May 2007

Welcome to the 7th edition of the Investors Blog Network. Here are the festival entries.

• Is Early Release of Study Data to Doctors Unfair? by H.S. Ayoub @ BioHealth Investor. Hisham raises a very interesting question “Can the release of early results [drug testing results] to doctors be construed as insider information?“.

Regulators should keep on eye out for investment firms and hedge funds who claim to hire doctors as ‘analysts’, while the true purpose is to have insiders at the major medical meetings and conferences to acquire key preliminary data ahead of the general public.

I never thought along these lines. May be it helps to be investing buddies with a good doctor

• Stocks Vs Real Estate, Winning Investment Strategies by SVB @ The Digerati Life. SVB points out some advantages and disadvantages of investing in real estate as compared to investing in stocks. Of course, each approach has it’s own attractions, but personally, investing in real estate seems a bit intimidating to me - when I think real estate, I think negotiations, heavy leverages, and lack of sufficient scope for diversification.
  

• The Starbucks Effect and the Saturation Point by Market Matador @ Market Matador. Think Starbucks is doing a great job at expansion? Read this post.

By flooding the market with spots for coffee, Starbucks has been wasting growth potential, and opting for current market optimization. Unfortunately, the optimization is becoming wasteful and hurting the brand image.

The effect is apparent in the falling price of Starbucks ( SBUX ) shares. The matador points towards a potential buying opportunity if the trend continues - in the anticipation that the stock will rise in future.

• SBUX: StarBucks International Plans to Enter Russia and India by End of 2007 by TJP @ Investor Trip. Another post wondering whether it’s the right time to buy Starbucks stock ( SBUX ). With earnings projected to grow at 21% annually, and shares hovering near the lowest price over 52 weeks, it does sound tempting. However, in the previous bulleted post above, Market Matador predicts that the price may fall even lower - so a little more wait might be in order.

• Dividend Stock Analysis - Lowe’s Companies Inc (LOW) by Average Joe @ Investment Jungle. Average Joe analyzes the performance of Lowe’s dividend yields.

The posts mentions the term *intrinsic value* with regards to Lowe’s stock ( LOW ) price. For those who don’t know what that is, Investopedia defines “intrinsic value” as:

The actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors. This value may or may not be the same as the current market value.

So, if a stock is trading at a price lower than it’s intrinsic value, then it is *undervalued* and probably it might be a good idea to buy it - generally, there will be a tendency for the stock price to move towards it’s intrinsic value in time to come - that means greater potential for gain (in my opinion).
Is Gold a Good Investment by WBL @ Wealth Building Lessons. An extensive analysis on the performance of gold as an investment. I started on this gold buying track earlier (you can read about it here and here), but eventually things got a bit complicated for me and I lost the tempo. WBL’s post puts me right back on track. I think I should buy it before I start hearing the words “inflation worries” with increasing frequency on the news.

• How Not To Make Money In Stocks Guaranteed! by Tyler @ Dividend Money. Tyler highlights some surefire ways of not benefiting from investments in stocks. This is for novices like me. With regards to keeping investment records, he says this:

If you’re really lucky, you won’t even know your adjusted cost base for tax purposes!

Well…I am almost there - even with the ridiculously small investments I have made so far.

• Sometimes You Should Roll The Dice by Fletchlives @ fletchlivesforecasts. The author expresses this worry:

What I haven’t learned throughout that process is the most advantageous way to keep track of my thoughts which lead me to make or not make those trades. Sure I can look at a printout, but I don’t have any explanation of why I made the decision in which I did at that time, or what factors led me to believe that the stock would move up or down.

At this point, you (and I) should go back to Tyler’s post above (the previous bulleted entry) and read up the section on record keeping - it will make better sense with this background.

• CNBC Million Dollar Portfolio Challenge - IBN Network Final Results by Super Saver @ My Wealth Builder. During one of the previous festivals, Super Saver initiated a Investors Blog Network (IBN) portfolio to be submitted to CNBC’s Million Dollar Challenge. He shares the results through this post. The portfolio ranked among the top 14% in terms of value with a gain of about 12%.

• Mining Merger Mania: Say It Three Times Fast by Michael K. Dawson @ The Time and Money Group. Michael discusses the increasing tendency of mining companies merging together - an effect caused by demand (mainly due to rapid growth in India and China) overtaking the supply. Invest wisely and make those mergers work in your favor.

