Somehow over the past several years, I’ve been increasingly finding myself in the position of an entrepreneur. Throughout my life, I have been a bit of a self-starter with the ability to inspire others to join my causes, whatever they may be. I’ve never considered myself an entrepreneur, however. I never thought I’d be using my creative tendencies to run and manage a business.

Frankly, I’m not very good at it. I’m quite disorganized, and competing priorities always seem to be problems. And if my history of dead-end projects is any indication, while I may be a self-starter, I’m not always a self-finisher. To me, “entrepreneur” was a bad word, signaling a person whose specialty was business rather than the industry in which the business falls.

Nevertheless, here I am, an accidental entrepreneur running and trying to manage a successful business. I don’t admire many entrepreneurs, but I am a fan of Aaron Patzer — at least what I know of him from his public persona and our interviews on the Consumerism Commentary Podcast. Aaron created the popular web-based personal finance management and budgeting software Mint.com, which was recently purchased by software behemoth Intuit, the makers of Quicken.

This entrepreneur is a lecturer with The Founder Institute, a membership organization designed to support budding business-starters. He also recently wrote an article for CNN describing how the institute developed a test that can supposedly predict the success rate of an individual as an entrepreneur. The test is based on research that indicates that success is not correlated to traditional metrics like IQ, teamwork, and planning. Instead, the best entrepreneurs tend to be spontaneous, appreciative of aesthetics, passionate about art and literature, and older.

Read the article here or sign up to take the quiz that will predict your success as an entrepreneur.

Not everyone is destined to succeed as an entrepreneur, and that’s not a bad thing. A lot of people — and the programs they offer for sale — tend to treat entrepreneurship as the Holy Grail of personal finance or wealth-building, with complete control of your own financial destiny and the ability to create wealth rather quickly compared to buying and holding stocks for decades in order to become “rich.” But this lifestyle is not for everyone, and not everyone is interested in taking the entrepreneur’s path.

What are your thoughts on entrepreneurs?

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

Could You Be an Entrepreneur?

If you take a look at our best online savings accounts page, you’ll notice EverBank resting in the number two slot. In terms of true online banking institutions, this bank is worth mentioning because EverBank offers a variety of money market, checking, and CD accounts that the first-listed bank, SmartyPig, does not have.

To increase their appeal even more, EverBank has just announced a $75 cash promotion for anyone that signs up for a new money market and checking account. The bonus is split between the MMA, which offers a $50 bonus, and the checking account, which offers a $25 bonus. Here are the details on each of the two promotions.

Yield Pledge Money Market Account. EverBank’s Yield Pledge Money Market Account currently sports a first-year interest yield of 1.51% APY, which includes a three month bonus interest rate of 2.25%. Every following year, customers will earn a 1.26% APY. A new customer who opens a new account and makes a $20,000 deposit will receive a $50 bonus on the fifth month’s statement. In order to receive the bonus, the initial deposit cannot be withdrawn before the fifth month. If your account’s balance drops below $5,000 in any month, you will be charged an $8.95 monthly maintenance fee.

FreeNet Checking Account. High-yield checking accounts are tough to come by these days and EverBank offers one of the best you’ll find. Similar to the bank’s MMA, the FreeNet Checking Account has a bonus APY of 2.25% for the first three months, then a tiered interest rate in the following amounts:

• $100,000 and up: 1.26% APY
• $50,000 to $100,000: 1.20% APY
• $25,000 to $50,000: 1.16% APY
• $10,000 to $25,000: 0.70% APY
• Less than $10,000: 0.51% APY

In order to receive the $25 bonus, customers must open a new account with a minimum of $10,000. The bank will pay the bonus on the fifth monthly statement. There is no monthly fee to maintain your FreeNet Checking Account regardless of the balance.

A bonus of $75 on top of a $30,000 deposit might not be enough to make you leave your current banking institution. However, if you’ve been considering or have just heard of EverBank, now is the time to take advantage. To sign-up for this limited-time offer visit EverBank’s Official Website.

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

EverBank $75 Cash Bonus for New Money Market and Online Checking Accounts

This is a guest article by Ramit Sethi, author of the best-selling personal finance book, I Will Teach You to Be Rich. He recently launched a new program, Earn1k, to help people earn more money on the side. To get a free mini-course on earning more, sign up here. Ramit will also be our guest on the Consumerism Commentary Podcast this coming Sunday.

Last year, when I went on book tour for my book, I Will Teach You To Be Rich, I asked my readers to share the number one thing they wanted me to write more about.

I was surprised. The number one reason people wanted to earn more money wasn’t paying off debt, or investing, or money and relationships. Almost universally, people wanted to know how to earn more money.

I initially believed people wanted to earn more so they could buy a $2,000 handbag or fly to Vegas for the weekend. Again, I was way off.

Most people are simply unsatisfied with the limits of their 9-to-5 job and want the option of eventually quitting and working for themselves. In fact, some of them don’t even want to work themselves…they just want the option of doing SOMETHING else.

Have you ever met people who are a few years out of college and feel like, “Huh…is this it?” We all have dreams of living a certain lifestyle, and it can be disheartening when we realize we’re going to have to save, scrimp, and pinch for 40 years. For many of us, $1,000 to $2,000 a month would make a huge difference in our lives.

We want to earn more now more than ever, and it’s not just about the money itself. We want to be independent from our corporate jobs (even if we end up staying at them, we want the option of doing something else). We want to work from home or from the beach. Here’s a picture of my brother’s office in Mexico:

Money isn’t the end goal. But we want it to help us achieve our real goals to live a rich life. And you can’t out-frugal your way to rich.

Earning money isn’t easy

But it’s not easy. People immediately see how challenging it can be to consistently earn more money and end up fantasizing about their independent lifestyle dream without taking action — forever. They come up with delusional ideas like “passive income” or create psychological barriers like “I could never earn money… I don’t have an idea.” After all, if you’re a regular person (i.e. someone who has a busy job, and still wants to have a life), your available money-making options start looking really limited. These options usually either:

• take a lot of time and money to start (Brick and mortar businesses),
• are spammy and dumb (“The latest secret money-generating trick!”), or
• have zero growth potential (Donating plasma, taking paid surveys, etc.).

