Case and point? I recently chose not to participate in a medical flexible spending account, because I didn’t want to be hassled with a small amount of paperwork.

I call this falling for the laziness tax. It’s something that doesn’t affect the things I do or buy – just how much I pay for them.

How I threw away money

An FSA is an employer offered plan that lets you set aside money to pay for things like health or child care on a pre-tax basis. As a result, it’s cheaper for you, because it lowers your taxable income. If you set aside $1000, and your marginal tax rate is 25%, your tax obligation for the year would drop by $250.

A health FSA can use used to pay for a variety of medical and health expenses, including deductibles, doctor visits, prescriptions, and even some over the counter products.

There are two ways to access your money. Some products/services can be paid for directly with a special debit card. For everything else, you have to fill out a form and submit copies of the receipts you want to be reimbursed for.

How I was lazy

I participated in an FSA plan last year. While I was happy with the savings, I was irritated by the restrictions and the paperwork.

It was hard to use the card to pay for doctor’s visits, unless I waited until I was mailed the bill, then returned to the doctor’s office.

I had trouble using the card to pay for prescriptions and over the counter products, because none of the stores near me accepted it.

So when the time came to choose whether or not to sign up for the FSA again, I chose not to. Now I’m regret it, because I’m throwing away money by being lazy.

How much I wasted

The year I participated, I put $600 into my FSA (automatically deducted from my paychecks throughout the year). It was enough to cover my minimum deductibles, as well as other small expenses that might come up.

If I had set aside the same amount this year too, I would’ve saved $150 (according to a free calculator from United Health Care, one of the biggest FSA administrators)

It may not sound like much, but I basically turned down a 25% discount because I was too lazy to fill out paperwork for an hour every month or so.

Are you falling for the laziness tax?

There are all kinds of laziness taxes.

• Paying $5 in ATM fees instead of using an in-network ATM, or just getting cash back from a store
• Refusing to look into other cell phone, cable, internet, etc… companies just because you don’t want to change the status quo
• Getting hit with late fees on bills
• Not completing rebate forms
• Always buying the same brand of groceries at the same store, regardless of what is on sale
• Refusing to start a 401K /IRA because you feel overwhelmed by choices
• Choosing an inappropriate fund in your retirement plan because you don’t want to look into any options
• Always eating out, even when you could cook a better quality meal at home for much cheaper
• Buying albums / books in big chain stores instead of shopping around or buying them used
• Waiting until the last minute to book airfare

These are just a few examples out of an endless list.

What’s sad about the laziness tax is it does not improve our lifestyle or make us happier. We’re still making the same decisions, and still buying the same goods and services.

We’re just paying more than we have to, because we didn’t bother to plan first, or spend some time to save money later.

What laziness taxes are you falling for? What laziness taxes have you overcome?

Depressed by your bank account, you decide that a change is in order.

So you sit down to work out a budget. You pull out a piece of paper (or open up a spreadsheet), and write your paycheck on the top line. After that, you diligently list and subtract all of your monthly expenses. Cell phone, electric, gas, internet, rent, etc…. Next, you set aside chunks for your emergency savings and retirement fund.

Looks great, right? You can’t wait to get started. It seems all too easy to follow your freshly-minted map to prosperity. But along the way – normally after the first month or so – you hit road blocks. Why is that?

There are three reasons why budgets fail:

• The budget was unreasonable to begin with
• There was no emergency fund to back it up
• The budget used cash based accounting, instead of accrual

I’m going to talk about the latter, because it’s the least obvious of the budget killers.

What is accrual based accounting?

There are two different methods of accounting:

1. Cash-based: in this approach, expenses and income are recognized only when they are paid/received. As an example, let’s say that you pay car insurance once a year. For that month, you’d have a car insurance expense. For the rest of the year, you’d show nothing.
2. Accrual based: in this system, expenses and income are recognized as they occur. You spread the amount equally over the relevant time period. Using the example above, each month would have a car insurance expense of 1/12th of the total cost.

What does this have to do with personal finance? Simple. Using a cash based system in your budget will give you an excess in good times, but leave you gasping for air when times are hard. It will break your budget.

What’s the big deal?

To show the effects of a cash-based mindset, let’s take a look at a real world example: Social Security.

Social Security has had a budget surplus every year in it’s existence, and will continue to do so through the year 2016. The surplus is always loaned to the federal government in exchange for Treasury securities. The federal government then spends the money in its annual budget.

While Social Security currently holds $2.3 trillion in Treasury securities, it won’t help the government as a whole pay for anything. The reason? The government essentially gave a loan to itself in exchange for an I.O.U., then spent all the money. When Social Security goes to cash the I.O.U, the government still has to pay for it.

Rather than investing the surplus in non-Treasury assets, the government spent it.  As a result, they won’t be able to pay for the program. They’ll have to cut benefits, print more money, or borrow to pay for it. None of the options are especially appealing.

Had they used a true accrual approach, the government would have non-government investment assets (not I.O.U.s), and would be able to pay for Social Security for a much longer period of time.

What does it mean to my budget?

Using cash based accounting is an inaccurate way to estimate your expenses. Budgets are more successful when they are consistent. It’s a lot easier for us to spread the cost of insurance out over six months than it is to scrape together the cash to pay for it all at once.

