Maslow’s Hierarchy of Needs & The Portfolio Investment Pyramid

Yesterday, I looked back at extending the Maslow Hierarchy of Needs to Personal Finance. The basic idea of the triangle or pyramid is that lower needs must be satisfied before the higher needs can be addressed. For example, one must first obtain food and water before worrying about protecting my property. In terms of personal finance, you need to cover your food and shelter bills before worrying about homeowner’s insurance premiums.

Now let’s explore how investment professionals have extended this concept to portfolio investing. Again, the bottom level is the most important and forms the “base” of a solid portfolio. After that, you can move on the next concern. You can see that there is debate even amongst experts as to relative importance.

Here’s Christine Benz of Morningstar in How Do Your Financial Priorities Stack Up With Our Pyramid?

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Here’s Morgan Housel of Fool.com in The Hierarchy of Investor Needs:

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Here’s Cullen Roche of Pragmatic Capitalism in Thoughts on the Hierarchy of Investor Needs:

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The four common factors are:

  • Security Selection
  • Tax Efficiency
  • Investor Behavior
  • Asset Allocation

Two out of the three proposed pyramids above have Investor Behavior as the most important. I can see how this factor has the greatest impact on real-world returns, but it is also the hardest to really quantify ahead of time. You can write down on a piece of paper “I will not panic during the next crisis but will do XX instead” but that doesn’t mean you’ll actually do it (though it will probably help on average). In addition, it is also intertwined with asset allocation since the less your portfolio value drops in a bear market, the more likely you’ll stick with your plan. Meanwhile, you can quantify fees and transaction costs quite easily.

I think this debate makes for interesting conversation for investing geeks like myself, but in the end a good investor would address all of these factors. For example, I would never put off examining fees just because it is at the top of such a pyramid.

Google Translate: Free, Real-Time Language Translation While Traveling

gtranslateicoBack in 2014, Google bought Word Lens, a neat app that translated a few languages in real time using your smartphone’s camera. The live translation feature has been integrated into the Google Translate app (Android and iOS) and now works with 27 languages. If you snap a picture, it works with 37 languages.

This means when traveling to a foreign country, just point your phone at a restaurant menu, grocery store item, or street sign and you’ll see it in your home language. This counts as a deal for me because I would pay money for such a convenient and useful app. But it’s free, and you don’t even need an internet connection to use it (assuming you download the appropriate language packs ahead of time).

Here’s a cool video demonstration (embedded below, direct link):

Here’s the announcement on the official Google blog:

We started out with seven languages—English, French, German, Italian, Portuguese, Russian and Spanish—and today we’re adding 20 more. You can now translate to and from English and Bulgarian, Catalan, Croatian, Czech, Danish, Dutch, Filipino, Finnish, Hungarian, Indonesian, Lithuanian, Norwegian, Polish, Romanian, Slovak, Swedish, Turkish and Ukrainian. You can also do one-way translations from English to Hindi and Thai. (Or, try snapping a pic of the text you’d like translated—we have a total of 37 languages in camera mode.)

There is also a conversation mode where you can speak and it will provide instant translation of conversations across 32 languages (good for interactions at hotels, train stations, or taxis). I believe you’ll need an internet connection for this, but it supposedly now works better with slower connections.

I tried it out and while it really only works with clearly printed text, it is still an amazing application of augmented reality. I look forward to having it expand to even more languages like Chinese, Japanese, and Korean.

Combining Maslow’s Hierarchy of Needs & Personal Finance

Updated. You may or may not be familiar with Maslow’s Hierarchy of Needs, which is part of one theory explaining human behavior by psychologist Abraham Maslow. It suggests that there are five general levels of needs:

  • Physiological
  • Safety
  • Social
  • Esteem
  • Growth

These are often represented as a triangle due to their relative importance. Lower needs must be satisfied before the higher needs can be addressed. For example, one must first obtain food and water (physiological) before worrying about what might happen if they get in a car accident tomorrow (safety). It’s just a theory, but an interesting one.

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While not all of these needs can be explicitly bought with money, it’s not too much of a stretch to see the relationship between this triangle and finances. We usually worry about paying for rent and food first before worrying about giving to charity or that long distance telephone bill.

