Conspicuous consumption gone wrong.

Posted by Paul
Conspicuous consumption essentially means lavish spending for the sole purpose of displaying wealth for the purpose of social status.

One thing I've always thought was kind of backwards in is the fact that if someone attains some new possession, etiquette allows (in some cases even requires) the person to show it off to their friends and family.

However, those same rules of etiquette generally agree that I'm rude if I show off the details of my financial situation (that's considered bragging, or at the very least it's considered gauche).

For example:
If I get a cool new car, then I can (and should) show it off to my friends, take them for rides, etc.

If I instead want to show off the balance in my savings account I'm a jerk.

Another example:

If I buy a house, I'm expected to hold a party so people can come and see the place.

If I invest wisely and my investments turn out well, I would be considered the worst type of rude if I were to have a "look how much money I made" party.

It's like the rules of etiquette favor conspicuous spending, but they don't really give any way to good naturedly "show off" things like saving or investing.

Take the example of getting the new car. Let's say that not only did I get a cool new car, but I financed the car at a terrible interest rate and I'm not putting any savings away because I'm making the huge payment. It's actually considered rude for someone to point that out to me or even ask those types of questions.

I don't know if other cultures view things differently, but I find it interesting that our rules of etiquette allow for the flaunting of possessions (even if those possessions were purchased irresponsibly), but don't allow us to publicize rewards reaped from smart and responsible financial decisions.

Is it just me thinking this?

It's OK to pass up a good deal.

Posted by Matt
Argh. This was a tough one; one of those financial decisions that doesn't fall under any obvious financial "best practices" anywhere.

A family friend of ours is moving out of state unexpectedly for work and needs to sell some furniture that won't fit in his new place. It is nice, high-quality stuff and he is asking a very low price for it to move it quickly. My family and I are also moving in a few months and so my wife suggested that we buy our friend's guest bedroom set to put in the guest bedroom in our new house.

The hitch? We already have a guest bedroom set! It is not fancy, but it is certainly functional. My worry is that we WILL eventually want to replace it someday and then I'll be wishing I had grabbed this great deal.

I think I've come up with a guideline that might help here. I'm going to try to be wary of what I'll call "opportunistic shopping". I think the steps leading to purchasing should happen in this order:

1. Identify a need
2. Research purchasing options (models, features, color, etc.) to determine your requirements
3. Shop around to identify products that best fit the requirements
4. Find the best possible deal on the identified product
5. Purchase

Opportunistic shopping happens when you skip the first 3 steps. You might have found a great price, but that shouldn't be the only consideration. If you later decide to replace the purchase with another product that better suits your needs, the overall process may ending up costing you more.

Today only....free advice from financial pro's

Posted by Matt
Hopefully our readers are finding some good info on this and other personal finance blogs on the web, but it certainly couldn't hurt to talk to a professional every once in a while, right?

Well, Kiplinger.com has been kind enough to pick up the tab. Check out the info on their "Jumpstart" program by clicking here. You can call a toll-free line to talk to a financial advisor between 6am and 3pm Pacific.

Be forewarned that financial advisers mostly deal with investment advice...not things like "how can I get out of debt?" or "what type of life insurance coverage should I have?" To put together a comprehensive plan, you should schedule a consultation with a fee-only certified financial planner (find one here).

And keep reading Frugalize, of course. :)

A six-figure stock

Posted by Paul
When you get a free moment, pull up your favorite stock lookup tool and lookup BRKa (sometimes called BRK.a), or if you can't find it by symbol, the stock name is "Berkshire Hathaway".

Once you see the stock price you might think something is broken, but what you're seeing is correct. The current price of a single share of Berkshire Hathaway (as of this writing) is $118,510.00

So what's the story with this stock? Well I could talk for a long time about this stock, but to summarize it:
1) Berkshire-Hathaway is Warren Buffet's company.

2) The stock has never split.

3) It is by far the most expensive stock on the New York Stock Exchange.

For those of us who don't have $118k sitting around doing nothing. There is Brk.b The "B" shares each represent 1/30th of an "A" share.

