Let your Credit Card protect you

Credit cards get a bad rap for lots of things - mostly for people unable to manage the responsibilities that accompany them. While it is often overshadowed, these companies can provide some valuable services to their clients. Case and point - if you have a CitiBank platinum credit card (you can see my post about this here, but I'm sure others offer this service as well) you
are covered for increased warranty protection. The extended warranties that Best Buy and others push on you are one of the worst investments possible. But, you can get double the coverage through many credit card providers simply by putting your purchase on their plastic. An article made the Consumerist today about a person who bought a new laptop and it broke outside the year warranty, luckily he put it on his American Express and was covered for an additional year. That is a hell of a deal since he probably received some sort of reward when he charged it in the first place.

Micro Loans: Making a Big Difference with a Little Money

It's hard enough to get a loan in the United States if your credit is less than perfect. People in developing countries face a steep uphill battle because money is tight for everyone. Micro loans are an idea that has gained some traction of late. I love the idea of helping entrepreneurs out especially since they create so many jobs in this country. Whether it is the guys at Google, Intel, or eBay, many famous American companies were founded by immigrants.

While micro loans aren't a good investment as far as monetary return, they may pay for themselves in feel-good value. The idea is simple, you loan a small amount of money (as little as $25) to someone and other people do too. A micro loan is less than $1,000 typically and made up of many very small donors. There are sites that allow average Joe's from the U.S. who are up to their eyeballs in credit card debt accept micro loans, but I prefer the international ones. Why? Well, giving someone $25 toward the $400 they need to start a coffee, banana, or clothing business has bigger bang-for-your-buck than the same would for a person over in the states. Additionally, credit is (relatively) cheap in the states and companies are flush with cash willing to throw it at anyone - especially those people who know how to use it the least.

Anyways, I was looking over a site last night called Kiva.org that matches up people in developing countries with investors looking to PayPal at least $25 to their venture. There are bio's of everyone who is looking for a loan and they have local people on the ground that direct funds and make sure you get updates on the status of the business. They site claims that right now there is a 100% payback rate, but these loans are NOT guaranteed obviously and will not pay you interest. So, if you are looking to make money look elsewhere. The site charges recipients 2% interest to cover transaction costs like the website, local lenders, PayPal fees, and keeps the recipients honest.

I'm thinking about putting in $25 since I don't have much excess in the budget. If it ends up as a loss I can weather losing $25. Hmm, the guy looking to start a video game hangout for kids in Nicaragua or the woman who is looking to buy organic fertilizers in the Samoa to grow fruit. If anyone has experience using Kiva or other sites let me know, I'd like to hear what your experience was like.

Big Paydays at Wall Street I-Banks

Yet another reason to believe I got into the wrong line of work. Lehman Brothers one of the go-to Wall Street investment banking firms reported that its income rose to $4 billion dollars this year up 23%. That wasn't the interesting part though. The Wall Street Journal is reporting that based on SEC filings the company's top three officers took home $92.3 million dollars this year. Not bad for a year's work, of course these paychecks are small potatoes compared to what some of Lehman's competitors like Goldman Sachs paid out.

If you can't cut down on polution at least feel better about it

There has been a push towards all things 'green' in the United States recently (although I'd love to see some statistics showing that people are practicing what they preach). There is a nifty service out there started by a couple business grad students called TerraPass. They sell TerraPasses that off set the emissions of your car, home and I think have branched out into new areas recently. You input the square footage of your home and the state or make and model of your car. They will tell you how much of a polluter you are each year and you can buy a pass which they will invest into clean energy or other good stuff that will negate your "carbon footprint" as they like to say.

Joost: IPTV is a Sweet Idea

I hate cable companies (almost as much as I hate cell phone companies). Any way I can stick it to them is cool with me especially since I get free internet access in my apartment but pay for cable. Joost - formerly the Venice Project - promises to be an interesting legal alternative to downloading shows on bittorrent, paying $2 a show at iTunes, or $50 a month for cable. For those of you who haven't heard of Joost it is a new piece of software by the guys who created Kazaa (P2P file sharing), Skype (VoIP) - and made a bundle in the process. Joost lets you watch TV free over your internet connection (IPTV) and just signed on Viacom to provide content.

The only potential problem I see is that providers like Comcast and Time Warner are already throttling heavy internet users to less than broadband speeds. I wonder how many people will get throttled as a result of Joost.