In the book Retirement Income Redesigned, the authors make a close correlation between the hierarchy of needs and planning for retirement. Here is a figure from the book:

maslowmoney600

The new levels:

  • Survival income. How much do you spend simply to survive?
  • What-if income. You will want to protect your life. This could mean health care costs, health insurance, and/or proper portfolio planning so you don’t outlive your money.
  • Freedom income. Money needed to do the things that bring joy and fulfillment to your life. Could be travel, education, or fine wine.
  • Gift income. Money for people and causes that deserve your help. This is the replacement for “love”.
  • Dream income. This is the elusive “self-actualization” level where you find true happiness and meaning.

By breaking down your income needs, this could be another way to track your progress towards financial freedom. You can make covering your bare necessities your first smaller goal, and move on from there. This would involve both measuring your expenses and also deciding how much you’d need to save to create that much income.

My Financial Account Tidying Up Checklist

kondoI suppose it’s not a good sign that in the middle of reading a #1 NYT bestselling book on organizing your stuff… you lose the book in all your stuff. In case you haven’t heard of it yet, The Life-Changing Magic of Tidying Up: The Japanese Art of Decluttering and Organizing by Marie Kondo. In my defense, it is a rather small book. I hope I don’t have to buy another one.

Instead of spending more time looking for it, I decided to make a list of all my financial items that could use some decluttering. As someone who loves to try out new financial products, I tend to accumulate accounts in during bouts of enthusiasm. Part of the “Kondo-ing” process is going through things by categories (i.e. clothing) and not moving onto another category until you’re done. Most importantly, you should only keep things that “bring you joy”. Hmm… how about “bring me profit”?

Bank accounts

  • Close out inactive bank accounts which are unlikely to offer good interest rates or other benefits in the future.
  • Re-examine all automated transfers (direct deposit, 401k contributions, 529 contributions, auto billpay, etc).

Investment accounts

  • Close out idle brokerage accounts.
  • Merge all speculative activity into one brokerage account.
  • Consider liquidating all positions smaller than a certain size.
  • Merge smaller 529 plan accounts and/or change beneficiaries.
  • Check up on LendingClub and Prosper P2P lending accounts. These should be nearly wound down.
  • Check up on Patch of Land crowdfunded hard money lending account.

Credit card accounts

  • Close out accounts which will not justify the annual fee based on my planned activities for the next year. Decide ahead of time which ones to keep if they offer to waive the annual fee for another year.
  • Mark on calendar any special perks or benefits which still need to be used.

Gift cards

  • Redeem Visa/Mastercard/AmEx prepaid cards into Amazon gift card credit.
  • Think of ways to use up retail gift cards; add to calendar to be finished next two weeks.
  • Decide what to do with unused retail gift card. Sell at loss? Wait until year-end 2015 and use for gifts?

Not-going-to-do list

  • I still haven’t gone paperless and have no immediate plans to do so, but I already have a pretty good system for organizing my paper statements.
  • The same system already has me examining all expenses on a monthly basis.
  • I’m happy with my core investment portfolio. Relatively clean and simple.
  • I don’t have any old 401k or IRA balances floating around. We have an active 401(k) at Schwab PCRA, Solo 401(k) at Fidelity, and IRAs at Vanguard.
  • I’m happy with our core monthly cashflow setup. We combine finances and have one joint checking account where we deposit a set amount each month and pay all bills from that account. We make additional transfers if we have larger one-time expenses like a new roof or something.

I’ll try to update as I work through this list.

Willing.com Review: Free, Legal Online Will Software

I must admit that I procrastinated on setting up a will, much like many others. Ideally, an experienced, skilled estate lawyer would create something customized to your situation. But it is not always clear how to find such a person, or know what a fair cost would be. Maybe we just don’t like the idea of thinking about death.

If you don’t create a will, your state already has a default plan in place (look up the intestacy laws in your state) and it may not be what you would have chosen. Do you want a stranger appointing the guardian of your children? I tried to think of it as a gift to my family. A reader recently told me about Willing.com, a new website that promises a free, legal will in about 10 minutes. Is such a service a good idea?

