Archive for March, 2008
Monday, March 17th, 2008
Now that I have a mortgage of my own, I finally spent the time to read up on Money Merge Accounts - also known as Mortgage Offset Accounts, Mortgage Acceleration Programs, Equity Accelerators, etc. You may see them sold by various companies like United First Financial or Tardus. All of them offer to make it easy to pay off your 30-year mortgage earlier by 10 or 20 years without changing your spending habits. My goal here is to be educational without being inflammatory and using words like “scam”.
I think the best way to do this is for people to view their own 15-minute sales presentation video, and have me explain afterwards how the numbers really shake out. If you’re short on time, you can drag the little arrow to the middle and pay attention to their walkthrough of the $200,000 accelerated mortgage paydown.
Breaking It Down: Simplified Version
Finished? Okay, here is a simplified version of the situation in the video. Let’s just say you have plain loan with a $200,000 balance being charged 6% simple interest (accrued daily). You can pay the balance down, or borrow more money as you wish. You don’t have any minimum payments for the time being. You earn $5,000 each month, and have $4,000 in expenses. There are two sources of potential savings through this account.
Source #1: Interest Offset
If you simply deposited your entire paycheck into the loan balance, it would reduce the loan balance temporarily to $195,000. As you pay your $4,000 in bills throughout the month, you balance will go back up to $199,000. But your lower balance throughout this time will reduce the amount of interest you’re being charged. This is what they call “interest cancellation” or “interest offset”.
This interest savings will repeat each month. In an ideal situation, it would be like having your loan balance decreased constantly by $4,000. At 6% annual interest, this would be $240 a year, or $20 a month. Actual net savings would most likely be far less if you usually keep your idle cash in an interest-bearing account, but let’s just leave this number to be generous. Again, we are ignoring additional fricton
Source #2: Additional Principal Paydown
But hey, notice that after the first month your loan balance is now only $199,000. This is because you have $1,000 in extra income each month. Let’s assume you wish to keep paying down this loan with it. Besides lowering the amount owed, it also saves you interest this year and all the years after that. That’s $1,000 each month + 6% interest. In one year, you will have paid down the loan by $12,000 and also avoided $387 in interest. That’s a “savings” of $12,387 a year.
My point? Most of the benefit of this program is due to the fact that you are using all of your excess money to pay down your loan, not the interest offsets. This is also confirmed using their own numbers:
Breaking It Down: Using The Provided Example
In the marketing video, by using their special optimizing algorithms and juggling money between their Home Equity Line of Credit and the $200,000 mortgage, they claim to have shortened a 30-year fixed mortgage so that it can be completely paid off in 10.1 years.
However, this result can be matched almost exactly by simply using this Mortgage Payoff calculator. Using the inputs of a new 30-year mortgage of $200,000 at a rate of 6%. Now let’s put that $1,000 as an additional monthly payment on top of the required $1,199. Again, you’ll see that your mortgage is shortened by 19 years and 10.5 months - the same as having it paid off in… 10.1 years! Virtually all of the mortgage acceleration is explained by paying extra towards your mortgage.
One of the first things you learn about in investing is the power of having your money earn compound interest. Well, holding a mortgage is like paying compound interest to the banks. A $200,000 mortgage for 30 years at 6% ends up being $431,677 in total payments. On the flip side, paying a seemingly small additional amount of money per month towards your mortgage can shorten your loan drastically. Bookmark the calculator above and simply type in your own remaining mortgage balance. You’ll see that even an extra $50 per month would shave off 3 years from the example 30-year mortgage!
Conclusions So Far
Before even considering these programs, you have to ask yourself if you really do want to pay off your home early. That is a separate argument, and there are several arguments against it.
If you do decide to do this, I hope that I’ve illustrated (as many others have also discovered) that if you strip away all of the marketing distractions, the actual monetary benefit of this program is probably around 1% interest offset and 99% old-fashioned mortgage principal pre-payment. Simply keeping your idle cash in a high-yield bank account, and putting the cash you have left over towards your mortgage principal each month, will yield virtually the same results. All of the optimizing software in the world won’t change this fact by any significant amount.
What this software will also provide is give directions for payment each month, as well as continually update your projected payoff date. Is this worth $3,500? Definitely not for me, but I’ll try to show next why it’s also not worth it for most people. Meanwhile, consider this: Putting $3,500 towards the $200k mortgage - instead of buying this software - would shave over a 1.3 years off the loan length and save over $16,000 in potential interest all by itself.
