HOWARD DAVIDOWITZ (retail consultant in New York): This is a company that deals at the highest levels with America’s largest corporations, in the most sensitive sorts of deals, with the wealthiest people in the world. I don’t see how this enhances their brand.

JON OGG (investment advisor): If they want to do that, then they might as well start selling stamps online too.

I loved how these two guys seemed to look down at people who use online banks as somehow beneath them. I’ll take my 100% safe, government guaranteed high yield savings account thank you very much.

There was one quote that I did agree with:

RICHARD SPEER: There’s no shortage of Internet banking offerings. In general, most of those have been very successful in attracting high-rate deposits. They have not been successful in building relationships.

There are a lot of online banks and there isn’t much relationship building going on. I’m going to send my deposits to whichever bank will offer me the highest rates. However, I’d argue that I have no relationship with Bank of America, the bank that I have my checking account with, either. I’d also say that outside of my business checking accounts with M&T Bank, I’ve never had a relationship with any bank I’ve done business with.

Speer is right, if they want deposits, they’ll have to pony up a good interest rate.

This post is originally from Blueprint for Financial Prosperity.

Goldman Sachs Online Bank?

However, in my Vanguard-centric view of the mutual fund world, I overlooked some firms offering funds with much lower balance requirements. Vanguard’s lowest offering is the STAR Fund (VGSTX) at $1,000 but there are many mutual funds are need a mere $100 to start.

The quickest way to find them is to use Morningstar’s mutual fund screener. You can set all sorts of factors but the minimum initial investment factor is listed under Cost and Purchase. While you’re there, I’d definitely set Load funds to “No-load funds only” (as in no sales commission) and Expense ratio less than or equal to: to “1.00%.” That will, as of this writing, get you that hits the screener maximum of 200.

As for which one is best, I’d just tick the 5-star setting and pick from one of the 26 results. There are several options in there that could yield good results. I’d ignore the YTD returns as a factor since all stock funds will have suffered huge losses (and bonds have eeked out tiny gains) this past year.

One caveat, the tool will list funds that are closed to new investors. Those who picked out the Fidelity fund listed in the screen above, the Fidelity Congress Street fund, will notice that it’s closed to new investors.

This post is originally from Blueprint for Financial Prosperity.

Low Minimum Initial Investment Mutual Funds

In His Words

Here is an explanation in his words and then I’ll talk about why I like this strategy so much:

Jim, I’d like to share our ING strategy with you, I’m curious if anyone else is doing this:

Jen and I set up several ING accounts for some recurring expenses that come up once or twice a year. Then we set up an automatic deduction from our checking account monthly that will give us the total we need by the time the bill comes due. For example:

1. Garbage collection: If we pay for 11 months, we get one month free! That would cost us about $425, so we put $35/month in our ING account and collect interest until the payment is due.
2. Life Insurance: We pay a total of about $700/year between both term policies. So $60/month comes out of our checking account monthly.

And so on……….we have 6 accounts in all. And the money is gone from our checking so we honestly don’t even miss it.

We typically do this for annual or semiannual bills that would total anywhere from $300–$1,000. In the past, we’ve found that if things are tight, these bills (though not terribly huge) tend to show up at the worst times and can disrupt our budgeting and bill-paying in the short term. But this way, the bills become part of our budget every month, just spread out so it’s easier to handle. Otherwise with bad luck we might see several of them come due at the same time!

Here’s The Twist: If the bill comes, and we DO have the money in our checking account, we just pay the bill and leave the money in our ING account to keep growing and earning interest until the next time we may need it. And I have to say, this has been working for about a year now and many times we have NOT withdrawn the money from ING and have steadily increased our savings to over $2,100. We can use this money as part of an emergency fund, or as a downpayment on our next car (I’m dreaming of an electric plug-in hybrid).

Why I Like It

There is nothing exceptionally novel about the idea, it’s the same thing many people do to help manage large regular payments. By dividing out the single payment across multiple payment periods and saving it in a high yield savings account, you are maximizing how hard your money is working.