If you buy a share in this stock you are buying a share in Warren Buffet's holding company. The assets held by Berkshire Hathaway change over time, but currently include companies such as: Geico, Dairy Queen, and See's Candies.

Click here for a more current list of Berkshire Hathaway holdings

I've read about Warren Buffet and he is a really interesting guy (who is known for his frugal and unpretentious tendencies) who among his other accomplishments has made the largest charitable donation in U.S. History.

I bought a "B" share of Berkshire Hathaway some time ago. I figure that Berkshire Hathaway is practically a mutual fund unto itself, and I could certainly do worse than letting one of the richest men in the world manage some of my money.

Any other Berkshire Hathaway fans out there?

Will your money outlive you?

Posted by Matt

You're in a great place now: You're out of debt, living on a budget, and you've got a cash cushion for emergencies. BUT, you're only in a great place FOR NOW. Have you thought about your future?

Now that your savings is established, you should put that "extra" income you've got each month to work.

NOTE: Depending on how long it takes to get through the first few steps, some advisers might recommend starting your retirement savings account earlier, even if you can only invest a small amount each month. This is because TIME is as important as MONEY for long-term investing; you will see a huge benefit from compounding, so start as early as possible. I've only waited this long to start discussing retirement because I felt that the earlier steps should be given higher priority.

You should start by contacting your employer's HR department to find out if they offer a 401k (for-profit companies) or 403b plan (similar, but for non-profits) . If so, ask to be enrolled in an automated withdrawal plan. Here's why:

1. This is the easiest way to contribute
2. The money you invest comes out before taxes, which also reduces your taxable income
3. After a while, you won't even notice the money allocated to retirement
4. Many companies "match" employee contributions up to a certain percentage of gross pay, so make sure you AT LEAST contribute enough to get the full match. This is FREE MONEY!

One great tip I was given is to try to increase your contribution level (assuming you aren't able to start with the maximum contribution available by law) every year when you get a raise. I've never been able to confidently determine exactly how much is the right amount to contribute (one adviser I spoke with started her planning with the question "How long do you think you will live?"), so I'm trying to err on the side of too much (though I'm not contributing maximally yet).

Employer-sponsored plans typically require you to allocate your dollars to one or more investment vehicles (company stock, mutual funds, money market accounts, etc.). I'm certainly not a qualified investment adviser, but let me just tell you what I'm doing for now and I can maybe expand on it in a future post. I allocated 100% of my retirement dollars to an index fund offered by Vanguard, and there it will stay. I'm confident that following this strategy for the next couple of decades before retirement is a relatively conservative way to tap into the higher returns offered by the stock market (as compared to my trusty savings account).

That pretty much wraps up the series of posts outlining my plan. There is a lot more to know about personal finance, but my main plan is fairly simple. To recap:

1. Budget and reduce expenses
2. Eliminate debts
3. Build and maintain an emergency savings account
4. Work and contribute to my retirement account until it matures enough to support me and my family.

Emergency savings: Your first investment.

Posted by Matt
If you've been able to balance your budget and eliminate your debt, congratulations! Those are really the main things you need to do to become financially healthy. Now you get to work on fun things like where to put all the extra money that is piling up. Hopefully you already followed my advice to start a small emergency fund, because the next step is to build on that. You should have several months worth of cash in an easy to access account, and my recommendation is to use an Internet Savings Account. These provide a nice mix of low risk and accessibility while still earning a decent return (my HSBC account pays 5.05%APR).

You really want to establish respect for the savings account as an untouchable reserve, so don't get too aggressive in moving dollars from checking to savings. You don't want to be moving money back out of savings when checking gets too low. Once the money is saved, don't touch it! By the way, it feels really nice to know that money is there as a financial lifeboat if I ever get into trouble. It eliminated a large amount of stress for me.

I'm fairly conservative financially and like to keep things simple, so I would be pretty happy if I could have my entire "investment portfolio" in just one place (like a savings account). But there are definite advantages to other types of investments that I just can't ignore. The first example will be covered in my next post about retirement accounts.

Simple Household Savings Tip

Posted By Paul

An easy way to save a little money in your home is to buy a set of cloth napkins and use those instead of using disposable paper napkins.

