Earlier this Fall, the IRS was offering an amnesty program for offshore tax cheats to come forward and admit their wrongdoing, thereby getting a more lenient punishment.

Nearly 15,000 Americans who knew they were cheating came forward and admitted their bad behavior. From Reuters:

While IRS officials were still analyzing the amount of offshore assets declared in the amnesty program, Shulman said, “we are talking about billions of dollars coming into the U.S. Treasury” from the new disclosures.

This is not the end of the story. Combining these (perhaps) brave souls to the 4,450 accounts which are forcibly being turned over from the Swiss bank UBS, there are just under 20,000 leads that the IRS is now following. For example, they may find that some of the largest account holders were advised by the same unscrupulous high-powered tax adviser. And now we know his or her name, and we can investigate, and find even more cheaters.

This is happening on a State level, as well. According to the Wall Street Journal:

This year, 12 states had amnesties, up from the annual average of two or three. Another 10 or 15 are likely to follow suit in 2010.

If you live in a State with a State Income Tax, and you suspect you might be guilty of tax evasion, I’d recommend you set up a news alert for “[state name] tax amnesty” so that you can have plenty of time to weigh your options.

The Editorial Part

On a personal note, this will probably end up being my favorite story of the year. It takes the cynical view that if you’re wealthy enough, you can buy the power needed to keep more than you’re supposed to, and makes a big ol’ dent in that belief.

We have a big budget deficit, and I believe that’s because the previous administration’s ideas didn’t work out the way they were supposed to. Many people fear that their taxes will be raised as a result, though the only plans I’ve seen to raise taxes will affect maybe 5% of Americans. Amazingly, some people think that their taxes have already been raised (these people are either getting their news from some untrustworthy sources, or their paychecks are coming with a free mirage).

Happily, sometimes you don’t have to raise taxes; you just have to be serious about collecting them.

Nearly 15,000 Americans admit offshore tax cheating, Kim Dixon, Reuters, 17 Nov. 2009
More States Jump on Tax-Amnesty Bandwagon, Arden Dale, Wall Street Journal, 19 Nov. 2009

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Enforcing Tax Laws Works. Go Figure.

The United States must be approaching the end of the recession when economists begin offering their retrospectives. Even if the data are pointing to an end to the recession, in technical terms, the economy is a long way from recovery. Just look around at the people out of work. Even those who have maintained their jobs are finding it difficult to qualify for mortgages, keeping the real estate industry itching for more handouts like the extension to the home buyers’ tax credit.

And some economists are not convinced that the worst is over. We may be in the lull of a double-dip recession. Wherever the economy is, making predictions, like critiquing wine, is often no more accurate than randomness.

For Fortune Magazine, economist and actor Ben Stein contributed four of the lessons he learned during the recession.

• Economic forecasting is still an extremely difficult gambit
• Financial market forecasting is even more troublesome
• The amount of lying and deception by the financial sector of this country has been breathtaking
• The government has no special abilities to forecast or predict a darned thing

Ben Stein is usually a strong supporter of the financial industry, so it’s nice to see him pointing out some of the flaws inherent in the system. He goes on to reassure investors that staying invested in stocks and bonds while keeping enough liquidity is the best way to weather recessions in the long term. If the second dip rears its head, I would like to believe it will provide more opportunities for investing for growth over the coming decades.

Are you prepared for the next recession?

Photo credit: simonhn
4 lessons from the recession, Ben Stein, Fortune, November 19, 2009

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Ben Stein Offers Four Lessons From the Recession

Over the next couple of weeks, six finalists will be auditioning for the opening of “staff writer” at Consumerism Commentary. Each will be providing two guest articles to share with readers. After the six writers have shared their guest articles, readers will have an opportunity to provide feedback before we select the staff writer.

This article is presented by FruGal, a consultant for a prominent online educational program.

From the time I was a little girl, I can remember making regular trips to my local library. The sights, smells, and sounds are still with me as if it were yesterday. It’s all still fresh in my mind – everything from climbing up the dark, cobweb filled stairwell in the old building in town, to wandering aimlessly throughout the shelves, trying to find a R.L. Stine horror novel that would keep me up late at night, reading in bed with a flashlight.

Fast-forward twenty something years, and you’ll still find me at my local library. However, I’m immersed in an experience that has been completely transformed from what it was decades ago. Long gone are your old-fashioned, wooden card catalogues to help guide you through the endless shelves of books, and other more traditional fixtures of the public library. Today’s modern library is truly an infinite supply of resources, knowledge, entertainment, and more. And best of all, it’s all completely free!

I could talk for hours upon hours about the different services and materials that are available to you at your local library, which chances are, is probably only miles from your home. However, for the interest of this post, I’ll be highlighting my favorite things you can find at your library today.

I’ll get started with the “what” of the library. Books, DVD’s, and CD’s are definitely at the top of my list. Next time you think about heading to your nearby bookstore, or paying the exorbitant cost of going to the movies (plus popcorn, a drink, etc.), consider heading out to the library. The library is home to an endless wealth of new (and old) releases that are available to community members such as you. I visit my local library about once a week, usually on the weekends, and pick up a wide variety of materials that are of interest to me. Take DVD’s for example. At the library, you’ll have everything from blockbuster comedies that just came out of the theater, to documentaries from around the world. You can even find materials such as Audiobooks, which are great for long drives, or perhaps to share with a friend or family member who, for whatever reason, may not be able to read.

Now, let’s explore the “how”. Your local library has an online catalogue system, called an Online Public Access Catalogue (or OPAC) which has replaced your traditional card catalogue. Within the OPAC, you can search through your library’s inventory of multi-media resources. But to take it a step further, you have the ability to reserve items through the system. This is as simple as securing your library card number, which is located on the back of your card, and establishing a pin if you don’t have one already. If you need help, a library staff member will surely lend a helping hand. Once you’re logged in to the online system, you can search for, and place a hold on the latest and greatest books, DVD, and CD titles, plus lots more. At my library, I can place a hold on up to 15 items at a time, and I’m simply sent an email when my request has been filled. The library has a system where materials are transferred from one branch to another for your convenience. With less popular or older items, you’ll only have to wait a few days, whereas with new releases, it may be a few weeks. Either way, if you keep your “hold” list full, you’ll constantly have a wide variety of materials ready to be picked up and enjoyed. Or, if you choose, you can simply wander the shelves and discover whatever may catch your interest.

Last but not least, let’s talk about the “why”. With today’s economy, every penny really does matter. If you add up the total of just one book, one CD, and one trip to the movies, it’s probably around $50.00 or more. To me, it’s much more practical to take advantage of a free (and fun) resource that so many people have tapped into. Plus, it truly is an enjoyable experience. The other day while I was leaving the library, I smiled as I glanced through the glass that peeked into the children’s area, and a father was sitting in a miniature chair, reading to his son. While the library is constantly changing and evolving, some things never change – which is a good thing.

With this all being said, as a lover of books, I realize that there are some must-haves for your collection. I’m not saying completed deprive yourself of these items, but rather, make an effort to be more conscious in your spending habits. Also, I would be remiss if I didn’t mention how you can help the library. After all, it’s done so much for you. Consider becoming a “friend” of your local library, which could include anything from helping to raise funds through book sales, or shelving books. More information about this can be found on your library’s website, or by inquiring in person.

Phew, all this and I’ve barely touched the surface! The library is home to special events, classes, story time for children, author talks, arts and crafts… need I go on? I’ll guess I’ll have to save the rest for another time. For now, if you aren’t already, I encourage you to visit your library and explore the many opportunities that are available to you, as well as your family. I guarantee you won’t be disappointed AND you’ll have some extra money in the bank.

I’d love to hear from Consumerism Commentary readers about your experiences with the local library. How often do you visit? What are your favorite materials?

This is a guest article by FruGal, one of six finalists interested in being Consumerism Commentary’s staff writer.

Photo credit: (Erik)

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Living It Up… At the Library?

My Honda Civic has an option for cruise control. Unfortunately, most of my driving currently takes place on the New Jersey Turnpike and local highways during rush hour and construction, so I rarely have an opportunity to activate this feature. In the slim occasion I find myself driving on a deserted country road, I activate the cruise control and sit back, letting the car’s computer maintain my speed. I like to imagine cruise control is an auto-pilot device, so I can relax, close my eyes, and wake upon arrival.

If you’ve ever driven with cruise control, you’ll know it is not the same as auto-pilot. You have to be vigilant and aware of your surroundings, even if you’re not keeping your foot on the accelerator pedal. I have the same concerns with the topic of automating finances.

Making your finances automatic is a great way to put your savings into overdrive. I take advantage of technology’s ability to automate in a number of ways:

• My paycheck is directly deposited into my bank account every pay period.
• Several of my bills, as many as possible, are paid automatically and in full every month with the appropriate credit card.
• My credit cards are paid in full every month without me writing one check or clicking one button.
• A number of savings transfers and investments are programmed to occur at the same time every month, again with no intervention.

I would like to say that these features of automation have effectively put my finances on auto-pilot. It is true that I am now free to use the time I would have otherwise spent paying bills and depositing paychecks for other, possibly more worthwhile tasks. I am hesitant to call this system an “auto-pilot,” however. Like driving, I am still in charge and my brain needs to be engaged. If I stop paying attention, the likelihood of a crash increases.

