Amazon Mom 3-Month Trial + 50% off Diapers

Amazon Mom is a program that has some nice perks for parents (open to anyone… mom, dad, grandparent, or caretaker). The main draw is the 20% off diapers & wipes (5% Subscribe & Save discount + 15% Amazon Mom discount) and the fast shipping.

If you already pay for Amazon Prime at $99 a year, you can sign up for Amazon Mom for free. New Prime/Mom members are eligible for a 3-month free trial of Prime (must not have had free trial previously on your account) where you’ll also get the free 2nd-day shipping of Prime but not the video streaming or free Kindle book borrowing. Canceling is easy, you can even cancel the trial ahead of time while still getting the remainder of your 3 months.

Right now, new Amazon Mom members with free or paid Prime who join between March 27, 2014 and April 10, 2014 get 50% off their first pack of eligible diapers. You can still use Subscribe & Save to lower the price even more. Details in link.

Do We Regret Paying Off Our Mortgage? One Year Update

It has been a year since we paid off our mortgage early. I already discussed our reasons for doing so in that post, so I won’t repeat them here. I also wrote a really long post on every single facet I could think of in the Pay Off Mortgage Early vs. Save More For Retirement debate. So I won’t go into that here either.

But how do we feel a year later? Did we regret it? Let’s take a look at what happened from March 2013 to March 2014.

Mortgage rates bounced around a bit but in general look to be about half a percentage point across the board. (Source: HSH.com) I probably couldn’t get the same mortgage rate I had before anymore, but it would still be a pretty low rate historically.

hsh_march2013

Investment returns over the last year were quite robust. If I model my portfolio roughly with the Vanguard LifeStrategy Growth Fund (VASGX) which is a low-cost index fund split roughly into 80% broadly diversified stocks and 20% broadly diversified bonds, my trailing 1-year return would be 15%.

vgasx_march2013

Bond interest rates in particular went up overall. The 10-year Treasury Bond rate went from 1.8% to nearly 2.8% over the last 12 months. (Source: FRED)

fred_march2013

(Note I don’t talk about the value of my home. This is because paying extra towards your mortgage early is not an additional investment in your house. You already own the house so you are already exposed to any change in home value regardless of your mortgage size. The mortgage is just another debt with an interest rate.)

So interest rates went up and we could have earned more money investing the money in my portfolio rather than pay down my 3% mortgage. Well, if I had a time machine maybe that would matter. But in reality it has been great. The lack of a mortgage reduced our monthly expenses significantly. We have been able to work less and got to spend an entire year watching our colicky baby grow into walking, talking, little person (meaning we are still more tired than ever before, ha) while still maintaining good cashflow and thus minimal financial stress. I’m not saying this applies to anyone else, but paying off our mortgage early has worked out well for us.

Mortgage Interest Tax Deduction Doesn’t Help Homeownership?

The mortgage interest tax deduction primarily helps the wealthy buy bigger houses rather than increase homeownership rates, according to a new study quoted by this WSJ article. The study found that such tax benefits have help increase the size of house by as much as 18% in affluent areas. Here is a graphic of the average annual tax savings from 10 major metro areas, broken down into households earning over and under $100,000 a year.

wsjbigben

My non-political thoughts:

Don’t overestimate the benefit of the mortgage tax deduction. It is easy to simply take your marginal tax bracket (say, 28%) and say that you’re saving 28% on all your mortgage interest. But mortgage interest is only tax-deductible if you itemize, which encompasses just 30-40% of Americans. Even then, you should consider the incremental savings above the standard deduction.

Everyone can take the standard deduction, which in 2014 is $12,400 for married filing joints and $6,200 for single filers. Let’s say your mortgage is for $250,000 and the interest rate is 4%. That’s $10,000 in interest annually. So far, the married folks have no tax benefit at all! You would need a lot of other deductions like state income tax, property tax, and charitable contributions to push you over the hump. For example if you have $7,400 in other deductions, then only half of your mortgage interest ($5,000 out of $10,000) is actually saving you anything extra in taxes.

Accordingly, the study quoted above also found that homeowners with incomes above $100,000 were between three and four times as likely to claim the tax benefit as those earning less than $100,000.

Even if you do itemize and have a high income (~$254k for single, ~$305k for married filing joint), look up the new Pease Limitation which reduces the value of various deductions including mortgage interest, state/local taxes, and charitable contributions.

