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Aug 192015

Earn 3%+ interest on cash with high interest checking

By |August 19th, 2015|Blog|3 Comments

Ireland_road_sign_RUS_026_(English).svgFor years now interest rates on savings accounts have been nearly zero.  The news for the last few months was that the Fed might raise rates in September,  or maybe they won’t.  I don’t know what the Fed will do.  I do know that I get 3% interest on my uninvested cash, and I heartily recommend it to other folks managing their thousands.  I have a high interest checking account.  In exchange for a little hassle, these checking accounts pay you an above-market interest rate on a cash balance up to a certain amount.

 

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Don’t hassle the… eh, you get it.

The Hassle

The checking account I use is at Consumer’s Credit Union.  In order to qualify for the higher interest I need to do a couple things.  First, every month I have to have a direct deposit or an ACH deposit into the checking account.  At my work setting up direct deposit of my paycheck to a new account is pretty trivial, but your mileage may vary. (Seriously though, don’t let filling out one little form stand between you and an interest rate 3x as high as a halfway decent CD). Second, I have to use the debit card 12+ times per month.  I occasionally have a little trouble with this, as I prefer to use some sort of rewards credit card for my purchases, but with a little thought it can be quite manageable.  Third, I must agree to receive e-statements, rather than regular statements.  For me, this is a complete non-requirement, I hate paper statements. Lastly, I have to sign into the online account once per month.  With the interest piling up this is more entertaining that you’d think.

 

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Wikipedia helpfully titled this, “A wad of United States Currency”. Though, with the $10,000 balance cap, it’d be more honest to imagine these were Washingtons.

The Payoff 

For all of that trouble I earn 3.09% on my cash balance in the checking account up to $10,000.  I don’t find the limit to be extremely, well, limiting, because I throw everything that I can spare into my Roth and other retirement accounts.  One other perk I find huge is that the checking account reimburses ATM fees.  I’ve got to be honest, there are times this feels a little like a superpower (I’m so lame).  It’s incredibly liberating when you and your friends are somewhere that cash is a necessity and you’re surrounded by high-fee ATM’s.  I can’t find a limit to this on Consumer Credit Union’s website, and now I’m a little shocked that no one has purchased an ATM and simply printed themselves money.  Let’s see I’ll take $20 out from my ATM for which I charge myself a $2 fee. Then I’ll open the ATM put the cash back in, and make another withdrawal from my ATM…

The Bottom Line

It’s free money.  I swear, the amount of time I spend trying to convince people just to take the free money, I’d be making minimum wage if they just took it, then gave it to me (and I’d no longer be allowed to do it in Seattle, San Francisco or Los Angeles). There are several credit unions and small banks that offer a product like this, you just have to search for them.  I think Consumer’s is the best, but I’m prepared (and terribly excited…) to be proven wrong.  If you think you’ve got a better high interest checking account please sound off in the comments section.  (Doubly so if you can explain to me why buying an ATM and plugging it into my basement isn’t a license to print money. Disclaimer – If you do this and get sued/arrested…I can only thank you for providing a test case as I certainly don’t endorse it, but I am a little curious…)

 

 

Aug 172015

Robinhood Review

By |August 17th, 2015|Personal Finance Tips|2 Comments

Robinhood Screenshot

The Robinhood app

Robinhood has finally made its app available to Android users, and I can say I’m quite excited.  Robinhood is a brokerage.  If you open an account with them you can trade stocks online. There are two things that differentiate them from other discount brokers.  First, regular trades on the platform don’t incur a commission.  Second, you can’t place trades on your regular desktop computer.  You can’t place them on your laptop either.  This brokerage is available only on mobile devices as an app. The signup process is smooth and easy. Funding is a matter of giving the app your bank username and password which could turn off some users. All told completing the signup process took me about three minutes, which is a stunningly short amount of time.