Here’s what The Consumerist (owned by Consumer Reports) had to say about other DIY will-making software:

Our wallet-watching cousins at the Consumer Reports Money Adviser newsletter took a look at three DIY options for will-making — LegalZoom, Rocket Lawyer and Quicken WillMaker Plus — and found that while all three are better than not having a will, none of them is likely to meet the needs of anything more than the most basic of estates.

I’d never heard of Willing before, but the other software costs $35 and up, so I took it for a little spin and took a bunch of screenshots (click to enlarge).

Overall, the interface was very pleasant and modern and mobile-friendly.

First, they will ask some basic information about you and your family. Names, genders, zip codes, and birthdates, but not Social Security Numbers. I suppose they aren’t required legally? At least it’s one less source of identity theft to worry about.

Next, they will ask you how you want to handle your property…

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.. and final arrangements.

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Who do you want to carry out your wishes?

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When you’re done with the questionnaire, your will is created and customized to your state.

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You can then print or download your complete will as a PDF, and also create an optional living will.

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At no point do you see any advertisements nor do they ask for any payment information. The last screenshot does provide a hint as to the future revenue model for Willing – perhaps they will set up a way for you to prepay your funeral expenses (relieving your family of some stress and money) and get a little cut of that. That sounds reasonable to me if they are providing the will for free. Of course, if you live another 50 years, will you even remember shelling out that money?

I am not a lawyer and thus can’t vouch for the accuracy or quality of the will contents. As the Consumerist article states, one thing to worry about is outdated information if their software isn’t updated regularly. The final instructions tell you to sign the will along with two valid witnesses and that a notary is not required for the will to be legally binding.

The final document produced was only three pages long, although my theoretical situation was pretty simple. As I read through it, I started to see how such software would eventually become free. Indeed, while researching this post, I found several other “free will makers”, although Willing.com had the best user interface and had the least amount of annoying ads.

It may not be optimal, but at least going through the Q&A process will make you aware of the various issues you need to think about. Who will take care of your kids if your spouse dies? Who is your backup heir? Your backup estate executor? Maybe just starting the process of putting your wishes down in writing is a good thing. Otherwise, I can see someone with a simple situation using this software, but don’t know if I could recommend such a service to my friends. If I really cared about how my estate was handled (i.e. I had a significant net worth and/or dependents), I would recommend hiring a lawyer instead. The question then becomes – Is there a better way to find a good estate lawyer than relying on word-of-mouth?

Costco Pharmacy: Save on Prescription Drug Costs

rxbottleWhile standing in line at the Costco pharmacy, I found myself in a discussion with another Costco member who apparently saves over a thousand dollars a year on her meds by buying them there instead of her neighborhood CVS. (I also got an earful about the Medicare Part D “donut hole“.) I’m fortunate enough that I am currently not on any prescription medications, but OECD health statistics have Americans spending $1,000 a year per capita on pharmaceuticals. A similar survey by Consumer Reports arrived at $768 in average out-of-pocket costs per person.

Here are some things you may or may not know about the Costco Pharmacy:

  • Costco posts their drug price list online for everyone to see. No other pharmacy chain does this. Gee, I wonder why?
  • You don’t need a Costco membership to buy things from the pharmacy. You can simply tell the front door greeter/checker your prescription that you are going to the pharmacy.
  • Costco has their own “drug discount card”, called the Costco Member Prescription Program (CMPP), which is for people who have no prescription drug insurance or whose insurance does not cover all of their prescription medication. This is for Costco members only. Since you never know what drug will be covered or not, everyone should enroll and save 5% to 40% if/when you ever need it. You must fill out an enrollment form and return it to your Costco pharmacist.
  • Costco sells pet medication. The hardest part may be getting your vet to write you a prescription, since many vets fill their own orders as a significant part of their income. The CMPP above also applies to pet meds.

In 2013, Consumer Reports found Costco Pharmacy to offer the lowest prices overall when they compared a basket of popular generic drugs like Lipitor and Singulair. Given the “generic” terminology, I was surprised to learn how much prices can still vary.

Our secret shoppers called more than 200 pharmacies throughout the U.S. to get prices on a month’s supply of five blockbuster drugs that have recently become available as generics: Actos (pioglitazone), for diabetes; Lexapro (escitalopram), an antidepressant; Lipitor (atorvastatin), for high cholesterol; Plavix (clopidogrel), a blood thinner; and Singulair (montelukast), for asthma. The result? A whopping difference of $749, or 447 percent, between the highest- and lowest-priced stores.

