How to Avoid Cell Phone Taxes: Save an instant 16% on your monthly cell bill

How Expensive Are Washington Cell Phone Taxes?
Washington charges 23% on top of everyone's cell phone bill!  ( Washington is 2nd worst in the nation)  Compare 23% that with residents of Oregon (6.5%) or Nevada (7%) and you start realize Washington is taxing cell phones like cigarettes.

Understanding How AT&T Determines What Tax Rate Your Bill Gets
A Forbes article explains that cell phone companies determine what tax to apply to your account based on the "billing address."  For example, you live in Washington, you have your bill sent to your home, you get Washington State's 23% cell tax.  If you live in Las Vegas, you have your bill sent to your Vegas home, you get taxed at Nevada's 7% cell rate.

But What If....
You live in Washington, but have Las Vegas, Nevada as your billing address.  You get Nevada's 7% cell tax.  If you don't know someone in Vegas, just turn on paperless billing on your account.

To recap:  Saving 16% today
By changing your billing address to a dummy address in Vegas, and enabling paperless billing two things will happen instantly:
1  You'll start receiving all your bills via your email account.
2.  Your bill will be charged Nevada tax rates and you'll save 16% off your cell phone bill (which could be a lot of money if you have a family or business plan)

It took me only a few minutes online to find the right spot to change it (It can be a dummy address; the zip code has to match up with the address)

I'm currently spending $316 a year in cell taxes alone as a single user!  This will reduce it to $96, saving me $220 a year -- enough to buy a new iPhone.  Every year.

Calculating The Savings in 7 seconds
Take your current total bill (with taxes) and multiply it by 1.56 and that's what you'll save each year going forward in taxes!

What does it cost to leave a light bulb on all night?

Wonder what it costs to leave a light on all night? How much money is bleeding out of your wallet?

 

I polled 12 college educated friends.  The answers varied widely from $0.10-$5.00/night.  The average was $1.17. It’s nice to be educated. The reality is surprising.  It costs $.03 to leave a light on all night.  Lacking data, best guessers are off by 300%, and most people are unknowingly exaggerating the real cost energy by 3900%.  That’s a problem because it causes people to focus their time trying to save money when they’re really saving pennies instead of dollars.

Here is a very easy to use energy calculator for a variety of home appliances.  In Benton County, WA rates are $.0649 (plug into the calculator).

Interesting data that puts expenses in perspective.  How much electricity does it cost to:

Leave a 60W light on all night? $0.03/night

Run a dryer, full load, on high?  $0.19/load

Leave a 32” TV on all night?     $0.14

--etc--

Bottom-line:  electricity is cheap.  Really cheap.  Much cheaper than people think.  It’s a human tendency to focus on expenses you can see, but ignore the “unseen” expenses.  Things that people see (the hallway light left on at night while they’re lying in bed) “seem” expensive.  For example, leave a light on every night for a year (and it’s unlikely a light will be left of 365 days in a row) will cost $11.  However, most people don’t know what they pay each year for house insurance.  A little shopping around on house insurance could save you $150, or $250 on car insurance.  Another example of a killer unseen expense: Depreciation.  Buy a new car and depreciation could be an average of -$2,400 a year for the first 5 years.  Make that mistake and you might as well leave 20 lights on 24 hours a day for 18 years.  My house barely has more than 20 60watt candecent lights!

Do a little research and make sure you are making data-based decisions.  Over a long period of time it will make a huge financial difference.

Stepping up the electricity awareness another notch:

In some areas, power companies charge up to 4 times more for electricity at different times of the day.  It’s called peak vs non-peak hours.  For example, my friend Janalyne is moving to Las Vegas, Nevada.  Vegas peak time (1pm-7pm) during summer is 4 times more expensive than non-peak times.  (Source)  This means you’re much less expensive to cool off the house at noon than at 1pm, or to dry all the clothes at 7:01pm)

Benton County, WA doesn’t have peak rates.  If you live in another county, to find the cost of electricity, simply call the utility company on your electric bill and ask, “What does electricity cost per kilowatt hours?”  Also ask, “Is there a peak rate?  If so, when are the dates/times peak rates are in effect?”  You now know more real life data about electricity costs than 90% of the population – now you can make decisions on reality instead of an mis-leading sense.  Easy.

