Monday, October 1, 2007

When High Yield Savings Rates Start Dropping, Save Money the Pirate Way

Author: Nick
Category: Money
Topics:

here is the nearest starbucks

Photo by cameronparkins

Long-time reader and giraffe admirer Lynn recently sent a letter to Punny Money. I ignored it because it was written in lipstick, but then she sent me a check for fifty bucks, so I fished it out of the trash and read it:

Dear Nick,

With high yield savings account rates expected to plummet in coming months, I’m looking for a better place to put my savings. Preferably something FDIC insured with an APY of at least 6.00% or better. Do you know where I can find this?

Thanks, Lynn

Well Lynn, there’s a saying in the banking industry: “Customers are idiots, but we need them if we want to make this whole bank scam we’ve got going work.” So why would banks lower their interest rates since that scares away customers? The answer to that question is surprisingly simple—so simple that I wouldn’t dream of insulting your intelligence by explaining it to you.

Lynn does have a good point: savings account interest rates are dropping significantly. Just last week, major bank company place HSBC announced that it was lowering its high yield savings account’s rate from 5.05% to 4.50%. What does that mean for the typical American saver? If rates continue to drop the way they are, in ten years you will still be poor and have a house full of giant TVs.

The graph below demonstrates an even more alarming trend in savings interest rates. If these rates continue to fall as they did last week, your interest rate will be zero by late November. After that, the banks will actually charge you to keep your cash with them.

extrapolated savings rate for december 2008: negative 8 BILLION

So when Lynn asks for a savings interest rate of 6.00% or higher, what she really should be asking for is a safe place to hide her money from the coming bank plundering. Without a doubt, stuffing your money in a sock, putting it in a box, and hiding it in the ground is the best method for keeping your money safe and sound during times of financial meltdown. I mean, it’s exactly what the pirates did in ye olde days of yore. And how many times have you found pirate treasure? Huh? Huh? Yeah, zero. So burying your money is obviously the way to go.

Playing pirate with your savings seems simple, but you’ll need to make sure you follow these steps passed down through generations of my family watching pirate movies.

  1. Get a sock. Socks are known for preventing outside crap from getting to your feet. What works for your feet will also work for your money! If you have lots of money, you will need multiple socks or perhaps one really big sock. Use only white socks because—and I’m sure everyone in New York will agree with me—red socks suck.
  2. Get a box. A shoebox would be ideal here, but other boxes will work too, including cardboard boxes, Chinese takeout boxes, and boxing gloves. Put your socks in the box, and then have some lox.
  3. Find a really good digging spot. You’ll want to go deep into a forest in the middle of the night so nobody sees you. If you can, bring along a friend who doesn’t mind being eaten by wolves. Dig yourself a hole about five feet deep, drop in your socks box, and fill the hole. Make absolutely certain to post a sign nearby stating “No buried treasure here” or else someone might try to find it.
  4. Make a treasure map. How do you expect to find your savings without a map to follow? Fortunately the days of scrawling on parchment are over. Just like you monitored your bank accounts online, so too can you track your hidden treasure spots using Google Maps and other internet tools.
  5. Bury your treasure map for bonus pirate points.

In ten or twenty years when I’m President and have returned the country to its former economic prosperity, you’ll be able to dig up your fortune and use it to pay my hefty 110% income tax.

What’s that? “What about inflation?” Uh… dig your hole really deep so inflation can’t reach it. Problem solved!

Tuesday, July 17, 2007

App-O-Ramas and Bumpage: The Secret Arts of Free Money and Flawless Credit Reports

Author: Nick
Category: Money
Topics: , ,

balance transfer offers are waving free money in your face

By Rebecca Lennox

BETHESDA, Md. – Tuesday is just another day on the internet for 25-year-old WalletMan81. He pulls up his RSS feed reader and checks out what’s happening in the world of geek culture. Maybe he kills a few minutes playing his favorite Flash point-and-click games. But there’s always one thing WalletMan81 is sure to do each morning before logging off and piling onto Interstate 495 along with 100,000 other D.C.-area techies.

