They have also added a very straightforward budgeting section that is so easy to use that you have no excuse for not having a budget! Enter in your budget numbers and then sit back and watch Mint allocate your spending over the month against your budget. This is a great option for people who don’t enjoy spending time in Excel.

In addition to the budgeting feature, they have added a very interesting trending tool.  Not only does it let you look at your spending over time but you can compare your spending to others in your city or state.  This is a really neat feature that can let you compare your spending habits to others and see where you stand.

Although these are both great features the real power of Mint still lies in its ability to categorize all your transactions.  As long as the majority of your spending is on a debit or credit card you can get a great view of your finances with almost no effort.  If you have not tried mint sign up at mint.com.

We talk about an energy crisis in this country and people still have the thermostat jacked up/down to 72 degrees in the winter/summer. People look at 72 degrees like it is some kind of law!  I need to do the math on what kind of energy savings we would see if everybody went to 66/78.

Tip #1 is another good one. For the past 6 months I have started bringing my lunch to work about 75% of the time. It just takes changing some habits and doing a little planning. Good stuff Ramit!

1. Converted as many bills as possible to online payments.  Most companies will stop sending you a paper bill if you are on automatic withdrawals. The only bill I actually have to still open is the water bill. At least I can pay it with a credit card!  Everything else is on cruise control.
2. Went “paperless” with all my account statements that offer it.  Last week I found a few more of my accounts that do!
3. Opted out of all credit card offers for all family members:
   http://www.optoutprescreen.com
   
4. Signed up for the Direct Marketing Association’s DMAChoice to opt out of all member marketing: http://www.dmachoice.org
   
5. Signed up for an account at ProQuo and walked through all the steps to opt out.
   http://www.proquo.com/
   
6. For companies not covered by the above, I started contacting them directly to be removed.
7. If the junk mail has a postage paid business reply envelope I mail the offer back with “Remove From List” written in big black letters! If they are going to send me junk at least make them pay for it!
8. I just found this tip which might eliminate the need for #7:From: http://www.obviously.com/junkmail/
   First class mail: Cross out the address and bar code, circle the first class postage and write “refused: return to sender”. Drop in any mail box, it will be returned to the sender.
   Bulk mail: The post office throws away bulk mail it can’t deliver, so returning it does no good. Bulk mail is the hardest to deal with because the USPS actively provides addresses, support and encouragement to mailers. However, if “address correction requested” is written on the label: circle “address correction requested” and treat like first class mail.

Hopefully these steps will have an impact.  In addition to the environmental benefits, doing this will also help your finances. If you don’t get the shiny new catalogs you won’t be tempted to buy anything!

I still think they are great bank for your basic checking needs but I am moving my money over to DollarSavingsDirect who is still paying 4%. They are a division of Emigrant Direct who I had my savings account with before WaMu upped the rates they were paying. It was annoying to have to open another account as I still have my emigrant account but it was worth it for an extra percentage point.

I started listening to Dave Ramsey in 2006 but followed many of his principles before I had ever heard of him or the daily radio show. Dave’s view of debt is spot on: You will never find financial freedom or success if you continue to have “payments”. Credit is so easy to come by today, (although it has tightened up recently) that it is easy to pile up all kinds of stuff on credit from cars to clothes to even air conditioners (heard that on the radio today!)

Like Dave Ramsey, I subscribe to there being only one kind of debt that is part of a solid financial plan: mortgage debt. This is the “almost” part of living debt free. With that said, you need to be smart about your mortgage debt. The banks will approve you for well over what you can afford. Remember, the banks are looking to maximize profit not look out for your best interests. It takes a lot of discipline to not spend what the bank will approve you for but in the long run it is one of the most important financial decisions you can make. In my view your mortgage should not exceed 2.5 times your house hold income. Why does that number work?

Household income: $50k
Purchase Price: $150k
Downpayment: $25k
Mortgage: $125k
15 year Mortgage Payment + Taxes ($1250) & Insurance ($500) @ 6% ~ $1200 month
Monthly Take home ~$2900
Housing to Income ratio 40%.

You might balk at the 15 year mortgage but I can’t emphasize how important that is. Forget the interest savings for a minute, the number one reason to go with a 15 year mortgage is it will force you to keep your housing purchase within your means! I have had a mortgage for 5 years now on two different houses and both have been 15 year notes. If you start out with a 15 you will never miss the 30

The 40% housing to income is on the high side but if you have yourself on a budget you should be able to swing that. Dave Ramsey recommends 25% and that should be the goal but up to 40% is ok with a household income of $50k

If you double the numbers they look like this:

Household income: $100k
Purchase Price: $250k
Downpayment: $50k
Mortgage: $200k
15 year Mortgage Payment + Taxes ($2500) & Insurance ($1000) @ 6% ~ $2000 month
Monthly Take home ~$5400
Housing to Income ratio 35%.

