SmartyPig Interest Rates Fall Again

As I have said before, you lose purchasing power if you put money into savings accounts at the current interest rates.  SmartyPig has decided to exacerbate this by cutting its interest rate to .7%.  Apparently, SmartyPig was designed to make money off the optional gift card redemptions, and the high interest rates were too tempting to savers like myself who never redeemed any of my cash for gift cards.  So now they have a new bank, and are cutting rates.

I am hoping that this is not a sign of things to come.  SmartyPig has been a consistent canary in a coal mine.  Since I complained about SmartyPig's savings accounts rates in June, Discover's rate has gone from 1.25% to 1.05% as well.

I'm contemplating putting more of my medium-term savings into divided paying stocks with low beta.  Unfortunately, so is everyone else in the entire universe, which means that my chances of principal loss are pretty good in the medium term when something else comes into fashion.

Fortunately, since the babies have drained our savings a bit, there's less short and medium term money in the Goat household for me to worry about:)  Where are you stashing your medium-term savings now?  Any good suggestions?

SmartyPig, the Stock Market, and Savings Options

I got back from the beach to find a notification that SmartyPig has reduced its APR to 1.10%, effective June 15th.  The Bureau of Labor Statistics puts the un-adjusted 12 month inflation rate at 3.2%.  That means that I am losing purchasing power by keeping my money in a SmartyPig account.

Here's how it works.  If the savings and inflation rates stay constant for the next year, if I put $100 in a SmartyPig account on June 15, 2011, the account will be worth $101.10 on June 15, 2012.  However, inflation will have eroded the value of $101.10 to the equivalent of $97.97.  To add insult to injury, I will also have to pay income tax on the "gain" from the interest.  Assuming a marginal tax rate of 15%, that is $0.15 in federal income tax, yielding purchasing power in June 2012 equivalent to $97.80 in June 2011 dollars.  Unless inflation falls or SmartyPig's interest rate rises, I am guaranteed to lose purchasing power over time by saving at SmartyPig.











So what is a saver to do?  There are no safe investments paying 3.2%.  1.10% is high for a savings account (Although I do get 1.25% at Discover because I have a credit card with them as well).  BankRate's highest 1 year bank CD is 1.4%.  One year treasuries are .18 and ten year treasuries are 2.28 today, according to the Department of the Treasury.  People are piling into corporate debt, but highly-rated corporate debt is barely beating inflation; you're not going to fund your retirement on 3.734% interest rates (the yield on a 10 year Google bond issued May 16th).  For instance, I recall that the annual rate of return in the retirement calculator Dave Ramesy uses in Total Money Makeover assumes an 8% average annual rate of return.  (I read the 2003 edition, the 2009 edition may have updated this)

Enter the Stock Market.  As of yesterday, the Dow Jones Industrial Average ("DJIA") gained 21.62% over the last year, closing at 12151 (per Morningstar).   Those are some impressive gains.  Also, unlike interest, which is taxed as income, long-term capital gains rates are 0-15%.  (If your marginal tax rate is 15%, your long-term capital gains rate is 0).  Next to the anemic yields of traditional save investments, the stock market is looking good, if it can continue the historical trends of the past couple of years.

But can it?  At it's height, on October 9, 2007, the DJIA closed at 14164.  As of today we're at 85.8% of the highest market in history.  And, just in case you didn't notice, the unemployment rate edged up to 9.1%.  Half the PF blogs I read right now seem to focus on either dealing with current unemployment or planning for future unemployment.  The housing market is in the toilet and expected to stay there.  Looking around, do you feel 85.8% as prosperous as you did on 2007?  If the DJIA rises another 21.62% in the next year, it will be at 14778 next June.  Does this seem likely to you?

For those of us who want to save money, it's a real catch-22.  Thanks to the Federal Reserve's decision to keep interest rates low, there is no such thing as a safe investment for our money.  We are forced to either lose purchasing power or move into moderately risky investments like the US stock market.  I think the current rise in stock prices signals not particular strength in the market, but the lack of any place else for money to go.

So what do I do now?  I keep my funds that I expect to use within the next six months close to hand in a savings account at Discover (because money is much easier to transfer in and out, and the APR is better at 1.25%).  The rest of my money is in various foreign and domestic equities and indexes.  But I am very tempted to lock in my gains now and wait for a more appetizing place to put my money to materialize.  Is anyone else feeling this pinch?  What are you doing with your savings?