He clicks a few magical buttons and increases his credit score.

“A little bumpage a day keeps the FICO score… uh, happy,” he says. While I wasn’t surprised to learn that WalletMan81 is not his real name, maybe it should be. WalletMan says he spends at least an hour every day using the internet to orchestrate his vast financial holdings.

“Well, maybe not vast,” he corrects me. “I mean, I do have about $175,000 sitting in the bank right now, but most of it isn’t mine; it’s the credit card companies’.”

WalletMan has mastered the little-known personal finance tactic known as the App-O-Rama. Every six months or so, WalletMan will take a day off of work just to apply for credit cards–often dozens of them in a single sitting. But from his relatively modest one-bedroom apartment setting, you can tell that he’s not signing up for these credit cards to load up on luxuries and plunge himself into debt.”

“I’m after the zero-percent bee-tee money, man.” He points to a computer display showing his current savings account balance. “This… this money here I’ll have to pay back in the next six to twelve months. But this right here…” He points to the interest paid column. “That’s all mine.”

App-O-Ramas: Making Free Cash With Credit Card Company Money

WalletMan is one of hundreds who participate in an online discussion forum that talks about secret financial techniques like the App-O-Rama that aren’t generally known to the public. He explains that the purpose of the App-O-Rama is simple: cram as many credit card applications as possible into a short period of time. With each subsequent application, WalletMan knows his credit score will take a hit since credit scoring bureaus see applications for credit as a reason to ding his creditworthiness. But if he applies for 30 cards all at the same time, the credit card companies will all see the same higher credit score than if he spread those applications out over several days. The gradual approach would allow the first batch of applications to dent his score, threatening the likelihood that the subsequent applications will be approved.

“Once the apps go through–takes a few days or a couple weeks–I’ll do a zero-percent bee-tee–a balance transfer–from the new credit line to my savings account.” WalletMan takes out a credit card mailing advertising a no-fee, zero-percent balance transfer, essentially a cash-out of a card’s credit line to another credit card or even a bank account. Unlike most credit card balances which carry interest rates upward of 30%, these promotional offers allow cardholders to borrow money at low or no interest for six to 24 months, requiring only a small balance transfer fee (usually $75 or less, though sometimes as low as zero) and monthly payments of 2-4% of the current balance.

WalletMan provides a cheat sheet for friends and family to try their own “bee-tees.”

  1. Sign up for a bunch of credit cards with good BT offers.
  2. Log on to the website (or call) and move about 90% of the total credit line to another card or request a paper check.
  3. Pay the minimum each month for the length of the offer.
  4. Pay it off at the end.
  5. Pocket the interest and repeat.

“I only use about 90% of any credit line because going higher than that can really trash your score.” WalletMan refers to the Fair Isaac Corporation (FICO) credit score, a number between 300 and 850 every American has that indicates his or her ability to handle credit. WalletMan shows me his latest FICO score pull–755, near the top of the range. “I’m planning another App-O-Rama in August, so that’ll probably drop back down to 600 for a bit.”

WalletMan reveals that he learned about App-O-Ramas and making interest from credit card company money four years ago from a personal finance website. “The trick was pretty new back then, but a lot more people have gotten into it since. The card companies are starting to get wise to us and’ve been dialing back on the bee-tee offers. Now they usually come with a higher fee or non-zero interest rate.”

He explains that card companies give out balance transfer offers to attract new customers–hopefully new customers who will carry lengthy balances and cough up more in interest payments than it will cost the companies during the promotional offer period. But WalletMan is no fool. “I’ve never paid a dime in interest to credit card companies. I let them pay me instead.”

Of all the credit card companies, WalletMan points to Citibank as the friendliest to App-O-Rama’ers like himself. “You can move balance transfer money to your Citi cards and request a check to deposit right into your savings account. Not a lot of companies make it that easy.”

WalletMan even started his own business whose sole purpose is to allow him to apply for business credit cards. He takes out a copy of his LLC’s Articles of Organization. Sure enough, on the line “Purpose for which the Limited Liability Company is filed is as follows:” appears the typed-in text “To apply for business credit cards and perform balance transfer arbitrage.”

