MONEY Saving

This App May Let You Retire on Your Spare Change

Acorn App
Acorn

The new Acorns app rounds up card purchases and invests the difference for growth, with no minimums and low fees.

Americans spend $11 trillion a year while saving very little. So it makes sense to link the two, as a number of financial companies have tried to do over the past decade. The latest is the startup Acorns, which hopes to hook millennials on the merits of mobile micro investing over many decades.

Through the Acorns app, released for iPhone this week, you sock away “spare change” every time you use your linked credit or debit card. The app rounds up purchases to the nearest dollar, takes the difference from your checking account, and plunks it in a solid, no-frills investment portfolio. So when you spend, say, $1.29 for a song on iTunes, the app reads that as $2 and pushes 71¢ into your Acorns account. With a swipe, you can also contribute small or large sums separate from any spending.

The Acorns portfolio is purposely simple: Your money gets spread among six basic index funds. The weighting in each fund depends on your risk profile, which you can dial up or down on your iPhone. More aggressive settings put more money in stocks. But you always have some money in each fund, remaining diversified among large and small company stocks, emerging markets, real estate, government and corporate bonds. The app will be available for Android in a few weeks and through a website in a few months.

Why Millennials Are the Target

Micro investing via a mobile device clearly targets millennials, who show great interest in saving but have been largely ignored by financial advisers and large banks. Young people may not have enough assets to meet the minimum requirements of big financial houses like Fidelity, Vanguard, and Schwab. With Acorns, there are no minimums. There are also none of the commissions that can render investing in small doses prohibitively expensive. “We want small investors who can grow with us over time,” says Acorns co-founder Jeff Cruttenden.

This approach places Acorns in the middle a rash of low-fee, online financial firms geared at young adults—including Square, Betterment, Robinhood, and Wealthfront. Such firms hope to capitalize on young adults’ penchant for tech solutions and lingering mistrust of large financial institutions. Cruttenden says a third of Acorns users are under age 22. They like to save in dribs and drabs—and manage everything from a mobile device.

Acorns charges a flat $1 monthly fee and between 0.25% and 0.5% of assets each year. The typical mutual fund has fees of 1% or more. Yet many index fund fees run lower. The Vanguard S&P 500 ETF, which invests in large company stocks, charges just 0.05%. If you have a few thousand dollars to open an account, and the discipline to invest a set amount each month, you might do better there. But remember that is just one fund. With Acorns you get diversification across six asset classes—along with the rounding up feature, which seems to have appeal.

Acorns has been testing the app all summer and says the average account holder contributes $7 a day through lump sums and a total of 500,000 round ups. Cruttenden says he is a typical user and through rounding up his card purchases has added $521.63 to his account over three months.

A New Twist on an Old Concept

Mortgage experts tout rounding up as a way to pay off your mortgage quicker. On a $200,000 loan at 4.5% for 30 years your payment would be $1,013.38. Rounding up to the nearest $100, or to $1,100, would cut your payoff time by 52 months and save you $26,821.20 in interest. Rounding up your card purchases works much the same way—only you are accumulating savings, not cutting your interest expense.

Bank of America offers a Keep the Change program, which rounds up debit-card purchases to the nearest buck and then pushes the difference into a savings account. Upromise offers credit card holders rewards that help pay for college. But Acorns’ approach is different: the money goes into an actual investment account with solid long-term growth potential.

One possible drawback is that this is a taxable account, which means you fund the Acorns account with after-tax money. Young adults starting a career with a company that offers a tax-deferred 401(k) plan with a match would be better served putting money in that account, if they must choose. But if you are like millions of people who throw spare change in a drawer anyway, Acorns is a way to do it electronically and let those nickels, dimes, and pennies go to work for you in a more meaningful way.

Read more on getting a jump on saving and investing:

 

TIME Financial Planning

This Reality TV Show Can Save Your Retirement

Getty Images

Can a reality TV show fix your troubled family finances?

What does it mean that a reality TV show is in the works, aiming to help couples sort through their money woes? Yes, a major cable station is working up a “family finance” pilot that amounts to a Biggest Loser for folks who have never seen a credit offer they didn’t like.

