New Graduates and Focusing on Finances, Part Four

Numbers seven and eight!

Focus #7: Make sure you're covered.
You may not have thought much about health insurance as a student, but ignoring insurance now could be a pricey mistake. If you decide to go uninsured, you could wind up with expensive medical bills, not to mention poor health. You've got to make sure that you're covered in case of an emergency. At this stage in your life, you're likely pretty healthy, in decent shape, and unlikely to need regular prescriptions, but you've got to have insurance to cover the emergency situations. You're probably no longer able to be pulled along with your parents' insurance, so you need to find your own.

You likely have several options. First, your employer may provide insurance (at a reduced cost) to you. This is probably going to be your least expensive alternative, but many companies won't provide you with insurance until you've been employed for three or six months. Buying your own health insurance is an option, but it's expensive. The average annual cost for a traditional insurance plan is around $4,000,

I also recently learned that college grads are eligible for COBRA when they're no longer considered a dependent. College students who are on their parents’ health plans can sign up remain covered for up to 36 months after graduation. But, you must notify your parent’s insurer that you would like a COBRA extension within 60 days of graduation.

A COBRA extension certainly does have costs, though. You may be required to pay the entire premium for coverage up to 102 percent of the plan’s costs. In other words, you will be responsible for 100 percent of what your parents paid, plus what their employer paid along a 2 percent fee. Ouch.

Finally, you can get some short-term health insurance for relatively low cost. This type of policy is designed for folks without pre-existing medical conditions, and only offer coverage for 12 months. But, they're typically bought in one-month increments, which makes it easy to drop when you get an employer-sponsored insurance plan. One big drawback is that short-term insurance does not typically cover routine preventative care, like physical exams.

Your insurance coverages don't stop at just health insurance. Consider renter's insurance to protect your sweet autographed guitar and other valuables you've already acquired. It's relatively cheap protection, even if you don't have a lot of stuff. You definitely need to be covered in case of fire, theft, or other event.

Focus #8: Take inventory.
If your apartment or house burned down or was robbed tomorrow while you're at work, would you be able to remember exactly what was in it, down to the value of any jewelry or what kind of appliances you had? Me neither. That's why an up-to-date home inventory is something you should spend an afternoon putting together. This list of items will help you get any insurance claims settled faster (with better accuracy), verify your losses for your income tax return, and help you assess how much insurance you need to carry.

Putting it together is simple, especially if you're just setting up a household. Make a list of your possessions, describing each item and estimating its value. Also try to include where you bought it, and its make and model if at all possible. A spreadsheet is the perfect tool. At a bare minimum, include your big ticket items. If you've got the time and ability snap some photographs of your stuff, too. Scanned receipts would also be smart.

Then, store a copy of your inventory someplace safe, AWAY from your home. A relative's house or a safe deposit box is a good choice. MLB and I burn a copy of the photos and our list to a CD and keep a copy in our safe, and I keep a copy locked up in my desk at work. This way, if our home is ever damaged, our inventory isn't.

The final two tomorrow!

YFNN

New Graduates and Focusing on Finances, Part Three

Continuing the previous couple of posts, here are foci five and six.

Focus #5: Don't fall into the lifestyle trap (not yet, anyway).
It's all so appealing. You worked hard for the last several years and it finally paid off. You're out in the real world, making the big bucks. Surely you deserve that high-end apartment or that shiny new car, right?

Don't fall into that trap. Think about it. You've been living like a college student the last several years, and you've fallen into a routine. You're used to not eating out very often, pinching pennies on expenses, and putting off expensive purchases. You don't mind eating store-brand macaroni and generic cereal. When will it ever be easier to keep expenses so low and put back tons of cash? The answer is never. Once you find yourself financially able to enter the world of fine dining, fancy cable packages, and a shiny new car payment, it's darn near impossible to get out. Use this time to put back some money and pay off your debts. A little bit of painless scrimping now will pay off big in the future.

Focus #6: Ditch your debt.
If you're like the vast majority of the graduates in this country, you're probably graduating with some credit card debt, and maybe even some student loan debt. Now is the time to eliminate it for good! Debt is going to do absolutely nothing but hold you back for the next several years. Call up your student loan lenders and inquire about consolidating your loans at a lower interest rate. Call up your credit cards and talk down their rates. Do everything you can to minimize interest's impact.

As I said above, you're probably used to living the meager college life right now, and it's not that hard to continue living that life for a few months or a year. Now is the perfect time to pay down your debts with that extra cash.

Numbers seven and eight still to come!

YFNN

New Graduates and Focusing on Finances, Part Two

On Friday, I wrote about the first two foci I think a graduating college student should have as they begin their new life in the working world. Today, I'll continue with the next two. (Yeah, I know I technically said "tomorrow" on Friday, but I had a hectic weekend of dog-sitting. Trust me, they're monsters.)

Focus #3: Get a high-interest savings account.
I've already spoken at length of the benefits of the high-interest savings accounts like ING Direct and HSBC available on the internet. They provide security, flexibility, and an interest rate that actually makes you some money. In order to have a place to stash some cash for both short and long-term savings, you need a high-interest savings account. My favorite, for a plethora of reasons, is ING Direct. So, get an account, transfer your first dollars, and familiarize yourself with their functionality.

Focus #4: Start an emergency fund, and fund it automatically.
It's absolutely critical that you have an amount of money easily available to you for emergency situations. Things go awry in the real world: roofs leak, cars break down, and ambulance trips are required. In order to keep on track for your long term financial goals, you've got to have an emergency fund to cover these unexpected events. Ideally, you should have about six months of living expenses, but for most graduates (in fact, most people in general), that's a pretty tall order. At a bare minimum, keep at least $1000 earmarked for emergencies.

You've also got to fund it automatically. It doesn't have to be much (MLB and I only put in $40 a month), but it does need to be regular. This helps to avoid excuses like "I'll put some money in next week," and, "I just forgot last month.", and keep you on track. Finally, you need to completely forget that you even have an emergency fund exist, right up until you need to tap into it. No using it for TVs or guitars!