The twist that Joe mentions is a nice added wrinkle. It’s in part possible because some of the bills are small, only a few hundred dollars, but it’s still a good way to approach saving. I think there are many different techniques you can use to save, whether it’s this one or regular 10% transfers or snowflaking, and it’s best to find the one that fits your financial situation and your personality.

What do you think of this idea?

(Photo: xt0ph3r)

This post is originally from Blueprint for Financial Prosperity.

“Accidental” Savings

Now, back to the matter at hand, we are looking to get a smaller type dog (around the size of a terrier rather than say a lab) so this brief total cost of ownership analysis will be focused on a small dog. We’ll also be going with a pound puppy rather than a bred dog because we feel that since it will be a pet, and not a working dog (my friend hunts, so for him a pure bred Labrador is a must-have), it’s better to go that route. We understand that there is always the potential for future health issues and unknowns about the puppy but that’s a risk we’re willing to accept.

Acquisition Costs

As mentioned earlier, we’ll be going with a pound puppy so we won’t be paying a breeder any fees and chances are all the initial veterinary and medical costs (for things like spaying and neutering) are mostly covered. However, let’s say that none of them are covered and let’s work from there and let’s call them acquisition costs. In reading various resources online, the estimated cost of the first year’s vet and medical costs can range anywhere from $100 to $700. So, if you know how much you can buy your dog for, add on around $500 (just to be safe) for medical costs and you have your acquisition cost.

Fixed Costs

Fixed costs refer to all the things you probably will buy once and then replace as needed. These are things like a water bowl, beds, toys, a crate, cleaning supplies, etc. This varies greatly but you’re talking a base of around $150-250 depending on where you live. Urban areas are obviously more expensive than suburban or rural areas and the best way to determine this is to just go to your local store and start adding things up.

Another fixed cost you may have is training. You can try to train a puppy yourself through the help of books or websites, which is very low, or you can go with a professional. The benefit of professionals is that they know what they’re doing, but they aren’t cheap. Training could cost you several hundred dollars, but training is essential for your mental health!

Variable Costs

Variable costs really are variable! They include the replacement of some of your fixed costs since they will be used and deteriorate. However, those will out be likely dwarfed by food. The best way to determine this is to ask the place you’re getting your dog from or looking up online. A quick search shows that dog food for a Westie is around $30 a month, or $360 a year. You may also have other variable costs like various medical items to keep your dog healthy, remember to include those as well.

Total

If you estimate the average lifespan of a dog is around twelve years, the cost of the dog could reach into the tens of thousands of dollars. It’s important that you’re aware of this before you get a dog because you don’t want to one of the many owners who are forced to abandon their dog at the pound because you can’t afford them. It’s an unfortunate circumstance but it happens all the time.

One quick note about emergency funds and pets, we will be boosting our emergency fund whenever we get a pet (much like we would with kids) because pets can have accidents and problems just as people can. I’m not exactly sure how much we will adjust it upward but we definitely will.

Time to look for a puppy!

(Photo: klash)

This post is originally from Blueprint for Financial Prosperity.

Total Cost of Owning A Dog

Here are the five biggest reasons why I recycle:

Smaller Bags of Garbage

The number one reason I recycle is because I think garbage is pretty disgusting. I don’t react with horror when I have to open up the trash can, tie up the bag, and bring it to the curb but I think everyone will agree that it’s not a pleasant experience. It’s not hard to imagine the revolting smells and the army of flies that make it their home in the summer time and so I do whatever I can do reduce the size of that bag. Recycling is remarkably clean - it’s bottles, cans, and paper. So rather than a really full bag reeking of rotting meat and refuse (we compost fruit and vegetable waste), we have a moderately full bag and a bin of recycle-able material.

It’s Not That Hard

The second reason I recycle is that it really isn’t that difficult. I have to hold onto a plastic bottle or hold onto a soda can for a few minutes longer until I can find a recycling bin or until I go home. When you consider the impact it can have, it’s a no brainer to do it. Unfortunately, many people simply don’t remember that it’s an option but hopefully that will change. For the few that genuinely don’t really care, there’s not much you can do to convince them because that’s simply their personality (and their prerogative).