Have producers of this popular genre simply run out of material? I mean after Here Comes Honey Boo Boo, what’s left? Or is it that Americans’ inability to manage money has become so big and obvious, and economically debilitating, that there is now an appetite for a tough-love TV program that puts struggling families on a debt diet?

Think Real Housewives, only everyone is broke. Or maybe Hell’s Kitchen, only the host has a heart. No one will get voted off this island, or hear the words “you’re fired.” But there might be some Jersey Shore sniping when couples confront their ridiculous spending and credit practices.

The show in development may never get to air. I only know about it because I played a small role in casting. From what I could see anecdotally, young families in the U.S. have issues that appear far worse than any data points or averages suggest.

One young Texas couple took a big hit when the husband lost his job and found work at half the pay. The wife went to work. She hates her job and not being a full-time mother. The arrangement is causing all kinds of stress in the relationship. Yet they haven’t taken the time to do some simple math: They are spending more on childcare than she makes each month. Quitting her job would solve a few big problems right away.

A Chicago couple in their early 40s has household income of $200,000 and zero savings. They have a big mortgage that’s killing them, some unusual ongoing healthcare expenses that will be with them for years, and they are sending two kids to costly private elementary and high schools. Again, stress is driving them apart. But doing a little math, it seems clear they could fix it all just by choosing the decent public schools in their affluent neighborhood and putting the savings toward retirement, mortgage payments and healthcare. Even they wonder about the private school sacrifice. But they haven’t made the tough decision because of appearances.

These are the kinds of choices that undermine the financial security of millions of families all the time. I’m rooting for this show to get to air, and if it does I hope it won’t devolve into tears, arguments and an ornery host with a whip. A lot of troubled family finances really are easily fixed through simple math and not-so-simple discipline. If a reality TV show can illustrate that, it will have been worth more than all the silly Kardashian episodes ever aired.

 

 

TIME paying with plastic

This Is Why Cash Will Never Be King Again

Jonathan Kitchen—Getty Images

Only 1 in 10 adults always carry cash. Where does this leave the rest in an emergency? Just fine, thank you.

I never leave home without some cash in my pocket. My young adult children rarely carry so much as a penny. What about emergencies? Have I failed as a parent?

You might say so. Yet walking about town cashless isn’t the crime it once might have been. Really. Forty years ago my kids would have been arrested as vagrants for being penniless in public—like Rambo or Adam Trask in Steinbeck’s East of Eden. Today, almost everyone does it.

That’s no exaggeration. Only 10% of adults say they always have cash on them, according to a survey from vouchercloud, a coupon website. A startling 73% say they never or rarely carry hard currency. They rely on plastic to pay for everything.

That strikes many as irresponsible. But the world has changed a great deal since an apparently destitute John Rambo strolled into the fictional town of Hope, Wash. after the Vietnam War. You’ll never again need a quarter for a phone call; someone nearby surely has a charged cell phone. Even cabs take a credit card, and if you really need cash the ATM isn’t far away.

Meanwhile, carrying cash can be a pain. Those who eschew it cite worries about theft, losing their wallet and coming into contact with germs, and the greater convenience of plastic. Often cited pitfalls of going cashless are that you are prone to spend more and lose track of your spending. But even those truisms have been turned at least partly on their head.

Yes, surveys still show that people using only plastic spend around 15% more than those who use cash. In the vouchercloud survey, 84% of plastic users said they often spend more and 76% said they lose track of where their money goes. But this is becoming less the case all the time.

For many, especially young people, the opposite is true. They are so unaccustomed to using cash that when they have hard currency it burns a hole in their pocket. They view it as extra and spend it quickly. Meanwhile, they don’t keep a bulging George Costanza billfold full of receipts; by relying on plastic they can more easily track all their spending through monthly statements or a service like Mint.com. Cash actually works against their budget and their ability to track what they spend.

These are considerations that folks past 35 vastly under appreciate. A well-managed debit or credit card (low fees, no revolving balance or overdrafts) may be preferable to cash for many people. That said carrying some cash remains a smart strategy even if you never use it.