Also, this mindset can lead to dangerous spending patterns. Ignoring expenses until they’re actually due enables us to spend recklessly the rest of the time. When you fall into this trap, you’re living off of more than paycheck at a time, and hoping that you can make up for it later.

You may be able to pull it off a few times, but in the end, it’ll catch up with you. And when it does, most people just use credit cards to make up the difference, which throws off the budget even more.

What can I do about it?

Switch to an accrual based view of personal finance.

To start, make a list of all the one-time expenses you’ll face over the course of a year:

• Car insurance
• Gym memberships
• Health insurance
• Holiday shopping
• Subscriptions
• Vacations

Then, take it a step further. List your monthly expenses that vary significantly:

• Electric bills
• Gas (for your car)
• Heating bills (including natural gas)
• Water

Next step – estimate the annual cost

For all the items you’ve listed, estimate the total cost throughout the year. This is easy for fixed expenses like car insurance or membership fees, but it can be tricky for other things.

For gifts, use this opportunity to set a limit for how much you want to spend for holidays and birthdays. It will be hard to use discretion on the fly, but if you make a budget in advance, it’ll force you to be more reasonable later.

For utilities, you have a few options. If you have access to the previous year of bills, just add up the total. If you don’t have access to previous bills, try to remember how much your cheapest and most expensive bills were. Add them together, then multiply it by six. That will give you a very rough estimate of the yearly cost.

I included gas in my list, because it can more than double if prices go up at the pump. It’s easier for me to set aside more than I need to, rather than be caught off guard the next time prices go to $4 a gallon.

What I like to do is estimate how much it would cost me to fill up for the year if gas is $3 a gallon. For example, my car has a 17 gallon tank. If I fill up every other week, it’ll cost $1326 for the year.

Figure out the monthly cost

After you have the yearly total for all your expenses, figuring out the monthly amount to set aside is a snap. Just divide it by 12. Once you have the monthly amount, make sure that you include it in your monthly budget, and treat it like you would an actual expense that has to be paid out.

The hard part – setting it aside

Budgeting on an accrual basis is just half the battle. The hard part is making sure that you actually save the money until it’s needed.

For fixed expenses, set aside the amount you planned on. For variable costs, you set aside any extra you have left over after paying the actual expense.

As an example, if you budget $50 for gas every month, but it only costs you $40, make sure to set aside the extra $10 so you have it available in case gas prices go up later.

If you budget $150 for electric, and it only costs $100, make sure to set aside the extra $50 for the more expensive months.

Our natural instinct is just to spend any money we don’t need immediately, but you have to fight it. The best way to do it? Transfer it away from your regular account, so that it’s out of sight and out of mind. You won’t be tempted to spend money that you can’t see.

What I did to keep my money separate is open an account with ING Direct. They make it quick and easy to open a new account, and the site is easy to use. There are no minimum balances, and no transfer fees. I use ING, but there are other similar options available, like HSBC.

Once you have a main account, you’re free to add as many additional accounts as you’d like. I created sub-accounts for car-insurance, vacations, mortgage payments, etc…. One nice feature is that you can add nicknames for your accounts, making it easy to tell exactly what each is for.

Transferring money in

After you set up the accounts, putting money aside is easy. When you get paid, just transfer money from your regular checking to the ING account. Or if it’s a variable expense, transfer the money you have leftover after paying the current month’s cost.

Incoming funds take 2-3 days to show up in the account, and they are not available for use for 10 days. I like that I can’t use the money right away. It’s like a built in waiting period. Also, by the time 10 days has passed, I’ve forgotten about it anyway.

Paying money out

When the time comes to pay for one of your accrual expenses, you have a few options.

Some bills can be paid directly from your savings account. It all depends on the merchant you are paying. If they don’t accept payments from savings, they probably accept electronic payments from a checking account (which is also free to setup at ING).

If you’d rather use your regular checking account, just transfer the money from ING back to your bank. There are no fees, but it takes about 3-4 days for the money to show up, so make sure you plan accordingly.

Conclusion

Sticking to a budget is a lot like holding a drink while riding a bike. It’s easier to do if our path – and our expenses – are level and flat, rather than a series of peaks and valleys.

Taking an accrual based approach to planning ensures that our expenses are consistent from month to month. This makes it easier to plan ahead of time, and eliminates shortcomings (which are too often filled by credit cards).

If we consider expenses only when we have to pay them, it’s guaranteed that we’ll hit bumps and spill our drink along the way.

Kiplinger’s Starting Out wrote the original list, and they just published the sequel – 10 Financial Commandments for Your 30s.

Just like I did with the last one, I’m going to share their list with my thoughts on each one.  I’m not 30 yet, but its great advice for anyone in their 20s too.

1. Pay off your non-mortgage debt

Carrying debt is expensive, and makes it more likely that a financial setback will turn into a catastrophe.  I’m determined to pay off my credit card debt this year.

As far as other debt goes, I have a car payment (that ends next year), and some federal student loans.  I’m not in any rush to pay off the student loans because the interest is partially deductible. 

