Frugal Living 
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How Being A Pessimist Saves You Money

Frowning GoldfishI’m not a pessimist but I know enough of them to know that being a pessimist can save you a lot of money. A pessimist is someone who sees a glass filled halfway with water as being half empty. In a beautiful blue sky, they see the clouds in the distance and ready their umbrella. They see insurance not as a protection against the unknown but as an investment in the future. :)

As much as society may frown on being such a negative Nancy (sorry in advance to all the Nancy’s out there), I think sometimes being pessimistic can save you money.

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 Frugal Living 
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There Is Always A Deal

Barcelona Produce MarketI bet you work hard for the dollars in your wallet, I know I do. You don’t spend hours away from your family or your favorite pursuits because you like work more than them, you do it because works pays you money so that you can support yourself and yours and do the things you want to do with your free time. I’m the same way. That’s why whenever I do the paying, I make sure I get the most out of the purchase. I believe there is always a deal to be made and those deals have saved me many hours of work in the process.

I believe that whenever you make a purchase of any kind, there is always a deal to be made or found.

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 Credit 
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Happiest Credit Cards

Liz Pulliam Weston recently published an article summarizing and analyzing J.D. Power and Associates 2008 survey of credit card user happiness. They surveyed 8,000 users on five factors: interaction with the company, billing and payment processes, fees and rates, reward programs, and benefits and services.

I was a little surprised to see that the highest score was 783 out of 1,000 for American Express, with Discover taking second with 751. Everyone else surveyed scored less than the industry average of 724!

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 Taxes 
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Cash for Clunkers Tax Rules

If you took advantage of the Cash for Clunkers program to buy yourself a brand new vehicle, you might be wondering about how you deal with the taxes involved in getting that $3,500 or $4,500 voucher. The IRS isn’t in the business of letting you get something for nothing!

Federal Taxes

You might be surprised to learn that there are no federal tax consequences. The IRS does not consider the voucher as income so you won’t need to pay any taxes on it. You can also take advantage of any State and Federal tax incentives for buying hybrid vehicles, the Cash for Clunkers voucher doesn’t cancel that out (something the dealer probably told you if you purchased a qualifying hybrid vehicle). For a full list of those vehicles, as well as how much of a credit you receive, visit Fueleconomy.gov’s Energy Tax Credits for Hybrids page.

State & Local Taxes

You may have to pay taxes to the state or local government on the tax voucher though. For example, in Maryland, you pay a 6% sales/excise tax on the price of a car when you register it. If you purchased a car with a voucher, you have to pay the 6% tax on the full purchase price of the vehicle including the voucher. So on a $3,500 voucher, Maryland residents pay $210. On the $4,500 voucher, Maryland residents pay $270. The voucher is not recognized as income in the state of Maryland, but you still pay taxes through sales tax.

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 Credit 
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Best Cash Back Credit Cards

A few years ago, cash back credit cards were everywhere. Today, the offers are harder to find as company hunker down and deal with the financial crisis we’re facing. Despite the economic climate, cash back credits are still out there and you can still get a little cash back on your purchases.

How do cash back credit cards work? Each credit card company does it differently but the basic idea is the same. Every time you make a purchase with the credit card, your cash back or rewards account goes up in value. When you reach a certain threshold, you can cash out your cash back. Some companies will write you a check (Citi), while others will directly credit your account balance.

Is cash back worth the hassle? The answer is it depends. Some cards offer high cash back percentages on certain purchases and you can optimize your cash back by using several cards. Many of the best credit cards have rewards. I don’t recommend using more than two or three cards because the return on your time will decrease as you get more cards (you may find it helps to write down the cash back categories on the card itself).

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 Frugal Living 
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Your Take: Do You Budget?

Clever Way to BudgetToday’s Your Take will be simple… do you budget? If so, what tools do you use?

If you don’t, why not?

I no longer budget in the strict sense. When I first started working, I budgeted and tracked all my expenses down to the penny in an Excel spreadsheet. This was before the days of tools like Mint or Quicken Online where you could use a free tool and get instant data aggregation (that would’ve been nice!), so I just entered things into a simple Excel spreadsheet. Then, perhaps a year or so later, I abandoned it because the benefits had started to wane.

Once you get to a certain point, when your expenses are stable and you’ve “optimized” your budget as much as you can, the effort no longer justify the benefits. Today, I do “after-action” type budgeting where I look at my expenses to see if anything is extraordinary or if a certain category has been creeping up (usually it’s the dining out vs. grocery bill categories constantly battling one another). Other than that, I don’t.

How about you?

(Photo by kevincortopassi)


 Banking 
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Ally Bank Savings & CD Rates Confuse Me

Ally BankEvery week I get an email from Ally Bank informing me of how the rates will be changing (Ally Bank rates are adjusted on Fridays) and their rate structure has been confusing me as long as I’ve been getting these emails.

Ally Bank’s Savings & CD Rates

Rates are subject to change, here are the current Ally Bank CD rates.

Why Is This Weird?

Typically, your online savings account interest rate should be the lowest of the three (CD rates should be higher given restrictions). Next would be the 9 month no-penalty CD rate followed by the regular CD rate. You should get a lower interest rate on the account with the most flexibility. Since you withdraw money from a savings account at any time, you should be paid the least amount of interest in that account. Since you can withdraw your money from a no-penalty CD at any time without penalty, it should have a lower interest rate than a regular CD, where you would have to pay a penalty to access your funds.

Ally Bank has had this interest rate irregularity for a while now but recently it’s come back in line.

So What?

If you have money in Ally Bank’s online savings account, you should open a 9 month no-penalty CD immediately and transfer all your funds into that CD. Should the online savings account interest rate ever increase past the no-penalty CD, then you could liquidate the no-penalty CD without penalty. If you need the money, you can liquidate the no-penalty CD.

In fact, the best strategy would be to open up multiple no-penalty CDs so that if you do need the cash you don’t have to close out one big CD. Ally Bank does not have a minimum for CDs. For example, if you have $5,000 to save and you aren’t sure if you need the money. Open up five $1,000 no-penalty CDs. If you need $500, you can just close one of the CDs. If you opened up one single $5,000 CD, then you’d have to liquidate the whole to get access to just $500.

Am I missing something?


 Investing 
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Even Day Traders Recommend Index Funds

That’s right! A guy who actively buys and sells stocks is suggesting you should stick with Plain Jane index funds.

Why?

Because it’s too difficult for 99% (a completely unscientific statistic) of the general public to outperform the market over an extended period of time.

Every week, at least one person will ask me for a hot stock tip. Almost every single time, I tell them to buy a basic Vanguard S&P 500 index fund. If they keep up the pressure and want something more aggressive, I tell them to buy the Vanguard Small-Cap Index Fund which passively invests in smaller, higher growth, but higher risk companies.

Now, before the pro-index fund, Boglehead crowd showers me with kudos and the pro-trader crowd throws flaming bags of dog crap on my porch, allow me a few moments to debunk the Get Rich Quick by Becoming an Active Trader myth.
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