Archives for February 2007

Young Entrepreneur Interview: Dennis of Young Money Blog

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Although many of us have thought about starting a small business, significantly less actually take the plunge. So when I read on Dennis’ Young Money Blog back in July that he had opened up his own custom Greek Apparel store, I was intrigued and have been following his adventures on and off since. Fast forward to today, and he’s attending trade shows and just spent over $20,000 on new equipment.

I wanted to learn more about his story, so I asked him for an interview. Here it is, condensed from an instant messenger chat we had:

Can you please give me a quick mini-bio of yourself?

I’m a 23-year old student at the University of Florida studying Marketing and Political Science.

So, when did you feel like you first started getting the entrepreneurial bug?

Actually, I was reading your blog a lot, as well as NevBlog.com. That got me started. I didn’t find any blogs that talked about students who didn’t have an income, so I figured I should start something. But along the way… my blog became an entrepreneurial blog too!

So no newspaper route when you were five or anything like that? 😉

Nope, my family was poor, so that stuff wasn’t even on our minds.

So how did you come up with the Greek store idea?

I’m in an Asian American fraternity, and I recognized that this portion of the Greek community, along with Hispanic/Latino and multicultural organizations, were growing. When you do a general search for “Greek store”, “Greek apparel”, etc. on Google, most of the sites focused on the National Interfraternity Conference (white fraternities) and Panhellenic Conference (white sororities). So I wanted to target a niche.

Did you have any experience in the clothing area beforehand?
[Read more…]

Stock Market Correction? A Peek Into My Investing Philosophy.

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Apparently the S&P 500 dropped 3.5% yesterday. Not bad for one day!

Let’s see what I haven’t done yet:

1. I haven’t logged into Vanguard.com, where all my IRAs are.
2. I haven’t logged into Fidelity.com, where my 401(k) is.
3. I haven’t logged into Scottrade, where… oh wait, I don’t have any individual stocks right now.

Why don’t I care? Because not only do I not have any control over the numbers, but there is also nothing I am going to do in response to what I see. I won’t be relieved, nor will I get depressed.

Remember, for every trade there is a buyer and a seller. The buyer thinks he’s getting a good deal. The seller think she’s getting a good deal. Both can’t be right. So now you must ask, how much do you want to bet that you are smarter then the next person? Many of us are competitive people, and it’s hard to admit that you’re average. This pervasive human tendency to overestimate one?s achievements and capabilities in relation to others is sometimes referred to as the Lake Wobegon effect (where all the children are above average).

For example, do you think you are an above-average driver? During one such survey, 80% of respondents rated themselves in the top 30% of all drivers. Hmm…

On top of that, you are going against the headwind of trade commissions, the bid-ask spread, and taxes on generated capital gains.

By essentially investing in every publicly-traded company out there (although not on a perfect market-cap weighted basis), I am able to take a different, non-competitive view of things. The way I see it, every single day millions of people are waking up and going to work in order to create value. They are thinking up new ideas, making better widgets and services, and selling those widgets and services to new people. And then they go to sleep, and people on the other side of the world wake up and do the same thing. It doesn’t matter if they are working for Ford or GM, Intel or AMD, Sirius or XM Radio. As a whole, value will be created using my money, and I sleep well at night.

Investing In Actively Managed Funds: Deal or No Deal?

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image

I just finished watching my first episode of Deal or No Deal, a new game show on NBC. I personally thought it was amazingly dull, but it did remind me of a good parallel to investing that I read in the book The Coffeehouse Investor (Yes, I know. Who’s the dull one?). If you’ve never seen it, that’s okay, this is a simplified version which I will explain. (You can also play an online version if you’d like.)

Let’s say you have ten open suitcases, each with a different amount of money in them:

image

Obviously, if you had a choice you’d pick the one with $10,000 in it. But the Banker then closes the suitcases and mixes them all up. Next, he reveals the $8,000 suitcase. You can still choose any of the suitcases to take home. Which one would you pick?

Added: It’s interactive now! Click on a suitcase if you want to gamble.

This is similar to the situation that you are faced with when picking an active vs. passive mutual fund. Over extended periods, approximately 75-85% of actively managed mutual funds fail to match the total market average. Yes, you could pick the $9,000 or $10,000 suitcase, but do you want to take that risk? We should all the take $8,000 happily.

Knowing the $8,000 suitcase is readily available is another analogy to knowing about index funds. Otherwise, you might be walking around with the $6,000 or $7,000 suitcase thinking you got lucky… Remember, even picking the active mutual funds with the best 10-year historical returns doesn’t work! For example, the top 35 mutual funds from 1978 to 1987 cumulatively under-performed the stock market average by 7 percent annually the next ten years (data also taken from The Coffeehouse Investor.)

