Send Troubles to the Ditch: Preparing Before They Get There

President Calvin Coolidge once said: "If you see ten troubles coming down the road, you can be sure that nine will run into the ditch before they reach you." One of the surest ways of sending troubles into the ditch is setting up roadblocks before they reach you. Underestimating the impact of planning for the future can have huge implications for the direction your life will take. It is amazing to me how many people act as if life will just come on its own and sweep them off to good fortune and fulfilled goals, not realizing the effort it takes to acheive anything more than mediocrity.


Retirement. Education. Marriage. Buying a house. Having children. The majority of us will have a number of life events for which we can be easily plan and prepare - and most are not purely financial. Marriage, while certainly not devoid of financial aspects (one of the largest reasons for divorce is finances), involves at least as much preparation on the emotional, relational, and spiritual levels. At some point, the day of decision on these matters will come - waiting until that day to begin planning is far to late to make a real impact on the outcome.

Take retirement for example - waiting until you are sixty to start preparing for retirement is woefully inadequate to meet the majority of people's needs. The earlier you start to plan and prepare, the more leverage and control you will have over the outcome. There really are only two solutions for under-planning: Postpone or reduce the size of your goals.


Failing to plan for foreseeable life events is a lot like waiting until the day before your vacation to start preparing for the trip. Suddenly, you realize that you need to pack, get tickets, accomodations, transportation. Typically, you'll spend more. You'll forget items. You'll waste time figuring out what you want to do. You'll add stress. And in the end, even if you manage to go, you won't have nearly as fun or relaxing a time as if you had taken the effort to project into the future a bit.

So start packing your bags: figure out what decisions you are going to need to make in the next 5, 10, or 20 years. Next, figure out what kind of tools or skills you'll need. Maybe it will be a budget. Maybe it will be something like setting aside an evening for a family activity each week. Maybe it means taking some extra classes to improve your job skills. Whatever it is, look ahead, start planning, and send those future troubles into the ditch!

Current Savings Rates: Feb 04, 2008

About 8 months ago I posted about some of the online high-yield rates being offered. Since then, FNBO Direct's promotional 6.00% rate ended, and perhaps more importantly, the Federal Reserve has dropped the key federal funds rate (the rate that banks charge each other) from 5.25% to 3.0%.

In response, many of the online banks have lowered the savings rates that they are offering. I have decided that it is time to update what many of the popular rates are out there, starting with the highest and going down. The yields shown are for a minimum deposit of <$1000, in an institution that is FDIC insured - peer-to-peer lending operations such as Prosper.com and LendingClub are not included. (All numbers are APY) This obviously isn't a complete list - if you find a great deal, be sure to let me know!

E*TRADE's Complete Savings Account:
Rate: 4.40%

(Also currently offered is an extra $25 when you sign up)

FNBO Direct Online Savings Account:

Rate: 4.30%
(This is the account that I currently have - I've been extremely pleased with the ease of use.)

Washington Mutual Online Savings:

Rate: 4.25%

(caveat - with a WaMu checking account, otherwise, .25%)

Citi Ultimate Money Account
Rate: 4.25% (caveat - must make at least two online bill payments each calendar month) otherwise, it looks like you'd get 3.50%

HSBC Direct Online Savings:

Rate: 3.55%

ING Direct Orange Savings

Rate: 3.40% APY (Also contact me, and I'll send you a link so that when you sign up with >$250, you get $25, and I get $10)

*All institutions are FDIC Insured up to the maximum allowed. Be sure to read the terms and conditions before signing up with any of the institutions named. Rates are subject to change without notice.

Give Yourself a Raise! - You Deserve It!