The program is in beta right now and is only taking members by invite only like GMail did but I hope it starts ramping up members because I would love to test it out. Also like GMail a website has come to the rescue and promises to match up people with invites and people desperately in need of them like me - aptly named "joostswap." Head on over if you are interested and maybe you can offer something interesting enough to score yourself a coveted invite. Make sure to let me know if you get an invite how the program works and

Facebook insanity and other thoughts

If you are in college or recently graduated you probably know about FaceBook.com, the site is a MySpace for college kids. The site was founded by a Harvard dropout and recently opened itself to people who don't have a .edu email address. There have been rumors swirling around for the past year that the founder is asking for $2,000,000,000 from potential suitors and that Yahoo is a potential buyer. Yep, that was 2 BILLION.

How does this relate at all to personal finance, it doesn't really unless you are the exceedingly lucky 20 something who stands to make scads of money if the site is sold. However, it made me think of a college roommate who used FaceBook as a fairly lucrative side business requiring next to no work. While it was a racket that paid off for him, I wonder how many other people have tried similar things.*

1) My roommate would create an account with one of the freeipod, freexbox, freewhatever websites there are hundreds of them.
2) He would create a short URL to forward to his freewhatever referral page.
3) He would create an ad linking to that short url on FaceBook and run the ad at large institutions where he could get good exposure.**
4) Referrals would sign up through his like and for a fraction of the product price paid to FaceBook in ads he would have a brand new xbox, ipod or other gadget in a few months.***

* I DO NOT ENDORSE MULTI-LEVEL MARKETING PROGRAMS OR ANY OF THESE MLM SITES, actually I don't endorse facebook for that matter either, it is the college student equivalent of crack.

**Previously FaceBook sold ads for a flat rate per school per day say $10 for 11,000 pageviews, now the site charges $5 for "fliers" which produce 2,500 views a day so I'm not sure if this method makes sense on FaceBook anymore but I would guess it could be applied to other websites with similar business models hitting the same demographics.

*** I can't imagine many of these websites have a business plan a strong business plan or are run by the finest MBA's in the country. Realize that the potential for you to collect is based on 1) if the freewhatever site goes bell-up or stays solvent, 2) if you can con convince enough people to sign up.

A calculator for this, a calculator for that

If you haven't noticed I like online calculators because 1) they do a lot of the work for me and 2) they are less prone to mistyped figures and generally take a greater number of factors into consideration than I can without creating an Excel spreadsheet.

With that said there are three more calculators that I think people may find useful. Both are from Bankrate.com which really has a ton of useful stuff if you can wade through it all. The first calculator crunches the numbers on what price house you can afford. The second calculator will help you figure out how much you have to sock away (and let you change the interest rate) to reach a designated savings goal (FYI: $22 a day invested in a 5% savings account like HSBC will net you a cool million 40 years from now).

The third calculator for those of you in the market for a home or wondering if it is worth it will help you decide based on the mortgage price you are interested in, your current rent payment, and your down payment when a house payment becomes more attractive than your current rent. It breaks down the payments and closing costs (with rough estimates) and shows you where the tipping point is between renting vs buying. Head over the youngmoney.com to check it out.

The Rule of 72

For those of you who like to calculate compound interest in your head here is an article that discusses and will calculate the famed Rule of 72.

The Rule of 72 helps determine roughly how many years it will take an investment to double in value at a certain interest rate. For example a investment paying a 10% annual return will double in a little over 7 years (72 / 10 = 7.2). Those of you more mathematically inclined can crunch the numbers in your head but this calculator gives you the real answer as well (7.27). If you are really excited about the Rule of 72, the site also has an article explaining why the equation works... be warned the why section gives a very technical explanation and made my head hurt personally.

Roth v. Traditional IRA

Now it is unlikely that social security as we know it will be around for a long period of time and of course it is a smart idea to get started early saving in a retirement account. As a rule of thumb Roth accounts favor young investors who haven't yet maxed out their earning potential since the investment is taxed at the front end. (ie if you are currently in the 15% tax bracket that is what your money will be taxed at before being invested and can appreciate tax free). Traditional IRA's get taxed on the back end, but if you are already in a high tax bracket or will not be when you retire this might be irrelevant.

The area between the two is more grey -- can you figure out when it's worthwhile to plow money into a traditional IRA in place of a Roth? Van Kampen has a nice calculator complete with graphs (a must for visual people or those with short attention spans).

At the bottom of the charts you can see how much you will need to draw each year at retirement based on how much you would need to live off if you were retired today - a nice bonus for those of us who wince at the thought of dusting off the financial calculator and running some future value equations or haven't ever thought through how much that inflation adds up.

MoneyChimp also has a general background and comparison of each type of account (yeah I know, the name makes it hard to take seriously).