Taxes Finished!

Thanks to promethazine and ondansetron I finally got my taxes completed today.  Thanks to a big loss on CIGX (bought at $4.92, sold $2.03 so that I could pay off my debt) the feds are actually giving us back a few hundred dollars.  Thanks to Louisiana politicians changing the state tax rate, but not the withholding tables, last year, we're getting more than a grand back from the state.

All the money is going into my "baby fund" account.  Basically, my plan is to amass 3K between now and my due date (mid-October) and use that for baby expenses until I run out.  Then I will have some idea of a baseline for expenses and can adjust the budget accordingly.  Anyone have a better idea for budgeting for first time parents?

If you're a big tax procrastinator like me, and you use any Turbo Tax besides the free edition, you might try this link through the Scottrade Knowledge Center.  It gave me 30% off my federal return.  If you scroll down the page there's a link to the Turbo Tax website, and it should come up the same as the normal site, but with the fees reduced 30%.  I'm not sure if it will work or not, but since I didn't have to use my Scottrade log in or anything, I thought I'd share in case it helps.

Sayonara SmartyPig

There were 2 emails from SmartyPig in my inbox today.  Email # 1 announced that they were again cutting their rates, this time to 1.35% APR.  Email #2 asked me to spam all my friends about SmartyPig, with the promise of $25 to me should any of them create an account.

Let me get this straight SmartyPig.  You've changed your APR to the same rate that I get from Discover, and you want me to spam my friends about it?  What exactly am I going to say "Here's a savings account that makes you jump through a ton of hoops for the same APR as everyone else.  You gotta get you some of that?"  Give me a break.

For 1.75% APR, I was willing to put up with their site's eccentricities, but for 1.35%, I'll be closing out my account and moving everything to Discover.   There's not much in there at the moment anyway since most of my cash went to paying off a large debt to a family member,and it will be much simpler to build my new ef in a bank account that allows you to make deposits and withdrawals easily.

SmartyPig is not a bad deal for everyone.  They do offer a psychologically larger barrier to raiding the ef kitty, as you have to close out an entire goal to move the money into your checking account.  Additionally, multiple goals are easy to set up.  They also offer gift cards in lieu of cash that give you a bit of value over the amount you have saved.  However, these aren't things that I value, so I'm going back to Discover's plain vanilla account.

Do you currently have a SmartyPig account?  Are you planning to retain it?  Why or why not?

2011 Goals

Here we go ...

1) Religious/Spiritual 
     A) Continue to Tithe - one of my big wins in 2010, let's keep the streak going!
     B) Start a daily religious practice - I tried to get really specific about this last year, and ended up burning out. Rather than setting up a to do list, I want to give myself 15 minutes a day where I pray, meditate, read the bible, write in a gratitude journal, sing, or do whatever the spirit moves me to do that day.  Once this is a regular activity, I'll see where my spiritual journey needs to go.

2) Health
     A) Eat within my Weight Watchers points every day - I weighed 169 lbs on the scale yesterday, which puts me 21 pounds over my "thin" weight and 12 pounds over my lifetime weight.  Rather than worry about a time line and a weight goal, I'm just going to eat right and exercise.  I'll re-evaluate in March - if I'm not losing weight, I'll worry about it then.  On that note ...
     B) i. Exercise six days a week - I have Judo 2x a week.  I'll go to the gym the other 4, even if it's just for a light, 20 minute swim.  A sub-goal, because I am this anal, is to ii. make the check-in list at my gym every month.  To get on the list, I must check in at least 17 times a month.

3) Financial
     A) Have a side business (or multiple) netting 1K a month before taxes by December 2011  I've got several ideas on this front, from farm eggs to online jewelry.  I need to just keep plugging away at it until I find something(s) that works.  More on this as events develop.
    B) Fully Fund 2011 Roth IRAs Needed - 10K, currently have 0K - see 3A
    C)  Save in anticipation of (hopefully very temporary) loss of primary income.  It's coming.  The more I can cut from the budget, and the more I can sock away, the longer we'll have before we have to make desperation kinds of decisions.