2. Kick the debt cycle altogether

The normal spending pattern for big purchases is to use credit, then spend months (or years) paying it off.  In the mean time, interest charges rack up.

Your goal should be to reverse the cycle.  Instead of using loans to pay for big ticket items, save for them in advance.  That way, you are the one making money from interest, and you’ll be able to buy things without going into debt.

3. Get serious about retirement

I agree that you need to be serious about retirement in your 30s, but I think that should start in your 20s, as soon as you get a job.  Time is your best friend.

You have to start doing more serious calculations and planning when you’re in your 30s though.  Time is running out, so you need to realize where you’re going to end up if you don’t take action.

4. Diversify your investments

Again, this applies to any age.  The article suggests a stock market asset allocation strategy, but I don’t think it makes sense to just have a blanket recommendation.  Your asset mix will vary depending on your age and comfort level.

Mike at Oblivious Investor came up with a great visual to show how assets should be distributed.  I like that he includes real estate and an emergency fund in his allocation.

5. Continue to learn

Great advice!  No one will ever reach a point where they have learned everything there is to know.

Make sure to spend some time developing your professional skills (to help your career grow) and financial knowledge (to help your net worth).

6. Protect your assets

Even the best financial plans can be derailed by an accident – if you’re not protected.  You should have all of the following:

• health insurance
• disability insurance
• car insurance
• home owners / renters insurance
• an emergency fund

You need to protect yourself in case you lose the ability to make money.  If not, you could lose everything you’ve worked for.

Again, this is another step that should be taken ASAP – not just in your thirties.

7. Live simply

I couldn’t agree more with this.  The key to happiness lies in loving and appreciating what you have, not in desiring what you don’t.  It’s good for happiness, and great for your wallet too. 

8. Make your will known

If you don’t have a will, your assets may not go where you want, and they may take a very long time to get there.  Don’t let your legacy be marred by laziness.  I want my money to go to my family and good causes.  I don’t want the government deciding what to do with my money.

9. Get a life insurance policy

This isn’t a age-based decision.  If you have a spouse or dependents, you need life insurance.  If you’re single and have kids, you probably don’t need any.

10. Be charitable

A great idea for everyone.  I think it’s important to give back.  I recently made my first donation to charity, and am looking forward to giving more as time goes on.

This was another great list from Kiplinger, though they could all apply to your 20s (or any age, if you haven’t done them yet). 

My favorite tip is to live simply.  It is the foundation that enables a lifetime of happiness and financial success.  If you’re always thinking about what you don’t have, you’ll never be happy, and you’ll never stop spending.

What was your favorite tip?  Do you have any you would add to the list?

(if you liked this, make sure to check out my post on 10 Financial Commandments for Your 20s)

1. Sell your junk

I haven’t done this yet, but it’s a great idea.  We all have too much stuff that is just taking up space.  Craigslist, eBay, and even Amazon are all good places to sell things.

You could try selling old electronics, textbooks, musical instruments and equiptment, clothes, etc….  The list is endless.

I love this because it’s a 2 for 1 deal.  You get paid to get rid of stuff you don’t need.

2. Get a job

This seems like common sense, but they have a good point.  If you’re unemployed, you may have to settle for a less-than-ideal job offer given the economy.

If you do have a job but it’s still not enough to make ends meet – consider getting another one. 

3. Sell your skill

Even if you don’t want to get a second job, there are a variety of services you could get paid for.  Good at math?  Try tutoring.  Play an instrument?  Give lessons.  Like animals?  Try walking dogs.

It won’t be glamorous, but it’s still a way to make more money, possibly doing something you enjoy or that gives you a sense of fulfillment.

4. Rethink your rent

This is probably the best suggestion on the list.  One reason why the economy is in such bad shape is that people insisted on housing they couldn’t afford.

Housing is probably the biggest expense in your budget, so it’s also the biggest opportunity for improvement.  Try downgrading your house, or taking a roomate.  The savings could be huge, and could spread to other areas like utility bills or even groceries.

5. Claim unclaimed assets

I don’t think this is really practical for most people, but there are unclaimed funds from lost bank accounts, uncollected utility deposits, unclaimed tax returns, etc…

There are a couple of sites out there to see if you’re missing money.  They suggest sites like www.missingmoney.com or www.unclaimedassets.com.

6. Adjust your tax withholding

Another good one!  As fun as it is to get a big tax return each year, you’re throwing money away.  You’ve essentially given Uncle Sam an interest free loan.

If you adjust your federal tax withholding, you can increase your take home pay by a significant amount.

7. Get paid for stuff you do anyway

If you use reward credit cards responsibly, you can save money, get cash back, or earn points to redeem for things you want.  If you can get rewards for the things you’re already doing, you’d be a fool to not take advantage of them.  Just make sure you pay off your credit cards every month!

8. Hit up Mom and Dad

I have very mixed feelings about this.

First, they recommend moving back home to save cash.  I’m a big fan of this, and did it for two years after college.  Instead of rent, I paid down my credit card debt.

Then they suggest borrowing money from family or friends.  I am completely against this.  If you’re short on cash, borrowing is only a temporary solution.  How are you going to pay the money back?  There’s a good chance that you’ll only dig a deeper hole for yourself, and strain your personal relationships in the process.  It’s just not worth it.