Best Cash Back Credit Cards for 2011

If you have good credit, the opportunities this year are quite a bit better than the ones from last year. I recently found & applied for the two best cash back credit cards I've seen available in a long time.


Over 18 months ago Schwab offered a cash back card at 2% for a limited time and the window closed before I could apply.  It does not plan to re-offer the card and I've been hunting for a 2% cash back credit card ever since.  Fidelity is offering two amazing deals, including a 2% cash back card, for an unknown period of time; act accordingly.


(Drum roll) Here are the best cash back credit cards for 2011


American Express Fidelity Rewards: Earn 2% cash on everything.  Requires opening a Fidelity Cash & Brokerage account online here (<3 minutes, no deposit required). Cash back rewards are transferred to the Fidelity account which can be transferred to your checking or automatically invested in an IRA or college savings account.  Be sure to give Fidelity account # to representative if applying by phone.  App.


American Express Costco Business: Earn 4% back on gas up to $6,000, 3% on eating out, 2% on traveling, and 1% on everything else. They send a check out once a year with what you accumulated. App.


American Express Costco Personal: Earn 3% back on gas, 3% on eating out, 2% on traveling and 1% on everything else. They send a check out once a year with what you accumulated. App.


Amex SimplyCash Business: Earn 5% cash back on wireless service and office supplies , 3% on gasoline up $12,000 per year, and 1% on every other purchase. Plus, it is automatically credited to your statement each month. App.



American Express Additonal Benefits:
Extended Warrenty: Extends the term of the original manufacturer's warranty up to one additional year.
Damage/Theft Protection: Protects purchases against accidental damage and theft for up to 90 days from purchase. 
Other Benefits here half way at bottom.

American Express is the best card to use for all new purchases particularly because it extends the warranty for free for a year, which has a lot of value.  For example, extending the iPhone warranty 1 year costs an additional $70; an extended warranty on a new TV or other high end purchase is worth even more money.  A friend recently had the water pump on his hot tub go out;  it was outside the manufacturer's warranty by 1 month.  But it was covered by American Express, who cut him a check for $700.


Since American Express is not accepted at all places, particularly restaurants, there's value in also having a VISA Rewards card.


VISA Fidelity Cash Rewards: Earn 1.5% cash on everything.  Requires first opening a Fidelity Cash & Brokerage account online here (<3 minutes, no deposit required)). Cash back rewards are transferred to the Fidelity account which can be transferred to your checking or automatically invested in an IRA or college savings account.  Be sure to give Fidelity account # to representative if applying by phone.  App.


VISA Bank of America Rewards: 3% gas, 2% restaurants, 1% everything else plus $50 cash bonus. App.


Summary:  The difference between 1% and 1.5%-2% is  is 50%-100% more cash back.  It's the difference between a $500 (at 1%) and a $750 (at 1.5%) or $1,000 (at 2%) for simply using a better card.


Avoid.  Credit cards with "up to" language or that have rotating categories or other strings attached generally are games that lower total cash back at the end of a year.

Debit Cards.  While I strongly dislike debit cards because they are more difficult to deal with in terms of fraud protection and offer less fringe benefits, below is the best cash back debit card available:


Mastercard PerkStreet Debit Card:  2% cash back on everything provided you maintain a $5,000+ balance. Less than $5,000, the reward drops to 1%. App.


These are the best deals I believe are available.  If you're aware of something better, please let me know.

Emergency Funds 201

This is an email I wrote to the author of The Simple Dollar in response to his article detailing an approach I think builds on his idea but I feel is much better.

________________________________________________________

I always enjoy your articles.  You're a good writer, your comments are relatively succinct, and spot on.