Fees

The main selling point behind the Robinhood app is free stock trades. A user may be surprised upon selling a stock that they actually do pay a small amount. This isn’t because Robinhood is charging them, but rather that the SEC (the Securities and Exchange Commision) charges a fee on stock sales, FINRA (Financial Industry Regulatory Authority) also charges a trading activity fee on stock sales. This should work out to pennies and largely isn’t worth worrying about. One of the things I like to check for in a broker is what the rest of their fees work out to be. For example, one fee that is generally overlooked is the fee to participate in a tender offer. This fee is $50 and is a substantial obstacle to participating in tender offers for microinvestors. Other fees include worthless security processing ($30) and various charges for doing things via paper rather than electronically ($5 for statements, $2 for trade confirmations).

RobinHood

From SMBC comics
(the best webcomic)

Available Trades

The trading universe that Robinhood gives you access to is fortunately much larger than similar services, such as Loyal3. Stocks available only include those traded on major US exchanges. They don’t trade OTC issues. The fortunate part about the setup is that if you don’t know what OTC issues you certainly don’t have any business trading them. Similarly options are disallowed.

Customer Service

Customer service is quite easy to access via the app, it takes you directly to a mobile site. Customer support appears to encourage email over phone. Phone customer service is only available during market hours. I sent an email to their customer service and have not as of yet gotten a reply.  Robinhood has sent a couple automated messages claiming that their customer service has been overwhelmed by tickets since the android launch.

Retirement Accounts

They don’t allow them. This is unfortunate, if a dollar can be out of your hands long enough to go into the stock market, it can be out of your hands long enough to go into a retirement account. That being said I’m not sure I would even want my retirement accounts at Robinhood. They seem nice enough but, I’m not convinced that their business model is sustainable in the long term. If it isn’t sustainable, they might get bought out, in which case I may end up at a firm with a totally different fee structure, or they’ll go out of business. If that happens, the good news is that they are covered by the SIPC, which insures securities up to $250,000 from broker failure; the bad news is that this is a hell of a thing. If the brokerage goes under you may not be able to sell your holdings, or do much with them at all. If we’re in the sort of situation where a company like Robinhood goes out of business rather than being bought out you may find it quite upsetting that you can’t trade your holdings.

Bottom Line

Situationally, Robinhood could be great. Suppose that you want to have a diversified basket of stocks but don’t want to deal with the fees, tracking error, and turnover involved with an S&P 500 index fund. Instead you could deposit $500 every month and buy $1 of each company in the S&P 500. You would simply never sell to avoid turnover. That’s a very powerful idea and I like that it’s possible with Robinhood. Also, I’ve never had an easier time signing up for a financial account, which was great. The downsides are possibly substantial, as I am pretty skeptical that the company will exist in this form in twenty years. Additionally, not allowing retirement money very likely consigns the app to holding very small amounts of my money for the time being.

Aug 122015

Roth IRA Rules

By |August 12th, 2015|Blog|2 Comments

Hitchbot_archie

(Possibly in revenge)

Quite often when discussing the virtues of the Roth IRA I am confronted by the same argument regarding retirement accounts.  “I want to save money, but I don’t want to wait until I’m old to enjoy it!”  This seems quite reasonable.  Who wants to set aside $5,500 every year only to see it again in 2045? Surely, won’t robots have risen up and killed us all by then?

The basic idea behind an IRA is that the government gives you some kind of tax benefit to save for retirement.  The tax benefit of a Roth IRA is that money in the account can be invested, and gains from these investments will never be taxed. Suppose I put $5,500 in a Roth IRA.  When I’m 60, I retire, by then (at a 7% investment growth rate) the $5,500 has grown to $41,000, I can then take $41,000 out and live off of that for a year and pay no income tax.  Compare this to leaving the money in a regular account, I will have to pay roughly $5325 in taxes! That’s almost the entire starting amount!  (Footnote 1: Using a 15% tax rate, the actual effective tax rate could be much higher if I realized gains more frequently, or was earning money from interest rather than capital gains). There is an important caveat. If I take earnings out early (before 59.5 years of age) I’m hit with a penalty fee of 10% by the IRS and have to pay taxes on the earnings.  This is generally where I lose people.  Fear not, dear reader, you can benefit far sooner from your savings!

