Commentary Archives - Smart On Money

A Tale Of Personal Banking Gone Bad

One of the biggest misconceptions in personal banking that many people seem to fall prey to these days is that all banks offer basically the same account options. How false this idea actually is I can certainly tell you, and that’s exactly what I intend to do here.

As a young man, I had the good fortune of being supported by parents with great intentions and reasonably high incomes. In short, I wasn’t forced into early labor; in fact, working while in school was discouraged, despite my desire to make some money on the side. My parents urged a focus on education as my one and only job – the idea being that good grades would eventually land me a concrete, high paying job down the road, and then I could pay them back.

Unfortunately for all of us, we couldn’t foresee the economic turmoil that lay ahead, which would strike at the most inopportune time, just as I was graduating from college.

The Start of It

Upon graduating, despite reasonable concern from my parents who were sincerely feeling the effects of the economic downshift, I decided to use my small life savings to do some traveling. My hope was that by taking a year or so to live cheaply and enjoy the world as a young man, I would gain some great life experiences and return to the working world just as things were starting to look up. How naive an idea that was is now laughable, but only because I managed to turn a resulting bad situation around and again find financial stability relatively painlessly.

About six months into my stint of traveling, my savings, which I had transferred over to my checking account, was dwindling faster than I could comprehend. I assumed that I’d been spending too much on food, drinks, and fun without really doing the math or sensibly budgeting. It didn’t add up though. By month seven, I had just enough to buy a plane ticket home, which I did immediately. And then I realized what had happened.

Bank Fees Take Their Toll

My existing accounts, both savings and checking, had huge maintenance fees attached to a failure to keep a minimum balance in both. I’d had no idea these fees even existed as I’d set the accounts up with my parents way back in high school. Somehow, they’d forgotten as well, and the result was a ridiculously huge amount of money being virtually thrown away to the bank over the course of six months. It was enough to cut my travel plans decidedly short, and force me to take out a hefty personal loan to cover my living expenses for the next 4 months before I finally found a job.

The Remedy – Researching New Banks

Aside from the loan, which I’ve just recently been able to pay off in full, I immediately dropped my old bank in disgust, and did a huge amount of research on various other options before deciding to go with an online bank, much thanks to discover.com/online-banking and other similarly helpful online banking sites that I used to compare interest rates and maintenance fee-free options. The number of vastly better options I quickly found literally disgusted me, such was my angst that I'd been so careless.

The Takeaway

Number one, never, ever, be naive enough to think that all banks and account options are created equal: they’re not. And number two, doing research on both your existing bank account and financial institutions and comparing them to other available options out there can save you a world of financial woe and heartache. The fact that I missed out on so much money and opportunity to continue an incredible traveling experience for such an unnecessary and easily-avoidable reason, has me kicking myself on a regular basis.

So do yourself a favor, and make sure you do the research before you find yourself doing the same.

3 Economic Concepts Everyone Should Know

By Contributor 3 Comments

The most important financial asset that exists isn't gold, cash, or even stocks — it's knowledge. Give a man a strong understanding of finance, investing, and economics, and he'll be much more likely to succeed in the material world than if he didn't have that knowledge.

In this post, let's take a look at one of the most neglected branches of human knowledge — a topic that should be exhaustively covered in high schools, but unfortunately is — economics.

More to the point, let's analyze three principles of economics that everyone should understand, whether you're involved in central planning or just budget planning.

1. Trade Offs: There's No Such Thing As a Free Lunch.

This is probably the most important “lifestyle economics” principle: all good things require trade-offs. A more common way of describing this is through the old cliche “there's no such thing as a free lunch.”

In order to go to college, for example, one might nee to give up 4-5 years, possibly tens of thousands of dollars, accept debt, live in cramped spaces, and go without concistent sleep for literally years. It might be a wonderful decision — especially if it's an Ivy League college — but it still requires trade-offs.

Being honest about the tr`ade-offs and the real costs of everything we do, have, and spend money on. This is important, because it allows us to focus on our real priorities. For example, what's more important: earning extra money we don't need, or spending time with family? Earning extra money for retirement, or living a luxurious lifestyle that cuts away at savings?

Being honest about our priorities, and understanding that everything “costs” something, we're more likely to pick actions that lead to the most possible gain for ourselves and our families.

2. Supply and Demand: If You Build It… They Still Might Not Come.

This is probably the most important issue of economics. If there's a large enough demand, and it's theoretically plausible to fill that demand, then the supply will be filled. This all works on a curve of course.