Additional Resources
Posted in Real Estate | 31 Comments »
Monday, March 17th, 2008
I usually don’t pay attention to short-term market moves, but I just can’t take my eyes off of this Bear Stearns train wreck! The recent timeline is almost amusing (assuming you don’t hold BSC shares…):
January 12th, 2007
Share price was $171.51.
March 10th, 2008 - Monday
Closed at $62.30 per share. From Bear Stearns CEO via Bloomberg:
“Bear Stearns’s balance sheet, liquidity and capital remain strong,” Chief Executive Officer Alan Schwartz said in the company’s statement. Alan Greenberg, the former Bear Stearns chief executive officer and current board member, told CNBC that the liquidity rumors were “totally ridiculous.”
March 11th, 2008 - Tuesday
From Jim Cramer via CNBC’s Mad Money:
Dear Jim: Should I be worried about Bear Stearns in terms of liquidity and get my money out of there? -Peter
Cramer says: “No! No! No! Bear Stearns is not in trouble. If anything, they’re more likely to be taken over. Don’t move your money from Bear.”
March 14th, 2008 - Friday
Closes at $30 per share. Federal Reserve gives emergency loan to Bear Stearns. CEO Schwartz clarifies earlier statement:
“Our liquidity position in the last 24 hours had significantly deteriorated. We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations.”
March 16th, 2008 - Sunday
JP Morgan agrees to acquire Bear Stearns via a share exchange for the equivalent of $2 per share. The money for this is provided by the Federal Reserve Bank, which agreed to cover any potential losses if the loan defaults. Huh? How come I don’t get no-lose deals like this?
Now What?
Will this help contribute to a full 1% drop in the Fed Funds rate on Tuesday as is expected by the futures market? If so, it may be a good time to lock in some bank CD rates today. As for me, I’m going to have to re-read all those articles on why timing the market is bad. 
Posted in Investing | 40 Comments »
Sunday, March 16th, 2008
You guys were right. Less than a month since we closed on our mortgage loan, we are already getting bombarded with letters offering “mortgage life insurance”. The official-looking letters seem like they are from your lender, but are really just another piece of junk mail.
The pitch is pretty simple - it will pay off your entire mortgage in the event of your death. You don’t want your family to lose their home, do you? *sniff* *sniff* If I do it soon, I don’t even have to submit to a medical exam. (This is not the same as Private Mortgage Insurance or PMI, which is to protect the lender when you have a small downpayment.) The problem is that it’s usually a better idea to simply buy a plain term life insurance policy with a comparable or greater cash payout. Here’s why:
Term Life Insurance Offers More Flexibility
So let’s see, if I buy mortgage protection insurance and die then my loan is paid off. What about the rest of the monthly bills? Childcare? The house isn’t everything. Wouldn’t you rather leave your family a lump sum of cash to do whatever you want with, rather than have a paid-off home with all of the equity stuck inside? They could even buy an annuity to replicate your income.
Mortgage Life Insurance Has A Shrinking Payout
Remember, this insurance only covers the mortgage. As the years pass, you keep paying premiums, but your loan balance keeps on shrinking! After 10 or 20 years, your benefit will be greatly reduced. Compare this with most term life insurance policies which offer a fixed payout.
Oh, and don’t be fooled by a “return of premium” (ROP) feature. Sure, they’ll refund 100% of your premiums at the end of the term. Not only does this cost more than non-ROP insurance, but that’s ignoring the fact that in the meantime they’ve been investing your premiums and making lots of money off of it (which you could have been doing instead). And if you miss just one premium payment you’ll be disqualified.
Term Life Insurance Is Probably Cheaper
Insurance is all about statistics. If the policy requires “no medical exam”, then it’s going to be more expensive in order to cover everyone. If you don’t smoke and are in average or above-average health, then you should simply apply for insurance that does require a medical exam. Now, if you are in poor health, then this might be an opportunity to get some insurance that otherwise might not be available to you. But remember that there are also a few no-medical-exam term life insurance companies out there.
