Ally Bank: The saver's "friend"

If the folks at Ally Bank were looking to catch some attention, they succeeded. Time will tell if it’s truly warranted.

Ally Bank, if you haven’t heard, is the new name of the old GMAC. That’s right, that GMAC, the former financing unit of General Motors. Ally is not owned directly by the troubled car company. Instead, it’s held by parent bank holding company GMAC Financial Services, of which GM still owns a large piece.

Ally caught my eye with its recent marketing campaign. Suddenly, I saw its ads popping up everywhere; on The Wall Street Journal’s website, during The British Open broadcast a few weeks ago. The TV ads were particularly catchy, with a schmarmy salesperson representing the “typical” bank using fine print and broken promises to hoodwink young kids out of a toy truck and a real pony. Ally, in contrast to other banks, “values integrity as much as deposits,” according to its website.

A good story
Sounds pretty good, especially today when consumer trust in financial institutions is pretty low. But make no mistake; Ally does value deposits pretty highly. It’s looking to grow, and grow fast, by offering very attractive interest rates on its products—among the highest around. Its online savings account, for instance, has a 1.75% rate, better even than traditional market leader, ING Direct (1.40% for its Orange Savings Account).

More competition is a good thing, but it’s also good to question just how real higher rates are, or how long they will continue. One thing Ally doesn’t highlight in ads or currently on its website is that parent GMAC Financial was one of the institutions to receive government bailout money for being undercapitalized. The institution is secure now, but that wasn’t necessarily the case at the end of last year.

And in recent weeks, the American Bankers’ Association cried foul to the Federal Deposit Insurance Company (FDIC) about Ally’s high-growth through high-deposit tactics, which it alluded to as “unsafe and unsound.” Like any bank, Ally loans out depositors’ money and if they depart the bank en masse for higher rates elsewhere, it could conceivably be caught short-handed. An unlikely scenario, but it’s why banks have to have a certain amount of capital on hand in the first place.

The FDIC also required Ally to get written approval to issue debt secured by bank deposits, as well as to keep the regulator informed on just how high above the market average its product rates are. Ally reduced the rates on its savings products from some much higher initial levels it started with in May.

Moral of the story
With savings accounts, like anything, an old rule still applies: If it sounds too good to be true, it often is. Chasing interest rates from one bank to another requires a lot of time and effort for what can often be very little gain. No one’s going to build wealth by getting an extra .25% interest on their emergency cash.

And despite the banking industry’s woes, another old rule also applies: Marketing prevails over common sense. “Valuing integrity” sounds great in a TV commercial. But it’s how actions demonstrate that integrity that really counts.

A coin jar adds up to more than just saved pennies

Given my new mission, I was mulling over changing the name of this blog to better reflect my goal of linking behavior and spirit to building wealth. Then as I thought about it, I realized that a coin jar is actually a pretty good example of that alignment. Here’s why:

It’s easy to start. You can use just about any container you find hanging around the house to hold your coins, which removes a big barrier to saving and building wealth: Just getting started. I use a medium-sized white porcelain bowl we got as a Christmas gift one year, and I’m not even sure how it ended up being my container. But I need something bigger because it's overflowing.

It’s habitual. Many people keep their containers close to the place where they empty their pockets each day, so they can toss coins in automatically. My bowl is in my nightstand, where I put my cell phone, Ipod, and employer security badge each night after work. When you make saving part of your normal routine, you give yourself a great chance of being a successful saver.

It builds up over time. Coin jars teach a valuable lesson: Wealth-building requires action and patience. You won’t get rich quick by saving pennies a day, but you'll be surprised at just how much your spare change adds up to over a long period of time. And that’s true for any type of saving, whether it’s a down payment on a house or your 401(k). Little things mean a lot.

So nothing's changing: The Coin Jar is here to stay. (Good thing, too, otherwise I’d have to write off as a loss all those Coin Jar t-shirts I printed up…just kidding. ; )

How much money have you saved using a coin jar? Have you ever used the savings to purchase a big-ticket item, like a TV or computer? E-mail me your story and make The Coin Jar Honor Roll.

A good week to jump on the saving bandwagon

Need a reason to start saving? Here's one: It's America Saves Week, which started February 24 and runs through March 2.

