B of A $75 offer

I've been a lazy poster lately. Here, I'll make it up to you and hand over seventy five bucks...

Bank of America, with its newly ubiquitous ATM storefronts, enticed me to open up an online checking account. The offer of $75 is good for new online banking customers. I just opened up their online checking account, with no account minimums or fees. I did deposit $25, you need to deposit the twenty five bucks within thirty days to get the $75 bonus (deposited within 90 days). I figure I'll close it after a few months and take my money and run. Probably to ING, my long neglected piggy bank.

A 200% return on my money, now there's something unheard of in, oh, say, ten years...

Our Piggybank's Inferiority Complex

CNNMoney's Why You Just Can't Seem to Save Enough hits us where it hurts- our piggybank's ego.

Your mortgage is prime. Your credit-card balance is reasonable. You've set aside some money for retirement. Feeling like you've done all you should? Didn't think so.

All signs point to an economic slowdown, and there's a real risk that it will be a nasty one. Jobs look shaky, food and gas prices are up, and the credit you thought would be there in an emergency could get a lot more expensive.

Even if you've been better than the average American about saving, you probably wish that you had a bigger cash cushion right now. And if you're at all like me, you've been looking around your house lately and wondering, "Why didn't I put the money I spent on that in the bank?"

Yes, therein hides the problem.

The article asks the question of just how much of what we purchase is in reaction to our friends and neighbors. I don't think I'm really prone to the keeping-up-with-the-Joneses affliction, but then again. If a friend said they ate at so and so restaurant, and it's maybe over $20 per person, I just might want to try it. But this is how it's skewed, because what you see is not the whole picture. Who knows if this person ate at home all week to go eat out at a moderately priced restaurant. Who knows if the person who drives the Lexus is eyeballs deep in debt. It's the trap of the ostentatious. While we associate objects with class, what you see is not always what you get.

New Yorkers are at face value less ostentatious than others. Unlike those in most of the rest of the country, our cars pretty much suck. Even the nice ones. Parking on the street will do damage to even the nicest bumpers. We are somewhat limited to how much we flash because we ride the same subway cars as those who like to mug. There are no McMansions, and what limited square footage we do have doesn't really fit a helluva lot of things. And yet...

The average cost of a New Yorker's stroller is over $500. We are real estate obsessed and have the economic cartography of all five boroughs memorized, so we can pretty much guess how you roll by where your front door is. And in a city with more metrosexuals than homosexuals, we are top shelf label whores on the down low. And speaking of top shelf, we don't order well drinks. In other words, we're still consumer kings and queens.

And I would hazard to guess that we're not the only ones. Unfortunately, the urge to spend is a constant reminder that keeping up with the neighbors is a losing battle. And then there's the oddballs like case in point (me!), who are the only one amongst their legions of friends who do not have cable, and fully fund their Roth IRA instead. Sexy it aint, but talk to me when I'm sixty five. Just don't ask me how much I spent on clothes last week...

Why Playing Lotto is NOT Saving & Other Retirement Reality Checks

Today I picked up some wine for the pot-luck party M & I are throwing tommorrow and out of habit I glanced at the lotto machine by the cashier. The jackpot wasn't above $200 million, so I wasn't tempted, but there is always a steady stream of people scribbling in their numbers. Lotto is obviously gambling, but it's also, in a warped sense, a form of saving and investing for many people. And that is the scary part.

The 2005 Retirement Confidence Survey cites 14 percent of Americans who are not saving a penny for retirement play the lottery at least once a week. Whoa. The current undulations of the Dow have better odds than one in a million. Face it, if you play lotto you are a disciplined investor, someone who removes a dollar or two from their wallet, like clockwork, with the hope that it will come back to them in a bar of gold. Kind of like Apple stock, or AT&T, or a company that makes solar panels. The obvious difference is that one involves suspension of reason, and the other does not. But the discipline is there, it just got hijacked by better marketing. Because the reality is that a lot of people who play lotto daily are working class and/or poor. Fidelity, Vanguard, Fortune magazine, and MarketWatch are not exactly targeting them for marketing and education on how to properly save and invest for retirement.

By being cut off from the world of investing, like NYC's bartenders and waitstaff, you tend to think that you can't save. What, you think some white collar cubicle jockey gets to decide what percentage of her paycheck goes to health insurance? What percentage towards her 401K in order for the matching investment to kick in? You think they want to take home a smaller paycheck? They're not necessarily better at saving, they just have the opportunity to have less choice in the matter.

My feeling is this, whether you're a hair above the poverty line buying lotto tickets every day or the Maître d' at Balthazar tipping $20 each free round of drinks at a friend's bar, disposable income is disposable income, and that's the part that you slice up for savings. You don't need to be wealthy to invest, you need to have disposable income and discipline. And guess what, mutual fund company T. Rowe Price will take as little as fifty bucks a month with no money down. You can read more of my it's easy-to-save-for-your-retirement tirade here.

