My Favorite Things Part II

Here’s the next installment of “My Favorite Things”

Vanguard Mutual Funds – the house that Jack (Bogle) built. Vanguard consistently has the lowest fees in the mutual fund industry. Even a small fraction of a percentage in fees can translate in tens of thousands or even hundreds of thousands of dollars difference over a lifetime of investing. While best known for ‘passive’ index funds, Vanguard also offers a number of excellent actively managed funds with low fees. Unlike most mutual fund families, Vanguard is not ‘owned’ by share holders but by its funds: ultimately by its investors. This is one reason it can keep costs so low. While I can’t vouch for it personally, Vanguard also offers a Personal Advisor Service to guide your investments. The fee is 0.3% annually with a minimum of $50,000 of assets managed, a fraction of what other financial institutions would charge.

Cons: I am not particular fond of the website but it’s adequate. There are no walk-in offices for deposits and transactions, not even at their headquarters in suburban Philadelphia. Paper-based transactions and forms must be conveyed via mail or courier. Not all of its actively managed funds are stellar performers. See this Kiplinger’s article on Vanguard Funds to avoid.

Kiplinger’s Personal Finance – a truly worth-while go-to magazine on personal finance, particularly for those just embarking on the journey towards Frugal, Wealthy and Wise. In it, you will find cost-saving ideas and strategies that potentially could save you hundreds and even thousands of dollars. I definitely prefer it to Money magazine. Kiplinger’s is more button-down with less fluff. A great tool for becoming a savvy consumer and investor.

Cons: Reading it year after year, a lot of topics tend to get recycled. Be objective about its investment suggestions. Personally, I am huge fan of Vanguard funds and believe that it’s the best place for most people to keep most of their investments. But the editors do have to keep the advertisers happy and, this may blur objectivity a tad.

The Economist – an erudite, insightful weekly news magazine that truly covers all corners of the globe. You will likely be scurrying to a dictionary (or google) and adding new words to your vocabulary with each issue. I particularly enjoy the quarterly Technology issues.

Cons: It’s expensive (but worth it IMO). While the weekly online edition is available on Thursdays, the printed edition usually doesn’t show up in the mail until Monday. The editorial slant is conservative on business and government policy but liberal on social issues. And it takes a fair amount of time each week to read cover to cover.

Just a word about magazine and newspaper subscriptions in general. These are discretionary expenditures that need to be scrutinized (see earlier FW&W posts “Catch the Little Foxes” and “25 to Thrive”). If magazines, no matter how worthwhile to read, are piling up in a corner unread, you probably should cancel the subscriptions. Kiplinger’s and The Economist are the only two magazines I currently subscribe to and it’s tough just keeping up with them. A frugal alternative: read these magazines at your local library.

Microsoft Money – I guess I’m an Old School kinda guy; I use a personal finance software package released 12 years ago and has since been discontinued. But it meets my needs: to balance accounts and track expenses over time; I don’t need a bunch of bells and whistles such as real-time updates of my accounts. You can buy a Money 2004 CD on eBay for under $10 (no activation key required on the 2004 edition and it runs fine on modern computers). Believe it or not, many financial institutions still provide statement downloads in the MS Money format for importing. If not, Money 2004 can import download files in the Quicken format. This is one of the very few Microsoft products (out of two, I think) that can be whole-heartily endorsed and they don’t even sell it anymore!

I encourage you to use some sort of personal finance application, either online or as software on your PC, to keep your finances in order. If using a discontinued software product such as MS Money puts you off, check out Mint or Quicken. Yes, there will be a learning curve. And it takes time to ‘feed the beast’. But it is far easier to balance a checking account. And tracking expenses is essential for the Frugal, Wealthy and Wise.

My Favorite Things: to be continued in the next posting. I would appreciate your feedback and the sharing of your experiences with any of these products and services.

Meanwhile watch this “My Favorite Things” clip from The Sound of Music movie c. 1965.

Enjoy. Paul

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My Favorite Things Part I

Photo credit: nffcnnr via Foter.com / CC BY-NC-SA

Dear Readers, over the course of the next several postings, I plan to share with you some of my ‘favorite things’, both products and services. These are ones that I personally use and whole-heartily, even passionately, endorse. I believe in them as good values for the Frugal and the Wise.

This installment addresses banking and credit cards. Read on.

American Express Blue Cash Preferred / American Express Blue Cash Everyday credit cards – the Preferred Card comes with awesome rebates: 6% on groceries, 3% on department stores and gas stations, 1% on everything else. But…. there is a $95 annual fee. On the other hand, the Blue Cash Everyday Card has no annual fee with rebates of 3% for groceries, 2% for department stores and gas stations and 1% for everything else. If you spend more than $3200 per year on groceries, go with the Preferred Card; the annual fee will be worth it. Otherwise, the Everyday Card will do just fine. Plus, both cards offer new applicants a signing bonus once spending reaches a given threshold.

Cons: AMEX charges a 2.7% foreign transaction fee; if you are traveling abroad, you really can leave home without it. Grocery rebates on are limited to $6,000 of spending (or $360/$180 in rewards) per year.