There’s a better solution. It’s not sexy, but it will help you lead a rich life: Turning your skills into income using freelancing.

Freelancing, as opposed to productization, is the easiest way to earn more money. It costs virtually nothing to get started, you can start earning money right away, and you can rapidly test and refine what you offer to earn even more.

Compare this to building products, which excites people due to the kooky idea of passive income… but requires multiple skill sets that few people have.

With freelancing, you can get started immediately and be earning money within one week. Freelancing also gives you practice running your business, without all the risk typically associated with entrepreneurship. It dispels the most common myths and excuses people make about why they could never work for themselves.

Common excuses about earning more money

We hear these all the time:

“I don’t have an idea.” The mistake is believing that you need one magical idea that will rain down from the sky and give you a profitable business. Not true! Instead, the critical part is building a system to rapidly test ideas to find a profitable one. Here are some ideas that my students have turned into profitable income: Personal organizer, music instructor, tutor, freelance writer, personal chef.

“I’d rather make passive income.” For delusional people dreaming of thousands of dollars in passive income being deposited into their PayPal account all while they sip coconut juice on the beach is just that — a dream that keeps them far away from the reality of earning more. The people who are serious about earning money realize that, to earn money passively, you have to start out actively doing work actively.

“Are you crazy? I don’t want to work an extra 60 hours every week.” Nobody wants to take on a second full-time job. You can actually freelance as many or as few hours as you want — even as little as five hours per week. If the client work piles on and you start getting too busy, you can increase your rates to bring the hours back down. (I did this, raising my rates over 1,000% in a few years.) There are dozens of other strategies like this that professional freelancers use to balance a high client load, or to balance freelancing with a full-time job. My friend Ben is a senior product manager at a very well-known web company, and still manages to freelance on the side — not because he needs the money, not because he hates his day job (he actually loves it) but simply because he wants to. How does HE manage the workload? We interviewed him to get the inside scoop here.

“Wait, first I have to set up my company Facebook and Twitter accounts!” PLEASE READ THIS CAREFULLY. If your goal is to earn money, social media is a waste of time for the vast majority of people. Social media can be fun and useful, but its greatest utility comes when you’re already well-established. For those starting out, it’s a distraction and a risky pitfall. You don’t need an audience; you need customers. If you’re spending time optimizing 20 social media profiles or doing other feel-good things before you’ve gotten your first client, just kick yourself in the face. Then start talking to some prospects.

“I’m just not a big enough risk taker to just quit my job like that.” Most people aren’t, and you don’t need to be either! I want to expand on this last point, because it’s common for people to get tripped up about having a job. Actually, if you want to work for yourself one day, you should use your job to your advantage. Here’s how:

• Develop your skill set. Learning new skills for free is great, but getting paid to do it is awesome. Make sure your job has you doing high-value work that you can potentially use elsewhere. If not, you may want to think about finding another job first.
• Build your network. People love to hire and recommend people they know. Get to know the influential people in your industry so that when you quit (on good terms, of course), you can reach out to them for help.
• Finance yourself. Treat your employer like your own venture capitalist — let them put food on your table while you experiment with business ideas. Be sure to build up a comfortable cash fund (at least six months worth of living expenses) before quitting.

Earning more is as much about changing our mindset as about the actual tactics of getting clients and refining a business offering. The best approach to earning more builds you a track record a client base long before you even quit your job (or make whatever next transition). When — and if — you’re ready, you can hit the ground running because you’ll already have built the foundation for the lifestyle you truly want.

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

How To Do What You Love And Get Paid – $1,000 or More a Month

The 2009 economic stimulus, usually called the Making Work Pay tax credit, provided slightly bigger paychecks for the middle class throughout part of 2009 and all of 2010. This benefit is in danger of expiring if Congress does not act to extend or renew the credit. This stimulus took a different form than those previous. In the recent past, the government sent checks to Americans for a lump sum, encouraging consumers to put that money directly to use.

Most people used the free money to increase savings or pay off debt, which may have had indirect stimulating effects, but the country remained in a recession. By spreading the credit out by including a small bump in each pay check, economists believed that consumers would grow accustomed to having extra money and the stimulus would be incorporated into everyday finances.

If the credit disappears, pay checks would decrease by about $15 every two weeks in 2011. This could be seen as a tax hike on the middle (working) class. Extending the credit for one year would cost the government, and therefore the taxpayers, $60 billion. Whether Congress could pass such a bill now is anyone’s guess.

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

Making Work Pay Tax Credit Extension

You’ve probably seen this sign hanging up in a shop or office:

Rule 1: The customer is always right.

Rule 2: If the customer is wrong, see Rule 1.

This is not always right.

I’ve had a lot of jobs

I’ve been out of school and in the working world for thirteen years. That’s not a very long time, but I think it’s long enough to have come to some conclusions. I’ve been in the web design consulting industry for six of those years, and observed at least five distinct project management styles. I haven’t worked on a single large project during which the customer was always right. I wouldn’t expect them to be. They don’t design websites for a living, they’re just trying to run their business as best they can. They came to a professional for help because they acknowledge that they’re not experts at everything, but sometimes they forget.

A real world example

I imagine this is true for any kind of consulting: web design, accounting, interior decorating, etc. Unfortunately, it can lead to significant tension. Let’s say you’re with a group of architects, builders and designers, who are working to open a new office building for Awesome Ice Cream, Inc. It’s a big project with a host of details to be worked out. Your group is especially excited, because they’ll be able to put it in their portfolio of work. It’s a household name, and really, who doesn’t like ice cream?

