Archive for September, 2007
I just found my old copy of The Millionaire Next Door, a book which found that, contrary to popular belief, most millionaires actively live in modest neighborhoods and drive common cars like the Ford F-150 truck. Flipping through it, I remembered that it also provided a target as to what your net worth “should” be:
Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be.
If you don’t have any significant inheritances, this boils down to:
If you are near this target, you are an average accumulator of wealth (AAW).
If you are less than half your target, you are an under-accumulator of wealth (UAW).
If you have more than double this target, you are an prodigious accumulator of wealth (PAW).
I’ve never liked this formula. The main problem I see with this rule of thumb is that it is linear with respect to age. This makes it pretty harsh on younger people, especially those who are just starting out.
Someone who is 25 and makes $40,000 a year is supposed to have a net worth of $100,000. If you got a job at 21, you’d need to have both graduated with zero student loan debt and saved up $25,000 each of the last 4 years. That’s barely even possible after taxes. But if you went to say, law school, and just graduated at 25 making $90,000 a year, you’re supposed to have $225,000 saved up right out of the gate?
Let’s do our target, roughly: 29 x 200,000 / 10 = $580,000. Whew, we are serious under-accumulators!
Posted in Goals | 36 Comments »
Want out of your 2-year contract early? Already tried the conventional methods of smooth-talking or catching them changing your contract? The next step may be to simply give it away.
At least that’s what the author of this Wall Street Journal article How to Dump a Cellphone Contract did. Apparently most carriers allow you to transfer your contract to another person, as long as they pass a credit check. To find a potential taker, the options range from sites that charge $20 like CellTradeUSA and CellSwapper, to the free sites Craigslist and FreeCycle. Thanks to KG for the tip.
It’s not quite as easy as it sounds… you will likely have to offer to either swap contracts or include your phone as an incentive. You’ll also lose your phone number. The author threw in her phone, a bunch of accessories, and $50 cash, which I guess is understandable as her contract had over a year left on it.
The winner? FreeCycle. In one day! I don’t know if they just got lucky, but it would seem prudent to use the free sites first. The pay sites entice you by dangling a bunch of communications from potential swappers, but you can’t get their info without paying.
This is what I’m wondering - if you already fulfilled your contract, wouldn’t that potentially be worth some money? Another user could simply hop on and go month-to-month. They wouldn’t get a discounted phone, but it’d be cheaper than most prepaid plans. Maybe I should have tried selling mine before jumping ship to Sprint SERO…
Posted in Frugal Living | 13 Comments »
A friend of mine wants to know. This survey is anonymous, so tell the truth! 
How Much Did Your Wedding Cost?
I will follow up with a more detailed post next week. For the curious, various studies report the average cost of weddings in the US to be about $30,000, while the median is around $15,000. Those crazy celebrity weddings must throw off the averages, especially since everyone seems to get married three times each.
Posted in Frugal Living, Simple Living | 39 Comments »
Paid surveys can be a reasonable source of additional income for the right people. On a per-hour basis, they are rarely a great deal and can get tedious. But hey, you can do them during downtime on the job or late at night while watching Leno, and they can add up to hundreds of dollars over a year. I find myself being more and more picky about them as time goes on.
Accordingly, my preference is to stock with sites that offer regular surveys and are upfront about payouts. I’d much rather know I’m getting $5 for a 20-minute survey than be entered in some vague sweepstakes drawing for $500. Here are the sites that I think best fit this criteria:
Pinecone Research is one of the more elusive paid survey companies, as they pay $5 for each and every survey you complete, as well as give some neat products to try out. With them, I used to* make a steady $10-$25 per month. Thanks to Kathy for sending me the most recent recruitment e-mail, which states that they are looking for new members who are male and 18+. Here’s the Pinecone sign-up link. I’ve anonymized the link, but this still won’t last long!
*Two important tips to keep the Pinecone gravy train running:
1) These guys are very strict. Whatever info you sign up with, you must always keep it up to date and follow it exactly. For example, if your profile says you’re 35 and in a later survey you state that you’re 46, you may mysteriously stop getting any new surveys. It’s best just to be honest.
2) Fill the surveys out as soon as you get them. I think this is why I was kicked out. For some reason they stopped e-mailing me survey alerts (multiple e-mails to Ms. Scott trying to fix this went unanswered). By the time I got the notices in the mail, the survey had expired. If you miss enough surveys, they boot you. I’m still a bit grouchy over this… 
NFO MySurvey is another site that always tells you exactly what you’ll get before you do the survey. The payout rates are a little lower, but you can get a steady stream going. Some examples are 10 points (10 cents) for a 1-question survey to 250 points ($2.50) for a longer 10-minute survey. Occasionally you get a big one for more. You request payout svia check, and they send it out promptly. MySurvey sign-up link.