Mortgage Protection Life Insurance Is Hugely Profitable
In addition, simply since this product is marketed by fear (remember your homeless family!) and primarily through unsolicited mailings, it has a higher profit margin and thus higher cost than regular term life insurance. This is supported by this InsWeb article that states:
The National Association of Insurance Commissioners (NAIC) says that mortgage insurance lenders pay out only about 40 cents in benefits for every dollar consumers spend buying that type of policy, compared with 90 cents on the dollar paid out to consumers who hold regular term life policies.
60% profit vs. 10% profit! I wouldn’t even bother myself, but if you must, simply comparing quotes with an insurance comparison website like SelectQuote will provide you an easy answer as to which is a better deal.
Posted in Insurance, Real Estate | 28 Comments »
Saturday, March 15th, 2008
I can’t stop the stock market from tumbling any further, but here’s a quick roundup of promotions by companies willing to pay you to try out their services. None of these listed require even a credit check. Additional information can be found through the links provided.
I have gotten all of the bonuses above successfully except for the Prosper one, as I had signed up before the promotion started. I have also gotten several $100 bonuses from these credit cards, although applying will require a credit check.
Posted in Deals & Offers | 9 Comments »
Friday, March 14th, 2008
I received another reader e-mail whose question was very similar to this worried young investor’s question from back in November. Essentially they still wanted to know my opinion in this bleak market and if there is something they should do. I can’t blame them for asking. Although I was in the buy-and-hold camp, here’s the chart for the Vanguard 2050 Retirement Fund (VFIFX) from November 2007 until now:
In addition to my suggestions in that post, I also wanted to add that I can empathize with their situation. My very first Roth IRA was only partially funded with $1,000 because that’s all the money I could spare at the time. I then proceeded to buy shares of Janus Mercury, recommended by various publications and rated 5 out of 5 stars by Morningstar at the time. How could I lose? This was around 2001-2002. It tanked. Although I didn’t sell that year mainly because I didn’t know what else to buy, the next year I was certainly not interested in making any more IRA contributions!
Looking back, I would say starting out involves a good dose of luck. Let’s say 60% of new investors are up during their first year. For these lucky folks, they have a bit of “house money” to cushion any future losses. They have a positive vibe, and are more likely to keep their portfolios constant and make a habit of contributing regularly.
But what about the other theoretical 40% of new investors? They start losing money in their very first year. The media is now showing nonstop stories of foreclosures, rising inflation, weak dollars, poor job reports. Beginning investors are not used these drops. In their eyes, it took them months if not years to save up enough money in a nice, safe bank account before finally opening a Roth IRA. Then in a few months nearly $1,000 (20%) of it might have already disappeared! Worst case, they might be turned off from stocks for years. I’m no expert, so I can only reiterate the importance of time horizon when investing.
I’d like to hear how other people remember their very first year investing. Was it a good year for you? Bad? How did you react?
Posted in Investing | 49 Comments »
Thursday, March 13th, 2008
Now that we have a fixed monthly mortgage payment for the foreseeable future, we are looking ahead to our true mid-term goal of living on one income. Specifically, we’d like to live on two half-incomes when we have children. We live in one of the most expensive areas in the country. Can we do it?
Both of our incomes are somewhat comparable, so our plan is to actually pretend that only one of us is working, deposit that person’s paycheck into a checking account, and work only from that checking account. The mortgage note, utilities, food, gas, all expenses will be deducted from that account. A reasonable percentage (15%? 20%?) for retirement will still be taken out. I have no idea what a child will cost, but maybe we’ll take out an extra $500 a month for food and diapers as well? The second person’s income will still be dealt with, but just separately.
This way, we will get as close as we can to simulating living on one income. If the checking account starts to shrink too fast, we’ll have to think of ways to cut expenses further. I think this is an interesting idea that could be applied to anyone who wants to stretch into a new financial goal. You may think you can do it, but failure might be costly.
- Buying a new home. Can you afford a mortgage payment that is significantly higher than your rent? You should be sure, otherwise you might be joining the million other people in foreclosure.
- Kickstarting your retirement contributions. Maybe you’re afraid of putting too much in a 401(k) or IRA and not being able to take it out. Why not just use savings account and stick your imagined contributions in there for a while? That way you won’t have to deal with penalties.
- Increasing your debt payments. Some people are afraid to pay off too much debt in case they need the money for later. An emergency fund would help solve this, but also the “pretend” debt account might be a good temporary solution.
- Going back to school, switching careers, etc. Again basically the same idea - how will you react to living on less income?