Instead of using and discarding the paper you just throw the cloth napkins in the wash along with the rest of your laundry.

Once we switched to cloth napkins it was amazing to see how seldom we needed to buy paper towels.

Savings Bonds.

Posted By Paul
Savings Bonds. You hear about them all the time, usually in the context of an award for spelling bee or a gift from grandma, but are savings bonds in fact a good option for saving and investing?

I did a little research on savings bonds (and even bought some) and this is a summary of what I learned.

First of all, what are savings bonds? They're essentially loaning money to the US Government and have them pay you interest. Along with CD's they are one of the most conservative forms of investing.

There are two major types of savings bonds that I looked into.

Note this info applies to newly purchased savings bonds. The rules for savings bonds have changed over the years so if you have an older saving bonds and you are trying to figure out its value, I would suggest taking it to a bank.

Series EE Bond:
The Series EE bond is a savings bond that you purchase for half of the face value. So if you pay $50 you get a bond that says $100 on it. The interest rate for the bond is fixed at the time of the bonds purchase and never changes for the bond. Also a bond has a maturity term of 20 years. That means that if you hold the bond for 20 years it is guaranteed to double in value.

So you are probably wondering..what if the interest rate on the bond is such that in 20 years the interest hasn't doubled the value of the bond? Well the answer is that the treasury department will make a one-time adjustment to the value of the bond at 20 years making it equal to its face value if the interest over the 20 years hasn't already gotten it there.

After 20 years the bond continues to accrue interest at the fixed rate for another 10 years. After 30 years the bond ceases to earn interest.

Series I Bond:
The Series I Bond is a bond that you purchase at face value (you pay $25 and you get a bond that says $25 on it).

The interest rate on an I Bond is called a composite rate because it's partially fixed and partially variable. The fixed rate is set when you purchase the bond, the variable part of the rate is based on inflation and is recalculated by the US Government every May and November.

The composite rate of an I Bond is determined by an odd formula:

Composite rate = Fixed rate + (2 x Semiannual inflation rate) + (Fixed rate x Semiannual inflation rate)

So the current fixed rate on an I Bond is: 1.3%, and the current inflation rate is: 1.21%. So this means:
Composite rate = [0.0130 + (2 x 0.0121) + (0.0130 x 0.0121)]
Composite rate = [0.0130 + 0.0242 + 0.0001573]
Composite rate = [0.0373573]Composite rate = 0.0374
Composite rate = 3.74%

So notice that if inflation goes up a lot, the interest rate of your bond will go up as well. The idea is that with an I Bond your return will never be outpaced by inflation.

Tax Benefits of Savings Bonds:

Two interesting tax benefits of savings bonds of are that you only pay federal income taxes on the interest you make on the bond (no state taxes). You only pay the taxes when you redeem the bond.

Another interesting point of savings bonds is that:
-------------------
The savings bond education tax exclusion permits qualified taxpayers to exclude from their gross income all or part of the interest paid upon the redemption of eligible Series EE and I Bonds issued after 1989, when the bond owner pays qualified higher education expenses at an eligible institution.
-------------------

The above paragraph (as well as other criteria you have to meet to take advantage of this) can be found at:

http://www.treasurydirect.gov/tdhome.htm

This page also has all of the info on rates and you can even order the form to buy bonds (or you can just go to any bank or credit union and get the form there).

So I bought some I Bonds and they have been...fine. Very safe, not exciting returns. My view on savings bonds after going through the experience is that:

I-Bonds would be interesting if the fixed rate ever goes up to a significant value.

The EE bonds really don't excite me that much.

So if you have some money and want to buy some savings bonds, there certainly isn't much risk involved, but I find it hard to find a compelling reason to invest in them.

Though they do make nice gifts for the grandkids.

Debt is not your friend

Posted by Matt
My last post was about balancing your budget and living within your means. The biggest hurdle for some people to get to that point is the amount of money they have to spend each month on what is called "debt service". This is just a nice way of saying that the things you purchase on credit own YOU.