“Business credit cards give out huge credit lines, sometimes four or five times what you’ll get with regular cards.” WalletMan opens a thick three-ring binder to the middle and reveals pages and pages of plastic baseball card sheets full of business credit cards. “Between regular and business [cards], I’m at 93.” Most of the cards still have their activation stickers on them, indicating WalletMan has never used them for purchases.

Bumpage: The Credit Report Cleanser Card Issuers Don’t Want You To Know About

WalletMan jumps out of his chair and thrusts his leg into the air. “Bumpage is like a Chuck Norris roundhouse kick to your credit report.” He laughs and adds, “That would have been much cooler if you were a video blogger.”

He goes on to reveal the best-kept secret of the App-O-Rama community, a sneaky trick formally called bumpage but often simply referred to as “B” by personal finance ninjas lurking in the back alleys of the internet.

“Hard pulls–which your credit report gets when a card company pulls your credit during an app–those ding your score anywhere from 5 to 20 points each.” WalletMan clicks his mouse, brings up a copy of his credit report, and points to the section headed “Inquiries.” He taps the screen to indicate inquiries marked “Citi” and “Chase,” two major card issuers.

“Soft pulls happen whenever you request your own credit report, like I just did. They don’t affect your score at all. Two of the main credit reporting agencies, TransUnion and Equifax, only store a certain number of soft and hard pulls. So if you can fill up your credit report with soft pulls, you can bump off all the hard ones. And that’ll bump up your credit score overnight.”

WalletMan says that his morning ritual includes pulling his credit report from numerous websites in order to plow those hard inquiries off his reports. “It takes a month or two, but I can reverse all the damage done to my score by an App-O-Rama. Then I simply repeat the whole process.”

Subscriptions to the credit reporting services WalletMan uses to fill his reports with soft inquiries, including PrivacyGuard and TrueCredit, run anywhere from $10 to $30 a month, but he says they’re well worth it.

WalletMan warns that, while bumpage is fairly effective when done right, it can lead to problems if you don’t know what you’re doing. “Some credit reporting services like Equifax’s Credit Watch will cut off your soft inquiries just before you get to the level needed for bumpage. They call that ‘choppage’.”

WalletMan peruses internet discussion forums daily, looking for warning signs that credit reporting agencies are engaging in choppage. “So far, I’ve been lucky. A lot of others haven’t been.” He bows his head as if talking about comrades who never returned from a dangerous journey. “It can be a wild ride, these App-O-Ramas and bumpage and all. One wrong move and you can severely damage your credit report. But for me and many others, it’s been worth the risk.”

The Payoff

“Last year, after taxes, I made $10,360 doing balance transfer offers.”

By moving the cash-outs from balance transfer offers into savings accounts and CDs, WalletMan earns interest on the interest-free money lent to him by credit card companies. “All I have to do is make the minimum payments each month and pay off the balance before the low-rate period ends. I make the interest instead of paying it to the credit card companies.”

WalletMan says he only goes for safe investments with balance transfer money since stocks carry the risk that he won’t be able to pay back the money he borrows from credit card issuers. He suggests internet-only or small-time banks as the best place to score high interest yields. “Right now, I have a few bucks in CDs, but pretty much everything is sitting in the First National Bank of Omaha earning six percent APY.”

Drawing from his research into consumer law, WalletMan says that the whole operation is completely legal. “It’s not breaking the law to borrow credit card company money for profit. And I pay taxes on every penny of interest I make.” But WalletMan confesses to a few shady actions required to rein in some of the juicier balance transfer offers. “I may have indicated that my business makes $175,000 a year on business credit card apps. In a way, I do; I just have to pay most of it back.”

WalletMan is still a long way off from turning App-O-Ramas into a full-time job. “I’m hoping to net $15,000 after taxes from bee-tees this year.” That’s not nearly enough to survive in his Washington D.C. suburb where rent on a one-bedroom apartment starts at $1,400 a month. “Now I could maybe move to some small town or the middle of nowhere and survive on $15,000 a year, as long as I had an internet connection.”

