Update – Super Simple Money Management

I wrote about back in January and really liked what they had to offer. One of my biggest complaints was the lack of custom categories. Well they have fixed that now and you can easily add custom categories.

They have also added a very straightforward budgeting section that is so easy to use that you have no excuse for not having a budget! Enter in your budget numbers and then sit back and watch Mint allocate your spending over the month against your budget. This is a great option for people who don’t enjoy spending time in Excel.

In addition to the budgeting feature, they have added a very interesting trending tool.  Not only does it let you look at your spending over time but you can compare your spending to others in your city or state.  This is a really neat feature that can let you compare your spending habits to others and see where you stand.

Although these are both great features the real power of Mint still lies in its ability to categorize all your transactions.  As long as the majority of your spending is on a debit or credit card you can get a great view of your finances with almost no effort.  If you have not tried mint sign up at

Common Sense Tips to Save Money

Ramit at I Will Teach You To Be Rich has started a great series on how to save $1k in 30 days. So far the first two tips have been great!  I can’t wait to see what the other 28 will be. His tip on turning down the thermostat is spot on. Although I would say that 3 degrees is a little conservative!  Turn it down 6 and throw a freaking sweater on! 🙂

We talk about an energy crisis in this country and people still have the thermostat jacked up/down to 72 degrees in the winter/summer. People look at 72 degrees like it is some kind of law!  I need to do the math on what kind of energy savings we would see if everybody went to 66/78.

Tip #1 is another good one. For the past 6 months I have started bringing my lunch to work about 75% of the time. It just takes changing some habits and doing a little planning. Good stuff Ramit!

Take Back Your Mailbox From Junk Mail!

After a particularly bad junk mail day last week I decided I had had enough.  It was time to take back my mailbox from the unscrupulous marketers. It would not be so bad if it were just a couple things a week but I estimate we get 50 pieces of junk mail a week! Here is what I am doing:

  1. Converted as many bills as possible to online payments.  Most companies will stop sending you a paper bill if you are on automatic withdrawals. The only bill I actually have to still open is the water bill. At least I can pay it with a credit card!  Everything else is on cruise control.
  2. Went “paperless” with all my account statements that offer it.  Last week I found a few more of my accounts that do!
  3. Opted out of all credit card offers for all family members:
  4. Signed up for the Direct Marketing Association’s DMAChoice to opt out of all member marketing:
  5. Signed up for an account at ProQuo and walked through all the steps to opt out.
  6. For companies not covered by the above, I started contacting them directly to be removed.
  7. If the junk mail has a postage paid business reply envelope I mail the offer back with “Remove From List” written in big black letters! If they are going to send me junk at least make them pay for it!
  8. I just found this tip which might eliminate the need for #7:From:
    First class mail: Cross out the address and bar code, circle the first class postage and write “refused: return to sender”. Drop in any mail box, it will be returned to the sender.
    Bulk mail: The post office throws away bulk mail it can’t deliver, so returning it does no good. Bulk mail is the hardest to deal with because the USPS actively provides addresses, support and encouragement to mailers. However, if “address correction requested” is written on the label: circle “address correction requested” and treat like first class mail.

Hopefully these steps will have an impact.  In addition to the environmental benefits, doing this will also help your finances. If you don’t get the shiny new catalogs you won’t be tempted to buy anything!

My love affair with WaMu has cooled!

Last year I wrote about how much I loved WaMu for all my banking needs.  During the financial meltown, JP Morgan acquired them and took over all deposits.  I was not worried about my money as I was within the FDIC limits.  What I was worried about is what would change from a service and account standpoint.  Well two weeks ago the changes started and not for the better. WaMu lowered the online savings rate from 4% to 3%! 🙁  If that was not enough they responded to the fed drop on Wednesday and lowered it again to 2.5%

I still think they are great bank for your basic checking needs but I am moving my money over to DollarSavingsDirect who is still paying 4%. They are a division of Emigrant Direct who I had my savings account with before WaMu upped the rates they were paying. It was annoying to have to open another account as I still have my emigrant account but it was worth it for an extra percentage point.

Foundation #8: 80% of personal finance is behavior 20% is knowledge and the numbers

All the personal finace foundations build on each other – #8 continues with the concept that personal finance is much more about behavior than it is about the numbers. Figuring out the basic principles that put you on the right path to financial success is the easy part! It is following through with the behaviors and habits that is the hard part. Most people know that contributing to a 401k is a good idea but so many don’t follow through with the behavior to make it happen. How many people this year blew right past April 15th and did not fund their 2007 Roth IRA? How many people spend more than they make? If I had to pick who was to be better off financially: a CPA with bad financial habits and a recent college grad with good financial habits I am always going to pick the recent college grad! You can’t make up for bad habits with better financial knowledge.