Posted in Family, Frugal Living, Retirement | 42 Comments »
Thursday, March 13th, 2008
I just found a pretty good offer in one of my Citibank credit card statements. (I still get paper bills for everything, it’s my longtime system for paying them on time.)
If I open up a new Citibank Ultimate Savings account + Checking account with at least $25,000 by 4/30 and complete a direct deposit for 3 consecutive months, I can get 40,000 ThankYou Points which can be converted into two roundtrip airlines tickets worth up to $400 each. Here is a scan of the offer. Offer code is CEJT. However, note the very first line states that “this offer is only available to individuals to whom this communication is addressed”, so please check your statements and save it to avoid hassles later. I would think most others would get it as well, since I am probably one of Citibank’s less-profitable customers and I got it.
The Ultimate Savings account pays 3.25% APY if you do two online billpays per month, 2.51% APY otherwise. The attached checking account has no monthly fee if you connect it to the Ultimate Savings account. This seems like a pretty good deal because the interest paid is competitive with other online savings accounts, and I can get up to $800 worth of airplane tickets on top of that (worth at least another 2% APY). Of course, you’ll need to have $25,000 to commit. Ironically, much of the $25,000 I’m going to put into this account is Citibank’s own money that they let me borrow at 0% APR!
Update: I found a version of the 40,000 point offer online. Offer code CSZ2. Two important differences: (1) accounts must be opened by 3/31/08 and (2) it is valid for existing Ultimate Savings account if you add in another $25k.
Posted in Banking, Deals & Offers | 41 Comments »
Wednesday, March 12th, 2008
When we bought our house, the lender said we weren’t in a flood zone so we didn’t need to buy flood insurance on top of our homeowner’s insurance. I figured if the bank isn’t worried about it, then I shouldn’t be either. Apparently this might not be the best idea.
Virtually every home is in a flood zone
Unless you live on the top of a mountain, just about any area is susceptible to flooding. Heavy rains can make instant rivers where there wasn’t even a trickle before. All it takes is for a big storm to come after the ground is already saturated. Or you could simply ask some of the people who experienced Hurricane Katrina. Dams and levees fail. Just a few inches of water can cost tens of thousands of dollars worth of damage. In fact, 25% of flood claims come from low and moderate risk areas (areas not required to have insurance by lenders). Check out your local flood map here.
Where do I buy flood insurance?
Flood damage is not covered under homeowner insurance policies. You must buy it separately through the National Flood Insurance Program (NFIP), which is run and backed by the US government. However, nearly everyone is eligible to buy flood insurance regardless of risk level (although the premiums will vary).
The policies are available through private insurance companies and agents. You can find agents here for a free quote. Some insurance companies hint that they can offer discounted quotes, but this is not true. The price should be the same no matter who you go through. I actually tested this by asking 5 different agents both local and nationwide for quotes, and they were all exactly the same once adjusted for the same coverage and deductible. Therefore, I would simply get a quote from the same insurer I have for homeowner’s insurance.
How Much Will It Cost?
Chances are if your lender didn’t make you buy it for your mortgage, then your premiums won’t be too bad. You can estimate your flood risk and premium here. Remember, you have a few choices: Your building coverage amount (up to $250,000), your contents coverage amount (up to $100,000), and the deductibles for each (from $500 to $50,000). If you are in a moderate-to-low risk area, you might get coverage for $200-$500 per year.
With a few exceptions, there is a 30-day wait before the policy takes effect, so don’t be thinking you can just buy it at the last minute. Even if you aren’t a homeowner, flood insurance is available to renters who want to cover their contents.
So, it would seem that almost all homeowners should at least consider getting flood insurance even they are not required to. It can’t hurt to get a quote and research your flood exposure.
Posted in Insurance | 27 Comments »
Tuesday, March 11th, 2008
Last month one of our credit card statements spanned two pages because we had eaten out so often. Not only is it more expensive, I’m pretty sure it’s less healthy. So now we’re trying to limit ourselves to 2-3 times a week (minus the cafeteria at work), and making one of our outings to a new restaurant that we haven’t tried before.
This means more grocery shopping. But did you know that grocery food prices jumped 5.3% in 2007? Milk, eggs, and bread all cost from 10-30% more than last year. This year looks to be even worse, especially with rising oil prices making transportation more expensive. In last weekend’s WSJ Sunday edition, there was an article titled Savvy Grocery Shopping that had some good money-saving tips. Here are a few of them along with some others I’ve also picked up elsewhere.