• Find People Who Are Looking To Help Financially by Cade Krueger @ Write To Right. If you are in the market to raise money for your business, this article is for you. Cade highlights the questions that may be raised by potential investors before they promise you their money.

That concludes the seventh edition of the Investor’s Blog Network (IBN) Festival. Thanks are due to Hisham @ BioHealth Investor for letting me host this edition of the festival - and for rekindling the “learn more about investing” fire.

In a couple of days, I will be posting about my current investing attitude and will discuss my pathetic portfolio - or whatever is a collection of just a couple of stocks is called. So come back with all the investment advice you have, because I am probably going to need it.

Image sources: Gold - www.everythinginvestment.co.uk

A couple of days ago, on this food-for-thought post, a reader left this comment (italics are quoted from the post):

“Education is a Great Economic Leveler”

-I have a college degree and earn minimum wage. Where’s all the extra money I’m supposed to be making?

“Yes, There Are Educated People Who Think Like This”

-I think I have a pretty good handle on the basics of personal finance. But what good is that when you earn minimum wage and have student loan debt?

I tried to answer these questions here, but I am not very pleased with the attempt. Probably some of you might have more to add.

On a related note, sometime back (I don’t remember on which blog), I read a question by another reader to this effect:

How can I be a millionaire if I earn minimum wage?

How would you answer such questions?

Of course, one would simply say “increase your income”, and although that is quite obvious, it’s a bit shallow (in my opinion). I am trying (and have tried in the past), but I still don’t have satisfactory answers to such questions. Would be glad to get some reader input on this.

While you think on that, here are some noteworthy articles published this week:

• The Simple Secret of Investing by Ben @ Money Smart Life. I think this post is directed towards me. I have been a bit lethargic about putting my money in the stock market (for now)…for the fear of losing it. Ben talks about that fear in this post. However, I still look at stock markets like swimming pools - of course, you will never be able to learn swimming unless you jump in the pool - but, if you are overconfident and jump in without the proper precautions, it won’t be too difficult to drown.

• What Is Gap Insurance, and Do I Need It? by Matt @ Binary Dollar. If you have a new (or almost new) car you probably know (or should know) about this. What about used cars? Nah..you don’t need it for that (most probably some insurance companies won’t offer gap insurance on used cars).

• Entrepreneurship Lessons from Calvin & Hobbes by ISPF. Interesting lessons through funny cartoon strips. Let Calvin and the imaginary tiger teach you everything from “how to run a business” to “how to create repeat-buyers”.
  

• Questions From Readers: Can I Deduct Brokerage Commissions Paid to Trade Stocks For Tax Purposes? by Jeremy @ Generation X Finance. One would expect the answer to be a simple “YES” or “NO” - but hey it’s the IRS! so there must be some “IF ..THEN..ELSE” statements.

• End of Your Rope? Tie a Knot and Hang on Tight by Lazy @ Lazy Man and Money. Based on his personal experience, Lazy talks about ways to cope up with a job loss.

• The Perfect Hobby: One That’s Cheap, Makes Money Or Becomes A Business by SVB @ The Digerati Life. I have conflicting (but inconsistent) thoughts about this. Sometimes I think that once a hobby becomes a business, the fun just dries away from it - it’s no longer a hobby, it’s a business.

• Is the New Discover Motiva Card Encouraging Credit Card Debt? by Sun @ The Sun’s Financial Diary. Sun discusses an interesting “interest-back” offer from this Discover card. It’s probably the first of it’s kind that I have heard of - and yes, the offer does sound a bit stupid.

• Where does the Rule of 72 come from? by MBH @ Mighty Bargain Hunter. Check out this detailed derivation of the “rule of 72″. MBH’s work sort of fills in the analytical gaps in my earlier post on the subject: How Long Till You Double Your Money? Is the Rule Of 72 Good Enough?

• The Importance of Buying Flood Insurance by Nickel @ Five Cent Nickel. Some fundamental explanation about who needs flood insurance and how to get it.

• Save Money by Going Back in Time by FMF @ Free Money Finance. Blame the increased spending on lifestyle inflation over the years and apparent *needs* that we have created for ourselves. FMF suggests going back to the 70’s way of living (only figuratively, not literally) to cut the flab.

