Jonathan is now the director of financial guidance at MyFi. While I was there, we chatted for almost two hours (he’s hilarious) and I asked if he’d be willing to write up his thoughts on the most important step for iwillteachyoutoberich readers. Here’s what he had to say.

There’s no debate over the top priority. If you’re new to the work force, you ought to be funding your employer’s 401(k) plan, because it will give you a trio of benefits: an upfront tax deduction, tax-deferred growth and maybe a matching employer contribution.

But that brings us to the more interesting question. What should your no. 2 priority be? Forget building the six-month emergency reserve or saving for a house down payment. Instead, I would vote for funding a Roth IRA.

With a Roth, all your withdrawals once retired should be tax-free. True, unlike a regular IRA, a Roth won’t give you an initial tax deduction. But if you’ve just entered the work force and you are on a relatively low salary, that tax deduction probably isn’t worth all that much.

Meanwhile, here’s the sweetener: At any time, you can withdraw your original Roth contributions without triggering taxes and penalties. Let’s say you stash $5,000 in a Roth every year for four years. You could pull out your $20,000 in contributions and, provided you didn’t touch the account’s investment earnings, there shouldn’t be any taxes owed.

That means your Roth could double as your emergency reserve, your house down payment money, your car purchase fund or be used for any other purpose. (There is another provision that allows first-time homebuyers to make tax-free Roth withdrawals. To take advantage of this, the Roth has to be open five years and the amount is limited to $10,000.)

Ideally, you would leave your Roth to grow untouched until retirement. That way, you’ll get the most out of the tax-free growth. But if you
need it, the Roth offers wonderful financial flexibility. To learn more, head to www.fairmark.com.

I’ve written about Roth IRAs and 401(k)s in The World’s Easiest Guide to Retirement Accounts.

In the meantime, I’m still Twittering ultra-short posts. Some recent posts:

• The person I met who’s afraid to look at her balance
• The emotional side of “investing” in real estate
• How I edit my chapters
• Surprising data I’ve found about credit cards and secrecy

Check it: http://www.twitter.com/ramit

So since one of my friends just got engaged, I thought you’d find this interesting. When I had dinner with him last night, I asked him how the wedding planning was going. He told me that to save money, he’s flying in a wedding photographer from the Philippines. Even with the flight and accommodations, he’ll save $4,000.

This mirrors my own experiences:

• In New Delhi, I had a custom suit made for $200. Money saved: About $2,000
• In Mumbai a few months ago, I bought lenses/frames for $45. Amount saved: $500
• A friend had crowns and other dental work done in India for $400. Amount saved: About $3,500. (More about medical tourism.)

And that’s just India. There’s Vietnam, China, countries in Africa, and many other countries where I’ve heard friends get amazing prices. It’s getting to the point where, if you want anything expensive, it can be cheaper to fly to another country and buy it there.

This is particularly true for health care. There are serious questions about risk and liability, but the difference in price is impossible to ignore. From this Washington Post article:

…heart bypass in the United States costs $130,000, but just $10,000 in India and $11,000 in Thailand. A hip replacement in the United States would cost $43,000 but just $12,000 in Thailand or Singapore. Hysterectomy costs are about $20,000 here but $3,000 in India.

For less-risky items, like buying a custom suit, rugs, or pieces of furniture, the savings can be significant enough to make the trip without worrying about quality. After all, if it breaks, just get it repaired — or, a la Wal Mart, it may be so cheap that it’s simply disposable.

This is a political firestorm. What about labor practices and environmental impact? In fact, in last week’s Friday Entrepreneur post about Shannon from Payloadz, there’s a raging discussion in a post last week about using offshore workers: One commenter accuses others of using “CFL (Cheap Foreign Labor),” and others jump on him for ignoring globalization.

What do you think? Have you traveled abroad specifically to buy something cheaper? Have you ever had surgery abroad? Is that un-American?

In my discussion with her below, find out how she:

• Uses her art for multiple revenue streams
• Prices her product in the hundreds and thousands
• Markets her work
• Calls people who buy her work “collectors,” not customers — and why the difference is worth thousands of dollars

* * *

I think most artists are absolutely horrible businesspeople. Yet you left a 15 year career teaching for the University of California to pursue a living as a full-time artist, and even managed to roughly equal your income from when you were teaching. Tell us a little bit about your art.

I love looking at simple, everyday objects to see beauty in things we might otherwise pass right by. So I paint still life watercolors - watercolor because I love the luminosity and glow of the colors. I tend toward objects that hold cultural and in some cases, iconic meaning - but try to leave the irony for those better suited at expressing it.