Numbers five and six will continue tomorrow.

YFNN

New Graduates and Focusing on Finances, Part One

My little brother graduated from college last weekend (congrats Dave!), moving into the real world: a world that can be frustrating, confusing, and certainly financially challenging, especially when you're first starting out. So, that got me thinking: What do I wish I would have known when I first graduated? What information would have helped me get off to a great start? I think I've come up with a pretty good list, and, since I'm a bit of a money fanatic, I think it makes sense to focus primarily on finances.

So, over the next couple of days, I'm going to write a few short posts about how to really get off to a good start financially if you're a new graduate. I'll try to focus on the financial decision-making, but I can't promise that my mind (and writing) won't wander into other areas. I'm going to try to keep it to two main points each day.

Focus #1: Get a good, low-fee, checking account, and know how it works.
Your checking account is going to be your main pipeline for all things financial. Most of your expenses will be paid from it, and your paychecks will likely be deposited into it. Make sure that there's not a high minimum balance ($100 or less is good), and that there are minimal fees. Many banks offer "free checking" accounts that have no fees, no minimum balances and online banking. The downside is that they offer zero or very low interest rates. But, since I think your checking account shouldn't be a long-term storage area for your money, I wouldn't be too concerned about the rate. Try to find an account that provides a debit card or check card. I'm a big fan of debit cards because you don't need to carry cash, they're almost universally accepted nowadays, and the amounts are immediately deducted from your checking account.

It's also absolutely imperative that you understand how the checking account, as well as your debit card, works. Even in the era of 24-hour online access to your accounts, it's important that you understand debits, credits, and how they affect your account balance. Also, make sure you understand that your debit card IS NOT a credit card: you can't spend money you don't already have in the account. Keep tabs on your checking account balances frequently, so that you're always aware of how much money is available to you and so that you can spot any errors quickly.

Focus #2: When you've got that job, set your paycheck up to directly deposit into your checking account.
Direct deposit makes getting your paycheck fast, easy, and error-free. You don't need to drive across town to make a deposit, you don't need to worry about making sure you get to the bank by six, you don't need to worry about misplacing your check (and your money!). It makes getting your money into your account completely painless. Since your checking account is going to be your main money pipeline, the easier and more error-free it is to deposit your money, the less headaches you're going to have.

The next two foci will come tomorrow.

YFNN

APRs and APYs...What's the Difference?

If you've got a credit card, a savings account, or any kind of loan, there's no doubt you've been exposed to APYs and APRs. They're both methods of stating interest rates, but what's the difference? When and why is each used?

First, a few definitions:

APR - Annual Percentage Rate
APY - Annual Percentage Yield
Compounding - Earning interest on previous interest

The difference between the two is all about compounding. The APR is the annual rate of interest, without taking into account the compounding of interest within that particular year. The APY does take into account all that extra compounding within the year. It seems like a pretty small difference, but it can actually add up to some major bucks. This is really better shown with some formulas, illustrating their inter-relationship.

APR = Periodic Rate X Number of Periods in a Year

APY = (1 + Periodic Rate)^(# of Periods) - 1

"Holy crap, FNN! I haven't had algebra since high school. What the heck does that mean?"

Okay, a more real-world example: Say you've got a credit card that has an APR of 18%. That means that each month, you're charged 1.5% of the balance (1.5% X 12 months = 18%). Pretty simple, right? Well, look at it from an APY perspective: plug the numbers into the formula:

[(1+1.5%)^(12 months) - 1] = 19.56%

That's a difference of over 1.5%!

So what does this actually mean? Well, if you only carry a balance for one month's period, you'll be charged 1.5%, or the equivalent yearly rate of 18%. But, if you carry that balance for a year, your effective interest rate becomes 19.56%. That higher effective rate is all due to the effect of compounding each month.

"That's all well and good, but I'm still not getting it. How does this affect me in a broader sense?"

Well, it depends on your perspective.

As a borrower, you should always be searching for the lowest rate. The lenders know this, and will usually specify their rate in the lower of the two methods, the APR. This is because it doesn't account for compounding, and is a lower number than the APY.

The reverse is true if you're the lender, like when you're shopping for a savings account. The banks will usually specify the larger number, the APY because it accounts for the additional compounding.

So, when you're comparing rates of banks, credit cards, mortgages, savings accounts and everything else in the financial world, you've got to make sure that you're comparing the same thing, either APRs or APYs. It can make a big difference in your wallet.

YFNN

Tax Refunds as Forced Savings

Yesterday, I wrote post about the inherent evils of tax refunds. To summarize it in a sentence: You're being temporarily cheated out of your own money. I also mentioned the MLB and I intentionally receive a tax refund at the end of the year, even though from a number-only point of view, it's a terrible decision. Today, I'll outline why we still do it.

I'd imagine that everyone who chooses to receive a big tax refund at the end of the year does it for the same reason: trickery. It's a big psychological trick on ourselves.

I've stated before that I'm a fan of forced savings (self-forced, NOT governmental) because it creates a state of artificial scarcity. It's pretty simple: if I put $500 a month into savings automatically, that's $500 less a month I have to spend. This creates a situation where I'm forcing myself to make more prudent decisions about the money I do have available to spend. Since there are things that I must pay for each month (like the mortgage, food, electricity, etc.), the artificial scarcity situation forces me to cut back on unnecessary spending, like a new set of speakers for the living room, or several meals at restaurants, or new pair of motorcycle boots. By cutting back spending on these unnecessary items, we continue to live below our means and put back more and more money towards debt (mortgage, etc.) and towards savings (IRAs, etc.). This is a VERY good thing.

So, by having more money withheld throughout the year from our paychecks, we're implementing another forcing savings, payable in April. Now, this extra bit of money only amounts to about $75 a week, which when paid to us on a weekly basis, is very easy to waste on frivolous, useless things. It's too easy to say "It's only $10...", or "I'll save some money next week..." when you're paid in small amounts. But, when taken away every week, and paid to us at the end of the year, this amounts to a sizable sum of money. And, when MLB receive a big windfall all at once, it's easier for us to say "Wow, we better do something smart with this extra cash!"

