Wow. Here is something you don’t see every day. In her recent column CBS Journalist Kathy Kristoff sat down and added up all the potential fees on her Macys card. On a minimum balance of $3.41 she figured she was being charged over 700% interest.
While the headline is somewhat sensational, it just goes to show that despite all the new regulations, carrying a balance on most credit cards is still a losing proposition as far as your personal finances are concerned.
P.S. For those of you more Machiavellian in your orientation towards money, it might be a good idea to consider investing in companies that do consumer lending, with 700% interest rates, there is probably plenty of profit in these kinds of businesses.
It seems like every day my wife and I get a letter from a credit card company with those “convenience” checks attached. The letters invariably talk about “simplifying” our finances and giving us “freedom” to do what we want with our money. It sounds fantastic, but the reality is those convenience checks are anything but.
The included letter (in this case, from Citi) suggests three uses for the checks: to transfer balances, make purchases or deposit directly into a bank account to “use the money however you’d like”. Thus, “freedom”. Which of course sounds great, until you look at the fees and interest rates associated with using them.
Making purchases – while this is the least expensive out of the three options, there are still some pitfalls here. According to the Terms and Conditions provided, the standard variable APR for purchases is 6.74% (subject to a credit check), but may be increased up to 28.99% (the highest permitted by law) if you default on your account in any way. An interesting tangent here is the adaptation of variable interest rates for credit cards – over the traditional fixed rate – that has become more popular recently.
Transferring balances – two years ago I consolidated a couple credit cards to one, and used a balance transfer to do so. However, I was ignorant of the process, and was quite shocked to see a balanced transfer fee assessed to my account (funny how that didn’t come up during the phone call to the credit card company). These convenience checks carry a balance transfer fee of 3%. Additionally, according to the terms and conditions of the offer: “We apply payments to lower APR balances before higher ones. Finance charges will be assessed from the date balance transfers post to your account.” That piece of information could be quite costly.
Deposit money into a pre-existing bank account – they don’t call it this, but that is considered a cash advance, which as most of you know, is a very dangerous and expensive thing to do. What the credit card company offers as freedom – the letter mentions paying off bills or saving extra cash for emergencies – is actually a fantastic money maker for them. The cash advance transaction fee is 3% of the total amount advanced, and the APR for cash advances is a whopping 19.99%.
There are additional problems with convenience checks. With many of them, the interest on the purchases accrues as soon as the checks are used. Other have fees for using them, regardless of how. Also, convenience checks aren’t subject to the same purchase protections that a standard credit card is. So in the event that you purchase a faulty protect with your convenience check, you’re on your own. There’s no ability to call the issuer and get the charges reversed like you can with a credit card; you have to deal with the merchant yourself.
As if all that wasn’t enough, until recently many convenience checks had no security devices implemented. Most could be used without signature verification or an activation process. While some institutions have implemented a series of security devices for their checks, that isn’t universally the case, and as such you could be faced with a major problem if your checks are stolen.
After examining convenience checks in depth, it’s hard to see an upside to using them. So I will continue doing what I always do when they come in the mail: shred and throw away.
Okay, today’s posting is on the topic of sector investing. One important aspect of building a successful stock portfolio is adequate diversification. There are lots of ways of achieving adequate diversification, but one way to do it is by buying stocks in several different sectors of the economy.
This posting features a discussion of some of the leading names in the consumer staples sector. Consumer staples is one sector to consider for at least two reasons. First, its somewhat recession proof. Even during a recession people still need to purchase food and household products. Second, the consumer staples sector has increased by 17.3% in the past 6 months – better than some other industries like utilities or telecommunications. So, buying consumer staples stocks is a good way to juice up your portfolio while adding some diversity.
Three of the biggest names in food products are currently looking at merging. Namely, I’m sure many of you have heard of the on-going drama concerning Kraft (KFT) and Hershey’s (HSY) attempted takeover of Cadbury (CBY). The result has been investors guessing what direction these stocks will go, and frequently jumping ship when their opinions change. This has created an unpredictable outcome for both Kraft and Hershey, with Kraft making gains recently and Hershey stock falling. At the same time, we should not necessarily expect this trend to continue.
