Study: Twenty-something women spend big on fashion

From National Jeweler.com:

Women ages 20-29 spend almost half (48.2 percent) of their disposable income on accessories, fashion and beauty, according to a new study from Jane magazine.

Of that, about 16 percent goes toward purchasing jewelry and watches, the study finds.

...

From Luxist:

many of these women are "children of the affluent baby boomers" and grew up expecting and appreciating luxury goods. 84% said that they had no problem with living beyond their budgets.
We hate to be the ones to break it to Mr. Lamadrid, but an appreciation of quality and style isn't worth all that much if you are living so far beyond your means that all of your "good taste" gets repossessed when you can't pay off your debt.

So they're spending a ton of money and not getting what they want. Good job. I love luxury items too, but pick a few and make sure you really want them. Create an identity and don't make it "the person who spends $2k a week on purses."

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How to be a total idiot

You might have seen this one. This 24 year old "aspiring real estate investor" bought 8 houses with no money down. He fixed and sold two of them and then ran out of money. Now the banks are foreclosing on the properties and, well he's screwed. Here's his site.


What's wrong with this?

First off, I don't buy it. I don't think it's happened and it's just a publicity stunt to generate ad revenue or something. Why? It's too out there. The author claims to have "taken some seminars" and read some books and then just started purchasing houses. WTF?!? I seriously doubt a bank would allow that to happen since he seems to have had no credit and no job or any means of paying off the mortgages besides selling the properties. Sine he bought the houses going into a real estate downturn, the banks wouldn't be dumb enough to think that was enough as collateral.

Even if they would for some reason...why would they let him buy 8! houses?

Besides how illogical it is for him to have purchased these properties in the first place, the guy admits to lying on his applications about income and other factors. Um, fraud anyone? The site is too public at this point for him not to get official attention for it.

One more rant...
Casey claims to have read the books most of us have by authors like Robert Kiyosaki, Robert Allen, and Loral Langemeier. Kiyosaki is great for learning general finance principles, and even to point you in the direction of investing in real estate. But if you're going to take Rich Dad Poor Dad and the others as an instruction manual for purchasing millions in property with no other knowledge then you're just dumb.

Finally, his posts today discuss his getting a job with "his rich dad." The post sounds far too close to the theme of Rich Dad Poor Dad to be real. Maybe I'm wrong but I don't think so.

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Save Money Ideas #1

Most people don't realize how easy it is to save some money. If you tell them they can save thousands every year they won't believe you. Each day decide on something you can save money on. Ok, that's pretty general, here's what I mean; today, make a decision that saves you money over a decision you usually make.

Today's idea to save money:

When you go to starbucks get the Grande instead of the Venti.

You can save 50 cents a day (I picked this from a couple drinks). Thats $15 dollars per month and $180 dollars per year, not to mention the calorie benefits!

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The Only Credit Card Guide You Need

JD at Get Rich Slowly has written an excellent guide on credit cards. If you are instead looking to choose a credit card see Index Credit Cards.

JD doesn't seem to believe in using credit cards. I do. I think they allow the use of a general finance principle: why pay someone today when I can pay them later with no interest. By that I mean paying the bill at the end of the month. You pay no interest if you pay your card off every billing session and you get a month's worth of interest at the bank.

Personally I recommend paying off monthly for most people. Personally I like to get 0% interest cards (usually a year with no interest). I accumulate the cash in a bank account (HSBC at 5.05%) instead of paying the bill. (I pay down enough of the bill that I have an adaquete amount of credit left.) Before the 0% interest offer expires I pay the amount in full out of the bank account, having earned a year's worth of interest on my spending. One caveat, if you don't have the restraint to actually move the money to a seperate account you should pay the bill monthly and each time you purcahse something either set it aside in a different account or at least keep track of it (in notepad or Quicken) so that you know your "real balance."

