Happy New Year 2016!

No post this week in celebration of the New Year!

Photo: Daniel Lee

An Introduction To Hard Money Lending

Last time, I mentioned how I like to receive cash flow from my investments, which is why I am a dividend investor. There is one other type of investment I like and have used for years to generate cash flow and that is hard money lending.

What Is Hard Money Lending?

Hard money lending is the process of making a loan based solely on the value of some item put up as collateral by a borrower. Hard money lenders are usually private investors who lend people money using a piece of real estate as collateral. Most lenders will only loan up to a certain percentage of the value of the property. For example, my partner and I don't loan more than 73% of the value of a property. This is referred to as 73% LTV, or loan to value ratio. So if a property if worth $100,000, we would loan a maximum of $73,000 based on that property. This is because if the borrower defaults and doesn't pay the loan back, we need to foreclose on the property and then sell it to get our money back. That process takes time and costs money, so the 27% cushion in the loan gives us some room to cover those expenses, should they occur.

When investing, my primary concern is that my principal is safe. I don't want to lose money (who does?), but no investment is without risk. So hard money lenders secure their investment by writing a mortgage on the property. This is just like a mortgage a bank would create when you buy a house, only in this case the hard money lender is the bank. The mortgage states how much is borrowed, what property is being used as collateral, and how long the borrower has to pay it back. This is a publicly recorded document and the house cannot be sold until the loan has been paid off. When this happens, another document is recorded stating the loan has been paid off and the hard money lender's claim on the property has been released. If you've ever bought or sold a house or refinanced a mortgage, you've gone through all this paperwork.

Hard money lenders usually charge borrowers higher interest rates than a bank would. This is because the whole process moves much faster, which is advantageous to the borrower. There is no credit check or income verification because the loan is based completely on the value of the property.

Who Uses Hard Money Loans?

So who would use a loan like this? People who need a big chunk of money quickly. The borrowers my partner and I lend to are people who buy houses at foreclosure auctions. When you buy a property this way, the entire purchase price is due in full by the end of the day of the auction. Obviously, there is no time to go through a loan process with a traditional bank. Enter the hard money lender. We loan the borrower money to buy the property. The whole process is handled through an escrow company, just like a regular house purchase. The escrow company handles the paperwork of writing and recording the mortgage and distributing the money to buy the house. The borrower then either keeps the house to rent out as an investment (and does a refinance to a standard bank loan later to pay the hard money lenders off and get a loan with a lower interest rate) or fixes up the property to sell it for a profit. The profits from that sale pay the hard money loan off and the rest goes to the borrower.

Who Are Hard Money Lenders?

I don't have enough money to make hard money loans for houses myself, so I have to pool my money with other people to make loans. This is where my partner comes in. He has several investors whose money he pools and lends out to borrowers. When a loan is made, each investor is listed on the mortgage so we are all fully protected. Altogether, our group of investors has a pool of about $6 million that we loan out.

There's much more to hard money lending than this and, if you are interested, I suggest you read about the 30+ loans I've made and written about on my real estate blog.

Why Do This?

So why switch from dividend stocks to hard money loans? Because I can get a better rate of return. My dividend paying stock is right now returning about 4.5%. With hard money lending, I can make between 7% and 8%. When I started years ago, before interest rates dropped, I was making 12%. Now yes, if the share price of my stock goes up, I could end up with a higher overall rate of return when you factor in stock price increases, but that's not a sure thing. Also, a stock price increase is not money I can spend until I sell the stock. Once again, I like cash flow and asset appreciation isn't cash flow.

There are other options for hard money lending besides real estate. Prosper.com and Lending Tree are large peer-to-peer lending sites that basically allow anyone to become a hard money lender. I lent money through Prosper.com eight years ago and I didn't enjoy the experience. I'm sure much has changed since then, but there is still one basic fact about their business model that I don't like: when you make a loan through them, it is an unsecured loan. If the borrower doesn't pay you back, you have almost no recourse. There is nothing you can sell to get your principal back. Recall when I said my primary concern was the safety of my principal? An unsecured loan is not safe. But if you've got $50 you're willing to gamble with and want to experience what hard money lending is like, go ahead and make a peer-to-peer loan. See if you like it.

A Guide To Dividend Investing

When it comes to investing in stocks, there are all sorts of different strategies people use. Growth investing is the strategy of buying the stock of small companies that you think will get bigger. A growth investor might have bought stock in Microsoft in the 1990s, believing it would grow into the huge company it now is. Value investing is buying stock of established companies when their stock price is less than what the company is actually worth. For example, if a value investor thinks a company is worth $10 a share and the stock is currently trading at $8 a share, this would be a buying opportunity. Warren Buffet is the most famous value investor. Dividend investing is the strategy of buying stocks that pay dividends. And, of course, investors can use a mix of strategies.

There are a couple hurdles with the first two types of investing. Growth investing requires you to be able to predict which companies will succeed and which will fail. Value investing requires you to be able to read financial statements and determine what a company is truly worth. This is not to say it is impossible to be successful with these strategies. It just takes a good amount of specialized knowledge (or good luck).

They also depend on one other thing - the rest of the market eventually coming around to your point of view. These strategies depend on stock price increases in order to generate a profit. If the stock price increases, that means the general public has finally acknowledged what you discovered earlier and those companies' stocks will be in demand. To put it in real estate terms, this is like buying a house as an investment and waiting for it to appreciate in price.

Why I Like Dividend Investing

Dividend investing, on the other hand, doesn't rely on share price increases to generate a profit. Instead, dividend investors are looking for the income stream the stocks provide. So obviously, a long term dividend investor should be worried about two things: how reliable is that dividend and how stable is the company?

A good dividend investment would be the stock of a company that has a long history of paying (and preferably, raising) dividends. They should also be a stable company with a reliable income,which will enable the company to continue paying dividends in the future.

Choose Your Own Adventure

A cool fact about dividend investing comes from the definition of a stock's dividend yield. As I mentioned last time, this is calculated with this formula:

Using this, if we know the stock's dividend, we can choose our purchase price to get the return we want. It's just like those Choose Your Own Adventure books, but you get to choose what return you want. Well, within reason.

Let's look at this using my favorite stock, Realty Income (O). At the time I am writing this, the company is paying a monthly dividend of $0.1905 per share. That works out to $2.286 per year. The stock is currently trading at $50.11, giving a yield of 4.56%. But suppose I want to earn 4.75% instead. Using the above formula and solving for Current Share Price, we can see a stock price of $48.13 will result in a yield of 4.75%. I just have to wait until the stock price drops to that point and buy it to get that return rate.

Now whether or not this is achievable, is another matter. You'd have to wait until the stock price drops to that level and it may not. But if you just have to have that 4.75% instead of the 4.56% and you have patience, you could reach your goal.

The nice thing about this is that, as long as those two requirements are met - the company continues to pay the dividend (or increases it) and the company stays in business - the dividend investor really doesn't care about the share price after the stock has been purchased. As long as the dividend doesn't fall, the money spent on that stock will always be earning the same percentage rate.