I liked their tips.  Nothing groundbreaking, but it definitely offers a few ways to increase your cash flow.  It won’t replace your income, but it could give you the boost you need to make ends meet or even get ahead.

One of my favorites is selling your skills.  If you have a talent or passion, why not try to get paid for it?  Another favorite is re-thinking your rent.  It’s normally the biggest expense in any budget, so it’s also the easiest to cut back on.

Being 27 years old, I have experience in this area.  I want to share their list, and also some insights about how well I’ve followed their instructions.

1. Plan Ahead

You need to have plans and goals that account for the short term (less than 5 years), medium term (5-10 years), and long term (20+ years).

I didn’t do this, but wish I would have.  I have goals now, but that’s after I’ve bought a car and house – the two biggest financial decisions I’ve made.  I would’ve saved a lot of money by planning for them more than a few months in advance. 

If I had a bigger down payment for my house, I could have gotten a better rate on the mortgage.  Even a down payment of $10,450 would have saved me close to $60 a month, and more than $22,000 in interest over the course of my mortgage.

2. Live within your means

Another one I ignored at my own expense.  When I first got a job, I actually increased my credit card debt.  Not an uncommon story, but its an expensive one.

The best time to get ahead is our early years…you don’t want to be burdened with debt from the beginning.

3. Make Savings a Habit

A swing and a miss!  My money goes to pay off debt now, so I still don’t have any savings to speak of.  But what I should have done – even before my first paycheck – is set up an automatic deposit from my paycheck that goes right into a high-yield savings account.  I never would’ve missed the money, and I would’ve gotten used to living off of 10% less than I was earning.

4. Pay off your credit cards

Credit cards are expensive.  I did a great job of paying off my credit card debt after I got a job.  Then I wracked up more debt because I didn’t have savings.  Granted its on 0% interest cards, and I should be able to pay it back before the rate expires, but still…its a bad feeling to have credit card debt.  The sooner you pay it off, the better you (and your bank account) will feel.

5. Start investing

The beauty of investing is compound interest.  It has a greater effect if you start early.

The article gives an example of a 25 year old who invests $200 a month, and earns an 8% return on it.  By the time he turns 65, he’ll have $703,000 in his account.  However, if he waited to start until he was thirty, he’d have only $462,000.  By starting 5 years earlier, he makes $241,000 more off of only $12,000.

This is one of the few things I’m doing.  I’m contributing a decent amount to retirement, but it could be more.  I plan on opening a Roth IRA on top of the money I’m already investing in my 401K.

6. Establish Credit

This is something that should be done in your teens if possible (and if done responsibly).

Length of credit is a big part of your credit score, and its the only thing you can’t do anything to change.  By getting a credit card ASAP – and paying it off each month – you build credit, and your credit score will be in a much better place when you start applying for car loans or mortgages.

I got a credit card soon after I started college, which helped me build great credit.  Unfortunately I also used the card irresponsibly.

7. Have a marketable skill

Before you start working, you should think about where you want your career to be in 10-20 years.  Everything you do in your 20s should be building the skill set you need to achieve your goals.

It’s never too early to start specializing or networking.  If you know what you want to do for a living, start working towards that in college by building real-life, applicable experience.  It will give you an edge over other entry level employees.

This is another commandment I’m following, but I could be specializing better.  I feel like I have a good skill set, but its too broad and not deep enough in any one area.

8. Cut the financial umbilical cord

If you want to be treated like an adult, you have to act like one.  You need to balance your own checkbook, do your taxes, and manage your investments.

You have to take responsibility for your finances as early as possible.  No one else will care about your money as much as you do.

9. Marry Wisely

Although it sounds vulgar to think about marriage and money in the same sentence, money causes more divorces than anything else.  Before you get married, make sure that you talk about finances and share a similar mindset, including goals and priorities.  If you don’t, make sure you take the time to work out your differences, because it could blow up later.

10. Have some fun

This is the only thing on the list I’ve really done well.  It’s important to have fun, and it’s important to be responsible.  The trick is to keep it balanced.

I thought this was a great list.  The unfortunate thing is that many people – myself included – learn by doing the wrong things when it comes to money.  I wish that more parents, colleges, and even entry level employers would make a point to discuss finances.  It would put countless people in a better position on the road to wealth.

If you liked this, make sure to check out some of my other posts like 12 Easy Ways to Sabotage Your Finances in College or Twenty Reasons You’re Not Rich.

Here is their list, along with my comments.  Their list is in bold, and my thoughts are underneath.

1. Grow your own food

While I’ll grant that its very satisfying to grow your own food, for most people this is not a good way to build wealth.  It may save some money, but in most cases it won’t be very much.

2. Set limits and stick to them

Yes!  Part of budgeting is to make a plan and stick to it.  The trick it to set limits right when you get paid – this allows you to pay yourself first.

3. Buy savings bonds

They suggest taking 10% of every paycheck – which I like – and investing it in savings bonds – which I don’t.

Putting away 10% is a great idea, but there are better options than savings bonds.  Yes, they offer a guaranteed return, but it comes at a cost.  Because there is little risk, the return will be much lower than other investments.