If your "extra" income is going to pay off your debts, then you might not be to the point yet where your income is greater than your expenses (they should be at least equal). This is an okay place to be temporarily. Just make sure that you have cut your expenses as aggressively as possible to maximize the rate at which you are paying off your debt, and, above all, stop spending!

Jumping ahead a little, you should also be starting to think about your savings. Even if you are putting as much money as possible toward your debt, try to maintain a small cushion of cash in a savings account. That will allow you to stay on track should any unavoidable expenses (think essential car repairs or prescription medications) pop up unexpectedly. You're not really saving yet, just setting aside a cushion.

The accepted wisdom is that you should pay off what is considered your "bad debt" (mostly the high interest stuff like credit cards) first, but my opinion is that you should consider eliminating student loans and car loans, too, ahead of schedule, if possible (mortgages come later).

I discovered that personal finance progress seemed to accelerate as long as I just kept making smart decisions. Balancing your budget might only get you slightly ahead each month, but pay off a creditor and suddenly you have even more money available and your credit score is rising, which opens even more doors.

Once I had my new job, a paid for used car and the promissory notes from my student loans in hand, I really started feeling great financially. I could finally start SAVING (discussed in my next post.)

A system for impulse buying.

Posted by Paul
We all have our weaknesses. Some shiny thing that we see in a store that until we saw it we didn't even know it existed but we now feel like we need to have. My personal weakness generally tends towards the electronic, which often means towards the expensive.

I consider myself a practical person, so I don't often go out and buy expensive toys at the drop of a hat, but of course life is to be enjoyed and toys can be fun. So how best to practice moderation while still having some fun?

A system I heard about recently intrigued me. The idea is that you create a wish list. Which is just a list of things that you clearly don't need but would very much like to have, ordered by how much you would like to have them.

Once you have this list you are allowed to add to it, reorder it, and remove items from it at any time. The catch is that in order to BUY something an item has to have been at the top of the list for a solid month. If you move an item down from the top of the list for any reason the one month timer resets for that item.

The idea is that this system automatically keeps you from buying something that you discover you don't really want a week later.

Also you'll notice that it means that you'll buy at most 12 items from your list per year.

I thought it was an interesting idea. Perhaps a useful system if you are one of those people that often finds yourself walking into your favorite store and walking out with a cool toy that you had no intention of buying when you walked into the place.

Of course items you need shouldn't be on the list, and items that are REALLY expensive (new cars, expensive trips, etc.) should be given considerable thought, but for those little odds and ends that catch your eye this seemed like a clever system to put in place.

Stop planning your life around payday!

Posted by Matt
Are you confident that the money you have in your checking account right now will cover all of your upcoming expenses? If not, you probably catch yourself scheduling things around payday and feeling very stressed until that day comes (I know from experience.)

I felt so liberated when I was able to finally unlink my life from payday. It was my first big milestone on the way to financial stability and I'd like to share what I learned via my next several posts in this blog.

The first step is to try to get to a place where you have more money flowing in than out. (Notice that I did NOT say "the same amount of money flowing in as out"; that is the proverbial "paycheck to paycheck" and it is a road to nowhere.)

Track expenses and eliminate as many as possible. This is an area that many financial advisors focus on and is a common first step in financial planning, but it didn't take me long to realize that, though important, expense reduction is only half of the equation. The other half is income and it has to be sufficient to cover at least the basics (food, shelter, utilities, etc.). When I was in my early twenties, I shared housing, drove a used car, spent minimally on clothes and watched my finances fairly closely, but found that I still never managed to save much. This was one of the reasons I finally decided to ditch my exciting but low-paying EMT job and start working for a software company where I would have more opportunities to increase the amount of money coming in. My earnings didn't exactly skyrocket, but it was finally enough to leave me with something extra each month.

Achieving this first goal (earning more than you spend) is one of the hardest, but also the most important. If you are not at least a little bit ahead each month, then the most you can ever hope for is that your financial situation will be exactly the same as it is now.

In my next post, I'll tell you what I did (and what I think you should do) with that "extra" each month.

Investing in Gold

Posted by Paul
"Now is the time to buy gold."