I primarily use three credit cards, two for personal use and one for business use. Despite the cards’ close proximity in my wallet, their cycles have not converged. The payments are due at different times of the month. My checking accounts are debited automatically, so I need to ensure I have enough money in the appropriate accounts at the appropriate times to avoid an overdraft fee. The automation doesn’t permit me to to “set it and forget it.”

The same is true with my bills. I mentioned I drive on the New Jersey Turnpike every day. That’s an expensive commute. I use the E-ZPass system to make the drive go quicker and receive a discount on tolls, but this kind of automation lowers my sensitivity to increasing tolls. Since I’m not stopping at the booth and handing out cash, I don’t see that money leaving my wallet. I look at my quarterly statements from E-ZPass, but with 65 weekdays of toll charges, plus some on weekends, it’s easy to let the increases stay buried in my mind.

I’ve begun to offset the toll increases by opting non-toll roads occasionally but with more traffic lights on these alternate routes, I would have to wonder whether the extra fuel expense negates the savings in tolls.

Even though my utility bills like electricity, cable and telephone, as well as my credit cards, are paid automatically each month, I am sure to review the statement or transactions. It’s tempting to let cruise control handle everything. I mentioned that it’s important to ensure money is in the accounts prior to the automated withdrawals, but more attention is necessary. Reviewing statements and transactions is necessary to catch mistakes.

Mistakes can be on the company’s part or on the consumer’s; at least once I’ve forgotten to cancel a “free for the first month” service and was rewarded with a charge on my credit card. I would have remained ignorant of the charge if I didn’t review the statements and download my transactions into Quicken. And I have also experienced a number of mistakes, such as the cable company charging me for a service they didn’t provide.

Companies are quick to encourage automation because they know a certain percentage of consumers will let “mistakes” slip. That’s a statistic I don’t want to be.

What part of your finances is tackled automatically, and are you on auto-pilot or cruise control? Have you ever encountered mistakes you would have missed if you weren’t paying attention?

Photo credit: mhalon

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Put Your Finances on Cruise Control, But Stay Alert

Over the next couple of weeks, six finalists will be auditioning for the opening of “staff writer” at Consumerism Commentary. Each will be providing two guest articles to share with readers. After the six writers have shared their guest articles, readers will have an opportunity to provide feedback before we select the staff writer.

This article is presented by VCMcGuire, a regular contributor to the New York Times and other publications.

I hate shopping. A lot. I have been known to buy the wrong thing, for the wrong price, just to get out of the store.

Buying gifts is the worst. Here’s what happens on a typical shopping trip before Christmas. I’m standing in a store, holding something in my hand, and I’m thinking, “Will this book/sweater/candle show my grandma/father/spouse how much I love them? Do I really know them well enough to know what they will like?”

This is followed closely by another glance at the price tag, and the realization that this month’s credit card bill is going to be bigger than our mortgage payment. Right about then, somebody usually starts hanging on my arm and asking if we can please buy a soft pretzel now, Mom?

That’s when I either convince myself that my father will love that shade of fuschia, or I walk out of the store empty-handed.

Thank god for online shopping. I can do it at home. I can find the best price. In most cases I can find the perfect color and size. And by spending a few extra minutes, I can often get a pretty good discount on my purchase. My goal is to get a discount big enough to cover the shipping charges.

I do this by using a third-party cash back site to get a rebate. I’m a member of several rebate sites, and most of the online stores I buy from participate in at least one of these programs.

But how can you find out whether, say, Macys.com, participates in any rebate programs?

I use a site called Ev’Reward. (Flexo reviewed Ev’Reward back in 2006.) This site lets you plug in the name of a store and find coupons, or rebate sites that will give you a kickback. Online coupons consist of a code you can enter before you buy, and your savings are instantaneous. Rewards sites usually require you to sign up for an account, then click through from their site to the retailer. Once you have accounts with a few rewards sites, though, this is pretty fast. The downside is you have to wait to get your rebate–usually about 90 days from the date of purchase. This gives the retailer time to make sure you’re not going to return your purchase.

I’ve tried a number of rewards programs, and I’ve got my list narrowed down to about four that I use on a regular basis. I don’t participate in any rewards programs that cost money to join. And I don’t use any of my travel reward accounts for this purpose. I get miles and hotel points when I travel, but I would rather have cash money as a rebate for shopping, not miles or points.

Here are my favorite rewards sites, and a summary of their advantages.

• Fat Wallet. Unlike most of its competitors, Fat Wallet has no minimum balance before you can withdraw your money. You still have to wait a couple months for the rebates to clear in their system, but then you can request to be reimbursed through Paypal. The site has a lot of other good features, like a thriving discussion board for bargain hunters, that make it worth a longer visit.
• Mr. Rebates. This site often has the highest rebates for specific merchants. Recently, the minimum withdrawal was lowered to $10, making Mr. Rebates more attractive. This site also has the best referral program. You don’t get anything when you initially refer a friend, but you get 20% of all their rebates for as long as they’re members. If you refer a few big-time online shoppers, you can earn a steady trickle of passive income.
• Ebates. Ebates also has relatively high rebates compared to other sites. Another plus is that they automatically send your rebates quarterly once you reach the $10 minimum pay-out. That means you don’t have to remember to come back and request to be paid. Ebates also has a referral program. When you refer a friend and the friend makes a purchase through Ebates, you get a $5 bonus, but there’s no ongoing kickback for your friend’s future purchases. I recently bought a bunch of school uniforms for my kindergartener from JCPenney.com, and got 3% back from Ebates.
• Upromise. This site’s kickbacks for online shopping are usually much lower than the other 3 I’ve mentioned, but it’s worth signing up anyway. You can register grocery store rewards cards with Upromise, and get a few cents in your Upromise account when you buy selected products. You can ask friends and family to sign up for Upromise accounts, naming your kid as a beneficiary, although some of my relatives were understandably skeeved out by the idea of letting yet another company track and analyze their spending. The rebates accumulate in your Upromise account until you roll them into a 529 college savings plan. We all know college is wicked expensive, so every little bit helps. I’ve been participating in Upromise for a few years now, and I’ve saved a few hundred dollars–enough to pay for a single textbook. Maybe.

So, with the holidays approaching, I’m looking forward to avoiding the malls and getting rebates on all my gift purchases.

I’ve probably missed some good rewards sites, and I know there are other sites besides Ev’Reward for looking up online discounts. What are your favorites?

Don’t forget to check out these recent Consumerism Commentary guest posts on couponing and smart holiday spending for more ideas.

This is a guest article by VCMcGuire, one of six finalists interested in being Consumerism Commentary’s staff writer.

The Consumerism Commentary Podcast is in full swing with new episodes every Sunday. Listen and subscribe now!

How To Do Your Holiday Shopping Through Rebate Sites

A year ago, a group of investors offered $20 million to buy the Pontiac Silverdome, the seldom-used, dome stadium that used to be the home for the Detroit Pistons and Michigan Panthers. The deal eventually fell through. In a sign of the state of the commercial real estate market, the winning bid for the Silverdome in auction this week was $583,000.

It cost $55.7 million to build the stadium 35 years ago, but today the location where Pink Floyd surprised fans in 1994 by playing Dark Side of the Moon in its entirety for the first time since 1975 is worth less than the new houses down the street from me.

The lucky buyer is a Canadian company that is said to want to bring soccer to Detroit, but Major League Soccer disavowed any knowledge of these plans.

The whole situation seems suspect. What happened in the last year to drive the market price down from $20 million to less than a McMansion? Did the Canadians get a deal that’s too good to be true? Or should this be expected considering Pontiac’s proximity to Detroit, a city in desperate need of economic recovery?

Photo credit: Dave Hogg
Silverdome sale price disappoints, Mike Martindale, November 17, 2009

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Pontiac Silverdome Sold for Less Than a House

Over the next couple of weeks, six finalists will be auditioning for the opening of “staff writer” at Consumerism Commentary. Each will be providing two guest articles to share with readers. After the six writers have shared their guest articles, readers will have an opportunity to provide feedback before we select the staff writer.

This article is presented by J.J., a financial adviser and published financial author.

Roth IRA conversion rules are changing next year. Even if you make more than $100,000, you’ll be allowed to convert Traditional IRA money into after-tax Roth money. You can even spread the tax payments out over a few years to make it easier if you convert during 2010.

Does it make sense to do so?

We’ve touched on the 2010 Roth conversion rules before. Let’s dig deeper into why it may or may not make sense to convert.

Why convert?

The 2010 conversion rules may help some taxpayers. In general, the opportunity is more attractive if:

• You think tax rates are headed higher
• You’ve been making nondeductible IRA contributions
• You have a high net worth or you want to leave more for your heirs
• You want to diversify the tax status of your money, just like you diversify your investments

Higher tax rates

With higher tax rates in the future, you can get your tax payment out of the way now — at a lower rate. What might make tax rates higher in your retirement years? You could have higher earnings, lawmakers could raise tax rates overall, or both.

With all the talk of government bailouts and broken entitlement systems (like Social Security and Medicare) it’s easy to see why rates could go up. The government needs money, but the solution may not be as simple as an income tax rate increase. There are other ways they can drum up cash:

• Consumption or value added taxes (VAT)
• Change how much you and your employer pay for Social Security
• Change limits on retirement plan contributions
• “Forget” to change certain limits with inflation (IRA and retirement plan contributions, compensation recognized for Social Security and retirement plan calculations, etc)
• Change the laws and make Roth distributions taxable (or potentially taxable, like Social Security benefits)
• Other strategies I’m not smart enough to understand

If you’re betting on higher tax rates, make sure you understand how the bet can go wrong.