• I Don’t Want To Be Rich by Jim @ Blueprint for Financial Prosperity. A devil’s advocate post that lists a few reasons why one would choose to remain poor. One of the reasons is - “Poor people are less likely to be robbed“. Btw, Jim’s blog saw it’s 1 millionth visitor this week! That’s awesome….congratulations Jim.

Now, here are a couple of carnivals that featured my posts:

• Carnival of Personal Finance #100 hosted by Madame X @ My Open Wallet. It’s one incredible piece of work - a compilation of 100 articles with a commentary on each. My post “Husband, Does Your Wife Know How To Invest? Wife, Does Your Husband Know How To Pay The Bills?” was featured at #1 position.

• Festival of Frugality #74 hosted by Juan @ Millionster. My post “Bulk Is Not Always Frugal - Watch Out For Prices Like These” was included.

I was reading this book “Living Well on a Shoestring” the other day and came across some amusing penny-pinching tips. The almost-400 page book is full of smart and frugal things to do, but at times, some of the tips made me exclaim - What!? Here 10 frugal solutions from the book that I thought you folks would enjoy - all of them are ingenious, but some of them are ridiculous, and some are just…ewww. A couple of them seriously require a *feasible* alternative - they just wouldn’t cross the psychological barrier in many people.

1. Growing tomatoes in a bra

This is the first time I heard of anything like this…although, it seems to be well-known among folks who grow tomatoes (read this for example - look for the heading “Large tomatoes will require support”). Tomato plants don’t have a very strong stem and usually bend (sometimes break) under the weight of the growing tomatoes - especially due to the larger tomatoes. Generally, “stakes” are used to provide some support to the stem (see the image below) - so as to keep the tomatoes off the soil. The book goes a step further and suggests tying a used/worn-out bra between two stakes, in such a way that the cups supports large tomatoes. If that’s difficult to visualize, here is a quick schematic that I sketched in Powerpoint.

Now, imagine you are having an awesome BLT (bacon, lettuce, and tomato) sandwich and totally appreciating the juicy tomatoes - and then your host, very considerately, announces “Oh those?…those were grown in a bra“. I would love to see the expression on your face after that.

2. Getting your flowers from the dead

This comes under the heading “Even funerals have a bright side”. Flowers used in a funeral are usually dumped in the trash after the proceedings. It is illegal in most states for funeral homes and florists to resell or reuse these flowers (thankfully!). The book suggests that you get in touch with a funeral home and ask them if they can send the flowers to you instead of throwing them away. Now, I consider myself frugal as far as the conventional definition of “frugality” is concerned…but this thing goes beyond me.

3. Using diapers as water reservoirs for plants

This is again in the context of tomatoes (is tomato gardening so popular? - there are a lot of tips and tricks in the book about growing tomatoes). According to the book, you can reduce the frequency of watering tomato plants by placing the absorbent material from a disposable diaper underneath the soil, and then planting your tomato plant on the top. Whenever you water the the plant, some of the water will be absorbed by the soil and the rest will be absorbed by the diaper material. When the soil dries out, the roots can still suck up water from soaked diaper (scientifically, when the soil dries out, the soil itself sucks up the water from the diaper - which is analogous to how a candle wick draws up wax - by capillary action). This way you could probably get away with watering just a couple of times a week.

4. Cleaning a not-so-valuable painting with your spit

Don’t try this with valuable paintings - your saliva will devalue it (?). Here is what the book suggests:

“Moisten a swab in your mouth and use it to brush away the dirt from the paint (your saliva will work as a mild cleanser). Take a drink every so often to keep your mouth moist (in other words to generate more saliva!) ….and be careful not to put the used swab back in your mouth.”

The next time your hand extends to feel a nice painting in your friend’s home - think about this.

5. Selling pigeon droppings to raise funds

The book narrates an interesting story about a church in Hartford that made $30,000 by selling 1,500 pounds (these must be holy pigeons) of pigeon droppings as fertilizer. Apparently, pigeon droppings are rich in nitrogen and hence are valued as fertilizer. The church’s product was marketed under the name “Sign of the Dove” - after these names were rejected: “God’s Guano”, “Gifts from Above”, and “Heavenly Droppings”.

