For a while I wasn’t really tracking how I spent money. I’d just pay my credit card balance off every month and get cash as I needed it. Before writing checks I’d just make sure I had enough in my account to cover it. All I knew was that I wasn’t spending my entire paycheck so I was doing okay. After getting married our expenses grew and I knew I needed a better way of tracking where our money went.
I tried out Quicken and Money, but they were just a complete pain to use and were overkill for what I needed. I looked for simpler software and online solutions but they all required you to manually download or enter transactions. I looked around the Web some more and discovered “account aggregation” services that grab data from your various financial accounts and stick it all in one place. A lot of banks like BoA and Citi have this as part of their online services now and other sites like Mint.com offer identical services. Turns out all those sites are just branded interfaces for a back end service provided by the company Yodlee.
The same MoneyCenter aggregation service that powers the sites of a lot of banks and financial service providers is available directly from Yodlee for free. In fact, their application is better than the others because you get new features first rather than waiting around for the bank to implement them. If you are nervous about entering your login information for your bank account and credit cards just remember that this is the same service banks around the world use which says a lot.
The aggregation premise is pretty simple: you enter information for various accounts, Yodlee grabs transaction and balance information, saves it, categorizes it and then lets you run reports against it. You can see some of this in action in their demo. Overall it does a pretty darn good job at categorizing stuff like gas, groceries and restaurants, but if anything gets through you can categorize it yourself or setup categorization rules for things like car payments. You can split transactions too; if we buy alcohol or gifts I split those transactions since they are usually lumped in with other things.
Eventually all this is on autopilot and I just have to periodically check categorization to make sure stuff is in the right bucket. After building up a few months of data I can do some pretty meaningful analysis of where our money goes. Some people are budget fanatics and others could care less, but I fall in between. My budget numbers are really just the average of what we normally spend in a category. I’ll save budgeting for a later discussion, but the important thing here is being able to track spending.
The primary thing MoneyCenter lets you do is keep yourself accountable. The MoneyCenter homepage is a view of all your accounts and their current balances; having your credit card balance sitting right next to the available funds in your checking account can be very sobering. On the other hand, having your savings and investments accounts listed can be very encouraging and motivate you to sock away more for the future. Even if you don’t bother categorizing everything, these summarized numbers can be a big help.
By categorizing everything a very useful pool of data will start to accumulate. Let’s say you want to start saving more which presents two options: make more money or spend less of what you make. One of those is easier said than done. Yodlee makes it easy to view your total spending by category and then make informed decisions. More than anything the data helps answer general questions like what percentage of my income am I spending on housing, transportation and insurance (I was a little surprised about the amount going just to these items).
Every time I talk about finances I’m not expecting people to take it as gospel or go implement my idea immediately. I’m just sharing my experience and the information I’ve gathered through research and practice. After a year long failure with Quicken I’ve been incredibly happy with Yodlee MoneyCenter. My time spent dealing with finances has gone down while the awareness of my financial situation has gone up. Just this week Sarah asked how much money we had and I was able to immediately tell her an accurate number. Anyone figure out a system that works well for them?
Yodlee MoneyCenter
Tagged with: personal finance, spending
Posted under: Money Stuff
Purchasing a vehicle can be a big decision and involves a lot of money. There’s a lot of questions like whether to go used or new, buy or lease, finance through the dealership or the bank or to even pay cash and avoid payments. On the matter of automobile loans it seems like they’ve really become a part of everyday life; it would almost seem strange not to have a monthly payment. We’ve become use to the idea of a loan that allows us to enjoy a car sooner than we might have been able to. But how much do we pay for that convenience?
My Tacoma was my first new car and I did a ton of research and haggled with dealers to get under sticker as much as possible. I was still in school and had saved up a little money and my parents offered to match whatever I put down. With my dad co-signing I got a 5%, 60-month loan through the credit union. So what is that loan actually costing me over 5 years:
- With $5,000 down payment and starting loan balance of about $15,000 = $2,025 in interest
- Without the down payment and a starting balance of $20,000 = $2,685 in interest
Not a huge difference, but the down payment dropped my monthly payment by $100. In both situations, the cost of the loan would run about 13.5% of the loan value. You can think of that 13.5% as a hidden tax on the car, which is more than the sales tax and other fees that get tacked on. Over a lifetime those interest payments can really add up. Aside from leasing (which I won’t even touch here), buying a car outright is our only other option. So why don’t we buy new cars with cash more often?