Be prepared that the mortgage interest tax deduction may go away. I’m not going to talk about whether or not it should go away, but realistically there is a chance that it will. If it does disappear, it think it would be done gradually to prevent a shock to housing prices. However, I wouldn’t buy a house where I am depending on the tax deduction to maintain affordability. Tax laws change.

My prediction is that the mortgage interest tax deduction is still too popular to be completely nuked. Most likely there will be more legislation that nibbles around the edges like the mentioned Pease limitation that does a income phase-out or the total loan amount allowed will be reduced from the current $1,000,000 cap.

The Up Side of Down: A Book About Failure

upsidedownFailure. Or as Megan McArdle puts it – “deep, soul-crushing periods of misery following stupid mistakes that kept me awake until the small hours of the morning in a fog of anxiety and regret.” Yup, I’ve been there.

I was afraid that the new book The Up Side of Down: Why Failing Well Is the Key to Success was just going to tell me “don’t give up” over 300 pages. I read it anyway because I enjoyed reading some of the author’s other online articles (mentioned here, here), and I’m glad I did because the book actually looks at failure from a lot of interesting and different perspectives. While sorting through my notes, I managed to batch them into three larger themes:

You shouldn’t hate failure so much. “Keep on trying” is indeed one of the themes (just not the only one). Failure is often a critical part of success. As such, we really shouldn’t be so afraid of it assuming the potential result isn’t truly catastrophic.

  • There are very few entrepreneurs with multiple big successes. Instead, there are a lot of entrepreneurs with a lot of failures both before and after their single big success. The rest of us just never hear about the failures. As they say, “you only need to get rich once”.
  • Good judgment comes of experience – and experience comes from bad judgment!
  • This reminded me of that fact that a huge part of website development these days is little experiments and iteration. Not sure which is better? Try both (A/B test) and see. Try lots of small incremental changes and see what works. Fail and learn quickly.
  • When you ask people “What is the best thing that ever happened to you?” the answer is often a failure. A divorce that leads to a great new relationship. Hitting bottom and getting sober. Being fired from a steady but boring job, which forces you to help start a small business.
  • I just read an interview with Howard Marks, a famous investor and founder of Oaktree Capital (I also read his book). Even he got rejected from his dream job – “If it hadn’t been for that bit of bad luck, I could have spent 30 years at Lehman Brothers”.

Still, people really hate failure. It may be evolutionary, but people have developed many behavioral and cognitive biases to protect them from the pain of failure.

  • Finding a job can be soul-crushing because it involves repeated attempts and repeated failures. This is why many people give up and simply stop looking after a certain period of unemployment. The prospect of all those rejections is also why many people don’t start looking until their unemployment benefits are about to run out.
  • Normalcy bias is the tendency to act as if things are fine when they are obviously not. The long, gradual decline of General Motors is presented as an example until they were finally forced into bankruptcy (failure!) and is now making a comeback. This reminded me of Warren Buffett’s warnings about the upcoming crisis in municipal pension obligations.
  • Confirmation bias is the tendency to only see evidence that supports your theory and ignore any contradictory evidence. Book examples include the Dan Rather Killian documents controversy and the NASA Challenger disaster.
  • This reminded me of Charlie Munger and his principle of inversion (read his book too!). Always try to look at things backwards. For example, instead of looking for things that you should do to achieve a goal, consider making a list of things you would do to make sure you never reach that goal. Then make sure not to do those things.

Therefore, attitude is very important.

  • The people most likely to find work are the ones who keep trying every day (treating job-seeking as a job itself) and those who are willing to compromise (lower pay, move cities). Unemployment is like a big, dark room with just one exit. Only the ones who keep looking will get out (unless you’re really lucky). The idle will stay in the dark room forever.
  • Studies have found that successful people believe that outcomes depend on their decisions. The key word is believe. Even if it isn’t actually true that it is all about your personal decisions, it helps when you believe it is true.
  • In order to help make people have a better attitude, it is best for the system to “punish” failures with consistent, immediate corrections with an emphasis on rehabilitation rather than retribution. If people admit that they were wrong, let them fail, hit them with a penalty, but give them the chance to pick themselves back up.
  • The paradox of forgiveness. It has been helpful for this country to have bankruptcy as an option (as opposed to debtor’s prisons or lifelong servitude), but only because as a whole our country places a large stigma on bankruptcy and fewer people take that option than you would expect using cold math.