Suppose I buy $10,000 worth of Realty Income stock today at $50.11 per share. As long as the dividend remains at $2.286 per share per year, that money is always earning me a 4.56% return, no matter what the stock price does in the future. I've already bought that stock at that price, so that rate is locked in, even if the stock price falls to $30 or rises to $60.  As long as I don't sell the stock, I'll be earning 4.56% on my $10,000 investment.

Why I Like Realty Income

My previous experience as a real estate investor has taught me that cash is king. It's all about the cash flow. I want passive income and that is the ultimate goal that this blog is documenting - my quest to buy a Tesla with passive income. Hence my preference for dividend investing.

As mentioned earlier, the two most important things a long term dividend investor cares about are the stability of the dividend and the stability of the company. This is why I like Realty Income. The company is a real estate investment trust (REIT), which means they own property and rent it out to others and collect rent. They market themselves to investors as "The Monthly Dividend Company," in part because they pay dividends monthly while most stocks pay them quarterly and also because their dividend is what they are known for.

The company has been paying monthly dividends for 543 consecutive months. That's over 45 years! I'd say that's a pretty darn consistent dividend history.

They have increased their dividend 82 times since they were first listed on the NYSE in 1994 and they have increased it for 72 consecutive quarters. Look at this chart of their dividend history:

Constantly increasing. Very nice. And it's even more impressive when you realize that they were able to continue increasing their dividends even when the real estate bubble collapsed a couple years ago. They have never, in their entire 45+ year history, decreased their dividend.

This company has everything a dividend investor looks for in a company. That's why I love them.

Next Steps

As I have mentioned a couple times here, I'm not going to stay in dividend stocks forever. I plan to move into the hard money lending area once I have $20,000 saved up. Tune in next week to find out why.


Note that I am not an investment advisor and I am not recommending any specific investment. Consult your own advisor for advice specific to your situation.

Risk And Investing For Income

Last time, I talked about calculating yields for stocks and how that figure can be used to compare differing investments. If you recall, we looked at three different investments:

• A typical savings account paying 1% or less
• Realty Income stock (O) paying 4.58%
• Microsoft stock (MSFT) paying 2.95%

If we just look at the yields, it looks like the obvious choice is Realty Income. But this overlooks one important factor: risk.

How Safe Do You Want To Be

Investing in stocks always involves risk. Stock prices change each second the market is open. Because a stock's dividend yield is determined by the stock price, this means their yield is also changing by the second. The calculation of a stock's dividend yield is:

As you can see, two factors can cause the yield to change. If the dividend paid out is increased or decreased, the yield will increase or decrease. However, because the share price is the divisor of the yield calculation, it has an inverse relationship with the yield. If the share price goes up, the yield goes down. If the price goes down, the yield goes up. Both the price and dividend can change at any time. A company can reduce or even completely eliminate its dividend. The company can also go bankrupt, reducing it's stock price to zero. This is why stocks have risk.

A savings account however, is pretty much risk free. Assuming you are banking at an institution that has some sort of government insurance, your principle is guaranteed to never lose value by either the FDIC (for banks) or the NCUSIF (for credit unions). Obviously, this safety comes at a price - a lower yield.

Don't Chase High Yielding Stocks

It may be tempting to search for stocks that have a high dividend yield. If that is all you are looking at, you can get in trouble. For example, I used Yahoo's stock screener to look for stocks that have a dividend yield of at least 20%. The top result returned was Atlas Resource Partners, with a dividend yield of 43.5%!

Click to embiggen

But before you put all your funds into this stock, look a little closer. The yield is so high because the yearly dividend is $1.30 and the share price is only $2.99. And see that EPS number? That stands for Earnings Per Share. That number is negative, which means the company is losing money - it's losing $6.53 per share. Basic common sense should tell you that the dividend is likely going to be reduced or cancelled altogether very soon. If the company is losing $6.53 per share, how long can it afford to pay out $1.30 in cash to investors each year? In fact, the company itself could go under.

When you screen for stocks based solely on dividend yield, you may end up with a bunch of penny stocks that no serious investor should buy.

Next week, I'll go over what I look for when buying a stock for dividends.

Goal Update: End of November 2015

At the end of each month, I post an update of my goals, including a brief discussion of any notable events that might have occurred during the month. The latest month's figures can always be found under the Featured menu in the menu bar at the top of the blog.

Last updated: End of November, 2015
Current value: $18,701
Change from last month: +$559
Percent of Goal:  17.20%

click to embiggerate

Note that the funds in this account are invested in stock, so there will be fluctuations in value that are outside my control. I never withdraw money from this account, so any dips are purely due to stock price changes.

Events Of Note Last Month:

Income this month from my online courses sales was $365, about the same as last month. Sales for the next two or three months will be relatively lower, based on past experience. I guess people aren't interested in learning about SQL Server during the holidays. Go figure.

I received $6 in ebook royalties. Woo-hoo!


My account didn't have the big jump in value like it did in October, but it held on to its gains, which surprised me. I expected the stock price of Realty Income (O) to pull back a bit.


Once again, I'll take a moment to point out I have added a contact page here so you can send me an email or questions, if you so desire. Just click "Contact" in the menu bar. I'd love to get some Q&A posts going.

Realty Income stock is getting up there in price again and I am tempted to sell some covered calls to get some extra income. I think everyone is counting on the Fed raising interest rates before the end of the year, and a move like that typically causes REIT prices to fall. That would mean my covered calls would be unlikely to get exercised and I'd get to keep my shares (and the money from selling the calls), but I'm having a hard time pulling the trigger on this one.  I don't want to sell my shares. Actually, I just thought of what I might do.. Since I plan on selling when I hit $20,000 anyway, I might sell some covered calls at a price that would net me that much if the options were exercised. I'll have to look into this...

How To Calculate A Stock's Dividend Yield

When comparing different investments, the most common method used is to compare their yields. The yield of an investment is simply the return you get expressed as an annual percentage. This allows you to do a basic comparison between different types of investments. For example, suppose you are trying to decide which is the better investment: putting money in a bank account or buying a dividend paying stock. These are two very different types of investments with differing levels of risk. But suppose you are investing for the long term and your investment objective is income, i.e. cash flow. By comparing the yields of the two investments, you can tell which one gives you the better return.

Calculating Yield

Yields on savings accounts are simple. The bank flat out tells you what interest rate you will get when you deposit your money. If you go with a certificate of deposit, that rate will be locked in for a fixed period of time. A regular savings account might have a variable rate. Typical yields on savings account these days are in the 1% and lower range.

When talking about stocks, we refer to their dividend yield. As you might expect, this only applies to stocks that pay a regular dividend. A stock's dividend yield is calculated by taking the amount of money they pay out in dividends per year divided by the per share stock price. Almost all stock quote websites on the internet will provide this information for you. Here's a shot from Realty Income's quote page on Google:

I've circled the relevant section. In this case, the dividend and dividend yield are shown on the same line. Other sites might break them out onto their own lines. This is telling us that Realty Income pays out a $0.19 dividend per share. At the current share price of $49.89, that works out to a 4.58% return.