Roth IRA
2015 Limit $5,500
Withdrawal Penalty 10%
Taxes Taxes paid on contributions
No tax on qualified withdrawals

First off, while you are taxed on earnings, you can take contributions out of your Roth IRA at any time without penalty. That’s right, the biggest downside if you decide this whole Roth IRA thing was a bad idea and you need the money to buy the brand new iPhone 9, is that you don’t get to take the interest you’ve earned out.  So throw the $5,500 into the roth for two years, take the $5,500 back out to buy your new iPhone, and you’re stuck leaving $800 behind in the account.  My heart bleeds for you.  If it’s an emergency, (say you need a stylish case for the iphone), you only pay an extra $80 over the taxes you would have had to pay on those investment earnings anyway.

Second, any money you sock away now is money you don’t have to later.  If you fund your retirement accounts enough in your 20’s that means decades that you won’t have to fund them in the future.  While everyone else spends 30 years playing catchup you have an extra 15-20% added to your paycheck, just because you don’t have the expense of saving for retirement. Here’s a powerful example.  A college degree is one of the very best investments you can make, even at today’s costs.  However, you would be better off if you’re on top of your retirement savings without the degree than if you wait until your thirties with a degree. The median salary of a high school graduate is $30,000.  If you start saving $3,000 (10%) per year at 18, then maybe it gets too hard once you turn 30 and start having kids or other expenses.  Now let’s look at a college grad who blew off retirement savings in their 20’s, then he hit 30 had a kid and a bunch of other new expenses, by the time he turns 35 he realises he needs to start saving, he puts away $7,500 every year for 30 years until age 65. You dear reader contribute half as much for half as long and end up with $1,344,466.93 (assuming a 9% return). The college student who puts it off, he contributes far more, and ends up with only $1,114,314.13.  Now these numbers weren’t adjusted for inflation and you may find you need more money in retirement.  The point, however, is clear: saving now matters.

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Everyone knows there’s nothing more attractive than a shiny car to distract from the new reflectivity off your bald spot.

Furthermore, there are investment situations in which you might come out ahead even if you planned on paying the penalty all along. Let’s suppose that you only invest in bonds that yield exactly 7%.  Let’s further suppose that you’re 25, you’re going to $5,500 invested for 15 years, because you know when you are 45 you’ll need to buy your midlife crisis car. Let’s further suppose that your top marginal tax rate is 30%, and you can reinvest your interest.  If you save this money outside of a Roth IRA account, you pay taxes on the interest every year, reducing your interest from 7% to effectively 4.2%.  After 20 years you’ll be left with $14,371.  If you save the money in the roth IRA you’ll have $21,283, you then withdraw the money and have to pay a 40% (30% + 10% penalty) tax on your earnings.  This leaves you with $14,969, about 4% more.  This is an unusual situation and depends on the tax rate, interest rate, and amount of time involved, but it should underline the fact, that not having to pay taxes annually matters.
If you have a budget and your take home pay exceeds your average annual expenses fund your Roth. It has all of the psychological benefits of a piggy-bank and the drawbacks only affect your investment earnings.

Aug 32015

Creating a Beautiful Garden on a Budget

By |August 3rd, 2015|Personal Finance Tips|3 Comments

creating a beautiful garden on a budgetThe process of revitalizing your garden can seem like a daunting and expensive one –after all, your garden center has a decoration and gadget available for just about everything imaginable. But there are plenty of great ways to spruce up your garden without emptying your wallet; it’s just a matter of knowing where to spend on new, quality items and where you can cut corners by reusing and recycling goods for use in the garden. So if you’re thinking about giving your garden a new look, here are some tips to help you do so without breaking the bank.

Buy quality tools

The one thing you don’t want to skimp on when fixing up your garden is tools, as they will be used and re-used throughout many seasons, and having pieces of quality will make your life that much easier. There is nothing worse than having a dull set of shears or a trowel with a loose head, so when you head to the store for a new piece of gardening equipment, be sure to get something of good quality that will stay with you for the long run. You don’t always have to spend a fortune to buy quality tools though; many big supermarkets, including Tesco, offer good equipment for tight budgets.