A Good Resource For All Things Financial

While I was surfing around today (procrastinating and otherwise being unproductive) I came across a site that I thought was interesting and pretty useful. It is called the Personal Finance Blog Aggregator. The name is pretty self-explanatory, it's a large directory of blogs written predominantly about personal finance. It's ad free and seems like it does a pretty decent job of screening blogs so you only see ones that get updated regularly and aren’t junk. Check it out if you are looking for something good to read.

CD Rates

The one year CD rate is holding right around 4.86% (not a great deal since many online savings accounts are offering rates of 4.5% to 6.0% APY, but tonight I saw a few companies advertising rates significantly higher than that (especially if you have a sizable amount to invest which rules me out). AmTrust is offering a 5.46% APY $1000 minimum CD, NetBank is offering a 5.45% APY $1000 minimum CD both are FDIC insured.

EDIT: I have removed the entry here about Millennium Bank. I missed that it was not FDIC insured and apologize to everyone. Never a good idea to put money in a "safe investment" like a savings account or certificate of deposit that is not FDIC insured. It has been suggested that money-rates.com is a good place to find other FDIC insured investments.

Credit Cards: Best of the Best

If you are like me you get a handful of credit card offers in the mail daily with zero percent interest, low fees, cash back and other rewards. I don't typically mind this constant onslaught of offers most of the time, except they tend to send terrible deals. I'll pick out a few credit cards that I think are the best out there based on what type of user you are. I have put the in categories there based on how you use credit cards might use credit cards. (as usual I receive nothing for recommending any of these, I found them by searching bankrate.com, google.com, and creditcards.com the information was accurate as of 2/24/2007).

If you want the lowest interest rate because you carry a balance:
Brand: First National Bank (Visa)
APR: 9.99%
Intro APR: 1.5%, for 15 mo
Fee: None
Credit: "Good Credit"
Reward: 5% cash back on gas purchases for first 3 months, 3% cash back on gas after the intro period, 1% on all other purchases.

If you want cash back:
Brand: Citi Dividend Platinum Select Card (Mastercard)
APR: 13.74%
Intro APR: 13.74%
Fee: None
Credit: "Excellent"
Reward: 2% cash back on purchases at supermarkets, drug stores, gas stations, convenience stores, utilities, 1% everywhere else.

OR

Brand: Chase Freedom (Visa)
APR: 14.24%
Intro APR: 0% (12 mo.)
Fee: None
Credit: "Good Credit"
Reward: 3% cash back on purchases at grocery stores, gas stations, fast food, 1% everywhere else.


If you want miles:
Brand: Capital One No Hassle Miles (Visa)
APR: 13.9%
Intro APR: 13.9%
Fee: None
Credit: "Excellent"
Reward: 1.25 miles per dollar spent, redeemable on any airline, no blackouts, can fly holidays


If you have a mortgage:
Brand: Citi Home Rebate Platinum Select
APR: 12.24%
Intro APR: 12.24%
Fee: None
Credit: "Very Good"
Reward: Once a year the company will apply the rewards you receive against your mortgage. You receive 6% cash back on internet connection fees, telecom services, cable, satellite, pay tv & radio, utilities (12 mo), you receive 1% cash back on all other purchases.


If you are a trader:
Brand: ShareBuilder Platinum Rewards
APR: 14.24%
Intro APR: 0% (12 mo)
Fee: None
Credit: "Good"
Reward: 1% cash back directly into your ShareBuilder account which allows you to buy fractional shares of stock or commission free trades.

OR

Brand: E*Trade Rewards Platinum Visa
APR: 12.15%
Intro APR: 12.15%
Fee: None
Credit: "Excellent"
Reward: 1% cash back directly into your E*Trade account to invest or use for free trades.

TurboTax vs. TaxCut

By now if you haven't seen a commercial yet or heard of TurboTax (Intuit) or TaxCut (H&R Block) consider yourself sheltered fortunate. I even heard an advertisement for one of the packages while shopping this week. I'll break down exactly what they are and how they compare in this post.

What Do They Do?
---------------------
Both programs are software packages that you can pick up at any local chain or electronics retailer (Wal-Mart, Best Buy, Circuit City, Target). The programs install and being by asking you a series of questions - an "interview" as the programs refer to them. Questions range from how many children do you have and are you married to the size and number of charitable deductions you made over the year. Your responses are dropped down into the tax form in the appropriate area after submission and calculations are made. After the process is completed the programs allow you to print off a completed form to mail or send in electronically "e-file."

New Features
------------------
The big push this year has been to push "audit protection" features which of course entitle the companies to extra fees. Both companies offer similar services so this is a wash. However, if you e-file TaxCut throws the service in for free. TurboTax will cost you around $40 for the protection.