Having said all this, it's probably not entirely necessary for MLB and I to do this. We're both rather prudent with our money, and certainly not wasteful. We've developed enough self-discipline to use our money wisely, even when it comes in small chunks.

Even though I'm a big numbers person, I'm not going to argue that you shouldn't get a refund. Do what works for you. If you're disciplined enough to make good use of those smaller amount of money throughout the year, then forgo the refund. But, if it helps you to save or spend more wisely, like it does for MLB and I, get the refund. You just need to realize that you're paying a slight financial penalty for doing it.

I, for one, am okay with that.

YFNN

Evil Tax Refunds and Human Resources

With tax season here, millions of Americans are filing their tax returns and receiving sizable tax refunds shortly thereafter. To a lot of people, that extra money in March or April is like winning the lottery. But, in reality, it's just a sign that you're getting ripped off with your own money.

To understand why tax refunds are evil and what you can do about it, you really need to understand how the whole withholding and refund tax thing works. As I'm sure you're well aware, an amount of money is withheld from each paycheck to pay your federal taxes (and state, local, FICA, etc., but I'll only deal with federal for simplicity). The amount withheld for your taxes is dependent on how much money you earn, how many exemptions you claim, and how much additional withholding you allow.

"Exemptions? I think I remember seeing that on a form when I first started my job. Isn't that the thing where the HR lady just told me to put a zero or a one?"

Pretty much. Basically, that form you filled out is a W4. It helps to tell your employer how much money they should withhold from your paycheck to pre-pay your taxes for the year. That way, when tax day rolls around on April 15th, or April 16th this year, your taxes are already pre-paid (deducted from each paycheck) and the government doesn't have to worry about trying to squeeze you for the entire bill at once. When you receive a refund, you've essentially pre-paid too much money, and they're giving you the amount you overpaid back. The reason the smiling HR lady suggested that you only claim zero or one exemption is that it helps to ensure that the ignorant masses don't underpay their taxes for the year and aren't stuck with a tax bill in April.

“I’m still confused. I thought a refund was the government paying me?"

Think of it this way: Assume your electric bill only comes once a year. But, in order to make sure they get their money, the electric company makes you pay each month. Since they don't know exactly how much your bill will be for the year, they make a guess: say $110 a month. So, at the end of the year you've paid a total of $1320. But, what if your yearly bill only comes out to $1200? Well, you'd be refunded the $120 you've over-paid for the year. They're just giving the extra money back that you've paid them unnecessarily all year long.

So what can you do to keep from overpaying throughout the year? You adjust your exemptions. Basically, the more exemptions you claim, the less they'll withhold each paycheck, and the more money will end up in your pocket each month. But, if you claim too many exemptions, or withhold too much additional money, and they don't withhold enough, you'll end up owing money at the end of the year.

"Okay, so how come getting a nice big check for a refund is so evil?"

A couple reasons:

1) You're giving the government an interest-free loan. Basically, you're saying "Here's some extra money. I won't need it until April, so go ahead a use it until then."

2) You're cheating yourself out of additional interest money. When you don't pre-pay extra money, you have more money available to invest or pay off debts. That's pretty valuable time money-wise, since when it comes to interest, either on your mortgage, credit cards, or a savings account, time is money.

3) You're depriving yourself out of additional monthly cash-flow. Every extra dime you pre-pay the government is one less dime in your pocket each month. Those dimes could be used for groceries, the electric bill, or insurance.

Basically, loaning someone (the government in this case) money interest-free, while you could use the money is a very poor financial decision. From a purely financial, numbers-only standpoint, it's a no-brainer to try to eliminate your refund.

All that said, MLB and I are will be receiving a rather large tax refund in the next week or so, and we did it completely on purpose.

"What? After that long dissertation on why refunds are evil, you STILL get one?"

Yep, we sure do. More on why we intentionally make such a poor financial decision tomorrow.

YFNN

A Putterer and a Tinkerer

I'm a putterer and a tinkerer. I putt in the garage, the kitchen, the yard and our basement. I tinker with my tools, my cars, my motorcycles and anything else mechanical that I can find. I'm happy as a lark just hanging out and performing menial tasks in some of the more manly areas of the FNN homestead. And that's exactly what I did this past weekend since ripping through the countryside on two wheels was not an option (yes, I'm still bitter).

I spent a good portion of the day this past Saturday and all of Sunday in the garage, enjoying the nice weather and getting in some solid, quality puttering. Since spring is right around the corner, I concentrated on getting some things cleaned up and ready for summer use.

The lawnmower was thoroughly checked over. It received an oil change, a clean air filter and some fresh gasoline. I cleaned and repainted the deck and performed one of my favorite garage tasks: sharpening the mower blade. For some reason, I just love donning some gloves and safety glasses letting the sparks fly.

I also prepped the snowblower for storage. I removed the remaining fuel with my brand new shiny transfer pump (I busted my old one), and gave it a good cleaning and a coat of wax.

"He waxes his snowblower!?!"

Yes, I wax my snowblower. It helps to keep rust away, and it helps the snow to slide off the paint in the winter. So what?

I also finished the small table I built for a friend's dog. It needed another good finish sanding and another couple coats of polyurethane.

The rest of the time was spent sanding and refinishing my workbench (winter projects had it pretty banged up), putting away the tools, odds and ends that had accumulated over the last several months, and giving everything a good cleaning and wipedown.

Now, that sure sounds productive, but I'll be the first to admit that a very large portion of my garage puttering is just that, puttering. I re-organize tool drawers, sort sandpaper, perform some basic cleaning, and just generally move stuff from here to there and back. But, I love it. I love listening to the radio (talk radio or baseball games in the summer) and just being around tools, dirt, and projects. I love the smells of gasoline, sawdust, and that wonderful hot-electricity smell that power tools emit.