The road ahead for WalletMan and his balance transfer schemes is uncertain. More card issuers are becoming wise to App-O-Ramas, and the balance transfer offers and coming less frequently or with strings attached. “A lot of offers now want you to pay a fee of three to five percent of the balance when you do the transfer. That eats up most of the interest I’d earn right there.” He admits there are still lots of offers available out there, “But you’ve gotta take the time to find them.”

When asked if he has an accountant to handle some of his more complex financial endeavors, WalletMan sticks his thumb to his chest. “No way am I paying somebody to do this job for me. It’s too easy.”

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Rebecca Lennox is a freelance writer from Baltimore, Maryland.

Interested in writing for Punny Money like Rebecca and making $10-$50 an article? Learn how to get paid to write for us.

Tuesday, March 20, 2007

Your Total Measure of Wealth: Income, Personal Savings Rate, and Rate of Return

Author: Nick
Category: Money
Topics: , ,

your total measure of wallet

If you joined us last week, then you know that we’re well on our way to redefining the way people think about wealth. No longer is net worth alone a worthy sign of one’s wealth. Instead, we’re working on a new, more complete calculation for determining one’s wealth status: your Total Measure of Wealth™.

We’ve already reviewed the two easiest parts of your Total Measure of Wealth: age and net worth. Today we’ll cover three more simple components that belong in your wealth measurements.

Income

wish my paycheck were in there

Description

As its name suggests, income is all of the money “incoming” to you before it’s “outgoing” to someone else. Income can come from a variety of sources: your job, investments which increase in value, interest on your savings account, gifts, etc.

We could put together an exhaustive list of every single place from which you earn money, but we’re really only interested in income you can expect to earn for work you perform. Why are we only interested in earned income? Because just about every other source of income is better accounted for by calculations we’ll perform later (like housing status and rate of return).

Your earned income–your salary–is what you make for committing a large chunk of your day to some form of work. Assuming you continue in your same line of work for the foreseeable future, this amount represents the value of your effort. Unlike passive income from things like real estate or investments, you must work continuously in order to maintain your level of earned income.

How to Calculate It

The most common method of comparing earned incomes is by annualizing it, and that’ll work fine for us. Every tax assessment agency in the world probably has a different way of determining your annual earned income, so we’ll need to come up with a standard formula for our purposes. Fortunately that formula will be very simple.

total annual earned income = sum of all annual earned incomes

Before you scream “duh” at your computer screen, we still haven’t done the hard part of this calculation: determining what qualifies as an “earned income.” In order to put together an accurate depiction of your financial status, we’re only going to be interested in income for work you perform which you reasonably expect will continue into the future. You might have made an extra $20,000 last year working weekends as a stripper, but if you’re only pulling in $100 a night these days, you can’t expect to earn another $20,000 this year. And if your salary is $150,000 and you’re expecting a pink slip any day now, your expected salary is now zero until you find another job. But if you’ve been filling out online surveys diligently for a few years now and bring in an extra $50 a month, don’t hesitate to include that as earned income if you plan to continue filling out surveys in coming years.

How to Use This Number

You probably spend a boatload of your time earning this income, so it should have a big influence on how you perceive your wealth. If you compare it to your instantaneous net worth (or, more simply, the amount of money you have in liquid savings), it’ll tell you how important your continued ability to work is to your future livelihood. And if you compare it to the earned incomes of others in your line of work, it’ll also indicate if you’re receiving compensation commensurate with your efforts.

Personal Savings Rate

no, that is an ATM, not a personal savings rate calculator

Description

Your personal savings rate is a measure of how much money you save out of the money you make. A positive personal savings rate means that you get by on the money you make, and you have at least a little bit left over. If you spend every penny you make, then your personal savings rate is zero.

It is also possible to have a negative savings rate. In fact, not only is it possible, but it’s true for the average American. In 2006, the average personal savings rate was negative one percent. That means for every dollar the typical American made, they somehow spent $1.01! How is that possible?