Should you invest in any of these three companies? Personally, I would say the situation is too unpredictable. It looks as though Kraft will end up acquiring Cadbury, but it could be a messy acquisition. I would say there are better investments out there.
Here are some other stocks you may want to consider:
As reported by Foodprocessing.com about three weeks ago, General Mills quarterly profit was up nearly 50% in the second quarter. The stock price has been rising steadily over the past 9 months from around $50 to where it is now, hovering over $70. This is about equal to their previous peak stock price in October 2008. With a P/E ratio of 14.65 and Earnings Per Share of $4.83, this company has a potentially a safe yet solid stock to look into for 2010.
Smuckers has a P/E ratio of nearly 18 and, like General Mills and the rest of the industry, has seen an increase in their stock price throughout 2009. The earnings per share are $3.46. Their stock price has nearly doubled since May when the price was $35 (It currently is around $62). This may not be a cause for celebration, though, as it is just now nearing its July 2007 high of around $62.50.
Kellogg Company (K)
Kellogg is another food product giant. The stock price’s previous high was $57 in October 2008 and, since a drastic downfall following that high, has currently recovered to a price of $53. Is there more room for this stock to gain? That will yet to be seen. Earnings per share are $3.17 with a P/E ratio of close to 17. Its products are manufactured in 19 countries and marketed in more than 180.
As we mentioned earlier, the nice thing about the food product industry is that it is relatively stable. The stock prices have moved, for the most part, with the market. Groceries specifically and food in general have been called “recession-proof.” The one situation that you should be concerned about with these companies is if there is a shift in consumer sentiment and they start buying more generic, store-brand food.
All three of the above companies (Kellogg, Smuckers, and General Mills) are solid companies that have good earnings per share with stable product lines. If you are looking for a large capitalization stock to add to your portfolio, you could do worse than these three.
We luckily don’t have a car, and I’ve never bought a car from a dealer, but an article on yahoo peaked my interest and got me researching mistakes when buying cars. My twin sis’ family has recently grown out of their car with a full-sized black lab, so it is a topic of interest.
Here is the low-down about car mistakes:
1) Buying more than you need. It’s easy to get lured in to wanting more. 2) Adding on extra features without realizing the real extra costs involved. 3) Buying new versus used. I’ll admit that with some deals out there for warranties on new cars that it can at times be a pretty good deal for new cars, but traditionally used will generally save you quite a bit. If you are buying used though, make sure you have it inspected by a mechanic. 4) Thinking in Monthly Payments. Salesmen try to do this to get you into buying more than you want, but thinking you can still afford it. 5) Zero Down. This might sound good, but it isn’t. My personal goal, in the event that we one day one a car, would be to pay this in cash up front. If you can’t do that, make sure you put down a good down payment. 6) Test Drive Mistakes. Two mistakes are common here. First is not doing a test drive. This is really necessary to know you like the car. Two, various articles also mentioned the common trick of having you test drive a better model and then getting back to the dealership and compromising on a model that is more within you budget. Scaling back is fine, but just make sure you test drive what you are buying! 7) Negotiate Up rather than Down. This may sound counter-intuitive, but it is better to start with the price the dealer paid and then work up rather than start at the sticker price and work down. The Consumer Reports New Car Price Reports does this for you with the CR Bottom Line Price. 8) Shop Around. This is a big purchase. Do not go to one dealership and buy. You aren’t shopping for milk here! 9) Research Financing Options. Before you go out to buy, or even look, do some research on rates and terms. You can get a great price and a terrible loan, and the later outweighs the benefits of the former. 10) Trade In Value. Make sure you’ve also done your homework in terms of what your car is worth. If you haven’t determined the value, you are guaranteed that you won’t get it at the dealership. Plus, if you can manage the hassle, you’ll always be able to sell it for more elsewhere. I sold my last car on Craigslist for a breeze.