If this is what retirement is going to bring everyday, I can't wait.

YFNN

Nerd vs. Manly-Man, Part Two

The weather is getting warm in my part of the country, which means motorcycle time for YFNN. So, I spent a good portion of the afternoon on Saturday prepping my main motorcycle (not the restoration one) for another riding season. I pulled off the cover, disconnected the battery trickle charger and wiped away the small amount of dust that had accumulated on some of the bodywork. Just seeing the bike shine in the fluorescent lights of my garage after a four month hiatus got me feeling all tingly.

I wheeled the white and silver two-wheeler into the center of the garage bay and got it up on a stand so I could do some checks. I noticed that my license plate sticker was almost expired, so I retrieved the new 2008 one from the safe and I went through my routine spring inspection:

- change the oil and filter
- check the air cleaner
- check tires for flaws and check pressures
- check the drivebelt
- bleed the brakes
- check all bulbs and switches
- wrench-check all critical fasteners

Once all that was done, I filled it with some fresh 93 octane and pressed the 'engine start' button. It fired up on the first crank with no leaks and no unusual sounds. Then I took it around the cul-de-sac a couple of times to check the operation of the clutch, gearbox, suspension and brakes. No problems were found, so I deemed the bike ready to rock and roll for the spring.

After my little test-ride, I pulled back into the garage and shut the bike down. I looked back through the open garage door and the weather outside was absolutely gorgeous: 55 degress and sunny with little wind; for a cold-weather wuss like me, it was perfect for the first ride of the year. My eyes slid over to the leather jacket and gloves hanging on the garage wall, then to my selection of helmets. I was already anticipating the rush of acceleration accompanied by the glorious sound of a big-bore V-twin at wide-open throttle and I could still smell the freshly burned gasoline in the air. Manly-man personality was kicking in hard and I wanted to go for a country ride badly.

But, my more nerdy side quickly brought manly-man to a screeching halt.

During the winter, I de-activate all insurance on the motorcycles except for comprehensive coverage. I don't ride November through February, so it saves me a couple bucks a year to do the de-activation/re-activation dance once a year. Since it had been cold and snowy recently, I hadn't yet thought to contact my insurance agent to re-activate my insurance on the motorcycles. To make it worse, it was Saturday so I couldn't make a quick phone call to my agent to get the job done. The last thing I want is to get into an accident and not be covered by insurance, so my riding for the day was painfully limited to the four minute stint around the cul-de-sac.

Sunday was beautiful, too. Sometimes nature is so cruel.

Sigh.

YFNN

Old Age at 28?

I'm only 28. I feel old.

Examples:

1) I can't drink a lot of caffeine anymore. In college, I used to be able to suck down a couple bottles of Coke doing some homework, and still fall right asleep. Shortly after that, I was drinking Diet Cokes all day long, sometimes up to nine or ten a day (soda is free at TCFWIW). But, one night I was sitting on the sofa, watching television with a Diet Coke in hand. My chest started to get tight, my left arm started to tingle, and I got that shortness-of-breath and heart thumping that you get when you get really scared. I thought "Oh boy, these are heart-attack symptoms and I'm only 26." So, I went to the doctor and had a stress test done, as well as lots of other scans. As it turns out, my health is very healthy, even more so than most people my age, and everything else was normal. So, the doctor turned to my diet. As soon as I mentioned the amount of Diet Cokes in a typical day, he stopped me and stated that was my problem. So, I dumped caffeine almost entirely, cold turkey. Those first two weeks were the most painful I've ever experienced. Relentless terrible headaches, sleepless nights, and general crankiness were par for the course. But, caffeine is gone and I'm likely healthier for it. I still miss that sexy silver can, though.

2) I play "mystery bruise" in the shower. When I was younger, it seemed like I could practically whack myself with hammer and show no marks. What daily injuries I incurred seemed to heal before my very eyes. Now though, I get bruises that I have no idea where they even came from. Did I run into a table? Did I bang my arm on something? Who knows for sure, but it seems like I get bruises for no good reason now. When did I become so fragile?

3) I went from an iron stomach to one of paper. In my younger days, I could eat two dozen super-hot buffalo wings, some chili, and some warm Dr. Pepper in one sitting and feel like I could run a marathon. Now, my stomach moans and groans just at the thought of a greasy pizza or Chinese food. What the heck happened?

4) I take vitamins. When I don't take vitamins, I'm sluggish, cranky, and achy. If I miss my gingko biloba, I'm stuck with a dull headache all day. Am I really this close to a shoebox-sized box of pills with the days of the week on it?

Like I said, reality smacks me around on a pretty regular basis, but Mother Nature has been more than happy to throw some extra jabs and uppercuts my way over the last couple of years. With my birthday coming up shortly, it sure seems like she's not holding back now.

If anybody finds a fountain of youth, let me know, okay?

YFNN

February Self-Tax Update

Since I haven't written another post on my "Self-Tax" since the initial one, I thought it would be wise to write a quick follow-up.

For those too lazy to click the above link and read the general premise behind my self-tax, it's okay; I totally understand. Here's a nine-word breakdown:

I pay myself a 10% tax on poor purchases.

That's it.

Anyway, it's been four complete months since the implementation of the self-tax, and it seems to be pretty effective. Since January, spending on lunches out has dropped by over 60%, and since MLB doesn't really eat lunch at restaurants very often, it's been mostly because of my choices. I can definitely tell you the decision to eat a packed lunch or a Wendy's hamburger (oh, baby), has been affected by the penalty of the tax. Well, the tax and the fact that I had to move my belt tab out a notch in January. Ouch.

So, for the rest of the data freaks, here are the numbers and the matching lame excuses for January and February:

January: $193.65 paid in tax. This was pretty high for a couple of reasons. First, I threw a small birthday party for MLB, and I had to buy prizes, food, and some other odds and ends. That drove the number up. Also, we replaced our CRT monitors in the office with some pretty 19" LCD ones, which kicked the tax up by over forty bucks. The good news is that the tax from dining out dropped by almost 70%.