4. Redirect your raises

Another great idea!  A great way to “accidentally” get rich is to always keep your take home pay the same.  Any time you get a raise or a bonus, save or invest it.  If you never see it, you can never miss it – or spend it.

5. Split raises in half

This is just a watered down version of #4.  Instead of saving/investing all of your raises, this one suggests that you keep half, and save/invest the rest.  Still a good way to get ahead, but not as good as #4.

6. Track spending

One of my favorites!  I’m convinced that if you track your spending, you’ll spend less.  If you know exactly where your money goes, you’ll start finding better uses for it.

7. Spend less by budgeting

Plan your monthly budget in advance, and pay yourself first.  Regardless of if you’re trying to pay down debt, save for a vacation, or save for retirement, you’re more likely do accomplish it if you make a point to do it first, before spending any money.

I actually plan my budgets at least two months in advance.  That way, nothing sneaks up on me.

8. Save by Using Credit

It’s dangerous, but using credit wisely can save you a lot of money.  The article suggests using credit cards for all purchases, but you have to pay them off on a monthly basis.  That way, you earn reward points while you make interest on your cash.

Another way to use credit to save cash is to take advantage of 0% interest balance transfers.

Again, its dangerous, but if you’re responsible and committed, you can save a great deal of money.

9. Take advantage of rewards

This ties into #8.  If you can earn cash back or free rewards for the things you already do, you’d be a fool to not take advantage of them.   Again, just make sure you pay off all credit cards in full each month.

10. Save with coupons

You can save a lot of money by using coupons or just buying what’s on sale.  Take the time to look through ads before you hit the stores.

11. Use direct deposit

This is similar to #4.  If you automatically transfer money to savings accounts right after you get paid, you can’t be tempted to spend it.  Also, it you automate it, you can’t forget about it.

12. Leverage automatic savings

This builds off of the last one.  If you use direct deposit or automatic transfers to take money out of your checking account, you pay yourself first and ensure it goes to your savings.  If you want until the end of the month to put money in savings, you’ll inevitably end up spending it all.

13. Don’t touch the money

Putting money in savings is only half the battle.  You have to leave it there if you want it to grow.

14. Pay attention to progress

They suggest tracking your debts and assets, and watching how your debt goes down and turns into a positive net worth.

I think it’s a great idea, but looking at your 401K or net worth every day is too much, and can actually be bad for your finances.

Tracking your accounts and progress is great, but micromanaging them is not.  Maybe check it on a weekly or monthly basis, but not every day.

15. Save a little [more] every week

If there is a goal you’re saving for, start with a small amount, and increase it over time.  Eventually, you’ll adjust to the lower income, and your savings will grow pain-free.  Making the transition gradually will be easier, and more likely to stick.

16. Check grocery store ads

Nothing shocking here.  If you check store circulars and go to the store that has the lowest prices, you can save a lot of money.

My favorites

The list is simple and repetitive, but contains solid advice for getting ahead in your finances.  Here are my favorites:

• Redirect your raises - if you keep your take home pay the same and put the remainder into savings/retirement, you’ll build wealth very quickly.
• Track your spending/set a budget – if you set a plan, you’ll spend less, and use it for better purposes.
• Don’t touch the money – you should be saving/investing for the long run.  To get rich, your money must continually build in value and take advantage of compound interest
• Pay attention to progress – you should always be aware of how much money you have or owe on all your accounts.  It helps prevent identity theft, and it’s also a strong motivational factor.

The services are all free, and consolidate information from a variety of sources to give users a complete picture of their financial health.  It’s a great way to figure out how you’re spending money, and identify ways to save.

Quicken Online – http://quicken.intuit.com/online-banking-finances.jhtml

Summary: Quicken Online is the newest site for financial management, but one of the oldest when it comes to desktop software.  Intuit, the company behind their desktop software, released Quicken Online earlier this year to grab some of the market share in the online arena.  Quicken Online is now free.  It used to cost $3 per month, but they changed it to compete with the other financial management sites.

• Pros:
  • Intuit has been a market leader for years in financial software, so they know the market very well. 
  • If you are already a user of Quicken, then this is an easy transition.
• Cons:
  • Can’t sync the online version of Quicken with the desktop version

Geezeo – www.geezeo.com

Summary: Geezeo is a free, web-based application offering a variety of tools and services to help reach your financial goals.  You can organize your finances, create a budget, set savings goals, plan for retirement, and learn how to buy a house.  Along with the online software, Geezeo includes a community feature that lets users help and learn from each other.  The back end of Geezeo uses CashEdge, an online account aggregation and interaction service used by numerous financial institutions.

• Pros:
  • Simple, clean design
  • Email-based; lets you manage your finances via your inbox
• Cons:
  • Set-up is more painful than others we reviewed
  • Plain and doesn’t offer rich graphics like Mint.com
  • I could not find the ability to add student loans, but it is my understanding that this will be added later.

Buxfer – www.buxfer.com

Summary: Buxfer is simple and easy to use.  Most of the core features are similar to its competitors, including things like budgeting, summary reports, transactions, etc…. 