Yesterday I got my paycheck with my new "raise": I just signed up for the Employee Stock Purchase Plan (ESPP). This is a benefit that some companies offer where you can buy company stock at a discount. In my case it is a 10% discount. The only way that you can do this however, is by having the company take a percentage of what I make directly out of my paycheck, up to a maximum of 15%. So you can see, since the company allows me to use 15% of my paycheck to purchase stock at a 10% discount, essentially I am giving myself a 1.5% raise! (Caveat: This assumes that the stock price remains the same - if the stock price rises, I would make more than this, if it goes down, well....you get the picture.) For a person making $50,000, 1.5% translates into $750 - not bad!

It took me awhile to do this however, because I don't (who does?) have a spare 15% in my paycheck to be taken out and not run short. So I have had to reserve money in a separate account dedicated to funding my ESPP. As money is taken out of my paycheck to buy the stock, I replentish my checking accounts from the reserve. Twice a year I will liquidate the stock in the ESPP account and replace the money in the reserve to start the process again! Doing this twice a year would mean I need to have an account with approximately $3750 to take advantage of the ESPP.

A lot of companies offer benefits like an ESPP, and even more offer company matches on 401(k) contributions. Consider it giving yourself a raise to take advantage of this free money. By fully utilizing a company match on your 401(k) contributions of 50% up to 6% of your salary, you essentially have given yourself a 3% raise (in addition to any taxes that you would defer.) Make sure you fully know what type of benefits your company offers, and then use them! A spare $750 or $1000 adds up to real money before you know it!

"It's the Most Wonderful Time of the Year!"

No, its not Christmas in June, but almost - yesterday I got my annual merit pay increase! Woohoo! Not that I didn't know it was coming - I have been looking forward to it for awhile, but didn't know how much it was going to be - I predicted a 3.25% and it came in just a tad higher at 3.52%. Not bad. All other parts of my compensation stayed the same.

Actually, this time of year makes it a great time to go through your W-4's and make sure you're having the right amount deducted. In fact, this is what I did last year (not only because of the pay raise, but also because of getting married) and I will do it again this year. This year I will have to increase the amount that is withheld from my paycheck. Since the first part of last year I was single, the amount that was withheld was quite a lot higher than it needed to be, so I changed the allowances in my W-4 so that I underpaid on the last half of the year. All told, by adjusting the withholding, I netted a measly $200 refund from the government (which made me ecstatic - no free loans to the government)! This year though, it meant that the first half of the year I have been slightly underpaying my predicted taxes - so that's where at least a portion of my raise is going to be siphoned off to.

Here's my process: First, I use MSN's tax estimator. This is pretty easy since I have quite predictable income and for the most part expenses. Then I take the difference between what I've already paid (should be on your pay stub) and what the estimator says I will owe, and divide that by the number of pay periods left in the year. This is what I fill out in the "Additional Withholding" when I submit my W-4. Just as a note, you are allowed to change the W-4 as often as you need to in order to have the right amount taken out of your paycheck. This system ensures that I don't pay Uncle Sam any more than I have to interest free.

Some people are so bold as to claim enough withholding allowances to not have to have income taxes witheld for 10 months out of the year, and then have the full amount withheld from the last two months. This would effectively allow them to bank the amount normally withheld for several months gaining interest. For example, if a person had an estimated tax bill of $4800, and instead of having $400 witheld from his paycheck every month, deposited it in an account bearing 5.00% APY for 10 months, and then had $2400 taken out of his paycheck the last two months, he would net about $103 from interest. This is an intruiging idea, but seems a little too close for comfort for just $100 or so (depending on your actual tax bill).

Lesson 8: Spending More to Buy Nicer Things

Being married means that I spend more on nicer things than I would have otherwise. Case in point: The two pictures show the relative differene in my perception of a "dream house" at this point in our lives. The first one is offered for a grand total of $7000, the second, for something like 2.1 mil. While I somewhat jest at the extent of our differences (who wouldn't want house #2?), the fact of the matter remains that as a single individual, I would probably have no problem living in a $7000 hovel. (In some ways, the contrarian glamor of it is rather appealing). Nevertheless, I wouldn't ever want my wife to have to live in a roach infested shack. (See Lesson 9: Living a happier, healthier life). Before I got married, I slept on a $50 futon, which was great for me, but I deemed unacceptable for married folk. We went out and got curtains and rods for the windows (which were perfectly fine bare).