A growing number of shops won’t accept plastic for purchases under $5; others offer a discount for cash. Some popular restaurants, bars and shops don’t take plastic of any kind. Vending machines and self-service car washes need quarters or bills. Cash makes it easier to split a bill with friends or chip in for a present at the office. Roadside towing often requires cash. How will you tip the bellhop? What about the tollbooth that doesn’t take EZ Pass? You get the idea. Cash is still king, but in far fewer places.

 

 

 

TIME Saving and Spending

Your Gym Membership Is a Waste of Money

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Hero Images—Getty Images

It’s bathing suit season again, and that means gyms are shedding dollars from their membership prices faster than we’re ditching long pants and sleeves. According to Charles Tran, founder of credit card comparison and personal finance site CreditDonkey.com, June is a good month for gym discounts, especially on daily deal sites. “I’ve been seeing discounts of about 35% to 60%,” he says. “In June, you have more negotiating power when everybody else wants to enjoy the outdoors.”

Since most gyms offer memberships to couples at a discounted rate, it might seem like joining with your partner would be the best way to score a good deal.

Weirdly, it isn’t, and you’re probably throwing money away as a result.

A new study finds that when couples sign on to do something together — start a savings account, diet, get fit and so on — their level of commitment defaults to the least-motivated member of the pair. A lot of people probably think the more conscientious partner would set a good example for and inspire their boyfriend, girlfriend or spouse, but it turns out they’re not the one wielding the primary influence in these situations.

“Self-control is essentially a social enterprise,” writes Hristina Dzhogleva, an assistant professor of marketing at Boston College and lead author of the new paper. In a series of experiments with both real couples and lab simulations, the researchers found that the people with higher self-control tend to cave and give into the more indulgent preferences of their partners in order to keep peace in the relationships.

Given that opposites attract, Dzhogleva points out, it’s likely that there are a lot of couples out there with this dynamic of mismatched motivation levels. People with more self-control have that higher level of discipline because they focus on the long-term rather than immediate gratification.

Ironically, this tendency makes them more likely to give in under pressure from their partner. For one thing, they’re thinking about preserving the relationship long-term; they also have the self-control to squelch what would make them happier in order to please their partner.

But the upshot of these good intentions is that otherwise-motivated people wind up blowing off the gym yet again for takeout and a Netflix marathon, Dzhogleva concludes. Unless both people in a couple are both motivated to hit the weights or the treadmill, neither is going to be using that couple’s membership that seemed like such a good deal at the time.

“Higher self-control individuals should be wary of partnering with low self- control individuals,” the paper says. “[It] may negate their innate advantages in pursuing long-term goals.”

Dzhogleva’s findings also hold true for personal finance activities like making a budget or splurging on a vacation, so if your sweetheart is a spendthrift, it could pay to take a close look at how your financial decisions are impacted by that relationship.

 

TIME Saving and Spending

This Is the Easiest City in America for Saving Money

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Aimin Tang—Getty Images/Vetta

Half of all households spend more than they make. Here are the easiest and hardest cities in which to turn that around.

We knew it was bad. But this bad? The typical American is saving nothing, a new analysis of government data shows. Perhaps most unsettling: this zero savings rate seems largely a spending problem—not one of too little income or unexpected hardship.

The U.S. savings rate has been in decline since the 1970s. Official readings from the Commerce Department put the current rate at 3.8%, down from more than 10% some 30 years ago—a lofty savings level that had held for decades. The downward spiral gathered momentum in the 1980s interrupted by just one significant reversal, which occurred during the Great Recession. It’s now clear that the recession-induced spike in savings was temporary.

Unofficially, things appear even worse for a nation battling an intractable retirement savings crisis. Looking at median savings—half save more, have save less—financial site Interest.com found that the typical American is saving zilch. In essence, half of America is spending more than it earns.

The higher official savings rate, which is an average, owes to the outsized savings of the wealthy. The median savings rate more closely approximates most Americans’ experience, and this finding could throw fuel on the roaring debate over rising income inequality recently furthered by Thomas Piketty, among others. After all, half of America isn’t saving a dime.