Capital One Quicksilver Visa – 1 ½% rebate on all purchases, plus no foreign transaction fees. No annual fee. Rental car coverage. This is our everyday go-to card and the one used outside the ‘States. Capital One has been easy to deal the few times I’ve had charges to dispute.

Cons: I can’t think of any except to also get an AMEX Blue Cash Card to compliment it for better rebates on groceries and gas. Note the caveats below for when not to get a credit card for rebates.

Caution: If you currently carry credit card balances, do not even think about getting a credit card with rebates. Focus first to paying off the cards you already have. Also, do not use the fact that you are getting a rebate as an inducement to spend more; use a rebate card only for items that you would normally purchase anyway (such as gas and groceries).

Another thought on reward credit cards: Years ago, I gave up on credit cards offering airline miles. It seemed that airlines were continually raising the points required for a ticket and it was next to impossible to book a flight, even months in advance. IMO, it’s much better to get cash back (i.e., a credit on your account). But your situation may differ, especially if you travel frequently.

Capital One 360 Online Banking – yeah, I know. I’m the guy who is continually singing the praises of credit unions, but Capital One 360 is a terrific on-line bank. (It used to ING Direct). Easy to use website (but phone app not so much). Free checking and debit card. Fee-free ATM locator. Deposit checks by smart phone. Easy to link with a brick and mortar bank accounts (and credit unions). Get 50 checks for only $5. The FDIC insured money market fund currently pays up to 2.0% interest. Saving accounts pay 1.0% with no minimum balance.

Cons: This is strictly an on-line bank. The closest thing they have to branches is a handful of Capital One Cafes in major cities. The cafes are also the only place you can deposit checks via an ATM. (But they do give a 50% discount on Peet’s coffee concoctions purchased with a Capital One debit card or credit card.)

Credit Unions –if you’ve read my posting Credit Unions are Divine, you know the drill. I’ve been at the Philadelphia Federal Credit Union for 30 years and have enjoyed its broad array of low fee or no fee services as well responsive customer service.

Cons: Philadelphia Federal Credit Union has numerous branches in the city but none in the ‘burbs. And it is not in the CO-OP nationwide network of credit union branches, although it is in the nationwide network of ATMs. However, I rarely have a need to actually visit a branch (maybe once every several years).

Well, this discussion of my favorite things will be continued. In the meanwhile, please send me your own thoughts and recommendations for credit cards and banking.

So why the photo of John Coltrane? I thought you might enjoy his haunting rendition of Rogers and Hammerstein’s My Favorite Things. (And listening to music is one of my favorite things to do.)

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A Penny Saved is NOT a Penny Earned

It’s More. Much More.

pennies — Photo credit: Maura Teague via Foter.com / CC BY

Yeah, yeah, we’ve all heard that famous saying made by Benjamin Franklin.

Guess what? Ben never said, “a penny saved is a penny earned.” So don’t believe everything you Google. More about what he actually did say is found further down in this article.

There are two arguments for why a penny saved is more than a penny earned.

The first reason can be summed up in a single word: Taxes. A penny saved is considerably more than a penny earned when you factor in the taxes most of us pay.

Here’s a sampling of the taxes that reduce our net wages and earnings. Note that state and local payroll taxes vary widely across the country. I included tax rates for Pennsylvania (since that’s where I reside).

Federal Income Tax: marginal tax rate brackets are 10%, 15%, 25%, 28%, 33%, 35% 39.6% depending upon income. For more detail on Federal income tax brackets, click here.
Pennsylvania Income Tax: 3.07% of earnings
Municipal Income Tax: varies from none to 3.92% for residents of Philadelphia. Many municipalities in Pennsylvania extract a 1% payroll tax.
Social Security: 6.2% on the first $118,500 earned, $7,347 maximum
Medicare: 1.45% on the first $200,000 earned, 2.35% thereafter
PA State Unemployment Insurance: 0.07%

Granted, taxation rules, especially at the federal level, are mindbogglingly complex. But it boils down to this: a penny saved is substantially more than a penny earned. But that also means a penny spent is significantly more than a penny earned. Here are some simplified examples to illustrate the point. These calculations use Pennsylvania income tax rates with municipal tax is assumed to be 1%.:

Lunch at McDonalds (10% federal tax bracket): Cost: $5 Total taxes on wages: 21.79% Actual cost pretax: $6.39 A penny saved = 1.28 pennies earned.
Pack of cigarettes (15% federal tax bracket): Cost: $7 Total taxes on wages: 26.79% Actual cost pretax: $9.56 A penny saved = 1.37 pennies earned.
Morning latte (25% federal tax bracket): Cost: $4 Total taxes on wages: 36.79% Actual cost pretax: $6.33 A penny saved = 1.58 pennies earned.
Monthly lease payment on a Mercedes C class sedan (28% federal tax bracket): Payment: $419 Total taxes on wages: 39.79% Actual cost pretax: $695.90 A penny saved = 1.66 pennies earned.

What are the takeaways and calls to action from this little exercise?