Stockpile and Hoard
Grocery stores constantly rotate the stuff that they have on sale, so that at any one time there is something new to attract you into their store. Then, while you’re already there, they expect you to buy other things at full price. The key is to know when something is at a great price, and then stockpile staples at that price. That way all your pasta, canned veggies, soups, broths, sugar, and all non-perishables are all bought 20-50% off retail.
Keep Track of Prices
The problem: How do you know what is a good price? I forget all the time. Some people keep what is called a “price book”, where you track the price of your commonly bought items so you can start to see the cycles and pricing patterns. There is even a website called TheGroceryGame that will track prices for you and let you know when to buy - for $10 every 8 weeks.
I’ve also noticed that you can also start to learn when they mark down meat, usually a day or so before the legal sell-by date. The meat is still good, I just stick it in the freezer right away until I need it.
Be a Coupon Ninja
There is an entire subculture of “couponers” out there that I call “coupon ninjas”. They find good coupons, then get 20 duplicates of them, go to a store that doubles them (instead of 25 cents off you’d get 50 cents off) and then stockpile like crazy. I’ve seen scans of grocery receipts that show $150 of food bought for $23.47. Sometimes they actually get negative! While I admire their drive, I just stink at using coupons. I’ll clip them, but I always forget to bring them along, or I wait until they are expired. My new store doesn’t double coupons anymore, so the incentive is also less. TheGroceryGame also helps point out good deals.
Buy Frozen and/or Generic
Many times frozen fruits and vegetables are even more nutritious or tasty when you buy them frozen, because they can wait longer before picking them. Also, there’s always store-brand or generics. The article shares that the manufacturer of Birds’ Eye veggies also makes store-label veggies. I love my Safeway frozen mixed vegetables! 
Did you know that produce even has brands now? I didn’t even notice. I like to buy generic on many things, but not all of them.
Posted in Budgeting, Frugal Living | 65 Comments »
Monday, March 10th, 2008
Here are some posts I found useful while reading my fellow financial bloggers and more:
SingleGuyMoney shares some of his rental property issues. Apparently even buying a home warranty from American Home Shield won’t ease all repair headaches, as it doesn’t cover pre-existing problems (even if they were unknown).
PaidTwice shares why she doesn’t care what her house is worth. I agree in that my housing payment is pretty much set for the foreseeable future. If anything, I want prices to go down. Because that means that my friends might be able to afford a house, and then I can perhaps get a good deal on a second property.
Canadian Capitalist shares his notes from the 2007 Berkshire Hathaway Annual Report. It’s actually pretty fun to read, although I do admit I usually get bored after a few pages and have to read it in parts.
The Honest Dollar advises us to avoid the recency bias. Seriously. Can we finally admit that we can’t see 3 years ahead? Just a few years ago the “experts” were saying how the economy is so resilient and earnings are solid and blah blah blah. Now it’s all “recession-proof your portfolio!”. Tune out all this noise!! Nowhere in my asset allocation decision process is there a factor of “does the market look gloomy?”
Jim at Blueprint For Financial Prosperity talks about the Airborne class action lawsuit. High school teacher who “got sick a lot” doesn’t make wonder drug? Shocker!
JD of GetRichSlowly points out another reason to be wary of gift cards. If you have some Sharper Image gift cards - congratulations! They’re useless.
A co-worker sent me this Couch-to-5K Running Plan. Seems like a good guide to get off your tush and finish a 5K if you’ve never done one before. If I was clever I’d find some parallels with personal finance.
Posted in General | 14 Comments »
Monday, March 10th, 2008
With my new fat mortgage, I’m considering whether to also take out a Home Equity Line of Credit (HELoC). This is not a home equity loan where you take out a lump sum at a fixed rate, but is a line of credit usually at a variable rate. I think of it as a credit card that is secured by my house (!). I don’t plan on actually using it, but I think it might nice to have around as long as the upfront costs to me are minimal. Here’s why:
Safety Net / Emergency Funds
Although having adequate emergency funds in cash is always preferable, it is nice to know that you have a HELOC as a backup in case of prolonged job loss or health problems. It’s always better to line up credit ahead of time while you have good credit rather than when you are already desperate. Using a HELOC can be preferable over paying sky-high credit card interest or falling behind bills (late fees, damaged credit score). Ironically, you might even use it to temporarily keep current on your mortgage to avoid penalties or even foreclosure. Let’s hope not.
