Are online personal finance tools trustworthy?(Read article summary)
If you hand over key personal data to a company, consider whether their service is worth an increased risk of identity theft
Courtesy of Mint.com
What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. Mint and privacy
2. 401(k) distribution issues
3. Small emergency fund?
4. College student planning for future
5. Helping people in need
6. Old debts
7. Finding new ideas
8. Mid-20s career crossroads
9. Tracking versus controlling
10. Publishing concerns
I met with a new personal trainer yesterday to come up with a very detailed plan for exercise over the next several months. My goal is to be in the best shape I can be in by July 1.
The first trainer I met with, early this year, seemed utterly disinterested and gave me a very standard plan which was awful. I didn’t understand half of what was in it and the trainer basically didn’t answer any calls I made to him when I had questions.
This new guy gave me what amounted to a book he had written, and then he sent me the entire thing as a Word document afterwards. Everything is explained.
Not only that, he wrote a fifteen page personal plan for me after I did a basic test with him.
I don’t really need a trainer every day to keep motivated. I just need one to occasionally make sure that I’m going in the right direction, especially at the start. I want to make sure what I’m doing is right and whether I need to change anything.
The right person makes all the difference.
Q1: Mint and privacy
Have you heard of Mint.com? I was wondering if you had, what you thought of it. To me it looks like a very good way to see your finances all sorted out, and it’s free and has a cool iPhone app to go with it.
I tried it out and provided it with info for just one credit card, immediately afterward I felt a panic ensue, wondering what I was exposing myself to and if there was any real danger in doing so. So, I changed my password on my credit card account and deleted the app. I’m sure whatever mint.com learned about my from that one transaction will be there info forever, but they won’t be able to access info in the future.
Still, I’d like to keep using it. I have friends that really get some use out of it too, but I feel pretty uneasy about it at the moment.
If you have any opinions on it I’d like to hear them!
Much like you, Kevin, I don’t use Mint because of privacy concerns.
Now, this is not a criticism of Mint – let’s make that clear. I have confidence that Mint is as secure as it can be and handles data with a high level of security. That’s not my concern.
My concern is that no system is perfectly secure, no matter what you do. It still comes down to human error. Every time you trust your personal information to yet another company, you’re adding a little bit more risk for identity theft to the equation.
Whenever I’m in a situation to add another company to the list of those that have my key personal data, I ask myself whether the product they’re providing is worth that additional risk. Simply put, Mint doesn’t add enough on top of the tools I already use (Excel and Quicken) to make that additional risk worthwhile for me. Other people might feel differently about that risk/reward balance.
This is not a particular concern about Mint. It’s a concern about any company that I would give my data to.
I am now working independently for a local physician. I received a 1099 misc form (non-employee contribution) for the last six months of 2010. This year, I plan to pay quarterly the self-employment tax (15.99%) that I will owe for 2011.
I want to put my $7,500 in a retirement plan. Do I use traditional IRA, ROTH IRA, or SEP IRA? I can’t believe how unbelievably hard it is to open up an IRA account with my current bank.
I feel lost, what do I do?
I would suggest opening a traditional IRA with an investment house that wants your business. I use Vanguard for my own retirement savings.
In my opinion, if a business makes giving them your money difficult, then they must not really want your business.
So, why a traditional IRA? For starters, there are no tax implications with that change, which there would be with a Roth. For another, SEP-IRAs have a set of disadvantages that I’m not a fan of.
You might end up choosing to convert a traditional IRA to a Roth IRA at a later time, but I wouldn’t do that unless I was quite able to handle the taxes out of pocket, and I’m not sure that you are right now.
Q3: Small emergency fund?
Is there ever a situation where a smaller emergency fund is adequate? Here’s our situation: my husband and I are tenured faculty at a public institution of higher education. While finances are not great at public universities these days, our jobs are very secure; layoffs of tenured faculty have never occurred in the history of public universities in our states and even if that were to happen, there are people below us who would be laid off before us. We have short-term disability as well as long-term disability coverage. We also deposit money regularly into our savings account (outside of our emergency fund) for unexpected expenses (like a recent car problem) in addition to our emergency fund of about 10K (which would cover about 2 months of employment for both of us or 4 months for one of us). The typical recommendation is to have an emergency fund that’s equal to 6 months of living expenses, but I’m wondering if that makes sense in our situation. Right now, we put about $250 a month into our emergency account (in addition to about $200 per month into our savings for unexpected expenses), and our only outstanding debt is our mortgage and student loans. Should we continue funding our emergency fund at the same level each month or should we instead make larger payments to finish paying off my husband’s outstanding student loans (we pay ~$300 per month with a balance of approximately 25K)? Given my aversion to debt, I’d like to get rid of those student loans, but I don’t want to jeopardize our current good financial standing.