The Guide covers the important questions:

1. What should I be wary of when getting a credit card?
   
2. What do all of these terms mean? I can't understand the application.
   
3. Is it safe to pay bills with a credit card?
   
4. How do I cancel a credit card?
   
5. How can I get a late fee waived?
   
6. How do I stop credit card offers from coming in the mail?
   
7. How many credit cards to people carry?
   
8. How can I play the credit card arbitrage game?
   
9. How can I get a FREE copy of my credit report?
   
10. How do I dispute credit report errors?
    
11. How does a credit score work?
    
12. How can I improve my credit score?
    
13. I have a lot of credit card debt — how do I pay it off?
    
14. Where can I find more information on credit and credit cards?
    

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The problem with allowances for kids

Justin McHenry writes on The Personal Finance Weblog about giving his kids an allownce. He brings up a number of issues including: how much to give kids weekly, how much to increase this as they get older, should you tie payment to chores or just give it to them...

This article at Plain Dealer talks about the same issues.

I think there is an entirely different problem. I don't want to go into when kids should get an allowence at all. I don't have kids and don't expect to for a while.  But it seems to be when you simply give money to kids they will simply spend it all, 
both because they know they will get more next week and also because the money is entirely disposable income, they have nothing they have to spend on to maintain their lifestyle.

I don't think the money should be tied to chores unless you are giving the kids an option to do more chores for more money. If you give them the money even when they don't do the chores you're setting a bad example. Also, kids will expect to get the money regardless. I think it's a better idea to teach them they can spend their own money on things they want, and also that it is important to do chores. (I also think it's not a bad idea to teach them that they can do more work for a bigger benefit.)

So generally the whole model is flawed. My experience was that I got money (5 and then 10 dollars a week) regardless of if I did the chores, but my parents tried to tell me it was conditional on doing the chores. Occasionally they wouldn't pay me when I hadn't done something around the house, but that was rare. I remember feeling entitled to the weekly amount regardless of what I had done to "earn" it. Also, it was rare that I needed to use my allowance money to pay for things myself. It was used mostly when I wanted to buy things my parents wouldn't pay for: a "cooler" brand of shoes for instance.

I think it would be better to teach kids to be responsible for their own spending. I don't know at what age this idea might make sense (any parental experts reading?). What if you determined the cost of many activities your kids did during a month and gave them the amount of money to cover it, plus a little extra? You can gradually add categories to what your kid is responsible for.

Here's an example. Say you spend an average of $15 per week on lunch for your son, plus $10 per week (avg) on clothing. You also decide that you spend $8 per week on entertainment for your son. Currently, most parents pay all these costs directly ($33 dollars per week) plus say $10 in allowance ($43 dollars). What if you gave them the $43 dollars and taught them to budget these other costs? The net difference to you is nothing (you're paying these as a parent anyway).

The advantage is that you are really teaching your kids to budget effectively, and learn the value of money. Some things kids will learn:

• the value of money
  
• how much things really cost
  
• that spending on one thing means they can't spend on another

It took me a lot longer to learn these things because I simple expected the money I got plus all the things (clothes, bikes, soccer club fees, etc) and didn't know what they cost.  Had I had to learn to budget the money and also learned the actual costs of living I'd be better off.  It is likely that kids will screw up occasionally.  They might spend all their lunch money on new shoes.  I'm not saying you should't help them out when they get stuck (getting stick is part of the learning process), but if they missed lunch one day because they budgeted incorrectly they would learn because of it.  If you never give them the opportunity how will they learn?

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Save first, then spend

Before you pay your bills or buy things for yourself, PAY YOUR SELF FIRST! 

 

Put some money (I'd say around 10% is a good amount) somewhere you won't touch it for other things.  Ideally you should have it put there automatically.  Eventually you'll have a good portion of money sitting there.  It should be some sort of interest bearing account, either a high yield savings account, a money market account, or a retirement account (401k or IRA). 
 