Recycling Trumps Remaking Any Day

For the longest time people would argue that recycling doesn’t work. It’s expensive to recollect and reprocess and the energy used in that process is just as bad as making the material from scratch - a totally bogus myth that’s been dedunked many times over. While it does cost energy to process recycling, you can’t tell me it’s better to toss it in a landfill and mine for more raw materials! That just doesn’t make any logical sense! (here are some myths debunked)

Recycling Saves Me Money

Recycling saves me money because it costs my county less to have it hauled away (in fact, recycling earns money for the county). That means the cost of hauling trash is lowered (or at least it won’t rise as quickly) and that helps my wallet. We’re also lucky to live in an area that is very pro-environment - the county recently instituted single stream recycling (we put everything in one bin) and gave out free recycling bins to everyone.

Who Wants To Live Near This?

Me neither, that’s why I recycle.

(Photo: dnorman)

This post is originally from Blueprint for Financial Prosperity.

The Five Reasons Why I Recycle

Below I’ll talk about two FICO score estimators that I feel are trusthworthy enough to work with. There are a lot of websites out there offering a free FICO credit score or a free FICO credit score estimate that are really just front pages for scams getting you to sign up for monitoring services or other pay services (or they’re out to steal your identity!). Don’t use those. I feel the two services below are the only ones you should trust.

Free Credit Report

If you just want a copy of your credit report, without score, then get it from the only place that offers it for free, as required by law, AnnualCreditReport.com. Don’t request it anywhere else because it’s probably some kind o f scam. You can get a copy of your report every 12 months and I recommend you do so in order to check for errors. Now, onto the scores.

MyFICO Score Estimator

MyFICO is a service run by Fair Isaac, the creators of the FICO score, and they offer a free score estimator absolutely free. The 10 question estimator takes about five minutes to complete and offers you a pretty wide range for your score.

The score they estimated for me was 725-775 and my actual credit score, which I checked a couple months ago (just before signing up for a Capital One card I deemed was the best international credit card), fell within that range. The range may seem large but that reflects how each bureau weighs factors slightly differently.

Why this tool? Since it’s fun by Fair Isaac, you can trust that your data will be safe and that the estimate will be accurate to the best of their ability. They created the paradigm and the range represents how the individual bureaus weight different factors. It passes the trust and accuracy tests.

If you want a real score, you can always sign up for MyFICO’s services, Cap at StopBuyingCrap keeps an updated MyFICO coupon page you can review for discounts.

CreditKarma

CreditKarma is an independent site will get and track your credit score if you offer up some information about yourself. After registering, you’re asked to provide your address, birthdate, and social security number; Credit Karma goes out and grabs your score from one of the three credit bureaus. For a while, Credit Karma was estimating your score, but it appears that they are now actually grabbing it. What concerns me abotu the site is that normally a company will ask you three questions from your credit history to confirm your identity - I was asked no such questions.

The score they gave me was 721, from TransUnion.

A cool feature about the site that people may find interesting is the “credit simulator.” You give it certain scenario changes and they simulate what your score is. As you set the simulations, a little Impact indicator estimates what the impact is. When you’re done, click simulate score and they recalculate the numbers for you. It was a fun little tool to play around with.

Why this tool? Credit Karma is fairly new but they’ve passed the test of public opinion, as evidenced by all the press they’ve received. You’ll also see that they’ve partnered with some of the bureaus (TransUnion sponsors the credit simulator) and so they’ve passed the sniff test with them. While you do provide more information, they don’t store your most sensitive data on the site and you get an actual score.

Between the two services, based on how comfortable you are with sending out your data, you should be able to get an accurate view of what your credit score is. If you opt for Credit Karma, you get the added benefit of playing with the simulator too!

This post is originally from Blueprint for Financial Prosperity.

Free FICO Credit Score Estimates

#1 Mint.com

Mint.com was named winner, edging out Yodlee’s MoneyCenter, because of their recent investment tracking additions. You can now track bank accounts, credit cards, loans, and investments. Yodlee can track a couple other things like frequent flyer miles but it can’t track investments; I think investments trump mileage anyway, especially since I fly Southwest.

Another notable plus for Mint was it’s “inviting layout” (I considered Mint to be the most visually attractive of all the tools when I reviewed Mint) and their biggest minus was the thinly veiled advertising. I don’t think you can blame them, they have to pay the bills somehow.