Credit. Loans. Debt. Dipping into existing savings. People are spending money that they’ve already saved without saving new money, and sometimes they’re even spending money they don’t have.

Don’t confuse your personal savings rate with your bank’s savings account interest rate. These are two very different figures, the second of which we’ll take into account later when we examine your rate of return (ROR).

How to Calculate It

Your personal savings rate is easy to calculate. You’ll need two numbers first: your income (see the section above) and your annual savings amount. You can use last year’s figures for both if you like.

How do you determine your annual savings amount? Savings is simply how much of your income you don’t spend. If you have deductions into a retirement fund, this is savings. If you automatically transfer $100 out of every paycheck into a savings account and you don’t spend it, this is savings. The interest you earn on your savings or investments is not savings; these are returns on your investments which we’ll cover later.

You must also factor in negative savings into your savings figure. The biggest sources of negative savings are credit cards you don’t pay off and withdrawals from savings. Subtract any such items from your annual savings amount.

Once you have your income and savings amount figures, just drop them into this equation:

personal savings rate = savings / income

So if you made $100,000 last year and saved $8,000 of it, then your personal savings rate is:

personal savings rate = $8,000 / $100,000 = 0.08 = 8 percent

But say you made $100,000 last year, saved none of it, put $3,000 of purchases on credit cards you didn’t pay off last year, and took $2,000 out of your savings account that you didn’t replace. Your savings rate is:

personal savings rate = ( -$3,000 + -$2,000 ) / $100,000 = -0.05 = -5 percent

How to Use This Number

If your personal savings rate is above zero, congratulations! You’re already well ahead of most Americans. But how far above zero are you? Are you saving 5% of your income every year? How about 10%? The reason I mention 10% is that this is a figure popularly tossed around for how much you should save each year toward retirement. In reality, the percentage you should be saving depends on other factors: your age, your expected life span, your current savings, and many other factors. It might be much higher than 10%, and it probably won’t be much lower.

Visit ChoosetoSave.org for a handy calculator to help you determine your suggested personal savings rate based on your specific situation. Compare your suggested figure to your actual figure in order to panic because you are probably not saving enough.

Suffice it to say that your savings rate should be as high as you can make it. Otherwise, you might have to work every day for the rest of your life. Even Bob Barker doesn’t want to do that, and he’s 83!

Rate of Return (ROR)

invest in barrels

Description

In order to have a rate of return (ROR), you must first have savings or investments. Some examples of these include savings accounts, certificates of deposit (CDs), stocks, retirement funds, and real estate. If you do not have savings or investments, your rate of return is zero; please go sit in the corner for the remainder of this article.

For you cool people with savings or investments, your ROR is simply a measure of how much money your savings and investments are making you. You put money into a CD or a retirement plan and you expect that money to magically grow. There’s nothing magical to the growth–it’s just banks lending your money to other people and giving you a cut of the interest they charge the borrower. But that growth is the basis for your ROR, so let’s compute it now.

How to Calculate It

Your ROR is just another rate of change. It can be positive, negative, or zero. Hopefully it is positive or else you’re picking really bad places to stash your cash.

You may have multiple savings accounts and investments. You can compute your rate of return individually for each one, or you can combine them all and come up with an across-the-board ROR.

To determine your annual ROR for any one investment, use this formula:

annual rate of return = interest earned / amount invested

You might vaguely recognize this formula from grade school. It’s just the familiar simple interest equation solved for the interest rate with a time of one year.

The formula above is only useful for a single year and doesn’t take into account one very powerful factor–compounding interest, or the amount of interest earned on the interest itself. So you may instead wish to use this formula:

annualized rate of return = [(ending value of investment / beginning value) ^ (1 / # of years) ] - 1

For example, let’s say you invested $10,000 in the stock market on January 1, 2005 and rang in New Year 2007 with your investment valued at $14,000. Your annualized rate of return would be:

annualized rate of return = [ ($14,000 / $10,000) ^ (1/2) ] - 1 = 18.3%

You’ll sometimes see the above formula referred to as a compound annual growth rate (CAGR) formula. I think some people just like saying CAGR. Kagger. Kagger. Heh.