I notice your art costs a lot (one painting I saw costs $675.00). How did you decide to charge that much?

Actually, that’s just the price of a print. I offer limited edition reproductions, to maximize the earning potential of a single painting. It’s also a great way to make fine art available for entry-level collectors, many of whom start with prints and work their way up to original paintings.

I see. So how much does an original sell for?

My originals sell for between $600 and $8,000 depending on size and complexity. Most artists use a general “per square inch” formula to price their works, based on a combination of previous sales, the going rate of artists who do comparable work… even the cost of the frame gets factored in.

Rarely (and sadly!) is an artist able to charge based on the actual time invested in creating a painting. Labor Theory of Value doesn’t apply.

[Ramit’s note: Notice how, with one piece of art, she is able to offer it at multiple price points. If you produce something similar, you might produce a free gallery online for the people who will never pay, a $50 print, a $500 limited-edition print, and a $5,000 original, sweeping the entire spectrum of customer demand.]

What are the risks of making so few pieces of art?

Art is all about risk-taking. It’s hard to predict the market, although when the economy is in a tough spot like it is right now, you can safely assume that many people are cutting back on luxury items from $5 lattes to original works of art! So my job is to keep painting, work twice as hard on the marketing end of the business and stay in good communication with my collectors.

Do you have other sources of income besides directly selling your work?

It’s easy to wish I could spend all my time in the studio - the truth is, being out in the world - not just isolated in my studio - makes me a better artist.

I teach painting classes for other busy professionals. Many of my students they tend to be left-brained types who want to take a time-out to explore their creative side. My workshops are essentially word-of-mouth, and have been so successful, that it tells me there is a real unmet need out there in the marketplace. So I’ve recently launched a new venture which takes the artist’s way of seeing the world into the corporate environment with hands-on creativity workshops.

How has the art industry changed in your experience?

It used to be that galleries would handle - and pay for - all the marketing and business end of things for their artists so that we can spend all our time making art. In general, it’s a different world out there these days.

The artist is responsible for framing and shipping the work to the gallery as well as expected to pay 50% of all costs for a gallery opening, i.e., the advertising, the invitations, even the wine poured at the event.

In exchange, the gallery provides “one-stop shopping” for art lovers as well as a venue for your work. Some people don’t buy art except through a reputable gallery.

But let’s face it - being in a gallery can be a love-hate thing for artists. It’s a huge expense, because even if your work doesn’t sell, the artist still has to pony up for all those marketing costs.

Is it common for artists to do what you’re doing, i.e. promoting on the web?

Some artists are choosing to bypass the gallery system all together and market directly online. I suspect this will be effective for selling to established collectors who already know your work - but poses a dilemma about reputation. After all, if we aren’t “vetted” through the traditional system, we’re somehow kind of cheesy if we’re stooping to marketing our own work. But I also think as more and more young artists come along, artists who grew up in a web-connected culture of internet marketing and social networking, the nature of the gallery business will change.

How did you get your first customer?

I honestly can’t remember who bought my first painting. I do know that my first batch of paintings went to various friends and long-time acquaintances and that one of my brothers stepped up to buy my very first prints when they were hot off the press. Of course, I gave him a good family discount!

And how do you get customers now?

I use the word “collectors” rather than customers, because I’ve found that if my art speaks to someone enough that they are willing to shell out hard-earned cash for it, they tend to come back for more.

[Ramit’s note: A key difference. Someone who buys from you once is FAR more likely to buy from you again. This becomes more important with higher-value goods that require more expensive marketing. The cheapest marketing you’ll ever do is to existing customers.]

Last year, I started working with a publicist and that turned out to be a much wiser investment of my resources than spending money on ads. And galleries, of course, account for about 35% of my total collectors.

I also find ways to connect my collectors and the people who take my workshops. In the process of creating community, i.e., a community of weekend painters, a community of watercolor collectors, it moves what I do beyond the sale of a product or service into the realm of offering a richly rewarding experience.

Anything else we should know?

Follow your muse!

Check out Kathy’s work at her website. Read other Friday Entrepreneurs, sign up for my newsletter, and submit yourself as a Friday Entrepreneur.

0:00 — Why I started I Will Teach You To Be Rich (skip this if you’ve already heard it)

0:35 — Do young people really care about money?

1:10 — We feel guilty about our money

1:33 — What people do when they read iwillteachyoutoberich

2:00 — My favorite result when people read this blog

2:15 — What is rich?