How was that calculated? In order to calculate this, you need one more piece of information that is not shown. Realty Income pays their dividend monthly. So over the course of a year, you will get $0.19 x 12 or $2.28 per share in dividends. $2.28 divided by $49.89 = 4.57%.  Why does Google show 4.58% then?

Here we get into the idiosyncrasies of dividends,particularly for Realty Income. A lot of companies that pay dividends declare them to fractions of a penny. In this case, Realty Income's actual dividend is $0.1905 per share. That translates to $2.286 per share of income and $2.286 divided by 49.89 is 4.58%.

Here's a shot of the info for Microsoft, which is a more typical dividend paying stock:

 

Microsoft pays their dividend quarterly, so $0.36 * 4 = $1.44. That divided by the $48.88 share price gives you a yield of 2.95%.

Using This Information

Now that we know how to get a stock's dividend yield, we can compare our two investments. A typical savings account will pay 1% or less. Realty Income is paying 4.58% and Microsoft is paying 2.95%. Seems like a no-brainer to go with Realty Income, right? Not really. Next time, I'll go into another important concept - risk.

Retail Credit Cards Are Robbing You

CreditCards.com recently released their annual survey of credit cards rates for retail branded cards. Retail branded cards are those issued by stores, such as The Gap, Apple, Macy's, or Staples. The results are not good news for consumers.

The average interest rate on retail credit cards in 2015 is 23.43%. Zales Jewelers has the highest rate at 28.99% and Staples comes in second at 27.99%. For comparison, the nation average for "regular" credit cards is 15%. How much will this save you? On a $1,000 balance, if you pay the minimum amount on a card with a 23.43% interest rate, it will take you 6 years to pay off the balance and you'll pay $838 in interest. Think about that. You got $1,000 of merchandise for $1,838. You almost doubled your cost. I hate to be the one to tell you this but.. Shopping? You're doing it wrong.

If you instead used a normal card with a 15% interest rate to make that $1,000 purchase and paid the minimum amount, you'd have it paid off in just four and a half years and would only pay $370 in interest. That still sucks. You've still paid 37% more than you should have, but at least you saved over $450 with the lower interest rate card.

Many times, stores will offer benefits for using their retail credit card, either discounts, cash back, special sales, etc. If you pay of your balance in full each month, these can be worthwhile. However, if you carry a balance, odds are you will be losing money in the long run.


Carrying a credit card balance on any type of card is one of the worst things you can do financially. But if you have to carry a balance, at the very least, get a card with a low interest rate and don't fall for the gimmicks stores use to try to get you to use their card. No matter what incentives they offer you, if you carry a balance on their card, you will end up losing money. Guaranteed.

Save Money By Challenging Yourself

The biggest monthly expense in our household is our mortgage payment. This is probably true for most working families. Our second biggest expense is food. Even if you only include the money you spend at the grocery store and exclude what you spend at restaurants, if you track your spending for a month, you'll most likely find the same thing. If you are on a budget and trying to save some extra money, it make sense to look at your biggest expenses and see if you can reduce them. Now refinancing your mortgage is probably not something you can do to reduce your expenses that often. And if you rent, you probably won't have a ton of luck asking your landlord for a reduction each month (although you can and should try to negotiate a lower payment each year when your lease is up, especially if you are a good tenant with a history of good payments).

That leaves food as your next biggest expense to tackle. You can go the coupon route and try to save money that way, but those savings are usually small. (Extreme couponing not withstanding - I'm not one to work that hard at couponing though.) Cutting back on eating out at restaurants is another way to cut your monthly food expense, although, as I mentioned earlier, even excluding this cost, you'll food bill is still likely high.

So what is another way to save money at the grocery store? First, stop buying prepared or boxed food. Try buying most of your groceries from the edges of the store - the produce department, the butcher department, the dairy department, etc. Buy food, not boxes. Yes, you'll have to spend more time making each meal, so if you don't have that time, this might be a difficult change to make. You also might not have much skill cooking. Experience is the best teacher. Just start doing it. You can't surf the internet for more than ten minutes without coming across some website about food and cooking. Find one that has recipes that sound interesting to you. If you don't have much experience cooking, start with recipes that are fairly simple. Over time, your skills will increase. You'll not only get better at cooking, but you'll get quicker at it and you'll start to look at ingredients and think "What can I make with that?"

I have always liked to cook. I remember making scrambled eggs for myself for breakfast when I was 12 years old. When I lived in a dorm as a college freshman, I snuck a gas camping stove into my room and cooked breakfast on it on the weekends. (This was probably not the safest thing in the world and I don't recommend it. I will say I did at least pry open the window for some ventilation.)  For most of my married life, I've been the first one home from work, so I became the one who cooks dinner most nights. I know that doing that five nights a week has definitely has improved my cooking prowess.

OK, but what does this have to do with saving money? Let me tell you.

No New Food Challenge

A couple weeks ago, my wife and I were looking at our budget seeing where we could come up with some extra money to put towards a vacation we are saving for next year. She saw our grocery budget and couldn't believe it was that high, so we tried to come up with a way to cut back a bit. She came up with a good idea: One week, make our dinners out of stuff we have in the house. For one week, don't buy any new food at the grocery store for use in dinners for that week.

I immediately saw the challenge in this and my mind started racing with possibilities. We always have a core group of staples in our pantry - rice, beans, pasta, etc. I buy meat when it is on sale and freeze it, so we had some frozen meat I could use. I always have homemade vegetable stock frozen and we had some frozen vegetables - not as good as fresh, but for one week, they would do. So we tried it. And I'm pleased to say, we did it! We still did buy groceries that week because the challenge only applied to dinner and we had to buy food for our lunches (my daughter, my wife, and I all bring our lunches to work / school), but dinner that week was made solely from stuff we already had in the house. And our grocery bill for that week was just 15% of what it normally was.

And you know what? It was fun! I have enough experience with cooking to be able to look at what I had on hand and figure out how to make meals out of it. We'll probably do this once a month now. And since I know I'll be doing this, I keep my eye out for special deals. Last week, my grocery store had a sale on both chicken and beef. Chicken is normally $3/pound and it was on sale for $0.99/pound. I picked up a couple packages. I found two large roasts that were more than 50% off. I bought those and cut them in half when I got home (because a whole roast is too big for my family). I threw both the chicken and beef in the freezer and I'm now stocked up for the next challenge week.

Because meat is usually pretty expensive (when it's not on sale), another possible challenge is to go a week eating all vegetarian meals.