Foundation #7: Live Almost Debt Free

We have had a little bit of a hiatus on the 10 foundations of personal finance that I started writing about last year but I wanted to finish it off. So here is #7!

I started listening to Dave Ramsey in 2006 but followed many of his principles before I had ever heard of him or the daily radio show. Dave’s view of debt is spot on: You will never find financial freedom or success if you continue to have “payments”. Credit is so easy to come by today, (although it has tightened up recently) that it is easy to pile up all kinds of stuff on credit from cars to clothes to even air conditioners (heard that on the radio today!)

Like Dave Ramsey, I subscribe to there being only one kind of debt that is part of a solid financial plan: mortgage debt. This is the “almost” part of living debt free. With that said, you need to be smart about your mortgage debt. The banks will approve you for well over what you can afford. Remember, the banks are looking to maximize profit not look out for your best interests. It takes a lot of discipline to not spend what the bank will approve you for but in the long run it is one of the most important financial decisions you can make. In my view your mortgage should not exceed 2.5 times your house hold income. Why does that number work?

Household income: $50k
Purchase Price: $150k
Downpayment: $25k
Mortgage: $125k
15 year Mortgage Payment + Taxes ($1250) & Insurance ($500) @ 6% ~ $1200 month
Monthly Take home ~$2900
Housing to Income ratio 40%.

You might balk at the 15 year mortgage but I can’t emphasize how important that is. Forget the interest savings for a minute, the number one reason to go with a 15 year mortgage is it will force you to keep your housing purchase within your means! I have had a mortgage for 5 years now on two different houses and both have been 15 year notes. If you start out with a 15 you will never miss the 30 🙂

The 40% housing to income is on the high side but if you have yourself on a budget you should be able to swing that. Dave Ramsey recommends 25% and that should be the goal but up to 40% is ok with a household income of $50k

If you double the numbers they look like this:

Household income: $100k
Purchase Price: $250k
Downpayment: $50k
Mortgage: $200k
15 year Mortgage Payment + Taxes ($2500) & Insurance ($1000) @ 6% ~ $2000 month
Monthly Take home ~$5400
Housing to Income ratio 35%.

In addition to the 2.5 times rule I also like to use the rule that your down payment should be half of your household income. Again, it forces you to make a housing purchase you can afford.

Craigslist Rocks!

I started using Craigslist when I was in Burlington but had limited success in buying/selling as the community was pretty small. You had a lot of college students using it so the apartment and furniture threads were pretty active but that was about it.

When I moved to Atlanta I quickly realized that the size of the Craigslist community here is HUGE. I have had great success in selling stuff on the Atlanta Craiglsist board and have actually found myself using it a lot more that Ebay. There is something to be said for how simple they keep things. It is easy to post, does not cost anything, no shipping to deal with, and people pay you in cash! Compare that with the hassles of Ebay and you can quickly see why Craigslist has taken off. I still use Ebay for niche items that don’t have mass market appeal but for most items it’s Craiglist!

Manage your Money with Logo

Following up on my WaMu review I wanted to take a minute and review a new money management tool called Mint is an account aggregation service. The concept of financial account aggregation is not a new concept as Yodlee has been offering this service to banks for a number of years. As a basic concept is not all that different. They even use the Yodlee service to run the back end of their application.

What makes interesting is the customer experience they deliver. I do user experience for a living and can tell Mint has invested heavily in this area. I signed up for an account and was up and running in less than 5 minutes. From sign up to seeing 7 accounts aggregated in one screen took 5 minutes! Now granted, I am an advanced user who already had all my online accounts setup, but still 5 minutes is impressive. I do need to run this through the “Mom” test and see how long it would take my mom to go through and sign up.

Mint’s business model is an interesting one: they sell space to financial institutions that make offers to help you save money. They know the interest rate on your accounts and will make offers from competing banks that offer you a lower interest rate. Since I carry no consumer debt and already have a high yield savings account this feature has no value to me but for some it might be useful. I just hope they can make this model profitable.

Right now Mint only has bank accounts and credit cards included in the aggregation service but they claim to be adding mortgages and others soons. Brokerages and mortgaes would be a great addition!