Recycle old household items

There are plenty of great household items that can be used to give your garden a little something extra in the decoration department, and on top of that they come free of charge. If you’ve replaced any mirrors in your house recently, the old ones can be used as a great addition to your garden, adding a little bit of flare to a fence or shed wall. Similarly, if you’re looking for unique pots or hanging baskets, consider using old colanders, which you can grab from your own kitchen or look to pick-up at local second-hand markets or sales. Other types of reusable materials that can be helpful around the garden include old tires, which can be painted or covered in earth to create leveled beds, or even hanging shoe racks, whose individual pockets can be filled with earth and used as a spice and herb garden.

Using organic waste from your kitchen

There are many ways in which the waste from your kitchen can both help your garden and cut down on maintenance costs. The biggest thing waste from your kitchen can go towards is replenishing the soil of your garden. By creating a compost heap for kitchen waste you will not only cut down on your overall carbon footprint, but you will also cut down on the cost of fertilizers, as the nutrients from your compost will help your garden in a natural way. You can also consider using things like lemon rinds and eggshells as planters for seedlings.

When you look in a home and garden magazine it can be easy to think that a beautiful garden comes at a high price, but remember you can use your money wisely and still have beautiful results.

Image by Louise LePierres used under the Creative Commons License.

Jul 282015

How to Maintain Good Credit

By |July 28th, 2015|Blog, Personal Finance Tips|Comments Off on How to Maintain Good Credit

This post is a contributed post from USA.gov.  See their Financial Self-Defense Kit for advice on how to build financial confidence as well as safeguard your finances.

“It takes many good deeds to build a good reputation, and only one bad one to lose it.”

— Benjamin Franklin

Your credit history is your financial reputation. And just like your professional and personal reputations, your credit history takes many years to cultivate, can be easily damaged, and will follow you for the rest of your life.

Sound intimidating? Good. Are you scared? Don’t be.

Yes, maintaining good credit is important. Nearly everyone will need to borrow money from a lender at some point — say, for buying a car — and your credit history determines whether you qualify for a loan and, if you do, what interest rate you pay. It can make or break your application for a credit card. A prospective landlord can check it to judge whether you’ll be a responsible tenant. Potential employers may request your credit reports to see if there are any red flags.

Having good credit is an important part of personal finances. Here are some invaluable tips for maintaining good credit.

Luckily, many resources are available to help you learn how to successfully establish — and maintain — a healthy financial reputation. Here are three tips for creating a stable foundation for good credit:

Monitor your credit reports

Understanding your financial habits — such as payment history and spending patterns — can help you improve them! Your credit score is generally based on information in your credit reports. Mistakes on your credit reports could hurt your credit score, so check them regularly. Make sure to check that your reports don’t contain any errors, such as incorrect contact information, closed accounts listed as open, or an item like an unpaid debt listed twice.

If you find something wrong in a credit report, you should contact both the credit reporting agency that produced it and the creditor that provided the information.

Pay your bills on time

This is one of the simplest ways to keep your credit score strong — yet, with the hustle and bustle of everyday life, it can be easy to lose track of time and miss payment deadlines. Set up auto-payments or electronic reminders to ensure that you won’t be hit with late-payment penalties. Paying bills late can also hurt your credit score, which in turn can raise your interest rate — meaning that you’re out even more money.

It’s a common misconception that the best way to improve a credit score is to pay off all of your accounts and close them. Get up to speed on your payments and stay on schedule, but be careful when closing accounts. Doing so eliminates some of the credit available to you, making balances appear higher when compared with the combined credit limit of all of your accounts. Also, if you managed that account well and made payments on time, closing it will remove all the positive benefits of your responsible credit behavior on your report and score.

Don’t get close to your credit limit

Credit scoring models look at how close you are to being “maxed out,” so keep your balances low in proportion to your overall credit. Experts advise keeping your use of credit at no more than 30 percent of your total credit limit. That means that if you have $12,000 of available credit, you shouldn’t use more than $3,600.

