Archives for October 2011

Reader Experiment: How Well Do You Know Your Own Spending?

Even though I’m really into personal finance, I hardly ever do a monthly budget. However, I do think a common problem out there is that folks spend more than they think they do. Often this is just in one “problem area” such as groceries, dining out, clothes shopping, or online purchases. Therefore, I propose an experiment where everyone tracks their budgets for just one month. (If you already track your spending religiously, skip this post.) It’s October 31st, so how about November?

I’m doing this myself for November, and I hope you’ll join me. The experiment is quite simple. Here is the overall picture, followed by details.

  1. Before the start of the month, write down what you think you will spend that month.
  2. During the month, track your spending.
  3. At the end of the month, compare your prediction and actual spending results. What was different? Why?

Start of the Month

Without checking any other sources, just use your gut and write down how much you think you’ll spend for the month. Break it down into categories like housing, food, debt, transportation, utilities, and so on. If you’d like to participate in a group project, I’ve created this simple Google Docs form that you can fill out your predictions, and I can report on overall numbers later one. Unfortunately, the form won’t e-mail you a copy of your inputs, but you can record your prediction by printing out this PDF version or use this text file and save it on your computer.

During the Month

If you do the majority of your spending via online billpay, debit cards, and credit cards, then the easiest way to track your spending is with a online money management site like (owned by Intuit) or one of the many flavors of Yodlee out there (Fidelity FullView, Bank of America MyPortfolio, etc). You just enter your login information, and it pulls all your transactions for you. Categorization gets better the more you use it.

Alternatively, you can keep track using pencil and paper, enter expenses into a smartphone app, or use desktop software like Intuit Quicken or iBank for Mac. You could also just wait until the end of the month and tally up your statements, but then this task might become a bit daunting. It’s probably best to keep up with it at least weekly. I plan on using Mint because it’s already learned most of my categories, and it also has a mobile app that lets you enter cash transactions.

End of the Month

The moment of truth arrives. In what areas did you overspend? I’m hoping to get at least 100 readers to fill out this predicted spending survey and then follow-up with an actual spending survey to see how it went. I’ve already entered my numbers and don’t worry, it’s all anonymous. How well do you really know your own spending?

Citizens Bank / Charter One CollegeSaver Account: Potential 6% Annual Return (For Kids, Limited States)

Citizens Bank and Charter One bank have an interesting CollegeSaver bank account for those with children. However, it is only open to residents of certain states in the Eastern and Northeastern US (CT, DE, IL, IN, KY, MA, MI, NH, NJ, NY, OH, PA, RI, VT; enter zip code to verify). Thanks to reader Justin for the tip.

You must open a bank account before the child’s 12th birthday with a minimum amount, and then save a minimum amount every month until the child is 18. (You’re allowed to miss one payment per year.) If you satisfy the requirements, you’ll get a $1000 bonus on the 18th birthday. Here are the details:

The best case scenario would be if your kid is just under 12 years old right now. That’s still a 6-year commitment, but if you contribute the minimums then with the bonus that’s a 6.40% annual rate of return on your money (per savings calculator). Since the bonus is constant, the rate of return drops the younger your kid is (longer contribution period). At just over 6 years old, you’d be locked in for 12 years and your annualized return would be 1.9%.

I would say if your child is 10-12 years old and you have patience, this is not a bad deal. But as this is not a 529, you will owe taxes on the interest. However, the upside is that you don’t have to use the funds to pay for college. The account is opened as a custodial account (UTMA), and thus the account can be opened for the child by anyone. However, depending on the state, the child will get control of the account at 18 or 21.

Zecco Refer A Friend Promotion: $100 Referral Bonus (2012)

Discount broker Zecco Trading has a refer-a-friend offer where a new account holder can get a $100 cash bonus if you are referred by a existing member and fund the account with $10,000 within 60 days of receiving the invitation. A minimum $10,000 balance must stay in the account for the subsequent 90 days. So that’s a guaranteed 1% ROI in 3 months, an annualized return of 4% on your cash. The referring person from the Zecco Friends Program also gets $100. Expires soon on Friday 8/24.

Zecco has $4.95 stock trades, and no minimum balance requirement or inactivity fees. If you would like a referral, please either contact me and I’ll send you one within 24 hours, or use my this direct invitation link for instant access. If you use the link, you must click on the link and apply for a Zecco Trading account in one session.

Thermostat + iPod = The $249 Nest Energy-Saving Appliance?

What happens when a former Apple executive and other top geeks focus their energy on a… thermostat? The Nest Learning Thermostat. I just finished a neat Wired magazine article about this new gadget, which hopes to make saving energy both trendy and hassle-free.