If you are looking for food or recipes sites, these are some of the ones I follow:

• Serious Eats
• Smitten Kitchen
• Once Upon A Chef
• Girl Versus Dough
• Lady And Pups

Goal Update: End of October 2015

At the end of each month, I post an update of my goals, including a brief discussion of any notable events that might have occurred during the month. The latest month's figures can always be found under the Featured menu in the menu bar at the top of the blog.

Last updated: End of October, 2015
Current value: $18,142
Change from last month: +$1,676
Percent of Goal:  16.68%

Note that the funds in this account are invested in stock, so there will be fluctuations in value that are outside my control. I never withdraw money from this account, so any dips are purely due to stock price changes.

Events Of Note Last Month:

Income this month from my online courses sales was $363. I also received $100 from blog advertising. That's the first advertising payment I've received in over 2 years, so yeah, not making a lot of money from my blogs. Of course, I'm not really trying to. I don't do any SEO and have very, very limited ads, so this isn't too surprising. On the other hand, when I do get a payout, it comes as a nice surprise. Another nice surprise was a $150 quarterly bonus payout from my work. And one more nice surprise was a $100 check from a class action lawsuit settlement against a tour bus company in New York City. We had bought tickets for a bus tour when we went there for Thanksgiving in 2013. Apparently, there are two big tour bus companies in New York, but they are actually owned by the same company, so they were creating a false sense of competition when the company really had a monopoly on the business and kept the prices high.


Once again, my account had a nice jump in value due to the rising stock price of Realty Income (O). This month I crossed the $17,000 and $18,000 marks for the first time - the second month in a row of hitting a record high!

My plan all along has been to shift my investment from stocks to a hard money (real estate) loan once I hit $20,000. I'll keep funneling new funds into stock, but I plan to move money into higher paying mortgage loans in $20,000 chunks. Right now, my partner can get between 7% and 8% interest, whereas the Realty Income stock dividend is yielding about 4.5% (yearly dividend of $2.286 per share, at the current share price of about $50). Now that doesn't take into account stock price increases, of course, but since the stock price fluctuates, I'm just using the dividend payout as my gauge. (This isn't the most accurate measure, but it will work for my purposes. I'll do a post about this in a few weeks.)

I have been a little concerned about this plan over the last 6 to 12 months. My partner had seen the deals coming his way dry up and he had more money to invest than places to invest it. I was glad to hear this month that that situation has now reversed - he now has more deals than he has money for. It's looking like I might be able to start lending with him in a few months. Looking forward to that, as it means I'll almost double my monthly income. Things will really start to snowball then.


I'll also take this moment to point out I have added a contact page here so you can send me an email, if you so desire. Just click "Contact" in the menu bar.

It's Open Enrollment Season!

It's that time of year again - open enrollment season! This is the period where employees are given the chance to sign up for or make changes to the benefits programs offered by their employers. You can add or change your insurance coverage and sign up for flexible spending accounts for both medical and child care expenses for 2016. It's these last two I want to talk about.

What Is A Flexible Spending Account?

A flexible spending account (FSA) is a special account you put money into via payroll deductions that can be used to pay for qualifying medical or dependent care expenses. The benefit is that you don't pay taxes on money put into these accounts. So if you earn $3,000 a month and put $200 total a month into these plans, you only pay income tax on $2,800 of income. Why is this good? Apart from the obvious answer of "paying less taxes is good," a medical FSA allows you to deduct more medical expenses than you otherwise could. (Although FSA contributions are not "deductions" you take on your income tax return, they allow you to pay for medical expenses with pre-tax dollars, which in effect, is what a deduction does.)

If you were to itemize your taxes and claim deductions for medical expenses on your income tax return, you would not be able to deduct medical expenses less than 7.5% of your total income. By using a FSA account, you can start saving taxes on the very first dollar of medical expenses. Let's look at our above example where you earn $3,000 a month. That's $36,000 per year. Without a flex spending account, if you decide to deduct your medical expenses on your income tax, you would only be able to deduct expenses over 7.5% of your income. In this case, that would be $2,700. A single person making $36,000 has an effective income tax rate of about 11.5% (using 2015 tax rates). Because that first $2,700 of medical expenses is not deductible, you pay tax on that money - which amounts to $310.50.

But if you used a medical FSA and put $2,700 into it, ALL of that money is tax free. So just by using a FSA, you've saved yourself $310.50. That's the benefit of FSAs.

There is also a flexible sending account that can be used for dependent care expenses and it provides the same tax benefits for child care expenses.

Note that these are two separate types of accounts. You cannot use funds from your medical FSA to pay for dependent care expenses and vice versa.

What Are The Drawnbacks?

Use It Or Lose It

The problem with these accounts is that they are "use it or lose it" accounts. When you set up your contributions during open enrollment, whatever amount you choose to contribute is unchangeable for the entire year and, if you do not use all the money you put into these accounts, you lose that money. (Some plans allow you the option to roll over unused funds to the next year's plan or let you use unused funds for the first couple weeks of the next year.)

So you have to be good at estimating your future expenses. For regular, recurring costs, like monthly child care payments, this can be fair easy to do. For things like medical costs, it can be a bit trickier. How do you know how many times you are going to see the doctor next year?

Contribution Limits

There is also a limit as to how much you can put into these accounts each year. For 2016, the contribution limits for a medical FSA are a minimum of $120 and a maximum of $2,550. The limits for dependent care contributions vary, depending on if you are single or married. Single filers can contribute up to $5,000. Married filers can contribute $2,500 per spouse. As with anything tax related, there are all sorts of other limitations and conditions, so check with your employer's HR department or your tax advisor for full details.

Limits On Use

What you can use the money for is also limited, You can't use funds from your dependent care account to pay for a baby sitter when you and your spouse go out to dinner. You can use it, however, to pay for a babysitter while you go to work. For medical expenses, most over the counter medicines are not eligible, but all prescription medicines are. Co-pays for doctor visits are, as are any insurance deductible payments. Costs for contact lenses, eyeglass lenses and frames, and diabetic supplies are also eligible.

Potentially Lots Of Paperwork

As you might expect, the paperwork for this can be a bit overwhelming. There is usually a third party company that manages the accounts and reimbursements. To make a claim, you have to send them proof of payment and proof of service. That means getting receipts for each doctor visit. Luckily, many plans provide a pharmacy card that can be used like a debit card at certain pharmacies. Since these pharmacies have flagged which items are eligible for a medical FSA in their computer systems, no paperwork is needed when buying these items. The purchase information is automatically sent to the plan administrator for you. Because you paid with your flex spending card, the money comes directly out of that account and you don't need to get reimbursed.

So How Do You Choose How Much To Put Into These Accounts?

For a dependent care account, this process is usually easy. You likely pay a monthly fee for before or after school care (or daycare if you child is not yet old enough for school). Just multiply that by 12 to get your annual contribution amount. If your child is in school, don't forget the summer months. Your costs may be more for those times they aren't in school and need care all day long. Also, keep in mind the school year and calendar year do not sync up. This bit me this year. My daughter was in fifth grade last year and I planned my FSA contributions based on her attending after school care for an entire year. But when she entered sixth grade in August, she starting riding her bike home after school and didn't need after school care. Because FSA contributions are fixed for the year, I could not change it and so I lost five months of contributions because I had no child care expenses to claim for August through December. D'oh!