These folks are more laid back. You can miss several of these surveys, but you have to do one every few months to keep your points alive. They’ll send you an e-mail reminder to do so.
Other Surveys Sites
Here are some other ones, sorted in decreasing order of how often I get survey opportunities: American Consumer Opinion, SurveySavvy, Greenfield Online, Lightspeed Panel
Posted in Bored Money | 20 Comments »
I’ve actually never been to a Cold Stone Creamery before, but they seem to be everywhere now. Are they really that good? I personally prefer the $2.50 pints of Ben & Jerry’s when they go on sale once a month at the grocery store.
Anyways, if you sign up for their Birthday Club and the accompanying mailing list, you’ll get an e-mail for a free Ice Cream Creation on your birthday. I imagine proper ID is required… what a sneaky way to get your real birth date! Found via an e-mail forward from my parents, of all places.
Posted in Deals & Offers | 31 Comments »
While getting the numbers for my monthly net worth update, I noticed that Yodlee has added a number of new accounts to their aggregation list. Specifically, I use the licensed version at Bank of America called MyPortfolio. So if you haven’t checked in a while, you might be pleasantly surprised - I think they actually cover all my accounts now. Here are a few sites that I just added, along with some info on why I have an account with them:
Zecco Broker Review, free stock trades!
TradeKing Broker Review, award-winning broker, $4.95 trades
FNBO Direct Review, new online bank with 6% APY Promo
Bridgeway Mutual Funds Info, I hold the BRSIX micro-cap mutual fund
See here for more on Yodlee and why I use it.
Posted in General | 10 Comments »
Recently, I got placed in charge of trying to obtain an LCD projector for a family event. Has anyone else out there had to do this? What kind of prices did you get? I found that renting an LCD projector directly from a higher-end hotel costs at least $500. An hour. Then I searched for local or online stores, and found the cost was around $200-$350 for one day. The high end was including delivery and pickup, but neither place actually would help me set things up. Finally, we worked something out with a friend of a friend.
Is it me, or is the highest ratio of renting/owning of any product? I can rent a car for $50 a day, but not an LCD projector?!
This got me thinking - wouldn’t this be a great business? You can buy a solid 3,000 lumen DLP projector for about $1,000. Basic ones start at $500. You don’t need a HD or home theater version, most people are just doing PowerPoint presentations or picture slideshows. You can also pick up a screen and stand (many places just let you use the screen they have) for another couple hundred dollars. After some quick brainstorming, here’s a rough plan of attack:
1) Set it up. Pick a name “AnyTown Speedy Projector Rental”, and put up a professional-looking website with your phone number and nice description of your equipment. Help out some friends and add some testimonials and references. Definitely put up a “Best Price Guarantee”.
If you need a business license for your area, grab one of those for $50 or so. Get a merchant account so you can accept credit cards.
2) Do cheap guerrilla marketing. List your service on Craigslist. Tell everyone you know. Put a big sign on your car. Maybe start a highly geo-targeted Google Adwords search engine advertising campaign. Contact some wedding coordinators and offer a referral fee or reciprocal marketing agreement.
3) Price aggressively and offer extras. On most days, you could simply require them to pick up the day before the event, and drop back off at your house the day after. Take their credit card information and make them sign a damage waiver stating that they will be liable for replacement. Charge… say… $100 per day (ignore the pick-up and drop-off days). In 10-11 rentals, you’ve broken even. After that, it’s all profit!
(With the “Best Price Guarantee” you could simply ask them their lowest quote, offer 10-20% less, and charge even more than $100.)
My idea is that on weekends (when most people need it), you can also offer “professional setup” by bringing your own laptop and speaker system, and running the show yourself for an additional price. Lots of times the projector part only last for less than an hour. Maybe charge $250 for the delivery, rental, and the first 2 hours of work. This is cheaper than any other person I’ve talked to. As long as you’re pretty good with computers, you could be a one-man show.
For someone looking for ways to earn some extra cash on the side, I think this could be very viable. People are already doing it on Craigslist. You could even use it at home to watch movies when it’s not rented out. Poke holes in my idea in the comments! 
Got your own instant biz ideas? Share those too!
Posted in Entrepreneurial | 28 Comments »
About My Credit Card Debt
Newer readers may be alarmed by my high levels of credit card debt. I’m actually borrowing money for free, putting it in safe investments that earn me 5-6% interest, and keeping the difference as profit. Along with other things, this helps me earn extra side income of thousands of dollars a year. Recently I put up a series of step-by-step posts on how I do this. Please check it out first if you have any questions. This is why, although I have the ability to pay the balances off, I choose not to.
