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Carnival of Personal Finance #270, the Elvis is Dead Edition

: Image via Wikipedia

Today is the 33rd anniversary of the death of Elvis, so I’m bringing you the “Elvis is Dead” edition of the Carnival of Personal Finance.

What can the King teach us about finance? The immediate lesson is, of course, to not let success destroy you or your life. Always remember what is important.

“Adversity is sometimes hard upon a man; but for one man who can stand prosperity, there are a hundred that will stand adversity.” -Elvis Presley

Before we get into the carnival, please take a moment to subscribe, either by rss or by email. If you are on twitter, please follow me at @LiveRealNow.

Editor’s Picks

“When I was a child, ladies and gentlemen, I was a dreamer. I read comic books, and I was the hero of the comic book. I saw movies, and I was the hero in the movie. So every dream I ever dreamed has come true a hundred times…I learned very early in life that: ‘Without a song, the day would never end; without a song, a man ain’t got a friend; without a song, the road would never bend – without a song.’ So I keep singing a song. Goodnight. Thank you.”
-From his acceptance speech for the 1970 Ten Outstanding Young Men of the Nation Award. Given at a ceremony on January 16, 1971

Craig Ford from Money Help For Christians presents How to Buy Cars With Cash. This is great advice. My car will be paid off in the next few months and I will be doing exactly this.

FMF from Free Money Finance presents Are Tattoos at Work Really That Acceptable? Do tattoos limit your career? I reference this graphic when thinking about a tattoo.

Pop from Pop Economics presents Getting a raise: The negotiation. It’s always best to raise your top line as high as possible. Bringing in more money is far more effective that simply reducing your expenses.

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How Banks Work

Finance

The National Bank, Oamaru, built 1871: a prostyle Palladian portico on a neoclassical facade (Photo credit: Wikipedia)

On the first and the fifteenth of every month, my paycheck is deposited into my bank account. Some fraction of it is saved, while another(larger) fraction is spent. They put the money in a vault and protect it from being stolen. Anything I manage to save and anything I haven’t managed to spend yet, will build interest. The bank pays me to keep my money there, even if it’s just for a short time. Why would they do that? If I asked you to hold on to $100 for me, in exchange for giving me $10 next week, you’d laugh at me. Right? If I told you that I was expecting you to keep that $100 heavily guarded in a locked room that requires a staff and utilities, you’d try to have me committed, yet that’s what banks do every day.

What’s in it for the bank?

Let’s start at the beginning. In the financial world, there are fundamentally two types of people: those who have money and those who need it.

The people who have money get it by producing something or otherwise providing value to someone for something. They then spend less than they made, leading to an accumulation of money. Woo! Rich people! Naturally, this money gets stuffed in a mattress for safe-keeping. Their money does nothing except collect dust and, occasionally, hungry insects. It is also used to soften a hard mattress.

People who need money have a few choices. They can beg for it, work for it, or steal it. The third option leads to perforation or imprisonment, so we won’t address that one. Now, you can work for your paycheck, like most adults, or you can go, hat in hand, to a charity and ask for money. But what if you want to start a business? You’ve invented the super-widget, a device guaranteed to revolutionize the world more than anything since sliced bread or the USB-powered pet rock. You got a concept and a prototype, you just don’t have the tooling or manpower to produce the millions of super-widgets the world will soon be beating a path to your door to own. You also lack a marketing budget to tell the world to stock up on path-beaters to make it to your door. What do you do?

Enter banks.

A bank will approach the first class of people and talk their money out of the mattresses and mayonnaise jars. They offer to hold the money for the people who have it. They will protect it from theft and they will pay the owner a fee for the privilege of holding on to the cash safely. Of course savers jump at the chance. They can quit worrying about the maid making the bed and becoming a millionaire and they can build wealth with no work. But wait…TANSTAAFL, right? You can’t get something for nothing. The world doesn’t work that way.

The bank takes your money–and the money of thousands of people like you–for safe-keeping. They pay you a fee, called interest. The rest, the loan out to the second group of people, the ones who need the money. They set aside some of the deposits so the owners can make withdrawals, but the rest goes into the loan-pool. People who need money come to the bank, explain their needs and demonstrate their ability to repay the loan, then they are given money for a fee, also called interest. The interest rate for the borrower is significantly higher–sometimes 20 times higher–than the interest paid to depositors. The difference between interest earned and interest paid is what pays the bank’s bills. That gap pays for the rent, taxes, and payroll.