Cheap and Flexible
The nice thing about a HELOC with no fees is that if you don’t take any money out, you don’t pay anything. And because the money is secured by your home, this assurance makes your interest rate relatively low. The rate is usually close to the WSJ Prime rate, which is currently 6% APR. On top of that, your interest paid might even be tax-deductible.
The interest is accrued daily, which makes it good for quick loans. So if you do need to take out $10,000 on short notice and you don’t have the cash on hand, using a HELOC might be the most economical way to do it. At 6%, your interest owed on $10,000 is only $1.64 a a day. Of course, for many folks this convenience might just provide too much temptation. All debt can turn into a double-edged sword. Know thyself, is all I can say.
Tool for Credit Card Profit Games
Here’s a trick to go along with making money with 0% balance transfers that is a good example of that flexibility. With certain credit card issuers it can be difficult to turn your balance transfer into cash in your pocket, especially when you have no existing balances. But here’s an example of how to use your HELOC to extract $10,000:
- Request a balance transfer from your 0% APR credit card for $10,000 directly to your HELOC. Since this is loan they won’t mind at all.
- Shortly before the balance transfer is scheduled to arrive, write a check for $10,000 from the HELOC to your interest-bearing bank account. Now you have created a temporary $10,000 debt at 6% and $10,000 bank balance earning ~4% (minus some possible lost days of interest).
- When the balance transfer payment arrives a fews days to a week later, your HELOC debt will be paid off.
- A week’s worth of interest at 6% APR ion $10,000 is only $11.50. And that is partially countered by interest earned in your savings account.
- Voila! For around ten bucks, you now have $10,000 at 0% APR in your bank account to do as you wish.
Finding a HELOC - What To Look Out For
Now, I don’t want a home equity line if it’s going to cost me a bundle. Here’s a quick rundown of important factors when looking for a HELOC, based on an article by the Mortgage Professor.
- Introductory rate and period. Temporary teaser rate to suck you in.
- Margin. This is usually how your non-teaser interest rate is determined, relative to the Prime rate.
- Minimum draw. How long can you take money out?
- Required average balance. Do you have to take some money out?
- Upfront lender fees. These days, you should be able to eliminate these.
- Upfront third party fees. Harder to get waived, but try.
- Annual fee. Just say no, again. Sometimes only waived for first year.
- Cancellation fee. Many have these, I guess so you don’t bail and go to another bank. This is especially the case if they waive all the upfront costs above, since they are losing money on you so far. As long as you can keep your balance at $0 with no fees, just keep it open and don’t use it.
I see a lot of competition out there now that rates are low, so definitely shop around. As a data point, I just saw a special offer from Bank of America for a no closing cost, no application fee, no annual fee HELOC. Don’t forget to try your local credit unions as well.
Posted in Credit Cards, Real Estate | 47 Comments »
Sunday, March 9th, 2008
I’m sure the foodies already know about this site, but I just learned about it recently so I figured I’d throw it out there for discussion… America’s Test Kitchen is a very popular PBS show that shares carefully tested recipes, review cooking gear, and even taste-test supermarket products. I figured this would fit in with the frugal theme since they can help you get the best value when buying knives, pots, pans, and even olive oil. I would describe it as a food-focused Consumer Reports.
You can access their recent reviews and articles online for free, but you must provide an e-mail and mailing address. They say they won’t sell your e-mail, but they will force you subscribe to their newsletter and try to get you to sign up for a subscription of Cook’s Illustrated. Let’s just say both can be fake, and you can still gain access… Note that many of the older articles are archived into a paid-only area that costs $24.95 annually.
Now, the most expensive models do often end up being rated the best. However, sometimes there is a surprise and the $30 pan matches or beats out the $100 pan. If not, there is usually a model that ranks nearly as well but is also significantly cheaper. Here’s a sampling of articles I found interesting. Note that these direct links will only work after you have logged in.
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Inexpensive Knife Sets. Scroll to the bottom to find their recommendation for how to build your own cheap but high-quality knife set for under $100. They really like the R .H. Forschner by Victorinox brank of knives (the Swiss Army knives people).
- The Little Nonstick Saucepan That Could: “You can spend $100 on a 2-quart nonstick saucepan–but should you?” I’m glad to see my Calphalon pans rated pretty well.