Transferring Data
----------------------
You can save yourself a sizable chunk of time if you avoid re-inventing the wheel and import your data from other programs. TaxCut and TurboTax vary slightly on which programs they play nice with.

TurboTax can talk with:

1. Quicken and QuickBooks
2. W-2, 1099, 1098
3. TaxAct
4. TaxCut
5. Anything that can create a .txf file
6. Microsoft Money
7. ItsDeductible
8. Quicken Rental Property Manager

TaxCut can talk with:

1. TurboTax
2. H&R Block Deduction Pro
3. Deduction Pro
4. Money
5. Quicken

Tech Support
---------------------
Both companies have phone, chat and email support. I haven't used the feature on either package to be able to give much guidance here. From reading up TaxCut's "Ask a Tax Advisor," (another way for H&R block to throw work to its accountants) costs $19.95 per question (federal or state). TaxCut also runs a blog which is free to view. TurboTax has a "Live Tax Advice feature" where you can talk one on one for FEDERAL tax questions ONLY and is more expensive at $39.95 per question.

Pricing
---------------
TurboTax

• Free Federal: Free
• Deluxe: $29.95 (Fed Only)
• Premier: $49.95 (Fed Only, need this if you have investments)
• Home & Business: $74.95 (Fed Only, Schedule C's included)
• Note - State returns cost an extra $24.95
  

TaxCut:

• Basic + E-file: $9.95 (1040EZ only simple returns)
• Premium + E-file: $19.95 (More in depth plus 1 ask a tax advisor session free, State extra)
• Premium + State + E-file: $39.95 (State + Fed + everything in the Premium)
  

The quick recommendation: In my opinion the average taxpayer will get a better value from TaxCut. It is less expensive, you get state and federal returns, and can talk to an advisor if you have a question and won't get charged extra.

You can buy either package online from the source TaxCut.com or TurboTax.com

That's all folks...

++++ UPDATE 02/28/07++++

Additionally, it has been brought to my attention that while TurboTax's free edition supports only the 1040EZ filing, TaxCut supports 1040EZ, 1040A, and 1040 forms: You have to purchase the Deluxe or Premier to get those forms with TurboTax.

Looking For Friends...

Want to become a friend of this blog? If you have a website or blog and would like me to link to your page email me. If you link back to The Golden Parachute I will include your link on my site.

Credit Score Basics

This is going to be a rudimentary post for many people out there, but I recently requested my credit report so I'll blog briefly about it.

Under the (relatively) new law everyone in the U.S. is entitled to one free credit report annually. With identity theft on the rise and the ability of your credit score to ensure you affordable rates on loans, approval on renting, and now increasingly employers are using credit checks to determine how trustworthy new recruits are it is an important stat to know. How exactly the FICO (Fair Isaac Corp) score is a closely guarded secret, but it takes into account the amount of credit you have available, history of payments and any new credit you have applied for. Scores range from 300 to 850.

If you would like to check out what kind of dirt the credit bureaus have on you (there are three of them Equifax, Experian, and TransUnion) you can visit annualcreditreport.com and request all or one of your reports. I would recommend that since you can receive one free report from each bureau per year that you spread them out - request Equifax this week, Experian in four months, TransUnion in eight months. It's more of a hassle but it's better to know if someone opened a credit card in your name four months down the road than a full year. The quicker you find mistakes and errors the easier they are to fix. It is also good practice to request a report about six months before applying for credit or a loan. Creditors pull your report and if there are inaccuracies it can take months to iron everything out.

Should anything be wrong you can file a protest (depending on the company either on their website or by written letter) and convince them to remove or at least investigate a questionable entry. The bureau has 30 days under federal law to respond to your request and if they deny your request and something is legitimately inaccurate and they refuse to change it you can sue them.

It's Tax Time: Get Someone To Do Your Dirty Work For Free

The number of people who enjoy filing their taxes can likely be counted on one hand (even CPA's dread this time of year), but if you match the qualification criteria you can get someone to do your dirty work for you and not pay a dime. The VITA program (Volunteer Income Tax Assistance) sponsored by the IRS recruits a small army of college students and other individuals who after undergoing thorough training can fill out you taxes for you.

Good deal huh? What's the catch?

Well the big catch is you typically have to have $39,000 in income or less, the second is you need to find a VITA center (generally pretty easy if you live near an university that has a business or law program). If you meet the criteria find a volunteer location on the IRS website, round up all your documents and walk right by the H&R Block or Jackson Hewitt guys hawking their services around town.