#2 Yodlee MoneyCenter

As mentioned earlier, Yodlee MoneyCenter came in second with the most comprehensive feature-set but was austere in its layout. Another knock against Yodlee was how difficult it was to navigate. Yodlee is the backend that powers many of the other personal finance tools. Mint used to (and may still use) it to retrieving account transaction data.

#3 Quicken Online

Quicken Online has been around for a while but only recently offered their online application for free. They too can track bank accounts, credit cards, investments and loans (the same as Mint.com) and have been in the business for many many years, which means strong customer support. The only downside is you can’t sync the online with the desktop app.

#4 Wesabe

Wesabe took fourth because it had a much shallower feature-set letting you only get data from bank accounts and credit cards. Until recently, Mint.com had the same feature set as well but they’ve now put some distance between them. One security plus with Wesabe is that you retain your account login credentials on your computer, rather than storing them on the app’s server (encrypted, of course).

Of the four, I’ve used Quicken Online and Mint.com and, if forced to choose one, would pick Mint.com because of its interface and rich feature-set.

This post is originally from Blueprint for Financial Prosperity.

Best Online Personal Finance Tool

Sometimes you can get better deals by going to deal hunting sites or sites that give you a kickback on your purchases (Fatwallet, Ebates), but these are good starting points.

• MasterCard Discounts
• Visa Discounts
• American Express Discounts

This post is originally from Blueprint for Financial Prosperity.

Visa, MasterCard & American Express Cardholder Discounts

To supplement the audio, which is downloadable for free (in case you can’t catch it on the radio or your local affiliate doesn’t carry it), they also offer some videos online to explain some of the more complicated subjects. Recently they published a video explaining how credit card debt is turned into (”securitization”) asset backed bonds.

There are a bunch of videos, all of them are brief and definitely worth watching when you have some free time.

This post is originally from Blueprint for Financial Prosperity.

Marketplace Whiteboard: How Credit Cards Are Turned Into Bonds

Some words of advice on tax loss harvesting:

• The reason why you can’t by something “substantially identical” has to do with the wash sale rule. If you want to deduct the loss, you have to follow wash sale rules.
• Don’t do this in a retirement account. There is no capital gains or losses tax in retirement accounts. 401(k)’s and IRAs appreciate without taxes and taxes are only assessed at distribution time (with the exception of Roth IRAs, which are never taxed).
• Substantially identical is a gray area because the IRS hasn’t clearly defined it but make sure it passes the sniff test. One interesting thing of note is this explanation on IRS Publication 564: “Substantially identical. In determining whether the shares are substantially identical, you must consider all the facts and circumstances. Ordinarily, shares issued by one mutual fund are not considered to be substantially identical to shares issued by another mutual fund.” The key word there is ordinarily. Just pass the sniff test, I’m sure your nose works well.
• If your capital losses exceed your gains, you can deduct $3,000 of capital losses against your ordinary income. If your losses exceed that, you can carry those losses forward each year without limit.
• You don’t have to wait until the end of the year to do this, in fact it’s probably better to give yourself the flexibility of doing this earlier in the year because of wash sale rules.

Why Tax Loss Harvesting Works

Let’s consider the scenario where a fund has dropped 10%, the investor opts to harvest losses and immediately invests in a fund that closely mimics the original fund. Both the original fund and the new fund appreciate by 11.1%. The investor invested $10,000 and is in the 25% tax bracket. Who wins?

Does not tax loss harvest: This scenario is simple, the investor has effectively had no change because the original fund has return to its original value. He sells and has no capital gains or losses.
Does tax loss harvest: The fund fell in value from $10,000 to $9,000 and the investor does some tax loss harvesting to extract the $1,000 in loss. The $1,000, come tax time, will yield him $250 in tax savings. He reinvests the $9,250 into a similar but not “substantially similar” fund and it appreciates by 11.1% to $10,276.75. When he sells, he pays taxes on $1026.75 of capital gains - or $256.69. Subtract that from his $10,276.75 and he’s left with $10,020.06, which is $20.06 ahead of what he had if he hadn’t harvested losses.