So let's put it this way, $20 a month in lotto tickets for 30 years will get you jack $h*T, and $20 in an index fund returning 9% a year for that same period will get you $34,288. It's not enough to retire on, but this example, like playing lotto, is no retirement plan. It's just an illustration of what jack $h*t could look like instead of, you know, jack.

The Financial Planning Association is a professional group for financial planners, and they have a great list of stats that are a good wake up call. Here are some of my favorites-

"20 percent of Americans actually believe winning the lottery is their best shot at accumulating several hundred thousand dollars over their lifetimes."
- 2005 Consumer Federation of America and Financial Planning Association consumer survey

"[Americans] have the lowest personal savings rate since the Great Depression - in January 2006 it dropped to minus 0.7 percent."
- April 2006 Workforce Management

"A large percentage of American workers see that the U.S. retirement system is going through major changes, but many are not taking steps that are likely to leave them well-positioned for a comfortable retirement."
- 2007 17th annual Retirement Confidence Survey (RCS)

Creating wealth by saving a little at a time over a longer period of time is not the same as hitting jackpot, but it is the odds on favorite. If you like dreaming big, just dream that Steve Jobs is gonna keep on inventing computerized crack and buy his stock. And this part is important- like playing lotto, you don't need to be wealthy to have that discipline. It's getting close to New Year's resolution time. Time to max out your 2008 Roth IRA and steer yourself towards retirement and away from the lotto line.

photo by DogFromSPACEvia flikr

Why You Need To Start Saving NOW

I was talking with a friend this weekend about financial stuff. It started with a simple question, how do you save and pay off debt at the same time? A simple question begat a long ass answer and, many emails later, I think she is on her way to a monthly spending diary. Because the first answer to any question is, do you know how much you spend?

It's a good question, though. And I kind of think the answer is you can't afford not to save. In 2008 the max on your Roth IRA is five grand a year (again a warning to bartenders, waitresses, and other cash cow hustlers- you cannot contribute more than you earn, as in what's reported to the IRS). So I did a quick calculation and came up with the following.

If you were to start saving in January for your retirement, you're starting with zero balance, and you were to max out your Roth IRA contribution at $5,000 a year for 30 years, could you retire? Drumroll please... The answer is with $713,182 (assuming 8% annual returns). Great, you say. Not so fast. The same calculation, but with 3.1% inflation, and you get $264,353. What?!

Well, remember that time way back when and you took the subway with a token and it was a buck and a quarter? Or that time when you gave the movie theater a ten dollar bill and got change back? That is called inflation, the nasty fact of life that a dollar today is worth less tommorrow. The adjusted figure is what $700,182 is worth in today's dollars. $264,353. I know I've harped on this before. Blogger redundancy. But with oil near $100 a barrel, major banks and lenders on market welfare (aka the sub prime loan mess), and recession arguably on the radar, all of which means the smarty pants with MBAs are defecating bricks right about now. Since they're the ones running the economy, it might be prudent of us to to take care that our own finances are in order.

The first step to any financial plan is to track your spending and then make a budget. So my friend will submit her monthly budget, and I'll start posting on the practical side of how to pay off debt and start saving for your future.

A Mutual Fund for Hipsters

Reading Gothamist this morning and I choked on my coffee. Why, hello there Thrasher Fund, the GenX mutual fund. Excuse me while I roll my eyes back and gaze at my sockets. I am so going to the free 30 minute consultation.

Their GendeX Mutual Fund (GENDX) has a 1.00% management fee, a 2% redemption fee if shares sold within first 12 months, and a $100 minimum with $50 minimum automatic investment every month. Fine. What's not cool is the $2/month fee for accounts below $2,500. Holdings include Apple, Gucci, American Apparel, Uniqlo, and China Mobile. Hence, the fund's name.

Well, this was all very entertaining. Hipsters are probably the most middle class counter culture generation in recent history. They are so not falling for this.

The Falling Dollar Fallout

With all the brouhaha over the dollar's freefall, it's not always easy to parse out what, exactly, that means. Today at CNN/Money they have a succint article on the winners and losers of the falling dollar. One currency expert is quoted as saying he expects the dollar to go as high as $1.45 to the euro by the end of the year, so despite Friday's record low many expect the skid to continue.

Speaking of things falling, I recently did a post on laddering your savings with CDs, and just a few weeks ago the interest rate on a 9 month CD with ING was 5.25%. Today it sits at 4.90%, and there's no reason to think it won't slip further. Thankfully, I have most of M and my emergency fund locked in at the higher rate, but I'm not looking forward to re-investing. If I wasn't unemployed, I'd move practically all of our money into 6, 9 and 12 month CDs (all currently 4.90% at ING). Again, there are no minimums to open CDs at many online banks, so I say you carpe diem while the carpe is still good. With the housing market, credit markets, and stock markets all riding one helluva roller coaster, the plain vanilla savings account is still your safety net. Unfortunately, it just become less profitable.

Laddering Your Savings

When you have a certain amount of money saved and you want to start venturing out to the land of higher interest rates, consider laddering CDs. No, not your music collection pre-ipod, but Certificates of Deposit from a bank.