Like Wesabe, Buxfer is trying to position themselves in the social networking arena, but they take a different approach.  Whereas Wesabe encourages users to join group discussions, Buxfer creates a more one-on-one feel by adding a contacts list to your main screen.  The contacts list lets you track how much money people owe you (or how much you owe them), and also lets you send and receive payments for those loans via Amazon Payments. 

As for their security, they boast successful audits by Verisign and McAfee, but I’m troubled by number of data entry and exit points that they offer.   Most of the other sites we reviewed have one method of entry: a web portal log in. 

Buxfer has numerous entry points because they offer Firefox add-ons, Google add-ons, iPhone applications, Facebook applications, and other mobile device tools.  If you are worried about this, they offer a manual upload of your financial data so you do not have to provide them with user names and passwords.  This increases security, but also makes it much harder to use.

• Pros:
  • Clever social networking features
  • Personal loan tracking and payments
  • Clean and simple interface
  • Financial reports offered via email or text message
• Cons:
  • Numerous data entry and exit points that can could cause security issues
  • Not as much reporting functionality

Conclusion:

• Out of these 3 products, Quicken Online is my personal favorite.  The others have great potential, but lack deep functionality and a rich interface.

To see our reviews of Mint.com, Yodlee, and Wesabe, check out part one of our online tool reviews: Market Share Battles: Review of Free Online Money Management Tools.

In this week’s Market Share Battle, we review free web-based money management tools including Mint, Wesabe, and Yodlee.  These products summarize financial data from multiple accounts, and offer helpful features designed to save you time and money.  The services are free, and serve as a one stop answer shop for gathering all your financial info in one place.

Mint – www.mint.com

Summary: Mint’s software is a powerful web based money management tool.  Features include real-time investment tracking (including 401K), budgeting, and net worth.  Once your accounts are set up, the software analyzes your money habits and suggests products to help you save money.

• Pros:
  • Customized text message and email alerts (this is a cheap alternative to active identity theft protection)
  • Automatic and custom rules for categorizing your transactions
  • Very user friendly, and great graphics
  • Investment tracking
• Cons:
  • Cannot enter cash purchases, but you can split up cash withdraws into multiple transactions.
  • Cannot turn off money saving suggestions.   This is not a big issue, as this is how Mint makes their money and allows the service to stay free.

Wesabe – www.wesabe.com

Summary: Wesabe is a combination of a social networking site and basic personal finance software.  Like the rest of the online money management tools, it includes budgeting and account linking.  What sets Wesabe apart is the social networking.  Its features include the ability to join groups and discuss topics that you are interested in.  Another feature worth mentioning is that they can give you tips for saving money based on spending trends.

• Pros:
  • Participate in group discussions on a variety of financial topics.
  • Offers suggestions for saving money based on your spending habits and credit score.
  • Customized text message and email alerts
• Cons:
  • Suggestions are not completely customized. This feature could use some work, but has a lot of potential.
  • It is difficult to track non-traditional accounts, like a 401k

Yodlee – www.yodlee.com

Summary: Yodlee has the most features of the products reviewed in this post.  It is so feature-rich that Mint actually uses Yodlee for the back end of their website.  If you want an in-depth view of your finances and don’t care about a fancy interface, then Yodlee is the tool for you.  The presentation is an accounting style view of your finances.  It includes features like online bill payment, bill pay calendar & alerts, budgeting, rewards points tracker, net worth, and many more.

• Pros:
  • Very rich in features, and offers numerous options that the other tools don’t.
  • Customized text message and email alerts
• Cons:
  • The front end is dry and boring. The graphs are dull, and could use a little work.
  • Does not offer suggestions on how to save money.

Conclusion:

• If you want an all-in-one, no frills view of your finances,  then you should turn to Yodlee.
• If you like group discussions and want to get tips and tricks from other users, Wesabe is the choice for you.  It’s more of a social networking site than the other two.
• If you are looking for an upcoming star that is adding features, but still has an amazing presentation,  then you give Mint a shot.

Make sure to stay tuned until next week, when we’ll review three more money management sites.

*Update: Here is the link to Market Share Battles: Review of Free Online Money Management Tools Part 2

The problem?  Engineers failed to convert measurements to the metric system.  The mistake was simple, but wasted almost $328 million dollars when the satellite burned up in the atmosphere.  The loss of time was just as devastating.  The orbiter was part of a ten year project, and Mars probes can only be launched every twenty six months when the planets are at their closest.

What does this have to do with personal finance?  The answer is simple.  While our financial mistakes are not normally of that magnitude, they are just as preventable and can be just as devastating.

A momentary lack of caution can change your life

 (image by Shuets Udono)

Financial mistakes are preventable

Ever been late on a credit card or bill payment?  You’re not alone.  Most Americans – myself included – have been late on a payment, but that doesn’t mean it’s OK.  There is no excuse for missing a payment, ever.  It can be hard to keep track of all your bills,  but the solution is simple; write them down.  I use a spreadsheet to list my bills for the next two months.  Another way to track them is to buy a big desk calendar.  Every time you get a bill in the mail, write down how much is due and when.  Then check the calendar once a week, and nothing should slip by you.

By planning in advance, it makes it easier to remember everything, and also to plan your budget.

Financial mistakes are costly 

Late on electric or water bills?  Most utility companies charge a penalty of 10-15%.