Commentary
August was still a very transitional month with starting new jobs, meeting new people, and getting used to living in the in-law unit of a family member. Most of our things are still stuffed in the basement. The positives definitely overwhelm the negatives however:
Cash Savings. It’s showtime! With dual incomes, no kids, and no rent or mortgage, the next several months should allow us to save money faster than ever before. This is a great opportunity, so I really want to take full advantage of it.
We’ve tried to alleviate the no-rent guilt by buying food, power tools, and football season tickets for our family. But they all know the whole point of living here is to save up for a house, and have done the same thing themselves, so hopefully there won’t be much tension.
Retirement and Brokerage accounts. There seems to have been a bounce since last month, with our accounts going up about 3% and ~$2,500. I don’t think we’re out of the woods yet, though. I do need to catch up on my Solo 401k contributions, and make sure to finish setting up our new Roth 403b plan.
Quick summary. Our non-retirement funds now add up to $83,763, which puts us at 84% of our mid-term goal of $100,000 towards a house downpayment. Total net cash is at $78,232 (+$10,938 from last month). Take a look back at our previous net worth updates here.
Posted in Goals | 31 Comments »
It’s becoming our weekly ritual to browse Open Houses on Sundays. We usually try to have a theme, from “cheap condos we’d eventually outgrow” to “houses that would be a stretch, but we could live in forever”. Last week, we actually did “beautiful multi-million dollar homes we’ll never afford” just for fun and possible remodeling ideas.
More and more short sales
One common theme that we’ve been noticing across the board is more short sale houses. Whenever you see a house listed for sale that just seems too cheap, it’s likely a short sale. A short sale is a type of pre-foreclosure situation where the buyer is already in default of the mortgage loan, but the bank has not foreclosed yet. Here, both the lender and borrower agree to sell the house for a price that won’t pay off the entire loan balance. The lender avoids a long foreclosure process and potentially lower price upon the eventual auction, and the borrower prevents an foreclosure from completely killing their credit history.
From the buyer’s perspective, it can be both good and bad. You might get a good deal, but it can get complicated. Instead of a seller accepting your offer within 24 hours, you’re looking a 2-4 weeks while the lender takes multiple offers, checks you out, demands pre-approval letters and sometimes large upfront deposits. There are more details than this, but that’s my basic understanding.
Flip or Flop
Today, we got to see the results of a house flip gone bad, just like on the TV show Property Ladder. They had the classic mistakes - they took too long with the remodel, they priced it too high and stayed stubborn, and they ran out of money before they could sell. Here’s the general timeline:
6/05: Bought house for $850,000. Remodeled… adding the obligatory hardwood floors, fixed up the bathroom, did some painting.
7/06: Listed for $1,100,000
8/06: Dropped to $1,050,000
9/06: Dropped to $1,000,000
3/07: Taken off market, decided to wait things out
8/07: Short sale at $800,000
The carrying costs for the loan were probably around $5,000 a month, although I think the “owners” did live in it or at least rented it out, as there was clothes hanging in the closets. Add in the remodeling costs, and things look pretty bleak. Even if they do get a short sale, forgiven debt is considered taxable income. I wish I could feel sorry for them, but the signs seem to indicate that just they got too greedy.
Posted in Real Estate | 13 Comments »
For a while now, online payment service PayPal.com has offered an extra reason to keep money in their accounts - a money market fund paying around 5% interest annually. I get asked about it regularly, and here I will explain in detail why I do not recommend keeping any significant amount of money in this account.
Now, when you think about a money market account, what are the top three things you look for? Here are mine, from most important down to least important:
- Safety. This is cash savings, so the top priority is that you don’t want any risk or chance of loss.
- Liquidity. This is not a certificate of deposit; You want to be able to access the money at any time.
- Yield. You want to earn a competitive rate of interest.
I’ll address them in reverse order:
Yield
Its 7-day average yield as of 8/16/07 was 5.04%. This isn’t bad, and historically the fund has offered competitive rates, although they are not necessarily the highest. In looking at the prospectus [pdf], these higher yields appear to be the result of temporary fee waivers. Without the ongoing fee waivers, the yield would be about 0.70% lower. Whether or not they will keep the yield competitive with these waivers in the future is unknown.
Safety Concerns
As with all money market mutual funds, they are not FDIC insured. PayPal is not a bank. However, the money market fund is still subject to the same restrictions as any other retail money market fund, and must invest in the highest rated securities out there. In addition, PayPal is a subsidiary of eBay, and the fund is run by Barclays Global Investors, a big name that manages trillions of dollars of assets. A retail money market mutual fund has never gone below the standard $1 per share for an individual investor, and I don’t expect it to here.