America Saves Week is a national campaign organized by various nonprofit, corporations, and government groups aimed at reaching increasing awareness that people need to save money and reduce debt. Its primary focus: encourage people to act by making a commitment to save, invest, and build wealth.

"This year, the focus is on making saving automatic," said Nancy Register, associate director of the Consumer Federation of America in Washington, D.C., and national director of the America Saves campaign. Here are three ways to do that:

• Sign up for or increase the amount you’re putting into your employer’s tax-deferred retirement plan (commonly called a 401(k) or 403(b)). The money comes right out of your paycheck, so after the first one or two pay periods, you’ll never even notice that you’re putting it away.


• Open an individual retirement account (IRA) and set up regular deposits from your checking or savings account. The maximum amount you can contribute to an IRA in 2008 is $5,000, which comes to $96 a week.


• Build an emergency fund by setting up automatic deposits into a money market mutual fund or savings account. A well-funded emergency savings account has three to six months of living expenses.

If you still need a little encouragement, visit America Saves.org. You can sign up for monthly saving “pep talks,” get tips on how to save, and see how others have turned their lives around by becoming “Savers.” You can even connect with Savers in your local area.

A dose of humility on a Sunday morning

I was just lamenting this morning to M about our disposal income--or lack of it. After paying all our fixed bills, accounting for groceries and household expenses, there isn't much breathing room left each month for for additional saving, such as for a down payment on a new house or our kids' college (we're pretty well-covered for retirement, primarily thanks to generous contributions from my employer).

And then I came across this headline in today's Philadelphia Inquirer:

Donor built millions on $11 an hour

Paul Navone is a retired mill factory worker from Vineland who made a fraction of what most people make today. Yet he just gave $2 million to a community college and a prep school.

Granted, Navone has never been married, is childless, doesn't own a TV, and shops in thrift stores for his clothes--a lifestyle that isn't exactly appealing and has definitely contributed to his stored-up wealth. It's a tradeoff I'd never want to make.

But it's still humbling to think about. I'm fortunate to have a stable job that produces a good income--well-above $11 an hour. Why the heck am I complaining? And what could I be doing differently to change the situation?

Is it better to save, or invest in your business?

A reader recently sent me this e-mail:

"My daughter-in-law wants to save, but cannot convince my son. He thinks that every dollar she tries to save would be better off going straight into his business.

She and I have talked about the importance of saving. I would love to show her the plan to save $1 million by the time she is a certain age. She is 34 now. How much per month will she need to save to reach $1 million by age 50 or 60?"

Figuring out how much to save per month to reach $1 million can be a good motivational tool, especially if someone is young. (In fact, I recently used it with my daughter.) But to get the reader's son onboard with a plan to put away some money for the future, it may work better to focus less on the potential reward of saving and investing, and focus on the potential risk of small businesses instead.

Not much motivation

The sacrifice required to reach $1 million by age 50 won't sway the son (or encourage his wife) to start saving. To reach that goal, the couple would have to sock away nearly $2,300 per month for the next 15-1/2 years (assuming a 10% average annual return, which you can get with a well-mixed portfolio of stock and bond mutual funds).

Waiting a decade or so makes the amount more palatable, but still tough to swallow: $725/month to reach a million by age 60, and $427/month to get there by age 65 (such is the magic of compounding). Doable, but still unlikely to convince Sonny Boy that the money is better off invested in stocks and bonds than in his own business-building skills.

Offsetting a huge risk

Which is where risk comes in. Investing solely in one's own business is a lot like investing in the stock of an individual company--except, if you're just starting out, even riskier. Many small businesses fail within the first five years (depending on the source, between 50% and 80%). The son may invent the next Google, but he may not. Saving money for the future to offset this huge risk isn't a comment on his business idea or abilities; it's good financial sense.

Come together on a plan

That said, my e-mail friend should encourage her son and his wife to sit down together and establish a concrete plan. It should have room for both saving for tomorrow and investing in the business, with well-defined and mutually agreed upon goals and definitions of success.

Since they are relatively young, the couple could put more money toward the business initially, with the caveat that they evaluate the return on their investment in a year or so. If the business is showing signs of progress, they may even be able to increase the amount they're putting toward both goals. If not, they could evaluate whether it's time to shut the operation down. Either way, the decision should be theirs--not his or hers.