So this reaction is the exception.  I want to take issue with a comment in this article that I *strongly* disagree with.

"Also, never, ever have an emergency fund that consists of a credit line"

I think it's extremely prudent to have a line of credit in case something goes wrong.  I'm a fan of cash-like reserves, but the reality is, if you have any debt, instead of having cash sitting earning essentially 0-1% interest, you could be essentially earning that debt interest rate as a rate of return. 

For example, as a self-employed person, I believe strongly in having safety reserves -- I have more ups and downs than an average person.  However, as soon as I make money, I instantly use it to pay down whatever debt I have -- making sure that debt allows me to borrow back against it as soon as I need money again.  Now if the debt is such that it does not allow one to borrow back without fees (credit cards charge 3% fee for borrowing cash -- ick), that wouldn't make sense (and I have none of that debt).  But what I would argue would make more sense is to go to a bank and setup a 5-50k line of credit at 5-7% (very common, very easy to do, usually a 1x charge of $50 to setup).  Have it sitting there as essentially a cash reserve, and then use whatever cash reserves you have to pay off any debt.  This keeps liquidity that's essential for emergencies while optimizing for interest payments.  If your debt is at 5-25%, you're essentially investing your cash reserves at that rate of return, safe, with liquidity to pull it out at any time.  I've used this strategy for 6+ years very effectively.

Playing Devil's Advocate.  The argument against this is what happens if the bank reduces the line of credit (I recommend having an amount higher than you need).  Or what happens if the bank closes the LOC all together (which is why I recommend having a line at more than one bank).  Neither of those situations has happened, but they're possible, and it's wise to have thought through and prepared for what can go wrong.  Obviously, another problem is what if the person is unable to control their spending (not a problem I have), then this solution would not apply to them.  This is designed for people who are not irresponsible.

Based on how I see it this solution of having a line of credit at a bank is inexpensive to create (usually $50-$150 one-time setup fee), offers much more safety than pure cash reserves (instead of 3-5k available for emergency, there's 5-50k), all your money is working for you at credit card interest rates instead of losing 3% in net inflation.

For a reader who has some basic credit card debt, and could get a simple LOC at a bank, your cash-only reserve solution is essentially costing readers 10-25% a year unnecessarily.  I think there's a better, more frugal, safer way.

As a huge financial perk, I would argue it also allows one to seize a killer buying opportunity if it comes along that might otherwise be missed.  If someone is gets desperate and needs to unload their car for 10k cash that's worth 17k, you could write the check and save (relatively) a huge amount of money.  You've now saved your family a huge amount of money (especially considering after tax dollars - a huge hidden perk of frugality).  And if you don't need it, you could flip it for easy profit.

Lastly, I would argue that the size of your emergency fund (regardless of cash or LOC) should also have "job stability" as part of the variable.  I think self-employed person, or someone with a high degree of stability risk should make sure they have access to more funds than say a tenure teacher.

I think the concept of Emergency Funds that you covered is very important.  Unexpected emergencies that one is unprepared for can take out years of hard work and otherwise perfect planning/work.   I think the elements of utilizing a LOC and ratio'ing the safety amount to stability also improve one's ability to succeed.

I'm open to other thoughts if you see a hole in my thought process.