In addition to the 2.5 times rule I also like to use the rule that your down payment should be half of your household income. Again, it forces you to make a housing purchase you can afford.

When I moved to Atlanta I quickly realized that the size of the Craigslist community here is HUGE. I have had great success in selling stuff on the Atlanta Craiglsist board and have actually found myself using it a lot more that Ebay. There is something to be said for how simple they keep things. It is easy to post, does not cost anything, no shipping to deal with, and people pay you in cash! Compare that with the hassles of Ebay and you can quickly see why Craigslist has taken off. I still use Ebay for niche items that don’t have mass market appeal but for most items it’s Craiglist!

Following up on my WaMu review I wanted to take a minute and review a new money management tool called Mint.com. Mint is an account aggregation service. The concept of financial account aggregation is not a new concept as Yodlee has been offering this service to banks for a number of years. As a basic concept Mint.com is not all that different. They even use the Yodlee service to run the back end of their application.

What makes Mint.com interesting is the customer experience they deliver. I do user experience for a living and can tell Mint has invested heavily in this area. I signed up for an account and was up and running in less than 5 minutes. From sign up to seeing 7 accounts aggregated in one screen took 5 minutes! Now granted, I am an advanced user who already had all my online accounts setup, but still 5 minutes is impressive. I do need to run this through the “Mom” test and see how long it would take my mom to go through and sign up.

Mint’s business model is an interesting one: they sell space to financial institutions that make offers to help you save money. They know the interest rate on your accounts and will make offers from competing banks that offer you a lower interest rate. Since I carry no consumer debt and already have a high yield savings account this feature has no value to me but for some it might be useful. I just hope they can make this model profitable.

Right now Mint only has bank accounts and credit cards included in the aggregation service but they claim to be adding mortgages and others soons. Brokerages and mortgaes would be a great addition!

Categorization is a key concept in all money management software. You want to be able to quickly see at the end of the month where all your money went. They have a super simple interface for categorizing transactions and even putting rules in place so that the same transaction next time is automatically categorized. However, they have one fundamental flaw that really reduces the usefulness of mint: you can’t create custom categories! Hopefully they will add this soon, because after playing with my accounts for 10 minutes I quickly ran into problems with the pre set categories.

Mint also has a simple budgeting system where you can set your budget each month and then track your spending against it. I do my simple budgeting in Excel but I will have to see how usefull this aspect of the service is.

Overall I am impressed so far. I think with a few changes this will really become a great little web app for managing your money.

When I moved to Atlanta it was time to look for a new bank. Here are the key things I look for:

• Free checking with no minimum and no fee’s unless I do something stupid like bounce a check.
• Outstanding online interface to manage all my accounts. I have never balanced a check book and don’t plan on starting any time soon!
• Plenty of local ATM’s and ideally a branch close to home.
• High yield online savings account.
• Free checks is a nice bonus although I write about 5 a year
• Free online bill pay
• Great customer service with short wait times in the branch or on the phone.

When I started looking around I found that Washington Mutual met all of my criteria. Could a bank really do everything I was looking for??? After 2 years the answer is a resounding YES! WaMu is fantastic! I can’t recommend them enough! I have had nothing but a great experience with them and encourage everybody to sign up for accounts. Make sure you sign up online as they only offer the high yield Savings Account online. There is also a branch right across the street so that makes them super convenient as well!

What is an Employee Stock Purchase Plan or ESPP?
It is a stock purchase program that allows employees to purchase stock at a discount, usually 10 or 15%

Most large public companies offer these programs. Check with your HR department to see if yours does. If the program meets a few simple criteria they can be a great way to get FREE money. We all like FREE money

So how does it work?
Employees contribute after tax dollars, up to a pre-defined maximum, to an escrow account. At the end of the plan period, either quarterly or semi-annually, the company uses the escrow money to purchase the stock at the closing price minus the discount.

What about the free money part?
You need to read the fine print and see if there is any kind of holding period. If there is NO holding period you should contribute to the MAXIMUM the plan allows. As soon as you get the discounted shares, turn around and sell them the next day for an automatic 10 or 15% return on your investment!

The Home Depot Example
Here is how it works at Home Depot, we will use a sample salary of $50k for easy round numbers.