February: $254.31 paid in tax. I can blame a sizable portion of February's tax on MLB. She went on a bit of spending spree for clothing (deservedly, though), and had a rather pricey hair appointment, so that punched it up about seventy bucks. Add in a payment to DD's daycare (boy, does that topic deserve it's own post), and a new color printer for the office, and some passport renewal fees, and the result is a sky-high tax. Again though, dining out spending was way down from December.

So, all things considered, the tax has brought down our expenses by more than enough to cover the tax itself, as well as put a little additional money into savings. Both are very good things.

YFNN

Heat Yourself With a Fan?

MLB and I operate our ceiling fans in the winter. We run them most of the time, actually.

"What?! Is he crazy? Ceiling fans in the winter?"

Yeah, crazy like a fox. Here's why: Ceiling fans can actually save on heating costs in the winter. The temperature of the air in a heated room varies in layers; it's stratified. Because warm air is less dense than cool air, the air near the ceiling is warmer than the air near the floor. A ceiling fan can help push the warmer air that is trapped near the ceiling back down into the room, de-stratifying (or breaking apart) the layers of air. This way, the warm air is circulated where it is needed (to the middle and floor of the room, where the people are), and the heating system doesn't have to work as hard to warm the room.

"Okay, I'll just walk over here and turn it on..."

Not so fast. It's not quite that simple; it has to be running the proper direction. Have you ever noticed that there's a small toggle switch on your ceiling fan? That switch controls the fan's direction, making it spin either clockwise or counter-clockwise. But, there's a catch. That switch isn't labeled with a "forward/reverse" sticker on most ceiling fans (none of ours, for sure). You have the beauty-conscious "form before function" folks to thank for that one.

"Great. I'll just flip that little toggle switch and..."

Hold your horses. It's a bit more complex than that. The direction the fan needs to turn is dependent on the height of your ceiling.

"Now I have to measure my ceiling? I'm all about saving money, but not if I have to do math. FNN, this is getting too complicated!"

Hang in there. I promise to keep it as simple as possible and you won't need a calculator. Basically, if you have a standard height ceiling...

"Whoa, whoa, whoa. A 'standard height ceiling?' Now, I'm a contractor?"

Alright, fine. Stand up. Stick your hand up in the air. Jump. If you can touch the ceiling, or almost touch the ceiling, it's a standard height ceiling, typically eight feet. If you can't touch it, and your tallest friend probably couldn't touch it, it's greater than standard height. See? No math required.

Anyway, if you have a standard height ceiling, then you want the fan to run in the reverse direction. Specifically, the fan blades should be running with the lower edge being the leading edge into the air. Having the fan run in this direction will pull the air in the room upward, which will push the warm air near the ceiling outward and force it to mix with the rest of the air without creating turbulence that you can feel. While it seems to be common sense that running the fan in the forward direction (as you would in summer) would also push the warm air down, it also creates a breeze in the room, which gives you an undesired cooling effect, much like wind-chill. Running it reverse avoids this wind-chill effect, but still mixes the air.

However, if you have a tall ceiling (greater than eight feet or so), you want to run your fan in the forward direction. Specifically, the ceiling fan blades should be running with the upper edge of the blade being the leading edge. This pushes the warm air near the ceiling down into the room. But, because the fan is far enough from you, the breeze that is created is dissipated before you can feel it.

"Okay, I got my fan running the right direction. So, how much can I save?"

Well, according to the manufacturer of the ceiling fan I installed last year, you can save about 10% of your heating costs in the winter. That's nowhere near the 40% you can save in the summer, but still noticeable. These savings are more noticeable homes with high or vaulted ceilings.

10% in the winter...and you didn't even have to do math.

Who's crazy now?

YFNN

Green Peppers and Gasoline

This obsession that some people have with gas price fluctuations is getting way out of hand. People seem to think that gasoline is the only commodity whose price moves up and down on a weekly, or even daily basis, and that loads of money can be saved by shopping around. Truth be told, gas prices really aren't too volatile, especially compared to some other regularly purchased items.

When I get home from grocery shopping, I take my receipt upstairs to the office and go over it in detail. I do this for two reasons. First, I want to make sure that what I paid was correct, and that I wasn't charged something way out of line for toilet paper or ground sirloin. Second, I want to generate some illustrative data.

"Wait, did he just say 'generate illustrative data'?"

Yes, I did. Remember, I'm a data man. Things like this should no longer surprise you.

The prices that I paid for regularly purchased items (bread, milk, chicken breasts, green peppers, etc.) are logged in a spreadsheet (surprise!) and I track them over time, generating trend curves for their prices. For example, I can tell you what the low price I've paid for chicken breasts has been for the last six months, and I can tell you the average price I've paid. This way, before I head over to our Giant Eagle grocery store, I can see what I've been paying historically, and make a decision as to whether I should buy something now (because the price is below my average), or if I should wait until next trip. That said, my grocery-shopping methods and adventures should probably be another post. Back to how this relates to gasoline...

What I'm getting at is this: produce and meat prices fluctuate far, far more than gas prices ever have. Even when you throw out sale price ups and downs, they're still far more volatile. And, you can save more money driving across town for cheap vegetables than you can by driving across town for cheap gas.

Example: The last time I went to the grocery store for green peppers, they were priced at an outrageous $2.19 each at Giant Eagle. So, of course, I didn't buy them. However, I still needed them for a recipe, so I went to Kroger instead. They had them for $1.39 each. I bought two and saved $1.60.

Compare this to gas prices. I personally know people that will drive well out of their way to save a measly five cents a gallon on gasoline. But, by buying just two green peppers at Kroger instead of Giant Eagle I saved more money than buying thirty-two gallons of gas (more than two fill-ups) priced at a nickel cheaper. How absurd is that?