Costco was the least expensive overall, and you don’t need to be a member to use its pharmacy. A few independent pharmacies came in even cheaper, though their prices varied widely, as did grocery-store pharmacies. The online retailers Healthwarehouse.com and FamilyMeds.com also had very low prices. On the other end of the spectrum, CVS, Rite Aid, and Target had the highest retail prices.

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The basic takeaway appears to be that if any your drug costs are not nearly completely covered by insurance, you should do a price comparison with Costco pharmacy (you can also order meds online using their home delivery option if you don’t have a warehouse nearby). The cost differential can be very significant, especially over time. Adding up your annual savings may convince you to forgo the convenience of that 24/7 drive-thru down the road.

Even if you have prescription insurance, it might still be cheaper to get a 90-day supply from Costco as opposed to paying three co-pays for three 30-day refills. (Watch out if you have Part D though, as paying cash may mean it doesn’t count towards your deductible and thus won’t help you get out of that aforementioned donut hole.)

AutoSlash Review: Car Rental Price Drop Tracker

autoslashfb180Here’s a quick tip that I’ve been using regularly this summer for saving money on car rentals.

A quick primer on car rental reservations. When you make a reservation at most car rental shops, you simply agree to a price and make a non-binding reservation without giving any payment information. You can cancel at any time, without penalty. Technically, even if you just don’t show up there is no penalty besides bad karma. The flipside is that they overbook and occasionally your subcompact turns into a Ford Crown Victoria.

First, book your car rental as early as possible using the best deal you can find on your own, be it through a business account, promo code you found online, or using an opaque booking site like Hotwire or Costco Travel. As there are no penalties for cancellation, so you want to start the process as soon as possible.

(Do not use AutoSlash to make your initial reservation. Well, you can try, and then just wait for the future price drop notifications, but you may not get a very good price initially.)

Next, enter your reservation information into AutoSlash.com to monitor price drops. I first wrote about AutoSlash back in 2011, and while their service has changed a bit due to industry pushback, it can still be a valuable service. (Their initial search service excludes many major agencies, but their price-drop tracking service includes them all including Avis and Hertz.)

AutoSlash will then continuously search for a lower price using your dates and preferences, often using coupon codes that you may not know about. If they can find something lower, they will e-mail you. If the new deal looks better than your old one, you can go through their site and book the new deal. Just cancel your old reservation afterward and you’ll have taken advantage of the price drop with no fees or penalties.

I just went from a $66 one-day rental with Alamo to $29 with Avis:

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Some potential minor issues:

  • You may be presented with quotes from lesser-known rental agencies. I normally try to support smaller businesses, but in this case I am wary of being improperly charged for a dent or scratch on the $25,000+ vehicle they are lending me. I have used Dollar/Budget/Alamo/National/Enterprise without any problems.
  • The lower price quotes may not offer pickup at the exact location you booked initially, especially if not at an airport. Depending on your situation, the savings may be worth a bit of a walk or a short taxi ride.
  • You may get a lot of price drop e-mails, and also multiple confirmations of new bookings. I know that for one reservation where I re-booked multiple price drops, I probably accumulated over 20 e-mails.
  • Because AutoSlash uses promo codes it pulls from around the web, I have read stories that a rental agency can deny a price quote because it claims that you weren’t eligible to use that promo code. I have never run into a problem like this (and would otherwise use promo codes from the internet anyway), but I thought that I should mention it.

Even if AutoSlash never e-mails you, at least you have some additional peace of mind that you got close to the best deal on your auto rental. All for free and with minimal effort.

4 Different Rules of Thumb For How Much House You Can Afford

housemoneyUpdated. Buying a house is always an exciting yet terrifying time. Deciding on how much we can “afford” is often limited by how much someone will lend us. Mortgage lenders use income size, income stability, credit score, down payment size, and other factors before approving a loan. Let’s explore the idea of a “rule of thumb” to greatly simplify such a complicated matter. The most common way to express affordability is as a multiple of your household or individual annual income.