It's Tax Time: Articles Abound

For those of you avoiding this dreaded time of the year CNN.com ran a story this week about often overlooked tax breaks people don't take advantage of. The article isn't ground breaking, but may be helpful to those of you doing taxes the "old fashioned way." Those of you using TurboTax, TaxCut or any other of the commercial tax software packages you can probably skip it.

The gist of the the story is that there are tax breaks for professional periodicals, real estate taxes, tuition, state taxes, self-employed, retirement savings, child care, telephone service, and energy efficiency.

Check out the full story over at CNN

What This Blog is All About

I thought I should take a minute and explain why I started this blog and what it covers. First off for those of you wondering a "golden parachute" is a very lucrative severance package that CEO's of many large corporations receive when they are fired. While that is a great gig if you can get it, most of us common folk have to start at the bottom. I decided to start this blog to highlight some of the everyday things I find, think are useful or otherwise think are interesting.

How am I qualified to contribute on these topics? First off I'm in grad school so most of the topics hit home (student loans, savings, credit cards) and ... well I'm cheap frugal. Honestly though I have a background in business and am studying law now (don't hold it against me, and I can't provide legal advice free or otherwise).

Online Banking Showdown

What is an Online Bank?
The premise is simple, but frightening for some. A banking institution which in most cases does not have a traditional brick and mortar branch. The bank has lower overhead costs since there are no branches. In theory the bank can pass these savings on to you in the form of higher rates of return.

How Does it Work?
Generally an individual will begin by open a free checking account at a brick and mortar bank that has many nationwide locations (Chase, Bank of America, WaMu etc. - or a smaller one). The person will then link this account to the online bank by entering information found on a check such as routing numbers and account numbers at the bank website. This linking allows for electronic funds transfer between accounts. After verifying the account the bank will activate the online account and you will be able to make an initial transfer. By logging into the online bank’s secure website you can easily schedule transfers to send money both in an out of the account which usually takes 3-5 days each way depending on the institution.

Are They Safe or Reliable?
It depends. Like anything it pays to do a little research before you set down some of your hard earned cash. Look for a bank that is FDIC insured (insuring deposits up to $100,000 and is either a subsidiary of a larger bank or one that has been around a relatively long period of time. All reputable online banks use encryption to protect sensitive information and financial data.

The Players
The number of new entrants into the field seems to grow every day. This is good because increased competition generally leads to better deals for you. I’ll start with the established banks and then mention some of the new players entering the fray. The most popular online savings banks are HSBCDirect, INGDirect, and EmigrantDirect. These three are all well established and are “safe” bets for potential investors. Recently many of the major banks like E*Trade, CitiBank and others have jumped in offering similar rates and services.

Comparison
I’ll compare the three major online banks only because those are the ones I’m most familiar with.

INGDIRECT: Offers rates of 4.5% APY currently and offers the widest range of online banking services such as home mortgages, CD’s, and mutual funds. They are a subsidiary of a very large dutch financial services company and has “Cafes” in a few major cities. ING has also recently introduced electronic checking accounts (which I don’t have any experience using). ING is the hands down leader in terms of user interface and is very easy to use especially for beginners. There are no fees or minimums, and it generally takes about 3 days to make transfers in and out of the account.

HSBCDIRECT: Offers rates of 5.05% APY currently and has a deal running where it will pay a rate of 6.00% APY on “new money” transfered into HSBC accounts. HSBC is a subsidiary of a large bank headquartered in London. The company is aggressively pursing new clients and offers a ATM card linked to the online account. The user interface is not as easy to use as ING, but works in a similar manner. Similar to ING there are no fees or minimums. I find that it generally takes about 4 days to move money to a linked account.

EMIGRANTDIRECT: Offers rates of 5.05% APY. The bank is not well known for having a great user interface but it gets the job done. EmigrantDirect is a subsidiary of Emigrant Bank which has branches in the NY metropolitan area. The account has no minimums or fees, and transfers take about 4 days in and out of the account.

My Take
I have used ING extensively and HSBC and Emigrant consistently but for a shorter period of time. Based I my experiences I would recommend two of these companies based on what kind of user you are.

If you are somewhat skeptical of online banking or just like things that are easy to use - INGDirect is probably the right online bank for you. The rates are good, transfers are quick and customer service is great (if you ever need them).

If you are a power user who wants the highest rate HSBCDirect is probably best for you. The company has slow transfers (4-5 business days in my experience) and a more difficult to use interface but also has the highest rate. Users can also overcome the slow transfer time by accepting the optional ATM card and using that to draw money from the account.