That's what a coworker of mine told me almost three years ago. He'd heard this from his father in law and I'd heard some of the buzz about gold here and there which made me curious enough to look into it.

The first thing I did was contact a company called ITM Trading that specializes in gold sales. I asked to be placed on their mailing list to get a brochure on purchasing gold. First of all, I would NOT recommend doing this. You end up with a nice brochure, but also with someone that calls you almost every month trying to sell you gold.

Another option I looked into was gold funds. These are essentially stock funds that hold gold. The shares are usually priced in some way that one share of this stock "represents" a certain percentage of the price of one ounce of gold. For example, NYSE:GLD shares each represent one tenth of an ounce of gold, so if you take the share price of GLD and multiply by ten, you get the price of an ounce of gold. The share price simply goes up or down along with the current price of gold. Gold funds are a great option if you want to invest in gold. If you already have an account that lets you trade stocks then it's just a matter of buying as many shares as you want.

I decided not to go with a gold fund simply because I thought it would be more fun to actually buy and possess some gold. I was also intrigued by the fact that when you buy gold you can invest your money "off the grid" I can walk into a store, pay cash, and walk out with gold that has no traceability. I've heard that profits from precious metal investments are taxed as capital gains if you go beyond a certain amount, but to be honest I'm not sure what that amount is and how it is enforced (I've heard it's $10000). I do know that when I went into the coin store and was looking around a gentleman came in, bought $2000 in gold coins, paid in cash, and walked out. I suspect that a lot of people buy and sell very small quantities of gold without ever paying the taxes.

The basic things to decide when you are going to buy actual gold are: what form, where to buy it, and how much. I'll describe each issue and what I came up with.

What form - the decision here is to buy either bars (which come in all sizes, some small enough that they're more like wafers than bricks) or coins (which are minted by a government). I don't know if there's really much of a difference between one or the other. If you buy a brick you are clearly just buying it for the value of the gold, as the bricks have no real historical or collectible value. If you buy a coin then it's possible that someday the coin could have collectible value beyond the price of the gold itself. If you have a gold coin that's 100 years old then it would have some historical value beyond the gold itself, but then again to BUY a gold coin that is 100 years old you'll also pay extra for that same historical value. I've noticed that on the commodities markets coins are generally valued a little higher than the raw boullion, I suspect that's because a minted coin is harder to counterfeit so you have some assurances as to its weight and purity. I decided to buy a coin, mostly because I thought they were pretty, plus I figured that since I knew so little about gold that if I bought a coin it would be less likely that I'd end up accidentally buying a fake. The coin I bought had no historical or collectible value, mostly because I wanted to invest in gold, not the collectible coin.There are several coins that have been minted by governments over the years that you can choose from. Here are a few (please note, that the links are so that you can see some photos and info on the coin, these are not recommendations for places to buy):
1) The American Eagle
2) The South African Krugerrand
3) The Austrian Philharmonic
4) The Chinese Panda
5) The Australian Kangaroo
6) The Canadian Gold Maple Leaf


There really isn't much to put one coin over another in my opinion, especially if you're buying mostly for the value of the gold. A standard weight for a coin is one ounce of gold. If you do searches for these coins on the internet you can find pictures and more about the history of them if you care about that sort of thing. I decided to go with a Canadian Maple Leaf since I decided I wanted a pure gold coin (many coins are alloys that contain one ounce of gold plus some other metal mostly to lend hardness becuase gold is so soft), plus I thought they were really pretty.

Where to buy - there are all kinds of places that sell gold either in bar form or coins. Web pages, mail order companies, and coin stores being the major ones. I decided to go with a coin store so that I could actually talk to someone and see the coin I was buying before I paid for it. No matter where you go any place that sells gold or coins generally sells at the current price of gold plus a commission per ounce (usually in the range of $20 or so).

How Much - that is generally determined buy how much you want to invest. I know that at the time of this writing gold is pretty high, but in general I would suggest that you view gold as a fun, potentially high risk investment. I wouldn't go quite so far as to say that you should never invest more than you would be willing to lose since even if gold prices dropped I can't imagine it dropping to nothing overnight, and you can always sell your coin and cut your losses if prices start to drop too much, plus I can't imagine gold becoming COMPLETELY worthless. However, considering how crazy the market for gold is right now, that might not be a bad rule of thumb.