I am not yet receiving regular pay checks, so I have not yet implemented this myself.  BUT, when I do, I plan to automatically divert 10% of my incoming pay check to my Fidelity account.  Fidelity currently has around 5% interest on money you have yet to invest in stocks or bonds.  So putting the money there automatically earns about the same interest as if I kept it in my Citibank account.  The difference is that I never think of it as part of my available money so I won't spend it.  Once it shows up at Fidelity I think of it as already invested and there is no reason to move money out of Fidelity since I still have money at Citibank.

 

I think mayking it automatic is important pyschologically.

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Afraid of Making Money?

http://articlesifound.blogspot.com/2006/10/afraid-of-making-money.html

Maybe you could be more succesful if you settled some subconscious thoughts with yourself. This article by Patrick Chen discuesses some examples he has encountered with people being afraid of succeeding. They often believe they will be a different person if they have more money, or even if they simply accomplish their goals.

I have expereienced similar feelings at various points in my life. I first remember thinking I had the ability to entirely change who I was when I entered high school 9 years ago. There would be a whole new group of people to interact with.

I again experienced this thought when applying to colleges. Ultimately I choose a college far from home because I then understood that in order for me to change on my own I would need to isolate myself from influences that would restrain those changes. I ended up coming to GW (in DC) because it was far from home, but I had family nearby. I was close enough with the family here to have a good support system, but not so close as that they would interfere in my day to day life.

By essentially cutting myself loose from all expectations I was able to form my current personality. In a similar way, many people get into a rut of expectation from the people in their life. They need to realize that they can change (preferably for the better) even with onlookers. Those who don't support your reaching your goals and dreams don't need to be part of them anyway.

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Value Line?

I'm looking at investing with Value Line. Does anyone have any experience with them?

Valueline claims they have outperformed the Dow Jones average for nearly 40 years now at a rate of 17 to 1. Warren Buffet calls Value Line, “An incredible value! I don’t know of another system that’s as good.” Any information would be helpful. Also, you can try Value Line yourself if you like.

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Class Calculator

NYTimes has a "Class Calculator" that can show you where you stand in the categories of occupation, wealth, education, and income. 

Here are my scores:
Occupation: 80th percentile
Education: 97th percentile
Income: 97th percentile (projected)
Wealth: 40 percentile (current, not projected)
Average: 77th percentile

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Six (Worthless) Excuses to not save money

This article covers some of the big excuses people give for not saving more money.

1) I don't make enough money
This is just silly.  Everyone can find small things to cut out of their life that they don't need and can save them money.  Saving just $5 a day (most of us can cut that out of our food spending) amounts to over $1500 per year.

2) I'll get around to it later.  See my post linking on compound interest.  Saving earlier means saving more, even if you stop saving later!

3) I deserve a little luxury in my life.  I've posted recently  on rewarding yourself for financial decisions.  A little luxury you deserve, but be sure you are not just spending money on the first thing that you think you want.

4) Someone else will take care of it.  FALSE.  You are responsible for your own wealth production.

5) I've saving through my 401(k).  Great!  But you can do more.

6) This item or service will pay for itself.  There are some items that will do this.  The example I've given before is books.  A book that teaches you something about making money can generate a return on investment.  Most items (that cool exhaust on your car) will never bring you any return.

Check out the article for more examples.

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Binary Dollar: Compound Interest

Binary Dollar: Compound Interest: Rick and Harper

Cartoon with a good explaination of how compound interest works.

Basically, they show why it is so important to invest early.  Compound interest means that someone who invests an amount for 10 years will have more at the end of 30 years than someone who started investing the same amount 10 years later.

This is why it is so important to invest as you start you first job, and even before then.

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Save money on electric bills

A great way to save money on your electric (or laundry) bills is to hang some or all of your clothes instead of using the dryer.  It's easy, just hang your clothes or lay them on something and let them dry over night.