Emergency Funds 101

The Simple Dollar: “Determining the Size of Your Emergency Fund” plus 1 more

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Determining the Size of Your Emergency Fund One common question I get from readers relates to the size of their emergency fund. Simply put, how big should it be? How much cash should they have saved in their savings account for those unexpected events life deals you? Before we even get started, it’s important to note that there are a lot of different theories and ideas about how big an emergency fund should be. The ideas that follow are largely based on my own experience and from the many stories that readers have shared with me over the years. Also, never, ever have an emergency fund that consists of a credit line. Your credit card is not an emergency fund. A line of credit is given to you by a bank and they have the power to revoke that line of credit or reduce it, often at the very moment when you’re facing an emergency and need that money. Do notrely on it. It is not an emergency fund. First of all, no matter what your situation, you should strive to have $1,000 in your savings account. If you’re trying to pay down debt, switch to minimum payments for a while and build up this level of cash on hand. $1,000 covers the vast majority of the emergencies we face in life. It can handle most car repairs. It can handle many medical emergencies, particularly if you’re insured with a deductible of $1,000 or less. It can handle lots of smaller situations that you didn’t quite expect. If you have high-interest debt, pay that off before building your emergency fund beyond $1,000. I would define high-interest debt as being any debt with an interest rate above 10%. If you are carrying a debt with an interest rate at that level, you need to get rid of that debt. It’s seriously hurting your finances if you let it continue to sit there and accumulate interest. If you have only low interest debts, I would move that emergency fund up to two months of living expenses for your family. I would consider two months of living expenses to be the base level of money I would keep in your emergency fund. What exactly is two months of living expenses? Sit down with your checking account and figure out how much you spend in an average month. The best way to do this is to add up all of your spending over the last year – all of it – and divide by twelve. That will give you your average spending for a month. Multiply that by two and you have two months of living expenses. Of course, if you’re ever in a desperate pinch, you’ll probably cut your spending somewhat and the money will last longer than that. That’s fine, but you never want to assume how your future self spends money. If you have dependent children, I would add another month of living expenses to your emergency fund for each dependent child. Of the items here, this is the one that I would most describe as personal opinion. Simply put, when you have young children, you need to do what you can to maintain a stable household for them. Children thrive in a stable environment. One big tool for maintaining that stable environment is a very healthy emergency fund. Don’t invest your emergency fund money into anything that might lose money. Many people are disappointed in the returns that a savings account gives and want to put their money into other investments with a higher potential return. However, investments that offer a better return tend to lose one (or both) of the two key factors that make savings accounts perfect vehicles for emergency funds. Savings accounts don’t have the risk of losing money over time (often at the moment when you need the money) and savings accounts are highly liquid, meaning you can withdraw the money whenever you need it without penalty. Yes, stocks might outperform a savings account over a long period of time, but on a given day, stocks can very easily be down significantly, which means that you may not have adequate resources during the very emergency when you need it. If you put money into something like CDs, where you’re not at risk of a loss and get a better return, you face the liquidity problem in that you can’t withdraw the money without penalty at the moment you need it. Stick with savings accounts for this purpose. When you do choose to use your emergency fund, your first priority should be to replenish it once you’re back on your feet. This might mean turning off other savings plans or investing plans for a bit as you replenish, but this needs to be done as quickly as possible to protect yourself against subsequent emergencies.

Car Tire Shopping

I purchased my Avalon XLS because I wanted a smooth, quiet ride.  Then I put the cheapest, longest lasting tires I could find.  The result was a surprisingly loud ride I’ve endured for years.

I recently learned I had made a mistake since car tires are one of the top variables in a smooth quiet ride.

Now that I knew, I had no idea which tires were the quietest, or best quality, or best value.

Coming from the ground up.  I started at Les Schwab, my favorite tire store.  They recommended a Toyo Tourino II tire for $845 installed ($180/tire + expenses), indicating it was their highest quality tire, quietest ride, and that I couldn’t do better.

Since one tire was worn all the way through, the temptation to buy and be done with it was strong.  Les Schwab has a good reputation for value.

Instead, I got them to put on my spare in place of the most worn through tire so I could have a few more days to think/analyze.  I rarely make good buying decisions in the moment.

Research.  I googled “quietest tire” and read a few websites and consumer reviews.  Consistently the Michelin’s Primacy MXV4’s came up, along with Goodyear’s ComforTread, and Toyo’s Versado (I learned it was the same tire as the Les Schwab Tourino tire, just “rebranded” for Les Schwab).

I could get the ComforTread for $180/tire, the Versados for $180/tire, and the Primacy for $140/tire with a $70 rebate, for an adjusted cost of $122.50/tire.  Going from $122/tire to $180 is almost a 50% increase ($180/$122).