However, there is also the different safety concern of what happens if someone fraudulently gains access to your account. If someone hijacks your bank account, what can they really do? They can’t just go out and buy something. In order to set up an online transfer, they still need to provide account and routing numbers to a bank account with the same name on the account. Even if you do lose money, you are protected by Federal Reserve Board?s Regulation E and have your personal liability capped.
On the other hand, PayPal is inherently risky because it allows the instant ability to spend your money! In fact, they can send money to anyone with an e-mail address. If someone steals your password, they can start sending money right away to various vendors and other users. Such fraud can be very hard to track. And then who decides if you get your money back? PayPal.
There are countless complaints of people who’ve been on the bad end of a PayPal dispute. I’d be very careful. Worst case - you lose money!
Liquidity
Again, here PayPal gets to write it’s own rules. It is not a bank, and is not subject to the many regulations that a bank has to follow. They can freeze your account at any time. PayPal froze my account once for no good reason. (Unless you count a complaint of one nervous buyer who mistyped his tracking number and thought I was scamming him.) This can lead to weeks if not months of faxing them different documents in order to prove you’re you, or you didn’t scam someone else, or whatever. Meanwhile, you can’t withdraw any of your money, and they may even take some of it away from you.
The point here is that you are not guaranteed access to your money. Again, PayPal is sole judge and jury.
Conclusions
The PayPal Money Market Fund account, while offering a decent interest rate and a little bit of added convenience, fails to satisfy the two most critical requirements of a cash savings vehicle - to maintain the highest levels of both safety and liquidity. Sure, if you use PayPal a lot, you might sign up for it to earn a bit of interest on your in-transit money, but I wouldn’t keep large sums of money in such an account.
There are so many other FDIC-insured, highly-regulated banks that offer similar levels of interest and easy online access, why would you want to?
Posted in Banking, Insurance | 17 Comments »
Here are some happenings from the blog festivals and carnivals that I’ve participated in recently:
The Carnival of Personal Finance included our Roth or Traditional 401k decision process.
My pick from this Carnival was the sarcastic Ah… The Joys of Home Ownership by Grad Money Matters. He talks about how the accessories for a microwave can cost as much as the microwave itself! I found this timely as we were looking at washing machines the other day, the optional pedestals they come with cost upwards of $200! Is it me, or are these things just empty metal boxes. You could buy a entire new washing machine for around $250.
The Festival of Frugality at FILAM Personal Finance included my MagicJack Phone Review.
Here I liked the Is This Frugal? .. Or Just Not Quite Right? by Money, Matter, and More Musings. While I don’t hoard ketchup packets, I’ll admit that I do grab a few extra salt packets when on one of my rare fast food visits if they are the “dual cylinder” type. You know the ones… the salt is finer than usual, and I keep them around to put on microwave popcorn. Once I get two or three, I stop collecting them. Whew! It felt good to get that off my chest.
Posted in General | 2 Comments »
You and your significant other love each other. Still, I bet there is still something that one of you loves spending money on that the other simply doesn’t see any value in. It might be manicures, gadgets, designer clothes, online poker, or Star Wars collectibles. If you have joint finances like we do, this can cause some resentment. Why is our money being spent on Yoda PEZ dispensers??
One possible solution to relieve such stress that we are currently trying out is the Adult Allowance, where each person is given a certain amount of money that they can spend with no questions asked. I’ve seen it in a few places, including Him and Her over at Make Love Not Debt. No rolling your eyes, no passive-aggressive sighs, no exasperated “Why would anyone buy that?”. Actually, one annoying question from me is “Why didn’t you let me spend 10 minutes researching the best deal for your XXX purchase?” The idea of paying more than needed may cause me physical pain, but why should I let that ruin her purchase?
Yes, this is essentially budgeting, but many couples view budgets as tedious and restrictive. I see this as a specific subset of budgeting which focuses not just on the ability to track spending, but the freedom of enjoying your spending without guilt. This may be a good place to start if one of you is spender, while the other is a saver.
On a technical level, some people use cash in envelopes, while other use completely private and separate bank accounts. That way, after you run out of money there’s no going back for more. However, we’re keeping it simple and just tracking it on the honor system.
We mentioned this to some of our friends, and some of the responses were the expected “An allowance? Whoa, that’s harsh.” But one of the couples actually implemented it for themselves as well! It turns out that the guy was getting some flack for driving around his gas-guzzling 4WD beast around instead of the econo-box they also own. Now, he’s been given a monthly gas budget each month so he can still have fun, while she can feel that the gas bill is under control.
What do you think about adult allowances? Good idea for resolving potential conflicts? Or unnecessary for those in a good relationship?
Posted in Budgeting, Family | 61 Comments »