There are many benefits:

• use less electricty (=save money on electric bill)
• less wear on your dryer (=save money)
• less money spent on laundry (if you use a laudramat)
• less heat produced by the dryer in the summer (cut down AC bills)
• get more moisture in your apartment (With the AC on all summer or the heat in the winter it gets very dry in my apartment)
• less wear on your clothes and no staticness when they dry. 

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Buyers Groups - buy in bulk

You can find people in your area who are also interested in saving money.  These should be people you can shop with and trust.  Each person can find low prices in the area for various items.

You can also get bulk rates if you get enough people together.  I know people who collectively buy a side of beef each year and freeze it.  This works well with most products.  I do this with wine.  I'll buy an entire case (usually you can mix and match).  When you buy a case at my wine store they give you 10% off your whole purchase.  

Minimally you can get a Costco or Sam's Club membership.  They are inexpensive compared to the savings over a year.  If you have room to store them, buy large packages of things you will eventually use.

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A dumb way to buy stocks

I was sitting in the bar the other night and talking to a friend.  He's someone with enough extra money to have an Etrade account setup, and he likes to trade alot.  But he never seems to do so well, and the other night I figured out why:  he buys stocks because of the products the company makes. 

 

This can be a good thing, say for instance a startup is offering a product no one else has.  Invest, maybe make some money.  It is a REALLY BAD IDEA when you buy a stock based on perceived market position.  For instance, my friend noted that "there are so many of those concrete barriors around in dc, the company that makes them (JJ Hooks) must be a great stock to buy."  DUMB DUMB DUMB.  Never buy a stock because their product is popular.  Apple is a case in point.  You shouldn't buy Apple stock because all your friends have iPods.  Maybe you should have bought apple stock when the iPod was going to come out, but even thats a bad idea.  Not because the stock won't go up because of the product, but because by the time the product announcement gets into mainstream news, everyone else has already speculated the stock will go up.

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Cheap and frugal are not the same

I dislike cheap people, I love frugal ones. (Actually, I like ones who spend alot too cause alot of times they'll pay for your drinks too!)

Frugal people save money on things they can. They buy Safeway beans instead of the brand name ones.
Cheap people don't get beans because they cost money.

Cheap people are interested in spending less money at whatever cost.
Frugal people are interested in spending less money on things they choose to.

Frugal people will try to save money on things they don't care about, but get the things they do care about.
Cheap people will try to spend as little money as possible, and don't understand why they can't get things for free.

Frugal people think longer term, and look for a value.
Cheap people think short term and look for a low cost.

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Low Cost Startups

I took some entrepreneurship classes at GW (supposedly one of the better business schools in the country). I wasn't impressed. Not that the cirriculum was bad, just that the classes never addressed one of my objectives, starting a company without any money.
Of course you can't start a company with NO money, but you can start a company for very very little money. I'll center the example off of my plan for Splendid Web Solutions. Here's how:

1) Choose something you can do yourself, and can later be done by other people

2) Choose something that doesn't take many tools (software, hardware or otherwise), or uses things you already have. I had a computer already, and I already had internet access.

3) Find a partner that provides most of what you need. In my case, I needed hosting services (which I wouldn't provide or take credit for), and I also needed the online editing software for customers to use. Ivenue had this, and I found a hosting company with their software.

4) Spend money only as you make it. Essentially you are paying for something on a commission basis. In my case, each time I sell a site I pay the provider $250 for the site. I charge about $2500 on average, so the ROI.

5) Make some money. This is why you need to be able to do it yourself. Do it for a while before you hire anyone else. Other people cost money and it's easier to get someone once you've proved yourself.

6) Incorporate. This has all sorts of protections, see othe posts.

7) Hire people. I started by hiring a friend who did sales. I didn't have enough work (I wasn't working otherwise when I started). he knew sales but not web design. So I paid him COMMISSION. Every site that went trough I gave him a percentage. He loved it because he generally made much more than working at his company, but also because he could work on his schedule. I get the benefit of more projects without having to get better at selling the sites. Also, since he's on commission, I have no costs until he sells a site, at which point I have made more money than I need to pay him.