Potential reward is the aspect many people consider first about investing, but don't forget about risk. Understanding your own comfort with it--as well as that of your spouse--can go a long way toward making you a wise investor.

The truth about budgeting

Research has shown that about 40% of all households maintain a monthly spending plan, or budget. While they make up less than half of us, do budget-users know something non-budgeters don’t? Have they discovered a secret to make budgeting less of a chore?

Unfortunately, no. Here are three truths that I've learned about using a spending plan, and that other users would likely agree with:

Planning ahead is hard. Unexpected expenses come up every month and prices on most things (not just gas) continue to rise. Sometimes spending predictions are off—even way off.

Tracking spending is a pain. A purse or wallet stuffed with receipts is annoying. And even with budgeting software, logging all the information can be time-consuming.

Budgets are "restrictive." Yes, a budget will restrict you from buying what you want--especially if you can’t afford it.

So now you know: Budgeting isn’t fun. But that's true about many things in life that are good for us. Watching what we eat and sweating it out at the gym aren’t easy, for example. But the satisfaction you can get from a trim, healthy body makes the effort worthwhile.

Financial talk-show host Dave Ramsey likes to say that folks who get on a monthly budget often feel like they’ve gotten a raise. Such can be the power of planning and knowing where your dollars are going each month. And that can lead to some fun--that you really can afford--in the long run.

My daughter's millionaire dreams aren't far from reality

Our oldest daughter Jessica said she wants to be a millionaire someday. At age 19, she’s off to a good start, and that substantially increases the odds of achieving her goal.

A few weeks ago, Jess took about $1,600 she’d saved from after-school jobs and opened a Roth IRA. With a Roth IRA, Jess can save and invest for her future, such as retirement. The money she puts in will grow without being taxed, just like a traditional IRA or a 401(k) plan. However, unlike those types of retirement savings vehicles, when she starts taking money out of the Roth IRA down the road, her earnings likely will be tax-free.

$100 a month to start
Naturally Jess isn’t thinking as much right now about retiring from her career as starting it. She’s in her second year at Northeastern University in Boston, majoring in journalism and cinema studies. Part of her education includes a semester working full-time at a local newspaper, so she’s been getting a weekly paycheck since January. Her plan is to put at least $100 a month into her Roth account for the foreseeable future, and beyond.

No school debt and lots of time
Jessica’s opportunity to build substantial wealth is enormous thanks to two huge advantages she has. First, she attends Northeastern on a full scholarship. She will graduate in a few years with no school debt whatsoever, which should help to keep her plans to save on track even while pursuing a career field where starting salaries often almost feel like minimum wage.

The second advantage is time. With a savings horizon of 40-plus years, Jess’ sacrifices of trendy clothes, late-night pizzas, and morning ice coffees in these college years could mean financial freedom and security in her retirement years. I’d bet some Baby Boomers today wish they had made the same decisions when they were her age.

It sure adds up
Not that Jess needs any motivation, but I e-mailed her these numbers to show just how wise she really is to start a meaningful saving plan at age 19:

(For simplicity, I based my calculations on a 10% average annual return on the IRA investments.)

• By saving just $100 a month in a Roth IRA, Jess stands an excellent chance of being a millionaire by the time she is 63 years old.


• If she increased her savings to $168 a month, she has a great likelihood of being a millionaire by her 60th birthday.


• If she starts saving the maximum amount allowed for an IRA ($4,000/year in 2007, or $333/month), she could even have her first million by the time she turns 52 (not even “retirement” age).

Granted, $1 million in 2047 won’t get Jessica a retirement that is 100% financially secure. But unlike many kids her age, she already understands the value of saving and sacrifice to reach a long-term financial goal, and that will serve her well.

I couldn’t be prouder.

The path to wealth is usually a slow one

There are no shortcuts to financial success, but you wouldn’t know it by the Internet. Just Google the phrase “get rich quick” and you get advertisements like these:

“Bring in $100,000 a month: I can teach you how!”

“Turn $600 into $39,000 with the Forgotten Commodity!”

“Earn money fast and LEGALLY!”

Seeking quick riches can spell trouble
The absurdity of the ads’ claims is worth a chuckle. And maybe you've never felt tempted to click one just to “see what it’s all about.” But someone is clicking, and buying into the ads’ promises—otherwise they wouldn’t exist.

