Simplifying Your Personal Finance
Welcome to the inaugural edition of the Personal Finance Decision Guide! Read more about the goals and strategy behind the decision guide here. Then check out the articles listed below to help you focus on simplifying your personal finances by making one decision at a time. If you’ve written about a personal finance decision, you can submit your analysis or experience to the guide.

Investing
-Technical Analysis Versus Fundamental Analysis
-Actively Managed vs. Index Funds
-Investing: Real Estate vs. Stock Market
-Stocks vs. Real Estate

Retirement
-Roth 401k vs. Regular 401k
-Roth IRA or Regular IRA

Real Estate
-Pros/Cons: 15 Year Mortgage vs. 30 Year
-When Renting is Better Than Buying a Home

Insurance
-HSA vs HMO Analysis

Debt
-Paying Cash vs Going Into Debt: Looking at the Numbers
-A New Look at Good Debt vs. Bad Debt

Taxes
-Tax Talk: ETF vs Mutual Funds
-Passive vs. Active Management – Tax Effect
-Tax Credit vs. Tax Deduction

Consumer Spending
-Shopping small versus big- Mom and Pop vs. Big Box Stores

I failed to pass the torch in my recent post covering the things I obsess about so I’m rectifying that now. I read Amanda’s post on the gender salary gap and thought I’d help spread the awareness of the continued inequality by choosing several different sites run by women.

So I’d like to know. What do these ladies obsess about?

• One Frugal Girl @ One Frugal Girl
• Amanda @ Young & Broke
• Dawn @ Frugal for Life
• Wendy @ eMoms at Home
• DH @ Debt Hater
• Prlinkbiz, Kimber, Fast Track Girl @ No Limits Ladies

T-R-O-U-B-L-E, that’s how you spell bachelor party! Actually a friend’s bachelor party this weekend should be pretty tame. Just a bunch of guys that haven’t seen each other in a while getting together to catch up and celebrate. I’m sure no one will get arrested since George won’t be at this party . While we’re out partying it up you can catch up on some good personal finance articles.

Gen X Finance says you’re in trouble if you don’t have Financial Goals.

Five Cent Nickel warns we may have to pay $4 a gallon for gas.

Binary Dollar discusses Home Equity Loans & Taxes.

Jim takes the Devil’s Advocate approach to rolling over your 401k.

Lazy Man talks about the Income Divide in our country.

Free Money Finance looks at the cost of owning vs renting.

The Digerati Life compares Fundamental vs Technical Analysis of stocks.

My Money Blog tells us about renting out your credit score.

The Sun asks how we compare to the National Savings Rate.

The Simple Dollar talks about money lessons for kids.

Money, Matter, & More hosts the Festival of Frugality: Definitions of Frugality.

Mighty Bargain Hunter wonders if a jump in home foreclosures is an investing opportunity.

Are you imagining two guys in a cage fighting for the championship? Where does personal finance fit into this picture? Well the cage is actually this website, the two guys are you readers, and the prize is honor & glory.

The Concept
Inspired by a mixture of Devil’s Advocate and Guest Writer Days I’ve decided to introduce a new series here at Money Smart Life. Most personal finance topics have two sides and I know that many of you readers have something to say about one or the other.

I’ll publish a topic, for example, Renting vs. Owning a Home and two readers that have something to say on the subject will send me a guest post defending or reasoning why one is better than the other based on their personal experience. In order to provide both sides of the equation we’ll need one post for each side.

The Details
This idea is still being hatched so I’m looking for feedback on the details. I’d publish the concept two weeks before it was planned to go live. Anyone interested in arguing their case would contact me with the side they wished to present. The two competitors would have a week to write their views and submit them to me as guest posts. I would publish them either both on the same day, or one Monday and one Tuesday. If only one person submits a guest post, I’ll argue the opposite of whatever position they take.

A new set of head-to-head articles would be published every two weeks. The name of the series is yet to be determined, I just thought the Ultimate Fighting Championship would be a good eye catcher to get some initial feedback; I’m looking for suggestions for the name.

As I mentioned before, the prize is the honor and glory of convincing the world that you’re a personal finance guru. We could vote on the winner via comments or a poll, or we could just let everyone decide in their own minds which approach they prefer and works best for them.

The Feedback
So what are your thoughts? Leave some comments about what you think will work and what could use some tweaking. Thanks!