4) Dreams
     A) Get the farm books in order, facilitate farm improvements, and manage the goats.This year, I am going to take over the farm bookkeeping.  This will free up my Mom to assist the new farm manager into transitioning into his duties, incorporate the new 152 acres into the property, and work on a national lecture tour, which is one of her big dreams.  She's actually speaking at the 2011 Southern Sustainable Agriculture Conference in Tennessee later this month, her first national conference.  I also need to manage the goats more closely.  We've been in growth mode on the herd for a long time, but now it's time to maintain what we have and begin to cull the bottom 10% and replace it with better genetics.  This will require near-daily monitoring to watch for health problems, as well as miscarriages and stillbirths.  It will also require meticulous record keeping.
     B) Begin again on piano  Talked to my dad about this today and we are going to get started again.  My goal is still to be able to accompany at my church on the piano when our current organist is out of town, busy, or sick (our back-up organist is very talented, but she's over eighty, and won't be around forever).
     C) Re-connect with my Chinese friend  We got busy and it stopped happening, but she's a sweetie and I need to spend more time with her.  Also, it's fun to speak Chinese, at least until I run out of words :)

5) Prosaic
     1) Practice with my carry firearms at least once a month This was a big fail for me last year.  I was late getting my Louisiana permit application in last year (long story), so I don't have a valid carry permit and probably won't get one until mid-March at the earliest.  The silver lining is that this gives me time to brush up before I am carrying again.
     2) Consistently do Flylady routines.  Last year, I decided to give up having a housekeeper and do my house myself.  When I follow her routines reasonably consistently, my house is acceptably neat.  I am not trying for Martha Stewart neat, just reasonably not dirty.

Accountability 
In an effort to give myself some accountability, I'm going to review these goals monthly on the first of every month.  Wish me luck (and good health too, please).

Net Worth Calculation

Per day one of The Simple Dollar's out with the old, in with the new, I calculated my net worth today.  I'm afraid that I'm a bit like Babci when it comes to hard numbers, so I'm not going with exact figures - but although my net worth remains negative, it is about 3% of the negative number I got when I first sat down in 2005 and figured out just how much trouble we were in (answer: a lot).  Basically, since then, we have improved our net worth by paying down debt and saving for retirement.

Paying down debt
This is pretty obvious.  As the debt goes down, the negative side of the net worth calculation goes down, making the positive side count more.  

Additionally, that nasty interest that makes the negative number go up every month, even when you are not adding debt, becomes a smaller and smaller factor.  When we started this journey, we had debt on which we were paying 22% variable .  Now our highest interest rate is a fixed 1.65%.  We got there through a combination of paying down high interest debt and transferring it to places with lower interest. 

Saving for retirement
We are a long, long way from retirement, so the smart place for our money to be is in equities.   Because we didn't panic, and kept our money in (and kept putting money in) through the 2009 crash, our retirement accounts have actually grown past the value of the money we originally invested in them by about 6%, even though we had 2/3 of our money invested before March 2009.  Naturally this number fluctuates every day, but I am comfortable that it will continue to reflect a broad upward trend over the years.

Because most of our net worth is in retirement savings, we also have a big pile of debt remaining.  But I am comfortable with my decision  to put money into retirement accounts rather than debt repayment for two reasons.  First, because the interest rate on our debt is low, so the cost of paying it off over time is low.  Second, because Roth IRAs (where all of our retirement money is located) are a very good deal if you believe that income tax rates will be higher for your tax bracket in 35 years, and putting money into Roths is a use-it-or-lose-it deal every year.   So I am paying the taxes and interest now for the comfort of knowing that, in retirement, my income tax rate on this money will be 0.

Anyway, it has been a while (at least 6 months) since I calculated our net worth, and I was pleasantly surprised by the result.  If we are able to keep up our debt repayment at our current level, we will have a net worth of $0 in 3 months!  This will a huge milestone for us; we have had a negative net worth since day one, as I brought a ton of student loan debt into the marriage. 

Have you calculated your net worth recently?  Was it a surprise or not?

Thinking about setting up a Smarty Pig account?

SP is having a contest in which, if you set up a goal under their "race out of debt" category, you are entered to win a bit less than 5K.  If you needed any extra incentive to save, this might help.

Sp is currently paying 1.75% on accounts less than $50K, which isn't great, but is better than anywhere else I have found.

If you know of a savings account with a better rate, please let me know in the comments, so that I can switch over :)