This means that you would take out CDs that come to maturity over different time frames, let's say 6 months, 9 months and 1 year. When the 6 month CD matures, you put it into a one year CD. Essentially, you are rotating money out of the maturing CDs and bumping them up into longest maturity date you feel comfortable with. In the previous example, eventually every three months a one year CD would come due.

There is no time frame that is best, it is all what works for you. Small investors should not be locked in longer than one year, but that's just my personal opinion. Most articles on laddering, including the one linked to this post's title, deal with 1 to 5 year CDs. That's not such a great plan for the working artist just starting to put their financial plan in order. The length of CD maturity may be very different, but the premise is exactly the same. In the end, you need to find out what makes you freak and what makes you fine. If it would freak you out to pour your life savings of a few thousand into CDs (as it should) and have your money locked in for six months at a time initially, then only put a small amount in. Many CDs have no minimums. You could start with a hundred bucks and call it a day, just dip your toe in and every few months buy another one with more money.

Laddering protects you in two important ways. It prevents you from having all of your money locked in an interest rate at once, and it prevents you from being stranded from all your money at once. Interest rates change all the time. For example, because interest rates change, I personally don't go higher than 9 months, but it is perfectly fine to do 12 month CDs, it's all what you are most comfortable with. Stocks aren't comforting, your savings should be.

If you ladder your CDs you are spreading the risk around. Of course, the risk is still there. Two months after you put your money in a 6 month CD the rate might go up, but if you are investing in a CD every few months, the risk will be minimized. It works is the reverse, unfortunately. The interest rate goes down and you are set to buy another CD. But by spreading the risk around, investing like clockwork despite the rate changes, you are dollar cost averaging. It's a fancy pants term for the plain fact that if you buy four things at different prices, you get an average cost. Typically, that average cost is higher than simply doing nothing or getting Nostradamus on the interest rate and just happening to choose the time when the rate is highest. The reward for the risk is that you have an FDIC insured (up to $100,000) investment that pays a higher interest rate than your savings account.

Online banks, again, almost always give the highest rates. The exception is a bank's promotional rate. "ING's 9 month rate is 5.25%, Emigrant Direct's 6 month rate is 5.10%, IndyMacs 9 month rate is 5.21% and HSBC's 9 month rate is 5.10%. It is probably easiest if you use the same bank that you have your online savings account with, but certainly search around for other rates. If you choose to ladder your CDs with a bank other than your online savings bank, just make sure you do all the CD laddering with one bank. Also, most banks will require you to have some sort of acccount with them in order to invest in their CDs. For a few fractions of a percentage point up or down, I stick with my online savings bank. Laddering CDs, unlike investing in stocks, should be easy as all get out.

Georgia O'Keeffe, "Ladder to the Moon" 1958. Oil on canvas 101.6/76.2 cm. New York, Collection Emily Fisher Landau

The Online Piggybank

I love Amsterdam. No, I really really mean it. And no, it's not because I nearly went into an artificially induced cardiac arrest one starry night on a bridge over a famous canal, nor is it the culinary delight of a well known brownie, but between Van Gogh and the headquarters of ING there hides a wee bit of love. Van Gogh aside (if you want one you're on the wrong site- perhaps hedge fund blues?), ING is my savings bank of choice.

Banks kill me. They have hidden fees and the most unhelpful people known to those who don't know ConEd. If they didn't have fees when you opened the account (um, hello Commerce Bank...) they sure as hell will eventually. It's like my cash has it's own EZpass. They'll nail you with the fees they forgot to tell you about, like the new minimum to replace the old minimum, and if they do tell you about it they bury it in the fine reading material known as your monthly statement. And their savings account gives you the why-bother interest rate. But everybody needs a checking account and a bank teller, so while the brick and mortar bank is a minor soul suck, it's a necessary one. Commerce is great for waitresses and bartenders and people who drink too much because their business hours are better for people who wake up too damn late to run to the bank before it closes at three. Washington Mutual has no fees, I believe. But for SAVING, I love my bank in Amsterdam.

So here's the new sock & underwear drawer, the freezer, the sigerson morrison box, or whatever place you stash your cash. ING direct gets your ten percent, that minimum percentage of your income that you're saving-remember?And if you send me your email- I'll send you a link to get twenty five bucks when you open an account with at least $250! Like a tradtional bank, ING online bank is FDIC insured. How does it work? You go online and link your ING savings account to your brick and mortar bank checking account. Then you open an account, give it a nickname, like "i got kicked to the curb", and transfer money. You can transfer one time, or even better, on a monthly basis any day of your choosing. Let's say it's the 15th of every month you want to save $100 for that time in the not so distant future your rent goes up and you need another place to live. You set it up online, and like clockwork it will withdraw from your checking, deposit it into your online savings account, and just like that you're increasing you're net worth. You can change the date, cancel the transaction, change the amount, etc. online at any time. It's convenient, and best of all, it's earning you 4.5 percent just for spending too much time on the internet.