- Inexpensive Dutch Ovens. “Our favorite Dutch ovens cost more than $200. Ouch! Is there a cheaper version that performs almost as well? Yes. It costs $40.” I don’t own one of these, but I like how the Target brand kept up with fancy-pants Le Creuset.
- Drip Coffee Makers. “Does an Inexpensive Model Have to Feel Cheap?”
- Commuter Coffee Mugs. “We didn’t find perfection, but we came close.”
I can’t wait until Spring and we can grill in our own new backyard. Bobby Flay, watch out!
Posted in Frugal Living | 14 Comments »
Friday, March 7th, 2008
I keep seeing the American Express Blue Cash card winning “Best Best Cash-Rebate Card” from financial magazines like Kiplinger’s Personal Finance. A few people have asked about it, so here’s my quick review. What does “up to 5% cash back” really mean anyhow? Let’s dig up the fine print on the bottom of the application:
^”Everyday Purchases” are Eligible Purchases made at U.S. supermarkets, gas stations and drugstores, in each case that are not departments of superstores or warehouse clubs.
Until you spend at least $6,500 total on the card, you receive 1% on grocery/gas/drugstore purchases, and 0.5% on everything else. After you reach that point, you start earning the full 5% on grocery/gas/drugs and 1.5% on everything else. Your first $6,500 in spending is not retroactively boosted, only the amount over that threshold gets the 5%/1.5% rate.
5%/1.5% is pretty solid, but you have to first absorb that initial hit in the beginning. $6,500 a year is $540 a month, so if you don’t spend more than that each month then you’ll never even reach the happy tier. If you do charge more, the question then becomes - what is your actual average cashback percentage when everything is taken into account? I ran the numbers and here is the graph:
I kept things simple by keeping each category isolated from the other, so the 5% for “everyday” purchases only kicks in after $6,500 in “everyday” purchases. This isn’t a good approximation for most people, because in reality, the $6,500 limit will be hit by a combination of both “everyday” and “all else” purchases, so your actual cashback return for groceries and such should rise much earlier than shown in the graph. Once it does kick in, you get to 3%+ cash back in that category pretty quickly.
The “all other” graph rises much more gradually. In this category, you’ll need around $2,000 per month in spending to achieve an overall 1.25% back. $5,000 per month will get you to 1.4% overall back.
Quick Conclusions
If you (1) charge at least $1,000 per month regularly with the occasional spike for one-time purchases, (2) prefer simplicity and only want to use one card for all your expenses, and (3) don’t ever carry a balance or pay credit card interest, then I can agree that this is a pretty good card. The more you usually spend, the better your rewards percentage. (Obviously, don’t spend more just to get a few % back.) Most people who own this card report to me that they are pretty happy with it.
In addition, if you spend a lot on gas/groceries/drugstores and have enough total purchases to get past the $6,500 marker early in the year, you can do quite well with this card. But if you are a light spender, you will probably be better off with a card with no tiers.
Posted in Credit Cards, General | 33 Comments »
Friday, March 7th, 2008
Bank of America is offering a $75 bonus for new customers opening a personal checking account with them by April 30th. If you open online, you will probably get a hard credit check. If you open in a branch, you should be able to avoid this. Use offer code AOU26020.
Offer expires 04/30/2008 and is available through our online application or in any Bank of America banking center. Offer does not apply to second or multiple checking accounts and/or existing checking customers. This minimum deposit required to open a new, personal checking account and receive the $75 offer is $100.
BofA also has a $100 bonus for a business checking account.
Offer applies to any new business checking account opened with a Visa® Business Check Card before March 31, 2008. Limit one $100 incentive per business every 6 months. If opening the account online, you must enter the code BTB0100 to ensure you receive the bonus. If opening your account in a Bank of America banking center, you must provide the coupon to receive the bonus.
Chase Bank is offering a $100 bonus for opening a Free Checking Account with direct deposit by March 31st. You must actually go to a branch, I’m not sure if they check your credit there. I’d hope not.
To qualify for the $100 reward you must open a new checking account and initiate a repeating direct deposit such as payroll, pension or Social Security. The first direct deposit must be completed within 60 calendar days of account opening.