Overdraw your bank account?  Be prepared to pay an average of $29 per transaction.  Doesn’t sound like much, but according to a study from the Department of Economics at ECU, the median interest rate for overdraft fees and so-called “bounce protection programs” offered by banks is an astounding 4,547%!  Additionally, because these programs and fees are not loans, banks are not required to disclose information about their costs.

Miss a credit card payment or go over your limit?  You can plan on paying an average of $34.09 for being late or $36.53 for going over.  Worse, payment history accounts for 35% of your credit score.  Missing even one payment can lower your score.  If you’re behind by thirty days, most companies consider you delinquent.  Miss three payments in a row, and they assume you’ll never pay your account, and your credit score will suffer.

Financial mistakes can take years – or even decades – to correct

Information about your financial history stays on your credit report for seven years, while declaring bankruptcy will be on there for ten.  Worse than that, your credit rating can affect all areas of your life.  Everyone from lenders to employers to insurance companies check your credit report, and it doesn’t stop there.  Recently, even hospitals started checking your credit .

The biggest impact that your credit history can have is on loans.  When applying for a loan, the higher your credit score, the lower the interest rate you’ll be able to get.  On average, people with the best credit scores – 720 or above – would currently be eligible for a 6.024% thirty year fixed loan, while those with the worst – 599 or below – would pay 12.985%.  Over the course of a thirty year, $200,000 loan, that’s a difference of more than $362,000!

Even a small difference in your interest rate can have a huge impact.  A difference of .25% will will save you $23,408 (on a thirty year $200,000 loan).  It may not seem like much, but it would mean an extra $65 in your pocket each month.

An ounce of prevention is worth a ton of cure

The Mars probe failure was costly, wasted years, and could have been prevented by simply double checking the details.  Financial mistakes are no different.  Make sure you take the time to check your bills and due dates – you can’t afford not to.

1. Food – Grow a garden

There is a lot of money to be saved in food costs, but I don’t think growing your own is the way to do it.  It’s satisfying to have a garden, but I don’t do it to save money.  It’s hard to beat the price of stores and local farmers.

A better way to save on food is to cut back on eating out.  Do more grocery shopping (buying generic of course), and cook more meals at home.  Don’t just stop there – have one night a week where you try to spend as little as possible.  Go old-school once a week and have grilled cheese and ramen noodles for dinner.  I normally do it a few times a week, just because I like it so much.

2. Entertainment: Enjoying the simple things

The article suggests staying at home, keeping entertainment simple, and resisting the temptation to buy the latest tech gadgets.  I couldn’t agree more.

Just like eating, you can save money by staying at home.  Invite friends over for drinks or to play board games (like Cranium, one of my favorites) instead of going out.

Use Netflix to watch movies.  You may have to wait a few months to see the latest flicks, but you’ll save at least $15 a movie (assuming you go out as a couple), maybe more after you factor in food and gas.

3. Transportation: How many SUVs does your Family need?

While it’s probably not cost efficient to get rid of your current vehicle, you can save on gas costs by walking more or taking public transportation.  When you do drive, combine errands so you can save a trip out later.  As an example, stop by the store on your way home from work on Friday so you don’t have to go there on Saturday or Sunday.

Another way to save on transportation is to use your current vehicle longer (within reason).  Don’t get a new car just because you’re tired of driving an old one.  If it’s already paid off, drive it for a few more years.  Take the money previously spent on payments, and put it towards savings instead.

When it is time to get a new ride, buy something reliable that gets good gas mileage.  Don’t try to impress people with an expensive car.

4. Housing: Downsize or rent a room

Irresponsible housing decisions are having an incredible impact on the economy – more so than anyone could have imagined.  The amount of defaulted sub prime loans is at most $250 billion, which is a large sum, but nowhere near enough to explain the current downward spiral.

For most people, housing is the biggest expense – and thus their biggest opportunity for improvement.

Downgrading to a smaller house probably isn’t an option if you already own one, but you may be able to rent out a room to a friend or relative.

If you’re thinking about buying a house, consider renting as well.  Make sure you factor in the costs and benefits of each.  If you still think buying is the best decision, don’t buy more house than you need.  When my wife and I bought a house, we were approved for waaaaaaaay more than we could afford.  But we didn’t give in.  Our house cost 60% of what we were approved for.  I’m convinced we could not afford what the bank was willing to give us.

5. Jobs/Entrepreneurship: Nothing left to lose?

The article says that if you’re looking for employment, you should consider looking for a position that is below your salary (which I agree with).  Beggars can’t be choosers, especially in a downtrodden economy.

It also says one advantage is that you may be in such a bad place that you have nothing to lose, so it is a good time to start over in a new career or start a business.  I don’t agree with this.  First, it’s hard to say that having nothing left to lose is an advantage.

Second, if you’re in a bad place, I feel like you should do your best to at least tread water, and not start again from scratch.  Until you’ve lost your house, car, and declared bankruptcy, there is always something left to lose.

I do feel it’s a good time to identify some additional sources of income, but they should be supplementing your income – not replacing it.  If you have spare time, consider picking up a part time job.  Or find something you are passionate about, and see if you can grow it into a business.