2:20 — Can’t people just find this information by going to a bank? (This is where I crack up.)

2:45 — People who just read my site vs. people who take action

3:00 — How I scale iwillteachyoutoberich, monetization, and a little about PBwiki

3:55 — “The voice of 10,000″ to scale beyond just one person

4:50 — Why it’s more important to spread the word about personal finance than to make money right now

I absolutely LOVE Payloadz, Shannon’s service that lets you sell digital goods (like ebooks) online. In fact, let me tell you how I learned about it: When I released my Guide to Kicking Ass, I expected to sell about 100 copies, so I was planning to collect payment through Paypal and send the ebook manually. That lasted about 5 minutes, when I started selling way more copies than I thought I would.

About a day later, Shannon wrote me this exact email, which I’ve saved until now:

Ramit,
I’m a long time reader of your blog. I was surprised to see the method in which you were selling your eBook is not automated or protected. I think you should use our service, I will waive any fees. It protects your file and it ensures delivery of your product in an automated fashion and does not rely solely on email (which is unreliable). You can have it setup in your site in 5 minutes. Totally secure. I’ll even promote it heavily in our 100,000+ page view sites.

Check it: http://express.payloadz.com

Beautiful. He made his offer so simple that all I had to do was reply and say “Ok” and the rest was taken care of. How could I say no? That’s marketing.

Since then, I’ve sold over a thousand ebooks through Payloadz, and whenever I email Shannon about a bug or feature request, he gets back to me within the hour, making me love his service even more and want to spread the word.

In this interview, pay close attention to…

• How he got the idea of starting Payloadz
• How he keeps costs down (he’s the only fulltime employee!) and where he spends his time. This is the dream of a lot of iwillteachyoutoberich readers — to start something on your own and have it be profitable from the first week. However, it’s extremely difficult to do. Check out how Shannon does it.
• What he says when his friends ask for advice on starting a company — including what makes him roll his eyes (ugh, me too).

The most important thing in this entire interview is Shannon’s point of how to get people to pay you. There are 2 no-brainer reasons you can charge people for your product: If you’re saving them money or making them more money.

Now check out how Shannon did it.

* * *

What is Payloadz?

PayLoadz.com is a web-based service that allows anyone to market, sell, and distribute downloadable goods such as ebooks, music, video, software, or any other file that can be sent over the internet.

How did you get started?

I started a small web-development company and worked specifically with people integrating basic PayPal functionality. I had been working with PayPal directly for a few months where I was writing tutorials on how to use their Instant Payment Notification (IPN) feature to deliver software to people.

While leaving for a vacation to Florida, I realized that it could be made into a web-based service and the idea for the first Paypal-based service of this kind was born. Unfortunately, the vacation was ruined as I couldn’t think about anything but this idea. It was up and running within 48 hours of returning home.

Can’t someone just set up their own system (e.g., Paypal) and do this themselves?

When I launched, PayPal didn’t have any means in place to do what our service provided other than the IPN. Then they had an issue with the purchase download page where turned into a kind of “hack” as people were looking at the HTML code and going right to the download page.

Anyway, PayPal has come further with things like encrypted buttons, auto return, and Payment Data Transfer. All great tools and useful for digital goods, but each have their drawbacks.

How did you get your first users?

Surprisingly, the first few users were pretty high volume. It seems people have wanted to do this and simply needed the solution to become available. They were selling tens of thousands of goods on our service, and I can say it had some serious lack of functionality back then. We were the only game in town for the first year or so.

Now that you’re more mature, how has your marketing strategy changed?

After the initial period, the competition started coming up, so I had to establish a more formal marketing outline which includes a mix of PPC, SEO, a reseller program, and word of mouth.

Things I’m doing now are getting a PowerPoint and PDF deck together to bring to larger clients or VCs. I hadn’t had the need for this before, as the service couldn’t work for big software players due to integration issues. But with our recently released API, we can target those types of organizations so we needed something to bring to them instead of simply sending them to the site.

How do you make money?

We charge people a monthly fee to use the service if they sell more than $100 worth of goods in a month. The service is free if they don’t exceed sales of $100 each month. Beyond that, it breaks down to a service fee from around 5%-15% per month based on transaction value. I’m trying to focus on the concept of “we get paid, when they get paid”. So, if we provide a service that enables them to make money, it should be painless in converting them to paying customers.

We really have not differentiated the free account features from the paid account features in order to get people to upgrade. We could, and I think when the company moves to the next phase it will institute those kinds of things.

