Category Archives: finance

the ultimate measure of financial success

How many times have you heard someone suggest that all their financial problems would magically disappear if they only made more money? But high incomes can’t guarantee financial freedom; there are countless examples of people who earned millions yet still ended up bankrupt. The common thread among folks who get into financial trouble — no matter how much money they make — is their inability to consistently spend less than they earn.

The bottom line: The ultimate measure of financial success is not the size of your paycheck. Rather, it’s the money left in your pocket after paying for all your obligations.

source: Len Penzo

evaluating “work from home” “opportunities”

It seems the number of advertised “work from home” “opportunities has gone ever higher since the advent of prolific social networking.

A not insignificant portion of these opportunities really are legitimate – 31, Avon, Mary Kay … – but a lot of them at the very least feel scammy.

The good ones tell you everything you need to know up-front:

  • “franchise” or licensing fees
  • buy-in cost
  • required sales to maintain active status
  • expected monthly commitment
  • growth paths
  • etc

The scammy ones do not – they have poorly-written, ambiguous, or unstated expectations, require lots of cold calling, expect you to pay-in an enormous amount with little-to-no understanding of how you will get paid later, they’re really “affiliate” marketing, etc. They’re the timeshare of the ‘independent consultant’ business. They’re the 2AM infomercial of the “work” world – you know the type, “for the low low cost of 3 easy payment of $39.95 I will teach you how to make money sending envelopes!” Btw, the way you make $1000s sending envelopes is by promising people to teach them how to make money by sending envelopes.

Many people I know have a tendency to get sucked into the more scammy of the varied wfh things – using the common catchphrases of “if you’re tired of being a Just Over Broke (aka “job”) worker, this is for you” or “in just 10-15 hours a week, earn $500-$2000 a month” or “I’m getting ready to launch a great new product, and I need you to be on the secret board of directors in the prelaunch stage” and more similar to them.

Let’s look at the the first one I mentioned: “10-15 hours per week to ‘earn’ $500-$2000 a month”. If you work (whatever this involves, it’s always left very nebulous), 40 hours a month and make $500, you’re making $12.50 an hour – about 50% above minimum wage, but you haven’t paid taxes yet – and you’re on the hook for all of your SSI (not the half you usually are by being a “real” employee). That means you pay 15.3% to SSI and Medicare (and remember, still no income taxes taken out yet). 15.3% of $500 is $76.50. Compare that to working for a “real” employer where you only pay 7.65% (because they pay more than half of it). 7.65% of $500 is $38.25. That’s a major difference.

What if you’re at the high end of the mentioned range? $2000 a month (which is only $24000 a year, btw – a third less than teachers start in the state of Kentucky), and we’ll say it took you 60 hours to earn it. That’s $33.33 an hour. If you could sustain $33.33 an hour (by, oh I don’t know, having a real job?), you’d be earning $69333 a year (2080 work hours in the year). The problem with these types of “opportunities” is that they’re not consistent. And the hours range always (in my observation) corresponds to the bare minimum of the “earnings” range. If it takes you 60 hours to make $500, you’re only making $8.33 an hour – a dollar more than minimum wage, and you’re on the hook for double the SSI/Medicare taxes – which, over the 60 hours, shows a difference of only 44 cents per hour more than minimum wage. 44 cents. Why not just get a job?

What if you’re truly successful with one of the “work from home” thingies? Well, then you start making the infomercial rounds, and you’re the guy they show with the 12 mansions, the 8 yachts, the cars, the women, etc. But you’re also not working “10-15 hours a month” – you’re engaged with the “opportunity” full-time+. You’re probably operating your “business” 70-90 hours a week.

If you’re going to work 70-90 hours a week, why not start your own company and own *everything* you do? You will, most likely, pay far less in taxes than as an independent contractor.

Are “work from home” “opportunities” all a scam? No. But do they consistently yield the earnings levels advertised for the hours put in? Not that I have witnessed.

For more information, this Money.SE question, “What warnings would you tell a friend about to enter a multi-level marketing (MLM) business venture?“, is a great resource:

  • MLM is not really a selling job
  • Be careful not to stockpile inventory, you’ll end up with $4000 dollars worth in your garage that you’ll never use
  • MLM is really a recruiting and training sales people job
  • Don’t think you are going to get rich at this part time
  • There are a lot of millionaires from MLM but they work a lot of hours recruiting and training
  • What does the business do
  • How do you make money
  • How do they make money
  • Why does this business need you
  • What do you bring to the table that the business doesn’t already have (skills, contacts, money)
  • How realistic are your time expectations – is this to be a part-time occasional endeavor, or your full-time occupation
  • Is there a product
  • Is the market saturated
  • Put as little of your own money into it as possible
  • Take as much out of it as you can as soon as you can
  • Don’t count your money as earned until you actually get it in your hands as ‘cold hard cash’
  • Remember if it’s too good to be true, it usually is – no matter how many of people assure you it’s not
  • Don’t go in thinking you’ll beat the system by trying harder than everyone else: the only way you’ll make any money is by recruiting lots of people, and selling products that can be obtained for cheaper elsewhere at a normal store
  • Make sure you are paid on volume, not people

check your home, auto, and plp insurance policies

Every few months to year I take a look around to see if anyone can give me a better rate on my auto & renters’ (home) insurance. This month, after 3 years, I found a carrier who could knock about $60 a month off my payment *and* give me more coverage.

Interesting things I learned in this process:

  • you want a Personal Liability Protection – “umbrella” – policy
    • provides coverage over-and-above the limits on other policies you hold
    • follows you world-wide (at least with my carrier)
  • individually-scheduled items on a renters’ (or home) policy are covered even if something happens away from home
    • say you have your wife’s engagement ring individually-scheduled
      • if she loses it at the beach, it’s still covered
      • if it’s stolen from home, it’s still covered
    • the cost of adding individually-scheduled items is a fraction of their cost to you if something goes awry
  • max-out your auto policy’s limits – you’ll get better rates
    • if you carry state minimums (25k/50k in KY), you will have a higher rate than if you increase your coverage levels (it was a $300/year difference for me (not that I’d ever take minimums, but it was still interesting)
    • the insurance companies factor-in your “insurance intelligence” when giving a quote
      • if you pay for more coverage, you’re “smarter” about insurance, and less likely to have a claim
  • the company you’ve been using for years takes all the factors in your driving, credit, and other relevant histories and calculates your risk to them differently
    • so shop around!

I was with my last carrier since moving to KY in 2010. I don’t know how long I’ll have my new one, but for now, increasing my coverage, expanding its scope, and reducing my payments are all great.

I went from 2 to 3 policies (including the new PLP), and am pretty excited (though, of course, I also hope to never need them).

I found out about a super cool company a few days ago – CivChoice.

The basic gist is that you create an account with CivChoice, put money into it (which is a one-way street: it’s a “donation” to CivChoice), and from there you divvy it out to the charities of your choice.

You get a single receipt for tax purposes, rather than a dozen small ones from around the country.

And you can use it to quasi-anonymize donations in a workplace donation program – instead of Personnel or Accounting knowing (or choosing) where you donate via paycheck deductions, it all goes to CivChoice, and then you direct it from there.

the gold standard

This is going to ramble a bit, and I’m not 100% sure my opinions are even remotely reasonable, but I had a great conversation on the Gold Standard recently, and thought sharing that would be fun. The quoted sections are relevant parts of the conversation from my friend*, and the unquoted segments are my responses.

I’ve seen pundits, or as I call them, “blowhards”, on both sides of the aisle claim that even suggesting we return to the gold standard is madness. Maybe it’s just because I’m not an economist, but I don’t understand that – we had like 3-4 thousand years of experience with the gold standard; we have less than a century with floating currencies. Why is it so crazy to say “we keep getting into trouble this way, maybe we should fall back until we’ve got this figured out better”?

The only issue I can see with returning to the gold standard (or the silver or any other), is that since gold is by nature a finite resource (whereas many others, while finite, are growable (eg crops, industry, etc)), there would be no reason to have an “exchange” between different countries, and that it would make an effective universal currency – to some extent, undervaluing the currency systems of every country that chose to use the standard, and globalize (even more) our economies.

Plus, it makes issuing loans (and receiving them) substantially more difficult – and loans are NOT always a Bad Thing™.

For example, if, say, Canada and the US use the gold standard and decide that $1000 US is one ounce of gold, and $500 Canadian is one ounce of gold, the exchange “rate” is fixed – and it’s fixed to something that is increasable, but only at a fairly fixed rate (how fast you can acquire/generate gold). Whereas if you have floating currencies with no “real” backing, exchange rates can change based on the relative health of each country.

By setting a fixed exchange (which is what the gold standard would do … like what China has been doing for years to the US, but only on paper), is that it can cyclically under- and over-value individual countries currencies and economies, ultimately bringing more down at once when a few fail (or, of course the reverse – bring more up when some few major ones succeed).

During the early part of the last century, we were still mostly working with gold, and we had both the Great Depression, and some of the greatest economic growth ever seen.