Ultimately, a bank’s job is to connect the savers with the spenders in a way that’s reliable enough to ensure everybody benefits. If anybody in the chain ceases to benefit, the system collapses. Depositors switch back to using mattresses, borrowers go back to their loan-shark grandparents, and banks close their doors. This is the system that allows the entrepreneurial spirit to thrive, while making money for everyone involved.

Annual Fees: Scam or Service?

Finance

Annual fees. For a lot of people, this is the worst possible thing about a credit card. That’s understandable, since paying interest is voluntary. If you don’t want to pay it, you just need to pay off your balance within the grace period. Annual fees, on the other hand, get paid, whether you want to or not, if the are a part of your credit card.

When I was 18, I applied for a credit card that raised an undying hatred of Providian in my heart. I was dumb and didn’t read the agreement before applying. When I got the card, I read the paperwork and nearly made a mess of myself. It had a $200 activation fee, a $100 annual fee, a $500 limit, a 24% interest rate, no grace period, and a anthropomorphic contempt for all things financially responsible.

Yes, you read that right. The day you activate the card, you are 3/5 maxed and accruing interest at rates that would make a loan shark blush like my grandma is a strip club. Instead of activating, I cancelled the card and ran away crying. It was a mistake but didn’t cost me anything.

In exchange for all of that, I got…nothing. The card offered no services of any kind in exchange for the annual fee.

On the other hand, I have a card with an annual fee right now. It’s $59 per year, but it offers value in exchange.

This card’s basic offering is a 2% travel rewards plan. With most of our spending on this card, we’ve managed to accumulate $400 of rewards, so far, counting the 25,000 bonus miles for signing up.

In addition, it offers 24 hour travel and roadside assistance. The roadside assistance itself will pay for the fee, because I think I’ll be canceling my AAA account after 16 years. The card’s plan isn’t as nice, but I haven’t been using the AAA emergency services for the past few years, anyway.

It extends the warranty on anything I buy. It includes car rental insurance and concierge service. Concierge service is sweet. Need reservations for dinner? Call the card. Need a tub of nacho cheese? Call the card. Need a pizza? Well, call Zappos.com.

All in all, the card is paying for itself a couple of different ways, so in this case, the annual fee is definitely worth it. I guess there’s a serious difference between Capital One Venture and Providan Screwyou.

How do you feel about annual fees? Love ’em, hate ’em, have a card with one?

I Smell a Scam

Finance

I hate scammers. Whether it’s the garage-sale shoplifter, telemarketing “charities” with 99% overhead, 3-card-monte

shell game (Photo credit: mixatal (Clive Power))

dealers, or the guy who begs Grandma for cash every week, they all need to be strung up. Since vigilante justice is generally illegal and occasionally immoral, it’s best to just avoid the problems from the start. Here are some scams to watch out for.

Pyramid Scams – All of the little parties people throw to earn free items at the expense of their friends are pyramid schemes. Most of those are legitimate money-sinks. A few, however, exist solely to get their “consultants” to bring in more consultants. The sales aren’t the actual way to make money. If you don’t have anyone “downstream” you won’t make any money. If the focus isn’t on selling an actual product or service, but is instead on bringing in people under you, you have entered the world of pyramid scams. Generally illegal and always immoral. Don’t sign up and, if you do, don’t ask me to participate.

Advance Fees and Expensive Prizes – If you win a contest and you are expected to send money to claim your prize, it is a scam. You don’t have to pay sales tax in advance. You don’t have to pay transfer fees. Real prizes are delivered free, accompanied by a 1099, because prizes are income. No prize requires pre-payment. No loan service requires “finder’s fees”. If it doesn’t sound right, don’t pay it and certainly don’t give your bank information to anyone you can’t verify.

Work at Home – The most common work-at-home job I’ve found is stuffing envelopes. You see the signs on telephone poles all over the city. “Make $10/hour stuffing envelopes from the comfort of your own home! Just send $50 to….” When you get the instructions, you are told to hand up signs telling people to send you $50 for instructions on how to make $10/hour stuffing envelopes. Everybody is feeding off of everybody else.

Charity – Never give money to a charity over the phone. Always take the time to verify where you are sending your money. Some freak may call to tug on your heartstrings with a sob story, but you don’t have to give them money. At least ask them to send it in writing so you can do some checking, first.

Phishing – Simply put, don’t click on any link in any email, unless you know where it is going. If it is a link to a financial institution, go enter the address into the address bar yourself. If you find yourself on a site you don’t recognize, don’t give them your personal information and don’t ever reuse your usernames and passwords. If you do, one bad site could get access to everything you do online.