• Semi-Annual Plan
• You can contribute up to 20% of your pre-tax salary
  ($5k per plan period / $384 per pay check)
• 15% discount on the closing price of the last day of the plan period
  ($750 discount)
• No holding period

This works out to a 3% bonus per year or $1,500. Not bad for doing nothing but a little planning. The tricky part with this is that the 20% will take about of a third of your paycheck when you take taxes into account.

On the plus side this is a GREAT way to save money for big purchases and to live on less than you make.

What about the taxes? Shouldn’t you keep the stock for at least a year to pay less in taxes?
Here is how the taxes work. If you sell the stock right away, the IRS considers it as ordinary income. If you hold the stock for at least a year you will pay capital gains which is 15%. So yes, you would pay taxes if you held the stock but you always have to evaluate risk. There is an added risk to doing that and for me I just don’t think that risk is worth it. For example, we received the most recent allocation of ESPP shares in July at $38. By the time the shares were in my account (~10 days) the stock was at $40 and I sold them immediately. The stock is at $34 today!

I am an avid believer that you should not invest in the individual stock of the company you work for. You already have your income tied directly to the success of the company, you don’t want your investments to also be impacted if the company takes a turn for the worse.

You Can’t Invest If You Are Broke!

Simple concept right? You have to be living far enough below your means in the first place to save up some money to invest. You can’t start investing if you are living pay check to pay check. If you are, read through the first 5 foundations and come back to this one.

I have money, now where do I invest it?

You are following the first 5 foundations and your savings acount balance is starting to have some zero’s on the end of it. You have an emergency fund of 6 months and you have money left over that you are now ready to invest with the hopes of seeing better returns than 5% in a high yield savings account.

There are thousands of different investment options out there. My goal here is to break it down and make this really simple: put the money in a broad market index fund or a growth stock mutual fund with a long track record of success.

I have two spots where i put my investment money: growth stock mutual funds and index funds. Let’s start with the mutual funds. Since my older sister Rachel works at Lord Abbett Investments , I don’t pay any sales charges or commissions to Lord Abbett. This is a huge advantage and the primary reason I have most of my portfolio with them.

If Rachel were not at Lord Abbett, I would have the money invested with an index fund at Vanguard. Since Crystal and i are not married yet, her 2006 Roth IRA could not be opened at Lord Abbett without paying a sales charge. We decided instead to open a Vanguard account and put the money in the S&P 500 Index Fund. Opening the account was easy and with a 12.2% return since 1976 and a .18% expense ratio this is a great investment option!

I have the money invested now what?

Leave it alone! Let the magic of compounding take over. This is one of my favorite calculators to play with:

http://www.moneychimp.com/calculator/compound_interest_calculator.htm

Take a look at this quick math:Â If you invest just $10k a year for 30 years at a conservative 10% interest rate you are looking at $1.8 million! What makes this really interesting is if you put in 31 years. You get 2+ million. So in other words, waiting a year to start investing with this formula would cost you $200k. Starting early will have a HUGE impact on your overall portfolio.

1) Cars – Beside your house your car is probably the largest asset that you will own. It is also one that depreciates like a rock! Most cars will loose 50% of their value in the first 4 years. There is so much to talk about with cars that I will dedicate an entire post to them in the future

2) Furniture - If you think cars are bad furniture is worse. Furniture depreciates about 25 percent on the first day out the showroom and just keeps going down from there. Don’t even get me started on the people buying $10k in furniture on credit and taking 10 years to pay it off. “Rooms To Go” is a finance company that just happens to sell furniture. Furniture deserves it’s own post!

3) Consumer Electronics – Computers, TV’s, gadgets, etc all loose value VERY quickly because technology progresses at such a rapid pace. Some companies are working on 6 month product cycles!

4) Sporting Goods – Ever shop for a set of golf clubs or a snowboard at the end of the season? Most of the time you will find discounts of at least 50% off. That means the shiny new set of clubs you bought at the start of the season is worth less than 50% of what you paid! Another category that goes down like a rock: Fitness Equipment!

5) Clothing – Fashions come and go just as quickly as the seasons. The hot sweater you bought last year is old news this year and is worth next to nothing. The higher the fashion the steeper the depreciation slope!

The best way to combat depreciation is to buy used and let somebody else take the price hit. eBay and Craigslist have made this easy but you do have to be patient to find the best deals. One aspect of eBay that is often overlooked is that eBay can now put a price on everything. If you want to purchase something new it is easy to evaluate the depreciation slope BEFORE you buy.