Discover It Double Cash Back your first year Review: Improved, 10% Cash Back Categories, Free FICO Score

Discover it 14 ImageScrappy little Discover is trying something bold. They’ve chucked everything and started fresh with only one card – the new Discover it® Double Cash Back your first year. (Yes, lowercase, don’t ask me why.) No longer promoted are the Discover More, Motiva, Open Road, Escape, and Miles cards.

In fact, you may want to convert your old Discover card to this one. The new card is a definite improvement over the old products, with many positive changes in direct response to the competition. Here are the highlights:

  • We’ll double all the cash back you’ve earned at the end of your first year. So if you earned $101 cash back, we’ll double it to $202—Automatically. Only for new cardmembers.*
  • 5% cash back in categories that change each quarter like gas, restaurants, home improvement stores and more—up to the quarterly maximum when you sign up.* 1% cash back on all other purchases.
  • 0% intro APR* on purchases & balance transfers for 12 months—then a variable purchase APR applies, currently 11.24% – 23.24%. A 3% fee applies to each transferred balance.
  • Freeze It? on/off switch lets you prevent new purchases, cash advances & balance transfers on misplaced cards in seconds by mobile app & online.* Plus get 100% U.S.-based service.
  • Track your recent FICO® Credit Scores for free in one easy-to-read chart on monthly statements & online.*
  • No annual fee.* No overlimit fee. No foreign transaction fee. No late fee on first late payment & paying late won’t raise your APR.*
  • Each Discover purchase is monitored. If it’s unusual, you’re alerted by e-mail, phone or text and you’re never responsible for unauthorized purchases on your Discover card.
  • *See rates, rewards, FICO® Credit Score terms & other information.

Is it really a game-changer? Well, no. It’s not quite “one card to rule them all”, but it does combine the good bits from several other popular cards (Chase Sapphire, Chase Freedom, Citi Simplicity) to create a competitive offering. I like the 10% categories that are usually pretty broad and useful.

Discover is still the underdog to American Express/Visa/Mastercard, but it has its own perks. There are bonuses above cash back value for certain gift card redemptions. Their ShopDiscover cashback portal also often has the highest percentages for online shopping merchants, like 10% at Sears, better than eBates and such. Finally, Discover card has a lot of consumer features like return protection and an extended warranty that extends the manufacturer’s warranty for up to an extra year.

Basically, this Discover card is certainly improved and a worthwhile addition to your wallet, although rewards geeks like myself probably won’t it the only card in our wallets. 😉

Existing cardholders. I have not gotten any communication from Discover that my existing cards will be converted to an “it” card automatically. Readers report that if you call them up, they will convert you to the new card manually for free. You get to keep your same card number and thus credit history. Certain people with annual fee miles-type cards or those doing a 0% balance transfer promotion may prefer to stay, but again I think this card is definitely better than the plain Discover and Discover More cards.

“Disclaimer: This content is not provided or commissioned by the issuer. Opinions expressed here are author’s alone, not those of the issuer, and have not been reviewed, approved or otherwise endorsed by the issuer. This site may be compensated through the issuer’s Affiliate Program.”

“The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.”

The Power of Compound Interest Shown in a Single Chart

It’s not just how much you save, it’s when you save that matters. The best time to start is now. This is the power of compounding returns, which this single chart will help you visualize:

jpcompound

  • Susan (grey) invests $5,000 per year from age 25 to 35 ($50,000 over 10 years) and stops.
  • Bill (green) invests $5,000 per year from ages 35 to 65 ($150,000 over 30 years).
  • Chris (blue) invests $5,000 per year from ages 25 to 65 ($200,000 over 40 years).

You’ll note that Susan still ends up with more money than Bill, even though he invests three times as much money over 30 years, all because Bill starts late. Susan and Chris start out the same, except that Susan stops after 10 years while Chris keeps going. Chris only invests $100,000 more than Susan, but ends up with $500,000 more money in the end. A 7% annual return is assumed.

The chart is from a JP Morgan slide deck for their asset managers, via Business Insider.

I’m also reminded of Warren Buffett and his Snowball biography – “Life is like a snowball. The important thing is finding wet snow and a really long hill.”

American Airlines Free Bonus Miles – Facebook Required

aapassAmerican Airlines has a new AAdvantage Passport Challenge where you can earn free bonus miles for various small activities:

  • Play trivia and other games to earn up to 700 miles
  • Share and complete social actions to earn up to 350 miles
  • Take flights to earn over 9,000 miles

You’ll need a Facebook account, but it does present a good way to reset your miles expiration date at no cost. AA miles currently expire after 18 months of inactivity.
You should get 50 miles just for the Like, but I also did the first quiz “New American Trivia” to make sure I get some miles. You get less points if you missed questions, so here are answer hints:

  • More 330 locations, more than 50 countries.
  • Last 4 airports are Chicago O’Hare, Charlotte Douglas, Philadelphia and Phoenix.
  • American Eagle
  • aa.com/findyourway
  • All of the above.