CNN Money says 2.5 times:

The rule of thumb is to aim for a home that costs about two-and-a-half times your gross annual salary. If you have significant credit card debt or other financial obligations like alimony or even an expensive hobby, then you may need to set your sights lower.

The now-defunct Washington Mutual Bank suggested up to 4-5 times:

As a broad generalization, most people can afford to purchase a house worth about three times their total (gross) annual income, assuming a 20% down payment and a moderate amount of other long-term debts, such as car or student loan payments. With no other debts, you can probably afford a house worth up to four or even five times your annual income.

Investopedia offers up 2 to 2.5 times:

Generally speaking, most prospective homeowners can afford to mortgage a property that costs between 2 and 2.5 times their gross income.

Running Your Own Numbers

Where do these numbers above come from? Most government-backed mortgages utilize the following ratios for their underwriting:

  • Front-end debt-to-income ratio = housing-related costs (PITI) divided by gross income. PITI stands for principal, interest, taxes, and insurance.
  • Back-end debt-to-income ratio = housing-related costs (PITI) plus all recurring monthly debt, all divided by gross income. Recurring monthly debt includes student loans, car loans, credit card debt, and alimony/child-support obligations.

Essentially, they want to be sure that housing costs don’t take over your entire budget and also that you can still handle your total monthly debt load. (Left out are things like food, transportation, other insurance, health care, etc.) Each of the major lending agencies has their own set of DTI limits, but let’s use the standard Federal Housing Administration (FHA) limits of 31% for front-end DTI and 43% for back-end DTI.

You can insert your own numbers here, but let’s use these statistics based on the average US household:

  • Household income. Government statistics have the median US household earning around $52,000 gross a year, or $4,300 a month.
  • Taxes and homeowner’s insurance. Depending on the survey, the national average is somewhere between $2,000 and $3,000 for annual property taxes and roughly $1,000 for annual homeowner’s insurance premiums. Together that’s roughly $300 a month.
  • Credit card debt. The Federal Reserve reports the average household credit card debt to be about $7,500. The underwriting guidelines use minimum payments, so if you assume a 3% minimum payment that’s $225 a month.
  • Car loans. Experian reports that the average monthly loan payments was $450 for new cars and $350 for used cars. Let’s use $400 for this exercise and assume one new car per household.
  • Student loans. For households with student debt, Brookings estimates that the average monthly payment is $240.
  • Current 30-year fixed mortgage rate. Bankrate and HSH report this to be about 4.25%.  You can always refinance your mortgage to lower your rate as well.

20% Down Payment, 31% Front-End Ratio
Using a 31% front-end ratio, that means PITI (principal + interest + taxes + insurance) can be $1,333 a month. Taking out $300 for taxes and homeowner’s insurance, that leaves us $1,033 a month for principal and interest. With a 20% down payment and a 4.25% interest rate, that works out to roughly a $210,000 maximum loan size and $260,000 maximum total home price = 5 times gross income.

20% Down Payment, 43% Back-End Ratio
Using a 43% back-end ratio and the average consumer debt numbers from above, we start with $1,850 and take out $300 for taxes and HO insurance, $225 for credit card payments, $400 for car payments, $240 for student loans. That leaves us with $685 for the mortgage payment at 4.25%. The resulting $140,000 max loan size with 20% down payment gives a $175,000 total home price = 3.4 times gross income.

5% Down Payment, 31% Front-End Ratio
The minimum down payment amount for a FHA loan is actually only 3.5%, but you will be subject to additional Upfront Mortgage Insurance Premium (UFMIP) of 1.35% of the loan amount plus an ongoing PMI of 0.80-0.85% of the loan amount annually based on your loan-to-value ratio. Having to pay PMI means less money available to go towards the loan, so our numbers now only give us a $185,000 max loan size. With a 5% down payment, that means a total home price of $195,000 = 3.75 times gross income.

5% Down Payment, 43% Back-End Ratio
Doing the same calculation using the 43% back-end ratio which takes into account other debt payments, you end up with only roughly $110,000 max loan size and loan and total home price of $117,000 = 2.25 times gross income.

By doing this exercise, we see that someone with a car note, credit card debt, and student loans is certainly going to have a much different measure of affordability than someone without such pre-existing obligations. Perhaps there is no easy rule of thumb? If I had to, I would say that a household with “significant” debt could start at 2x income, while someone with very little debt could start with 3x income. But it shouldn’t be too difficult to use this example to get much more accurate numbers.