Nondeductible contributions

If you’ve been making nondeductible contributions, you’ve practically made Roth contributions anyway. In fact, you probably couldn’t deduct the contributions because you make too much money. For you, the conversion option is worth investigating because it would allow you to get the earnings out tax-free – as opposed to just the contributions.

Ideally, you’ve been making nondeductible contributions in recent years, and you have little or no earnings in the account after the recent market decline (sometimes there’s a silver lining). If so, the tax hit may be minimal. However, you should look at all your IRA accounts in aggregate to figure out how much it’ll cost.

Diversify, diversify, diversify

Diversification is another decent reason to consider converting. Most people have all (or a majority) of their retirement savings in Traditional pre-tax accounts. They’ll have to pay income tax as they spend that money. Since we don’t know what tax rates will do, it may make sense to hedge your bets.

If you have a choice of funds (pre-tax and post-tax) in retirement, you can choose whether or not to increase your tax bill in a given year. Suppose you do some consulting work and earn money – it may make sense to take a Roth distribution that year. On the other hand, you can take Traditional distributions when you have little or no taxable income.

Estate planning

If you’re fortunate enough to have an estate planning problem — or just more money than you need — then Roth money can come in handy. By converting, you pay taxes today so your heirs can take tax-free distributions (unless they change the rules and start taxing Roth distributions, of course). You also remove money from your estate when you pay the tax bill.

You’re required to take distributions from Traditional IRAs during your lifetime, starting after you reach age 70.5. The government wants you to generate some tax liability on all that money you’ve been protecting, so they force you to dribble it out over your remaining years. Roth IRAs do not have this requirement, so you can leave more for your heirs.

Proceed with caution

If the idea attracts you, don;t rush into anything. In the coming months, we’ll learn more about the complexities of the 2010 conversion rules, and how the landscape may change (for example, will tax rates increase in 2011 and 2012 — making it less attractive to spread the payments out?). Unless tax rates in your retirement years increase substantially, you probably won’t hit a home run by converting. However, you might come out ahead or just enjoy having more flexibility in retirement.

Remember that if you earn over $100,000, you’re already in a fairly high tax bracket (at today’s rates at least). A conversion won’t be cheap, and you should pay the taxes due from savings available to you outside of your retirement accounts.

Give your eyes a break and listen: a recent Consumerism Commentary podcast has more insight into the 2010 conversion rules.

Will you take advantage of the Roth conversion rules next year? Why or why not?

The Consumerism Commentary Podcast is in full swing with new episodes every Sunday. Listen and subscribe now!

2010 Roth Conversion: Good Idea?

The Credit CARD Act of 2009 instructed the Federal Reserve to enact new regulations for gift cards. I have a love/hate relationship with gift cards; they’re convenient gifts to give when you know the recipient is a fan of a certain store. Unfortunately, the past few years have seen restrictions added to gift cards which make them unappealing. Some gift cards expire if not used within a certain amount of time, rendering the money spent to buy the card worthless. Some gift cards come with a monthly fee or an inactivity fee.

It makes more sense to simply give cash rather than a gift card, eliminating the third-parties like stores and payment processors and eliminating any limitations to its use. This avoids the issue of whether fees should be charged for these products. But some people consider the gift of cash inappropriate, more than those who consider the gift of gift cards inappropriate. Thus, the Congress and now the Federal Reserve wants to protect those who choose to buy and those who receive gift cards.

The new regulations call for an elimination of inactivity fees (until the card has been inactive for a year) and eliminations of fees for balance inquiries and transactions. All of the changes to gift cards by law do not need to be made effective until August 22, 2010.

The Federal Reserve is preparing to accept comments from the public for thirty days. You can read the full proposed regulation and in the next few days, you can begin to submit your comments to the Fed here. (Look for Regulation E, R-1377.) Here are some questions to consider as you formulate your comments:

• Are these restrictions necessary when consumers can easily choose not to purchase gift cards?
• Would better disclosure be better than restricting fees?
• There is a cost to offering gift cards; how should stores pay for those expenses if not with fees?
• Should all gift card fees be eliminated, so gift cards are as good as cash in all cases?
• Why wait until August 22? Can the new regulations be implemented sooner?

Photo credit: _rockinfree

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Federal Reserve Wants Your Opinion About Gift Card Fees

When I was a new college graduate in 1997, I got my father to co-sign on a credit account so I could buy a computer. It was a shining white beautiful Gateway 2000, it probably cost around $2,000 (you kids and your $300 computer deals!), and it came with an interest rate of 26.9%.

Around the same time, I was approved for my first credit card, and then my second, and things went pretty badly after that.

Some of the details of that time in my life are fuzzy, but I know that I paid off the computer loan. I had to move back in with my parents in order to afford that, but it was paid off. And until today, that was the only installment or credit account I have ever fully paid off. I’ve gone for eleven-ish years with nothing but revolving credit and unpaid loans to my name.

But I’m proud to announce something totally mundane: we paid off our Rooms-to-Go credit account. That nice big bed in our master bedroom? We actually own that. Like I said, it’s mundane, and there’s probably no reason for you to be impressed by that, but it means the end of a nasty stretch of feeling entirely guilty.

Now I just feel mostly guilty. I’ve still got a balance on what I call my “legacy credit debt” – the debt that’s been in various states of huge for over a decade, and which gets consolidated and moved around but never fully wiped out. But there is good news there, too: that balance is below $2,000 for the first time since the 1990s. I haven’t charged anything to that card since I-don’t-know-when, and I can see the light in the clearing.

Unfortunately, there’s more bad news. My other credit card – the one that I didn’t intend to carry a balance on – has a big balance on it. It’s embarrassing… so much so that I’ve avoided even telling you guys about it. I bought a Mac Mini to use in the entertainment center, and we got tickets for a comedy convention next year, and a paranormal investigation, and we started a corporation. Needless to say, those aren’t the daily expenses I was expecting to put on that card.

Oh, but there’s more good news: my wife got a raise recently, which means she can contribute more to the joint expenses, which means I can make higher payments on my credit card debt.

I estimate that I’m about 8-10 (so, probably 14) months away from having no more credit card debt, assuming I can avoid any more vacation ideas or shiny electronics. I just have to keep reminding myself that all progress is good progress, and kicking myself accomplishes nothing.

Wish me luck.

(Normally, I’d say that luck isn’t even involved, here, but it’d be great if my employer got enough business in the next couple of months to restore our salaries to their original positions. The salary thing really hurts.)

The Consumerism Commentary Podcast is in full swing with new episodes every Sunday. Listen and subscribe now!

Two Down, $2,000 to Go

Over the next couple of weeks, six finalists will be auditioning for the opening of “staff writer” at Consumerism Commentary. Each will be providing two guest articles to share with readers. After the six writers have shared their guest articles, readers will have an opportunity to provide feedback before we select the staff writer.

This article is presented by Debbie Dragon, a full time freelance writer and co-owner of ReliableWriters.

When farming was a common way of life, more Americans were self-employed than not. With the growth of corporations in recent decades, many Americans decided to get on the corporate bandwagon in hopes of climbing the ladder to success. In recent years, due partly to the struggling economy, many people are turning to self-employment. When people are laid-off, many take their skills to the marketplace and become entrepreneurs.

Thanks to technology, many businesses can be started from home and with little capital. This is a good thing, since banks are hesitant to lend money to anyone, let alone a business start-up. For a few hundred or a couple thousand dollars, a business can be set up complete with a logo, website and business structure. While it’s true that a poor economy may mean less people have the money to buy whatever you sell — many successful businesses start during a recession and are then positioned perfectly when the market turns around.

According to the last U.S Census, more than 10 million Americans are self-employed. I would be willing to wager that the number has increased drastically in just the last five years, with more people starting freelance and home based businesses “on the side” to increase their income or as a replacement for a job lost to the economic conditions. Self-employed Americans do everything from construction to accounting to crafts, but the most commonly selected industry on self-employed income tax returns is “professional and business services.”

In previous decades, there was a tendency for self-employed Americans to be male and white. During the years between 1976 and 2003, a surge of women entrepreneurship blossomed, with an increase from 27% of self-employed workers being women to 39%. Many women start small businesses in an effort to both contribute to the family income and still have the flexibility to raise their families. You’ll also notice that self-employed people are over-represented at the top of the income curves for America, helping prove that greater rewards are given to those who take larger risks (in some cases). Entrepreneurship has always been valued in American culture, and a poor economy seems to nurture it rather than squash it.

For every depressing statistic and news story given about the economic condition it’s almost as if the entrepreneurial spirit is awakened in people who are determined not to sit by helplessly as jobs are lost. The economic conditions serves as motivation for some, whether that motivation is driven by plain fear — or hidden ambition.

This is a guest article by Debbie Dragon, one of six finalists interested in being Consumerism Commentary’s staff writer.

The Consumerism Commentary Podcast is in full swing with new episodes every Sunday. Listen and subscribe now!