Readers: Do you have any other tips for avoiding mistakes when buying cars?
One of the most common pieces of personal finance advice given is “turn your hobbies into side income.” While my hobby of watching sports has yet to net me any money, there are people out there who are taking that advice to heart, and are managing to do something they love (that they’d be doing anyway) and turn it into a nice little side business.
Two of those people are my friend Trent and his brother, Wes. Both are talented, highly skilled computer engineers, who have been able to take a shared hobby of theirs and turn it into a side business. Wes and Trent were kind enough to take some time to answer a few of my questions, which I’ve included below.
1. Describe the devices you sell.
We sell an open source SD card based CD changer replacement for most 1996 & newer BMW cars; click for more information.
2. What motivated you to start building these devices?
I got a used Z3 in 2004 and absolutely loved the car. I wanted to bring my fairly large music collection with me in my car, but didn’t want the extra risk of an in-dash CD player (theft rates at the time were pretty high, plus I didn’t want someone to ruin my convertible top to get to the radio) or the hassle of burning CDs of music to keep in the trunk based CD changer. Not to mention that with the CD changer installed, I couldn’t fit a set of golf clubs in the trunk – with the Crooner, I can fit 2 sets. I also wanted something that was easy to customize to my liking. Nothing else I could find gave me the level of customization I wanted. Given my training as a computer engineer & enjoyment of designing & building electronic devices, in 2006 I decided to build a small MP3 player for my car. The current model of the Crooner is many times more powerful than the original design – at roughly the same cost.
3. Did you start with an idea of making it into a full-time (or at least part-time) job, or were you just doing it for your own benefit, regardless of any potential money you could make from it?
At the start I just wanted to make one for myself & be done. I didn’t want to have to alter my wiring harness, so I needed to buy the proprietary BMW connectors – which led me to form a shell company to try to get approval. Once I got approval I discovered that the smallest quantity of connectors I could purchase cost around $1,000 – with no option to sample them. After talking with some friends & family, doing a cost analysis, and saving some money I took the plunge & decided to buy the connectors & try to make enough players to break even. At this point the company was real & I was serious about recovering my investment.
4. What was the hardest step, going from where you started to where you are today?
The most difficult step was getting the audio quality up to the level I could enjoy. Due to some extremely complicated electrical interactions (you could faintly hear the spark plugs fire during quiet parts of a song) with the car it took me about 3 years to refine the player into a product. Along the way I made somewhere around 7 unique versions of the player trying to solve the audio quality problem. Each prototype cost anywhere from $80 to $150, plus around 6 hours to hand assemble. On the next to last prototype I nearly gave up. By this point I had nearly $3,000 invested & the light at the end of the tunnel didn’t seem to be getting any closer. With encouragement from my wife I made another prototype – the one that finally worked.
Deciding when to stop is difficult & can be emotionally challenging given your extreme involvement with the project.
My neighbors still laugh about hearing me open the garage door at 2, 3 or 4 AM to drive around the block to test a different circuit configuration. I was pretty lucky during the majority of the testing because I only had to explain what I was doing to one police officer & I didn’t get a ticket!
5. Where do you see your business heading from here? Do you have a specific goal in mind?
I’d like it to slowly grow a customer base & get the first batch of 25 units sold. I have focused on sustainable growth (very slow sales at first, ideally they’ll pick up to a moderate rate). Sustainable growth is important to my business model because I want to take advantage of the customer base’s use of the Crooner for additional testing beyond my car & car model. Once the first batch is in the field, ideally the pace will pick up more – both in terms of the viral marketing & my overall confidence in the product working in a wide range of vehicles.
I’ve really got two goals I’m shooting for. The first is to break even. At that point I will have beaten my investments in the stock market and house over the same time. The second goal is to earn the same value I paid for my car (I’ll need to sell many more than 25 to hit this mark).