For example, why do some people decide to work at McDonalds? It's not a great job, now is it? The answer is in supply and demand — several layers of it. There's not a greater supply of better jobs, but there is a large enough demand for money that people who don't like the place will end up working there.

An old economist once joked that you could train a parrot to squawk “supply and demand” and that it would be able to answer every economics question asked of it. That's pretty close.

Why do American keep voting for a congress that they don't really like? Supply and demand. Why do people not work out even though they keep planning on it? Supply and demand — they have other things to do, and other values, etc.

Of course, supply and demand really only makes sense when we understand how trade-offs work as mentioned above. Both of those principles mix together so that the world makes at least a little more sense in light of them.

“Supply and demand” is how the market reacts to individuals who are themselves responding to their own individual incentives. Nothing is exempt from supply and demand. Elections, markets, regulations — they either account for it, or they have serious unintended consequences.

3. Scarcity. Almost Everything is Limited.

We only have so much time on this earth. We only have so much intelligence. We only have so much oil. The same goes for gold, land, etc. Because scarcity exists, the question then becomes — how do we handle this scarcity?

Pretending the scarcity doesn't exist can have huge consequences. In America, we see this mostly as an issue of consumer debt. In America, our government sees this happen almost always through federal debt. The leading cause of debt is people who refuse to accept that their financial resources are scarcer than they'd like.

Once you understand scarcity, you're more likely to understand supply and demand. And once you understand supply and demand, you're more likely to know how to respond to choice by making the right trade-offs.

Of course, these concepts are economic concepts, meaning they apply to way more fields than personal finance and investing — they also cover politics, psychology, and even moral behavior. That's why the study of economics isn't just the study of money — it's the study of human behavior in general.

Are Your Priorities Truly Priorities If You Don’t Put Them Into Action?

By Mr. Money 3 Comments

We live in a fast paced age, and our lives can become chaotic jumbles of competing interests and priorities. It can be hard to keep track of what things are truly important to us.

People will talk about how this thing or that thing is their number one priority, and how they are working towards making it happen. We talk about wanting to lose weight, getting rid of debt or of finding a new job. Far too often, however, we don't follow through on the things we say are priorities, and things remain undone. Why is that, and are they truly priorities if they don't get followed through on?

Priorities Or Wishful Thinking?

J.D. over at GetRichSlowly.org had a recent post in which he had a tangential story about priorities, and how we should truly define what is a priority.

This reminds me of a conversation I had once with my cousin. I was complaining that fitness was one of my top priorities, but I couldn’t seem to get healthy. “That’s because fitness isn’t a priority for you, J.D.” Nick said.

“What do you mean?” I asked. “Yes it is.”

“No, it’s not,” he said. “Your priorities are the things you do, not the things you say you’ll do.”

I argued at the time, but looking back, Nick was right. Saying that something is a priority doesn’t make it so. We demonstrate in our daily lives the things that actually matter to us. To quote Will Durant (not Aristotle): “We are what we repeatedly do.”

When we say something in our life is a priority, our actions should bear it out that it truly is a priority, and not just wishful thinking – or window dressing. Priorities are born out by the things we do – action.

For example, for a while now I've been saying that one of my priorities – like J.D., was fitness. After reading his post and the quote above, however, I was a bit convicted because my actions – and the things I do – haven't backed up my claim that fitness is one of my priorities. It's a secondary thing lately.

Priorities Are Shown By Our Actions

Our true priorities in life are shown by our actions. The things that we do and the actions that we take show what is truly important to us.

For me my actions would show my priorities lie with my blogs, my family and possibly in some other lesser areas. Things that I have said are priorities, but haven't actually become that yet include my fitness goals, and some of my financial goals. It's time to take action.

Following Through On The Things We Call Important

So for me the key is to examine your life and determine what things truly are your priorities, as opposed to the things that only sound good as priorities when someone else is asking. Find your true priorities and figure out how you can work towards making those things a reality.

Is your first priority to lose weight and get fit? Join a program to help you towards that goal.

Is your goal to get rid of all your consumer debt? Follow a program like Dave Ramsey's 7 Baby Steps, and start actually paying off the debt.

Put your priorities to action – and make it truly a priority!