“Quick and easy” is a good description for making a box of Mac n' Cheese, not building wealth. After all, “The trustworthy person will get a rich reward, but a person who wants quick riches will get into trouble.” (Psalms 28:20)

Overnight wealth, or lasting peace?
In their research for the bestselling book, The Millionaire Next Door, Drs. Thomas Stanley and William Danko found that “building wealth takes sacrifice, discipline, and hard work”—hardly the stuff offered by the Internet ads above. But chances are most folks wouldn’t click on ads like these:

“Learn the secret to financial success: Spend less, save more!”

“Retire a multimillionaire—in just 30 years!”

“Be content with what you have. Find out how!”

Living below your means, using a monthly spending plan (budget), setting aside money for the future, and avoiding debt won’t you get rich overnight. But they can vastly improve your chances of accumulating wealth in the long run. More importantly, they offer the promise of something much better: lasting peace and contentment.

Want that bank fee waived? Then ask

The ATM receipt I held gave me a sickening feeling. A negative sign showed next to the balance amount.

M’s and my checking account was overdrawn, and I knew exactly why. I’d forgotten to deposit a check I had put in my wallet earlier in the week, which was why I had gone to the ATM in the first place.

The good news is that I didn’t have to pay an overdraft fee, and not because Commerce Bank didn’t charge one (a nice, hefty $35). In fact, it was because I asked them not to.

A benefit of competition
You might be surprised to know that fees at banks, credit card companies, and other financial institutions are often negotiable. Many times—but not every time—you can avoid paying a charge that’s been levied on you for whatever reason simply by contacting the company and asking them to waive it.

Over the years I’ve saved by having the annual fee on my credit card waived, as well as charges for making a payment by phone (when I’ve been a little late mailing the check). Buying my first house, my father encouraged me to push the mortgage companies competing for my business to remove the many extraneous charges ($35 for courier services, $25 for faxing paperwork, etc.) that they like to tack on to provide the loan. Not every company waived every fee, but some did.

The reason financial companies are willing to let you keep your money? Competition. Losing your business to another bank or credit card company costs them much more than losing the revenue from a one-time $20 or $30 fee. Besides, for every person who asks to have a charge removed, there are many more who simply pay it, no questions asked.

Good financial habits help
That said, financial companies are only willing to go so far. If you make a habit of bouncing checks or paying your credit card late, you have little chance of avoiding the resulting penalty charges, no matter how nicely you ask.

In the years M and I have been customers at Commerce, I can’t recall being overdrawn any other time. We also were never late with a payment on M’s car loan, which they financed, and paid it off several months in advance. So the tedious chores associated with being a good financial steward—balancing the checking account, tracking where our money goes—do have their rewards.

Still, being temporarily overdrawn has shown me that I keep the cash level of our checking account lower than I should. I don’t like the idea of keeping a hundred or so “extra” dollars in the account—money that isn’t accounted for in M’s and my monthly spending plan—where it can be easily tapped. But it’s probably better than relying on my memory to make sure I always make our deposits on time.

Good personal finance advice for your ears

I love my iPod. Listening to podcasts of radio shows from Dave Ramsey, Crown Financial Ministries, and Charles Stanley make my hour-long commute to and from work an education rather than just a grind. (In fact, I rarely listen to music.)

I'm going to add another show to my podcast favorites: "The Color of Money" from National Public Radio (NPR). It airs every week on NPR's "Day to Day" show. Michelle Singletary, the personal finance columnist for the Washington Post, is the primary contributor. The segment covers the usual range of topics, from saving for retirement, college, etc. to tips on starting a business.

Maybe the best part about it: It's informative and short, about four minutes long. Plus, with the podcast, no endless NPR fundraising segments to sit through in the fall and spring.

A Penny Saved hosts Carnival
The list of submissions to the weekly Carnival of Personal Finance seems to get longer and longer. This week's carnival is at A Penny Saved, and since there are so many choices, here are a few from the bottom of the list you otherwise may not have seen:

• The pursuit of the perfect savings rate at "My financial journey."
• 13 ways to save on gasoline, at "How to save money" (though you need to live near an Indian reservation for one tip).
• How persistence will make you rich someday, on "Money Smart Life."