Yet researchers say the zero savings rate is at heart a discipline problem, not one of inability. Looking at data from the Bureau of Labor Statistics, Interest.com found that median household income exceeds the median monthly cost of running a household by $668. That amount is available for savings but is being lost to spending on all manner of goods and services beyond what is required to live a median lifestyle.

“The results suggest that many households are allowing expenses to grow, whether by moving to a bigger house or buying a more luxurious car, until their bills consume every dollar of disposable income,” Mike Sante, Interest.com managing editor, said in an email. “That’s actually encouraging. It means they aren’t caught in an unwinnable rat race, the powerless victims of economic forces beyond their control.”

The question is: can the median U.S. family, which is now saving nothing, find the resolve to live a median family lifestyle and bank the surplus? It would be easier in some places than in others. The research looked at 18 cities and suggests that the easiest city in which to save is Baltimore, where after-tax median income exceeds median household expenses (including discretionary spending on things like vacations and cars) by $2,021 a month. The toughest city in which to save: Phoenix, where income falls short of household expenses by $95 a month.

Rounding out the five easiest cities to save in are Washington, D.C, where income exceeds costs by $1,664 a month; Cleveland ($1,294); Chicago ($876); and Dallas ($772). Rounding out the five toughest cities to save in are Miami, where income exceeds costs by just $18 a month; Boston ($240); San Diego ($344); and Detroit ($349).

 

 

 

 

TIME Saving and Spending

Peak Pizza Is Here: American Appetite for Pizza Cools Off

Whole pizza in box, overhead view
Getty Images

Pizza may have peaked. Pizza consumption in the U.S. has increased year after year, but forecasts indicate that we may not be able to stomach much more.

Americans eat an astonishing amount of pizza. That’s hardly a news flash. It’s become customary to periodically hear about just how much pizza we eat—seemingly more and more each year. A 2012 report from the food and beverage research firm Technomic, for instance, reported that 40% of Americans ate pizza at least once a week, up from 26% with a weekly pizza habit two years prior. In February, the U.S. Department of Agriculture released a study filled with fascinating pizza-eating factoids, like that on a typical day, 13% of Americans had some varietal of pizza, either served by the lunch lady at school, prepared by a restaurant, or pulled out of the freezer and baked at home. It’s no surprise what demographic tends to eat pizza most often: Roughly one-quarter of boys ages 6 to 19 are enjoying a slice (or three or five) on any given day.

What may come as a surprise, however, is that pizza’s popularity, long on the rise in the U.S., appears to finally be leveling off. “Although consumption is high,” a recent Technomic post noted, “it seems to have decreased just slightly over the past two years, likely peaking post-recession due to pizza’s ability to satisfy cravings and meet needs for value.”

Over the last decade or so, pizza has undeniably been on a hot streak. But success may not have come strictly because pizza is so delicious—and hey, there’s no denying that it is—but also because pizza has been seen as an affordable dining option during the Great Recession and the years that followed. Perhaps inevitably, pizza’s popularity seems to have plateaued, regardless of how the economy is faring.

“Overall, the pizza category has not been doing well,” Bonnie Riggs, a restaurant analyst for the NPD Group, explained to the Chicago Tribune. Riggs pointed to a range of NPD data to bolster her argument, including that foot traffic at major fast-food pizza chains like Pizza Hut decreased 2% last year. Smaller regional pizza chains have actually suffered from declining customer traffic for seven consecutive years, including a 6% dip in 2013.

(MORE: Slices of History: Great Moments in Pizza Innovation)

Many fast-casual pizza restaurant brands have entered the marketplace lately, and quick-service giants not known for pizza, such as Subway, have started serving pizza products too. It’s all made for an increasingly competitive space: Mall food court staple Sbarro, which filed for bankruptcy in early March, appears to be one of the first victims.

Down the road, it looks like all of the pizza sellers will be aggressively fighting for a piece of a pie that’ll more or less stay the same size, as American pizza consumption is expected to remain fairly flat. The Tribune story points to projections made by Euromonitor International, which forecasts that pizza sales in the U.S. will rise by just 1.9% this year and 2.1% in 2015.