Once you apply the formula to all of your investments and savings accounts, you’ll probably notice that they vary. You might have a savings account earning 3%, investments earning 12%, and money in a piggy bank earning 0%. To calculate your overall rate of return across all investments, use this formula:

overall annualized rate of return = [(sum of investment values at end / sum of investment values at start)  ^ (1 / # of years)] - 1

So if you start with $3,000 in savings, $10,000 in stocks, and $200 in a bottle on the nightstand, and you finish with $3,100 in savings, $12,000 in stocks, and $200 in a bottle on the nightstand, your overall rate of return is:

overall annualized rate of return = [ ($3,100 + $12,000 + $200) / ($3,000 + $10,000 + $200) ^ (1/1)] - 1 = 15.9%

How to Use This Number

Your ROR is one of the best health indicators for your savings and investment portfolio. Looking at your ROR by itself isn’t that useful; you need to compare it to other RORs since a “healthy” ROR can change from year to year.

I, like many people, prefer to compare my annual personal rate of return to the S&P 500 index–a listing of 500 large company stocks used to gauge the performance of the stock market in general. Many folks set a goal of “beating the S&P” each year, and they are satisfied with the health of their investments if they do so, even if it’s just by a little.

The final example in How to Calculate It above which showed an overall ROR of 15.9% just squeaked by the 2006 S&P 500 ROR of 15.8%.

There are some years in recent history where you might not want to use the S&P 500 for your comparisons. You may recall the S&P breaking 1500 points in 2000. Thanks to the bursting of the dot-com bubble, it was back below 800 two years later. Lots of people lost a ton of money, but there were plenty of safer investment avenues available to the smart investor (like a savings account earning zero interest, for example!). “Beating the S&P” was not such a hot achievement during these two years, that’s for sure.


With the easy keys to your Total Measure of Wealth out of the way, it’s time to start exploring the new frontier of wealth calculations. Next time, we’ll talk about your job status and how to determine its influence on your financial health.

Wednesday, March 14, 2007

Your Total Measure of Wealth: Age and Net Worth

Author: Nick
Category: Money
Topics: , ,

ben franklin - highly sought after old guy

Now that we’ve established that net worth is inadequate for wealth determination and have come up with a suitable list of alternative wealth measures, it’s time to start looking at each of the criteria and put together a new formula for deriving one’s Total Measure of Wealth™. (Seriously, where’s that book deal??? Don’t make me trademark more stuff.)

Today we’ll start covering the easy stuff–the keys to your Total Measure of Wealth that already have established, standard metrics associated with them.

Age

Description

time is ticking, er, shadow... uh, moving

For those who haven’t touched a calculator since grade school, we’ll start off easy. Your age is how old you are. It’s the number of years between today and the day you were born. I could say more about this, but a long paragraph here might confuse you into thinking this is more complicated than it really is. Oops, too late.

How to Calculate It

If you don’t know your age, ask somebody who does. Or just assume that you’re 37.

How to Use This Number

Despite its extreme simplicity, age is perhaps the most important factor in determining your Total Measure of Worth. That’s because age is the factor over which you have the least control. In fact, you have no control over your age until you build a time machine, and I just don’t see you doing that anytime soon.

Age can mean the difference between a bright financial future and a hopeless financial meltdown. $100,000 does a lot more for a 20-year-old who has a lifetime to invest it than a 65-year-old retiree who must spend it to survive. Age won’t tell you too much about your wealth picture alone, but you’ll see shortly that it can have a big impact on the other measures of wealth.

Net Worth

Description

line up all your assets

Net worth has long been the de facto standard of wealth determination. If my net worth is higher than yours, then I am richer and you are poorer. But how can we say that a starving orphan with a net worth of zero is richer than a person with a home, a job, and a promising outlook but who currently has a negative net worth due to a few thousand dollars in student loan debt?