A holiday gift for your kids that will last a lifetime

I'm probably missing a marketing opportunity here somewhere.

Occasionally I notice that people find my blog by googling "coin jars." Which got me to thinking, if you're looking for one last small gift to round out your child's holiday goodies, why not consider giving him or her a coin jar?

A search of Amazon.com produces a choice of four kid-friendly coin jars, ranging in price from $12.99 to $49.95. (I'm not counting the Qing porcelain coin vase included in the search results as fit for children. Also, note that two of the jars are virtually identical; one just costs $2 more because it's endorsed by Discovery Channel.) All are electronic, counting the coins as your child puts them in and displaying the total amount saved. One even counts and wraps the change for you.

I like the idea of motivating kids to save by showing them immediately how much their quarters and pennies have added up to. But I also think you get a big bang for the buck with children by dumping a bunch of coins out on the floor and helping them patiently count up their loot (reinforcing their math and money skills along the way). Either way, you're sure to get a "Whoa!" or an "Awright!" when they see the total in the end, which will leave a good impression of the value of saving on their minds.

Granted, an electronic coin jar isn't as fun as TMX Elmo or Nintendo Gameboy Advance. But those gifts will last from maybe a couple weeks to a year. The benefits of being a good saver will have the shelf-life of a lifetime.

Kids and money, loose change, and turkey leftovers

Carnival of Personal Finance #76 is up at My Financial Journey, with 47 entries. My personal highlights:

Finance-4-Kids gives some tips on how to teach your kids about money. One or two seem a little pie-in-the-sky--I'm not sure how you can "Eliminate fear and greed" in anyone, let alone children--but generally his points are well-taken.

(Incidentally, I've started CJ Jr. putting money in his piggy bank. At two-and-a-half years old, he is more interested in the loud "clunk!" sound from dropping the coins into the pig's belly than the value of saving today for something tomorrow. Hopefully, someday that will change.)

Jenna Coffee at Moneybucks Coffee writes about something dear to my heart, given the name of my blog: what she calls "nuisance money," or the coins at the bottom of her purse and in a jar on the counter. I didn't know Coinstar charged 8.9% for their automated machine to count your pennies (it's also free if you use the money to buy a gift card). Nice work if you can get it.

Finally, here's a post in the spirit of the season that I wish I wrote: What can you learn about money from a turkey dinner? at Money Smart Life. You'll be looking at your Thanksgiving leftovers in a new way.

How to save $1,000,000 and have your own jet, too

My friend Tim, hero of my recent "Shopping tips from a savvy online bargain hunter" post, proved again that he really knows how to find good deals online. Check out this one he found advertised a couple weeks ago on Dealnews.com for a Cessna Citation Mustang Light Jet from Sam's Club.

Sure, the $2.7 million pricetag might seem a bit steep. But consider that it's $1 million off the list price and comes with a Sam's Club lifetime membership. Chances to be a wise spender like that just don't come around every day. No wonder Sam's Club is already showing the jet as "sold."

How much does your morning coffee REALLY cost?

I recently wrote that I switched from buying donut-store coffee to grocery-store coffee to squeeze as much savings as I can out of my 1-cup morning habit. I self-brew and don't bother to invest the few dollars that buying coffee in a can saves me, so the switch isn't helping M and I pay off the house any quicker. But if you buy a $3 cup of gourmet coffee every morning before work, a cool little online calculator can show you how much it's potentially costing you over the long haul.

Hugh Chou isn't a financial planner. He isn't even in the financial services industry; he's a system administrator at Washington University in St. Louis, and self-proclaimed "geek." But he is a geek that makes great financial calculators.

Among the many--and I mean many--calculators you can find on his no-frills calculator webpage is the "Stop buying coffee and save" calculator. Just plug in the daily cost of your coffee (don't forget tax and any extra treats to go along with it) and see how much you could save by drinking a 25-cent cup from the office coffee machine. What's more, Hugh's calculator will show you how much those savings could potentially turn into if you invested them for a few years or decades or so.

You'll have to decide what's harder to stomach--the office coffee, or the smaller bank account.

Thanks to My 1st Million at 33, Frugal Duchess, and pfblogs.org for highlighting Hugh and his work. And thank you, Hugh!