What were some of the biggest mistakes you made in growing your business?

I didn’t delegate. The business was profitable enough after its first few years where I could have started to send some of my duties elsewhere. As soon as you have enough headroom to spend to outsource, do it. For online businesses, I’d say the first one to look into is programmers. Definitely go overseas (Rent-a-coder, eLance). Be careful though, it is very hard to find good ones.

I think I’m still making one huge mistake, one that I’ve been making for some time. That is, thinking I can do it all on my own. The truth is, I could have been building a company ten times the size if I had brought people on to help. I had the fear of using the excess cash to bring someone in and then have things go south and the cash flow dry up. This hasn’t happened once in the entire business life, but paranoia is an entrepreneur’s daily companion.

Where are you in the lifecycle of your company?

Since that first month, maybe even the first week, the company has been profitable, but is still completely in bootstrap mode. To this day I am the only full time employee. I’m not hoarding money away though. I pay back into the company and reinvest almost everything.

I thought I could manage the company through the next phases, but am not sure now. I think there are people much better suited to do that kind of thing. If someone comes along and the offer is right, I can see moving on. However, the company is doing great and as long as I am here, I will continue to drive it forward as aggressively as possible.

What do you do on a day-to-day basis?

The first half of the day is really just reactive. I begin with email, about 155 of which will require my response. They are either tech support questions, larger customers, developers, or one of the many automated emails that keep me updated daily on the status of the system.

Once that is done I check Google News, Bloglines, Digg, and a few special interest sites. Another round of emails has me into the afternoon where I begin the proactive part of my day. It may be tweaking AdWords, brainstorming features, scouting prospective partners, or even doing some of the development myself.

If someone had an idea for a web business, what advice would you give to them?

A lot of my friends, very smart people, come to me each week with website ideas. Normally a quick Google returns ten companies already doing it and it ends there.

Other times I ask the “how will it make money?” question and they say “advertising” which gets an eye rolling from me. A lot of ideas are what I consider chicken and the egg scenario. To make money it needs users and content, but it doesn’t have either to start.

Then again, I’ve shot down many great ideas that have come up years later. A friend sat me down and explained a service that stored your bookmarks for you so you can access them anywhere. I slammed the idea (I don’t know the reason as it seems like the most logical thing ever to me now), but a few years later, del.icio.us sells to Yahoo!

One other concept that has stuck with me to evaluate a business idea is based on the financial service it provides to the user. To me, if someone makes money off your service, you can justify payment.

Is there anything else we should know about Payloadz?

We just sent out a press release which you can see here.

Want to be a Friday Entrepreneur? See the benefits of being featured, then submit yourself as a Friday Entrepreneur.

Check out Payloadz, read other Friday Entrepreneurs, sign up for my newsletter.

Financial Stocks Rise Wondrously on Woeful Results

“…triggered a rally in financial stocks. A Standard & Poor’s index of 29 companies — including lenders, Wall Street firms and money managers — has jumped 31 percent since July 15…

Some words used in this article: “triggered a rally, jumped, climbed, bounced back, progress, profitable, whopping number, could be that the worst is over”

July 25, 2008 (2 DAYS LATER):

Stocks Drop Sharply; Banks Lead Decline

“Widespread fear about the financial sector brought a dramatic end to the recent stock rally, as investors scrambled to take profits from bank shares and sent the Dow Jones industrials down more than 280 points, its worst loss in a month.”

Some words used in this article: “plunged, worried, struggled, cascading effects, paralysis, sell-off, brought down, strong run, lost, painful, sour note, weak job market, scarcity, discouraging, harder, beleaguered, woes, decline, dampening”

Related articles on stupid media articles:
1. The media is atrociously bad at prediction and I’m sick of it

2. The worst financial advice from around the web! (Today only)

• An overview article: Given a Shovel, Americans Dig Deeper Into Debt
• A timeline of debt from the 1920s until now
• A haunting video of Diane McLeod. Just watch her attitude and how her debt affects her.
• 700+ comments from people (I suggest sorting by Readers’ Recommendations). The condemnation is both enlightening and saddening. We seem to take pleasure in seeing other people’s pain (”She could have made better choices…Idon’t buy all that crap”) and yet, some of it is very true. I agree with most of the comments about the evilness of credit-card companies, and yet, we do have choices.
• A tool that lets you compare how much debt you have with others like you

Want to watch it all? Click here to start.