6. Using tea bags on your eyes.

Used tea bags that are still moist can be placed under your eyes to reduce puffiness. The bags need to be cool, so don’t try them right after finishing your tea. Also, if you are in a habit to squeeze them till you get the last drop of flavor is out (I have seen people do that), they won’t be of much use since they will lack the necessary moisture. Recommended usage: “Just put one bag over each eye and leave in place for 10 to 15 minutes.”

7. Using mayonnaise as moisturiser

Mayonnaise contains all the essential ingredients required to maintain a good skin - oil serves as a moisturizer, eggs to firm the skin, and vinegar to maintain pH (acidity) levels. So if you run out of your skin conditioner - just use the mayonnaise. Or better still, just visit your nearest McDonald’s and grab your day’s quota in those little paper cups - for free.

8. Using milk and tomatoes to remove stains

The authors just love tomatoes for some reason. Here is a tip to remove stain from the ink of a ballpoint pen using tomatoes:

“Saturate a ballpoint pen stain with milk, and rub it with the cut side of a tomato. Since milk and tomatoes can leave their own stains, soak the whole garment in a mixture of enzymatic laundry detergent and cold water, then launder as usual.”

9. Using crayons to hide furniture scratches

This remedy is for those nasty (but not too big) scratches that take away the varnish (or polish) and reveal the white-ish insides. Find a crayon - of generally matching color - and rub it in the scratch. Finish the job by buffing the area with a soft cloth. If you are not sure about the color, the book recommends that you start with a lighter color and gradually darken it till it looks good enough.

10. Using pencils to fix zippers

You can try to make a sticking zipper work smoothly by rubbing the tip of a graphite pencil on to the zipper’s teeth. Zip and unzip a couple of times so that the graphite spreads over the entire zipper and you will be ready to roll. This works because graphite posses lubricating properties. May be you could also use a drop or two of some vegetable oil (like I did for this lock) - btw, on that post, in the last comment Jennifer suggests rubbing the graphite portion of a pencil on the key as a solution.

Relevant reference page numbers in the book (just in case you want to look some stuff up): 117, 133, 136, 140, 147, 148, 228, 230, 289

Image sources: mayo - www.lunaticworks.com

The 6th edition of the stock trading contest, hosted by Stock Trading 101, kicks off today; here are the registration details.

How to participate

To register, simply leave a comment on this post with either one or all of the following, before Sunday May 20th 9:00 PM EST:

1. Your guess of what you think the NASDAQ Composite will close at next Friday the 25th of May… to the penny.
2. One stock pick for next week (include the ticker please, must be over $1 a share and be findable on yahoo finance!)
3. One SHORT stock pick for next week (include ticker, must be over $1 a share, yahoo finance requirement)

Note: You don’t have to participate in all three categories, you can chose to participate in just one, or two, or all three.

Winners will be determined based on the following criteria:

• Closest NASDAQ Close Guess to the actual close
• Highest Return for the week on your stock
• Highest Return for the week on your stock SHORT

There is a $200 cash prize if you can guess the NASDAQ close to the penny.

Who else is participating?

Other blogging communities participating in the contest are Stock Trading 101, Million Dollar Journey, Clever Dude, and The Bull Trader.

All updates about the contest will be posted by Blain @ Stock Trading 101.

Below are some articles from this blog’s archives that reflect my thoughts from the past. Feel free to comment and/or criticize - reasonable arguments are a great source of learning moments.

• Education Is A Great Economic Leveler

Though we came from different financial backgrounds, education provided us with almost equal opportunities when we later started thinking in terms of becoming financially independent. It sort of raised us all to a common level without discriminating between the rich and the poor. In other words, it sort of acted as a leveler.

• Yes, There Are Educated People Who Think Like This

There are probably many people (educated people who spend half their day on the internet) who don’t know (or resist) personal finance basics. I am not sure if such people even care to read personal finance blogs, but I am hoping that they stumble on at least one personal finance blog that shines a light in their head.

• I Didn’t Need Dave Ramsey To Get Out Of Debt

By the way, I didn’t even know who Dave Ramsey was when I went on my own debt reduction program. In fact, I was totally unaware of any of the financial gurus that you generally see floating around many personal finance blogs. Heck, I wasn’t even fully conversant with the concept of “blogging” at the time.