[ad name=”inlineleft”]Foreign Lottery – To be clear, Spain did not just hold a international lottery and randomly draw your email address. No lottery in the world works that way. If you didn’t enter the lottery while you were in Spain, you aren’t going to win it. The scam is that you need to provide your bank information, including a number of release forms so the scammers can transfer money to you. In reality, you are signing over control of your account and will be wiped out.

Nigerian/419 Emails – Ex-Prince WhateverHisNameIs wants your help to get his fortune out of WhereverHeIsFrom. The New Widow Ima F. Raud has an inheritence that she won’t live long enough to spend. They’ve both been given your name as a trustworthy person to handle the transactions in exchange for a mere $10 million. What friends do you have that would make this seem legitimate? Once again, they will get your bank information and take your money. At a minimum, they will try to get you to pay a few thousand dollars for “Transfer fees”. Don’t do it.

Overpayment by Wire – I had this one attempted on my last week. You sell something online. A potential buyer agrees to purchase the item, sight-unseen. They’ll send a cashier’s check and, after it clears, one of their agents will pick it up. Unfortunately, the buyer’s secretary screwed up and added a zero to the check. Would you mind wiring the overpayment back, minus a small fee for the hassle? The check is bogus and there is no way to verify it. You’ll deposit the check and it will be assumed to be real. The bank will make the funds available well before it comes back as fraud. You’ll see the available funds and send the money by non-refundable Western Union and some thug in Nigeria gets a new iPhone.

Foreclosure Scams – Some scammers try to prey on the vulnerable because they are, well, vulnerable. If you are facing foreclosure, be very careful about where you turn for help. One scam is to get you to sign over your home “temporarily” to clear the title. That doesn’t work, but you won’t find that out until you are handed an eviction notice and told you still owe the money.

Stranded Friends – You get an email from a friend saying he’s in London/Moscow/Sydney/Wherever, and he’s been mugged. He’s got nothing and needs $2500 to get home. Can you help? Do you really have friends close enough to ask for a $2500 international bailout, but not so close they tell you about the vacation ahead of time? Would they really be too timid to call you collect instead of begging for change to use an internet cafe?

20 Lazy Ways to Save Money

Finance

: Image by Paul Vivier via Flickr

Investopedia ran a post on 20 lazy ways to save money. I thought it was worth sharing my take on the post.

1. Schedule automatic payments. I do this obsessively. I run all of my regular payments through my bank’s online bill-pay. I think there are 2 bills that get paid manually; 1 is a quarterly payment, the other is due annually.

2. Eat your groceries. According to the post, Americans–on average–throw away 15% of the groceries they buy. I totally believe that. We don’t throw away that much, but it’s still too much. It tends to be the fresh vegetables, which we eat as side dishes instead of the main course. We need to switch that mindset, both to use the vegetable efficiently and to eat healthier.

3. Bundle services. I refuse. I hate the idea of having a single point of failure for multiple systems. If the power goes out, I lose my cable, but I keep the phone. If, for some reason, I can’t pay my phone bill, I don’t lose my internet connection. I like keeping these things separated.

4. Pay off credit card. Hardly a lazy process, but otherwise…duh!

5. Mark your calendar. I use my Google Calendar as obsessively as I use automatic payments. I put in reminders, grocery lists, or anything else I need to know at a specific time.

6. File your taxes on time. I just helped a friend dig out of this mess. I pay as soon as all of my paperwork is delivered. The IRS doesn’t give up and they have leverage, including garnishment and even jail.

7. Roll it over. When you change jobs, take your 401k with you. Don’t leave it behind like a series of red-headed stepchildren. It’s too easy to lose track of the accounts. Don’t cash it out! I made that mistake once and lost far too much to taxes. A rollover doesn’t count against your 401k contribution limits.

8. Switch credit cards. If you can a good balance transfer offer that’s followed by a better interest rate than you currently have, use it. But don’t forget to pay attention to the transfer fees. Do the math. If it costs you $500 to transfer the money, how much interest do you have to save to make it worthwhile?

9. Use your privileges. If you have a AAA membership, use it. It gives you a discount on hotels, oil changes, car rentals, and more. Read the paperwork. Former military gets a ton of random discounts, too. Ask.

10. Rent instead of buy. Renting can save you money over buying, if it’s something you’ll only use once, but borrowing is free.

11. Buy instead of rent. Rent-a-center is a ripoff, but they can’t even legally operate here. If you’re going to use something regularly, buy it.

12. Ask. I love to call up every company I give money to and ask if there’s a way I can give them less. Outside of chain stores and restaurants I almost always ask for a lower price.