Furthermore, I use coupons at Giant Eagle and regularly save around 7-10% because of it. On a typical $250 a month food budget, I save $20 to $25 just by cutting out a few slips of paper from the newspaper. In order to save the same amount of money on 5-cent discounted gasoline in a month, I'd have to drive over twelve-thousand miles in only thirty days! That's almost as much as I drive in a year! I save far, far, far more money by clipping coupons than nearly anyone ever will by changing their habits about gasoline.

There are a ton of places you can readily yield more savings if given the same amount of effort that many people do trying to penny-pinch at the pump; green peppers and coupon clipping are just a couple. Yet, lots of people moan and groan about the fluctuations of gas prices and drive well out of their way for five or ten-cent discounted gas, yet completely neglect to clip coupons or merely price shop for other items. It simply doesn't make sense.

So why do we have this undeserved obsession with gas price ups and downs? I think it's simply because gas prices are constantly in your face around town and constantly pounded into your mind by the media. When was the last time you heard Katie Couric say "Kraft Cheese Singles hit their highest price in six weeks, today..."?

In fact, most prices look outrageous when you put them on tall signs in big numbers. If you see huge numbers displaying the price of gas every single day, you can't help but notice and track them, and of course, I still do. But, I certainly won't go out of my way to find the cheapest place to purchase gasoline.

Green peppers, though, is another matter entirely.

YFNN

Single-Wides and Disappointment

Last week, I wrote a post regarding a plot of land that MLB and I were semi-interested in purchasing for our future homestead. Well, yesterday, I had opportunity to drive out to see it in person and scope out the surrounding area.

I can sum it up pretty succinctly with one word: disappointment. DD and I drove out on Sunday morning, stopping off at the dog park along the way for some exercise. DD had a great time running around and chasing tennis balls in the snowy grass for a while, and then he and I packed into the family truckster again and headed off to the property in question.

On the way there, I noted how long it was taking to get there. The numerous stoplights and small towns made the 20-mile route provided by Google seem nearly forty miles, but my odometer confirmed Google's assessment.

Once at the property, the real disappointment set in. The property itself was a squarish lot, but not on a corner as the map suggested. On each plot on either side of this property was a single-wide mobile home with a carport. The lot seemed much smaller than the property map suggested, and while it had the numerous trees the realtor's description mentioned, none of them were taller than six feet or so.

Most disappointing though, was the building itself. Perhaps I had myself too hyped up on thoughts of a well-kept building for use as a workshop. Although the garage was a fairly recent build (1998), it appeared much older, and was definitely not well-kept. The wood siding was rotting everywhere, the garage doors were dented and rusting, and the roof was crumbling. Apparently, the realtor's listing used a rather old picture.

To top it off, the lot is essentially unusable as a location to build a home. The garage was placed absolutely dead center on the lot. You couldn't put a house on the front portion of the lot because it'd be far too close to the road. You couldn't put a house on the back portion of the lot because it'd be blocked by a big garage. Placing a house on either side of the structure would place you far too close to a couple mobile-home dwellers that couldn't get their kids to fetch their big-wheels and toy shovels out of their yards before winter.

All in all, it was a pretty wasted trip, except in the mind of the little guy in the back of the car. DD had a fantastic time; he loved going for the ride and looking out the window at all the trees and hills. Getting the opportunity to run around like madman for a while and sniff a couple of doggie-butts I'm sure was a welcome break from the house. It's gotta get old sleeping on the floor in the office and pushing dog toys into my lap, trying to get me to play.

So, the search continues, or maybe not. We weren't actively looking for land; this property was just a timely opportunity. I'm sure MLB and I will discuss it, and we'll come to a better understanding as to what our focus should be. I did learn, though, that 2.5 acres isn't enough for what I'd eventually like to call home. Ten is probably closer.

Darn expensive privacy.

YFNN

Rant: ARMs and Due-Diligence

The following post is a YFNN rant. You may find it offensive, crude or just plain wrong. Get over it.

due diligence
n.
1. the care that a prudent person might be expected to exercise in the examination and evaluation of risks affecting a business transaction

As I putt around the house on the weekends, I listen to the news of the week, either via XM radio or downloaded podcast on my iPod. Today, I happened to be listening to XM Radio, where a discussion was taking place regarding the number of foreclosures in today's housing market. The majority of the talk was regarding the big, bad mortgage lenders that provided adjustable-rate mortgages to folks looking to buy a house. These adjustable-rate mortgages, or ARMs, most of them anyway, are past their fixed periods (1-5 years typically), and are now, as their name suggests, adjusting. Wow, who'd a thunk it?

Apparently, there's a significant amount of people out there that are getting burned by these loans, which, in my opinion, is largely due to their own ignorance. This radio program actually had a soundbite of someone that said their payment doubled from a manageable $1200 a month to a payment of $2400 a month. They went on to say that they "couldn't afford the payments anymore" and "didn't realize that their payment would change." Several others were quick to jump on board and blame the lenders. Quotes like "I didn't know what I was signing," and "I never thought an adjustment would make my payment increase," were abundant.

I have a couple of points to make to these people regarding this, all of them pretty well summed up with the statements "Why did you not think or do research?" or "Why were you so lazy?"

First of all, at the time the vast majority of these loans were written, mortgage interest rates were at all-time lows. Let me say that again and really make sure that I'm absolutely crystal-clear:

All. Time. Lows.

If mortgage rates were at all-time lows, which direction did you think the variable interest rates would go? Maybe, um, up? I can understand that there are situations where ARMs are smart loans, but in nine loans out of ten, why would you take that risk when fixed rates were so low? I just don't get it.

I guess it really comes down to people buying into more house than they could really afford, which is stupid. If the only way you could afford the payments on the house was to go with an ARM, or worse, an interest-only loan, it's gotta be a pretty big red flag that you're almost certainly buying way more house than you can afford.