Medical FSA contributions are a bit more challenging. First if you are taking any medicine regularly, at the very least contribute the amount your prescriptions cost for an entire year. Next, I figure at least 2 doctor visits per person per year, so add in co-pay amounts for those. Finally, if you wear contacts or glasses, consider if you want or need to get new ones in the coming year. Costs for eye exams, contacts, and eyeglass lenses and frames are eligible expenses. These can run into the hundreds of dollars, so if you know you're going to need some, add that to your contribution amount. Again, because of the use it or lose it nature of the accounts, if anything, it's best to under estimate rather than over estimate your future medical expenses.

If you use any kind of budgeting or expense tracking tool, such as Mint.com, it might be really easy for you to look at how much you've spent on each type of expense over the past year and use that as a guide to selecting your contribution amount for the next year.

Conclusion

Using flex spending accounts can be a pain in the butt with all their paperwork requirements, but you can save hundreds of dollars in taxes by using them.

Don't Leave Money On The Table: When Maxing Out Your 401(k) Might Lose You Money

I came across this post on Reddit and it made me aware of a potential situation where you might lose money if you max out your 401(k). I'll recap the post here and try to explain things in a more clear manner (at least to me) than the original author has. The numerical examples I use are the same ones he used.

If your employer offers a 401(k) match AND you are maxing out your 401(k) contributions, you may find your self in a situation where you might miss out on some of that matching money. Now, to be sure, this is going to be a situation few people find themselves in - I personally don't know anyone who is maxing out their 401(k) contribution - but it's worth mentioning in case someday you are able to.

The Problem Scenario

Here's the setup: the IRS has set the maximum amount you can contribute to a 401(k) at $18,000 for 2015. (OK, technically Congress set the limit via law, but the IRS enforces it.) This limit does NOT include any matching funds your employer contributes. Let's assume your employer will match your contributions up to 5% of your salary. The actual amount of the match doesn't matter in this scenario, but we'll go with 5% to have some numbers to work with.

You're a great saver with a high income and have elected to contribute 25% of your $104,000 salary to your 401(k). You get paid biweekly, which means you get 26 paychecks per year. Your pre-tax per paycheck earnings are $4,000, so your 401(k) contribution is $1,000 per paycheck. Each paycheck, your employer matches your contribution up to 5% of your pay, which means they contribute $200 per paycheck (5% of your $4,000 paycheck).

Because the IRS limits you to $18,000 in contributions, after your 18th paycheck, your 401(k) contributions will stop. Once those stop, there is no contribution for your employer to match, so for paychecks 19 through 26, they don't contribute anything. So you've lost $1,600 in matching contributions (8 paychecks times $200 per paycheck).

Now, if your employer is on top of things, they should realize this and at the end of the year, they would make a final "catch-up" contribution to true up. This is because they have agreed to match 5% of your salary and, after their contributions stopped at the 18th paycheck, they have only contributed $3,600, which is less than the 5% of your salary ($5,200) that they promised.

The question then becomes - is your employer on top of things? Will they realize this and actually make the catch up contribution? Will you remember to check to make sure they did? The end of the year is a hectic time with the holidays and vacations and visiting family. It's easy to forget things. Is this one more thing you want to keep track of? I didn't think so.

Here's something else to consider: what if you leave the company after paycheck 23? You'll miss the end of year true up and I'd be willing to bet no one in payroll will remember to perform an end of employment true up just for you. If you forget to bring it to their attention (and you probably will), you'll have lost out on $1,000 in matching contributions (the company match for paychecks 19 through 23).

How To Fix It

There is a relatively easy solution to this problem: adjust your contribution rate so that you don't hit the IRS maximum until your last paycheck of the year.

The maximum contribution is $18,000, which represents about 17.31% of your pay. Change your 401(k) contribution amount from 25% to 17.31%. You'll still be contributing the maximum amount per year, but now, because you are contributing every paycheck, you'll automatically get your employer match each paycheck and won't have to worry about the missing match scenario, either at the end of the year, or if you leave the company.

Most companies only allow contributions to be specified in one percent increments, so you'll have to go with either 17% or 18%. (If you go with 17%, you'll miss maxing out your 401(k) contributions by about $322.)

Another benefit to this method is you can take a little more advantage of dollar cost averaging because your stock or mutual fund purchases will be spread out over 26 pay periods rather than 18.

Although you are doing great by maxing out your 401(k), don't leave money on the table by inadvertently missing some of your employer match!

Is The Model X Telsa's First Big Mistake?

The Model X is now finally in production and is shipping. People seem to love it. It's an amazing vehicle and a technological marvel. But did Tesla miss the boat on this one? Is this Tesla's first big mistake? I think it very well could be.

The first thing to note is the price. The Signature Series, which is fully loaded, checks in at $132,000. The low end, non-performance base model is going be about $93,000. Final details haven't been announced, but Musk has tweeted it will be about $5,000 more than a Model S, which is $88,000.

Musk has also said that they might have over-designed the car:

I’m not sure anyone should really make this car. There are far more things there than is needed to sell it.

 All that technology is awesome and makes one hell of a car, but it also drives the price way up.

Another possible misstep is the middle row of seats - they don't fold down. In February 2012, Musk presented the Model X to the world and said "All the seats fold down. You can practically fit a queen size bed in there." Except, now in the final production model, they don't. This cuts down on the amount of cargo that can be put in the car. To be sure, it can still hold a large amount of stuff, especially when you consider the Model X also as a frunk, like the Model S. But the inability to fold down the middle row of seats means you may have a hard time doing something like putting a bicycle in the back. Or a queen size mattress. People have cancelled their purchases because of this. Being able to haul large items like this is what many people want in an SUV.

There is no trailer hitch, so don't think about towing anything unless you add an after-market hitch. (Tesla has said a towing package will be offered in 2016.)

Given these issues, some internet commenters are saying the Model X isn't really an SUV - it's a minivan. I find it hard to disagree.

Almost all of the reviews I have read say the car handles really well. "Just like a Model S" is a common phrase running through almost every review. This exposes another problem: I think most Tesla cars will end up handling very similar to each other. The battery packs will give all models a low center of gravity and thus, great cornering and handling. The electric motor will give them crazy acceleration. So what's left to differentiate the models? Battery range, body style and features. This may be why Elon put so many gizmos into the Model X, but, as I mentioned, this raises the price.

The high price is causing concerns for investors. I don't see how another uber-expensive car is going to help Tesla grow. The Model X doesn't really open up new markets for the company. They are still only going to be able to be purchased by people who can afford a $100,000+ vehicle and there aren't too many of those people around these days. Yes, Tesla has a backlog of some 25,000 orders to fill. But remember that these reservations were placed starting way back in 2012, so it represents three years of pent-up sales. Once that backlog is worked through, I'm not sure what kind of yearly sales will materialize.