Low price competitors lost me over $100 this week! eBay was running a 24–hour auction promotion for sellers and as I priced and listed items for sale late into the evening, I was reminded of why competition is great for consumers.

Low Price Strategy
My competitive strategy on eBay is pretty simple, sell for the lowest price. On several occasions I ran across items that I had to sell for $50–$90 off retail to come in lower than some person in California or Florida. I’ll tell you, as a seller I moan every time I see someone out there unloading stuff super cheap because it means lost income for me. However, as a consumer, market forces like this help me find great deals.

Is There Enough Competition?
It seems there has been an uptick in merger and acquisitions lately. The more mergers you hear about the less competition there is for the product or service provider. I started wondering how we consumers can increase the amount of competition out there; here is what I came up with.

How To Create Competition to Benefit Consumers

1) Favor Small Businesses
This one is hard because sometimes the big retailers can offer it for a lower price but if the price is pretty close, go with the small business. Small businesses are often looking to make a big sale so you could offer to buy a lot at once if they’ll lower the price. A small business owner will often prioritize winning you as a long term customer over making a few extra bucks on a sale.

2) Mention the Competition
The example I like to use is pitting cable companies like Comcast against satellite TV companies like DirectTV. I mention the competition every time I call in to save money on cable TV and it works every time.

3) Tell Your Friends
If you find a product or service you really like tell your friends about it. The more people that use it, the more competitors will take note. This will make life better for you as competitors try and differentiate through innovation, customer service, or price. Many companies offer a referral program so you can even make some money by telling others about the product or service.

4) Use Multiple Services
Google Checkout and Paypal recently offered customers free money in return for using their service. Obviously their goal is to win you over as an exclusive customer; however, if you keep using both services they’ll probably continue innovating to win you over and may give out more free money.

5) Try New Products or Services
A key point in the lifecycle of a product is getting from the market introduction phase to the growth phase. Trying new products and services as they come out will help new companies move their products from one phase to the next. If it achieves the growth stage then guess what, competitors will start to worry. If you really like the product you can use the “Tell Your Friends” step to help spread adoption and move into the growth phase.

Extra Credit: Start Your Own Business
Obviously this one is a lot more work but if you see a need that’s not being met or something you think you could do a better job of then throw your hat in the ring. Not only do you stand to potentially make some money out of it but you’re providing more options for us consumers.

What are some other ways we consumers can leverage or increase competition among retailers or service providers?

Do you ever wonder how much of the money you donate actually goes to the people that need it?

Overhead Costs
Companies that solicit contributions on behalf of charities get some type of payment for their services. A co-worker once told me that some of these organizations get a percentage of all the money they bring in. It seems it would provide a good incentive for the calling company, the more contributions they get, the more money they make. The problem is I’d like as much of the money I give to go directly where it’s needed instead of into the pockets of another company.

I asked this question of a phone rep working for a third party who was calling on behalf of Mercy Corps this week and never received a good answer. The longer the person on the other end of the line avoided answering the question, the more I realized it might be a mistake to pledge over the phone. I ended up saying I did not want to donate so his company wouldn’t take a cut. Instead I plan on taking my usual approach of donating directly to Mercy Corps.

Stewardship
Not only do I like the mission of Mercy Corps, I also like the fact that the organization works hard to keep overhead low so the money goes where it’s needed most. Mercy Corps includes a financial summary and balance sheet at the bottom of its annual report. They don’t have 2006 listed yet but in 2005, 11% of their spending was for administrative support.

I would like to see more detail provided here, for example how much do they pay third parties to fund raise for them or how much do they spend on mailers asking for donations. Since charitable organizations are making an effort to be as efficient as possible, I decided to come up with ways I could be more effective about donating.

How Can We Make Our Contributions More Effective?
1) Donate directly to cut out any middle men. I’ve donated via their website in the past but I should think about mailing in a personal check so they don’t have to pay credit card fees either.

2) Sign up for monthly giving. Often if you choose this option, the charitable organization will remove you from mail & call lists which will save them on promotional costs.

3) Donate what you pledge. If you speak with a representative of an organization and pledge a certain amount make sure you donate at least the amount you promised. From what I understand, some organizations allow for those pledges in the budget in some way. If many people give less than estimated it could cause problems with the planning the charity has done.

4) Use matching programs. Increasing the amount that is given is always more effective.

