ING Direct. Better rates than they tell you.
The advent of online banking started a small revolution. It took a while to catch on given the wariness of the media. Now, having at least “virtual” non-brick & mortar account is standard protocol.
Even though the rates have changed dramatically (who remembers when accounts offered yields over 5%?), the debate over which parking place is better rages on.
Performing a search of “Review of Online Banks” or “Best Online Accounts”, will return thousands of hits. There’s plenty of information out there, and for the purpose of this article, I’ll refer you to this recently updated post at MoneyNing.
Overall, the article does a good job summarizing the current offers and looking at other considerations beyond the rate. Remember rates are not the only metric, and you should always do additional research to make sure the product best fits your own financial system.
Even though it clearly states the opposite towards the bottom of the page, I can appreciate his personal view. As long as someone takes a holistic view, and acknowledges that there are many factors to consider, that’s really all you can ask for.
On the other hand, there are points of disagreement – which makes it a perfect subject for my own post! Specifically,
Why does ING Direct not even warrant a ranking?
Continue reading “ING Direct. Better rates than they tell you.” »
Haitian Relief – Donate Carefully
Still late to the party with everything else that’s going on, I thought it would still be worthwhile to put up a quick warning flag. I don’t want to dissuade anyone from donating, but please proceed with caution.
The overwhelming display of support thus far is simply incredible. It’s reassuring to know that Americans are still willing to extend themselves to help others. Unfortunately, there are others out there that who capitalize on tragedies.
The FBI put out a press release highlighting some of the warnings signs of potential scams.
Beyond the outright scams, there are still other factors to consider.
Continue reading “Haitian Relief – Donate Carefully” »
Will Opting-Out Really Help us Save?
At first, I thought this was a relatively good idea. It seemed simple enough to understand. Americans don’t like to save, but more importantly don’t like work. So set up a program to promote the former by capitalizing on the latter.
Huzzah! Americans’ retirements saved!
After thinking about it some more, I’m having reservations. Here’s a few things I see wrong with these type of programs.
Sure, it would be great to have that money set aside when I’m older, but would a forced savings plan create better savers now? I don’t think so. If anything, it could drive youth away from saving. If you knew the government was automatically setting aside your retirement, where’s the incentive to do more?
Programs of this nature do not empower people, they coddle them into dependence. It seems policies, even those well-intentioned, revert to the idea that we are simply too dim to decide for ourselves. There’s always spectacular fanfare behind the programs the government churns out, yet they consistently fail to address the deeper issues.
Specific to the case, it’s not about capitalizing on our laziness, but transitioning our LIFESTYLES from spenders to savers.
Let’s Give Credit More “Credit”
Humans have the innate ability to control environments. The easiest example to pull out of the hat is the domestication of wild animals (dogs and horses). If we have this preference towards control, then why do authors suggest debit cards as the “solution” to credit cards?
If you looked at the [purely factual] differences between the two, the undeniably clear winner would be credit. Of course, there are personal and behavioral influences that come into play. I’m only looking at a line-by-line comparison between the features of each.
Second, the irony is that debit cards don’t actually curtail people from spending any less than they would normally. I’ve heard numerous stories of people incurring overdraft fees, REGULARLY. Still having less money than they would like at the end of the month, and worst of all, not being able to pinpoint what the charges were or why they went over.
By no means is this an absolute, but as I see it the problem remains superficial solutions. Instead of focusing on the internal issue such as the user’s lack of discipline, a band-aid solution like “use debit cards” allows an author to address a problem while sidestepping any criticism. So despite the criticism I might draw, I want to try and address the heart of the matter: your discipline.
Here’s the thesis
“Unless discipline is exercised in managing cash flow, then the form in which you make those transactions is irrelevant.”
People trade plastic, paper, and even their word to get what they want. If you’re unable to control yourself and say “no” once in a while – your plastic will be denied, you’ll have no more paper, and your word won’t be good anymore.
I’m not the only one that believes this to be the case – check out Financial Samurai. As summarized in the about page,
“A Samurai is a noble, disciplined warrior… The world of finance is full of traps, taking tremendous skill and discipline to artfully navigate through the dangers.”
However, I don’t want to trivialize the effort which discipline requires. I plan to expand upon this idea more in future posts (this may end up becoming a series), but for now let’s simply lay the foundation.
When managing money, stick with the three C’s – Cash, Check, & Credit.
The only D in your vocabulary should be Discipline, not Debit.
Photo by James Callan
Merry [Belated] Christmas! Here’s What Went Wrong.
![4217039880 f85b6ee567 Merry [Belated] Christmas! Heres What Went Wrong.](http://farm3.static.flickr.com/2566/4217039880_f85b6ee567.jpg "Sad Lily")
Better late than never right? Before I start, please remember that some of these posts highlight older topics and the blog will be playing catch-up with my brain for a little while.
I finished an interesting book, Scroogenomics by Dr. Joel Waldfogel, right before the holiday season. Don’t let the title fool you – he’s no Ebeneezer Scrooge. A quick and entertaining read, he looks specifically into Christmas spending. Apparently, this topic is something of a hobby for him!
One of the most staggering statements in the book was:
“In Christmas we have $66 billion in the United States that is, on average, wasteful; and we have about $12 billion in actual U.S. value destruction per year.”
