Step3 Prophet

Money Matters and Dinner

I've been moving a lot of money around recently so here is an update on how things stand.

My CD was transfered to my USAA savings account. This is mildly vexing, since I specifically requested in my message to USAA that it be transfered to my checking account. I suspect this happened because I originally bought it with my savings account and they just reverted it back to there. I'm not to pissed about it because I can use either account almost interchangeably. I plan to put half of it toward my cash cushion at HSBC, and the other half as a principle payment on my car loan. This will take my remaining balance to less than $4K on the loan. I've been more aggressively paying it off ever since interest rates dropped and I started earning less in savings accounts than I'm paying in interest on the loan.

My transfer of funds from Sharebuilder to Zecco is also progressing well. The sale went through last Monday, but I had to wait 3 days for the transaction to settle(this is standard for all stock sales). On Thursday night I initiated the transfer from Sharebuilder to USAA, and tonight I initiated the transfer from USAA to Zecco. This will take my Zecco account  > $2500 and allow me to once again make $0 trades. I'm working on an investment strategy using vangaurd ETF's, but that will have to wait for another post. The stock that I sold has gone up in price after the sale(bleah!) so I have to decide if I want to buy it back at an even greater loss, wait for it to drop, or buy another equity entirely.

On another note, I picked up my second round of Designed Dinners meals today. They changed the pricing structure so that now you can order as much or as little of any particular meal that you want. You must order a minimum of 16 servings (of various meals) and if you order more you can get discounts. To  keep things consistent I ordered 32 servings of 11 different meals for about $167. That comes to $5.23 per serving (which is 1 meal for me). Over all I like the new price structure. It allows for greater variety(the first time I could only choose 8 meals) at a lower cost. Plus I'm more inclined to explore new cuisine because I can order it in smaller serving sizes. I ordered 2 servings of Aged Cheddar and Canadian Bacon Strata ( I think its like a quiche or omelet), which I would have passed up in favor of something else if I had to order 4 servings.

Sadly, my plan to sell my books on craigslist has hit a snag. No one has emailed me at all. I may yet have to resort to ebay or some other website.

Review of "Smart Couples Finish Rich"

I just finished reading David Bach's "Smart couples finish Rich." Overall, it looks and feels like many other general personal finance books.

Pro's
-He uses personal values to motivate financial goals and fiscal responsibility. I like it because it make finance more personal. Your mom can tell you to clean your room, but you aren't going to be motivated to do even if it is your best interest. Likewise, people can tell you you need to save for retirement because it's in your best interest, but linking it to a personal value will motivate you more.

-Compelling (if sometimes dated) graphs and tables to show examples of investment growth.

-Easy to use "worksheets" to help you follow through with his advice.

-All around solid investment advice.

-An interesting final chapter on how to get a raise from your work place in just 9 weeks. Too bad my salary is government mandated.

Con's
-Too many trademarks.  Value Circle^(TM) my ass.

-His grandma stories don't really do it for me

-It reads pretty much like an individual personal finance book, but with the occasional "You should check with/include your spouse on this" admonition.

-If you think you're going to get 12% out of the stock market over 40 years (pg 117, top), you're in for a surprise. To be fair, he uses muliple examples with varying rates, but this is the rate he quotes. Later on I think he quotes a lesser rate for historical market performance.

In summary, a good book for individuals and couples just starting to get  a grip on their financial life. It is also a good reminder for people who have read these types of books to make sure your insurance coverage and will is up to date.

New Goal: Cash Cushion

I've added a new entry to the right hand column. After finishing "Smart couples finish rich", one of the basic financial tenets it reminded me of is to have a good cash reserve. So far this hasn't been an issue for me because I have a steady and sizable paycheck, but one day that may not be the case and now is the time to prepare. It's hard to dedicate a large chunk of money to doing nothing(except earning some modest interest), because there is always something to spend it on: flat screen TV's, higher yielding investments, or new gadgets. So to spur myself to higher ground I'm making the commitment public. I'm not going to lay any hard and fast rules, except that I want to accomplish this before the year's end and that the percentage should always go up unless there is an emergency.

The simplest way to save for retirement

I think many people who are just starting to work for the first time have questions about how to save for retirement. There are about a million different ways, and you can spend a lot of time researching what to do with your retirement money. For people just starting out who don't want to put a lot of time and effort into, there are some simple things you can do.