Somewhere in the planning stages, one of the Awesome Ice Cream stakeholders thinks it would be neat if all of the office doors opened out, toward the hallways, instead of in toward the office. You know, because you’ve been paying attention to this sort of thing, that office doors always open in toward the office (in America, anyway). The doors that open outward tend to be closets and bathrooms. The customer wants to have “Open Door Day” on the 15th of every month for all the officers of the company to make time to hear any complaints, and wants to make it extra obvious that the doors are open.

This is a noble sentiment, but it is going to be wrong on all the other days of the month, or 96.6% of the time. People who work there would probably adapt to the weird doors at work, but visiting businesspeople would always be totally thrown off. It’d be like going to a hotel where the doors opened out onto the hallway. You’d think there was something wrong with the hotel.

Defend your experience

The thing to do now is to educate the customer, without being insulting, of course. Explain that an outward-opening door has to be either completely closed or completely open if it’s not going to impede traffic in the hallway, and when it’s completely open you lose the ability to display artwork on the wall, or have an obvious location for the fire alarm. It would also provide one fewer place for the officer to hang his/her coat if the door was swung all the way out into the hall.

At this point one of two things will happen: they’ll either see your reasoning and agree, or stomp their feet and eventually get their way. When the latter happens, I’m afraid I have no subsequent advice, but I’m hoping our readers might add some in the comments. Because in my experience, when consultants treat customers as if they’re always right, and customer makes a wrong decision, that means the general public will see the mistake, it’ll cost extra to fix it later, and nobody will want to put that project in their portfolio.

On the flip side, if you find yourself hiring a consultant, and they suggest something which seems wrong to you, ask them to back up their decision. If they can, please consider that you might be wrong, and remember that you hired experts for a good reason.

Does your industry or company behave as if the customer is always right? What do you do when they’re wrong?

Photo by St0rmz

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

Sometimes the Customer Isn’t Right

How often do you visit the dentist for preventive care? Since graduating college, I’ve been getting regular check-ups and cleanings twice each year. I’ve seen the results of neglect, and I have no desire to lose my teeth any time soon. I’ve also seen results of bad dental work, so it’s imperative not only to visit a dentist but to find one who comes recommended.

I have no training in dentistry, so I am left to trust the recommendations of the professional. Dentists are businesspeople, so part of their motivation should be to ensure patients are happy with their treatment and return. Just like any other business, there are some who make recommendations based not on what is necessary but on what will result in bigger spending for the customer.

1. Get a second opinion for any major expenditure. If your dentist is suggesting a root canal as a treatment for a cavity, you might want to shop around by visiting other recommended dentists.

2. Find a dentist that accepts your insurance. My dentist’s office is not a participant in any insurance plan. That means they are free to charge more than the negotiated rate a plan dentist might charge. While they submit my charges to the insurance company, I am responsible for any amount not covered. I could save some money by finding a dentist who accepts my insurance, but I prefer to stay with the same dentist I’ve been visiting for about ten years, and my insurance usually covers almost all of the cost.

3. Consider whether you need every recommended service. Insurance companies generally don’t pay for fluoride treatments for adults, for example. If your teeth and gums are in great condition, fluoride may be an unnecessary expense. Some dentists are more aggressive than others and are willing to suggest treatments at the first sign of a problem. Don’t be quick to dismiss treatment, but don’t be afraid to ask about other options.

In addition to improving your health, taking care of your teeth also improves your appearance. In today’s economy, your appearance could be the difference between getting a job after an interview and not getting called back in. It’s unfortunate, but appearance plays a role both in conscious and subconscious impressions.

With a quick search, it’s easy to find horror stories about dentists who suggest unnecessary treatments. One study by Readers’ Digest in Canada shows how 16 different dentists offered the same individual 16 different interpretations of a patient’s situation. Patients without a Doctor of Dental Surgery (DDS) degree or a Doctor of Dental Medicine (DMD) degree don’t have the training to analyze problems and must rely on the professional.

At least with auto mechanics, customers can have more than a basic knowledge of their own vehicle and with some focus can determine when professionals might be attempting to take advantage of their situations.

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

Reducing the Cost of Dentist Care

On today’s episode of the Consumerism Commentary Podcast, Tom Dziubek talks to Richard Rosso, CFP and financial consultant at Charles Schwab. Richard discusses his advice on how to prevent a natural disaster from becoming a financial disaster and offers up many tips, including how to make sure you have the proper insurance coverage, taking inventory of your possessions and keeping enough petty cash at your disposal.

Consumerism Commentary Podcast #66
Keeping a Natural Disaster From Becoming a Financial Disaster, Richard Rosso: S03E14 / 89

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Table of contents

[00:00] Introduction from Flexo
[00:31] Interview with Richard Rosso
– [00:43] Proper insurance coverage
– [01:30] Buying flood insurance now
– [02:37] Other insurance concerns
– [04:10] Keeping petty cash on hand
– [08:34] Inventorying your household possessions
– [10:01] Tools to assist keeping inventory
– [13:03] Keeping important documents handy
– [15:08] Safety deposit boxes
– [17:26] What Richard’s learned from recent disasters
– [19:21] Application towards other, non-hurricane disasters
– [22:01] Storing computer files remotely
[25:23] 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 66: Keeping a Natural Disaster From Becoming a Financial Disaster, Richard Rosso

Just two years ago, gas prices of more than $4 per gallon were commonplace and consumers were wondering just how high they would go. Then, as the economy began to take a tumble, so too did the price of oil, dropping gasoline prices to well under $3 a gallon. As things have stabilized just a touch, gas prices have leveled out and over time, we should probably expect them to creep higher each and every year.

Gas credit cards are an excellent way to lessen the blow of spending for gasoline each and every week. Depending on your situation, there may be a few options that suit your gas purchasing needs and after careful review, one gas rebate credit card stands out amongst the rest.

Editor’s Choice

True Earnings® Card from Costco and American Express – The True Earnings® Card from Costco and American Express is the only credit card on the market today that offers a lat 3% cash back on all gasoline purchases (up to $3,000 in purchases per year). No tiers need to be met and no spending amount needs to be made in order to receive this cash back offer. And if you are a member of the Costco Warehouse Club, the card does not have an annual fee.