Here are some more articles from other blogs that warrant some thinking.

• 3 Reasons Not to Buy a Home by Flexo @ Consumerism Commentary. Flexo lists some financial reasons against buying a home. Now, I am all for saving money, and getting the most out of it. But, personally, buying a home will NOT be a financial investment for us. It has to do with some kind of a personal satisfaction - I am not able to put my finger on the exact reason - but something along that lines. When I will be in the market for a home, the only financial question I want to ask myself is “Can I afford this home - with the mortgage and all - for the next 30 years”. If I can afford it - I will buy it, irrespective of whether it turns out to be more expensive than renting. I will have a whole post on this very soon.

• Which is More Important: Money or Job Satisfaction? by JD @ Get Rich Slowly. There are some interesting comments on this article. I am not sure which is more important. Probably, the importance that we attribute to these two factors changes with age and status. In the past, when I was single, I have refused to give in to a high paying job opportunity for one simple reason “I don’t like the job profile” However, I am not sure I will have the same attitude if someone offers me a similar opportunity once again. I do lean more towards job satisfaction, but money is becoming increasingly important.

• Facing Reality: The Tremendous Cost of Higher Education by Cap @ Stop Buying Crap. This requires a bit of thinking. It’s not as simple as some people make it out to be like “education is not worth it because of the costs” - there is more to education than just financial returns. Here are Cap’s thoughts on how to tackle the issue:

Again, this isn’t about the decision you make concerning your educational pursuit. It’s okay if you want to study sociology at an expensive private university — you can never place a concrete return on investment towards the cost of higher education — just be fully aware of the potential income level you may earn, and the means & steps you can take to pay back your debt. If you head into debt without a clear idea of its consequences and tackle on more than you can handle, you may be jeporadizing your financial future.

Your net worth to the world is usually determined by what remains after your bad habits are subtracted from your good ones. ~ Benjamin Franklin.

Beyond such philosophical implications, I have been thinking about the issue of usability of net worth since the last Sunday Review - in which I mentioned it with reference to Super Saver’s article on spendable net worth.

I am not just thinking liquidity when I say “usable”, I am also thinking *replacement-needs*.

Consider you own a quarter-million dollar house, a decent car, and thousands of dollars in a retirement account (say something like 401K - on which there is a penalty if you withdraw earlier than certain age limits). With these assets, assume that your conventional “net worth” is around half a million dollars. Next, suppose you lose your job (or fall into some other financial trouble) - how much of that half-million dollars net worth will come to your rescue?

Even if you downgrade your lifestyle, you will still need to replace a few things from your earlier lifestyle - you will still need a place to stay (owned or rented), a car, some furniture in your house (or apartment), and some other basic needs (may be this includes retirement accounts too) to sustain yourself and your family. So, although your net worth was half a million dollars, you will be able to liquidate only a part of it to support you through your financial troubles. The rest of it will go towards replacement-needs and you will never be able to use it.

On these lines, I am more inclined to think like this:

• Usable net worth of a home = [Current equity in your home] minus [Cost of replacement home/apartment]

• Usable net worth of a car = [Current value of a car - assuming you own it completely] minus [Cost of a replacement car]

• Usable net worth a retirement account = [Current savings] minus [Penalty/taxes for withdrawal]

Obviously, for certain retirement accounts, the penalty and taxes will be zero after you are of a certain age - at that time you will be able to realize the full worth of the savings - till such time, penalty and taxes should be considered.

In addition, there are other *liquidity* issues that sort of eat into the conventional net worth. For example, the current value of your car as defined by KBB may be $15,000, but when you actually put the car out for sale, it’s very less likely that you will get the full $15,000 for it. Such differences, between the theoretical values and what the market offers, further reduces the usability of net worth.

Sometimes, I wonder if there are “net worth rich” people who are in fact *poor* for all practical purposes after considering the usability of their worth.

Do you address this issue of usability of net worth? If YES, we would be interested in knowing how; and if NO, then we would be interested in knowing “WHY”.

Here are some other interesting discussions on related issues:

• Net Worth Is NOT Wealth: How to Determine Your Total Measure of Wealth by Nick @ Punny Money.