6. Credit: Redefining what you can afford and need

If you can’t afford to pay cash, you can’t afford it.

I agree 1000%.  Now is a good time to get out of debt.  For too long, people (including myself) used credit to purchase things under the assumption that they could pay it off in the future.  Normally it’s a safe bet, but that hasn’t been the case recently.

We should all make it a priority to get out of debt – and stay out.

7. Money management / Budgeting: Simplify your system

This one turned into a bit of an advertisement for Mint, but it’s still good advice.  When times are tough, you have to cut your expenses.  It’s much easier than increasing your income.  You also need to stay on top of all of your accounts, debts, and bills.  The last thing you want to do is throw away money on overdraft or late fees.

I track all my accounts on a daily basis, and recommend that others do the same.  Once you balance everything for the first time, it only takes a few minutes a day to keep them reconciled.

History is a great teacher, if one takes the time to learn from it.  By learning from the Depression and showing more responsibility in our personal finances, we can hopefully prevent history from repeating itself – or at least make sure we’re prepared if it does.

Last year, cnnmoney.com published a list of twenty financial rules that never grow old.  Each rule includes a related quote from a famous historical figure.  Here is their list and quotes – I went ahead and highlighted my favorites.

1. Be Humble

“When you do not know a thing, to allow that you do not know it – this is knowledge.”
- Confucius

2. Take calculated risks

“He that is overcautious will accomplish little.”
- Friedrich von Schiller 

3. Have an emergency fund

“For age and want, save while you may; no morning sun lasts a whole day.”
- Benjamin Franklin

4. Mix it up

“It is the part of a wise man to keep himself today for tomorrow and not to venture all his eggs in one basket”
- Miguel de Cervantes

5. It’s the portfolio, stupid

“Asset allocation…is the overwhelmingly dominant contributor to total return.”
- Gary Brinson, Brian Singer, and Gilbert Beebower

6. Average is the new best

“The best way to own common stocks is through an index fund.”
- Warren Buffet

7. Practice patience

“It never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight!”
- Edwin Lefevre

8. Don’t time the market

“The real key to making money in stocks is to not get scared of them.”
- Peter Lynch

9. Be a cheapskate

“Performance comes and goes, but costs roll on forever.”
- Jack Bogle

10. Don’t follow the crowd

“Fashion is made to become unfashionable.”
- Coco Chanel

11. Buy low

“If a business is worth a dollar and I can buy it for 40 cents, something good may happen to me.”
- Warren Buffet

12. Invest abroad

“The world is a book, and those who do not travel read only a page.”
- St. Augustine

13. Keep perspective

“There is nothing new in the world except the history you do not know.”
- Harry Truman

14. Just do it

“It takes as much energy to wish as it does to plan.”
- Eleanor Roosevelt

15. Borrow responsibly

“As life closes in on someone who has borrowed far too much money on the strength of far too little income, there are no fire escapes. “
- John Kenneth Galbraith

16. Talk to your spouse

“In every house of marriage there’s room for an interpreter.”
- Stanley Kunitz

17. Exit gracefully

“Only put off until tomorrow what you are willing to die having left undone”
- Pablo Picasso

18. Pay only your share

“The avoidance of taxes is the only intellectual pursuit that carries any reward.”
- John Maynard Keynes

19. Give wisely

“The time is always right to do the right thing.”
- Martin Luther King Jr.

20. Keep money in its place

“A wise man should have money in his head but not in his heart.”
- Jonathan Swift

In a recent post on kiplinger.com, Erin Burt describes some of the other lessons she has learned from being broke.   Here’s her list and my commentary on each lesson.

1. Know your priorities

When you don’t have enough money, you quickly learn what is really important to you.  Do you improve your house or spend a night on the town?  Do you pay down debt more quickly or do you go to a concert?

2. Debt is a vampire

I completely agree with this.   I’m not losing any money to interest, but the opportunity cost of my debt is high.  If it wasn’t for my credit card debt, I could be maxing out my IRA right now.

3. Have a cushion to fall back on

This is a good idea.  Unplanned costs will inevitably come up, so it’s best to be prepared for the unknown.  Otherwise, you may fall into debt.

4. Set goals and tune out peer pressure

Two of the most important points of any successful financial plan.  You have to set goals.  If you don’t know where you want to be, you can never be upset about where you are. 

Ignoring peer pressure is another good idea.  You may not share the same priorities – or income – of those around you, so you shouldn’t make decisions based off of what others.

5. Small sacrifices add up to big rewards

It’s hard doing the right things at a young age.  Now is the time when your income is lowest, but it’s the most important time for you to be thinking about the future.  Time is your best friend, so you’ve got to make sacrifices to take advantage of compound interest.  It’s hard putting away money for something so far down the road, but it will pay off eventually.

6. The size of my bank account doesn’t matter

Having money is not a goal.  The goal is to be able to be stress-free, and enjoy more of what life has to offer.  It could be to spend more time with loved ones.  Or it might be traveling, or volunteering for a worthy cause.  You should be working towards something that is important to you.

I thought this was a great article.  Growing up, money was definitely an issue around my house.  I think that has motivated me to be in a better place, and also to appreciate what I have.