Assuming that these debts are low-interest (say, 8% or lower), I’d vote for the emergency fund first.
Simply put, when you’re in a situation without an emergency fund and something like a serious car breakdown occurs, you’re stuck having to cover that major expense on credit. Credit comes with a high interest rate. Murphy’s Law dictates that unfortunate things tend to happen at the worst possible time.
The only reason to be overly concerned about paying off the debts immediately is if they’re high interest debts. Even in that case, it’s good to have a $1,000 or $1,500 emergency fund first.
Q4: College student planning for future
I’m a Junior in college and work about 30 hours a week to support myself. Since I’m going to be graduating soon I’ve really wanted to start planning for the future. I have two things I’d like to do eventually- but I don’t think I can do both now. Which should I focus on?
1. I work an hourly job so my income is sporadic. If I have an exam one week I’m going to work less, therefore my paycheck is going to be less. I’ve been thinking about getting my first credit card so I can spread out payments for food, airfare, and other bigger purchases.
2. But I also want to start putting money away for an emergency fund (aka student loan repayment) so I’ve been thinking about a savings account. I’d plan to put away about $50 every two weeks in this savings account.
My worry is that if I put away $50 a week I might not be able to afford those unforeseeable expenses in the future that a credit card would be able to cover. I never have more than about $700 in my checking account at a time.
Do you think that with such a small checking account I could manage both a savings plan and a credit card?? If not, which one should I go for?
Using a credit card to finance your life, as described in (1), is a slippery slope that causes people to wake up one morning with thousands in credit card debt. If you’re spending more than you have on hand, you’re in a dangerous place because that’s the place where unfortunate events happen – a job loss, car problems, and so on.
I would focus instead on the savings plan.
If you sign up for a credit card, which you may want to help with your credit score, I would use it for one normal purchase a month – say, gas – then pay off the bill in full at the end of the month. Nothing more, and I’d never use it in situations where I didn’t have enough cash to cover what I was charging.
Q5: Helping people in need
Almost every week, I read a reader mailbag letter from some reader of yours and feel terrible for their situation. I even want to give them money. Do you do that? How do you decide which ones to help out of the many stories that you see?
When I first started receiving such emails, I would occasionally help out the people who wrote in with a bit of cash to solve their immediate problem.
One day, though, I discovered that someone had left a note on a messageboard stating that if they had a good enough sob story, they could write to me and I’d send them money. In other words, people were trying to make up heartbreaking stories in order to get some quick cash from me.
Since then, I’ve decided that the best way I can help is to give good answers to people and save my actual dollars for known charities and situations I could address face to face.
Q6: Old debts
I recently have gotten 2 collection agencies calling me about past due balances on a phone and elect bill I had at an apt. 6 yrs. ago. I know that in the state of TX, the statute of limitations is 4 yrs. I pulled my credit report, those 2 along w/ many other companies are already on my report. Should I pay them to get them off my credit report? Should I try to pay on any of these other amounts and get them off my credit report? I’m following you and Dave R. to get my finances in shape, but not sure if these are included as my debt.
If you pay those debts now, they will appear as “current” on your report, which also means that all of that information will stick around for another seven years.
In pure terms of your credit report, the best solution is to ignore these people. Is it the most ethical in terms of being honest about your debts? Of course not.
Right there is the problem with the current credit situation. Once you’re sufficiently late on a debt, it makes less sense in terms of your credit to be honest with your bills than it does to just ignore them for a while longer. That’s backwards, in my eyes.
I keep a notebook with me (a little spiral one in my hip pocket, along with a pen) at all times and whenever an idea pops into my head, I write it down immediately.
I usually end up generating more ideas than I can ever use. I throw out a lot of them because I’m not sure how to turn them into good articles.
Mostly, I just constantly look at my life from the perspective of whether or not something would make a good Simple Dollar article.
Q8: Mid 20s career crossroads
I am 26 years old, work full time, go to school full time, and still live at home with my parents. I was 3.5 years through an electrical engineering degree when I was preemptively hired to do such work. However, once I started to work and subsequently forecast the rest of my working life, I quickly realized this was not a smart idea. What I realized was that I simply had no idea what I wanted to do for work. Thus, I went back to school to finish (since it was convenient) my BS in mathematics. This gave me a degree that enabled me to be more general in my job search.
However, the wrench in that plan is that somewhere in between all of that I started to visit a semi-famous physical therapist in a city close by. This was tremendous exposure to highly talented people, in a field that I had no previous knowledge of. As you can guess, this fit absolutely perfectly into my personality and my individual abilities. The most important thing of all is that this is the first time that I am genuinely interested in a specific field of work.