Overall, my advice is that if you are interested in gold and have a little extra cash and want to buy a coin or two, go for it. I'd suggest that you view gold (or any other precious metal) as more of a hobby than an investment. If you want to take all of your savings and put it into gold, think twice, and then if it still seems like a good idea think a third time.

The Merits of Fad Savings?

Posted by Paul

I read an interesting article on Dollar Stretcher: http://www.stretcher.com/stories/04/04aug23c.cfm

Essentially it talks about how people always say stuff like: "Want to save money? Then cut out Starbucks and you'll save $1000 a year!" but his view is that these sort of strategies are more like fad diets and are useless. Worth a read!

My Financial Philosophy

Posted By Paul

I thought it would be fun to write up my "financial strategy" and add it to the blog and periodically check back to see if what I wrote today is a strategy I agree with a year from now. So here goes:

When trying to summarize my financial strategy I find myself turning more to a series of guidelines than a series of steps. Not to say that my financial growth hasn't been a progression but I've discovered that the progression comes more from the financial landscape changing while my guidelines have remained the same. Therefore I am trying to capture the guidelines that I follow in the hope that some (or perhaps even all) of them will be of use to you.

Never confuse "need" with "want". This is something I discovered several years back when I first travelled to what I would view as a developing country. The trip was through my work and came at the perfect time as I had just bought a house a month before I left on my trip. After visiting this other country where the people survived on so much less than we did, and where even the wealthiest people that I visited had lifestyles that would be considered modest by American standards, I became acutely aware of how often people (myself included) would use the word "need" when they really mean "want." I need a bigger TV. I need a new cell phone. I need a new car. These are phrases that you hear all the time yet when you take a moment to truly think about the concept of need you discover how absurd the statements are. You don't need a new cell phone, you don't need a cell phone at all. Now this is not to say that you shouldn't have a cell phone, but it's important to acknowledge the difference between needs and wants because in my mind things you need should be purchased things you want should at least be briefly considered before you buy them.

Never try to keep up with the Joneses. Of course no one really thinks they are trying to keep up with the Joneses, but we probably all do to a point. I guess what I'm trying to capture here is that in this world where weekend cyclists own "professional grade" bikes and we are bombarded with the latest this or that which we can't live without it helps to take a moment, to step back and ask ourselves if we value something because we really derive some utility or pleasure from it or because we've been told that it's "the best" or "something we can't live without". In a society that seems to focus so much on perfection (the perfect wedding, the perfect house, the perfect car) we seem to have lost track of "good enough". Not to say that you should feel bad buying an iPod or a DVD player, but I would suggest making sure that the amount of time you'll spend using and enjoying that iPod or DVD player justifies the purchase.

Try to enjoy saving more than spending. This is one that I'm still struggling with, as of course it's generally more fun to spend than to save, however over the years I have made investing a sort of hobby. I research investments and I'll occasionally pull the trigger and actually buy some gold, or a savings bond or a CD. Granted some of these investments don't result in huge returns but consider that if I buy a $100 savings bond that makes a pathetic 2%, then in a year I have $102. Nothing to write home about, but what if instead of buying that savings bond I spend the $100 on a new watch. In one year I'll have...a used watch. My point is that even a poor savings vehicle is generally better than simply spending the money.

Live within your means, even better, live well below your means. I am consistently amazed at how over the years people have come to me asking for financial advice and I've discovered that they aren't even sure if more money is coming in than going out from month to month. I've sat down with people, taken their total income, added up their total monthly expenses and discovered that their most basic expenses (not counting movies, dinners out, etc.) add up to more than they make. Yet people wonder why the savings rate in the US is so dismal and why so many people have huge credit card debts. If you can't live within your means then stop reading right now since there's no point. If you can't live on less than you make and refuse to make changes then you will never have a healthy financial life.