The Economy Triggers a Rebirth of the Entrepreneurial Spirit

On Saturday, an auction in New York featured items once owned by Bernard Madoff. The auction raised over $900,000, beating expectations. Once combined with proceeds from another auction later this week, it’s likely that this money will go to investors who were burned by Madoff’s Ponzi scheme.

Here are some of the items that received winning bids this weekend:

• Two pairs of Ruth Madoff’s diamond earrings: $140,000
• Bernie’s Mets jacket: $14,500
• Three duck decoys: $11,500
• Madoff branded boogie boards: $1,000
• A life preserver: $7,500

Serving 150 years in prison could likely be, from an asset value standpoint, one of the best things to happen to Madoff. Of course, he won’t be able to enjoy the benefits of his celebrity status. The benefits of this auction and Tuesday’s auction of larger assets such as Madoff’s boats will go to his victims. One of these victims is allegedly Zsa Zsa Gabor. She owes $120,000 to the IRS and claims her inability to pay is due to Bernard Madoff who took $7 million of her money through the Ponzi scheme.

Zsa Zsa will assemble the money with the help of her ninth husband and will do what many people do when they owe the IRS money: They will set up a payment plan on pay the debt over time.

Watch eBay and other auction houses; perhaps some of these items will continue to fetch higher prices due to their association with the most popular investment scammer in recent history.

Madoff’s Mets jacket sells for … $14,500, Les Christie, CNN Money, November 15, 2009
Zsa Zsa Gabor says she was victim of Bernie Madoff, Jessica Hudson, Examiner.com, November 15, 2009

Consumerism Commentary was included as an Editor’s Choice in the 229th edition of the Carnival of Personal Finance earlier this month with Seven Zen Principles to Guide Your Money and Your Life.

The Consumerism Commentary Podcast is in full swing with new episodes every Sunday. Listen and subscribe now!

The Madoff Name Premium

The guest on today’s Consumerism Commentary Podcast is Nick Corcodilos, author of Ask the Headhunter: Reinventing the Interview to Win the Job and How to Work With Heahunters. Nick is the founder of the website Ask the Headhunter where he offers advice about job hunting.

Today, Tom Dziubek and Nick Corcodilos discuss the job of the headhunter and what job hunters need to do in this economy to get a great job and advance their careers.

Production Number: S02E04
Segment Number: 43

To listen, use the player above (Adobe Flash required), download the podcast here, subscribe to the podcast RSS feed, or use the iTunes link. Note: open links in a new window (Ctrl-click or Command-click) to avoid interrupting the podcast.

[00:00] Introduction from Tom Dziubek
[00:31] Interview with Nick Corcodilos from “Ask the Headhunter”
– [00:51] The job of a headhunter
– [01:32] Assistance with the job search
– [02:47] Bad headhunters’ mistakes
– [04:20] Networking for job seekers
– [06:03] New job search recommendations
– [08:03] Searching for jobs online
– [10:34] Negotiating for a better salary
– [12:01] The current job market
– [13:33] How to Work With Headhunters
[16:18] End

We always welcome feedback from listeners. If you have any comments for this episode or for any other, or if you have suggestions for future episodes, please leave us comments here or email us at podcast at this domain name.

The Consumerism Commentary Podcast is in full swing with new episodes every Sunday. Listen and subscribe now!

Podcast 30: Nick Corcodilos, Ask the Headhunter

Over the next couple of weeks, six finalists will be auditioning for the opening of “staff writer” at Consumerism Commentary. Each will be providing two guest articles to share with readers. After the six writers have shared their guest articles, readers will have an opportunity to provide feedback before we select the staff writer.

This article is presented by Kelly Whalen, a mostly stay-at-home mom who writes about personal finance at The Centsible Life.

News that the recession may be over has many retailers hoping that American consumers will open their purses and wallets and spend more this holiday season.

Frugality has been popular during the recession, so retailers are targeting your frugal side to make sales. This holiday season will see a rash of new promotions and coupons aimed at your frugal side.

Several retailers are starting to offer “Pre-Black Friday” deals. Amazon.com for instance offered several electronics deals on November 7th. Even upscale retailers such a Pottery Barn are offering more items with free shipping, and a larger selection of sale items to draw more consumers. While many retailers, like Crate & Barrel, have free shipping on purchases over a certain dollar amount. Crate and Barrel’s offer is free shipping on orders over $100 between Oct. 15 and Dec. 22, 2009.

Despite the draw of deals, most Americans will be spending less this year on holiday gift giving. Of those I informally polled, no one said they would be spending more than they had in the past, and the majority of people had 3 methods for reducing spending this year:

1. Shorten the list: Shopping for fewer people topped the list of ways to reduce holiday spending. Co-workers, hostess gifts, and other small gifts can really add up.
2. Handmade gifts: Most people will understand your budget is a tight, and would rather have your award winning brownies than $20 worth of too pretty to use speciality soaps.
3. Smarter spending: The best way to save money this holiday season (and year round) is to spend smart. I’ll share 10 ways you can be giving this holiday season without sacrificing your savings.

10 ways to spend smarter

I’ll share my top 10 ways I shop smarter, which are helpful for the holiday season and beyond.

1. Make a list whenever you leave the house. Make a list, check it twice, don’t leave home without it!
2. Use coupons and discounts, but only for things you need. Coupons are a great way to save money, but look for coupon codes or discounts for things that are on your list. You are NOT saving money spending on things that you don’t need.
3. Create a “sale mail” email account. Set up an email account and sign up for emails from your favorite or most frequently shopped stores. Ignore it unless you are shopping, and check it before you make a purchase.
4. Plan ahead for big purchases. Use this list as a guideline to find the best time of year to purchase most goods.
5. Eat before you shop. Pack snacks or a meal if you will be out for a long time. Make sure to pack water as well. This not only saves money when food shopping, but also when you are doing other types of shopping as well!
6. Choose quality over quantity. Use Consumer Reports, or other reviews to find a product that will last you longer than a cheap one.
7. Institute a waiting period. Whether it’s a 30 day waiting period for larger purchases or a day long waiting period for small purchases, a waiting period is a great way to control your budget.
8. Use your budget. Shop within your means. Simple, I know but difficult for some people (including me) to practice.
9. Look online before you buy. Knowing the price of something online saves you time (no running from store to store), and you can guarantee you’ll know the cheapest price. Many stores offer price matching, so it’s a great incentive to spend 5-10 minutes searching the web.
10. Don’t be afraid to bargain. Flexo had success bargaining, and saved $85 on a computer. It may seem difficult to do, but it’s worth trying, and could save you a ton of cash.

What’s your holiday budget this year? What ways do you save on holiday shopping?

To keep track of deals online for the holiday season, keep track of current Black Friday Deals at black-friday.net and find out about free shipping day, or find free shipping deals on freeshipping.org.

This is a guest article by Kelly Whalen, one of six finalists interested in being Consumerism Commentary’s staff writer.

Photo credit: stevendepolo

The Consumerism Commentary Podcast is in full swing with new episodes every Sunday. Listen and subscribe now!

How to Spend Smarter This Holiday Season

While most banks are still lowering their interest rates, Ally Bank increased its rate today, November 13, 2009, to 1.64% APY. Although the rate is up, it is only 0.09 percentage points higher than the rate of 1.55% last month, the lowest rate from Ally Bank or GMAC Bank since I started watching interest rates at the beginning of this decade.

It seems like savers are being punished with these low rates, but I don’t see it that way. Inflation is still low, for now, so savers aren’t quite losing ground. But savings accounts aren’t meant to be appreciating investments, anyway. The low rate is the price we pay for safety and quick access to the money.

To compare Ally’s rates with other banks, and to see how the rates have changed over the past two years, check out this list of historical savings interest rates.

The Consumerism Commentary Podcast is in full swing with new episodes every Sunday. Listen and subscribe now!

Ally Bank Increases Interest Rate to 1.64% APY

With Congress threatening to create new consumer protection agencies to protect the public from customer-unfriendly banking practices, the Federal Reserve stepped in today to prove it is still relevant and involved with banking regulation. The Fed announced that as of July 1, 2010 for new bank accounts or August 15, 2010 for existing accounts, banks must have received permission from their customers before charging overdraft fees.

Overdraft protection will only be an opt-in service. There are some exemptions to this new rule, however. The only type of overdraft protection requiring customers’ consent is the type in which the bank covers the overdraft to cover the debit. If your overdrafts are covered by a linked savings account or credit card, you could still be charged a fee. Usually these fees are lower, such as $5 rather than $35.

Also, only overdrafts caused by transactions with debit cards or ATM cards qualify for opt-in only. If a customer writes a check that causes an overdraft when cashed, the bank is still free to charge an overdraft fee without the account holder’s permission. Banks still argue this overdraft coverage is a benefit that customers want and don’t mind paying the fee. Customers would rather have their rent or utility check go through if it costs $35 to cover the overdraft than to have their check bounce.

According to a recent survey by ING Direct, 24 percent of Americans are angry about overdraft fees. Are you angry? I can’t bring myself to get worked up about these fees, myself; avoiding them is pretty simple:

• Don’t let your bank account get anywhere close to a zero balance. Always keep a buffer in any account you use for making payments. If you get close to zero, you are much more likely to fall into a bank’s trap, including multiple overdraft fees on the same day.
• Don’t count on money you deposit into your account actually being there until you confirm that the cash is available. Sometimes check deposits take more than a week to clear, and banks can still pull back the funds for weeks after the deposit if there is a problem.
• Here are ten tips for avoiding overdraft fees.