• A Tricky Net Worth Problem; Who Is The Richest Of Them All? on this blog.

• What is Real Net Worth? @ Broke Now Rich Later.

• The Confusing Process Of Measuring Net Worth & Financial Progress by Teri @ Personal Finance Advice.

Sometime back, Henry @ Binary Dollar asked this money question: “What do you look for in an online bank account”? and invited responses from a few bloggers. Here is what I had to say about my views in choosing an online bank account.

1. High Interest Rates - This is the juicy part of online savings account; without the high interest rates, there is nothing attractive about them. Higher the better.

2. Easy of synchronization with other bank accounts - the online account should easily (without any hassle) communicate with my brick- and-mortar banks and also with other online savings accounts. In my experience, HSBC Direct is the best in this matter. Also transferring funds from the online bank to other banks must be a zero fee activity.

3. Absolutely zero fees - I don’t have any tolerance for “low” fees so I would look for one that has absolutely no fees at all. I *hate* banks that have $X fees if you balance falls below $Y. All banks we use (HSBC, ING Direct and Emigrant Direct) don’t have any such fees.

4. No minimums - This sort of ties in with “zero fees”. The account shouldn’t have any kind of a minimum balance requirement. Sometimes there is a “minimum account opening amount”. Ideally this should be $1, but anything below $250 is bearable.

5. A good *feel* for online security - Ok, I have to agree that the *feeling* is a bit vague, but if you visit the login page of an online bank account, it should feel solidly designed with sufficient security features. In my experience, ING Direct *feels* the safest followed by HSBC Direct and Emigrant Direct.

6. Goes without saying that any online savings account should be FDIC insured.

Those six points sort of summarized my thoughts, although I do have more things to add to them - important things, but not crucial.

7. Funds transfer times - I need to get a good feel for the time it takes to transfer funds to and from the online bank. Too much time is a bit of a discouragement. Of the three online accounts I have, HSBC tends to be the slowest. In fact if you straddle your HSBC funds transfer over a weekend, it might take as much as 5~6 days to get the funds where you want them. Fortunately, most banks tend to be consistent with these transfer delays - so you can plan your transfers accordingly. For those who keep track of their interest to the pennies, you must understand that the time lost in funds transfer delay is basically translating into lost interest income. Jonathan @ My Money Blog has an interesting experiment on this subject.

8. Recurring/Automatic Transfer facility - This wasn’t on my list in the past, but recently, I have been regularly using HSBC’s recurring transfer facility - it has sort of helped me save some money. If I open an account in future, I would definitely want such a facility.

9. ATM/Debit Card - Again, this is not crucial, but it helps to have this facility available so that you can access your funds in an emergency. Before HSBC offered it’s high yield savings account, we had our money in ING Direct - and ING didn’t have a ATM Card (or a debit card) with it’s online savings account. As a result, I used to transfer funds to our ING account with caution - after accounting for sufficient liquid cash in the brick and mortar bank for emergencies. However, once we got set up with HSBC Direct, and had access to it’s ATM card, our need for the liquid cash in the local bank has decreased - as a result we transfer more per month to our online savings account.

Now-a-days, ING issues debit cards with it’s online checking account - Electric Orange; and you can link Electric Orange to ING’s savings account - so basically you can have instant access to your savings account money through the debit card. That’s good.

As far as I know, Emigrant Direct doesn’t have any such facility. May be there is, but I don’t know about it.

10. Reviews - It’s a good idea to look for online reviews about certain unheard banks. Sometimes, the interest rates may be very good, but the whole process of opening an account and then operating it might be a big PITA. Probably, a bank with slightly lower interest rate might be a better choice in that case. The best way to find out about these things is to look for reviews from current customers and the easiest way to get reviews is to search for them on Google.

Before I let you go, here is something important.

If you are in the market for an online savings account, always read the find print carefully for hidden fees and charges. For example, look out for things like these:

• $3,000 minimum deposit to open account
• Minimum balances: $3,000 minimum daily balance or $5,000 average daily balance in account. $15 monthly service charge if balance requirements are not met

Those are the conditions for an online account (money market account) at New Dominion Bank which is boasting an interest rate of 5.07% (APY).

Updated: Click here for the current list of banks offering high interest savings accounts.

Btw, just to be clear, all links in this post are for information only - there are NO referral links in this post.