7.5) I also hired web designers to work on commission. They basically do the whole thing from finding a client to designing and selling the site. This is great since I do literally no work but get a percentage off each sale. I'm aiming to have 10-15 of these people in a couple of months.

8) Expand. Get bigger, grow the business, and move on. I'm going to try to get enough people doing design work, and maybe get some doing just sales (sales work gets spread to the designers), that I can focus on other areas of the business. I'd like to expand the offerings to include internet marketing. Basically, I can take my current clients and offer services to help get their sites listed on other sites or directories, provide marketing guidelines, etc. Eventually that too can be managed by someone else on a commission basis. Everyone makes out well and gains some experience.
I want to emphasis that this probably doesn't work to start a traditional company. I'm using the model of student labor for one. Students are happy to make more money than they can sitting somewhere in a part time job. Also, they are willing to work to gain the experience of dealing with clients, selling sites, etc.

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reward yourself

To keep going at your goals I find it very important to reward yourself frequently.  Your list of tangible items you want is a good place to start.  First, make sure your lists include the smaller things in life.  I love gourmet chocolate, so I've got that on my list.  When I accomplish a goal I try to find something that is proportional on my list of things I want and get it.  Often the goal and the item correlate financial in some way.  A completed web site (and subsequent check) might warrent a pen or clothes.  A successful sales call might warrent some chocolate or something.  Basically you're training yourself like a dog to keep motivated.  It really works.

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Fidelity: avoiding investment mistakes

Fidelity has a page on typical mistakes made by investors.  It's kind of boring, but good advice. Take a look here. 

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gas

We're in a gas crisis...yeah right.  Gas is exactly where it should be priced, we just had a huge sale for 25 years.  I've got some tips for saving money on gas.

 

1) Buy the right kind.  I have a BMW, it says it needs premium gas, and it does.  If I put regular in I get about 5 mpg less.  That's about 20% more gas and only about 8% less cost.  Doesn't add up.  BUT, most people don't need premium gas at all.  Get regular, it's only a few dollars each time, but it adds up.

 

2) Drive better.  Accelerating is not your friend.  Accelerate slowly and drive at normal speeds.  I always hate this tip because I like to drive fast.  The alternative is to get a german car that's tuned to optimal gas milage at 75 mph!!

 

3) In stop and go traffic drive in the right lane.  I can't find the research on this right now, but statistically the right lane not only moves faster, but also has a more consistent speed.  Consistency means better milage.

 

4) Get a stick shift.  I get 40 mpg in stop and go sometimes.  Why?  Because I drive stick.  The slightest downhill means I can coast down without using much gas at all.  If I leave more space before moving when going uphill then I save gas there too.  In the city I get about 22, far more than the 16 my parents get in their far newer and supposedly "more efficient" cars.  Stick beats everything except maybe the hybrids.

 

5) Get a smaller car.  You don't need an SUV, almost no body does.  Get the car that fits your real needs.  We've talked about this in other products (such as canned fruit!), do it with your car too. If you are the only person in your car ever (ok, sometimes two, we'll pretend you can get dates), you don't need a car that seats 7, you just don't. 

 

6) Stop worrying about it.  Ok this isn't really a tip on saving gas, but maybe on saving your sanity.  Let's say you spend $1500 a year on gas.  If gas prices go up 30 cent a gallan, that means your yearly cost goes up $150 or so.  That's nothing in the grand scheme of things.  Especially since you're saving all that money on othing things from making smarter decisions.  :)

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fast shipping = dumb

I see too many of my friends do this all the time.  They order something thats cool or new on Amazon or wherever, and they get it shipped over night.  Or more likely, they get it shipped two day because then they feel like they are saving money over over night shipping.

 

BAH!! dumbest thing ever.  If you don't need it overnight, then wait.  I understand the excitement, but please you're wasting the money.  If you don't need it NOW, then get it for less.

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