Tax Loss Harvesting with Placeholders

Let’s say that you really like a particular mutual fund, your brokerage doesn’t offer anything similar, and you aren’t about to open up another account at another brokerage just to do this tax loss harvest. A potential option is to use exchange traded funds (ETFs) as a placeholder for the wash rule period. Sell your loss, buy into an ETF, wait 31 days, then sell the ETF and get back into your fund. By selecting a similar ETF, you can catch any rises in the industry without sitting on the sidelines.

Please consult with an accountant to clarify your particular situation before doing anything I’ve talked about here.

(Photo: tonivc)

This post is originally from Blueprint for Financial Prosperity.

Tax Loss Harvesting

Since then, I’ve been focusing a lot more of my articles on frugality (such as 100 money saving tips and 11 tips to save on shipping) because I think frugality is the way we can get ourselves, individually, through this economic slump. More broadly, we need people and businesses to spend money so the economy recovers but individually, and this is selfish advice, you need to have a bunker mentality and save your way through this.

Stick that money in your mattress, a high rate CD, or a plain old online savings bank… until the clouds roll past anyway.

(Photo: bobjagendorf)

This post is originally from Blueprint for Financial Prosperity.

We’re In A Recession

Prize winnings are taxed at your regular marginal tax rate (the IRS tax bracket you are in). They’re not taxed at some special sweepstakes rate or anything like that, they’re taxed as income and reported on Line 21 (Other Income) of your Form 1040. Other sources of income that get reported there are gambling winnings, jury duty fees, etc.

So why do people believe you’re taxed at 50%? The winnings are considered income and if you win something substantial, chances are you’ll be put into a much higher tax bracket. As of 2008, the highest tax bracket starts at $357,700 and is 35%. When you start adding in state and local taxes, you could very well get close to 50%. If the prize is smaller, you probably won’t be taxed at 50%.

Another wrinkle is that the organization or company doing the giving will have to report the prize on a 1099 form that is filed with the IRS. If you think back to any contests or giveaways, the prizes often have a valuation listed (X prize is valued at ‘$5,000′). One problem that people run into is that the valuation is wildly inaccurate, this is very common in the case of vacations or big-ticket items (it’s as if every television is purchased from the most expensive place possible!).

There are a few solutions to this:

• Keep the prize and then argue with the IRS about it (which means filing a form to amend an incorrect 1099),
• Sell the prize so you have some cash to pay the taxes,
• Request cash instead (again, so you can have cash to pay the taxes),
• Get lucky and have the giving organization pay your taxes for you (a lot of places are savvy to this now and give enough money to cover taxes as if you were in the 15% tax bracket).

So, if you win the lottery, you’re OK; if you win a prize, you might have some work ahead of you. Now, if you’ll excuse me, I have to send that Emperor of Nigeria about five thousand bucks to cover the shipping fees on my lottery winnings!

(Photo: fsims)

This post is originally from Blueprint for Financial Prosperity.

Prize Winnings Tax

A financial network map is a one-page diagram that shows the links and relationships between each of your financial accounts, which include but are not limited to bank, brokerage, mutual fund, retirement, credit card, and service accounts.

How to Construct Your Financial Network Map

Let’s take a look at an example network map - I drew it up based on my own financial links map.

Here’s how I approached drawing my map:

1. I started by listing our jobs, it’s the “origin” of funds but interacts with little else.
2. List of my bank accounts on a separate sheet.
3. Now begin linking them together, indicating what type of link it was. Most of the time I had to log into my account to confirm the links, hopefully this will be the last time you ever have to do that! Since we have our paychecks direct deposited, the paycheck is linked to the checking account.
4. Now list all the investment related accounts you have, adding the links in as needed. This includes taxable brokerage accounts, IRAs, 401(k).
5. Now list all the credit cards you have, linking to the banks that are used to pay the bills.
6. Now list all the service accounts you have (electricity, cable, internet, Netflix, etc.), link them to the proper credit card or bank account bill pay.