Banks will earn almost $40 billion from overdraft fees this year, and you can be sure the industry doesn’t want to see that practically free revenue disappear. When one door closes, another opens. Banks will innovate and find news ways to collect fees. We already see Bank of America planning to charge annual fees to credit card users who pay their balance in full every month. I expect the news will be full of stories about new fees for the next year.

Photo credit: smith
Fed: banks need customer consent on overdraft fees, Associated Press, November 12, 2009

The Consumerism Commentary Podcast is in full swing with new episodes every Sunday. Listen and subscribe now!

Federal Reserve Issues New Rules for Overdraft Fees

Over the next couple of weeks, six finalists will be auditioning for the opening of “staff writer” at Consumerism Commentary. Each will be providing two guest articles to share with readers. After the six writers have shared their guest articles, readers will have an opportunity to provide feedback before we select the staff writer.

This article is presented by VCMcGuire, a regular contributor to the New York Times and other publications.

I ran my freelance writing business out of my dining room until July, when my family moved to a bigger house. Now I run my business out of a dedicated room on the second floor — a room that we have to heat, cool, clean and furnish. Instead of sharing a 5-year-old inkjet printer with the rest of the household, I have an all-in-one printer, scanner and copier. And it’s time to stop scrawling my email address on a piece of scrap paper when I meet potential clients. I need to bite the bullet and order some business cards.

My business is going through what all personal finance junkies dread: Lifestyle creep.

Normally we think of lifestyle creep as something that happens to individuals or families. Investopedia defines lifestyle creep as “a situation where people’s lifestyle or standard of living improves as their discretionary income rises.” When this happens, people often commit to higher fixed expenses, such as bigger house payments, rather than using the extra income to reduce debt or build savings. Paying for an increasingly lavish lifestyle can make us too dependent too quickly on the new, larger salary. This makes it harder to change careers, retire, or weather a period of unemployment.

I’m learning the hard way that small businesses can get caught in the same trap. Moderate success can spur increased spending on the business itself, making it hard to return to the early days of running the business on a shoestring. As problems go, this is a good problem, especially in the middle of a recession. My business is becoming more established, less fly-by-night.

But I don’t want to get stuck in a cycle of spending long hours in my home office, working to pay for the home office. So I’ve been thinking of steps I can take to make sure my business expenses don’t eat up all my income.

1. Be smart about taxes. Now that I have a dedicated work space at home, I can take a home office deduction on my taxes. This means I can deduct a portion of our mortgage interest and utilities. I’ve also changed the way I save for retirement. Now that I’m paying self employment tax, I have a bigger incentive to contribute to my retirement accounts with pre-tax earnings. So I’ve stopped contributing to my Roth IRA, and instead I’m putting away money in a SEP-IRA.

2. Don’t overspend on self promotion. I’ve been thinking it’s time I put together a website to showcase the projects I’ve done and attract new clients. That means buying a domain name and hiring a web designer, and maybe a photographer to take a head shot of me. I already mentioned the business cards. I love the way letterpress printing looks, don’t you?

Wait a second. All this, just to promote a business that I can do part time, at home in my pajamas? If I’m not careful, I could easily spend all my freelance income and then some. There’s got to be a less expensive way to promote my business.

I can think of a lot of successful freelance writers who don’t have websites. Some link to online writing samples in their LinkedIn profiles, some write query letters to editors, and some get work through good old fashioned word-of-mouth. I could put together a simple site on my own without hiring a web designer. I have talented friends–one of them could probably take a perfectly good head shot. And I can buy a box of basic business cards online for less than $20.

3. Stick to a budget. I’m frugal when it comes to household spending, but for some reason it’s easy for me to justify spending money if it’s work-related. If I go to Staples, I usually end up walking out of there with some goodies that weren’t on my list. But they’re for work, so it’s okay, right?

It’s just as important to be frugal when buying office supplies as it is to be frugal at the grocery store. The tax deduction helps take the sting out of business spending, but it’s always better not to spend the money in the first place. Here’s where self knowledge comes in. I’ve learned I’m less likely to impulse buy if I’m in a hurry. If I go to Staples and wander around the store with a cart for 45 minutes, of course I’ll put things in the cart. But if I stop by for printer paper 10 minutes before an appointment, I will probably walk out the door with only printer paper in my hand.

So what’s a reasonable budget? It’s time to look at my records to find out how much I spend, average, on things like office supplies, computer equipment, and phone calls. Then I’ll figure out which expenses are fairly regular, like subscriptions and toner, and which big irregular expenses that can be anticipated, like computer hardware. Once I have that information, I can look for places to cut back.

4. Don’t be afraid to spend money. Sometimes spending money pays off. I was spending several dollars every time I needed to fax something, not including drive time to Kinko’s. Since I spent $125 on a printer with a built-in scanner, I’ve been able to get away with faxing less, because most companies will accept an emailed PDF file rather than a fax. I’m expecting the new equipment to pay for itself within a year, between reduced costs and increased efficiency.

5. Don’t skimp on insurance. Insurance is the bogeyman of the self-employed. It’s expensive, but it’s not smart to go without. I’m more fortunate than many freelancers because I have a part-time day job that gives me access to affordable health insurance. These situations, while hard to find, do exist. Other insurance solutions for the self-employed include joining a professional organization that offers group insurance rates to its members, or buying a high-deductible plan with a Health Savings Account. (You can see other Consumerism Commentary posts about insurance here.)

Believe me, I’m thrilled that I’ve graduated from writing at the dining room table. But now that I’ve got the basic ingredients to run a modest but successful freelance writing business, I need to make sure to keep my costs down and avoid the temptation to ratchet up my business expenses year after year.

Has your small business experienced lifestyle creep? What are your strategies for keeping your overhead low?

This is a guest article by VCMcGuire, one of six finalists interested in being Consumerism Commentary’s staff writer.

Photo credit: Kaspars Butlers

The Consumerism Commentary Podcast is in full swing with new episodes every Sunday. Listen and subscribe now!

Lifestyle Creep and the Self-Employed

Over the next couple of weeks, six finalists will be auditioning for the opening of “staff writer” at Consumerism Commentary. Each will be providing two guest articles to share with readers. After the six writers have shared their guest articles, readers will have an opportunity to provide feedback before we select the staff writer.

This article is presented by Ray, the owner and primary author of Financial Highway, where he discusses investing, saving and practical money management concepts.

I hate going through bills and statements every month, but the Mrs. on the other hand is very particular about it, she goes through all of the bills and checks items off “what a waste of time” I used to think until I recently. The few minutes it takes to check your bills can save you a lot of headache in the future.

Fraudulent charges

The most obvious reason you should take the time to check your statements is to check for unauthorized charges. This happens more frequent than you would think, if there is a large fraudulent charge it would be easy to detect but it’s the small amounts that can go unnoticed for a long time. This could also be charges that are not necessarily unauthorized but certain fees that you are unaware of, often you have between 60-90 days to dispute these charges so it is important to check regularly and report such charges immediately.

Mistakes

Yes mistakes happen, sometimes you are charged for things you are not suppose to be charged for, maybe a promotion ended or maybe a new fee was placed on certain things and you may miss them. By checking your bills regularly you will be aware of any extra fees or mistakes on your accounts, again taking early action will help you rectify these issues.

Accounting

Although I am a big fan of putting your finances on autopilot, you still need to keep track of your spending and budgeting. Going through your bills and statements will enable you to keep track of your expenditures and see if you are staying within your budget. It will also help you keep track of who you owe and how much, doing this on monthly bases will save you a lot of time at the end of the year and during tax filling.

Promotions and changes

Every now and then I notice some promotional offer being available from the company, for example recently I noticed that we can get a free upgrade on our TV package for six months, I love free! Checking the bills you may be able to find a few good promotions, which can go a long way. Companies also notify their customers of any changes in their terms and conditions when they send out the bills, you may miss important changes if you do not go through them which can end up costing you in the end.

I used to hate going through bills, but now I realize that those few minutes can save me a great deal of headache and run around later on. Not to mention the potential of saving money.

Do you go through your bills? Any other reasons why one should go through their bills on regular bases?

This is a guest article by Ray, one of six finalists interested in being Consumerism Commentary’s staff writer.

The Consumerism Commentary Podcast is in full swing with new episodes every Sunday. Listen and subscribe now!

4 Reasons Why You Should Read Your Bill Every Month

I can’t remember the last time I’ve signed the back of a credit card, and I use my credit cards (one for personal travel and big expenses, one for all other personal expenses, and one for business expenses) almost every day. It has never caused me any problems with cashiers; at the most, I might get a dirty look or I might have to show my license, but almost always the cards are accepted without much thought.

A lot of retailers have terminals where customers can swipe their own card, so many cashiers don’t even get the chance to check for a signature on the back. Even those who ask to see the card take no more than a quick look at the back. Most do nothing but punch in the last four digits into their point-of-sale computer and hand the card back.

It’s fairly common to write “See ID” or “Ask for ID” in the signature block on the back of credit cards but not every retailer reacts the same way when encountering this request. Here is a question I received from a Consumerism Commentary reader, Ryan:

I was recently told by a retailer that they would not accept my debit/credit card because I had not signed the back and wrote “SEE ID” instead. I was told the card was not valid and I was required to sign it in order to use it. I have done this same practice for over twelve years and have never been asked about it before now.