Most importantly, just because someone is willing to lend you a certain amount, doesn’t mean you have to take it! Here are some posts that may help you get the most value for your housing dollar:

Owning a World Market-Cap Weighting of Gold

2015goldGold is an asset class that is part commodity, part currency, and part insurance policy. As I write this, gold prices are at a 5-year low. I own a little physical gold for cultural reasons, but I don’t consider it part of my asset allocation and I place it in the “too hard to stick with during prolonged underperformance” category.

In a recent WSJ article (paywall) by Jason Zweig, he shares his own opinion (everyone’s got one) while adding this interesting data point:

Laurens Swinkels, a senior researcher at Norges Bank Investment Management in Oslo, reckons that the total market value of the world’s financial assets at the end of 2014 was about $102.7 trillion. The World Gold Council estimates that the world’s total quantity of gold held for investment was about $1.4 trillion as of late 2014. So, if you held the same proportion of gold as the world’s investors as a whole, you would allocate 1.3% of your investment portfolio to it.

Many index funds are constructed by comparing their market-capitalizations, or the total value of all their shares. Apple is currently worth $760 billion dollars, which is 4% of the total value combined of all the companies in the S&P 500 combined. So if you own an S&P 500 Index fund, 4% of your money is in AAPL shares.

So what if you held a world market-cap weighting of gold? If you had a $100,000 portfolio, 1.3% would work out to $1,300, which you could round off to a single 1 oz. gold American Eagle. You could buy gold in another form, but don’t they look pretty? They also make 1/2 oz, 1/4 oz, and 1/10 oz versions. This fake gold coin tester is cool, but is rather expensive if you’re just buying a few coins.

If you had a $1,000,000 portfolio, 1.3% still only works out to 10 American Eagles, altogether weighing less than a pound and something you could still easily hide in your clothing as you escaped to the island nation of St. Kitts (you did buy a citizenship just in case, didn’t you?) just before the apocalypse.

But seriously, it could be that a 1.3% holding is just about the right amount. It’s something, a little exposure, a little insurance policy, something most people could keep in physical form if they preferred with no ongoing storage or management costs. You can justify it as part of the world’s investable market. But it’s not too much, not enough to worry about the price of gold.

Alternative View: Keep Up With The OTHER Joneses

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We’ve all heard the phrase “Keeping up with the Joneses”. It even has its own Wikipedia page with competing origin stories. Perhaps the greatest marketing trick ever is making people equate social status with material goods.

Instead of worrying about the neighbors who (supposedly) make more money than us, what if we instead looked carefully at the neighbors who make less than us? Their valuable example is what can actually help us grow real wealth. What am I talking about? Michael Taylor of Bankers Anonymous explains in his post Saving is never easy:

But – and here’s a key point that you should understand – if you make $50,000 per year, you probably live on the same street as someone who makes quite a bit less than you, say, $40,000 a year.

Somehow your neighbor making $40,000 has figured out how to pay all the bills and sock away an extra few hundred dollars every month. I don’t know she does it. Frankly, I’m resentful of her success. But I’m also impressed.

Also, she doesn’t understand how the family of four two blocks away can survive on $30,000. And yet, that family does it too.

Meanwhile, in another part of your same town, another family is going completely broke on $120,000 a year. If they could just find an extra 10% more income, they think, the checkbook would balance. They could pay down that ever-growing credit card balance. But each month comes and goes, and the debts grow.

Let’s consider this in the context of financial freedom and early retirement. If you wanted to oversimplify things, you would say that you need to control your spending to the household median income level (say, $50,000 a year) while boosting your household income to double that (say, $100,000 a year). A nice, round 50% savings rate. I’m sure many households who make over $100,000 would laugh at the idea of spending under $50,000 a year. Impossible. Can’t do it. But guess what? Half of all US households are doing exactly that every day, so it certainly isn’t impossible! For some reason of human psychology, it is just incredibly hard to make that choice.