First, it looks like something Apple would make. When the heat is on, it’s red. When the A/C is one, it turns blue. You use it like any other thermostat, turning it up and down whenever, and it’ll even show you how long until you get there. What’s wrong with existing programmable thermostats? For one, they are often so hard to use that half of them aren’t programmed at all. A study actually showed that programmable thermostats used more energy than non-programmable thermostats, which led to the EnergyStar label being pulled for all of them.

How is it better? If you’re being efficient, you get rewarded with a little green leaf icon, nudging you towards more savings. It learns your habits, and uses that to minimize your energy use. If you forget to turn it down on a weekend getaway, it will fix that for you. Or, you can jump online and set it yourself, since it connects via WiFi and stores your energy consumption patterns online. It even has motion detectors built in so it knows if people are around, and it lights up when you approach it. All with just the trickle of power that a normal thermostat gets.

It also costs $249, much more than competing beige thermostats. It’s supposed to pay for itself in two years, so that’s a savings of $10 a month. If it reduces your usage by 20%, that means your current bill should average at least $50 a month.

The Hazards of Combining Overconfidence and Investing

Daniel Kahneman, behavioral economics guru and Nobel Prize winner, has a new book out called Thinking, Fast and Slow. This one is definitely on my to-read list. You may remember him from his TED Talk about Happiness = Earning $60,000 A Year?

He wrote an article for the NY Times called Don’t Blink! The Hazards of Confidence (a little jab at Gladwell?), which covers one of the cognitive fallacies discussed in the book caused by overconfidence amongst professional stock-pickers and money managers. First, he covers what some of you may already know about the performance of actively-managed mutual funds:

Mutual funds are run by highly experienced and hard-working professionals who buy and sell stocks to achieve the best possible results for their clients. Nevertheless, the evidence from more than 50 years of research is conclusive: for a large majority of fund managers, the selection of stocks is more like rolling dice than like playing poker. At least two out of every three mutual funds underperform the overall market in any given year.

More important, the year-to-year correlation among the outcomes of mutual funds is very small, barely different from zero. The funds that were successful in any given year were mostly lucky; they had a good roll of the dice. There is general agreement among researchers that this is true for nearly all stock pickers, whether they know it or not — and most do not. The subjective experience of traders is that they are making sensible, educated guesses in a situation of great uncertainty. In highly efficient markets, however, educated guesses are not more accurate than blind guesses.

The second story was more personal, and had to do with a small group of financial advisors.

I asked for some data to prepare my presentation and was granted a small treasure: a spreadsheet summarizing the investment outcomes of some 25 anonymous wealth advisers, for eight consecutive years. The advisers’ scores for each year were the main determinant of their year-end bonuses. It was a simple matter to rank the advisers by their performance and to answer a question: Did the same advisers consistently achieve better returns for their clients year after year? Did some advisers consistently display more skill than others?

To find the answer, I computed the correlations between the rankings of advisers in different years, comparing Year 1 with Year 2, Year 1 with Year 3 and so on up through Year 7 with Year 8. That yielded 28 correlations, one for each pair of years. While I was prepared to find little year-to-year consistency, I was still surprised to find that the average of the 28 correlations was .01. In other words, zero. The stability that would indicate differences in skill was not to be found. The results resembled what you would expect from a dice-rolling contest, not a game of skill.

My, that must have been an uncomfortable presentation! Investing is an area where it is very hard to discern skill from luck, so be careful when asked to pay a nice chunk of money for it, be it through mutual fund expense ratios or portfolio management fees.

American Express Network: $40 Off $200 Purchase at Lowe’s

The following offer is targeted at American Express Business Platinum cardholders, but has been reported to work successfully with all American Express cards. The deal is if you register your card at and make a single purchase of $200 or more at Lowe’s by November 15, 2011, you will receive a $40 statement credit. It would appear one good way to test this is to make a $200 gift card purchase at Lowe’s, either for a Lowe’s gift card or some other retailer gift card that is available in-store. Then you can use the gift card with any other available coupon later.

To be eligible for this offer, you must be the named recipient of this invitation and register your American Express Business Platinum Card® at between 9/5/2011 and 11/15/2011. You may only register one Card for this offer. Using your registered Card, you must make a single purchase of $200 or more between 9/5/2011 and 11/15/2011. If your Card is replaced during the promotional period, please call the customer service number on the back of your Card for assistance. Limit one offer per Card member. Statement credits are generally issued within 5 business days after your qualifying purchase, but may take up to 2 billing cycles to post to your account. The reward of $40 will be credited to your registered Card account as a statement credit. Additional terms apply; see Registration Terms and Conditions.