I was told they were cracking down… So the sale was denied and the charges reversed. First, is a signature truly required? If so, how can online and “swipe-less” transactions with my card be legal?

If you ask Visa or MasterCard, the policy is clear. For all in-person transactions, a signature on the card is necessary. If a signature is not on the card, retailers are instructed to require the customer to sign the card and provide identification.

Here is the related section of the Rules for Visa Merchants:

The final step in the card acceptance process is to ensure that the customer signs the sales receipt and to compare that signature with the signature on the back of the card… While checking card security features, you should also make sure that the card is signed. An unsigned card is considered invalid and should not be accepted. If a customer gives you an unsigned card, the following steps must be taken:

• Check the cardholder’s ID. Ask the cardholder for some form of official government identification, such as a driver’s license or passport. Where permissible by law, the ID serial number and expiration date should be written on the sales receipt before you complete the transaction.
• Ask the customer to sign the card. The card should be signed within your full view, and the signature checked against the customer’s signature on the ID. A refusal to sign means the card is still invalid and cannot be accepted.
• Ask the customer for another signed Visa card.
• Compare the signature on the card to the signature on the ID.

If the cardholder refuses to sign the card, and you accept it, you may end up with financial liability for the transaction should the cardholder later dispute the charge.

Some customers write “See ID” or “Ask for ID” in the signature panel, thinking that this is a deterrent against fraud or forgery; that is, if their signature is not on the card, a fraudster will not be able to forge it. In reality, criminals don’t take the time to practice signatures: they use cards as quickly as possible after a theft and prior to the accounts being blocked. They are actually counting on you not to look at the back of the card and compare signatures — they may even have access to counterfeit identification with a signature in their own handwriting.

“See ID” or “Ask for ID” is not a valid substitute for a signature. The customer must sign the card in your presence, as stated above.

MasterCard’s rules are similar, and most agreements between merchants and third-party payment processors reflect these rules.

You might think that would be the end of the story, but in reality these rules are almost never followed. The banks that offer credit cards on Visa’s network or MasterCard’s network, like Citi and Bank of America, may not even be fully aware of the signature requirement. I called Citi to speak to a customer service representative to try to gauge the bank’s preference. The person I spoke with seemed unfamiliar with MasterCard’s rule. She mentioned that it’s quite common for customers to write “See ID” on the back of the card and for those cards to be accepted. The representative understands most retailers will ask for identification and complete the transaction without requiring a signature.

According to the customer service representative the retailer has the authority to decline a transaction if the signature is missing even though most retailers don’t. Although Visa and MasterCard would like to require a signature, most retailers are willing to bend the rules to make the sale and remain customer-friendly.

Ryan also asked about online or “swipe-less” transactions. It certainly is legal to use credit cards for online or telephone-based purchases. In these cases, the “card-not-present” situations in which retailers can’t view the signature on the card, retailers are supposed to implement more security features such as the following:

• Pre-authorize the transaction
• Ask for the card’s expiration date
• Ask for the card verification code (CVV2 or CVC2), the three digit code on the back of the card, or the four digit code on the front of American Express cards
• Verify the card holder’s address (AVS)

It is up to a retailer how secure they want to make the transaction process. Making the process easier for customers, by not verifying address or not asking for a CVV2 code for example, also invites more fraud. Fraud results in chargebacks to the merchant, and merchants really do not enjoy dealing with chargebacks. (This is what happens when you call your credit card to dispute a charge you may or may not have made.)

You are at the mercy of the retailer or cashier when it comes to acceptance of credit cards. If a cashier won’t accept your card without a signature, you could try asking for the manager but don’t be surprised when a retailer won’t complete the sale without a signature. Not many are this strict, but those who do require the signature are sticking to Visa’s and MasterCard’s rules.

Readers: Do you sign the back of your credit and debit cards, leave them blank, or write “See ID?” Have you encountered any push-back from cashiers?

Photo credit: Ciaran McGuiggan
Rules for Visa Merchants, November 10, 2009

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Reader Question: Can You Write “See ID” Rather Than Signing Your Credit Card?

Over the next couple of weeks, six finalists will be auditioning for the opening of “staff writer” at Consumerism Commentary. Each will be providing two guest articles to share with readers. After the six writers have shared their guest articles, readers will have an opportunity to provide feedback before we select the staff writer.

This article is presented by J.J., a financial adviser and published financial author.

Target date funds are under scrutiny in Washington as lawmakers figure out if they work the way they’re supposed to.

Also known as lifecycle funds, these funds become less risky as time goes on. They’re popular in 401(k) plans and other retirement plans because they make diversification easy. You select one target date fund from your plan’s menu, and that fund spreads your money among numerous underlying funds.

Most people are told to select the fund that has a number closest to their retirement year. Plan to retire soon? You might choose the “2010 Target Date Fund.” If you’re 26 years old, you might select the “2050 Target Date Fund.”

These funds are also common in 529 college savings programs where they may be called “age based” funds. The concepts are the same, so we’ll talk in terms of retirement for now.

For some, especially those who will not put time and energy into studying their investments, target date funds are a fine choice. They offer diversification and continuous re-balancing. They may have exposure to things (alternative strategies, commodities, or sector funds) you can’t find on your plan’s menu or that you don’t have enough money to buy into.

However, they’re far from perfect. Let’s cover a few of the major problems and what you can do about them.

What’s the right mix?

There are dramatic differences in how they’re constructed. For example, consider two funds with a target year of 2010. This would be a fund designed for an older investor — planning to start spending the money within a year — who presumably does not want to take much risk.

Fund Company A’s 2010 fund might have 26% in stocks, but Fund Company B’s 2010 fund might have 72% in stocks. Indeed, that’s exactly what happens. Morningstar published a study showing equity exposure in 2010 funds, and results are all over the board. Do most 65-year-olds want 72% of their money in the stock markets?

Critics suggest fixing this problem by standardizing equity exposure for each target year, or at least requiring more understandable charts showing the fund’s risk level. Some investors may be comfortable with high risk portfolios, but they should at least know what they’re getting into.

Who’s running the money?

Target date funds are made up of 10 to 30 underlying funds. Are those funds any good?

Critics argue that some fund companies put poor funds into their target date funds to feed money into those poor funds. If that’s the case, the Large Cap Value portion of your target date fund may be run by an under-performing manager or team. Of course, this is less of a risk if the fund company only uses index (or passive) funds.

The best target date funds are probably multi-fund-family funds. For example, T. Rowe Price’s target date funds are composed entirely of T. Rowe Price mutual funds. John Hancock uses different money managers to subadvise pieces of their target date funds. This lets them use best-of-breed managers for some portions of the portfolio and index funds for other portions.

Note that I have nothing against (nor do I endorse) either of the above companies; this is just food for thought.

What about fees?

It’s always hard to tell how much you’re paying with a mutual fund. Target date funds are especially tricky because they’re made up of many underlying funds. Most companies disclose “overlay” fees, the fee for creating the mix of investments and managing it over time, in a prospectus, but few investors look under the hood.

Multi-fund-family funds may have arrangements that create potential conflicts of interest. Why is one manager used instead of another? Hopefully it’s because of superior management, but you know it’s not always that simple.

Finally, some say that target date funds have excessive equity exposure because equity funds generate more revenue. That may help explain why a 2010 fund has 72% in stocks.

What can you do?

Target date funds are designed to make life easy, so requiring you to do homework kind of defeats the purpose. However, they’re out there and they may be your only option (or the best option available to you). It pays to know how they work and how you can improve your chances:

• Ask for help. Your 401(k) provider, financial advisor, or DIY investment company should be able to help you figure out what you’re investing in.
• Look under the hood. Understand how much is in stocks, bonds, foreign assets, and other assets. Are you comfortable with that mix?
• Make changes. If you don’t like what you see, use something else. If you’re limited to your employer’s retirement plan menu, consider using other investments. Talk to the HR department about your concerns.
• Bend the rules. Target date funds are designed for you to put 100% of your money into a fund with a target date near your retirement date. You can always use a different year to increase or reduce risk, or you can put 80% into the target date fund and 20% into another fund.
• Lean on regulators. Let them know what’s important to you or hope for the best.

Tell us about your experience with target date funds. Why do you use them or avoid them?

This is a guest article by J.J., one of six finalists interested in being Consumerism Commentary’s staff writer.

Photo credit: eyeliam

The Consumerism Commentary Podcast is in full swing with new episodes every Sunday. Listen and subscribe now!

The Trouble With Target Date Funds

One of my favorite bloggers, and likely one of yours, is J.D. Roth. He has been writing about personal finance at Get Rich Slowly for some time now, and I was a fan of his writing at foldedspace when “blog” was still a new word. He is working on a book now, which I can’t wait to get my hands on (and read), and at the same time, he has been working on a blog series condensing his thoughts about personal finance into thirteen core tenets.

This is one of J.D.’s favorite mantras when offering financial advice or support: Do what works for you.

I think this is a great philosophy, and I can see how it is appealing to intelligent people who are capable of thinking independently, performing objective analysis, and making decisions based on empirical data and other established facts. It cuts directly to the core of personal finance: that money is personal and not every solution is universal. Different people require different answers, and what works for one person might not necessarily work for another.