What are other ways we can be more effective with our donations?

An emergency fund is a personal thing; each person approaches the topic in a way that best suits their situation. Several personal finance bloggers teamed up to answer the following reader question, each with their own point of view:

Is there such thing as saving too much money in an emergency fund? What’s the best place to keep the money you do save so it still earns you something while just sitting there?

The three posts listed below contain answers to this question from Lazy Man & Money, Binary Dollar, Money Matter, & More, The Digerati Life, and Suns Financial Diary. Following the article links I’ve summarized some key points made by the writers and from reader comments:

– Money Question - Can You Save Too Much in an Emergency Fund?
– Can You Be Too Conservative with Your Emergency Fund?
– Emergency Fund Investment Options

Start Saving
Many people have no emergency fund at all. If you have one, you’re on the right track. If not, start saving up and you too can have some peace of mind.

Liquidity
An emergency fund should be easily available. The assets should be liquid and the more you depend on it, the lower the investment risk should be.

Savings Amount
The recommendations for how much money you need to save in your emergency fund range from 3 to 6 to 9 months of living expenses, with one person attempting to save 18 months worth. A good minimum is 3 months; then depending on your situation and comfort with risk you can save more from there.

Living Costs
Consider whether your living costs will likely increase or decrease during an emergency period to help you plan the amount you’ll need.

Insurance
Insurance can be viewed as part of your emergency strategy. A mixture of short or long term disability, auto, home, health, and liability insurance can help offset your risk levels and the amount you need to save in an emergency fund.

Investment Options
The different options that were discussed for where to keep your emergency fund money are a money market fund, your checking account, a high-yield online savings account, and 4 week Treasury Bills.

One other choice for homeowners that are less risk averse is to put your money in a less liquid investment and open a home equity line of credit. You can tap the line of credit immediately if needed then liquidate your investments over time to pay back the money borrowed form home equity.

You can also consider spreading your money over a spectrum of financial vehicles that become less liquid and carry higher returns as you move down the spectrum. For example, have 1 months cash in your checking account, 1 month in a high-yield online savings account, 1 month in 4 week Treasury Bills, then another 3 months in a CD.

Passive Income
When you’re calculating how much to save be sure to consider any passive income you have coming in, which might offset the total amount you need in your fund.

Emergency Fund Wrap Up
Emergency funds are one of those things you never really think about until you need it and then it’s too late. Hopefully, this week’s coverage of emergency funds has answered any questions you might have about emergency funds and inspired you to begin one if you haven’t already. If you have questions that weren’t addressed, let me know through my contact form and I’ll get back to you with an answer.

Trent at The Simple Dollar is looking for feedback on any article of his that you had a reaction to. In return for feedback, he’s giving away 5 free personal finance books, check out the rules for entering; this is my submission to his call for feedback.

Trent recently wrote about his side businesses of a small computer consulting business and his blog in response to a reader question. I enjoyed the sections on getting started and building the business but had a question for him on his final section about taxes. Trent wrote:

I save every receipt and full documentation on everything associated with the businesses and I don’t try to play any games with questionable deductions because it’s worth the extra taxes I might pay to avoid a detailed audit.

What are Questionable Deductions?
I’m curious if Trent could expand on what he sees as questionable deductions. The reason I ask is that I’m in the early stages of my first business and have been spending a lot of time learning about tax deductions for businesses.

The government offers legitimate tax deduction to businesses to help drive the engine of economic growth and many businesses take many thousands of dollars of deductions every year. My thoughts were that some people didn’t take advantage of these tax breaks because they didn’t understand the rules and didn’t want to risk breaking them.

I’d like to know more about the questionable deductions that Trent mentions so that I can learn more about them and avoid any mistakes he may know of.

Yesterday we heard from Golbguru and Silicon Valley Blogger about different factors that determine how much is enough money to keep in your emergency fund. Today Sun looks at a combination of three different options that we have for keeping our emergency fund liquid but also earning a return on our money while it sits waiting for an emergency.

Sun @ The Sun’s Financial Diary
The purpose of establishing an emergency fund is to have some money in place that is enough to cover your daily expenses when your income stops, such as lose your job. The appropriate amount of an emergency fund really depends on you spend every month on average. Multiplying the average monthly spending by the time (in months) that it will take you to find a new job will be the amount that you should set aside as en emergency fund.

