I despise PayPal because monopolies are bad for the consumer. PayPal has become the defacto method of sending money across the Internet and paying for eBay auctions. I just sold an extra CPU on eBay for $60 and PayPal took their $2 cut (don’t get me started on the $5.41 eBay got). Google Checkout was suppose to be a big PayPal competitor for retail sales, but peer to peer transactions are stuck using PayPal. There might be a viable contender in town now.
Revolution Money Exchange is part of Revolution, LLC, founded by AOL co-founder Steve Case. The board of directors is filled with former CEOs: David Pottruck from Charles Schwab; David Golden from JP Morgan; Franklin Raines from Fannie Mae; and Russell Hogg from MasterCard International. This definetely isn’t some homegrown Web 2.0 project coming out of some guy’s garage.
Here are some of the differences between Revolution Money Exchange and Paypal:
- No fees for receiving and sending funds
- Only checking accounts are used, cutting credit cards out of the picture is what reduces the costs so drastically
- No business services or eBay integration
- Simple interface, PayPal has become a nightmare to use
Sending money person to person is Money Exchange’s focus and it shows in the account creation process which is very straightforward. They’ve got a $25 sign up bonus going on until May 15th so I thought I would try it out. If I don’t end up using it then I got some free money. If you sign up for the $25 bonus through the link below I’ll get a $10 and then you can refer people.
Give it a try; it would make transactions like going in on a gift together or selling things on Craigslist a lot easier. There is some real potential here and I hope it starts growing in popularity.
Tagged with: paypal, personal finance
Posted under: Money Stuff
I’ve been blabbing on about finances for a little bit now and up to this point I haven’t been very aggressive about saving for retirement. Saving for retirement is good and dandy, but right now is the most important time for us to put away money (if you are wondering why see this post on compound interest). Both of us have a little money in SIMPLE IRAs, I pay 5% into LACERA (county pension) and get 3% matched going into a 457(b). Not enough to meet our goals, but definitely better than 0%.
For over a year now I’ve been talking about starting a Roth IRA and never did. With April 15th just a few days away, I went ahead and started a Roth IRA at Vanguard. What’s important about April 15th besides taxes being due? It’s the last day to make IRA contributions for 2007. I maxed out my 2007 contributions which leaves me another year to work towards maxing out my 2008 contributions.
My entire investment strategy revolves around starting young and investing for the long term (30 years). I also wanted a strategy that would require very little effort on my part. I knew index funds were the way to go, but there are ton out there and needed to narrow it down. I was also taking asset allocation and fees into consideration.
After some research I found Vanguard’s Target Retirement Funds. They are funds of funds and include indexes of US and international markets along with bonds. The 2045 Retirement Fund has an asset allocation of about 90% stocks and 10% bonds right now and will gradually reverse those numbers as 2045 grows closer. Since I’m starting young I’m comfortable with an aggressive allocation and the automatic reallocation will save me time down the road. The expense ratio is a low .25% which can really impact savings over the long term.
Opening the account was really easy and everything is done online. Funds were transferred straight out of my checking account and I avoided a $20 annual maintenance fee by opting for paperless statements. I also like the fact that Vanguard is client-owned and is there to serve the investor, not outside shareholders. You’ll never see TV ads for Vanguard since that’s money coming out of their investors pockets. With $1.3 trillion in holdings they must be doing something right.
My strategy will probably evolve as our income and tax situation change, but the essential idea is to put away a steady amount over the years in tax advantaged accounts and let compound interest do its job.
Tagged with: investment, personal finance, retirement
Posted under: Money Stuff
I’ve been getting increasingly annoyed about the mainstream media’s coverage of housing and the economy. Someone coined the term “credit crunch” and it gets regurgitated in every single story that happens to mention the economy. The problem is the lack of credit isn’t the cause of our current economic woes, it is just merely a side effect of a larger issue at hand in our society. The real cause of this recession can be summed up in another cute, alliterative phrase: debt deluge.
At no other point in history have we been in more debt. We just keep piling it on. Loose mortgage practices over the past couple years made it easier for people, who normally wouldn’t qualify to take on more debt, to bury themselves up to their ears. Unsurprisingly, people can’t handle the payments on the debt that they’ve acquired. Instead of blaming homeowners, borrowers, lenders, brokers, banks, realtors and everyone else involved in pumping up the housing bubble, the media points a finger to the lack of credit.
At this point everyone is being dishonest to try and deflect blame and responsibility for the situation our economy finds itself in. Homeowners should have known better about jumping head first into a steaming pile of debt. Lenders knew giving inflated, risky mortgages to people, who only a couple years ago would have been laughed out of the bank, was wrong. The government turned a blind eye to their regulatory role since taxes kept rolling in. Realtors had no qualms about selling houses at prices customers couldn’t afford because they got their cut and washed their hands of the transaction. The media won’t admit their “house flipping” shows helped contribute to the mess.
Debt is the root of our problem and it will take some serious purging to heal the damage that has been inflicted. Jobs in financial services and construction are going to be hit hard. People are going to lose their homes and ruin their credit history. Home prices will adjust to a point dictated by increased supply and lower demand. Government has to adjust spending or increase taxes. The next time you hear a reporter or politican read “credit crunch” off the teleprompter just replace it with debt deluge.
Tagged with: personal finance, spending, taxes
Posted under: Money Stuff
I spend about 2 minutes every week checking on my finances and paying bills. Most of the time I just log into Yodlee MoneyCenter and review my transactions and make sure they are categorized right. Logged into today and found a charge from some stock photography website for $10. Called Citi up and disputed the charge and they immediately credited my account. Without careful inspection that unauthorized charge might have gone unnoticed and I would have been out $10. That $10 could have easily been $100 and if I just looked at my monthly balance I probably wouldn’t have caught the charge. Do any of you review your statements with a fine-toothed comb?
Tagged with: personal finance
Posted under: Money Stuff
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
Came across this nice calculator at the NY Times that lets you fill in a number of parameters to help make decisions about renting or buying. While prices are out of whack compared to income you are better off renting and investing the difference (if you have anything left over each month) rather than buying. With prices dropping, inventory rising, and more and more loans resetting into the middle of next year that might change. As prices come down to realistic levels over the next few years it might not be a bad time to think about buying. This calculator can help you make a decision based on your particular situation.
Is It Better to Buy or Rent?
Tagged with: loans, personal finance, renting
Posted under: Money Stuff
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