I’d probably be considered a cripple.

This led me to a post by a Kiva Fellow working in Uganda. Kiva is the site where you can lend as little as $25 to low-income entrepreneurs.

Any one of these people could be tremendously successful in America (economically speaking). Maybe a CEO of a prominent company, or a hotshot lawyer who wears a two-thousand-dollar suit to work everyday. But they arent. And the only reason for that is because of where they were born.

[…] I won the ovarian lottery. I am a US citizen; got a good education; enjoy great health; and came equipped with a “engineer” gene that allows me to prosper in a manner disproportionate to other people who contribute as much or more to society. I’m in the top 1% of the entire population of the world.

Kiva, to me, is simply a way for those of us who drew the best tickets in the ovarian lottery to help those who drew less fortunate ones.

Something to spread a little humility. You or I may have worked hard, but that’s doesn’t mean we didn’t get a huge head start from winning the Ovarian Lottery. Would you be where you are if you grew up in a country where nobody would even teach you how to read?

Filed Under: Entrepreneurial, Giving Back //

Why I Don’t Use LendingMatch To Invest With Lending Club

Posted on June 4, 2009 // 23 Comments

Peer-to-peer lending site LendingClub has a feature called LendingMatch that allows you build a portfolio of multiple notes simply by choosing a desired risk profile. Even though I’ve funded over 30 loans, I never touch the thing. Now, I think in general LC does a decent job rating their loans from A1-A5, B1-B5, all the way to G5. But sometimes I just don’t agree with their assessments, and other times I have a more personal objection to the loan. Today, I found an example that fit both.

This loan passed through all of my usual manual filters. A/B grade only, 714+ credit score, debt-to-income ratio < 10%, and zero delinquencies within last two years. The assigned grade was A5, which is quite good overall.

But then I read the details. (If you’re a member, it’s loan #411092.) His reported gross income is $26,000 per year. He’s only been at his current job for only one year. He has been delinquent on accounts before, but last time was over 4 years ago. He has about $18,000 in credit card debt currently. He has 70% of his annual income as debt? To me, that’s like someone making $100k a year before taxes having $70,000 of consumer debt. Seems like quite a burden.

Already skeptical, I then read the loan description. Here it is, after I stripped out what I felt was not important:

This loan will be used to consolidate the remaining balance on two credit card balances and for home improvement. Looking to payoff some credit card debt and add a sunroom to my home. I am coming to the lending club community to help me build a nice sunroom to enjoy a cold glass of iced tea.

Honestly, I didn’t even know what a sunroom was until I looked it up. According to this site, a small 80 sq. ft. sunroom would cost from $5,000 to $15,000. He already has 70% of his gross annual income as debt, and he wants to add another $5,000 to it? That would result in a debt-to-annual income ratio of 90%.

I like the idea of helping people pay down their credit card debt by lowering their interest and consolidating into one payment. But this guy seems to really like being in debt. Now, that’s his choice, but I don’t like the idea of supporting it. Am I alone in thinking this way? I’m thinking I might not be, as his loan request didn’t fund the first time.

You can read about the other details of my LendingClub portfolio here. My annualized return after fees so far is 8.8%.

Filed Under: Investing //
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