There are suggestions that the emergency fund should be enough to maintain your normal life for six months, but at least 3-month worth of fund is necessary. Since the emergency fund is only supposed to be used in case of an emergency, it’s possible that one may be over-prepared by putting too much into an emergency fund. In my opinion, you don’t need a 12+-month cushion.

Money in the emergency fund should be easily accessible, meaning that you can’t use the money to make a long-term commitment such as investing in stocks or buying a long-term CD and you don’t want to put it a brick-and-mortar bank’s checking account which earns you close to nothing either. Several years ago your neighborhood bank might be your only choice, but not now. Here’s what I do with our emergency money.

1. Checking Account
I put several thousands in my local bank’s checking account so I can withdraw the money right away without any delay. If all the sudden I have a big bill to pay, in most cases I can pay it with credit cards, so I don’t have to keep a large amount of cash in my checking account. The rest of the money goes to the following:

2. High-yield Online Savings Account
There are many online banks now pay 5+% APY for your money. If you are looking for big names, Citibank (4.50% APY), HSBC (5.05% APY), ING Direct (4.50% APY), and GMAC Bank (5.10% APY) are possible choices. Some small players offer higher rates, such as Amtrust Direct ( 5.36% APY), UFB Direct (5.31% APY), and IGoBanking (5.30% APY) with low minimum deposit requirement, and they can also provide excellent customer service.

3. 4-week T-bills
This is my favorite for short-term investment that generate decent returns. Currently 4-week T-bill pays 4.939% APR, which is equivalent to 5.05% annual yield. However, since interests from T-bill investments are exempted from state and local income taxes, your actually yield will be higher (here’s a formula to calculate your equivalent yield).

From what I can see, there two drawbacks of investing in T-bill. First, T-bill rates change every week, so you don’t know in advance what you will get for your next investment (a couple of weeks ago you could earn 5.36% APY). Second, you money will be tied up for four weeks, but that’s a small price to pay for a better return, in my opinion.

Emergency Fund Overview
Check back tomorrow when we’ll summarize the input from fellow personal finance bloggers and readers on how much to have in your emergency fund and where to keep your money.

Jeremy over at Generation X Finance shared his deep dark secrets and let the world know he’s obsessed with golf, his yard, cooking, and visitors to Generation X Finance. Now he wants to know what occupies my mind so here goes:

1) Personal Finance
I was raised to be a good steward with money and taught the basics of personal finance. Ever since then I’ve devoured books and magazines on money. I just enjoy learning about it, applying the concepts, and watching them work. I started this site to help myself learn more about money, help others learn about money, and to make some extra money. I know I’m succeeding on the first and third points and hope I’ve made some progress on the second.

2) Skin Cancer
I have a family history of skin cancer. I don’t stay awake thinking about it at night but I’m obsessive about protecting myself from the sun’s UV rays. You can ask my friends, I’ll be the only guy on the float trip or at the beach all covered up with a long sleeve shirt, a big hat, and layers of sun screen. I might look funny but I don’t care as long as I’m protecting myself.

A company named Sun Precautions makes a brand of clothing called Solumbra that is great at blocking UV ray and keeping you cool at the same time. Shopping on their website is the only time a cheap guy like me will drop $85 for a shirt.

3) Constant Improvement and Achievement
At the end of the day I don’t feel right if I didn’t learn something new and make progress on a few things on my “list”. I learn a lot from reading online and lately have taken to absorbing information via my MP3 player. It’s wonderful being able to learn about taxes from Sandy Botkin, blogging from Darren Rowse, internet marketing from Yaro Starak, and personal finance from Vanguard Podcasts all while driving to work. Of course the challenge is finding time to apply what I’ve learned in the evenings after my family goes to bed.

4) Finding Alternative Income
My poor wife, every day I have a new idea. She probably gets sick of hearing about all of them but she’s a good sport. Plus she’ll be finishing up her job in about a month to stay at home with our son so she’s open to different ways to make extra money. Right now I generate alternative income by selling on eBay and from this website. There are more sources to come; I’m still working on finding them

5) My Family
Of course the most important thing in my life is my family. I was reminded of this today as I pulled into the driveway and saw their smiling faces waiting for me. They’re a joy to be around and although sometimes it’s hard to strike a healthy work – family balance they are what keeps me going when I don’t really feel like going anywhere.