Added benefits of the True Earnings® Card from Costco and American Express is 3% cash back on all restaurant purchases, 2% cash back on travel and 1% cash back on everything else, including purchases made at Costco. With a 0% intro APR on purchases for six months AND a $25 statement credit after you make your first purchase, the True Earnings® Card from Costco and American Express is without a doubt, the best gas credit card.

Pen Fed VISA Platinum Gas / Cash Rewards Card – The only reason the Pen Fed VISA Platinum Gas / Cash Rewards Card isn’t at the top of our list is because of it’s small restriction. The card offers 5% cash back on ALL gasoline purchases with no tiers or spending levels of any kind. Cardholders will also earn 2% cash back on supermarket purchases and 1% cash back on everything else. The catch, is that you have to be a member of the Pen Fed Credit Union. That means you must be a United States Government employee, member of the United States Military and Uniformed Services, employee or volunteer of the American Red Cross, member of the National Military Family Association, or a family member/housemate of a current PenFed member. I have learned that you can become a member by making a small donation, so the one restriction holding you back is only a $20 donation away!

Blue Cash® from American Express – If you spend a lot of money each year on your credit card, the Blue Cash® from American Express is the card for you. Initially, cardholders will earn 1% cash back on all everyday purchases like gas and groceries and 0.5% cash back on everything else. Once you’ve reached your $6,500 annual spending plateau, those cash back percentages increase to 5% and 1.25% respectively. This means that all of your gas AND grocery purchases (in addition to a few other everyday spending purchases) will earn 5% cash back. There is a 0% APR intro offer on purchases for six months and the Blue Cash® from American Express does not have an annual fee, something rare for an American Express Card.

Discover® Open Road Card -The Discover® Open Road Card offers 2% cash back on all gas and restaurant purchases, up to $250 per billing period. This means that if you spend $300 on gas and restaurants during a billing cycle, only $250 will qualify for the 2% cash back. The other $50 is grouped with all other purchases in which you’ll receive 1% cash back (0.25% cash back until you’ve spent $3,000 annually with your card). The Discover® Open Road Card does not carry an annual fee and comes with a 0% intro APR on balance transfers for 12 months and on purchases for six months.

Capital One® No Hassle Cash℠ Rewards – The Capital One® No Hassle Cash℠ Rewards is a straightforward cash back card that earns 2% cash back on gas and groceries and 1% cash back on everything else. The card comes with a 0% APR intro offer on purchases until July and there is no limit to the amount of cash that can be earned. There is no annual fee on the Capital One® No Hassle Cash℠ Rewards Card and because it is a Capital One card, any purchases you make internationally will NOT be charged a foreign exchange fee. Excellent credit is require to obtain this card, however good credit can acquire you the same card, minus an intro offer until April of 2011 and a $39 annual fee.

Chase Freedom® Visa – The Chase Freedom® Visa is one of four credit cards on our list that offers a 5% cash back opportunity on gas purchases. With rotating 5% cash back categories throughout the year, gas purchases can receive 5% cash back for three months of the year. During the other nine months of the year, gasoline purchases will receive a standard 1% cash back. The Chase Freedom® Visa card does not carry an annual fee and comes with an intro offer of 0% APR on balance transfers for 12 months and on purchases for six months. Good credit is required to obtain the Chase Freedom® Visa.

And now for a limited time, Chase has launched the Chase Freedom® Visa – $100 Bonus Cash Back

Citi® Dividend Platinum Select® MasterCard® – Similar to the Chase Freedom® Visa, the Citi® Dividend Platinum Select® MasterCard® also has a 5% cash back opportunity. Rotating categories each quarter allow cardholders to earn 5% cash back on qualifying purchases and 1% cash back on everything else. This means your gas purchases will earn 5% cash back for three months and 1% cash back for the other nine. With no intro APR on purchases, the Citi® Dividend Platinum Select® MasterCard® does have an intro APR of 0% on balance transfers for 15 months! No annual fee is charged to cardmembers and an additional 5% cash back can be earned through the Citi Bonus Cash Center®.

Discover® More Card – Wrapping up our gas credit cards that offer 5% cash back for three months a year, the Discover® More Card follows the suit of the Chase Freedom® Visa and Citi® Dividend Platinum Select® MasterCard®. Cardholders can earn 5% cash back on rotating categories throughout the year, meaning gas purchases qualify for three months. After you make $3,000 in annual purchases, all other transactions will earn 1% cash back (otherwise 0.25% cash back). The Discover® More Card offers an intro APR of 0% on balance transfers for 15 months and on purchases for six months and does not carry an annual fee.

And now for a limited time, the Discover® More® Card has launched a $75 cash back offer.

Citi® Diamond Preferred® Rewards Card – The Citi® Diamond Preferred® Rewards Card offers cardholders 5 ThankYou points for every dollar they spend at gas stations, supermarkets and drugstores for the first 12 months of card ownership. If you’re redeeming ThankYou® points for cash, every 500 points is worth $3 so you can consider this card a 3% cash back card on gas, groceries and drugstores for the first 12 months. After that, you’ll earn 1 ThankYou® point on every purchase and the Citi Diamond Preferred Rewards card comes with a 0% intro APR on purchases and balance transfers for 12 months. No annual fee is charge to Citi® Diamond Preferred® Rewards Card members.

“Disclaimer: This content is not provided or commissioned by American Express. Opinions expressed here are author’s alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.”

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The Best Gas Credit Cards

I used to answer customer service calls for Bank of America, one of the nation’s biggest banks. Granted, I was near the bottom of the totem pole, but they generally treated everybody with respect there (I was in Washington State, your mileage may vary), and they wanted us to be able to give customers informed and detailed answers.