Do You Have A Financial Success Story To Tell?

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Everybody loves hearing success stories. I certainly do. And I know that many of you readers have some great tales to share…

  • Did you start your own business?
  • Did you crawl out from under a mountain of personal debt?
  • Did you overcome hurdles (illness, tragedy, divorce…) to reach financial stability?
  • Did you switch careers?

If so, I would like to interview you either online or via telephone. I’ll ask questions like – What did you start with? Who/What inspired the idea? How did you do it? What outside help did you have? What tools, software, or services did you use? What was the most helpful advice you received? What was the most unhelpful advice you received? Any regrets?

Alternatively, you can submit something to me in writing. Please include as much detail as possible. Either way, toot your own horn and contact me! I can keep it completely anonymous if you’d like.

Buying A Home In The San Francisco Bay Area On $75,000 A Year

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Besides shopping at Whole Foods or Trader Joes, it seems like one of the major hobbies of young professionals in cities like Los Angeles or San Francisco is to complain that we can’t afford a house given our mere $50,000-$100,000 salary. It’s true. Housing is pricey. But every time I hear this lament, I think of the e-mail I got from a single woman who made it happen on $75,000 per year in the Bay Area. How did she do it?

She saved for a few years, and made it a priority. Sure, rent is high, but there is still a lot of fat in a $75,000 salary. By far, the easiest way to save money is to get a roommate. Your rent goes down by at least a third, utilities are cut in half, and if you get along you can save a lot in food. Even if you live by yourself, I would say that saving $10,000 a year should be possible, even on top of saving 10% towards retirement. If you think I’m insane, I would definitely take a look at your definitions of “needs” and “wants”.

She got realistic. If you grew up in the suburbs, you’ll may feel like living in anything but a 2,000 square foot ranch home is just not acceptable for a hard-working educated person like yourself. Nope. Homes like that cost $1 million here. First step, downgrade your size requirements. Her sights moved down to townhouses, and then to condos or even studios.

She got even more realistic. Still too pricey in the trendy areas. Time to give up? No, time to downgrade your location requirements. The East Bay is filled with workers that commute to either to San Francisco or San Jose every morning. She finally found a nice $300,000 1-Bedroom condo in the East Bay for which she paid $30,000 down. Since it was near public transportation, her total commute is a reasonable (for the area) 45 minutes door-to-door.

She’s got almost $100,000 in equity now. Fast forward to today, and her $300,000 condo is worth more than $350,000. Add in her down payment and the small bit of her mortgage payments that goes toward principal, and she’s got a good chunk of equity built up. If her career (and boyfriend) keeps moving in the right direction, her next property just might be that 2,000 square foot ranch home in the suburbs…

It won’t happen overnight, but from her I know that the now seemingly bizarre idea of saving for 3-5 years for a down payment really does work. There is light at the end of the tunnel. At least these days people are less likely to think “dude, I have to buy now or I’ll be forever priced out of the market”. You can save without pressure under the guise of waiting the market out… with me! 🙂

Certain Yodlee Versions Don’t Show Passwords

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Yodlee MoneyCenter is an account aggregation service that logs into your online accounts automatically in order to track your financial balances and transactions. It’s also a great way to see all your rewards points. While Yodlee is available for free directly, they make their money by licensing their software to financial institutions. Thus, you may know it instead as HSBC EasyView, Fidelity FullView, Wachovia OneStop, or Bank of America My Portfolio.

I’ve discussed in the past why I use Yodlee to track my accounts, despite the potential security concerns. One of the major worries was that if someone got a hold of your Yodlee password, they could then get access to all your other passwords. But I just noticed that at least for the Bank of America and HSBC versions, they have disabled the ability to see your individual account passwords. They are still viewable in the Yodlee direct version.

I like the hidden passwords, and now use BofA My Portfolio exclusively. It is slightly more inconvenient for those that use the service as a password reminder service, but I think it makes things significantly more secure. It is much easier for a hacker to gain access into a single user’s account by phishing or spyware than to break into to a bank’s central database. Still not perfectly secure, but I thought I’d give people a heads up.

Credit Card Foreign Transaction Fee Settlement

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I just got a letter regarding a class-action lawsuit claiming that “Visa, MasterCard, their member banks, and Diners Club conspired to set and conceal markups and fees, typically of 1-3%, on foreign transactions.” I guess the companies settled, and “those persons who made a foreign transaction using a Visa-, MasterCard-, or Diners Club- branded credit, charge or debit card between February 1, 1996 and November 8, 2006 are members of the Settlement Damages Class.”