TIME Technology and Media

DVDs, Pizza, Porn: How One Video Store Chain Stays in Business

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Getty Images / First Light

Last fall, when Blockbuster announced it would close the last of its storefronts, it seemed to officially end the era of the physical video rental model. Family Video, the country’s largest operational video rental chain, is demonstrating otherwise. (more…)

MONEY

Dreaming Of Early Retirement? Three Secrets To Making It Work

Bill and Christina Balderaz, 39 and 37, Upper Arlington, Ohio. The couple got a windfall when Bill's company was sold. But in hopes of retiring before 60, they continue to spend as carefully as before. Sam Comen

Funding your retirement, never a breeze, has become tougher in this economy. Interest rates are hovering near historic lows, and bond guru Bill Gross recently warned that low rates may persist for decades. So what you can earn on low-risk cash and bonds will remain paltry.

Wade Pfau, a researcher and professor at the American College of Financial Services, has calculated sure-fire retirement savings rates in this rate environment.

If you hope to retire at age 65 and start saving at 35 — when baby boomers typically began, a May 2013 Bank of America Merrill Edge survey found — it’s 15% to 19% a year. Move your retirement date up by five years, and those rates go to 23% to 29%, Pfau says.

You probably can’t hit those daunting targets year in, year out. So the trick is to gain ground when you can — and be willing to make the math work by living on less.

What to do

Buckle down. You can catch up with bursts of savings — often easier once big expenses like college or a mortgage fall away.

According to retirement research firm Hearts & Wallets, saving 15% or more of your income for eight to 10 years — early or late in your career — can ensure that you save enough to retire comfortably at 65. Such power saving is common among early retirees too, says Hearts & Wallets co-founder Laura Varas, but the rate is 25% or more.

Related: 10 Best Places to Retire

Calvin Lawrence was able to retire from his job as executive director at Corinthian College in Chesapeake, Va., four years ago at 59, even though he hadn’t gotten serious about retirement planning until after he divorced at 50.

At that point he had about $200,000 set aside. With his two children out of college (and out of the house), tuition and other child-care bills were gone. And a promotion had boosted his pay by $20,000.

Even though he made $110,000 a year, “I lived like I earned $50,000,” says Lawrence, now 63. “I found that I don’t need to spend a whole lot of money to be happy.” The result: He built his savings to $800,000.

Put windfalls to work. Whether it’s an inheritance or a bonus, a windfall can make the difference between leaving early and working until 65.

When Bill Balderaz, now 39, sold the social media marketing business he founded in 2011, he and his wife, Christina, an elementary-school teacher, put themselves on the road to retirement in their fifties. With profits of a few hundred thousand dollars, the couple wiped out the big expenses that often make saving for the future hard — paying off the mortgage on their home in Upper Arlington, Ohio, and setting aside public school college tuition for their kids. The rest went toward retirement funds, which now total $600,000.

Related: Will you have enough to retire?

Just as critically, they didn’t ratchet up their spending. “We didn’t buy a Mercedes or build a new house or send our kids to private schools,” says Bill, now president of Fathom Columbus, the online marketing firm that bought him out.

He still drives a 17-year-old Toyota Tacoma pickup truck. In the market for a boat for the family — the children range from 10 months to 11 years — he bought a decade-old 18-footer off Craigslist for $9,000. A similar new one would have cost $27,000. “We live like the acquisition didn’t happen,” Bill says.

Set low expectations. To get away with saving less, commit to living on less. Planners typically suggest you aim to replace 70% to 80% of your pre-retirement income, which doesn’t amount to a dramatic lifestyle change once you eliminate the money you were saving, Social Security taxes, and commuting costs.

If you can make it on 50%, you need to save 11.8 times your income by age 60, vs. 17 times if you hope to live on 70%, says Charles Farrell, CEO of Northstar Investment Advisors.

As you’ll see in rule No. 3, housing could be the key to doing this. Plus, “people who want to retire early are usually already living well below their means,” notes Farrell. “This might not be a big change.”

MORE: New rules for early retirement

Rule 1: Early retirees: Don’t fear losing your health insurance

Rule 3: Use your home to boost retirement savings

Rule 4: Get the first decade of retirement right

Rule 5: Retiring? Time to look for a part-time gig

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