Option A: Go with the company plan. This is good especially if your company matches funds. Example: you put in 6% of your paycheck toward retirement, the company matches that, and you have doubled your retirement savings with no extra work. It can almost be considered a pay raise, and you never even miss the money because it's taken out before you get the paycheck. Things to consider: Don't put all your money in the company stock. If things go poorly, you could have no savings(think Enron). Do put your money in a broad market index fund. This will give you the best returns over time while minimizing risk.

Option B: Go to Vanguard.com and setup an Roth IRA with a target retirement fund. This is also a good option if you have already met your companies matching contribution. When you are setting it up choose the reinvest dividends option, and then setup automatic monthly withdrawals from your checking account. You can even choose the "maximize IRA contributions" option to ensure you make the most of it. If you're like me, the target retirement date is about  the year 2045. The hardest part is getting your foot in the door. You need $3000 dollars to buy into the fund. After that you can contribute as little as $100 dollars a month with no fees for contributing more money. Even sharebuilder.com charges $4 a transaction, which is a 4% hit on a $100 investment.

Q: Why Vanguard?
A: They have a quality product and the lowest fees in the mutual fund industry. There are many other good mutual fund companies out there, but Vanguard delivers all around. The key to building wealth is minimizing fees that you pay for other people to handle your money. Over 40 years of steady investing, everything else averages out.

Q:Why a Target Retirement fund?
A: Because you don't have to worry about where your money is invested as you get older. It is automatically readjusted so that as you get closer to retirement, more money is moved out of risky investments like stocks, and into guaranteed investments like bonds. It's the only fund you every need.

Q: Why a Roth IRA?
A: Everybody should have an IRA account, even if you have a company retirement plan. Anybody who earns income can open one. In fact, you can have multiple IRA's. The only limit is how much money you are allowed to put in each year. This year's limit is $5000 for individuals(that's combined total for all IRA's). You can put any kind of investment you want in an IRA. A Roth IRA is nice because while you pay taxes on the money you contribute now, you don't pay on earnings or withdrawals after you retire.

These are the simplest options. There are many other interesting ways to invest, but these require the least amount of trouble if you are someone who wants a good retirement, but doesn't want to work for it. In a later post I'll look at a way to get the absolute minimum in fees on a retirement account(it's a little more work, so I didn't include it here)

Can I make money on 0% apr credit offers?

    As I said a few days ago, I got an offer from BoA for 0% APR on balance transfers. The basic theory is that you request as much money from them as you can get at 0% APR, and put the money some kind of interest bearing account until the 0% term expires. My question is: How much money can I really make?
The terms of this offer are:
->0% interest on purchases,balance transfers, and cash advances for 12 billing cycles
->3% fee for each transfer($10 minimum)
Sounds simple, right? For the initial calculations I'll assume that the credit offer is $6000, and my savings account earns 3% interest. Your initial interest earning money will be your credit limit minus the transfer fee(month 1)

		Month	Savings Balance	Month	Savings Balance
Credit Amount	$6,000.00	1	$5,820.00	7	$5,907.85
Fee %	3.00%	2	$5,834.55	8	$5,922.62
Fee Cap	none	3	$5,849.14	9	$5,937.42
Fee Min	$10.00	4	$5,863.76	10	$5,952.27
Savings Rate	3.00%	5	$5,878.42	11	$5,967.15
Total fee's	$180.00	6	$5,893.11	12	$5,982.07
Total revenue	$162.07
Net profit	-$17.93

This was a best case scenario. This assumes no delays in earning interest while money is in transit,  no principal payments(you still have to pay the minimum monthly payment to the credit card company), and no missed payments(in which case the APR goes to default rate).

So now that we see this is a poor way, what would be a profitable interest rate and fee combination? For this scenario, the break even point is 3.33%, but that would make the exercise pointless. Here is a chart showing various rates of return and loan amounts.

Click to view larger graph. Basic take aways are that with 4% rate of return on the money you invest, you must borrow $16000 to make $100 profit. Better rates of return improve your profits, but a "safe" investment is hard to find right now at a better interest rate.
If, however, the balance transfer fee has a maximum amount, for instance $75, profits improve significantly. You can borrow $8000 at 4% interest and make over $200 profit on it. Here is a graph for selected loan amounts and rates of return. Both graphs are linear for the parameters given, so you can interpolate between data points easily.  Keep in mind the things I previously listed that I am not taking into account.