I tried my trusty Starwood American Express and AmEx Blue Cash back card and both went through successfully, and I also got a confirmation e-mail. Lots of home improvement going on recently, so I’ll follow up to see if I get the $40 credit.

Balanced Portfolios Do Equally Well in Economic Recessions and Expansions

Vanguard’s research division published a new report [pdf] that found that a portfolio split 50/50 between stocks and bonds had very similar inflation-adjusted returns regardless of whether the U.S. economy was growing or in recession. Here are the numbers from 1926-2009 taken from the report summary:

Given that timing recessions and expansions has been shown to be very difficult, this would suggest that making big asset allocation moves (bets, really) to 100% stocks or 100% bonds in anticipation is not worth the effort.

It also reminds me that as a portfolio asset allocation gets closer to 50/50, the swings in return each year are less wild. After 2008 and 2009, I think many people have a new appreciation for lower volatility. Maybe it would be better for many investors that don’t have full “faith” in the stock market to move their asset allocation to 60% stocks/40% bonds or similar, instead of the 80 or 90% stocks that some calculators or target-date retirement funds would suggest.

Along those same lines, Morningstar has found that most “tactical asset allocation” funds have had a hard time beating the simple-and-cheap Vanguard Balanced Index Fund (VBINX), which is basically just two index funds in a fixed 60% stock/40% bond ratio. The 10-year returns are in the top quartile of similar funds, with a below-average standard deviation.

Vanguard recently decided to kill off it’s own market timing fund, the Vanguard Asset Allocation Fund, formerly actively managed by Mellon Capital. Even a low expense ratio of 0.27% couldn’t save this one.

Needs vs. Wants, Scaling Your Luxuries, and Conscious Priorities

There was a thought-provoking NYT article about luxuries last week that pointed to a 2006 report by the Pew Research center that surveyed Americans on what they considered “necessities” versus “luxuries”. Some things have become more accepted as a necessity over time:

Other things have stayed “needed” on a constant level, like having a car, TV, or clothes washer. I stewed on this over the weekend, because right now I have all 7 of those things listed above. But as recently as 10 years ago, I only had a computer, broadband internet, and a microwave. No car, no washer/dryer, no air conditioning, no dishwasher.

Are any of these really a need? Even if you live somewhere hot, somewhere in the world there are people living in the same conditions without air conditioning. My wife’s grandmother still used a washboard to clean her clothes up until recently. On top of that, each of our needs or wants can be scaled up or down. You may “need” a car for work, but that car can cost $200,000 or $20,000 or $2,000. A house can cost $1,000,000 or $100,000 or less. Even a TV can cost $2,000 or free (you can’t even give away a tube TV these days). You could run your A/C all day long, or set the thermostat to 83 like my dad does.

It would seem that the real decision is more about priorities. Somewhere in those spending priorities is saving for a rainy day, or saving for retirement. Some people are effectively making the decision that they want to live in a 3,000 sf house instead of a 1,500 sf house than, rather than stop working period 5 years early (or work part-time instead of full-time for 10 years). Is that wrong? I don’t necessarily think so, if that’s their choice. In the end I couldn’t think of any easy answers, but hopefully we start making our choices more consciously rather than just going along with others.

Two Movie Tickets From for $12

Daily deals site KGBDeals has a national deal of 2 movie tickets for $12. Each ticket has a maximum value of $12 (total $24). Supposedly has 13 days left, but with over 9,000 sold it may sell out.

Valid until January 31, 2012 and are good for one-time use only. Available for redemption starting October 31, 2011. Valid for use toward 2 tickets with maximum value of $12 per ticket (maximum total value $24). Both tickets must be purchased together in the same transaction for the same movie and showtime. Not valid on IMAX or 3D movies.

p.s. Groupon also has $20 for $40 at The Body Shop as their national deal. 54,000 bought already, perhaps a good value for gifts?

FedEx $25 “Shop Small” Gift Card For Small Business Saturday

In addition to the $25 statement credit for American Express cardholders, FedEx has a separate promotion where they will be giving out $25 “Shop Small” AmEx gift cards in support of Small Business Saturday through a Facebook promotion. You’ll need a Facebook account and visit their page at starting on November 1st. First 30,000 who submit their mailing addresses only. From one press release:

FedEx recently announced it would inject $1 million into the small business economy in support of Small Business Saturday by distributing 40,000 $25 Shop SmallSM American Express® gift cards for use at small businesses on November 26. A total of 30,000 gift cards are available, first-come-first-serve, beginning November 1 on FedEx will distribute an additional 10,000 gift cards directly to customers.