The spirit of “What Works For You” is the important aspect: there are many paths to success and one should find the path that fits personally, using experimentation and consideration as a guide.

There are many open questions in personal finance but few concrete answers. What is a good investment? What will the stock market do tomorrow? Will I be able to afford college for my children in ten years? health care for myself next year? Uncertainty can lead to frustration, and when people don’t know what to do, they want to stick with something that feels comfortable.

I think it’s easy for the spirit of the “What Works For you” philosophy to be lost as one spreads the message, because the philosophy implies a search for comfort and is therefore subject to a number of psychological traps.

“What Works for You” grants a license to ignore criticism

One thing I remember about the time I was required to listen to a day-long Landmark Education seminar is the leader’s ability to silence anyone who didn’t accept their philosophy. If you disagreed with one aspect of their nonsense, a Landmark follower simply claimed you had a “racket” and you were immediately dismissed. The “What Works for You” argument does the same thing.

If you are focused on doing “What Works For You,” there is no room for opposing viewpoints. We are given the opportunity to selectively ignore facts that don’t fit our world view. Consider credit cards that offer rewards when you use them. I use a cash back credit card and never pay interest or late fees. That sounds like a great deal, and I often suggest this as a good way to make the credit card companies work for you. But according to consumer studies, on average, people like me spend more using credit cards than they would with cash. Even the rewards earned, particularly as credit card companies find ways to keep reducing these rewards, don’t make up the difference due to increased spending.

But many like me continue to use credit cards because it works for us. We say that we are spending less than we earn and we’re winning the battle with credit cards. But unless we have conducted our own experiments to determine how our own behavior, as an individual or family, is affected differently through using credit or cash, we have silenced criticism from cash-only advocates with a nothing more than a wave of the hand and the contentment that since we don’t see any surface damage on our finances, our behavior works for us.

“What Works For You” invites analysis that could be far too simple

Notice that the philosophy is not “What Works Best For You.” Whether something works is a binary state: either something works or something does not work. The only answers are yes or no. There is no gray area, no sliding scale, no room for judgment.

The Debt Snowball is often touted as the best method to pay off debt. There is no doubt this method, which calls for paying off your credit card debt from the card with the lowest balance to the highest, works for many people. And its popularity leads people to believe that it’s not worth considering another choice.

But many people who have succeeded paying off debt with the Debt Snowball would have succeeded with the Debt Avalanche, which offers similar psychological benefits but saves money and time. It’s important for someone embarking on the journey to pay off debt to be presented with options and be allowed to make their own decision. If you look only for “What Works For You,” you could be missing something that works better.

“What Works for You” accepts mediocrity as a way of life

I have been around enough high-achievers to be jaded with the constant strive for excellence and the endless desire to be the best in whatever activity happens to be involved. Determination to be the best is how some teams win world championships but others live in misery with failure. Thankfully we don’t all have to be the best in the world at what we do.

But that’s not an excuse for refusing to seek improvement. Since the 1970s, there has been a new focus on self-esteem, which after many years of filtering from psychologists through to popular culture, has resulted in an environment where “everybody is a winner.” Everyone in Little League gets trophies, even the team with the worst record. Consideration of self-esteem is important to a point, and the placement of that point is debatable; before too long, people should be rewarded for something more than just participation, something beyond just the minimum.

“What Works” is just the minimum. Do more than that. Do what works and look for something that works better. Don’t just stop buying daily $5 lattes, stop leasing expensive cars every three years. Don’t just start putting 5% of your salary into a savings account, put 10% into a great savings account, contribute the maximum to your Roth IRA, and get at least the maximum employer match in your 401(k).

It’s important, in dealing with personal finance, to just start somewhere but that’s not an excuse to stop doing or to stop thinking.

The spirit of “What Works For You” is a good philosophy. Personal finance is personal. You should be free to make your own choices based on the best information and experiences and find the path that works best for you. I will submit that it is also important that while searching for your personalized version of a financial plan that you don’t fall into the above traps.

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“What Works For You” Can Be a Trap

We reported just a few days ago on the passage of a measure in the House of Representatives to expedite the Credit Card reforms passed earlier this year.

Unfortunately, I left out some of the story, as I’m still figuring out the intricacies of how laws are made, and there were some amendments made to the bill before it passed. In addition to pushing up the enactment date to December 1, 2009 and the other changes we reported, the House version would also:

• ensure that changes to a credit card agreement that reduce a customer’s interest rate or other fees can be implemented immediately, instead of being subject to the 45-day waiting period required under the CARD Act of 2009 — in other words, the bad things require a delay, the good things do not
• dictate that any card issuer that imposes a moratorium on increases in rates, fees and terms and conditions of a contract would be exempt from the accelerated date for the provision requiring an issuer to apply a customer’s payment in excess of the minimum amount due, to the highest rate balance — the Credit CARD Act of 2009 fixes the industry abuse of extending a balance by applying payments insincerely. If banks play along and start a moratorium, they can have until Feb. 22 to fix the balance-payment problem.
• prevent the closure of a credit card account in response to the imposition of a new fee from negatively impacting a consumer’s credit report or credit score

As before, the Senate version includes no additional measures, only moves up the date to Dec. 1. There’s a general sense in the news media that the Senate version would have trouble passing (sound familiar?), but I’m not sure where the pessimism comes from, as the original Credit CARD Act passed with 90% in the Senate.

Here’s the govtrack page to track the Senate version.

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House Approves Expediting Credit CARD Act

Over the next couple of weeks, six finalists will be auditioning for the opening of “staff writer” at Consumerism Commentary. Each will be providing two guest articles to share with readers. After the six writers have shared their guest articles, readers will have an opportunity to provide feedback before we select the staff writer.

This article is presented by FruGal, a consultant for a prominent online educational program.

Chances are, I have something in common with either you or someone you’re close to. That’s right, I recently found myself unemployed. After a five-year employment with a steady organization and what I thought was a prosperous future, I woke up one morning to find myself blindsided by the news that I no longer had a job. Luckily, being a financially-conscious individual, I’ve always been wise about investing a percentage of my earnings in various places, such as high-interest savings accounts. While this left me with enough money to “survive,” I knew that there were some concrete steps I was going to need to take in order to ensure I was making the most of my hard-earned dollars and, in believe it or not, cents.

Cents you ask? Yes, cents. Coupon-clipping has changed my life. What has long been considered a hobby of a let’s say, more “seasoned” individuals (a.k.a. senior citizens) has truly become all the rage with today’s average consumer. As a 28 year-old single female, I may not be your “average” coupon clipper, but my point is coupons are a smart move, no matter who you are.

Coupons have long fascinated me, but it wasn’t until recently that I began to master the art of this ever-growing practice. Spend just a few minutes online, and you’ll probably find quite a few useful web pages where people dedicate their whole site to the art of coupon clipping, complete with weekly store deals, coupon links, and much, much more.

I’m excited to share with you just a few simple steps you can take TODAY (well, maybe this Sunday) to STOP seeing your hard-earned money dwindle each week, and START seeing incredible savings in your everyday expenditures.

1. The good old Sunday newspaper is an excellent place to begin your new-found hobby of clipping coupons! On Sunday morning (or perhaps Saturday if the early edition is available where you live like it is In my city), head out to your local grocery store or gas station and pick up a copy of the Sunday paper for generally around $2 or less. Your $2 will go far based on the incredible savings you find inside. (Also check out your local paper on Thursday, as they often have coupons and promotions.)

Inside your $2 treasure, you’ll find a wide array of coupon inserts from companies such as SmartSource, PGBrandSaver, and others. Note that your coupon inserts may vary from ones you’d find in other cities, but regardless, you’ll find endless deals inside.

2. Now that you’ve got your coupons, what do you do with them? Get out your scissors and start clipping! There are tons of different organization systems that you can use, such as keeping a three ring binder with inserts. What I find works best for me is a plastic file folder organizer with tabbed letters of the alphabet. You can find these at any office supply store, and again, the couple of dollar investment you make will be well worth it in the long-run.

Once you’ve clipped all of your coupons it’s time to file them into your folder. I clip just about everything, even if I think I might not use it, because you never know. You also might find yourself giving coupons that don’t apply to you to your friends and family members. Find a system that works for you, but I usually file by the brand name of the item, rather than the general category. That way if I’m going through my sales circular for next week (see the next step) and see that Cheerios are on sale, I can simply flip to the “C” section and pull my coupon!

3. The key to successfully using your coupons is in the timing. You don’t want to go to the grocery store and simply buy items because you have coupons for them. Instead, check out your local grocery stores’ sales papers ahead of time. Prior to your weekly grocery store trip, go online to your store’s website. Most stores I’ve ever shopped at post their weekly circulars on their site. Some of them even have copies of the next week’s sales circular just past the checkout near the exit, so pick it up on your way out to start planning for the next week. Once you know what’s on sale, match up those items that are on sale in the circular with those items you have coupons for.

Of course, you won’t have a coupon for every item you want to buy, but you’ll definitely begin to see some significant savings in your weekly spending. Once you become a coupon-clipping “expert” you’ll begin to see your grocery bills decrease more and more, with strategies such as clipping coupons on the web, taking advantage of stores that double (and sometimes even triple!) your coupons, buying multiple copies of your Sunday paper, and using online resources to plan out how to maximize your coupons at different stores each week if you’re super ambitious.