Credit Cards: Tool of Satan or source of extra income?

  I'm a huge believer in making money work for you, and nothing is sweeter than when you can do that while spending money at the same time. Enter the rewards credit card. *Warning* If you have trouble using credit cards and credit appropriately, this is not for you! There are several rewards programs out there, and many have confusing deals. Here are some thoughts on them.
  Airline miles: These seem to be the most popular, and I have trouble understanding why. Unless you fly often, these cards have several drawbacks. Many are only for a single airline. Do you want to fly this airline exclusively? The relationship between "miles" earned and real tickets is not obvious and could chnage. Miles expire.
  Points reward cards: These have many of the same drawback as airline miles. Points can expire( not on all programs), points may not easily correlate to cash, and your options to exercise these points may be limited. Capitol one has a program in which points don't expire, but read the fine print: "For example, you could get $25 in cash back for 5,000 points, redeem for a gift card worth $25 for 3,400 points or a gift card worth $100 for 10,000 points, or even redeem for great brand-name merchandise worth $100 for 13,500 points." That's 0.5% cash back if you redeem 5000 points. Getting a gift card is a little better, but still your return is less than 1%. Many points programs will offer better ratios for higher point values, but beware ones that expire. Also, you can't easily maximize points on more than 1 credit card.
    My favorite are the cash back cards. They are usually very clear on what you are getting. I'm not a fan of introductory rate teaser cards, because that results in credit card account proliferation. While good for you credit score( it raises your credit available to credit usage ratio), it becomes a pain to handle all those accounts, and there is a greater danger of credit fraud on accounts you don't regularly monitor. Only go for the 20% off your first purchase if that will be a substantial amount. My favorite cash back cards right now are Blue Cash from American express, and Chase Freedom. I'll look at each in more detail in laster posts.

The bottom line is that you should be getting at least 1% back whenever you use a credit card, and if you are going to make the purchase regardless of the payment method, use a reward card.

P.S. The other way to make money is 0% interest games. I've just got an offer from BoA, so I'll be looking into that more as well. For more info check out Mymoneyblog's How To Make Money From 0% APR Balance Transfers

Why I like HSBC

  Having a good high interest savings account is important. Everyone needs an emergency fund with 3-6 months salary stashed away to  in case of ex ensive set backs like car repairs or job loss. Keeping that money in your checking account is a step away from spending it, and keeping it in your bank's savings account will mostly likely get you squat( .2 % at BoA, 1.5% if your bank is decent). Then there are the high yield savings accounts. In the following paragraphs I'm looking at institutions with minimum required balances of $100 or less and no monthly fees.
  HSBC consistently has one of the highest rates in the nation( currently 10th on bankrate.com) for savings/mm accounts. In fact, it's better than most CD's right now. I know it's not the highest, but that is always changing based on promotions (last year HSBC had a 6% promotion that I did quite well with) and changing banks every month creates too much hassle. Plus you lose interest while the money is in transit. Sadly, the current rate is only 3.05% now, but the top rate is 3.5% for savings accounts, so I'm not to far off. The gap is almost getting to the point to where I will investigate other accounts. ING's orange account is another very popular high interest savings account (I have an ING account as well) but it consistently lags HSBC. The gap is not that great now, but when interest rates where better it was over 0.5% difference.
  Having said that, 3.05 is still a good rate for an account in which you maintain almost instant access to your funds. There are many other higher performing investments, but none that are guaranteed and in which you can get your money back at any time. They are FDIC insured, and one of the largest banks in the US.
    You can set up automatic recurring transfers to help grow you savings. The daily transfer limit is $300,000, so I'm no where near coming close to that and there are no fees for transferring money. If you need it, the monthly transfer limit is 2 million. Maybe one day I'll be pushing it.
  Security is another feature I like about them. There is an extra step in the login process to enter a different password using your mouse in addition to the standard type in your password under your user name system. This helps foil keystroke logging programs. HSBC lets you select your own user name and password, which I prefer. ING has the stupid customer number thing that I have to look up every time I login.

Over all, I've been using them for greater than a year now with no hassels and good returns.

www.hsbcdirect.com