Here’s my take: On one hand, we all know people like Diane, who make poor financial decisions, never take the time to get educated about money, and sink into a hole of financial quicksand. These people are easy to judge because they have all the visible signs of financial stupidity: New cars every two years, expensive high-definition TVs, vacations, houses they can’t afford. And yet, on the other hand, financial institutions, advertising, and social influence have all coordinated an attack on us to spend more. In fact, we’ve been told for decades that owning a house is the single-best financial decision we can make. It’s not.

Is education the answer? Maybe, but it’s not a panacea.

Should we just stop spending so much? Of course we should, but that’s like saying we should all lose weight by making better choices. Easy to say, extremely difficult to do. I’m hopeful that the current environment calls for a restructuring of our priorities. I hope that we get conscious about our spending and start prioritizing saving over spending. With extended hardship, this will become more likely. We all need to be conscious of our finances, but we’re playing in a world with the deck stacked against us.

I’m tired of demonizing people for making poor spending decisions. It might make you feel good about yourself, but it doesn’t actually change behavior.

And fundamentally, that’s what this site is about. It’s not about making people feel better about themselves by looking down at other people. It’s about getting behavioral change. In that vein, the 557 examples of changes people have made as a result of reading this site are probably my biggest success.

I fully expect lots of commenters to brag about how you got out of debt by making hard choices (just as they annoyingly bragged about their inexpensive weddings in the comments of this post). That’s great. But I’m sick of those comments that tell people to “just spend less.” Not everyone can stop spending 30% of their money on going out, because a lot of people don’t have that extra money.

There’s nuance to these arguments that’s missed by idiots who blather about how we should all “make better choices” and “start being responsible.” Of course we should, and if you’re reading this blog, you’re already doing this. But there are details that are missed by such superficial statements.

Here’s what I suggest: Read the New York Times article. Then, read the 152 comments from other iwillteachyoutoberich readers about how they got into debt. That’s 67 pages of startlingly honest stories, most of them having to do with educational loans. Then, I would encourage you to carve out some time for two resources to understand some of the nuances of why many people — especially poor people — can’t get ahead. Here are two resources I fully recommend:

Also, check out 30 Days of Working Minimum Wage, a video in which Morgan Spurlock (who brought you Super Size Me) and his girlfriend work minimum wage. Sure, it’s gimmicky, but it’s a truly eye-opening movie that provides insights on why it’s nearly impossible to get ahead if you’re earning a certain income.

I’d love to hear your comments.

Note: His annual fee is enough to make me stuff my head in a plastic bag and tie it closed with adamantium, but you have most of these perks on your credit card for free.

In case you didn’t know already, all AmEx cards come with something they call Return Protection:

• No More Shopping Regrets - Return Protection offers guaranteed product satisfaction on designated items purchased entirely with an eligible American Express® Card.
• 90 Days of Protection - If you try to return an eligible item purchased in the U.S. within 90 days from the date of purchase and the merchant won’t take it back, American Express will refund the purchase price.
• Up to $300 Coverage - You are covered for up to $300 per item, excluding shipping and handling, up to $1,000 annually per Card account.

I’m planning on using this for an iPhone I bought for my wife 2 weeks ago (assuming the new iPhone is available within 90 days of the purchase date). They’ve got a few other nice perks with their personal cards.

Also, I really like the free extended warranties - I used that on a $5K TV I bought last year and it’s nice to know that I’m covered for an extra year after the factory warranty runs out - for free. On top of that, all the travel coverages are awesome - I lost my card in Vegas last month and they overnighted me a new Platinum card. To make sure I could still party it up, they offered to have the hotel concierge drop off some AmEx travelers checks to my room within an hour.

The way I look at it, I pay $600 ($450 for mine and $150 my wife’s) per year for the Platinum Card - that’s $50/month. I get all the free coverages I talked about up above, some additional Platinum-level goodies (like airport lounge access, free complimentary airline tickets and more) and a 24/7/365 concierge that will do my bidding.

Remember, you don’t need to pay a huge amount to get these benefits. Most credit cards, including yours, come with standard benefits, including a complimentary extended warranty of an extra year on electronic purchases (e.g., iPods and cellphones — most people don’t know about this!). They also offer automatic car-rental insurance, plus the ability to dispute charges if you got a lemon from a retailer.

Compare credit cards at http://www.bankrate.com, and check out my list of credit-card links.

More credit card tips in my upcoming book. I have a full chapter on optimizing your credit card in my upcoming book, I Will Teach You To Be Rich. To get early chapter previews (and other money tips), subscribe to my free newsletter.