I think the biggest impediment is our need for instant gratification. I could have “paid” $330 dollars each month into a high-yield savings account for 5 years and bought my truck without getting a loan and saving myself over $2000 dollars and earning interest on my deposit in the process. So why didn’t I? Mostly because I wanted my new car sooner than later. I could have replaced my 1988 Ranger with a newer used car and looking back I probably should have explored that avenue more. Nevertheless I ended up with a new car. Instant gratification isn’t anything new in our culture, but we should be aware of the ultimate cost.
Looking into the future, we’re going to have to make some assumptions. Let’s assume a loan length of 60 months and everytime we’re done paying off the loan we trade the car in for 40% of the original value (depreciation is a you know what) and buy a new one that cost 10% more than the previous one. The first purchase has no down payment or trade in involved. Let’s say we start young and do our car buying cycle for 50 years. We’d end up with numbers like this:
| Car Loan # |
Car Cost |
Trade in Value |
Loan Balance |
Cost of Loan |
| 1 |
20000.00 |
|
20000.00 |
2700.00 |
| 2 |
21000.00 |
8400.00 |
12600.00 |
1701.00 |
| 3 |
22050.00 |
8820.00 |
13230.00 |
1786.05 |
| 4 |
23152.50 |
9261.00 |
13891.50 |
1875.35 |
| 5 |
24310.13 |
9724.05 |
14586.08 |
1969.12 |
| 6 |
25525.63 |
10210.25 |
15315.38 |
2067.58 |
| 7 |
26801.91 |
10720.77 |
16081.15 |
2170.95 |
| 8 |
28142.01 |
11256.80 |
16885.21 |
2279.50 |
| 9 |
29549.11 |
11819.64 |
17729.47 |
2393.48 |
| 10 |
31026.56 |
12410.63 |
18615.94 |
2513.15 |
| |
|
Totals |
$158,934.71 |
$21,456.19 |
The trade-in acting as a down payment is what keeps this from being outrageous, actually these numbers don’t seem too bad. $21,500 in interest payments over a lifetime isn’t too big of a deal. Now let’s look at buying all of our cars outright. To accomplish the task of providing our own financing we have to delay our gratification and save. For the 5 years prior to a car purchase, we deposit the total cost / 60 into a high yield savings account every month, about $333 for a $20,000 car. The interest earned on the savings earmarked for a new car can be transfered to other investments for additional growth after the purchase. So by delaying the first car purchase and continuing that discipline we’ve saved $21,500 in interest payments, or have we?
What would happen if we took every dollar we would be giving to a bank in interest and invested it in a Roth IRA (all contributions and earnings can be pulled out tax-free during retirement). $21,500 over 50 years is $430 a year, $36 a month. That’s money we’d normally be giving away so why not invest it instead. Let’s say our IRA starts with a $0 balance, grows at 8% and we don’t worry about inflation yet.
Amount invested = $21,500
Simple earnings = $43,860
Compund earnings = $201,099
Total account value after 50 years = $266,459
Say wha?! That’s the power of compounding rearing its beautiful head. This is a mostly hypothetical situation, but the outcome and general idea are pretty clear. By delaying a car purchase and avoiding interest payments we are presented with the opportunity for incredible growth over the long term. Even without investing the difference you can save a good chunk of change. My scenario doesn’t take into consideration a longer period between purchases or the possibility of buying used cars, both of which would allow more income to be directed towards investments.
I’m not saying this is the absolute best way to purchase cars, but the hidden costs of automobile loans aren’t apparent until you crunch some numbers. I know some of you paid cash for your cars or even have the gall to drive cars not manufactured after the year 2000, but I hope this is enlightening for everyone. I plan on putting this into practice for our next car purchase.
Tagged with: personal finance, spending
Posted under: Money Stuff
Came across this article and it pretty much reaffirms the things I have learned over the past year:
Rent vs Buy Myths That Ruined the Housing Market
Through a lot of reading, studying and crunching some numbers I’ve changed my view of owning a home based on ideas similar to the ones presented in this article. The most important thing I’ve learned is that a primary residence is not an investment, it’s just shelter.
Tagged with: personal finance, renting
Posted under: Money Stuff
In my post about finishing my taxes I referenced how much our refund was going to be. Sarah asked why I included the number with the implication that information about our finances is personal and should be held back from public discussion. Ever since I graduated from college and started moving towards financial independence, personal finance has become an interest of mine. Growing up I never really knew much about our family’s finances, sometimes money was tight, but we always lived within our means. That’s the number one thing I’ve learned about money and is the key to saving for the future and being financially secure.