Chase is also offering a $200 bonus for opening a business checking account. (Thanks Susie)
Open a Chase BusinessClassicSM, BusinessPlus® or Chase Advanced Business CheckingSM Checking account and deposit a minimum of $500 or more within 30 days of account opening with funds not currently on deposit with Chase.
Posted in Banking, Deals & Offers | 12 Comments »
Thursday, March 6th, 2008
From Washington, D.C. to New York City, from Atlanta to Portland, a huge part of finding a house is balancing the desire to have a shorter commute to work and the higher price tag that inevitably comes with it. Some people live farther away to spend less, while others simply want more house for the same price. I know people who commute 2 hours each way, every day. They are not alone - According to the NY Times, the Census Bureau states that nearly 18 percent of New Jersey workers leave their homes before 6:30 a.m. every day. Nationwide, over 3.4 million workers take more than 1.5 hours to get to work one-way. That’s a 95% increase since 1990.
How do you strike a balance? It’s easy to measure how the housing prices drop the farther you go out. Just look at the MLS listings. As one quote puts it - “Keep driving until you can afford it.” However, it’s harder to measure the many costs of a longer commute.
Increased Car Costs: Gas, Depreciation, Repairs, and Maintenance
The more you drive, the more all these costs add up. Let’s say I want to move 20 miles further out. If I get 25 miles/gallon in commuter traffic and gas costs $3.50 a gallon, and I work 22 weekdays per month, that works out to an extra $120 per month in gas alone.
That also amounts to an extra 10,600 miles of driving each year. So more oil changes, more frequent repairs and other maintenance. Your car might depreciate faster by an extra $1,000 per year. That could work out easily at least another $100-$150 per month.
Treating Commute Time As Unpaid Work Time
Now what if we convert that commute time to actual paid working time. If you earned $30 per hour x extra 2 hours commuting per weekday x 22 weekdays per month x 12 months = $16,000 per year (essentially 25% more). Even if you don’t get paid hourly, there is some value involved. Imagine if you used that time to perform better at work and impress your boss, or if you used it to start a business of your own.
Let’s use the very rough multiplier that you can afford a mortgage that costs 3 times your gross income. Saving an extra $270 per month in car costs would let you theoretically buy $10,000 more house by living closer. Earning another $16,000 more per year would let you theoretically buy $48,000 more house. Earn $60 per hour, and that’d be $96,000. I just pulled some numbers from the air here, but the idea is simply that there hard costs involved with that longer commute.
Effect of Fatigue On Work, Family, and Happiness
Forget the extra wear and tear on your car, what about the extra wear and tear on you. If I had just spent two hours in traffic, by the time I get to work I’d be tired and ready for a break. My work quality would suffer. Then instead of arriving back home by 6 or 7 pm, now you’re looking at 8 or 9 pm. You don’t have time to cook, so you buy take-out. It costs more and is less nutritious for your family. You have less time to exercise, less time to play, less time to relax. You get the picture.
From the BusinessWeek article Extreme Commuting:
This is what economists call “the commuting paradox.” Most people travel long distances with the idea that they’ll accept the burden for something better, be it a house, salary, or school. They presume the trade-off is worth the agony. But studies show that commuters are on average much less satisfied with their lives than noncommuters. A commuter who travels one hour, one way, would have to make 40% more than his current salary to be as fully satisfied with his life as a noncommuter, say economists Bruno S. Frey and Alois Stutzer of the University of Zurich’s Institute for Empirical Research in Economics. People usually overestimate the value of the things they’ll obtain by commuting — more money, more material goods, more prestige — and underestimate the benefit of what they are losing: social connections, hobbies, and health. “Commuting is a stress that doesn’t pay off,” says Stutzer.
Got Public Transportation?
While not a complete solution, all of this gets reduced if you have decent public transportation. The costs are most likely lower than driving, you might get some work done en route, or at least you’ll arrive less stressed. I’ve already noticed that housing near good public transportation commands a premium, and it should.
Our Experience
We really wanted to have a short commute, but we still ended up with a compromise like many others. We looked at houses that were 15 minutes from work and play, but they simply cost too much. So, we moved farther out where the houses were newer and cheaper. But thankfully not too far. Our commute is still about 45 minutes each way if we had to drive during rush hour. However, whenever we can we try to shift our hours earlier or later to make it more like 20-25 minutes. My main worry is that as time goes on the commute will only become longer and longer.
Posted in Family, Real Estate | 56 Comments »