Second, I have absolutely zero sympathy for the people that claim ignorance and blame the lender in these situations. One of my number one rules for investing is to not get involved with an investment that I do not understand, and I think that rule definitely applies here. It's not like the lenders are hiding the information from the borrower. Every loan has their conditions clearly stated, and the information is easily available via the internet, bankers, or others. It is the responsibility of the borrower to perform due diligence and fully understand what you're getting into. If you need to, get a lawyer or a non-drunk friend (preferably someone that can read) to look it over and explain it to you. Claiming you didn't know what you were signing is yet another way of blaming someone else for your irresponsibility. It's your duty to understand it! Nobody is forcing your hand to scrawl your name. If you don't get it, don't sign it!

I guess what this really boils down to is that I'm just tired of people not taking responsibility for themselves, which has certainly become a disappointing trend in recent times.

Achieving Slide Enlightenment

I've been in the post-college working world for several years now, nearly all of them in the engineering and management realm. So, it's fair to say that I've choked down my fair share of PowerPoint presentations. The vast majority of them are awful. Yes, including the ones from the wonderful employees at TCFWIW. Apparently, many people think they can animate or bullet-point their way to good communication. Boy oh boy, are they wrong.

Think about the last PowerPoint presentation you were forced to absorb. Was it full of distracting animations like text swirling around and star wipes? Of course it was. Was the text so tiny that you had to tune out the presenter just to concentrate on reading it? You bet it was. Did the presenter basically just read the slides to you? Without question. Admit it, you began reading their PowerPoint slide the moment it appeared in front of you, probably before the presenter even began presenting it. And more often than not, you were finished reading the slide before you even thought about paying attention to what the presenter was actually saying. It's okay, I've done it, too. So what do all these bad presentations actually mean to you, the presenter? When PowerPoint is used incorrectly, your audience will leave confused, uninformed and mentally exhausted. Not exactly your goal, is it?

But don't fret. Here are Your Friendly Neighborhood Nerd's tips to complete PowerPoint enlightenment.

Tip #1: Supplement, don't replace.
We've all done it. We've put together an elaborate PowerPoint presentation and to prepare, we just printed off a copy of the slides for our notes. Then, we read the slides to our audience, boring them to death. This is really, really bad, because as soon as that happens, PowerPoint is giving the presentation, not you. You've been replaced by a forty-dollar piece of software and an overhead projector. That, as the Germans say, is "nicht gut."

What's the remedy? Use the slides only for emphasis and highlighting points. Check out the presentation that Steve Jobs (CEO of Apple) gave this past September. At a minimum, watch the first 7-10 minutes. Notice how the slides behind him merely supplement the words he's saying. Notice how they only become important when he turns and makes them important.

Tip #2: Like a good steak, you've got to trim the fat.
In PowerPoint presentations, less is definitely more. More specifically, less text is more. Most PowerPoint audience zombies can only store four to six things in their short-term memory banks. Take a bunch of items on a slide, add in the fact that your audience will read them before you speak, and you've got a recipe for mass-confusion. The solution is simple - simplify. Start by drastically reducing the amount of text on your slides; especially, avoid bulleted lists at all costs. Aim for two to three word thoughts, avoiding complete sentences. A good goal that I shoot for is no more than six thoughts and no more than twelve words per slide. This simplicity has the added benefit of forcing the audience to pay attention to you and what you have to say, not the slides themselves.

Tip #3: Think about bunnies and Snuggle the dryer sheet bear.
Soft, soft, soft. Bright white backgrounds, with sharp, serif fonts are straining on the eyes, especially when presented on a big screen. Use an easy-to-read, sans serif font (what the heck is a "sans serif font"?) on a dark background to reduce eye strain as much as possible. Soft fonts with a non-distracting, dark background will keep your audience from going blind and subsequently tuning you out. Use some simple but illustrative images to enhance your presentation and keep your audience's attention. Again, reference Mr. Job's presentation above.

Tip #4: Ditch the animations.
Seriously. Step away from the animations. And don't try to sneak in any embedded video or sound effects, either. I know, I know. There's so many to pick from, and they're all so enticing, but they really distract from your message. If you absolutely must use an animation, use the fade in or fade out, but that's it. The rest are really un-sexy. I'm not joking. Leave the flashing text off your slides.

Tip #5: Remember the Boy Scouts.
Once you've reached true PowerPoint enlightenment, you quickly realize that your presentation will not stand on its own; it's now up to you. So, you've got to prepare and practice until you've got it down pat. Memorize what you need to say, know how to interact with your slides and be ready to roll with the punches.

So there you go. It's certainly not a step-by-step, but it'll get you going in the right direction. Now, no more fly-ins and fly-outs!

YFNN

Buck Your Brick Bank For Bang For Your Buck, Part Two

Yesterday, I posted about one of the big benefits of some of the internet banks like ING Direct, HSBC, and Emigrant Direct: the big interest rates. At the end of the post, I mentioned that there are two more benefits that are whoppers for MLB and me. We certainly make the most of them.

My experience deals specifically with ING Direct, so I can't speak to what is available at some of the other banks.

So here are those additional big benefits:

1.) I can set up multiple sub-accounts within our Orange Savings Account, each with a different nickname and purpose. And, since they don't have a minimum balance or any other fees, I can have very small amounts or even no money at all in them without penalty. This is important to me because I can have different small savings accounts (at the great 4.5% rate), each saving toward a different goal.

2.) I can set up automatic savings plans (ASPs) for each sub-account. What this means is that I can have ING Direct pull an amount of money from my checking account at a regular interval of my choosing. For example, I can have $20.00 pulled from my checking account and put into a savings account every other Friday, if I'd like. This is vital because it's completely automatic. That means I don't have to think about it, which means that I won't ever forget to do it, which means I always stay on track. Another reason this is important is because it creates a state of artificial scarcity in my checking account. That helps me to adapt quickly to the smaller amount of money that is readily available, and I spend less. That's vital because I can't waste what I don't have.

You're probably asking, "So how do I make this work for me?"

