Quickies: The Power Of Default Options, Umbrella Bank 5.50%, and Spending Breakdowns

» The Finance Buff has an interesting post on the power of the default option. Most people don’t bother to opt-out.

Businesses know about the power of the default option. They select it very carefully in order to influence your decision making. Is it a surprise that most people choose the 3-out plan from Netflix? As a consumer, you have to recognize that the default option thrown at you is not necessarily in your best interest. Don’t just blindly follow the default option, especially if the default is doing nothing.

This applies to everything from 401(k) participation to organ donation to the size of your dinner entree. This also explains why Zecco only pays 1% on cash balances by default, even though by sending in one sheet of paper you can increase that to 4.38%.

» UmbrellaBank is offering a new savings account paying 5.50% APY until 12/31 7/31. $1,000 minimum to open, $1,000 minimum to avoid fees. It’s nice to see a rate guarantee, but they also have a history of low bank safety ratings, so I’d keep your balances under FDIC limits. Don’t miss my Ultimate Rate Chaser Calculator if you’re pondering a move. Via BankDeals.

» JLP points to an article that profiles families earning $46k a year and where it all goes. The pie chart was what caught my eye. What would my spending chart look like? Or yours?


  1. That’s a good article. My 2007 is forecasted to look like this:

    31%: Cash Savings
    24%: Credit Card
    17%: Housing
    14%: 401K
    05%: Loans
    03%: Spending Cash
    03%: Checks
    01%: Cable
    01%: Phone

    So basically I am saving 45% of my 2007 income and spending 55%. I feel that my spending is a little high this year b/c we bought a new Jeep Grand Cherokee and put a down payment of $5K on it. I am trying to build up our cash savings to buy a house in 2008 and that 31% into savings equates to around $35K.

  2. Mine looks something like this right now:

    Housing: 35%
    Insurance: 2%
    Utilities: 4%
    Daycare: 10%
    Gas: 3%
    Groceries: 5%
    Dining out: 2%
    Phone: 1%
    Savings: 38%

    Some of that “savings” is going towards the building of our second home right now. This doesn’t include pretax 401K of 10%. (Percentages are all from net income)

  3. Mine looks like this:

    Housing (includes utilities): 49%
    School: 12%
    Food: 3%
    Health Care: 5%
    Car: 6%

  4. Mine looks like this:

    Housing (includes utilities): 49%
    School: 12%
    Food: 3%
    Health Care: 5%
    Car: 6%
    Phone: 1%
    Entertainment: 2%
    Other: 4%
    Savings: 18%

    Total: 42K/year

    I’m single, though, so I have lower expenses in some categories.

  5. 12% housing
    32% 401k/ non-deductible ira
    4% food
    24% stocks/Savings/Bonds
    4% insurance/Medical Deductions
    12% consumer spending (telco, clothes, entertainment, stuff, car maintenance)
    9% vacations (kids moved out)

  6. My after-tax allocation:

    Investments: 38.4%
    Retirement Accounts: 20%
    Savings: 7%

    Rent: 12.8%
    Childcare: 6.6%
    Food: 6.4%
    Car + Gas + Insurance: 5.9%
    Utilities: 1.4%
    Life/Umbrella Insurance: 1%
    Other: 0.5%

  7. Squeezer says:

    reading that 46k/yr article, theres a common theme. Either the wife isn’t working/working only part time, and/or, they had kids that they can’t afford. improper life planning.

  8. theguapo says:

    What about taxes? I didn’t see anyone list taxes.

    Housing: 23% (mortgages + home improvements)
    Cash Savings: 12.5%
    Taxes: ~12%
    Food: 9% (includes groceries + eating out)
    401k: 7.5%
    Auto: 7.4% (gas, ins, repairs, taxes)
    Utils: 5%
    Loans: 2%
    HealthCare: 2%
    Other Spending: 20%

  9. I am a full-time student right now. This is based on last year…
    28% tuition
    25% housing/utilities
    15% misc. savings
    14% Roth IRA
    10% entertainment
    6% food
    2% misc. expenses

    Total is about $29k.

  10. 32% spending
    (15% housing, 3% utility, 3% fun, 4% transportation, 5% food)
    24% retirement
    23% tax
    18% cash savings

  11. I’m not sure why the above people have such a small tax bite, 12% seems impossible.

    31.7% Taxes (including FICA &State)
    16% Housing
    5.2% groceries, utilities, insurance
    3% loans
    4.6% misc. spending
    11.5% 401K contributions
    28% misc. saving

  12. To the commenter who asked about taxes, most of us gave our allocations after taxes. My taxes were about 22% of gross pay last year. I think this year will be a bit higher, probably 25%.

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