But the real difference is the attitude of buying - not for an immediate need - but for something that is going to last. As opposed to buying furniture made of particle board that will disintigrate at the first sign of moisture, I've bought furniture that hopefully will last for years. Instead of buying tools for a project based on "what's the least expensive", I've bought tools that will last a lifetime (or at least have a guarantee for that long).

Many people buy for "now". They want the DVD/VCR combo, so they buy the Cheap-mart version for $50, as opposed to spending $90 for a version that will last more than twice as long (prices quoted are fictitious with no knowledge of actual prices). Such tradeoffs on price and quality are often difficult to quantify, but can be key to saving big bucks in the future. The way I was raised, if something is worth getting, its worth spending the extra time and asking the extra questions to make sure you're getting the best value. This really is the key, whether you are buying an air mattress, or a house. Having the right information allows you to make a good decision on the tradeoffs between price and quality - sometimes there isn't any difference, sometimes 5-10 dollars can make a big deal. So sure, I do spend more on things now that I'm married. But I'm confident that the extra money I spend has bought me quality, functionality, and value that more than makes up for the dollars of extra price.

Lesson 10: Travel Costs are Less

This lesson is a pretty obvious one, since my wife and I now live only from one side of the bed to the other (most nights anyway....), as opposed to almost six hours driving. Trying to see her once a month was certainly no picnic on the car miles, gas bill and number of hours taken out of a weekend (but of course it was worth it, honey!).


However, what I want to talk about is making the decision to fly rather than drive. AAA has a calculator that shows the fuel cost for a given trip, but it's pretty simplistic in my opinion. Although the decision can be boiled down to just the cost of gas vs the cost of a ticket, there really is a lot more to try to model into the equation -some of which is difficult to quantify.

For instance, trying to go from Indiana to West Virginia was close to 6 hours of driving. A direct flight could have been only an hour and a half or less, but there aren't any direct flights, and there aren't really any major airports within an hour of either end of the destination. Adding up the total time would have been just about 5-6 hours - not significantly different than the driving time.

There are other costs to flying too - do you have to get a rental car once you are there? Are you carrying more than one passenger? But the decision isn't all weighted in favor of driving - there is additional wear and tear on the vehicle, (arguably) more stress, and the consideration of emissions (if that's your thing).


For major venues that are more than 5 hours away, are only one traveller, and don't need a rental car, flying often is the cheapest way to go. Over Christmas, I was able to get my wife a ticket for back home 10hrs away by car for just under $100. For other situations, especially when there is more than one person travelling, taking the car is usually the cheapest method.

I was highly disappointed that I wasn't able to find a halfway decent comparison calculator that would be able to show the driving time + cost as well as a flying time + cost based on starting/ending points, whether you needed a rental, and number of travellers. I guess I'll have to leave it up to someone else to develop it!

10 Lessons Learned from a Year of Marriage

1) Marriage should be built on a lot more than financial expectations (hence the phrase in marriage vows "for better, for worse, for richer, for poorer...")
2) Marriage will not solve money problems - keys to successful money management work whether you are married or not
3) But some of the best memories are from doing activities that require little to no money
4) Its important to talk about financial goals and expectations
5) But FAFSA rules are against getting married
6) Taxes are a lot less
7) But you also spend less in total on housing, food, utilities, etc.
8) You also spend more than you would have to buy nicer things
9) As a male, you take a lot better care of yourself than when you were single
10) You spend a lot less on gas to go visit your fiancee six hours away

Over the next couple of days, I hope to talk about each one of these lessons - so be sure to tune back in!

Do It Yourself!