Feel free to share your thoughts on what you would look for in an online bank account.

This is not a new invention or anything; smart people have been increasingly stashing (saving) away money from themselves ever since the advent of the concept of “pay yourself first” (which has existed forever). However, in our case, we sort of *accidentally* extended the concept to suit our purposes - we call it the “pay yourself first - and then keep stealing” concept. I prefer to call it “stealing”, because it involves small amounts of money disappearing from one account (and appearing in other accounts) without we being aware of it (it’s different than just “pay yourself first” - which implies a very conscious effort).

Let me try to explain how it works in our case.

Here is a flowchart of our money-path that summarizes the whole story:

The brick and mortar bank is just a transit point for our money. Over the last few years, we have been tracking our expenses and we have a fair idea of how much money we spend every month on bills and other expenses. We just keep that much in the checking account at the brick and mortar bank and the rest of it goes to our HSBC Direct savings account.

The HSBC account acts as the hub for our financial network - this is in part because of the three online banks that we have accounts with (the other two are ING Direct and Emigrant Direct), only HSBC allows easy addition of other bank accounts - ING and Emigrant require a paper check from the bank you want to add - which I think is stupid given the current popularity of online no-paper-check savings accounts. Since all our bill-payment transactions take place through the brick and mortar bank, we don’t check the status of our online savings accounts regularly - every few months at best (earlier, I used to compulsively check the balances in all accounts almost daily…but gradually I got rid of that habit).

Anyways, sometime in the past, we had to transfer some money to our ING direct sub-accounts for some reason and we used the recurring (scheduled) transaction option at HSBC. I set it up with the intention of canceling it after the required amount of money was transfered. However, things got busy and I forgot about it. A few months later, when I logged in to my ING Direct account, there was a surprise waiting for me there - an extra few hundred dollars among the sub-accounts. I made haste to check the transaction descriptions (to see if there was some mistake) and realized that the HSBC account was steadily pouring in small amounts every month.

At HSBC’s end, our account didn’t feel the pain because the transfer amounts were smaller than our monthly savings rate (so the savings were on the rise even while we were siphoning out some money) - and at ING’s end, the balances shot up from almost zero to hundreds of dollars. Although, it’s our own money, the element of surprise played a pivotal role in making us feel good (it’s like tax returns making people happy even though it’s their own money that they are getting back).

Since then, we have created more sub-accounts at ING Direct for various purposes (like electronics, clothes, etc.) and have started stealing a little bit more from our HSBC accounts. We plan on checking the balance in the ING accounts only around Christmas - by then we would probably have hundreds of saved dollars towards various purposes. Those dollars will be used to pay off our inflated credit card bills in full during the holiday season. Some no-guilt shopping there.

Sometimes, I think it works for us because it’s a bit complicated in our case with so many accounts and money moving all around us - some of it just hides at places and we don’t notice it. [An effect similar to the one in which lots of credit card bills move around some people and then they end up not noticing some of them] - fortunately, we are on the positive side of complications.

Of course, people who are fully aware of their own financial condition and are in total control of their money, hardly need such hacks - personally, even we are doing it just for the surprise element. However, there are a great many people who just can’t keep the money in their savings account and tend to spend it as soon as it shows some signs of growth - this kind of technique would probably work for them - or something along these lines.

Feel free to share your experience with us if you have tried (or are trying) something similar - and whether it is working for you or not.

Some HOW-TO tips for the newbies

To set up recurring transfers from HSBC Direct savings account to any other account :

• Follow this path: Log in to HSBC Direct –> Bank to Bank Transfer –> Transfer funds; at the bottom of that window there is a “Recurring Transfer” option.

To set up recurring transfers from ING Direct savings account to brick and mortar accounts (or other account paper-check-issuing account that ING can verify):

• Account main page –> Transfer Money –> Automatic Savings Plan (this is fairly popular among many folks who have ING Direct accounts)

More tips

• Here is an updated list of high-yield online savings accounts being currently offered by top banks. Feel free to explore them and make the most of your saving habit.

Grading undergraduate homeworks is usually a very boring job. However, every once in a while, something interesting pops up and makes you smile. Here is one such thing:

That’s a part of a broken paper clip bent around to hold the loose pages together. Also, the student was kind enough to point towards the object and write a few words of observation on the clip’s properties - although, that doesn’t explain why anyone would do that in the first place.