While net worth can’t demonstrate wealth on its own, it is still suitable as a snapshot of your current financial status. It is even more useful when compared to your historical net worth calculations; a rising net worth may suggest smart financial decisions, while a plummeting net worth could indicate out-of-control debt or rapidly depreciating assets.

How to Calculate It

There are really two parts to any net worth calculation: instantaneous net worth and historical net worth growth. Computing your instantaneous net worth is simply a matter of tallying up all of your assets and subtracting all of your liabilities:

instantaneous net worth = sum of assets - sum of liabilities

Historical net worth growth is a little trickier to compute because you must decide over what span of time you would like to calculate your net worth’s change. On the one hand, we’d like to look at data over a long period to see how your finances have progressed over the years (and maybe decades). On the other hand, long-term data might not place enough emphasis on more recent smart (or stupid) financial transactions.

Let’s start with a look at your long-term net worth change. How far back should we look? That depends on how old you are. Older people have more financial history and should look back further than younger people. For now, we’ll set up a rule of thumb stating that long-term net worth is over the course of the last one-third of your life. So simply take your age, divide it by three, and compare your net worth from that many years ago to your net worth today. (If you don’t have exact figures from that long ago, just estimate.)

beginning date = today - age/3

For example, since I’m 24, my beginning date would be:

beginning date = 2007 - 24/3 = 1999

Once we have our dates set, we determine our rate of change:

long-term net worth growth = net worth today - net worth beginning / net worth beginning

Now we need a short-term net worth change formula. Let’s say that the short term is fixed for everyone and just looks at your net worth growth over the last year.

short-term net worth growth = net worth today - net worth 1 yr ago / net worth 1 yr ago

How to Use These Numbers

You should view your instantaneous net worth merely as an indicator of where you are financially today. Without the change rates, there is no way to tell based on this number what you should start doing differently, if anything, with your money. Then again, if your net worth is a few million dollars or more, you could try writing me a check.

The long-term and short-term net worth growth figures are much more useful to us. The long-term change provides a summary of how you have handled your finances over the years and indicates what sort of net worth goals you should set for yourself in the next stages of your life. The short-term change lets you know if you’ve made any dumb mistakes lately.

You can also annualize your long-term change rate and use it as a starting point for setting future net worth goals. Simply divide your long-term net worth growth by that age-divided-by-three number to get your annualized long-term net worth growth rate.

annualized long-term net worth growth rate = long-term net worth growth / age/3

So if you’re 24 and your net worth tripled (i.e. increased by 200%) over the last 8 years, your annualized long-term net worth growth rate is a healthy 25%.

While some may argue that maintaining a steady long-term growth rate is a smart goal, I’d like to see my rate increase every year. Comparing your short-term net worth growth to your annualized long-term growth rate will tell you if you’re hitting your target of meeting or beating your growth rate each year.


Tomorrow we’ll look at the other three “easy” wealth indicators: income, savings rate, and rate of return.

Friday, September 29, 2006

How to Open Your New E-LOAN 5.50% APY Savings Account, Part 3

Author: Nick
Category: Money
Topics: , ,

e-loan took my money! wait, i told them to. nevermind!

Those two test deposits from E-LOAN hit my Bank of America checking account yesterday. (And as they promised, E-LOAN didn’t let me keep those 40-some cents.) I also confirmed that my opening deposit was transferred. I logged into the E-LOAN savings website, verified them, and that’s it!

For those of you opening new E-LOAN accounts, write down the answer to your security question. You might think that, as long as you remember your password, you’ll never need to provide the answer to your security question. That’s not the case! Instead, you’ll be answering your security question each time you want to make a transfer into and out of your E-LOAN savings account. So be sure to jot down that pet’s name, car model, or ex-girlfriend’s favorite soft drink for future reference.

As we speak, my HSBC savings account is being drained into my Bank of America checking account. Once that’s complete, the vast majority of my savings will be with E-LOAN.

My final initial thoughts on E-LOAN: Simple, easy, awesome.

Unless something big happens, this will be the last post in the series. Feel free to ask questions about the E-LOAN savings account here and I’ll answer them as best as I can.

(And yes, I said “final initial.” I’m an oxymoron!)