Since I’ve begun steadily clipping and using coupons, I’ve seen my grocery bills more than cut in half each week. Not only does this give me some degree of personal satisfaction, but it also lets me know that I have a bit more money that particular week to go out with friends, or buy that bestselling novel I’ve been wanting to read. Or better yet, maybe I should just get it from the library for free.

So, Consumerism Commentary readers, what do you think? Are you an avid coupon-clipper like me? Do you have any tips to share on how to stretch your dollars and cents even further at the grocery store? If you get a little thrill from looking at the bottom of your grocery store receipt and seeing your savings, I’d love to hear from you!

This is a guest article by FruGal, one of six finalists interested in being Consumerism Commentary’s staff writer.

Photo credit: Roadsidepictures

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Couponing Makes Cents

My recent experiences traveling across country gave me more appreciation, or disapproval, of the lengths airlines are now gong to empty the wallets of travelers. The flight industry once positioned itself as luxury travel, with a variety of free amenities, but the industry takes the opposite approach now.

Yes, it is true that airlines compete mostly on airfare. I understand companies need to recover the cost of airport real estate and fuel in other ways. The airlines find it easy to hide the many varieties of fees. Travelers who are rushed — and the security process ensures more people will feel rushed — are more willing to pay for something rather than argue or look for other options. Additionally, it seems like every month an airline decides to begin charging for something that has traditionally been free.

Here are some ways to avoid getting nickel-and-dimed by the airlines.

1. Bring your own food. While you can’t bring much liquid through security, you can bring food with you from outside the airport. Once you enter the airport, the food you will find in the restaurants and shops will be over-priced. If you wait until you are on the plane, not only will the options be more expensive, there will be fewer options. Make something at home, add some snacks to quell your appetite, and bring an empty water bottle to fill at the fountain once you pass security.

2. Pack light. Several airlines now charge if you check a bag. Try to travel with only a carry-on bag if possible. If not, don’t let your luggage exceed the weight limits. And check in online before hand; checking a bag in person can often cost more than checking a bag online.

3. Arrive to the airport early. Leave more than enough time to proceed through security and relax at the gate before boarding time. Avoiding stress at the airport will prevent you from taking the easy way out on choices and buying things with which you can live out.

4. Bring your own pillow and blanket. If you are used to the free blanket and pillow traditionally offered for free on long flights, you’ll be disappointed to find they are not available in all cases, and when they are, often you will have to pay. If you can pack a small pillow and blanket your own in your carry-on bag or live without them, your wallet will thank you.

5. Bring your own headphones. Airlines are offering more entertainment for free. Almost every flight I’ve been on for the past two years have featured a monitor in the back of the seat in front of me with a variety of channel options. Most flights will charge you for headphones for listening to the programming, however. In almost all cases, your own headphones or iPod ear buds will work just fine. Even on Continental Airlines flights, where the audio is delivered with two mono jacks rather than one stereo jack, you can use your own headphone and experience half of the audio.

6. Bring your own entertainment. Listen to your own music or watch your own movies on your computer. While many airlines do have some free entertainment, they will want to offer you more for a fee. Even though I had access to free television shows on Delta, the better shows and movies would have cost several dollars. I stuck with the free entertainment provided by the airline as well as my own equipment.

7. Don’t use curbside check-in. If you are dropping off bags to be checked, bring them inside. Curbside check-in may save some time, but if you arrive at the airport early enough, you can save money by dropping your bags off inside the terminal.

8. Use your own internet access. With my BlackBerry, I already paid for a tethering service. While I was sitting in the terminal waiting to board my flights, I could connect the phone to my computer to access the Internet. Some airports have free WiFi now, but not many. If you want to access the Internet while waiting, you may have to pay a fee to access a proprietary Wifi network. Better yet, if your life and work don’t involve constantly being online, try to avoid the Internet completely while traveling.

9. Don’t be picky about your seat selection. I have found that more airlines are charging for reserving an exit row or bulkhead seat in advance, if they allow the practice at all. Thanks to SeatGuru, it’s easy to find the best seats on any airplane, and the airlines want to charge premiums now that everyone wants the best seats. If you would be comfortable wherever they place you, don’t pay any extra money for better placement.

10. Complain to Congress. If Congress was able to force credit card companies to stop their anti-consumer policies of over-charging and double-charging, perhaps they would have some luck with the airline industry as well. Keep in mind, when one door closes another one usually opens; companies usually find a way to get around restrictions and continue making life difficult for customers to protect the bottom line and shareholders.

What other airline fees have you discovered and how do you avoid them?

Photo credits: paalia, georgeparrilla

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How to Avoid Excessive Airline Fees While Traveling

I have been looking forward to replacing my Blackberry 8830 World Edition for several months now. The phone, even with ample extended memory, is sluggish and does not have the same capabilities other modern phones have.

With the release of the Motorola Droid, I decided this was a good opportunity to upgrade. On my way home from work on Friday I stopped by the Verizon Wireless store, confirmed I was happy with the phone, and walked out of the store with my purchase including some accessories.

It was an expensive evening, but I’m happy with the purchase so far. The good news is I’ll be paying less per month for a while. But here’s a breakdown of what it would cost to own a Motorola Droid on Verizon Wireless.

The first thing you will notice is the price of the phone. If you start or re-start a two-year contract with Verizon Wireless, the phone costs $299.99 with a $100 rebate available. If you buy the phone in person, you will have to send in your receipt to receive the rebate in the form of a debit card, but if you buy the phone online, the rebate is instant. I also had my “New Every Two” rebate, reducing my cost by $50.

The phone comes with a regular charger but if you want a car charger, Verizon sells the necessary micro USB charger for $29.99 in the store but you can find less expensive options are available on Amazon.com. Verizon also wants you to buy a multimedia docking station. I did not find this necessary, but I did buy the car mount, $29.99 at the store. The navigation features on the Droid rival the best GPS devices, and the car mount makes those features convenient.

The cheapest monthly plan at Verizon Wireless is $39.99 for unlimited nighttime and weekend minutes and 450 anytime (any other time) minutes, but any “smartphone” requires a data plan in addition to the voice plan, so you’ll pay another $29.99. At this time, using the cell phone as a computer modem is not supported on the Droid. I did have “tethering” with the BlackBerry, so I will be saving $30 per month by canceling this feature until Verizon offers it on the Droid early next year.

Verizon Wireless wants to ensure that Droid users don’t abandon the network before the end of their contract. Phones are sold at a loss by the company with the expectation that they will make back the cost of the phone, and profit, through monthly fees. Full retail price of the phone is $559.99. To protect itself further, and to encourage customers to purchase sooner rather than later, on November 15 Verizon will be doubling the early termination fee on for Droid purchasers to $350 from $175. This fee drops by $10 every month of the contract, but it is still a gutsy move when early termination fees have already been judged illegal in California.

Total cost of owning a Motorola Droid on Verizon Wireless

Assuming you don’t go over your minute allowance, here is what buying a Droid could cost you.

You’ll pay more if you want more accessories, like the multimedia dock or a Bluetooth headset. Many of the applications you can install on the phone require a small fee, and some, like the visual voicemail app, disappointingly carry a monthly charge. However, Google Voice is a good, free option, and it integrates seamlessly with the Droid. There are many other useful apps that are free.

So far I like the Droid. It is a major improvement over the BlackBerry 8830. For those who like AT&T, check out the true cost of the iPhone 3G.

Photo credit: allaboutgeorge

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The True Cost of a Motorola Droid

Several weeks ago, I mentioned I would be seeking a staff writer to add to the Consumerism Commentary team, to add one additional article each week. After a good number of applications, I narrowed the field to six finalists. Over the next two weeks, each of these finalists will be presenting two guest articles for Consumerism Commentary readers.

At the end of the process, I will welcome feedback from readers about the writers. The decision will not be based on your votes, but I will take any feedback to heart. The goal is to find a writer to add a fresh voice to Consumerism Commentary in addition, and as a complement, to the articles by myself and by Smithee.

Winners of Quicken Deluxe 2010

Last month, I reviewed Quicken Home & Business 2010 and offered a copy of Quicken Deluxe 2010 to two lucky readers. The two commenters chosen randomly to win, Javier and Jeremiah, were contacted earlier. I should have more giveaways to offer fairly soon.

Best of Consumerism Commentary, October 2009

• Seven Zen Principles to Guide Your Money and Your Life
• Net Neutrality Simplified
• Investor Psychology: Why We Fail to make Good Financial Decisions
• New Graduates Facing Unemployment May Never Reach Income Potential
• How to Create Your Own Extended Warranty
• Always Try Bargaining: Here’s How it Worked for Me
• Fulfilling a Dream for $8 an Hour
• Overkill at the United States Mint With New Coin Designs
• How to Prepare for the Demise of the Dollar
• The Pareto Principle: When to Apply, When to Ignore
• Is it Possible to Save Too Much Money?

We also had a number of great guests on the Consumerism Commentary Podcast. In October, we discussed unconventional paths to becoming a millionaire with the Millionaire Mommy Next Door, financial advisers with Neal Frankle, doing-it-yourself, beekeeping, and the Credit.com Credit Report Card with Mark Frauenfelder, and frugal travel and the war against debt with Adam Baker.

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New Staff Writer, Quicken 2010 Winners, and Best of October