Now I have come to conflicting conclusions:
1. I decided to finish my BS in Mathematics to maintain a certain level of generality. In the process I am debt free, have a 2 year old car which is paid off, and have a good amount of savings/retirement.
2. However, at the same time I have had exposure to a new field which has really sparked my interest. Going into this field would require quite a financial investment.
This is an extremely difficult decision for me (and I’m usually fairly decisive). If I follow through with #1, then I simply transition out of full time school (this summer) and into full time work in various different jobs. I would also probably move several states away (or at least attempt to). If I follow through with #2, I’d most likely have to quit my full time work to complete prerequisites and apply to graduate school (and the various financial implications that would need to be considered). Basically, my life turns in complete different directions depending on which one I choose.
If I were you, I’d throw yourself (part time) as deep into this field as you can, working as an intern or an assistant to people who really excel in the field.
Give yourself a lot of time with this so you can figure out if it’s just a passing interest or something deep that you really want to pursue.
I would not change all of my career path based on a short-term positive encounter. Give it a bit of time and make sure that it’s the right thing for you.
It’s very financially dangerous to start career hopping (and re-training).
Basically I’m a pro money tracker – I have a spreadsheet into which I download every transaction during the month, reconcile it, categorise it, and flow it through to a monthly summary P&L and Balance sheet (yes overboard!). I like knowing what’s happening with my money.
The trouble is, this often conflicts with my requirement to control it’s outflow. This has mainly become a problem recently because we have gone down to one, part time, income so there is no longer money to buy what we want (or think we need), when we want it – we have to only spend what we have and save up to buy what we need. We have a certain amount of money to live on, and if we exceed it we eat into our home loan, which we DONT want to do. We used to be earning well and saving well, but on our current income saving is not even an option – just trying not to eat up all our past savings is what I’m aiming for. I.e. living within our CURRENT means.
The problems I’m finding are because the best way, I suspect, to only spend what you earn, is to operate largely in cash. If the cash runs out, there’s no more to spend. But the downside of this is that it’s unhelpful for tracking – on the credit card everything is itemised and I know what it’s been spent on, whereas with cash we are terrible with tracking it (and frankly, although improving is a possibility for me, it’s not for DH, he’s just not got that sort of mind). I also have lots of bank accounts for different purposes, in an attempt to control spend, like for putting aside money for annual expenses. But again the downside is that this doesn’t allow me to know what we’ve spent till I get to the end of the month and do all the numbers. There’s too many sources of spend to look at, to get a quick view of how we are going for the month. The more I try to control it through more designated bank accounts, the more complicated it gets and again the harder to know how we’re going.
My fear is, if we don’t track it, we don’t know where it goes. Even with the cash part of the system we have now, there’s always money unnaccounted for, and we have no idea what it’s been spent on. It makes it hard to set a budget.
But setting a budget is less important than keeping to it, and it’s interfering with my ability to do that. Is there a better way I can manage this?
Automation is the key that I think you’re looking for.
If you have required parts of your budget, automate them. Set up automatic payments out of your checking account towards the bills you need to pay or towards savings accounts set aside for these specific goals. Have these automatic payments trigger on your payday – or the day after your payday – so you don’t have time to fritter away that money.
This both makes it easier to track and easier to stick with your budget and your goals.
Q10: Publishing concerns
First of all, thank you for sharing your knowledge and thoughts on all areas of life. Your recent comments on being paid to promote is what prompted me to contact you. I’m paid to write for a local monthly magazine. It’s a side job. Even though I have a column, I usually throw in photos of a local event or another short article. I also help with resources when requested as I live in the area and know people.
The last issue, my long article was split into two articles. The part that gave praise to how I saw a local company’s website as being “chock full of useful information” and related examples was fairly informative. That portion was positioned above a half page ad of said business. I’m torn – the editor can do whatever he wishes as he paid for it, but I felt the article gave an impression of paid advertising, which definitely was not the case. I feel that my reputation could be affected now as I don’t want people to think pieces I write are influenced by paid advertising. Would you say anything or is it part of doing business?
This is a challenge for anyone who writes. Simply put, the business of presenting writing will always conflict on some level with the art of writing.
I have this same conflict myself. I usually focus on accepting ads that match my genre or, at the very least, don’t conflict with the things I’m writing about. The problem, of course, is that I end up accepting ads sometimes from the very companies that I use and write about, like ING Direct, for example. I use ING Direct and, sometimes, they buy Simple Dollar ad space.
The best thing you can do – in my opinion, at least – is to just ignore it. Write what you find to be true and don’t worry about how publishers choose to format it to make a buck. If it’s good, the genuine nature of the writing comes throguh.
Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.
The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.