After reading Musk's biography, I believe he is driven to achieve perfection. That's great for producing fantastic vehicles and pushing the industry forward, but not so good for producing low cost vehicles. I honestly don't see how Musk can create a Model 3 in the $35,000 price range. I am predicting that will end up costing closer to $50,000.

Goal Update: End Of September 2015

At the end of each month, I post an update of my goals, including a brief discussion of any notable events that might have occurred during the month. The latest month's figures can always be found under the Featured menu in the menu bar at the top of the blog.

Last updated: End of September, 2015
Current value: $16,466
Change from last month: +$1,318
Percent of Goal:  15.14%

Note that the funds in this account are invested in stock, so there will be fluctuations in value that are outside my control. I never withdraw money from this account, so any dips are purely due to stock price changes.

Events Of Note Last Month:

Income this month from my online courses sales was $378. I also received $9.44 in book royalties.

Had a nice jump in value over last month, mostly due to stock price increases. I ended the month over $16,000, which is the first time that has happened. Also crossed the 15% of goal threshold for the first time.

Nothing much else of note happened this month. Standard weekly budgeted contributions continued. Dividend earnings from stock continued. Realty Income (O) announced their 82nd common stock dividend increase this month, effective with the October payment.

I did discover one interesting thing. I mentioned last month that my earnings for my online courses crossed the $5,000 threshold. My wife, who works at Arizona State University, informed me that this is more than what a basic college professor earns for teaching one class for an academic year. Good for me, but kinda disheartening if you care about the state of education.

What To Do If Your Identity Is Stolen

Having your identity stolen is a major pain in the ass. I know. My wife had hers stolen seven years ago and it took over a year to get everything straightened out. If this happens to you, here's what to expect and what to do.

Something Strange Is Going On

Our first hint that something was wrong was when my wife received a letter from a check cashing company that her check had bounced. Since she had never used a check cashing company, something obviously was up. The next day, we also received a letter from a local grocery store chain that two checks had bounced. The letter included images of the checks. They were from a bank that we have never used and, surprisingly, they had her real drivers license number written on them.

First Steps

• File a police report -We called the store to get some more information, but that was a dead end. The store had already written the checks off as uncollectable and couldn't tell us anything else. So we called the police department to file a report. This was more difficult than you might think. Our local police department told us that because the checks were written at a store in another city, we had to call that city's police department to file a report. When we called, them, they said we had to file with our local police department and, if there was enough evidence, our police department would pass the case on to them for further investigation. So we called our local police again and they finally agreed to send someone out to our house to take our statement.
• Contact the credit bureaus - Contact the three major credit reporting agencies, Equifax, TransUnion, and Experian, and put a 90 day fraud alert on your account. This can be done over the phone via an automated process. This may also trigger a copy of your credit report getting sent to you. There should not be a charge setting the fraud alert. If you have to pay, you are buying some additional product and not simply setting a fraud alert.
• Review Your Accounts - If you don't closely review your bank and credit card statements each month, do so now. Look over the last two months (at least) in detail and note any unknown charges.
• Get New Credit Cards Issued - Even if it seems like credit cards are not involved (which was the case for my wife), you should still call up your credit card companies and tell them you suspect you have been the victim of identity theft and want new credit cards issued. You'll need to update any recurring billing accounts you have to use the new card numbers.

Next Steps

• Get A Copy Of The Police Report -  When the police report is done, you should get a copy sent to you, but don't wait too long for it. If you haven't received it within 3 days after you gave your statement to the police, call them up and ask for it. The officer who took your statement should have given you his business card and possibly a case number.
• Submit A Copy Of The Police Report To The Credit Bureaus - You can file a written request with a copy of the police report to each credit bureau and that will extend the fraud alert on your account from 90 days to 1 year.
• Request A Credit Freeze From The Credit Bureaus - A fraud alert on your account will not stop banks or businesses from opening accounts in your name. All it does is warn the requesting company that you have reported that your identity has been stolen and that they should ask for extra verification before opening accounts in your name. A credit freeze, however, will prevent anyone from opening a new credit account in your name. While a fraud alert will automatically be discontinued after a year, a credit freeze stays in effect until you cancel it. You can temporarily disable a freeze for a fixed number of days if, for example, you know you will be applying for a loan or a credit card at a certain time. We left the credit freeze in place on my wife's file for 3 years. Again, this is free. If you are asked to pay, you have been upsold to some product or service you probably don't need.
• Get New Checks / Account Numbers - If the identity theft involved your actual bank account numbers, contact your bank and tell them what happened and ask for new account numbers and new checks. In my wife's case, the bad checks were from someone else's account at a different bank. (The police told us the thief likely took the original name and address off the checks with chemicals and then re-printed my wife's info on them.) If you have direct deposit set up to the affected account, contact your employer to get that info updated with your new account numbers.
• Get A New Driver's License With A New Number - We eventually realized that the thief must have obtained my wife's driver's license number from when her purse was stolen 2 years prior. Although she requested a new license from the Motor Vehicle Division then, she simply got a replacement card with the same number. If your identity was stolen, you'll want a new number.

The Next Year And Beyond

• Stay Vigilant - Monitor all bills and statements line-by-line for at least the next year. You never know when some other charge will show up.
• Follow Up With Police - About 3 weeks after we filed the police report, we heard back that the person bouncing checks in my wife's name had been caught. The police will want to know if you want to press charges. You do. You most likely will not have to go to court - the police already took your statement, after all - but if you don't press charges, the thief could be let go. Saying you want to press charges will also keep you informed of the progress of the case. You'll get letters after each court appearance explaining what was done and what the thief's eventual sentence was.
• Keep Copies Of Everything - Keep copies (paper or electronic) of everything you receive regarding this process, especially the police report. You'll need it for evidence this actually happened to you. Years later, we received a letter or two from debt collectors trying to collect for the bounced checks. We had to send them a copy of the police report to prove the debt was not valid.
• Monitor Your Credit Report - You'll get a free copy of your credit report when you file the fraud alert, but continue to monitor your credit reports. (This is something you should be doing anyway.) You can get a free copy once a year by going to annualcreditreport.com. (Beware of the various upselling offers to try to get you to spend money. By law, they have to give you your report for free. Just your report - not your credit score.) If you request a copy from a different company every four months, you can basically monitor your credit all year long. Set a reminder in your calendar. Note that if you have a credit freeze on your account, you cannot request a copy of your report online. You'll need to do it by mail and provide a copy of one or two valid identification documents with the request.
• Protect Yourself - Take steps to prevent this from happening again. Don't leave your car unlocked or leave valuable possessions in it. Invest in a shredder and shred any document that has an account number on it. Use a password manger like LastPass to create secure, different passwords for each website you use.