Don’t hold your breath for these settlement claims. They can take years to process. Just file a claim and hope for a nice surprise somewhere down the line.

I spent over a thousand dollars this year on foreign transactions, but I used my Capital One card, which didn’t charge me any exchange fees at all. See more in my post about the Best ATM or Credit Card For Foreign Travel?

Six Figure Salary Survey Results: Who’s Making $100k?

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Two weeks ago I asked people with six-figure salaries to share their stories. There was a great response, and I wanted to both summarize and add to the discussion some more.

$100,000 Isn’t That Much… Is It?
Many people expressed that $100,000 is simply not very much money anymore, especially in certain urban areas like the San Francisco Bay Area. I went out to find some numbers to back this up.

Initially, I quoted a study that stated that only about 5% of individuals in the United States made more than $100,000. But if you take into account entire households instead, 16% of them nationwide earn over $100,000. However, in the San Francisco Bay Area almost twice as many households (31%) made that much. Here is a graph from Wikipedia that compares the income distribution among Bay Area households to the national level.

Income Distribution

Having almost a third of households over the $100k mark would definitely skew perceptions. This is supported by the CNN Cost of Living Calculator, which says that earning $100,000 in Atlanta is comparable to earning $172,000 in San Francisco. Put another way, earning $100,000 in San Francisco is comparable to earning $58,000 in Atlanta.

That’s a bigger difference than I thought. Still, remember that the 16% and 31% figures are household figures. Also, the majority of the people that I know who work in San Francisco don’t own houses there. In the end, while making $100,000 as an individual may not be considered “rich” in certain areas, there is still no way it can be considered “poor”.

Who’s Making Six Figures?
Based on the completely unscientific comments, I made a chart showing the the breakdown of six-figure earners by job description. The categories were all very general, and some were very tough to pigeonhole. For example, what is a self-employed software project manager? Tech? Small Biz? Management?

Pie Chart

What does this chart show? Really, not much with regards to specific professions. My two takeaways were that (1) there is a very wide variety of jobs that can make a healthy salary, and (2) you need a useful skillset and effort. Nobody responded that they simply moved papers back and forth, or that they coasted into their position. Everyone needed some combination of talent, passion, ingenuity, education, and hard work to get to where they are now.

Who Cares?
Really, this is not to suggest that making $100,000, or $200,000, or whatever, should the primary goal for anybody. As with many things, it is about balance. Many folks noted that they used to make more money, but now make less but are happier overall. Others noted the high debt levels and long education (and thus missed salary) that come with certain professional careers.

Also, we didn’t focus on the total compensation package, including health insurance, stock options, pension benefits, or other perks. I know plenty of lower-paid state workers that have enough years under their belts to get both guaranteed pensions and health insurance during their entire retirement. Think of how much that will be worth! This was mainly an exercise in curiosity, and I’m glad I did it.

Finally, it’s not how much you earn, but how much you keep.

Proof That Anyone Can Call Themselves a Financial Advisor

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

Speaking of business cards, check out this one I found:

Front
Back

If you can’t read the sentence on the back, it says:

This card waives the setup fee for your first paycheck advance. Call us to set up your consultation with our financial advisors today!

My head hurts.

250 Business Cards With Custom Logo Starting At $5

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

Vistaprint always gives out 250 “free” business cards, but they have a little “made by Vistaprint” watermark stamped on the back, and you have to use one of their templates. Right now, they are offering 250 business cards with a customized logo and no watermark for “free” plus shipping. Here are the rates:

Vista Shipping Rates

Not a bad deal for those that want to project a professional image for their small business.

Added: You can upload your own logo, but at an additional cost.

Some Free Delta Miles and Priority Club Points

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Now, these won’t work for everyone, but they are really easy so give them a shot. Remember, Delta miles expire after only two years of inactivity now! Grab your Delta SkyMiles number and try these in order:

  1. 250 miles for a 1-question survey.
  2. 1,000 miles for signing up for a mailing list.
  3. 500 miles – similar deal, less miles.

Now grab your Priority Club number and do this survey for 250 points.

Taxes, Debt Attitudes, Carnivals, and March Madness

“The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone.”

Queercents offers some tips on choosing a tax professional. It’s always interesting to see tax advice from an actual accountant.

No Credit Needed explores the differing attitudes towards debt amongst personal finance bloggers.

This week’s edition of the Carnival of Investing is available at Stock Market Beat. If you’d like to host please visit the main Carnival page.

In anticipation of March Madness, Free Money Finance is gearing up for a tournament bracket composed of blog posts. Readers can participate to choose the winners and get some prizes. Time to start studying that bracketology!