You can decrease your credit utilization ratio over time by paying as much of your credit card balance as possible each month. If you can, pay more than the minimum balance due; this will increase your available credit and decrease your utilization ratio faster.

Just as a shining professional reputation can take you far in your career, your credit score can make or break your financial status. To learn more about how to establish a stellar financial reputation, visit FinancialProtection.USA.gov.

 

Jul 272015

How to Go on a Vacation That Fits Your Budget

By |July 27th, 2015|General Personal Finance|Comments Off on How to Go on a Vacation That Fits Your Budget

budget vacationWhen it comes to vacations, there seems to be an assumption that in order to have a blast, you have to sleep in a five-star resort or hotel and eat at every fine dining restaurant you hear about. Getting to your destination should be equally luxurious, and an upgrade to business class is the only way to fly. The answer here of course, is heck no!

You dont have to throw away half your life savings just to go on a vacation. There are a lot of ways you can save on travel costs and still enjoy everything your chosen destination has to offer. You just need to know where to look and what services to use.

Getting There

The first thing you need to do is go check out websites like Travelocity or Skyscanner. These sites list all the affordable flights so you dont have to scour the interwebs looking for them. The prices would depend of course on where you’re headed, so if there’s an opportunity to for a connecting flight that’s a lot cheaper, grab it. Savings is savings. You can also try your luck with repositioned flights, but these are easily gobbled up because they’re listed publicly. Be wary of discount airlines and make sure you read the fine print. Some of the airlines even charge you for your carry on luggage these days.

Accomodations

If you’re adventurous and love meeting new people, you can try Couchsurfing International. It’s a little like Airbnb in a sense that you’ll be staying in another person’s home, but doing so wont cost you a thing. Just be a good “guest”,  bring your host a gift and don’t abuse their hospitality. This seems to work well for single travelers and couples because of the social element to the service. You can also try Airbnb if you’re travelling with a large group and want a bigger place with a kitchen. The last resort would be hostels, if you don’t mind sleeping in a dorm type room with strangers. Hotels not in the city are also cheaper.

Food

It’s best if you can find a place with a kitchen, because this adds to the adventure of going to the local market and shopping for supplies. You’ll get to immerse yourself in the place you’re staying, getting to know the town or city and the locals that live there. The next best thing is to always walk around when you can, so you can find the superb cafe tucked away at the end of the street or the delightful little mom and pop diner that the locals love. Avoid going to the fancy restaurants or eating in a hotel if you can, and always look for places that offer set lunches (soup, salad, main dish, dessert) for a fixed price, especially when you’re in Europe. Try to eat the delicacies on the menu that you can’t eat at home. No burgers and fries!

Communications (Wifi, 4G, SMS)

Roaming is expensive, and you might get bein the shock of your life when your bill arrives after your vacation. Don’t activate your carrier’s roaming option and just buy a local prepaid sim card for emergencies. You can always use Skype, Hangouts or Viber to get in touch with family and friends back home. Make sure you use free wifi, or use the local 4G network if available. If you want to call someone back home, it would have to be long distance and the charges are insane!

If you’re on a month long, UK vacation for example and you suddenly need to call your life coach, why not hire a life coach if you’re based in London anyway? The fees for your session might be more expensive than an hour long phone call, but at least you get to try out a new style of coaching and possibly get some new insights. Who knows, it might even be a better match.

Fun

For fun, some attractions are free and some are not. Avoid the usual tourist traps that all the clueless travelers flock to, because these places are overcrowded and expensive. Find out where the hidden gems are like off the beaten path beaches, nature sanctuaries, hiking trails and restaurants by talking to the locals. This is a great way to make new friends. Most zoos, museums and parks are free (or dirt cheap) anyway, and there’s nothing like enjoying a stroll in one these places. Always make it a point to do stuff you can’t do at home. If there’s a concert by a band you can also watch at home, why go?

FInal Thoughts

It really all boils down to the person. If a soft bed and room service is what constitutes as a fun trip for you, then by all means, splurge. It’s your money anyway. But if you want to travel on a budget and still have the time of your life, that’s possible too. And by most accounts, being down in the trenches is more of an adventure!