During the first week of training, we were taught the core of how a bank stays in business: lend people money and charge them interest on the loan payments. I, and probably you, spend a lot more time thinking about the bank as the safe place where we keep our money and who puts their logo on our debit cards and whose ATMs don’t charge us fees. However, those are just convenient services the bank offers in order to have the money that they can lend to other people, and get a return on their investments. They offer these services for free most of the time, not only because all the other banks are doing it, but also because there are now multiple generations of Americans who are accustomed to free checking.

Most importantly, though, they offer these services for free because they can afford to, and because they need your money to loan to others. They’re not primarily in the business of processing checks and debit card transactions, they’re in the business of loan payments.

I know that banks offer dozens more services, and that operating a global corporation is complicated, to put it mildly, but since the beginning of banks, the description above has basically been the business model. If all foreign exchange, credit cards, investment accounts, home equity, and retirement services disappeared tomorrow, banks would still be in business, and still earning plenty.

But they want you to believe that the lowering of interchange fees — the money the bank makes when you use your debit card at a store — is going to force them to raise fees on other services, and that otherwise they’d go out of business.

That can’t be true. For example, in the second quarter of 2010, Bank of America earned $29.5 billion in total revenue, and they earned about $2 billion on “card income” (source). $2 billion is a large amount of money, but the card revenue represents about 7% (I’m rounding up) of the amount they earned in total. A 7% loss is about half of what you might tip a waiter, though for me it’s more like one-third of what I tip a waiter. (Note: this paragraph used to have incorrect numbers, hence the confusion in the comments below.)

Many banks are complaining through news outlets that new, future regulations regarding interchange fees will unfairly hurt their profits, and that they’ll be forced to discontinue free checking services and raise fees on other services. (See our earlier reporting on the changes to these swipe fees.)

Compared to the rest of the world, American interchange fees are exorbitant and unnecessary. They make it impossible for the corner store to make a profit when they sell you a banana and some coffee. Lowering them to something “reasonable and proportional” won’t hurt the bank’s ability to earn revenue. I admit that it might decrease their bottom line, but their bottom line has been inflated by ridiculously high interchange fees for years. Why not accept that they’ve been gouging their merchant customers and move on? It’s not as if the government is asking them to return any of this currently inflated income.

Amazingly, Citigroup’s CEO is doing just that. Last Friday he said he isn’t worried about his company’s ability to deal with lower revenue from reduced fees, even though they made about $152 million from those fees last year. So it is possible to adapt, and continue to offer free checking, and not raise other fees. At least one household-name bank is willing to play along, and I hope the other banks follow suit.

Pandit Says Citigroup Can Absorb Curbs on Fees, Cyrus Sanati, New York Times, July 16, 2010
Banks Seek to Keep Profits as New Oversight Rules Loom, Eric Dash & Nelson D. Schwartz, New York Times, July 15, 2010
Bank of America Second Quarter 2010 Earnings Presentation, bankofamerica.com

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Weep Not for Interchange Fee Revenue

Several years ago, I decided to take advantage of an opportunity to pursue a master’s degree in business. I had been working in finance for a while, and as someone who believes in lifelong education, I figured it wouldn’t hurt to obtain an MBA. I took the relatively unpopular route of pursuing a degree where the instruction takes place online.

The choice was spurred mainly by the fact that when I attended college as an undergraduate, I participated in a class with a professor who designed one of the first web-based campus learning systems. This was exciting technology.

I’ve written extensively but not completely about my experiences obtaining this MBA. In summary: the experience was not perfect, the courses were much more difficult and required more teamwork and focus on communication in difficult circumstances than typical, classroom-based education, and this type of education still suffers and will probably for a long time suffer from a stigma. Like any graduate program, the first classes were full of students who were not dedicated and were not the caliber of learner and communicator you would expect in a graduate level course, but by the end of the program, I was amazed with the level of professionalism, dedication, and proven success among my classmates in my final courses.

I learned interesting information, so my main goal was achieved, though I often question my desire to learn more about business and corporate finance anyway.

This also came at a time when MBA graduates were common, eventually decreasing the value of that degree in the employment marketplace overall. And of course, the fallout in the finance industry has continued to mar the reputation of the MBA, even degrees awarded by Ivy League institutions.

I would argue that an undergraduate degree is always worthwhile; here are some thoughts for determining whether a graduate degree is also worthwhile.

What are your goals? When it comes to MBAs, I can safely say most people pursue this degree in order to increase their salary. In this case, the only measurement that matters is the same one you’ll focus on in an MBA financial class: a cost-benefit analysis based purely on the numbers. But this is not the only reason people decide to attend graduate school.

Some people decide to go to graduate school, particularly in an economy with high unemployment, to mark time while they’re waiting for better job offers to come around. Others choose to pursue post-graduate education because they have a thirst for knowledge and feel comfortable in an academic setting.

There are many career paths that require a postgraduate degree, as well. If your goal is to succeed as a doctor or a lawyer, a graduate degree is not only worthwhile but necessary.

How important is prestige? Perception is reality. It’s quite possible that you can get a better graduate education at a state university than you can at an Ivy League school. If the people you want to work for generally have Ivy League degrees, you will want to emulate your future bosses and mentors. If the purpose of pursuing education is broadening your knowledge, then all you need to worry about is finding the best education for the best price.

Will you recover the cost of tuition? If you’re working for a company that’s willing to pay for most or all of your education, go wild. If the employer restricts the benefit to those who stay with the company for a certain amount of years and requires you to reimburse the company for tuition if you leave, consider whether the company will really provide the opportunities you’d be interested in with your new degree. Sometimes the best offers only come when you move from one company to another.

If you aren’t receiving any tuition assistance, and particularly if you have to take out loans, finances must be at least one of your considerations. Is it likely your income will increase with this new degree? How long will it take for your salary differential to cover the cost of tuition and interest on the loans? How long will you have to continue paying off those loans?

Also consider whether taking on a master’s degree will require you to take classes full-time and cut back or eliminate the time you spend working, drastically reducing your income over that time. A break in income can have long-term detrimental effects to your wealth accumulation as well as future salaries.

For the numbers, Liz Pulliam Weston offers an analysis of averages.