13. Just say no. Extended warranties are generally a waste of money. However, if I can’t afford to replace the item, I do get the warranty. On my car, I brought it in for a full inspection and repair a few weeks before the warranty ran out and made all of that money back. We are slowly building a warranty fund to replace the need for any future extended warranties.

14. Have the awkward conversation. We tried giving gift-giving the axe, but nobody enjoyed that. Now, we cap the gifts at $20 and do a round-robin type of gift. $40 for gifts keeps 10 adults happy.

15. Eat at home. Generally, I can cook almost anything better at home, but I really do enjoy eating out and trying new restaurants. We just keep it from being a regular expense.

16. Balance your checkbook. What a waste of time! With automatic payments and cash for all of the discretionary budget items, I balance the checkbook once a month.

17. Stick with your bank. Either use your own bank’s ATM network, or use a bank that refunds ATM fees. I only take out cash on the first of the month, for the entire month and I do that with a teller, so this is never an issue for us.

18. Use your TV. Cable movie packages instead of a video membership? Really? That’s a horrible idea.

19. Quit those bad habits. I quite smoking, saving $200 a month. I don’t drink much and I’m working on fixing my eating habits. Vices are fun, and this is certainly not a fun way to save money.

20. Forget the pet. There is no way this would fly at my house. we have 5 cats, 2 gerbils, and a dog. Our renter has 2 pythons. We’re a flippin’ zoo and honestly, mess and cost aside, we all like it that way.

How do you stand on these ideas?

Fixing Your Credit Report

Finance

Sometimes, negative things appear on your credit report. Usually, they do a good job of maintaining

Credit card (Photo credit: Wikipedia)

accuracy, but mistakes do happen. The creditor or the reporting agency may screw up, or you may have your identity stolen. If either of these situations are true, you’ll want to correct your credit report, making yourself eligible for lower rates on future credit and, occasionally, lowering the cost of things like auto insurance.

If you throw “credit repair” into Google, you get 18 million hits. Most of those are either outright scams or hopelessly optimistic about what they can accomplish. As I said once before:

Credit Repair is almost always a scam. There are ways to get correct bad information removed from your credit report. If the information is correct, those methods are illegal. There are two legal methods to repair your credit. First, stop generating bad credit. Make your payments on time and eventually, the bad items will fall off. Second, write letters disputing the actual incorrect items on your credit report. There are no quick fixes, and anybody telling you different is flirting with a jail sentence, possibly yours.

There are ways to avoid the scammers.

Avoid advance-fee credit repair. If they are any good, you will pay for results, not intentions. If they charge beforehand, they are already breaking the law.
If they insist they can erase the accurate, but negative information, run away.
If they tell you to dispute everything negative, even the accurate information, run away.
If they tell you to create a new credit identity, don’t just run, report them. It’s a felony.

Legally, you cannot get valid information removed from your credit report. Anyone who tells you differently is advocating a crime. However, according to the Fair Credit Reporting Act (FCRA), you are entitled dispute incorrect records.

To verify the accuracy of your credit report, you need to see it. You can get a free report if your credit is used to deny you for something. This is known as an “adverse action” . You have 60 days from the denial to request the report. You can also get one free report from each of the major credit bureaus each year. I space out these requests so I see my credit report every 4 months.

If there is inaccurate information on your report, dispute it in writing. Send a letter to the credit bureau that is reporting the error. Explain the problem and politely demand an investigation. They will contact the creditor, who usually has 30 days to respond. In the meantime, send a dispute letter to the creditor, along with proof of the inaccuracy. If the investigation does not go your way, the creditor will have to report the dispute status to the credit bureaus in the future.

If the negative items are accurate, there is only one way to get it off of your report legally: Wait. Most negative information can only be reported for 7 years, while a bankruptcy will be reported for 10.

Another way to build your credit in the face of negative credit is to start building good credit to overshadow the bad. Get a credit card. Your first credit card from the bottom of the debt-barrel will probably be a gas card or a store-branded credit card. That’s fine. The main consideration is are low or nonexistent fees. Don’t accept application fees, activation fees, fees for carrying a balance or fees for not carrying a balance. Annual fees are becoming a fact of life, so look for low fees. The interest rate does not matter. You will be paying this card off immediately, meaning no less often that every two weeks. Make sure every penny is paid during the grace period, and make sure your card comes with a grace period. Some don’t. Those are bad cards to get.

There are no quick fixes for bad credit, just good new habits and time.

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Editor’s Picks

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