The Great Depression, imho (though, admittedly, a biased, and fairly-underinformed opinion), was about 90% perception, and 10% reality – a fairly commonplace occurrence in economics, but one that was exacerbated by the [initially] fixed relations between the various national currencies

Also, imho, basing currency on a fixed standard (like gold) was truly only viable in an era of poor communication (I’d personally argue that shortly after the telegram became more than a technological marvel, this became more and more true until it was universal) – with poor communication, perceptions take a LONG time to be transferred – which correspondingly means that “news” was A) old, and B) taken with larger grains of salt than we *tend* to take it with now, since comunication is [effectively] instantaneous. {I have no research or citations to this point – yet: it is currently only my opinion.}

In my opinion, by floating currencies against each other and the relative strengths of each country involved, crashes are slowed (not eliminated, of course). Of course, again, the reverse is also true – booms are flattened-out. So, I’d view the floating-currency approach as one that will *tend* to flatten local (and global) booms and busts into substantially smaller ripples, rather than major mountains and troughs.

Not being an economist, I’m not sure I understand why that should be. What’s the evidence for that? How can we be certain that’s a good thing? Maybe the cycle of mountains and valleys is important, socially?

[not being an economist either,] I’d *think* that it would be better to keep the mountains and valleys more stable / less high|deep, so that slowdowns aren’t felt by a disproportionately small community/niche of the economy, and so that speed-ups can have a “good neighbor” effect to bringing some of the underperforming sectors ‘along for the ride’.

As to question 2 – I don’t *know* that it’s “a good thing” … but I also can’t say it’s a ‘bad thing’, either.

I’d be happy to hear arguments that either oppose mine, or are different 🙂

I think my strongest one would be that we used the gold standard for like 4000 years, and it seemed to work very well for us nearly globally during that time. As far as any possible good neighbor effect from flattening things out, it may be that social upheaval is an important component of progress: almost all major advances thus far in history have had some component of socio-economic shift; flattening those upheavals could very well have consequences that we can’t foresee (I realize this is a weak, speculative argument, but it’s worth considering).

There’s also part of me that feels like floating currencies are so much handwaving and voodoo. You talked about how they allow countries to create exchanges that are tied to their relative health, instead of some fixed point – but isn’t how much currency they’ve arbitrarily decided to create often used as one of the measures of health? If so, that’s somewhat circular logic: if floating currencies let us control how much inflation we’ve got, and inflation is one of the health metrics, then what prevents nations from trying to hide economic problems, just the way that nearly every EU member has done over the last 15 years?

Isn’t it exactly the fact that their currencies were floating relative to one another before hand that allowed them to hide so much of their debt before entering the euro zone? Or have i misunderstood that?

Prior to the “euro zone” cluster****, country finances were a LOT less open/transparent, too … kinda like a private vs public company (not that public companies are as transparent as would be helpful, but the comparison stands).

I feel like if they’d been the gold standard, the euro zone negotiations would have been more along the lines of:

“ok, so how much gold have you got?”
“oh, quite a bit!”
“ok, well, we’re going to need to count all of it, so that we can figure out how many euros to give you.”
“oh, well, we have quite a bit of gold!”
“yeah, still need to count it.”
“oh. um. crap. …fine”

It’s a lot harder to hide how much actual wealth you have, when your wealth can be reduced to a physical object, instead of just assertions on paper.

However, if you’re going to count the gold nuggets (or whatever), it’s also trivially-simple to elect to *NOT* show your whole hand … which would seem to me to be the same economic sleight-of-hand as can be done when asked “how many barrels of oil do you have?” and you reply “we’re recovering 5million bbl/day”

That’s not an answer – it’s interesting information … but not an answer.

In this particular case, there’s no benefit I can immediately think of to hiding your wealth – the whole point was to get your finances into a good enough shape to be able to qualify for the euro zone. The shenanigans were more about hiding debt than hiding wealth.

I think that hiding wealth *could* be beneficial to make yourself *appear* weaker than you are, so that when you “need|want” to be “strong”, you can be. It could also be from a detail-vs-gestalt approach.

So now I ask all of you – is this plausible/reasonable/right? Or am I smoking some serious space crack?

*He gave me permission to quote him as appropriate if desired

zynga and the [potential] folly of relying on others

Zynga is getting ready to IPO.

They’re the group that does “Farmville” and other games on facebook. The problem with their planned $1B IPO, though, is that they rely completely on facebook’s continued existence to make any of their earnings.

Last year their profits were in the neighborhood of $400M. That’s a lot of dough. But when facebook declines, or folks quit playing games on it, what will happen to the company?

Seems like a LOT of investors could get taken big time on this one – if they hold onto the stock the way you’re “supposed to” – as an investment, and not a short-term gamble.