Personal finance is an important part of our lives, so why are we reluctant to talk openly about money? It might be that we still see money as a symbol of status. We might be ashamed of debts. We might not want to feel like we are bragging or putting ourselves above others. Whatever we feel though, it is most likely tied to emotions and as far as I can tell emotions and money don’t mix. In my life I have “unpersonalized” personal finance.
But how open should we be? I’m not suggesting we announce our income and current portfolio value when meeting someone, but when talking to friends and family I’d be open to asking for and offering advice. Getting advice and working out finance problems is incredibly important considering the opposition we face in our consumer spending driven society. I think we should be open enough to discuss our tax situation and tactics we use to reduce our tax liability. We should be open to discussing how we are saving for retirement. We should be open to talking about problematic debt and helping each other eliminate it.
What do you think, are finances open for discussion or private matters?
Tagged with: family, life, personal finance, spending, taxes
Posted under: Money Stuff
I filed electronically on March 1 and my state refund was deposited into my checking account this morning. 6 days isn’t bad, have to see how long it takes the IRS.
Tagged with: personal finance, taxes
Posted under: Money Stuff
Not only is there nothing Bernanke can do to prevent further meltdown in housing and erosion of the economy, but if there was he wouldn’t know what to do. From this AP article:
One of the suggestions Bernanke made was for mortgage and other financial companies to reduce the amount of the loan to provide relief to a struggling owner. “Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure,” Bernanke said.
With low or negative equity in their home, a stressed borrower has less ability — because there is no home equity to tap — and less financial incentive to try to remain in the home, he said.
You end up with low or negative equity two ways: you bought a house and then took a home equity loan based on the new appraised price or you were unlucky and bought an overvalued home before prices walked off the cliff. If home prices never went down low equity wouldn’t be a problem, but they are and they’re going down hard. As prices go down people start to owe more than the house is actually worth, still not a problem. The problem comes from not being able to afford the monthly payments on the home which means the borrower should have never gotten the loan in the first place!
So why does Bernanke want people to have equity in their homes? So they can tap it like an ATM and spend it on fancy cars and boats, pumping much needed money into the economy. But that money isn’t real and is being conjured from the perceived value of a big wooden box we call a house. Haven’t we learned anything from the past 4 years? Lenders have started returning to their senses and are requiring down payments and income documentation. Borrowers are realizing their overpriced McMansions aren’t worth holding onto and are walking away. Prices are falling, construction is slowing and inventories are going up. So where will things end up? Right where the market determines they should be. I think we’ll see the return of affordable single family homes in late 2009-2010.
Tagged with: economy, government
Posted under: Money Stuff
I started getting my taxes prepared and entered into TurboTax over the past month. Now that it is March I was pretty sure I had all my forms and went ahead and filed this morning. I got free e-filing through State Farm so I should have my return pretty quick. I’ve got almost $3000 coming back my way this year; that higher standard deduction for married filing jointly really helps. Anybody else getting their hard earned money back from Uncle Sam?
Tagged with: taxes
Posted under: Money Stuff
This is some the best mainstream media Housing Bubble coverage I’ve seen and it spells things out pretty clearly. If you aren’t sure what exactly is going on this is a pretty good 15 minute overview of the current situation.
House of Cards
Tagged with: bubble, foreclosure
Posted under: Money Stuff
I started looking around for TurboTax on the cheap since good old tax time is coming soon. Turns out I’m not going to have to pay for tax software this year at all and neither do you if you have a State Farm policy. Just log into your State Farm account and there will be a fairly innocuous looking “FREE tax filing” link on the left. This sends you to the TurboTax website where you can select TurboTax Deluxe, create an account and fill out your federal and state returns online. To top things off you get free e-file for both returns which normally costs $15 a pop. Not a bad deal. Just remember to go through State Farm’s website when you go to file and it won’t try to charge you. If you don’t have a very complicated return like me then this could be a good alternative to paying an accountant.
Tagged with: internet, taxes
Posted under: Money Stuff
Dr. Housing Bubble featured Downey this week in an edition of Real Homes of Genius that shows just how screwed up things are in housing right now. I couldn’t buy a house even if I wanted to and it’s not like I’m making minimum wage. As long as prices are out of touch with people’s incomes prices will drop and drop. And on another note I don’t think the fact that we just hit a 2 year unemployment rate high is completely unrelated.
“The greatest weakness in December employment came from sectors battered by the housing slump: construction payrolls lost 49,000 jobs, while manufacturing fell by 31,000 and financial services employment declined by 4,000.”
Tagged with: bubble
Posted under: Money Stuff
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