Think in terms of what goods and services are costing you pretax, not post-tax. Which expenditures do you really want to spend your hard-earned pennies and dollars on?
Be savvy about preparing your state and federal income tax returns. Make sure that you paying the least amount of taxes that you are legitimately obligated to pay. Itemize deductions on federal returns when they exceed the standard deduction.
Pay for as many expenses pretax as you possibly can. These can include the following:
- Employees’ portion of health and disability insurance
- Out of pocket medical expenses paid via an HSA or FSA (Health Savings Account/Flexible Spending Account)
- Child care expenses paid via an FSA
- Commuting (public transportation and parking)

In future postings, I will elaborate on HSA’s and FSA’s as well as other tax saving strategies.

The second argument for why a penny saved is not a penny earned? A penny saved and invested can multiply into many, many pennies. A penny spent? Well that’s penny gone forever. See my earlier articles Pennies a Day and the Rule of 72 to review the power of compounding.

So what did Ben Franklin actually say? “A penny saved is twopence dear.”

Perhaps he meant that a penny saved can grow to become two pennies (or a twopence.)

May Ben’s words inspire you in your saving, your investing and your (judicious) spending.

9260545193_45a35ac129_b — Photo credit: Nic Taylor Photography via Foter.com / CC BY-NC-ND

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ATM Fees Increase For 10th Consecutive Year

https://www.thestreet.com/story/13842354/1/atm-fees-increase-for-10th-consecutive-year.html?puc=yahoo&cm_ven=YAHOO&yptr=yahoo

Get thee to a Credit Union!

7368821426_a5e7f46426 — Photo credit: Backdoor Survival via Foter.com / CC BY-NC

Credit Unions are Divine: They Show Your Finances a Better Way

hrcu2-3 — Kansas City MO © 2016 Paul J Reimold

Having joined a credit union some 30 years ago, I can testify to their advantages and blessings.

Frankly I am totally mystified as to why anyone would keep their personal accounts at a traditional bank. I mean, are there really people out there who pay monthly fees for their checking accounts??? And are routinely charged for ATM withdrawals??? While getting next to nothing for interest on their savings accounts and CDs???

Perhaps you hesitate to join a credit union because of the perception that they have limited services and geographical reach. It ain’t so. Today’s credit unions are for the most part, indistinguishable from banks. They offer a plethora of conveniences: online banking, mobile apps, automatic bill payment and check deposits using your smart phone. Furthermore, credit unions accounts are insured up to $250,000, just like banks. (They have their own federal agency: National Credit Union Administration NCUA)

As far as geographical reach, if your credit union is part of the CO-OP ATM network, you have access to 30,000 fee-free ATM’s throughout the country – that’s a number of apocalyptic proportion. Similarly, the CO-OP shared branch network gives you the option of conducting in-person banking at over 5,000 locations nationwide.

Here are four compelling reasons why credit unions reside in a higher realm:

Credit Unions are non-profit organizations owned by their depositors. Unlike banks, they are not beholden to Wall Street and the relentless pressure to increase profits and squeeze more revenue from each and every customer. In contrast, witness the recent Wells Fargo debacle.
As a result, they charge no fees or lower fees. Free checking accounts are practically a given.
Loans (auto, personal, home equity, mortgages) typically carry lower interest rates: (Note: I do not encourage readers of Frugal Wealthy and Wise to take out loans unless there is a good reason, no matter how low the interest rates happen to be.)
Interest paid on savings accounts and CDs are generally superior to banks (but shop around).

So how do you join a credit union that will have you as a member? Once upon a time, membership in credit unions was restricted to employees and immediate family of a particular company, labor union, government agency, or non-profit organization. These limitations have largely been lifted. Some credit unions may still limit membership to residents of a particular geographic area. Others have no restrictions other than US citizenship. You typically must deposit an initial $5 – $25 as a minimum balance to maintain your account– essentially a fee but money well spent, IMHO.

As enthusiastic as I am about credit unions, I exhort you to carefully shop for one that meets your needs and confirm that it is insured by NCUA. Also, there will be times when you find better deals on financial products at other institutions.

Downsides? I really can’t think of any. So if you are not currently banking at a credit union, this may be the appointed day and hour to show your finances a better way.

Cheers, Paul

P.S. I’d like to hear from you, dear readers, about your experiences with both credit unions and banks.

P.P.S. Here are links to find locations of Credit Union CO-OP ATMs and branches.

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Read Between the Stars: Make the Most of Online Reviews

Photo credit: Jonas B via Foter.com / CC BY

Overall, online reviews, spawned by e-commerce, have been a tremendous boon to consumers. They are easily accessible and provide a significant advantage when it comes to making wise choices on what we purchase. Prior to the dotcom boom, one had to traipse down to the public library to read product reviews in the Consumer Reports.

But online reviews must be objectively evaluated. Merely counting the stars doesn’t cut it. Be aware of the shortcomings, pitfalls and gotchas.

To that end, I give you ten recommendations for making the most of online reviews. Continue reading “Read Between the Stars: Make the Most of Online Reviews”