6. What’s the best part about turning a hobby into a business? The worst?
The best and worst parts are interestingly interwoven. It is terrific fun to be able to take your hobby to the next level. The thrill & excitement are second to none. You discover you’re capable of working on a project nearly 40 hours in a weekend and still be excited about the next time you get to work on it when you truly love what your doing. When I’m listening to my media player in the car going to work, I love the feeling I get knowing that “I made that.”
With the amazing highs you may also experience some bewildering lows. Nothing is worse than when you’ve poured all your energy (and resources) into your project only to discover it comes up short (each time this happens it feels worse). As a hobby you can often live with ‘character marks’ in your projects, but not when it is a business. Unlike when your hobby was fun, you now must force yourself to work on it.
Is it worth it? Absolutely. Once you get through the latest cycle of problems, you’ll regain your confidence & your enjoyment.
I’d like to thank Trent and Wes for taking the time to answer my questions. The most interesting thing about what they had to say was they saw a deficiency with the current products that were out there; the standard technology wasn’t meeting their needs so they decided to use their expertise as computer engineers to develop something that would. Unusual circumstances sort of pushed them into turning their product into a commercial item (the inability to purchase less than $1,000 worth of connectors, among other things), but they’ve rolled with the changes and have produced a commercially viable, useful product. Their answers are full of important lessons for anyone looking to start their own business: find a need and fill it, rely on your previously obtained expertise, be flexible enough to handle adversity, persevere through challenges and most importantly, do what you love and whatever is interesting to you. Again, thanks to Trent and Wes, and if you’d like more information on their products, go to open roadster.
I pulled this quote from a copy of Robert Kiyosaki’s Rich Dad Poor Dad. Kiyosaki is a bit of a snake oil salesman, but Rich Dad Poor Dad has some great gems. I especially liked this one, because it does speak to some fundamental truths about society as it relates to money.
“The first lesson of having money work for me, as opposed to working for the money is really all about power. If you work for money, you give the power up to your employer. If your money works for you, you keep and control the power“.
– Rich Dad Poor Dad, p. 92.
So, in terms of the practical implications of this for your finances, this means that the more cash you’ve got in the bank, or the more you’ve got properly invested, the more empowered you become.
We are extremely happy to announce the launching of Sustainable Family Finances blog! This venture has been a few months in the creation stage and is ready to inspire in 2010.
Sustainable Family Finances is a joint venture written by my twin sister, aka Green Mama, with me behind the scenes working my blog magic from my experience on DINKs Finance. Naturally as twins we are a power duo and look forward to working together to create balance and abundance in our lives.
Green Mama is a great compliment to DINKs Finance and brings a great deal to the blogsphere. You’ll follow along her journey in raising a family while living lightly on the earth and creating abundance along the way.
Check out her first blog post, Inspiration from the Universe, to learn more about what prompted us and follow along as Green Mama shares her goals and story.
Sign up for our RSS feed, follow us on Twitter, or become a fan on Facebook. We look forward to hearing from you!
With a job like mine you’ve got to be one step away from having a bag packed. My goal this weekend was actually to unpack from our holiday travels. In the end I was packing instead. At around 5pm on Friday the possibility of me going to DRC came up as a possibility, and by 7pm I had a flight booked for Monday afternoon and schedule to get my visa and extra passport pages on Monday morning.
I’ll be maintaining the blog in the field thanks to posts written this last weekend and support from Michael and David, as James is gearing up for his final two weeks before his big exam.
This however means that given our schedules, both our 2010 goals and our current net worth will have to go on hold to make room for exams and travels to the edged of the world. We’ll take time to do both when I’m back and James is done with his exam.
I’ll see if I can come up with any finance related posts when I’m out in deepest darkest Africa. In the mean time you can check out me and a baby lion on my last trip to Zimbabwe. You are also free to follow along at my personal blog – Where is Miel.
Check out this video from Wall Street Journal. It just makes me glad that James and I are pretty open with our purchases and I can’t really think of any examples of pissed off purchases. Certainly not to the extent of $800 lizard boots. Check out the video, I think it is worth the four minutes.
Readers: We’d love to hear what your experiences are in relation to this video.