Lack of a stapler is an obvious cause for this action - but usually, most students who don’t have a stapler handy, just align the loose papers together and fold the top left corner to *sort-of* keep them together. If the student had an unbroken paper clip, I would imagine that it could have been used as it is - so probably that wasn’t the case. I had some other theories, but those didn’t pan out well.

May be you could try enlightening us as what could have been the cause of such creativity.

Now, let’s proceed with the review. This week’s review has materialized after a lot of arguments and counter-arguments, and some amount of soul searching. I finally decided to let it run (for the time being) for some reasons like these - for numerous readers who are not bloggers themselves and stumble upon personal finance blogs in search of a variety of information; to provide additional visibility to certain interesting articles -as a sort of an encouragement to bloggers who put considerable amount of efforts into creating their content; and on a selfish note, getting rid of the Sunday Review feature is going to make me feel like losing a finger (may be a limb) - it has sort of grown on me after 19 editions. However, I do acknowledge the *hate-feelings* of certain readers towards such collection of links, and will be on a lookout for a mutually agreeable solution.

• Retirement Planning: Focus on Spendable Net Worth by Super Saver @ My Wealth Builder. The post is hinting towards having more liquid funds available for a better retirement. If you think over this a bit - you can relate it to a very old debate in the area of personal finance - should the value of a house/property be considered in net worth. What’s the worth of *net worth*, if it’s not spendable?

• Stop Living the Stop-gap Life by Wanda @ Well Heeled. A simple, unconventional (but sensible) message:

Delayed gratification is good for financial planning, but be careful not to take it too far.

• O, That Special Gift: How Much Do You Pay For Sentiment? by SVB @ The Digerati Life. This is a must read for those who are in the habit of remembering their mothers only on Mother’s Day. It’s my theory that people who go overboard on such *days* are the ones who tend to ignore the person for the rest of the year - argue against it if you want.

• Generating Passive Income with Dividend-Paying ETFs and Stocks by Sun @ The Sun’s Financial Diary. A comprehensive list of ETFs and stocks that yield top dividends.

• New Diversification Requirements in the Pension Protection Act of 2006 Will Create Better Defined Contribution Plans by Jeremy @ Generation X Finance. The title says it all; here is an excerpt:

Under the new rules, individuals with plan accounts invested in employer securities must be provided with diversification rights. This includes participants, alternate payees and beneficiaries of a deceased participant with account balances comprising elective deferrals and employee contributions (and earnings thereon). Employee contributions include both after-tax and rollover contributions.

• Geometry Saved Me Money by Matt @ Binary Dollar. It’s more like “Geometry got me some extra pizza”. Read about how Matt compared two 8″ inch pizzas with one 12″ pizza and figured out which one is a better deal. 5th grade geometry (may be earlier - I don’t remember when the ‘area of a circle’ concept was introduced) does come in handy at times.

• Kindler, Gentler Credit Cards? Credit Card Reform Long Overdue by Ben @ Money Smart Life. Credit card companies getting rid of two-cycle billing and universal default? That’s a good sign for credit card users. For deadbeats - it has no meaning.

• Compound Interest Week: An Introduction by Lazy Man @ Lazy Man and Money. This post marks the start of a series of posts on compound interest and it’s effect on your returns. When you are there, make sure you read the rest of the posts in the series.

• The Downside of Debit Cards by Nickel @ Five Cent Nickel. Nickel muses over debit card refunds.

Having a portion of your credit line (or even your checking account balance) temporarily put on hold is fundamentally different from having money actually withdrawn from your checking account and then refunded to you in 7-10 days if it goes unspent.

• 18 Ways to Save on a Small Income by FMF @ Free Money Finance. It doesn’t matter how small your income is. A commensurate downsizing of your lifestyle will always help you earmark a part of your income for saving purposes… unfortunately that (downsizing) might just be the most difficult thing in the world to achieve.

• Shopping, and Reselling, for a Living by MBH @ Mighty Bargain Hunter. MBH’s commentary on a story about a woman who buys her merchandise at discount retail stores and sells the goods on eBay for a profit - an activity that earns her up to $50,000 a year!