Well, MLB and I currently have eight savings sub-accounts. Yes, Cowboy Troy, you read that right; we have eight savings sub-accounts. We have an emergency fund, several short term holding accounts, and a couple long-term savings accounts. Basically, this is the way we make it work for us: our paychecks are deposited into our checking accounts every two weeks, or twice a month. This is our main holding area. Throughout the month, money is pulled from these checking accounts into the various sub-accounts. The amount and timing of these withdrawals varies with the sub-account, typically in three different ways for us.

Savings Technique #1: We make small deposits in regular intervals for our emergency fund.
Basically, every two weeks (or whatever interval we chose), we deposit an amount from our checking accounts, thus funding our emergency fund a little each time. Since this account is for emergencies (NOT a big LCD TV), we won't draw from this account unless we absolutely need to. This is a very important account because it ensures that a short-term emergency doesn't derail us from our long-term financial plans.

Savings Technique #2: We make small deposits in regular intervals for long-term savings.
At regular intervals, we deposit an amount of money into what we call our "future kids" and "forgotten money" funds. The "Future Kids Fund" is set up for future children, since they're so stinking expensive. Things like day-care, private school, and size 4 Air Jordans, will eventually come out of this account. Note that this IS NOT a college savings account. We've got a separate 529 account for that, which is invested in the stock market. The "Forgotten Money" fund is basically for whatever we decide to spend it on. That big LCD TV or big donation to an un-named dance organization might come from this account.

Savings Technique #3: We make deposits in regular intervals for short-term holding.
Aside from the emergency fund, this is probably the most important savings tool for us. These accounts are short-term holding areas for bills and events that happen on a regular basis, but not monthly. We've currently got one for insurance, vacation, holiday gifts, and a couple others. These accounts are the reasons we're never surprised or thrown off by semi-annual or annual bills. Throughout the month, we automatically put small amounts of money into these accounts, so they grow slowly behind the scenes. Then, when a big bill is due, we pull the money out and pay it from that account. For example, we pay our insurance (auto, liability, etc.) every six months. If we expect our 6-month bill to be $600, we'd put $100 a month, or $25 a week, into the account. That way, instead of getting that big bill in December or January, and then worrying about how we're going to come up with $600 for it, the money is already there! It's a lot less painful paying $25 a week for six months than to come up with $600 all at once. Plus, the money's been earning interest for us throughout those six months.

We do the same thing with holiday gifts. We each put $10 a week into the account, and when December rolls around, we've got over $1000 ready to go for gifts. And, since it's such small amounts at a time, we don't even miss the money! It works beautifully for us.

So, how do you start? Check out bankrate.com for a huge list of high interest savings accounts. Pick one, sign up and transfer some money from your checking account. Don't forget to set up an automatic withdrawal plan so you can slowly grow your savings without much pain. And, if you want a referral for ING Direct (you get a $25 sign up bonus if you use a referral), just leave a comment with your email address, and I'd be more than happy to hook you up.

YFNN

Buck Your Brick Bank For Bang For Your Buck, Part One

I'm willing to bet that the average American has a savings account at their local brick-and-mortar bank or credit union, if they have one at all. If you're one of those people with a savings account, you're on the right track, but I think you can do a lot better. The local brick-and-mortar banks around here are offering the following rates on their basic savings accounts, as of today:

If I had a $5,000 balance in their standard savings account, these are the rates I'd get:

5/3: 0.65%
Chase: 0.40%
Huntington: 0.05%
National City: 0.75%
US Bank: 0.17%

Those rates are absolutely awful. Plus, many of the accounts hit you with "maintenance fees" if you carry a balance less that a certain amount (usually $200-$500). With those dreadfully low rates and fees it's nearly impossible to get ahead!

So what's a guy with some cash to save supposed to do? Fortunately, the internet banks come to the rescue with savings accounts with many of the same benefits of a regular run-of-the-mill savings account, but with an interest rate that actually makes money! Some of the more popular ones are ING Direct, Emigrant Direct, and HSBC. These banks still have the important features, like the fact they're FDIC insured, it's easy to perform transactions, and the customer service is top notch, but they have interest rates ranging from 4.5% to 5.5%. Some even offer sign-up bonuses or even higher introductory rates!

"That's great FNN, but what does that really mean to me? Give me some illustrative numbers!"

Okay, no problem. I'll even use myself as an example.

MLB and I keep an emergency fund of cash equivalent to five to six months of living expenses in a savings account. Since we want to have easy access to the money (in case of emergency), we don't want to put the money into a brokerage account, IRA, or other investment. We want a genuine savings account. So, say we trudge on down to our bank, Huntington, and sign up for a "Premier Savings Account" with their interest rate of 0.05% and deposit our money.

At the end of a first month with our "Premier Savings Account", we've earned a whopping $0.63. That's right, sixty-three cents. At the end of a whole year, our balance is $7.50 higher than when we started. Seven dollars and fifty cents. For the whole year. Whoopity-doo.

Okay, say instead of going to our local Huntington, we decided to sign up with ING Direct (which we did) and transfer the money from our checking account. We get their standard "Orange Savings Account", and get a rate of 4.5%. At the end of the first month, we earn $56.25 in interest. Yes, you read correctly. $56.25 in one month. That's over seven times more than the Huntington account made all year! After one full year in the ING account, our balance is almost $700 higher!

"Wow, FNN, that's a lot of money!"

Darn tootin'.

"Okay, I'm interested. So what are the drawbacks?"

Well, there's a handful, but they're pretty minor. First, there is no brick-and-mortar building to go to make deposits. You have to make deposits to your regular checking account and then transfer the money to your internet account. Second, it usually takes 2-3 business days to make the transfer back and forth between the accounts and our Huntington checking accounts. However, this can be a positive. Because it takes a few days, it forces me to think a little harder about the reasoning behind the transfer. Since it's a savings account, the money should be staying in there unless I've got a really good reason.

"Are there any other benefits?"

Absolutely, and they're big ones to me and MLB. But, it's a long topic, so I'll go into more depth tomorrow. In the mean time, check out what ING Direct, HSBC, and Emigrant Direct have to offer.

YFNN