Watch your monthly expenses. My personal view is that one thing you should watch like a hawk are your monthly expenses. Things that send you a bill every month that you have to pay. For example, I worry less about going out and buying some thing I don't really need for $80 than I do about signing up for some new cable package that costs me another $10 a month. Why? Because even if the new toy I bought for $80 is completely frivilous at least it's done, but the extra cable package is $10 a month every month for as long as I keep it, and as I'm sure many of you have experienced it, once you get used to a certain lifestyle, it's hard to scale back.

Track your net worth. After all, the whole point of saving and investing is to accumulate wealth, and there is no better way to see how well you're doing than by tracking your net work. I may not know the exact returns on investments of every asset I have, but I can tell you how much my networth has increased from last year. Not only is tracking net worth kind of fun, but it can give you great a sense of trending in your life. I'll post again later with more on this topic.

So those are my current financial rules for life.

Are CD Ladders Worth The Climb?

Posted By Paul

Another investment/savings device I've heard of is the CD ladder.

First a super quick overview of a CD:

The basic idea is that you go to some sort of bank and get a CD that has a specific term and interest rate. So let's say you get a $100 3 year CD at 5%, that means that your $100 will earn a guaranteed rate of 5% for the next 3 years. Super low risk, super not too exciting return, but there is a time and place for that type of investment.

So knowing this about CD's, what is the idea behind a CD ladder? Well the best way to understand the idea behind a CD ladder is to understand the two extreme cases that the CD ladder tries to avoid.

Let's assume you have $5000 and you'd like to put it somewhere really safe and earn a guaranteed rate of return.

Extreme Hypothetical Case 1:You buy a $5000 5 year CD which gives you an interest rate of 5%. Then in a month the interest rates jump up to 8%. Now you're annoyed because your money is locked up for 5 years at the now paltry rate of 5%.

Extreme Hypothetical Case 2:You buy a $5000 1 year CD which gives you an interest rate of 5%. Then in a month the interest rates plummet to 2%. Now you wish you had locked your money in at 5% for a longer amount of time.

So a CD ladder is just a way of covering both of these cases. Instead of buying a super short term or a super long term CD you instead create a ladder of CD's of varying terms. So now the scenario would be:

You buy a $1000 1 year CD.

You buy a $1000 2 year CD.

You buy a $1000 3 year CD.

You buy a $1000 4 year CD.

You buy a $1000 5 year CD.

You set each CD to roll into a 5 year CD when it matures. So after a year, the 1 year CD becomes a 5 yr, the 2 year has one year left, and so on.

So with this situation, let's say interest rates go up a lot. You get to say:

"Oh well, in one year I get to take advantage of that cool rate when my one year CD renews."

Also if the interest rates go down a lot you get you get say:

"Oh well, at least I have some of my money in that nice 5 year CD at the better rate."

It's nothing magical, just a way to hedge your bets, and not a bad thing to do if you have a chunk of money you want to put away for a rainy day.

One point to note is that ING (and I would imagine other banks) have the option of specifically setting up a CD ladder, where the interface asks you the total money you want to invest and the interval between them and it automatically sets up the ladder (not that it's hard to set up manually).

Also, some people don't like CD's because you have to lock your money up. The good news is that with all CD's that I've heard of you actually can cash the CD at any time, there is just a flat penalty for doing so (in my experience the penalty is often equivalent to the amount of interest you would make in 3 months). So if you set this up and then at some point in the future you have an emergency and need to access this money, you can cash out, eat the penalty and have your money back (plus any interest less the penalty) immediately.

How (and when) to shop for a new HDTV.

Posted by Matt
You know you want one. It's the biggest, sexiest new piece of consumer electronics out there. But should you really rush to upgrade to a new HDTV? I recently spent a few weeks involved with this, so allow me to share what I learned in a few key areas.

Wait! You don't NEED an HDTV. Read that again. Don't buy an HDTV unless you can answer "Yes" to all of the questions below.

1. Are you without a working television?
2. Can you pay cash for an HDTV?
3. Do you have a source for hi-definition content?