I found a great research chart at TireRack.com: http://www.tirerack.com/tires/surveyresults/surveydisplay.jsp?width=205%2F&ratio=60&diameter=16&type=GTAS

Which showed the Goodyear tires #1 and the Michelin tires as the #2 rated tire.

I called my buddy who loves cars, whose entire extended family is into cars and asked him.  He said he thought Michelin tires were the highest quality and Michelin tires were all he and his family bought. He said they bought from Costco.  He also encouraged me to focus on total cost; some tire companies charge very little for the tires and then kill you on the installation.  Good idea.

I then called 5 different tire stores (both large and small companies), asked for the manager, and asked their opinion on quietest tires and best brands.  Consistently managers indicated the Michelin brand was the highest quality tire and most likely to last as long as the warranty rating.  One manager told me he had every tire to choose from and the Primacy MXV4s were what was on his Acura.

Analysis.  Saving money wasn’t my highest goal here, but my analysis showed the least expensive tire was made by the most recommended brand, and the Primacy was the most recommended quiet tire in the most recommended brand.  It was praised by consumer reviews and nearly every tire shop manager I spoke with.  It was top-rated in rain, ice, snow, handling, and noise.

Where to Buy.  Now I knew which tire I wanted, I called around for pricing.  The exact same set of Primacy tires varied $175 from highest prices to $135 at lowest price store.

Costco offered the Primacy tires for $135 a tire and Discount Tire offered it for $140 a tire.  Costco is 30+ minutes roundtrip from my house while Discount Tire is minutes from my home.  To make the tires last longer, I intended to rotate them every 5,000 miles which on 60,000 mile tires equates to approximately 12 trips.  That’s at least 6-7 extra hours of drive time.  Valuing time at $12/hr, that saves time and/or money ($84 worth of time).

The Final Purchase.  I called and asked Discount Tire if they’d price match Costco’s $5/tire cheaper price? Yes.  ($20 savings – and now the lowest price available anywhere).

The installer asked if I wanted to sipe the tires.  Siping is the process of putting a series of micro-cuts on the tire which gives it greater surface area on the road, and a quieter more comfortable ride.  I quickly confirmed this with research on my iPhone.  He said it would cost $15 a tire (an extra $60).  I asked if he’d do it for less.  He said yes and dropped the price in half ($30 savings).

In the end, I paid only $530 after rebate.  The same option at Les Schwab for maybe, maybe not as good of a tire was $875 – 65% more.

The Final Analysis.  I purchased the quietest, very highly rated tire from the highest quality maker on sale at a substantial discount from the other two top options.  I looked at consumer reviews, consumer ratings, talked with my most knowledgeable friend, and talked with multiple store managers.

My Review of the Primacy MXV4 Tires.  Love them.  I feel like I’m driving a new car.

How the Real Rich Roll (and how to buy a used car)

When I was 19 I found out I knew 3 wealthy millionaires. I learned something interesting about how the rich roll: Not one of them drove a car worth more than $7,000.

Vehicles are horrible places to put a lot of money.

The wealthy are smart with money.

THE OTHER END OF THE SPECTRUM:

I recently had a friend tell me about a guy at a party telling others about his gorgeous new Tundra truck.

My friend tried to tell him he was throwing his money away. He argued that "It fits my style and I can afford the monthly payments."

Fair enough. Everyone has different values in life. I decided to run the numbers and see the full cost of style and his monthly payments (the email I wrote her):

I just did the true cost to own (clickable link) on that $50,000 Tundra. It'll have a resale value of $19,500 in 5 years. Given that purchase price, he'll lose $30,500 (in depreciation/taxes/fees/etc). If he has a good credit score and put 10% down (generous assumptions), he'll lose approximately $7,200 in interest payment.

Total 5 year net worth loss: -$37,500

That's an average loss of $7,500 a year (37500/5).