Okay, great. How did he arrive at that number and how does it translate?
The book goes through the details of his calculations, but let’s take a simple example. Every year there’s some novelty gift that no one really wants, but everyone loves to give. This year its Snuggies, a while back it was those wall-mounted singing fish.
So, if someone purchased either of these items for $20, but the person receiving it wouldn’t pay more than $5 for the same purchase than there’s been a destruction in value. This illustrates the direct loss of value.
But there are other factors to consider. Look at gift cards and money. Everyone loves cold hard cash, but there’s still a cultural awkwardness to accepting it.
Then you also have to look at who’s giving the cash gift. You’d raise an eyebrow if a spouse gave you money, but with that great aunt you maybe see once a year – it’s not such a big deal.
Ultimately, the best gift would be something that the recipient would pay the same amount for.
Even though the majority of value is destroyed, he does highlight that value can be created. Although less frequent, it occurs when the giver recognizes a particular item the recipient would use but has not realized yet or wants but would not allow themselves.
Around Christmas, I went to an “ugly sweater” party with my fiance. She was appalled when she saw me wearing that same sweater later on – IN PUBLIC. Dumbfounded, she asked, “You actually wear those!?” Well of course honey, they keep me warm.
Can you guess what I got for Christmas this year? To my own amazement, I enjoy wearing the new sweaters much more than I anticipated.
In this instance, value was created since she recognized that I’d enjoy them even before I knew I would. Plus she got them at a significant discount, adding further to the inherent value.
Of course, there was probably some selfish motives behind the gift. I’m sure she was tired of explaining that she didn’t pick me up off the street and I didn’t only own clothes older than me.
As a funny aside, writing that personal snippet reminded me of the first time I met this incredibly intelligent structural collapse engineer. I quite literally thought he was homeless with his scruffy beard, tattered t-shirt, and stained khakis, when I saw him walking around. I guess it comes from the practical/functional mindset engineers develop – if the glove fits, why change it?
To tie it all in, the point is that we spend so much time around Christmas trying to please such a multitude of people with gifts that we end up doing a crappy job and rarely pleasing anyone.
So, next year instead of buying random humdingers, do-dads, and thing-a-ma-bobs for everyone you know focus your efforts on a few select individuals and a few top-notch gifts. Trust me, everyone will be more jolly and appreciative for it.
Photo by biblicone
Your Brain is Your Own Worst Enemy
There is a real danger in how people rationalize expenses.
I once heard a story that almost brought me to tears. This friend of a friend had close to $80,000 in student loans. Although that’s sizable, I had no interest in casting judgment until I was given the second piece of information – he recently purchased a $12,000 engagement ring for his fiance. The reason?
….I’m already in 80k worth of debt, what’s another 12k?
It’s a sad scene, but it did give me a laugh. It reminded me of a Simpson’s episode. After digging a deep hole without an exit strategy, Otto asks how they’re going to get out to which Homer exclaims, “We’ll DIG our way out!”
Back on track, people often take a known condition, establish it as the comparison benchmark, and then base all future decisions on that reference. In the example story, the ring price was compared to the overall debt obligations. Removed from that relationship, reassigning the context paints a very different picture.
Say he needed a ring and car at the same time. Spending the same amount on a ring as you would for an entry-level sedan seems exorbitant. Point being, the $12k spent is still $12k no matter how you look at it. The money is not of any less value simply because you’re spending more of it elsewhere.
Now let’s look at another example of this – cell phone plans. Carriers smartly marketed their add-ons by compartmentalizing them. In relationship to the primary plans, these features seem negligible in cost. Assuming you’re plan costs $60/month, what’s a measly $5/month for texting? When that rationale is compounded, you could end up with a plan costing $100/month, roughly 70% more than you probably originally intended.
Now there’s a new marketing tactic which takes the opposite approach. Because carriers are so generous, they’ve decided to offer us a “complete” package for an easy $100/month. Problem solved right?
Not exactly, unless your usage exceeds the cost (i.e. separately your plan would cost more). Otherwise, you are under-utilizing your plan. Your primary plan costs $60/month and you have $20/month worth of add-ons. You never exceed the limits, but decide to opt into an “all-inclusive”plan for convenience. Now you’re paying $100/month for the same services, or a 25% premium.
Both of these cases are good examples of inefficient systems. As I’ve summarized before, EngineerYourFinances will be looking at how you can OPTIMIZE your own financial system and work towards that ultimate pie in the sky – FINANCIAL SECURITY.
Along the same lines, I read a book a while back that talked about this same topic. Ronald Wilcox’s book, Whatever Happened to Thrift, addresses this notion in Chapter 3: Psychology of Money. An overall quick and entertaining read, that specific chapter focuses on a lot of the self-imposed expectations that end up hurting us financially.
To recap, our method for justifying purchases generally leads us to spending either:
a.) more money than we originally intended, or
b.) additional money that we hadn’t originally anticipated.
So try it out!
Next time you’re making a purchase plus accessories, take a step back and ask yourself if you are buying the accessories because of a true need or if you are rationalizing it against your primary purchase.
If you can say that you would by this item separately by itself – then go ahead and get it. If you can’t, think twice about it.
Remember, $1 is still $1 whether you spend a few of them or hundreds of them.
Photo by Avelino Maestas