While the decision to pursue a graduate degree must consider finances, money isn’t the only factor. It’s dangerous to take on a program that would put your financial situation in jeopardy. Decide if the benefits you could receive from a graduate degree, financial and otherwise, outweigh the costs. Choose the graduate program that is best for you and your goals. Perhaps you can reach your goals through continuing education outside of a master’s degree, too.

If you keep these things in mind and decide to pursue a master’s degree, you will find that it is worthwhile.

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Is a Graduate Degree Worthwhile or Worthless?

After some false starts, Congress has passed a bill to renew the extension to federal unemployment benefits. Federal benefits begin when state benefits end. With the extension in effect, jobless individuals qualify for benefits for a total of 99 weeks. The most recent extension expired on June 2, and this new bill extends the deadline retroactively.

Anyone wishing to claim unemployment benefits can now do so until the end of November.

I am sure there are some people who use unemployment benefits as a crutch. They may be less motivated to find work if they have a check from the state coming in each month, even if that check is small. The majority of former workers just want to get back to work. Unemployment is detrimental to future career growth, even if that unemployment is not the fault of the employee. With few jobs and many applicants, employers can be very selective with their new hires, and unemployed job applicants can’t get in the door because their resumes doesn’t look as attractive as those of applicants with continuous employment.

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Unemployment Benefits Extended

Updated: The media are calling the new Wall Street Reform Law, recently signed by President Obama, the most significant reform of the financial industry since the Great Depression. It looks to tighten the reins on a industry that helped cause the recent recession by requiring the Federal Reserve to create and enforce regulations on the financial industry. The law, whose formal name is the Restoring American Financial Stability Act of 2010 (H.R.4173), is designed to protect consumers, corporations, and the economy as a whole.

Here are the major provisions contained within the law.

The Consumer Financial Protection Bureau will exist inside the Federal Reserve. This organization will advise the Federal Reserve on issues such as changes to credit card statements and contracts, in order to help consumers understand the terms of their agreements. The result should be that credit cards and other financial products become more simplified. In addition, as more states take out payday lenders, I expect this agency to do the same on a federal level.

Enhanced free credit products will now be available. While consumers can currently obtain three annual free credit reports, one from each reporting agency, the government will now require these companies to offer free credit scores as well. While this is a positive move, I expect the availability of these scores will encourage companies to develop a new secret formula for making lending decisions.

The agency will likely limit credit card interchange fees to what is reasonable based on the cost of providing the service. As Smithee mentioned in May, swipe fees make a lot of money for certain companies involved with every use of a credit or debit card, and there is a general thought that these fees are currently uncompetitive.

Borrowers will need to document their income before qualifying for loans. Call them liar loans, no-documentation loans, or alt-a loans, these mortgages offer higher rates to individuals who for whatever reason can’t support their income with proper documentation like tax returns or pay stubs. It will be more difficult for certain consumers to obtain financing with this law in place.

Financial regulators will have a larger role in looking for systemic risk with banks and other financial institutions that are too big too fail. Large financial companies will have the same opportunity as large banks to unwind slowly in a controlled crash. The FDIC’s role will expand beyond pure banking institutions. Large institutions may also be forced to split into several smaller companies to better manage risk to the entire financial system.

The Government Accountability Office will be able to audit the Federal Reserve two years after the Fed takes emergency actions. I assume this two year buffer will allow the effect of the Fed’s actions to echo throughout the markets without immediate interruption.

Executive compensation will be regulated, in all publicly-traded companies, not just in the financial industry. There is not a lot of teeth to this regulation, as it provides for shareholders to have a non-binding advisory role. The problem with this is major shareholders are often executives, board members, and institutional funds that are usually willing to advise the company to spend the money. In addition, the shareholders’ decisions can be ignored by the company.

The bigger part of this part of the law is the encouragement for industries to self-regulate executive pay. I don’t expect much will change in executive compensation as a result of this law; in fact, it might encourage more corporations to become or remain privately-owned companies.

What do you think of the new financial regulation? Does it go too far or not far enough? Will it save or kill the financial industry? Will the new law be enforced?

Read the text of H.R.4173.

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New Financial Regulations in the Wall Street Reform Law

One of the best cash back credit cards available today, the True® Earnings Card from Costco and American Express can earn cardholders an immense amount of rewards, just for everyday purchases. Now, with a $25 cash back bonus opportunity, just for being approved and making your first purchase, the card is even more attractive. Granted, there are better cash back bonus offers out there like the $75 Discover More Card and Chase Freedom Visa – $100 Bonus Cash Back but if you are a Costco member, there is absolutely no reason you shouldn’t have this card in your wallet.

In addition to the $25 cash back bonus, True Earnings® Card from Costco and American Express cardmembers also earn the following amounts of cash back: 3% on gasoline purchases (up to $3,000 annually, then 1% thereafter), 3% cash back at restaurants, 2% cash back on travel and 1% cash back everywhere else, including Costco. Now you might be thinking that 1% cash back at Costco isn’t so great but it’s very difficult to find a credit card that offers 1% cash back at warehouse clubs, like Costco. To my knowledge, this card is one of only a handful out there.

The True Earnings® Card from Costco and American Express also carries a 0% APR intro offer on purchases for six months, so you can carry a balance if you want to without paying interest. After the intro period, the APR is 15.24% variable. There is no annual fee to obtain this card, as long as you are a member of Costco.

Using this card responsibly, meaning you stay under your limit, make all of your payments on time and hopefully in full, will provide you with hundreds of dollars in benefits, without any cost. With an additional $25 statement credit, the True Earnings® Card from Costco and American Express is an excellent credit card offer.

“Disclaimer: This content is not provided or commissioned by American Express. Opinions expressed here are author’s alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.”

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True Earnings® Card from Costco and American Express $25 Cash Back Bonus

I enjoy a good glass of wine, but I don’t know how to find one. I haven’t been buying wine long enough to have memorized a group of “go to” bottles. I probably made the mistake of buying Bolla Pinot Noir three times before I finally learned that I don’t like it. Between my unreliable memory and the multitude of labels, I am unlikely to pick the right bottle without some help, and suffice it to say that I’m not interested in Sommelier School. What I wanted was just a handy tool to help me navigate the shelves and avoid mistakes.