Update: I did the 2nd tail fin quiz too. They were the same for both of our accounts, so here you go: 323 121 322 132.

That was the low-hanging fruit, I skipped the rest for now. Per the terms and conditions, “Bonus miles will be awarded within 3-4 weeks after the promotion period has ended”.

LearnVest 50/30/20 Budgeting Pie Chart

LearnVest is (yet another) online financial advisor, but they are more focused on money management and life planning than nitpicking asset allocation details. Founder Alexis Von Tobel’s book Financially Fearless is on my (long) reading list, and here is one reason why – Per this Businessweek article, their budgeting advice is based on splitting up your take-home pay into three major categories with their 50/20/30 plan:

lvpaycheck

  • 50% towards Essentials, which includes housing, transportation, utilities and groceries.
  • 20% towards Savings, which can be retirement accounts, emergency funds, or debt payments.
  • 30% towards Lifestyle Choices, which are whatever things you value and make you happy. Eating out, shopping, childcare, cell phone plans, entertainment, and so on.

This is an interesting way to make people streamline their budgets. I don’t recall any other personal finance book breaking things down like this. 20% is a pretty good starting point for savings, and I like that there is explicit room for the fun stuff. (Though the fact that “childcare” is under Lifestyle Choices may be somewhat controversial. If you pay for daycare, it is not uncommon for that to be a huge chunk of your expenses.)

LearnVest has several free features and mobile app, including a Mint.com-like app that tracks your spending and matches it up with their 50/20/30 pie chart. However, they will try to upsell you a more personalized advice packages with Certified Financial Planners. Their target demographic is young professional women, but I didn’t really notice when using it briefly so far. Anyone else use them for longer?

Barron’s Best Online Broker Rankings 2014

barron2014Weekly business newspaper Barron’s just released their 2014 annual broker survey rankings. Here’s a snippet about their criteria (emphasis mine):

Our evaluation criteria focus on the needs of wealthy, active traders. We looked at eight categories of service, examining what can be traded online, how the tools work together across platforms, the design and capabilities of mobile platforms, educational offerings and customer service, as well as the nuts and bolts of placing and executing a trade. We closely scrutinized the various tools available for finding appropriate trades, including scanners and charts. When examining costs, we considered stock and options commissions as well as platform or maintenance fees, margin debt, and charges for transferring an account out.

Their overall winner was again Interactive Brokers, a broker designed for highly-active traders with an extensive feature set, low commissions, and low margin rates. However, IB also has a minimum opening balance of $10,000, a minimum monthly fee of $10 even if you don’t trade at all, and customer service that does not cater to casual investors. They recently starting waiving the $10 minimum monthly fee if your account value is at least $100,000.

I am not an active trader, but I still like having real-time quotes, a clean user interface, and helpful customer service when I need it. Thankfully, Barron’s again ranked the brokers for the rest of us:

Top 5 Brokers for Novice Investors

  1. TD Ameritrade. Performed well in customer service & education, research tools, and mobile offerings. Improved desktop site and mobile apps integration. Free real-time quotes from NYSE, AMEX, and NASDAQ Level 1 and 2.
  2. Fidelity
  3. E-Trade
  4. Charles Schwab
  5. Capital One Sharebuilder

Top 5 Brokers for Long-Term Investing

  1. TD Ameritrade. The only broker to provide a wide range of commission-free ETFs from various providers (not just their own in-house ETFs).
  2. Fidelity
  3. Charles Schwab
  4. Merrill Edge
  5. E-Trade

Top 5 Brokers for In-Person Service

  1. Scottrade. Scottrade has over 500 physical branches across US, so that when you call you reach a human in that local branch. Free in-person educational seminars are offered as well.
  2. Merrill Edge
  3. Charles Schwab
  4. Fidelity
  5. TD Ameritrade

Reading through the entire article, most of the brokers made a few incremental changes (better mobile app, new options tools) but nothing game-changing. So it shouldn’t come as a surprise that for the three niche rankings above, the Top 5 ended up exactly the same as the 2013 rankings. Again, Vanguard’s brokerage declined to participate and thus was not eligible for the rankings.