 Having your identity stolen sets in motion a whole chain of events that sucks up hours of your time and can causes lots of headaches. You can get through it and recover, but you have to pay attention to details and watch your finances like a hawk for a good amount of time.

Don't Leave Money On The Table: Discounted Gift Cards

Gift cards are some of the most popular gifts given. About two-thirds of all American consumers have purchased a gift card at some point - there's millions of these things floating around. But you'll always find people who don't want to use them for some reason. Either the card is for a store they don't shop at or they forget they have them, or some other reason. As a result, there is over $1 billion dollars loaded on gift cards that goes unclaimed.

Companies have sprung up to help consumers tap into those funds. People can sell their unused gift cards for cash to these companies, who them turn around and sell them to others who want them at a slightly higher price, but still a discount to face value. And larger companies are getting into the act. Costco sells gift cards now for all sorts of venues - you can get a $50 gift card to a restaurant for $40. Instant $10 savings!

But if you know where to look, you can get even bigger savings. A couple of websites that buy and sell gifts cards that I have used are Gift Card Granny and Gift Card Rescue. These sites offer guarrantees that the cards they sell are valid, which is a nice for my piece of mind. Although they sell cards for all types of stores, you'll find the biggest discounts on cards for specialty stores - cards for places like Pier 1 Imports, Williams Sonoma, or Ann Taylor often can be had for discounts in the 20% to 35% range. The smallest discounts are found on cards for places that everyone shops at frequently - places like gas stations and grocery stores. Often, these discounts are only 3% to 5%. In my opinion, that's not even worth it - your savings won't even cover your sales tax.

This is a great option to keep in mind when you are planning a large purchase. For example, a couple of years ago, I found two china cabinets I wanted to buy at Pier 1 Imports. The total price, with tax, was about $650. I went online and searched for discounted Pier 1 gift cards. I found a bunch and bought them. Here's my order. The column on the left is the card value and the column on the right is what I paid for it.

So I bought $645.74 in gift cards for $516.57. That's a 20% discount. And I bought these cards with a credit card that gives me 1% cash back, so my savings were actually 21%. I don't remember if this was my situation or not, but if you then wait to buy your item at the store until it goes on sale, you can save even more.

I ended up getting $650 worth of furniture for about $520 dollars. That's a savings worth shopping for.

As I mentioned, not all the gift cards these sites sell are good deals. Sometimes the discount is so slight, it's not worth it. And companies have caught on to this practice and sell their cards directly to the sites for small discounts, which get even smaller as they are passed on to you. But if you know you are going to make a large purchase from a specialty store, it worth the few minutes it takes to check these sites for discounted gift cards. You could save a hefty chunk of change and not leave any money on the table.

Elon Musk Biography

I finally got around to reading Ashlee Vance’s biography of Elon Musk and I must say, I have a new view of him and his companies. If you are looking for details about his personal life, you won't find much here. The book doesn’t go into too much detail about that, other than to give basic background on his youth in South Africa and touch briefly on his marriages. I found the most interesting parts of the book to be those about Space X and Tesla and how they were built and how they operate. (Solar City was just briefly touched on, as you would expect since Musk doesn’t actually run that company and is only on its board of directors.)

The image the book gives of Musk is of a very driven man who is in pursuit of fantastic goals. He is incredibly smart and doesn’t suffer fools. He drives his employees hard and expects the absolute best work of them. That results in fabulous products like the Model S, but I can only image the toll it takes on his employees. I’m not sure I would want to work for him. He takes a very hands on approach in both companies and the amount of detail he knows about both the Space X rockets and the Tesla vehicles is amazing. Watch this video of him giving a tour of Space X and stop to consider how many parts of the rocket he calls out and explains the use of. I don’t think there is a single component in a Space X rocket he isn’t intimately familiar with. He is obviously incredibly intelligent and has an amazing memory.

The book does a fairly good job explaining Musk’s quest to colonize Mars and his reasons for it, although I think I got a better sense of it from Wait But Why’s posts about their interview with him.

You do start to get a sense of just how drastically he has shaken up both the rocket and auto manufacturing worlds. He literally started Space X and Tesla from a blank piece of paper. Each step in the product manufacturing process was designed from scratch and nothing was done simply because “that’s how it’s always been done.” I think that’s a huge reason for the success of those companies. Existing rocket and auto manufacturers simply can’t do that now. They have become so big that they are risk-adverse and have no incentive to change their processes.  I’ve written about this before and I believe it’s completely true. We will never see revolutionary change from large companies that have been around for decades, especially if they get most of their business from government contracts.

One thing I particularly enjoyed was the book’s second appendix, where Musk talks in depth about PayPal, why it succeeded and how it is struggling now. As a PayPal user, I have to agree with just about everything Musk says regarding what end users want from a PayPal-like service. The appendix provides a great example of how Musk focuses on the end product and how businesses need to design products that will make life easier for people who use whatever it is the business is providing.

The biography paints a picture of a man who is difficult to completely admire. On the one hand, I have huge admiration for what he has done with Tesla and Space X and his goals for those companies. He truly wants to make the world (and Mars) a better place for humankind and he’s willing to put up huge amounts of his own money and effort towards that goal. On the other hand, he can be something of a jerk. He seems to lack social graces and his singular drive for perfection can result in what seems to be a complete lack of empathy for his employees. There are several aspects of his personality that I identify with, but there are others that just make me want to shake my head. I suppose that, just like everyone, he is a person full of contradictions, but because he is in the spotlight and upsetting the status quo in so many fields, those contradictions seem to be more scrutinized than they might be if they were present in someone else.

Wait But Why Interviews Elon Musk

Tim Urban, one of two guys behind the Wait But Why blog, received a call a while back from someone who works with Elon Musk. The caller said Musk reads his blog and wanted to know if he wanted to have an interview with Musk to talk about the various technologies his companies work with. Tim had the phone call. During the call, Elon also invited him out to California to talk in person. Tm went.

Tim has promised this will be a four part series and, so far, only the first three parts have been released. They are fascinating reading. Be sure to set aside some time when you go to read these - all are very long for blog posts, but they are full of great info and are fun reading.

Part 1: The World's Raddest Man

Part 2: How Tesla Will Change The World

Part 3: How (And Why) SpaceX Will Colonize Mars

While you are there, subscribe to the blog. It's full of great posts!

Goal Update: End of August 2015

At the end of each month, I post an update of my goals, including a brief discussion of any notable events that might have occurred during the month. The latest month's figures can always be found under the Featured menu in the menu bar at the top of the blog.

Last updated: End of August, 2015
Current value: $15,148
Change from last month: -$606
Percent of Goal:  13.93%

Note that the funds in this account are invested in stock, so there will be fluctuations in value that are outside my control. I never withdraw money from this account, so any dips are purely due to stock price changes.