Make up your own legend, but here is what I used. On the map, you’ll notice arrows. The head of the arrow indicates where a transaction can be initiated frum. As you can see, FNBO Direct has an arrow drawn to the checking account. That indicates that if I want to transfer funds, in either direction, it must be initiated from FNBO Direct. I can’t initiate a transfer from the checking account. My original version didn’t use arrows, it used lines with O’s or X’s at the end indicating what was an “origin” and what was a “terminal.” I’m not sure which is better as arrows can be misinterpreted to mean funds can only transfer in one direction. Use whatever works for you.

You’ll also notice the map lacks color. I think using a highlighter to color in the types of accounts (yellow for checking, green for savings, red for credit cards, blue for service accounts, etc.) would be valuable in giving the map something extra.

You’ll also see letters A, DD, BP, etc. Those indicate the type of link and are less important. A stands for ACH, which is the typical electronic transfer; DD stands for direct deposit and BP stands for bill pay. The type of link isn’t significant but it’s better to have more information than less and be forced to search for it later.

Analyzing Your Map

In this case, I’ll look at the example map above. You’ll see that the center of our entire financial world is a checking account. It’s linked to basically everything else on the map, with the exception an example bill payment. In reality, there are very few things not connected to the checking account.

The vast majority of accounts on that map are high yield savings accounts, that’s because I open up a lot of accounts for the sake of reviewing them here and because I like to have my funds transferred to the highest yielding account at the time. As that changes, where I move the funds will change. That’s also why all the savings accounts are linked to that checking account.

I try to avoid rate chasing, transferring from one high yield bank account to another, unless the two are linked. That’s why you’ll see some of those accounts linked together. If I have to transfer the funds to the checking account and then over to the high yield savings, that’s a week of travel I’m not willing to deal with.

You can glean similar nuggets of wisdom about your approach when you read your own map.

How To Use Your Map

This is valuable because it, in a second, tells you what you can do without having to log into your accounts. Besides that, there are other ways the map can be useful:

• Identify weaknesses. As you construct the network map, you’ll discover any weaknesses you may have in your set-up. One example would be if you have an account that is accessible only through one link. In the drawing, Emigrant is linked to the primary checking account but only Emigrant can initiate the transfer. Should Emigrant’s website go down, you’d be at their mercy. How do you mitigate? Figure out how to link to Emigrant through another bank and add redundency to your network.
• Discover workarounds. If you’re in a financial bind, this map may reveal how you can go about working around your problem. Let’s say, for whatever reason, a bank’s website goes down and you need access to your funds. Rather than log into all your other accounts to try to figure out which one is linked to the downed bank, you can open your financial network map and see which accounts can initiate a transfer.
• Assist in account simplification. It can identify unnecessary accounts that you can trim to simplify your situation. For example, my Emigrant Direct account has out-lived its usefulness and will be trimmed as soon as my CD matures in January 2009. I know that nothing else will be affected by the closing of that account since it does nothing but act as a storage account for savings.
• Explains why banks offer bonuses for bill pay, direct deposits, etc. Many banks will offer deposit bonuses if you initiate bill pays, direct deposits, and other additional “links,” as described by our map. That’s because the more interconnected an account is, the harder it is for you to disconnect it or replace it. My main checking account in the above example has eight links. That’s eight different things I have to set up again if I want to replace my utilitarian checking account (where there is little differentiation), which means I probably won’t change it unless I have a compelling reason.

Has anyone constructed something similar and have additional insights to share?

This post is originally from Blueprint for Financial Prosperity.

Your Financial Network Map

If that stroke of luck isn’t good enough, read this story about Michael Paul Larson learning the patterns of the board in Press Your Luck, an 80s game show, and walking out with a bunch of cash and prizes. First, the story is absolutely true. Next, read the amazing story about how he won $110,237 in cash and prizes back in June 1984 (that’s $229,782.08 in today’s dollars and back in an era where the prizes were much much smaller).

See? It’s not all bad news and schadenfreude here.

This post is originally from Blueprint for Financial Prosperity.

The Luckiest Guy on The Price Is Right

You can get same day service if you submit it by 2:00 AM CST! The service is limited to certain zip codes but fortunately mine was included. Scratch that one off my list of errands today.

Online services FTW!

USPS Hold Mail Service Form

This post is originally from Blueprint for Financial Prosperity.

Request USPS Hold Mail Service Online