You know the old saying - "If you want something done right, do it yourself." Not only is this the way to make sure the work you do is quality work - but it can often be a lot cheaper too. Just in the past three weeks, I have done a number of projects around, some for me, some for others, but all which could have been done by someone who would have a)Charged for labor, and/or b)would have charged some sort of markup on materials. I was amazed once I tallied up the numbers how much I would have had to spend to get it fixed by "outside" help. Some of the figures below are somewhat approximate, but I feel that they wouldn't have been too far off - perhaps some of the figures for what I would have paid would have been even more! All of them, however, involved some sort of investment of time. For example, you'll notice that changing the oil on the car saved me about $20. While 20 bucks is 20 bucks, by the time you buy a filter and oil, and have to fight jacking up and getting under the car.... I probably wouldn't protest too much with a person that said it wasn't worth the savings - especially if you don't have a place (or tools) to work on it. However, most of the items on the list represent real savings - the cost it would have taken to have a repair man to look at the air conditioner - at least $55. The cost to have a repair person to put on the new fender (as well as the cost of getting it new) - big bucks. Luckily, there are a lot of places (many free) out there that help even the most idiotic of us work on most of the projects that we'll come across. MSN has "Be Jane" (hey some of those tips aren't bad for guys either). Lowes has their project center. For $20, Haynes manuals have a step by step troubleshooting and teardown (and put back together too!) guide. On the other hand, if you're the type person that tends to break more by trying to fix something.... maybe this isn't such a great idea. But for most of us, having a little gumption can keep a lot of cash right where it should be - in your wallet!

Money Saving Tips: Eliminate Baggage from your life

Over at NCN, a popular post has been the compilation of money saving tips from all over the blogosphere. To keep up with the Smith's and the Jones', I thought I would go ahead and post as well.

On Sunday, I talked about the "Ancient" Portfolio theory and how important it was to look at the choices you are making and determine to life simply and not strive for luxury you can't afford. This is my biggest money saving tip (perhaps its a philosophy really): Eliminate baggage from your life.

Here at Smiths Trading Post, my goal is to help people figure out the habits that they need to pick up, and the items in their life that need jettisoned. Let me explain. By eliminating or significantly reducing vices in our life, whether that be alcohol, cigarrettes, or an addiction to Starbucks lattes. MSN had an article on vices awhile back that itemized the costs of some of these, and revealed that they can reach in the thousands of dollars. A $2.50 latte every workday may not seem like a lot, winds up being over $500 in a year. Maybe you'll decide that you don't really need cable television - perhaps you can save $300 a year. Perhaps you'll eat home one more time at home in a week - for a couple of two at $20 a meal, that would save you almost $1000.

Essentially, taking stock in this way forces us to evaluate our conceptions of what give us meaning - do I have to have cable in order to be happy? Will I really feel deprived if I buy a used car rather than a brand new one?

Just as the pioneers had to forge a new path for themselves, we are blazing the trail for our financial future. An just as they had to leave much of their former life behind, we have to leave much of our (hidden) passion for luxury on the side of the road. I'm not necessarily advocating a strict Spartan existence, but I do think most of us (me included) could take a rather critical view our lives and can find items that are holding us back from achieving the the goals we have set for ourselves.

"Ancient" Portfolio Theory

Most people have heard of the "Modern Portfolio Theory". Generally, it posits that diversifying one's portfolio, properly diversifying for a given level of risk will maximize returns. It's interesting that throughout history, however, that for any given level of skills or situations, the path to financial freedom has been reletively unchanged. Sure we've become more "sophisticated" with our credit cards, stock markets and loan structures, but the "big things", the large levers that drive financial success, haven't really changed. Proverbs 21:17 says: "He that loveth pleasure shall be a poor man: he that loveth wine and oil shall not be rich." Living simply and frugally (i.e. living within your means), carefully managing and avoiding debt, and working hard, are the keys to diversifying your personal character portfolio. It's often easy to blame others for our financial situation, but in the end we are responsible for the results of our own financial choices. Its always good to take some time to evaluate your life, and determine if the choices you are making, even perhaps the "passive/default choices" are helping or hindering the realization of your goals.