Events Of Note Last Month:

I made it through the big stock market drop at the end of the month fairly well. Realty Income stock wasn't really adversely affected. I think it dropped about $1 per share and quickly recovered, although it's down a bit overall for the month - hence the drop in value of my account from last month. I'm still above the $15,000 level, even though I did not add any income from my online courses sales this month. As I mentioned last time, I sent this month's course payments to the IRS as an estimated tax payment. I did reach a milestone for my courses this month however: I hit $5,000 in lifetime sales!

I received $8.15 from my online book sales, including what I think is my first sale in Canada.

Nothing much else of note happened this month.

Stock Market Panic

Yesterday (which was Monday, August 24, as I write this), the stock market tanked. It was down over 1,000 points in the early hours and manged to recover a bit to close "only" down 588 points. Headlines were, predictably, full of fear mongering: "A meltdown on Wall Street. Have you looked at your retirement fund today?"

Once again, the media, which needs something to write about every day, is trumpeting panic and instilling fear in people that their retirement has just been destroyed. Unless you just happened to retire and cash out all your stocks yesterday, it hasn't. As I mentioned before, you need to take a long term view of your investments. Stock market declines, even crashes, happen. You should expect it. Corrections are how the market re-adjusts when prices have gotten too high.

There were reports of people being unable to trade stocks using TD Ameritrade and Scottrade. This is actually probably for the best for them. Panic selling is never wise

If you are invested in mutual funds, panic selling is even worse. Mutual funds don't trade until the end of the day when the market has closed. So even if you had a crystal ball that told you in the morning that stocks were going to fall 1,000 points that day and you entered an order to sell your mutual fund in the morning, you wouldn't avoid the fall, because the fund won't be sold until the market has closed and by then, the damage has been done. Same thing with re-buying during a bounce or a rally. If the market is taking off in the morning and you put in a buy order for your mutual fund, it won't be settled until the end of the day. Even if the market closes up 1,000 points for the day, you've missed out on that gain because your order isn't filled until the close. Congratulations. You've just sold low and bought high. When trading mutual funds, dollar cost averaging by buying shares consistently over a period of time is the only way to go.

You can't time the market, people.

Thankfully, there were some saner heads in the media. I was pleased to see this article telling people not to panic and that corrections are normal. Kudos. I hope people read that article and take it to heart.

It pays to keep these three quotes from Warren Buffet in mind:

Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.

I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.

If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.

During yesterday's decline, I felt zero concern for my portfolio because I followed that advice.

Congratulations, Americans, On Saving More!

Just over 1 year ago, I wrote that the savings rate in America has been declining and was currently at the woeful level of 3.8%. But it looks like that has turned around. Now, according to this article, the personal savings rate has increased to 5.15%.  This is great news. The article does go on to mention that it seems most of the savings have been going into building up emergency funds rather than into retirement savings accounts (either 401(k)s or IRAs). I can understand that and, to some extent, am OK with it. Chances are an emergency will arise well before you retire. However, it is important to start funding your retirement plan as soon as your emergency fund is filled. Ideally, you should be building both at once, even if it means splitting the money between the two and taking longer to fully fund the emergency account.

Why is funding a retirement account so important? Time. You want to leave your money invested and earning interest as long as possible. That is the difference between retiring with a million dollars or more or retiring with just enough to splurge on the wet cat food once a month.

Don't let your retirement pantry look like this

Another point the article makes is that 25% of the people saving in a 401(k) that features an employer match are not contributing enough to get the full match. This is missing out on free money. But the good news is that this figure is down 1 percent form last year, so things are moving in the right direction.

Perhaps the long economic downturn and anemic recovery have taught people the importance of financial security. One can only hope.

Don't Leave Money On The Table: Paribus

Many stores, both traditional and online, offer a buyer protection program where, if the price of an item you purchased goes down within a certain amount of time, they will refund you the difference between the price you paid and the new lower price.  It's cheap marketing for the stores because few people, if any, will ever take them up on the offer. Unless you are spending a large amount of money, most the time, you shop around for a bit, make your purchase, and then stop price comparing.

Online retailers have much more flexibility in changing their prices than traditional stores do. They can alter their prices second by second, based on your past shopping habits, your geographical location (as determined by your IP address), or hundreds of other items. Retailers call this dynamic pricing and it makes it difficult to know when you are getting the absolute best price.

I am a fan of the CamelCamelCamel browser plugin. This plugin will show you the pricing history of an item and you can set up alerts to be notified when a price hits a certain point. Because it's a browser plugin, it can show you the price history without ever leaving the website you are on:

This can help you decide if you should buy something now, or wait until the price drops, based on past history. In all honesty, I only use this when shopping for items costing maybe $100 or more. Otherwise, I tend to just buy whatever I need at whatever price it's at. I don't want to spend time tracking prices for low cost items.

Enter Paribus.

Paribus will track my purchases for me and notify me if the price of something drops after I have purchased it. More importantly, and this is the good bit, Paribus will automatically submit a refund request to the website so that I get the lower price. No action needed on my part! While Amazon's computers juggle their prices, Paribus' computers monitor them and make sure I get the lowest price.

Right now, Paribus works with about 20 of the largest internet retailers, including Amazon, Newegg, Walmart, and Target. See their full list here.

How does Paribus work?

In order for Paribus to work, it needs to know what you bought and for how much. To do this, it scans your email for receipts from retailers, so you'll need to grant it access to the accounts your receipts are sent to. In the case of Amazon, because their receipts do not contain pricing data, you'll need to grant it access to your Amazon account itself. If you are concerned about security, check out their security FAQs here.

In return for finding you money, you agree to pay Paribus 25% of your refund. If they don't get you a lower price, it doesn't cost anything.

Does It Work?

It sounds great, but does it work? I do a large amount of shopping at Amazon, so I figured I'd give Paribus a try. I signed up last week, which was as easy as a couple mouse clicks, and that was it. 5 days later, my wife bought a pair of shoes on Amazon. The next day, I got an email from Paribus saying they found a $23 price drop and submitted a claim. A few hours later, I got a response from Amazon saying they credited me the difference.

That easy. That fast. My wife bought the shoes at $44. We got a $25 refund (the price drop plus sales tax refund). Taking into account Paribus' fee, we saved $18.75 - about 43% - with zero effort!

The Amazon refund was in the form of an Amazon gift card credit, not a credit card credit, but I buy from Amazon all the time, so that's fine. Paribus will charge their fee to my credit card, not take it out of my refund, but that's fine too. I have to say, it's been 10 days since I signed up and I'm pretty impressed!

If you are interested, leave a comment here with your email address and I'll send you a referral code that gives you a 5% discount on any Pairbus charges you get from now until December. (Their terms of service prevent me from posting the code here.) If you don't want your comment / email address published on the blog, say so in the comment and I won't publish it.

(UPDATE: 5-23-16) Amazon has changed their price matching policy. From now on, they will only price match televisions. Given this, I have cancelled my Paribus account, as Amazon was the only retailer I used it with. I wonder if the popularity of sites like Paribus and Earny, which tracked Amazon prices for users, was a contributing factor to this change. Needless to say, I no longer have referral codes to give out.