Best Frugal Non-Stick Fry Pan / Saute Pan

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I think it was Alton Brown’s food show that first told me that all non-stick pans were pretty much disposable and simply weren’t meant to last very long. Therefore, you should just buy the standard fry pan found at your local restaurant supply store (these target commercial kitchens, but usually open to the public). My version was to buy whatever was cheap at Ross’s or TJ Maxx for 15 or 20 bucks and then throw it out when things started to stick. However, right now America’s Test Kitchen is sharing the results of their Nonstick Skillets equipment review to registered members (free, only e-mail required).

Is is actually worth it to spend extra money for a better non-stick pan?

Well, yes and no. ATK tested overall design, cooking quality, and coating durability. They made crepes and fried eggs with no oil or other fat. I’ll leave the details to their free site members, but their free video reveals the top winner as the $40 T-fal Professional 12″ Non-Stick Fry Pan, which actually beat out the $130+ All-Clad 12-Inch Nonstick Skillet on merit alone and not value. (There’s a reason the T-Fal is the #1 selling saute pan on Amazon!) Given that All-Clad is usually considered the “gold standard”, that means you can get a top-quality pan for $40 as compared to my $20 discount store pans. I’ve never owned a T-Fal but this will be my next non-stick pan.

You may note that the All-Clad has a “lifetime replacement guaranty against defects”, which some people suggest makes the All-Clad premium worth it over the long run. This warranty requires you to mail in your pan for inspection, and then All-Clad decides whether or not your damage was due to a defect. From reading through the Amazon reviews, this is hit or miss. Some people got new replacements (happy review!) while others got rejections (angry review!). The overall trend appears to be that chips in the coating alone won’t get you a replacement. Considering I could buy three of the better-rated T-Fals and still be ahead in terms of money spent, I can’t it being worth the hassle of hoping for a replacement. I do still like my classic stainless-steel pans from All-Clad though, as they actually can last a lifetime.

Also see: Best frugal chef’s knife and best frugal cast-iron skillet.

Ally Bank Interest Checking Account Review

allyreview_logoUpdated. If you are looking for a flexible alternative to a megabank account with tiny interest but convenient ATM network, here is my review of the Ally Interest Checking Account which I use in conjunction with the Ally Online Savings Account and also Ally CDs. I think they represent a reasonable compromise from your neighborhood credit union with only a few ATMs sprinkled across town. I’ve used this combo for years, and here are my experiences:

User Interface. Below is a screenshot of the main page after logging in (click to enlarge). I can see all of my accounts and their balances at a glance. The overall design is clean and minimalist, and it was recently updated to be more mobile-friendly.

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Customer Service. Ally Bank differentiates itself with their customer service. First of all, they are available 24/7 at 1-877-247-ALLY (2559). When you use their smartphone app or log into their website, you can see the wait time beforehand. Even better, if you don’t want to call them you can just use their Live Chat feature.

Security. Ally Bank supports two-factor authentication with security codes sent via either e-mail or text message. They ask for a security code when you log in from a computer they don’t recognize. However, if you’ve logged into that computer before with a security code, they may not ask you again and you can’t choose to have two-factor authentication to always be in effect.

Awards. Ally Bank has won “Best Online Bank” from Kiplinger’s Personal Finance magazine in 2014 and “Best Online Bank” from Money Magazine from 2011-2014.

FDIC Insurance. Ally Bank is a member of the Federal Deposit Insurance Corporation, FDIC Certificate #57803. As with other FDIC-insured banks, this means your Ally deposits are insured by the FDIC up to $250,000 per depositor, for each account ownership category.

Funds Transfers. With no physical branches, online savings accounts should have maximum flexibility as they are often secondary accounts (given most megabank checking accounts pay either no interest or a sad 0.01% APY). Ally Bank allows you to link any other external bank account using the standard routing number and account numbers. As long as you initiate the transfer before 7:30 pm Eastern Time, the transfer will take 2 business days. You can link up to 20 different accounts (it used to be unlimited; but other banks limit to 3; I have 7 myself).

So if I initiate a transfer on Monday afternoon by 7:30pm ET, the money will be debited first thing on Tuesday, and credited to the destination account first thing Wednesday. But know that if you initiate on a Saturday, you’ll get the same result. Even bank computers really don’t like working weekends, it seems. Overall, free transfers within 2 business days during the week is about as good as it gets for online banks.