Fortunately, I have a smartphone with downloadable apps that I don’t leave the house without. Every few weeks, when I would think about it, I’d try to find the right tool for this particular job, but the feature lists were wrong, or the reviews were unflattering, and I’d give up and forget about it, and then I’d buy a wine that was more of a depressant than it should’ve been, and I’d go looking again.

What I needed was an app that had, in order of importance:

1. an area for me to store wines I had tried and give them scores, so that I could seek them out or avoid them in the future
2. a quick way to search a bottle that I was holding in the store and see aggregated customer reviews
3. a search tool for narrowing down by price, region, year, etc.

When it comes to shopping, whether you’re deciding between wines or movies, in order to get a good sample of reviews, you have to go where the biggest audience is. For example, I like Metacritic’s interface better, but most people contribute to Rotten Tomatoes, so that’s where I look. With that in mind, after trying a couple of apps with good reviews, but having bad usability experiences myself, I decided to see what exists on Wine.com. Naturally, wine.com exists primarily to sell people wine, wine gift baskets, wine accessories, even monthly wine clubs. I’m not interested in those things, but their mobile app does include my three requirements, and it’s easy enough to ignore their attempts to get me to buy through the app.

Learn more from the app developer’s site. Sometime this year they plan to include food pairing suggestions, which will also come in handy, because right now the only thing I know is that red wine does not go with fish.

I’d like to claim that beer drinkers have it easy, but they have basically the same problem, except that it’s cheaper to make a beer mistake.

Photo by paulaloe

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Which Wine Do I Want to Buy?

Here’s the message conservative lenders are sending: Don’t have a baby if you want to qualify for a mortgage.

On maternity leave or paternity leave, it’s common for a family’s income to drop. If income during the leave is classified as disability income, mortgages look at this income as temporary, and they often don’t consider the possibility of the parent on leave return to full-time and full-paid employment.

In this situation, the problem isn’t Fannie Mae or Freddie Mac, the quasi-government agencies that support the mortgage lenders. They haven’t tightened the rules for lending and have no problem with maternity leave. All they require is a doctor’s note and a letter from the employer listing the planned date of return and the full salary. Some lenders won’t consider any income from the individual on family leave.

As a result, it could be difficult for families to qualify for a mortgage at the time they might feel the need it the most — when a new baby is on the way. This is something to keep in mind when planning major life decisions like starting or expanding a family and buying a home.

Need a Mortgage? Don’t Get Pregnant, Tara Siegel Bernard, July 19, 2010

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Pregnant Women Are Liabilities to Mortgage Lenders

I’m not a skilled investor, particularly when it comes to short-term prognostication, and my long-term track record has yet to be established considering my first investing decision was less than ten years ago. I don’t invest in many individual stocks. My 401(k) includes company stock as part of my employer’s matching contribution, and I opted into a stock purchasing plan where I can buy more company stock at a discount. Other than that, I’ve only invested in a few companies here and there.

When I do invest in companies, I look mainly at stock price. I’m not trying to outsmart the market — any information I have about a company must already be common knowledge and included in the stock price, though David Adler, author of Snap Judgment, argues the market isn’t that efficient.

I tend to ignore the price to earnings (P/E) ratio, though savvier investors consider this calculation more relevant for making trading decisions that the stock price. The P/E ratio is the price of one share of stock divided by the company’s earnings per share of stock, a financial line item public companies report on a quarterly and annual basis.

This can be helpful when comparing one company to another or one company to its industry average. A lower P/E ratio, particularly if the ratio is low when compared with similar companies or the industry average, could mean that company’s share price is a good deal. It could also mean there may be an underlying problem at that company.

Jeremy Siegel points out the P/E ratio for the stock market as a whole since World War II has been 15.2, implying the current lower P/E ratio of the overall market of 13 signals a good time to invest in the stock market. Wikipedia claims the P/E ratio for a longer stretch of time, the past 130 years, has been 12.1. That makes it more difficult to determine whether now is a good time to invest in the stock market.

The strategy of investing when an investment’s P/E is lower than what it should be, considering the company’s competition, relies on an assumption that investments eventually return to the mean — and in order to do so, worse-than-average performance must be followed by better-than-average performance. Reversion to the mean sounds like a solid approach, and it may hold true for long periods of time or diversified investments measured as a group, but any one investment may not follow that pattern in the time period you envision.

Do you look at P/E ratios when you invest?

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P/E Ratios

Today’s episode of the Consumerism Commentary Podcast features two interviews. In the first segment, Tom Dziubek speaks with Aaron Patzer, founder of Mint and Rob Garcia, Director of Product Strategy at Lending Club about Mint’s new “Goals” feature and their related partnership with Lending Club.

Then, Tom talks with Consumerism Commentary founder Flexo about different ways to save money at a ball game. Among the tips discussed are ways to save money buying tickets, saving money on food and drinks, and how to handle buying souvenirs.

Consumerism Commentary Podcast #65
Taking Control of Your Finances, Flexo: S03E13 / 86 & 87

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Table of contents

[00:00] Introduction from Tom Dziubek
[00:41] Interview with Aaron Patzer and Rob Garcia
– [01:04] Mint’s new Goals feature
– [02:03] Popular goals being chosen
– [02:48] Setting up a goal
– [03:45] How Mint develops suggestions & their relationship with vendors
– [05:09] Using bank accounts with goals
– [06:19] How the feature differs from similar services provided by other companies
– [07:29] Lending Club’s partnership with Mint
– [08:09] Lending Club loans vs. low-rate credit cards
– [09:44] Relationship with credit bureaus
– [11:29] Credit history
– [11:52] Suggestions for investing
– [12:16] Mint’s integration of investments
– [12:30] Planned enhancements for Goals feature
[14:18] Interview with Flexo
– [14:27] Flexo and the Mets
– [15:20] Buying secondhand tickets
– [19:44] Buying cheap seats at the stadium
– [21:12] Transportation
– [22:03] Food and drink
– [24:09] Skipping the souvenirs
– [25:25] Handling the barrage of advertisements
[27:30] 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 65: New “Goals” Feature at Mint, Saving Money at a Ball Game

Flexo posted a good review of the major changes in the Wall Street Reform bill that passed through Congress yesterday, and mentioned that it will be some time before we know exactly how the regulations which are now possible will be written. But there are some reasonable guesses we can make, and I thought it would be helpful to cover some of the changes that may affect the average American (as opposed to large financial institutions and credit rating agencies), in order of likelihood.