Categorization is a key concept in all money management software. You want to be able to quickly see at the end of the month where all your money went. They have a super simple interface for categorizing transactions and even putting rules in place so that the same transaction next time is automatically categorized. However, they have one fundamental flaw that really reduces the usefulness of mint: you can’t create custom categories! Hopefully they will add this soon, because after playing with my accounts for 10 minutes I quickly ran into problems with the pre set categories.

Mint also has a simple budgeting system where you can set your budget each month and then track your spending against it. I do my simple budgeting in Excel but I will have to see how usefull this aspect of the service is.

Overall I am impressed so far. I think with a few changes this will really become a great little web app for managing your money.

Washington Mutual Online Banking Review

Back in 2000 I started banking with a little known startup called Lighthouse Bank out of Waltham MA. They were one of the first banks to offer no fee checking, online banking, and ATM reimbursement fees. They had fantastic customer service and were great to work with but they started putting minimums in place. When I moved to Vermont I decided to leave lighthouse and join a local bank (Citizens) that also had online banking. At the same time, I also discovered the new found world of high yield online savings accounts and opened an account with Emigrant Direct. This setup worked great as I had local ATM’s, a free checking and an online savings account earning 5%. The only downside was I had a 3 day delay between transfers.

When I moved to Atlanta it was time to look for a new bank. Here are the key things I look for:

  • Free checking with no minimum and no fee’s unless I do something stupid like bounce a check.
  • Outstanding online interface to manage all my accounts. I have never balanced a check book and don’t plan on starting any time soon!
  • Plenty of local ATM’s and ideally a branch close to home.
  • High yield online savings account.
  • Free checks is a nice bonus although I write about 5 a year
  • Free online bill pay
  • Great customer service with short wait times in the branch or on the phone.

When I started looking around I found that Washington Mutual met all of my criteria. Could a bank really do everything I was looking for??? After 2 years the answer is a resounding YES! WaMu is fantastic! I can’t recommend them enough! I have had nothing but a great experience with them and encourage everybody to sign up for accounts. Make sure you sign up online as they only offer the high yield Savings Account online. There is also a branch right across the street so that makes them super convenient as well!

Employee Stock Purchase Plans (ESPP)

ESPP’s are often the source of a lot of confusion so i thought it would be a good topic to post on. Most people don’t realize they are giving up FREE money by not participating in these plans.

What is an Employee Stock Purchase Plan or ESPP?
It is a stock purchase program that allows employees to purchase stock at a discount, usually 10 or 15%

Most large public companies offer these programs. Check with your HR department to see if yours does. If the program meets a few simple criteria they can be a great way to get FREE money. We all like FREE money 🙂

So how does it work?
Employees contribute after tax dollars, up to a pre-defined maximum, to an escrow account. At the end of the plan period, either quarterly or semi-annually, the company uses the escrow money to purchase the stock at the closing price minus the discount.

What about the free money part?
You need to read the fine print and see if there is any kind of holding period. If there is NO holding period you should contribute to the MAXIMUM the plan allows. As soon as you get the discounted shares, turn around and sell them the next day for an automatic 10 or 15% return on your investment!

The Home Depot Example
Here is how it works at Home Depot, we will use a sample salary of $50k for easy round numbers.

  • Semi-Annual Plan
  • You can contribute up to 20% of your pre-tax salary
    ($5k per plan period / $384 per pay check)
  • 15% discount on the closing price of the last day of the plan period
    ($750 discount)
  • No holding period

This works out to a 3% bonus per year or $1,500. Not bad for doing nothing but a little planning. The tricky part with this is that the 20% will take about of a third of your paycheck when you take taxes into account.

Bi-weekly Gross Pay $1,923.08
Federal Withholding $289.50
Social Security $119.23
Medicare $27.88
Georgia $102.77
ESPP $384.62
Net Pay $999.08

On the plus side this is a GREAT way to save money for big purchases and to live on less than you make.

What about the taxes? Shouldn’t you keep the stock for at least a year to pay less in taxes?
Here is how the taxes work. If you sell the stock right away, the IRS considers it as ordinary income. If you hold the stock for at least a year you will pay capital gains which is 15%. So yes, you would pay taxes if you held the stock but you always have to evaluate risk. There is an added risk to doing that and for me I just don’t think that risk is worth it. For example, we received the most recent allocation of ESPP shares in July at $38. By the time the shares were in my account (~10 days) the stock was at $40 and I sold them immediately. The stock is at $34 today!

I am an avid believer that you should not invest in the individual stock of the company you work for. You already have your income tied directly to the success of the company, you don’t want your investments to also be impacted if the company takes a turn for the worse.