Can You Ace This 3-Question Financial Literacy Quiz? – Only 1/3 of Americans Surveyed Did

There is a lot of policy talk about increasing financial literacy in order to improve people’s decision-making. The Conversable Economist blog discusses a paper that digs into this subject, called “The Economic Importance of Financial Literacy” (found via Counterparties). In order to measure current levels of financial knowledge, a very short survey was conducted on a nationally representative group of Americans age 50+ to. Only 34% of respondents answered all three questions below correctly:

Suppose you had $100 in a savings account and the interest rate was 2 percent per year. After 5 years, how much do you think you would have in the account if you left the money to grow:

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Imagine that the interest rate on your savings account was 1 percent per year and inflation was 2 percent per year. After 1 year, would you be able to buy:

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Do you think that the following statement is true or false? “Buying a single company stock usually provides a safer return than a stock mutual fund.”

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The first question measures numeracy or the capacity to do a simple calculation related to compounding of interest rates. The second question measures understanding of inflation, again in the context of a simple financial decision. The third question is a joint test of knowledge about ‘stocks’ and ‘stock mutual funds’ and of risk diversification, since the answer to this question depends on knowing what a stock is and that a mutual fund is composed of many stocks.

If you’ve been following this subject, sadly this isn’t be a surprise. Many similar tests confirm that the level of financial literacy in the U.S. is low. There is a lot of debate about the best way to solve this problem, from high school classes to adult education programs. Nothing has been found to be all that great (so far).

My take is that we should continue working on financial education as there is a lot of room for improvement, but also consider that many poor financial decisions can’t be solved by learning some definitions. The root cause is often a lack of non-academic skills like self-control, ability to delay gratification, and persistence. Most people know that they should spend less and save for the future. They just don’t necessarily do it.

Statistical Proof of Lifestyle Inflation!

The idea that as people earn more, they tend to spend more as well has been termed lifestyle inflation. Derek Thompson in this Atlantic article illustrates this concept using data from the Bureau of Labor Statistics. A family led by a high-school graduate has average annual spending of $35,000. A family led by a Bachelor’s degree holder earns and spends nearly double that at $63,000. Yet both groups spend about 50% of their income on housing and transportation, much like the average household:

housingcars

Families with radically different incomes—from lawyers and doctors down to high-school dropouts—all spend about half of it on homes and getting around, which suggests an historically tight relationship between marginal income growth and marginal spending growth on real estate and transportation. You get a raise, you shack up with roommates. You get another raise, you get nicer studio. A bigger raise and you move out to the suburbs and buy a house—commensurably increasing your spending on transportation (bigger car + gas).

We earn more, and we use that extra money to buy bigger houses, nicer cars, and more gas. This blog talks a lot about financial independence, and for most people early retirement is all about your savings rate. Most people spend over 95% of what they earn (source). Early retirement involves spending closer to 60%.

However, we tend to hang out people of similar income and thus we are pulled into “keeping up with the Joneses”. Even if you earn a comfortable income that is well above average, lifestyle inflation can kill any dreams of early retirement. Focusing on managing the big targets, housing and transportation costs, can help.

See also: Your Entire Financial Life in One Deceptively Simple Chart

Uber Car Service Promotion Codes: Free $$ Ride Credits

Update: Get over $100 in additional free ride credit from competing car services here!

Uber is a service that allows you to summon a ride via a private car or taxi using just your smartphone. All payment including tip is put on your credit card via the smartphone app, making it a cashless transaction. Your smartphone knows where you are, so you can tell how far away the nearest car is as well as estimate your total fare ahead of time.

There are a few different flavors (from cheapest to most expensive): UberX, UberTAXI, UberVAN, UberBLACK (black town car), UberSUV, UberLUX. UberX involves private individuals driving their personal cars, and recently announced price cuts in 36 cities making them 25% cheaper than taxis.

Right now new users can get $30 off their first ride by signing up for a new account using this invite link: https://uber.com/invite/uberMYMONEYBLOG. This is triple the usual $10 offer for a limited time, and contains my personal referral code uberMYMONEYBLOG for which I’ll get a free ride as well. Works anywhere in the USA. Good for all ride options.

(You can no longer stack multiple promo codes on top of each other.)

Bonus: Get $25 credit towards any hotel stay booked through the Hotel Tonight app. Sign up online at this link with promo code JPING2 for $25 in credit (new customers only). Then download the Hotel Tonight app (Apple or Android). More info here.