Yes, George W. passed a law mandating a hard shut-off date of February 17, 2009 for all analog (NTSC) TV transmissions in the U.S. However, existing analog TV sets will still work with cable or satellite service, or use a converter box with an ATSC tuner that would convert digital over-the-air (OTA) signals to analog. So you can safely hang on to your existing TV until it wears out. Ours just happened to develop an annoying high-pitched whine a few months before my birthday. (Lucky me!)

Technology choices...feeling lost? We chose an LCD screen. They are less expensive than plasma in most cases, probably because plasma still has a slight edge in picture quality (especially in brightness and deeper blacks). I also wanted something that would last and be low maintenance. I learned:

• the "burn-in" potential of the current generation of plasma screens is there, but mostly overstated and LCD's can also suffer burn-in eventually
• rear-projection technologies (DLP, SXRD) are typically cheaper up-front, but require periodic (and expen$ive) lamp replacement.

Resolution? Most screens available these days have at least the capability to deliver a nice picture, especially if you are upgrading from an older CRT like I was, but there will be no improvement over the picture quality of your current screen unless you have a hi-def source.

I considered several high-quality 720p screens (which are obviously less expensive these days), but ultimately opted to forestall obsolescence by going for 1080p (the highest resolution commercially available currently) now and hoping that the new high-definition DVD players will come down in price rapidly over the next few years so that we can use our screen to its full potential. In the meantime, there are several networks that broadcast in 720p and 1080i (what's the difference?) and I've REALLY been appreciating the new screen when viewing these.

Is it possible to go TOO big? We bought a 47" screen partially because we have a young child and it is easier to watch most movies at home (NETFLIX!) than get to the theater anymore. We could have easily gotten by with a 42", though. Think about how much you want the screen to dominate whichever room you put it in, and how close you will be sitting to the screen. Our 47" looks great from the kitchen (30+ feet away), but analog programs look a little grainy from up close.

Where can I find a deal? We purchased from Costco because they are close by (no shipping expenses or risks!), have a great return policy and offered the best prices among the reputable dealers I checked.

For additional information, be sure to check out CNET's buying guide, which is where I did a lot of my research. Also, Consumer Reports has great reviews if you have a subscription.

Here's what we ended up with:

What I learned about ISA's

Posted By Paul

I first heard about Internet Savings Accounts (ISA's) through an article on CNN.com. The article spoke of much better interest rates than my bank savings account offered (which wasn't hard), so I did some research and found them to be an interesting savings vehicle. Here is what I learned about them:

What exactly is an internet savings account?
Internet Savings Account is the term for a type of savings account that is offered by several internet-only banks. An internet-only bank is a bank that you can only access through the internet and phone. With an internet bank there are no branches that you can walk into and do business.

Why are people so excited about them?
The main allure of an internet savings account is the fact that you can store your money in a safe, FDIC-insured account, just like a savings account at your local bank or credit union, but with a considerably higher interest rate. As of this writing, most internet savings account were offering interest rates over 4%.

If there are no bank branches, how do I open/fund an account?
The account is created online with a link to a conventional checking or savings account at your local bank or credit union. You then transfer money between the two accounts using an electronic transfer initiated at the internet bank's web site.

What are the downsides?
The main downside is the fact that there is no branch you can walk into if you want your money or need to deal with a problem. All communication needs to be done through email/phone and if you want your money, the electronic transfer to your local account can take a few days. However, as long as you're okay with that, then the ISA is a great option for savings.

Where do I get one?
Remember that an ISA is a type of account, and they are offered by any number of internet banks. To find one, just google +internet +savings +account and plenty of choices will come up. Many internet banks offer no minimum to open, so you can start saving whenever you want.

Anything else to look for?
Personally I suggest going with a well established bank that you've heard of, just to make sure that you're not going with some fly-by-night operation that may disappear tomorrow. I chose ingdirect.com which is one of the more well known companies offering internet savings accounts. I've been with them for a while and I really like their page and the account works great.

Welcome to Frugalize!

Welcome to Frugalize. This page was started by two guys who tend to give a lot of thought to their personal finances and who thought it might save others some time if they documented what they've learned. Your chief frugalizers (Paul and Matt) are generally pretty conservative, financially speaking, though we do sometimes have differing viewpoints on some topics. Please feel free to contribute to the ongoing discussion!