I’m not sure how the 10,000 gift cards “directly to consumers” will work. From another press release:

Shoppers will be able to obtain their free $25 gift cards from the FedEx Facebook brand page beginning November 1. For a limited time, shoppers can register and share the offer with friends with a few simple clicks. By providing a mailing address, the cards will be shipped to the first qualifying 30,000 consumers in time for them to get out and shop on November 26, Small Business Saturday. Only one Shop Small Gift Card will be sent to each Facebook ID that registers. There are no consumer fees of any kind associated with the Shop Small Gift Card.

Citi Forward Card Review & Improved Offer – $100 Gift Card Bonus

Update: Also check out the Citi Forward® Card for College Students.

As I was reminded in my best cash back credit cards post, the Citi Forward card is a great rewards card for those who spend a lot on restaurants and at That’s not everyone, but sure sounds like me in my 20s. Okay, okay… it sounds a lot like me now. What can I say, I still love food, friends, and Amazon Prime 2-day shipping. 🙂 I have this card saved as the default card on my account for the 5x points, choosing this card over the Amazon-branded credit card. Why?

The Citi Forward® Card earns 5 points for every $1 you spend on restaurants, book stores including, video rental stores, and movie theaters. On everything else, you get the plain vanilla 1 reward point for every $1 spent. The important part is that I have confirmed that all purchases count as a bookstore under their categorization system (books, textbooks, music, electronics, cool pumpkin-carving tools, etc).

The news here is that they just added a new 10,000 ThankYou point sign-up bonus, redeemable for $100 in gift cards for new cardholders to stores like Home Depot, Macy’s, Gap, etc. You must make $650 in purchases and sign up for paperless statements within the first 3 months. That is the best sign-up offer they have ever had for this card, as I got this card when it first came out.

Alternative for 10k points include a $100 gift card, or you can also get a check for $100 towards your student loan and/or mortgage. You also get another 100 points each month just for paying your bill on time and not going over your credit limit. No annual fee.

Savings I Bonds September 2011 Update: 3.06% For Next 6 Months

New inflation numbers are out for September 2011, so it’s time for the usual semi-annual update.

New Inflation Rate. March 2011 CPI-U was 223.467. September 2011 CPI-U was 226.889, for a semi-annual increase of 1.53%. (CPI-U increased 3.9% over last 12 months.) Using the official formula, the variable interest rate for the next 6 months will be approximately 3.06%, depending on the upcoming fixed rate announcement.

Purchase and Redemption Timing Tips. You can’t redeem savings bonds until after 12 months, and any redemptions within 5 years incur a interest penalty of the last 3 months of interest. A known “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month. It’s best to give yourself a little buffer time though, since if you wait too long your effective purchase date may be bumped into the next month.

Buying in October. If you buy before the end of October, the fixed rate portion of I-Bonds will be 0.0%. You will be guaranteed an variable interest rate of 4.60% for the next 6 months, for a total rate of 0 + 4.60% = 4.60%. For the 6 months after that, the total rate will be 0.0 + 3.06 = 3.06%. Let’s say we hold for the minimum of one year and pay the 3-month interest penalty. If you buy at the end of October 2011 and sell at the beginning of October 2012, you’ll earn a 3.34% annualized return for an 11-month holding period, although you may want to hold it longer as new interest rates are announced. This is much better than any 1-year FDIC-insured bank CD available right now, keeping in mind the liquidity and purchase limits.

Buying in November. If you wait until November 1st, you will get a new unknown fixed rate + ~3.06% for the first 6 months, and an unknown rate based on ongoing inflation after that. Based on the current market rates of Treasury Inflation-Protected Securities (TIPS), in my opinion it is very likely that the new fixed rate will remain zero. A lot of uncertainty with this route.

Existing I-Bonds? If you have an existing I-Bond, the rates reset every 6 months (depending on your purchase month). Your monthly rate = your specific fixed rate + variable rate. Even at a low fixed rate, your existing savings bonds are paying much more than current savings accounts, so be very sure if you wish to redeem them.

Beware Low Purchase Limits. The annual purchase limit is $5,000 in paper I-bonds and $5,000 in online I-bonds per Social Security Number for 2011. For a couple, that’s a $20,000 total cap per year. If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number

Buy online at As for paper, here is a post on how to buy paper savings bonds from your local bank. Paper bonds will be ended in 2012, except through a small window by overpaying your taxes on purpose.

With the interest rate calculations above, we find that savings bonds still pay much more interest than equivalent bank CDs with the same low risk. Also, interest on savings bonds is not subject to state income taxes as well as other unique tax advantages. I’m buying up to our limits and keeping all of my existing bonds for the foreseeable future. For more background, please see the rest of my posts on savings bonds.