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The transfer limits are also relatively high. On my accounts, I see that I have a $150,000 daily limit outbound and $250,000 daily limit inbound, with a total monthly limit of $600,000 outbound and $1,000,000 inbound. Keeping in mind that all savings accounts from any bank are limited to six withdrawals per month.

ATM Rebates. As of August 15, 2015, Ally Bank will no longer offer unlimited ATM rebates in the US. Here is the new structure:

  • Ally Bank continues to not charge ATM fees on their side of the transaction.
  • Ally Bank has added the Allpoint ATM network, with locations such as CVS and Walgreens pharmacies, Target stores, and 7-11 convenience stores. (Certain other online banks like Capital One 360 Checking also partner with Allpoint).
  • Ally Bank will now limit ATM fee reimbursements to $10 per statement cycle for fees charged by other institutions or ATM owners nationwide.

This is definitely a reduction in the benefit, but honestly I was surprised that it lasted so many years. Ally eliminated their international ATM rebates in August 2011. I used it a few times at a Las Vegas casino at $5 a pop; can you imagine their annual cost if someone did that every few days? For me, if I can find convenient ATMs that charge around $2.50 each, that means I can still go 4 times a month. Their online app also has an ATM locator that works pretty well (see below) .

I’ve made a few ATM withdrawals at random ATMs, and the surcharges have been credited at the end of the month as promised. (I wish they were credited immediately.) International ATMs are not eligible.

Free Overdraft Transfers from Savings. The checking account pays less interest than savings, so it is best to open both and keep as much money as you can in the savings. The Ally Online Savings account pays 0.99% APY as of 7/14/15, and is one of the places I keep my emergency cash reserves.

With their free Overdraft Transfer Service, Ally will automatically transfer the required funds from savings if your checking goes negative. I usually use this service whenever I write a relatively big check or make a large transfer:

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Ally transferred an amount equal to a round number near the overdraft amount plus $100. Alternatively, you can set it to auto-transfer a preset amount over if your checking balance dips to a certain threshold. Remember, you can only do 6 withdrawals from savings each money due to banking regulations.

Mobile check deposit. You can use the Ally smartphone app to deposit checks using your smartphone camera. (This is in addition to using your computer scanner and/or free postage-paid deposit envelopes.) I’m not sure if this is the same for everyone, but my deposit limit is $50,000 which is higher than many other electronic deposit programs. I’ve used the app to deposit multiple checks without issue. Screenshot below.

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Mobile app. Available for iOS and Android… you can do all the important stuff – see transactions, transfer funds, deposit checks, pay bills. It can remember your username, but you must type in your password every time. I usually just use my Mint app for checking balances, as that only requires a 4-digit PIN. The overall design is acceptable, and the ATM locator is helpful to find those free AllPoint ATMs or stores that allow cash back with purchase with no fees.

Paper checks. Even though they are an online-only bank, Ally still provides free paper checks. You get a set of 50 to start, but you can always order more online for free. Cashier’s checks are free as well.

Paper statements. If you prefer physical statements via snail mail, you’ll be happy to know that Ally still offers those free of charge. Of course, you have the option of paperless statements as well.

Ally Perks. Ally discontinued their Ally Perks Debit Card Rewards program in 2013.

The Stats

  • Current interest rate: 0.60% APY for daily balance $15,000 or more, 0.10% APY for daily balances under $15,000 (last checked 7/14/2015)
  • Interest Compounding: accrued daily, compounded daily, credited monthly
  • Minimum to open: $0
  • Minimum requirements to avoid monthly service charge: None
  • Number of external bank account links allowed: 20
  • Routing Number: 124003116

Bottom line. The Ally Interest Checking Account is a solid offering with with no monthly fees, no minimum balance requirement, ATM fee rebates (up to $10 per statement cycle), free online billpay, and the ability to use the savings account as a free overdraft source. Additional features like a flexible funds transfer system and solid 24/7 customer service help differentiate themselves from the competition.

I would highly recommend pairing this account with the Ally Online Saving Account, as you can keep the majority of your fund in the savings account at a higher interest rate. You can then set up the savings account as a free overdraft source, allowing you access to all your funds with no fees to worry about. Ally also has certificates of deposit which offer competitive rates at times.