Financial literacy

There will be an Office of Financial Literacy created to teach Americans about savings, loans, liens and fees. There are a lot of complicated details involved in large purchases. This office, as well as other parts of the bill, intend to simplify such transactions as well as provide greater clarity to consumers. There will also be a new national consumer complaint hotline (toll-free, of course) for Americans to report problems with financial products and services.

Interchange (swipe) fees

As Flexo already reported, swipe fees will be studied and could be capped at a lower rate than they currently enjoy. American rates are at least four times higher than other countries, for the same service. This should mean that smaller Mom and Pop stores will find it easier to stay open, and merchants will be allowed to offer discounts to their customers for paying with methods that cost the stores less to process. Stores are also now allowed to designate a minimum purchase required to use plastic, which many stores were doing anyway.

Interest paid on checking accounts

I knew it was rare for checking (or demand deposit) accounts to pay interest, but I didn’t realize it was prohibited. The new law removes that prohibition.

Fewer bubbles

According to MSN Money:

Many of the trades that in the past have been hidden from regulatory scrutiny will now be forced onto exchanges, where transactions will be more transparent.

For example, gas prices might’ve been as high as they were in the summer of 2008 not because of normal supply-and-demand, but because of hedge funds and speculative stock purchases. Since these deals won’t be happening in secret anymore, it should be less likely to happen.

Stock brokers acting in your best interest

In an earlier draft of the legislation, people you pay to recommend stocks and mutual funds would’ve been legally obligated to act in your best interest, recommending purchases that got you the most for your money instead of in your suitable interest, recommending purchases that benefit you a little, but also the broker quite a bit. This clear directive didn’t make it into the final law, but it does give that authority to the Securities and Exchange Commission, after a six-month study.

Buying a home

Institutions must be able to document a buyer’s ability to repay a home loan. In addition, financial incentives that encouraged loan companies to steer buyers into more costly loans will be prohibited.

TARP program shut down

The Troubled Asset Relief Program from 2008, probably the least popular government initiative in a generation, is shut down effective immediately, instead of waiting for its expiration date on October 3rd.

An end to Too Big to Fail

The new law provides the government the authority to break up institutions which are failing and sell their assets in order to recoup the cost of dissolving them. I put this at the bottom of the likelihood list, since nobody really expected “too big to fail” to happen the first time. Nobody who had a loud enough megaphone, anyway. In addition, the law clearly states that taxpayers will not be responsible to save a failing financial company or to cover the cost of its liquidation. Many of the complaints surrounding the 2008 bailout were along the lines of “these institutions will just continue to take risks because they know the public will foot the bill.” But now that would be illegal.

Factbox: Long to-do list ahead for financial regulators, Reuters, July 15 2010

What Financial Reform Means to You, Stacy Johnson, MSN Money, July 15 2010

Dodd-Frank Wall Street Reform: Conference Report Summary, United States Senate Commission on Banking, Housing & Urban Affairs

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The New Financial Regulation Law and Your Money

Discount brokers are everywhere. Not long ago, only a few companies offered the ability to trade stocks with low commissions. If you wanted to trade with a full-service brokerage, it might have cost $30 for each transaction. For this fee, you would talk with a broker assigned to your account, who would help you make trading decisions. Of course, the transaction fee and the promise of earning money encouraged these full-service brokers to suggest trading as much as possible.

Companies soon realized that they could offer a self-service model of stock investing, reducing overhead costs by eliminating the human broker, and passing that savings onto investors through reduced trading fees. In order to keep the volume of trades high, some discount brokers offer incentives to encourage more buying and selling.

SmartMoney recently looked into a number of discount brokers in detail in order to determine the best among a variety of categories:

For our 18th annual ranking of brokers — itself top-ranked by the Web site ConsumerSearch — we scrutinized a wide range of factors, from trading commissions and account fees to the cost of certain banking services and margin rates. In addition to parsing survey responses from the brokerages, we consulted with research firms and put brokers through our usual litany of customer-service tests.

Here is SmartMoney’s top ten discount brokers:

Others just missing the top ten include OptionsXpress, Zecco, and my current preferred discount broker, ShareBuilder. Who is your favorite discount broker?

See more details at SmartMoney.

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

SmartMoney’s Top 10 Discount Brokers

Whether or not you believe the New York Yankees have seen successful years because of or in spite of the team’s fabled owner, George Steinbrenner, you have to admit he has good, though of course unfortunate, timing. If the tax laws don’t change, or if they do change but are not deemed retroactive, through his recent passing he saved his heirs and perhaps the Yankees organization as much as $500 million. This year, estate taxes are temporarily suspended.

Steinbrenner falls among the 0.3 percent of those who have wealth to pass onto their heirs that would normally be, in other years, subject to the estate tax. Those whose heirs owe this tax reflect a much lower percentage of all Americans, as most of us do not pass on wealth either due to the lack of an estate or the desire to leave the estate as charitable contributions.

Steinbrenner is likely the richest American to pass away so far in this freakish — from a tax perspective — year of 2010. How much his heirs will save depends on the details of his will. Any assets he has left to his wife or to charity would be tax-free, anyway.

I don’t recommend trying to time your demise based on tax laws, particularly when there is a chance those laws might change retroactively.