He's actually having to earn $10,000 a year in wages to have $7500 after taxes just to cover just the loss in depreciation/interest (not repairs/gas/insurance). Said differently: $833 a month of his monthly wages go to pay for waste on his truck.

HOW DO YOU ROLL?

I took my rich friend's advice to heart and got reasonably good at car bargain shopping and made a system out of it.

1. Start with Consumer Reports. Figure out which vehicles are most reliable, then pick one from that group. This drastically increases the odds of the car lasting twice as long as a less reliable vehicle. The best cars for reliability are Toyotas or Hondas, Consumer Reports studies show. There are other vehicles too. Consult their buyer's guide. Study it and really learn what options are reliable bets. To get a good deal it's helpful to be open to more than just one type of car.

2. Do the math on the "non-price" factors. This is possibly even more important. Smart shoppers focus on price and reliability. The next level is paying attention to depreciation and gas mileage. Most people aren't aware depreciation is the greatest expense in owning a car.

Look at the deprecation for a Toyota Avalon, owned for 5 years.

Year of Car	Depreciation Loss after 5 Years
2011	17900
2009	11200
2005	6700

Compare that getting a car with much better gas mileage (ie, 50% better mileage -- going from 20 to 30 miles per gallon):

Mileage	Gas Cost/Yr	5 Year Cost	Savings
20	1800	9000
30	1200	6000	3000

What these two tables mean is it's important to pay attention to gas mileage and usually much more important to pay attention to depreciation. They're significant expenses/savings that most people don't think of -- it's not posted on the price on the car. It has to be researched and calculated. It’s worth the effort! It only takes 10 minutes of research and you can save thousands and thousands of dollars.

3. Buy older cars with low miles. A cars age should be mostly measured by how much it’s been used (ie, how many miles it has), but the vehicle blue books value the year it was built. A lot. An older car with the exact same number of miles can be more than 20% less expensive.

4. Expand your search. Craigslist, dealerships, autotrader.com, and even eBay.com. To find the older car model with super low miles I wanted, there wasn't a single car in my state I could find that wasn't selling at a premium. I finally got it on eBay and 4 years later, it still drives like a dream. I paid 11k (with shipping) instead of 18-19k for the newer year car with the same miles. I would have paid 8k (70%) more in the car price and $700 just in sales tax. A lot of savings!

5. If you shop online, increase your due diligence. The greater unknowns require more due diligence. Spend the $10 to pull a carfax report on the vehicle before bidding. If using eBay, only buy from someone with 100% feedback. Consider having a mechanic inspect if it's a long ways away. Even then, you just have to be willing to accept the risk. If not, don’t play.

6. Stay focused on the full cost picture. If you have to drive to get it or have it shipped from somewhere, factor in transportation costs. Calculate sales tax. Figure out what it will cost to get the car here in your name. Figure in tires if it will need new tires soon, or a battery, or any other misc repairs. See the total price picture.

7. Take the car to a mechanic. For $50-$100, a mechanic can run a battery of tests. This includes a compression test which is a much better indicator of a vehicles “age” (based on how hard it was driven). They can also spot hidden damage, or covered damage -- only a pro with 20 years might see the signs. Eliminating the lemons from the pool of choices is critical. It's annoying to spend the money, but worth it. Avoid buying cars with anything but minor damage.


Lastly, a note on keeping your eye on the big numbers

Buying a new car to improve gas mileage 50% from 20 MPG to 30 MPG saves $3,000 over 5 years.

Buying an older car 6 years older may save $11,200 (depends on which car/year you buy). Saving that depreciation is the same as 18.6 years worth of gas savings!

Some well intentioned buyers purchase a newer car because it has "much better gas mileage." While true, the depreciation will eat more than the gas savings - frequently much more (even for a new Prius depreciation is still much more than gas mileage savings).

I use the NADA "True Cost of Ownership" website to find depreciation.

To calculate average gas cost per year, take a calculator and punch in 12,000 divided by the gas mileage (MPG) times the current cost of a gallon of gas.