2011 Federal Income Tax Increase For Some Despite Tax Rate Extensions

By Mr. Money 42 Comments

A couple of weeks back I published the new 2011 Federal Income Tax brackets. Basically, because of the tax act that was passed on December 17th, 2010, the current tax rates are being extended for all taxpayers, both high and low earners.

What some people might not realize, however, is that despite the tax rates remaining essentially the same (except for some rate range increases due to inflation) some people will see a 2011 federal income tax increase due to expiring tax credits, and a 2% payroll tax holiday for 2011 that might mean less savings for some.

2011 Federal Income Tax Increase

Not everyone will see their taxes remain the same despite the fact that the tax rates remain unchanged. Some folks will see their taxes go down, and others will see an increase in withholding from their paycheck.

The Making Work Pay credit expired on December 31, 2010; therefore the 2011 income tax withholding tables do not reflect this credit. As a result, employees in a lower income tax bracket may see an increase in their tax withholding amount, while employees in a higher tax bracket may see a decrease.

So it all really depends on how much you make, and how much of a cut you got in previous years from the Making Work Pay tax credit.

Expiring Making Work Pay Tax Credit

As mentioned the Making Work Pay tax credit has now expired, which means taxpayers will no longer receive the benefits from this cut. How much was it, and who got it?

The 2009 stimulus bill will gave a $400 credit per worker and a $800 credit per working couple.
The full credit would be paid to people making $75,000 or less ($150,000 per dual-earner couple).
A partial credit would be paid to those making above those amounts but no more than $100,000 ($200,000 for couples).
The credit was also refundable, meaning even very low-income families who don’t make enough to owe income tax would be able to claim it.

For most working individuals, the credit was paid over time at roughly $15 per period, assuming 26 pay periods in a year. So since it is expiring, you won't have that extra $400-800 in your paychecks in 2011.

2% Payroll Tax Holiday For 2011

The 2% payroll tax holiday for 2011 was meant in part to be a replacement for the expiring $400-800 “Making Work Pay” tax credit. For some people it will more than replace the credit, while for others who have extremely low incomes or don't pay taxes, they won't see as much as with the previous credit (or nothing at all since only those who pay tax will get it).

What does the 2% payroll tax holiday mean for the average taxpayer? Around a $1000 tax savings. Since the Social Security tax is capped at $106,800, the maximum savings that could be seen by a higher income individual is around $2136. This as opposed to a $400 credit for singles and $800 credit for families under the “Making Work Pay” tax credit.

Some Will Pay Less Taxes This Year, Some Will Pay More

So because of the expiring tax credits, and because 2% social security tax holiday is calculated at a percentage of income as opposed to a flat rate, people will be seeing different withholdings this year. Either they'll be coming out ahead from previous years, or if they make extremely low incomes or don't pay taxes, they'll be getting less than previously. Or nothing. It really just depends on their situation.

Is the tax withholding situation – along with expiring credits and new tax cuts confusing? Do you think the government adequately explained that some lower income earners may see a decrease in their paychecks?

30 Things Broke People Say (That Keep Them Broke)

By Mr. Money 45 Comments

A few months ago I wrote a post called 10 Things That Broke People Do (That Keep Them Broke).

The article talks about the negative thought patterns and bad behavior that people engage in that leads them straight to the poor house.

We talked about how they do things like shirk responsibility, never plan ahead for the future and how they would rather appear successful than actually be successful

This past week I was reading an article over at DaveRamsey.com that takes a similar tack, where Dave asked listeners to his radio show to send in things that broke people say.

Tons of people did send in what he calls “loser language”, things that people say when they aren't as responsible, or when they want to make excuses for spending money they don't have.

Since it was similar to what I had posted previously, I wanted to share some of his listener submitted list of “Things Broke People Say” today.

Things Broke People Say

If I earn interest, I have to pay more taxes.
There's no shame in being poor, just in dressing poorly.
At my age, it's too late anyway.
Why save money? You can't take it with you when you die!
We're only young once!
But it's only zero percent interest!
I'll pay it off next month!
Old cars just aren't safe.
Whatever you want, dear.
I'll start my budget next month.
It's for the kids.
I work hard so I deserve to have it!
I'll just keep paying the minimum payment.
My rich grandparents are going to die soon.
I want my kids to have it better than I did.
It's cheaper to eat out than eat at home.
Always keep a house payment for tax purposes.
I'll save next year when I'm making more money.
We'll pay it off when the tax return comes in.
You have to leverage debt to become rich!
I need to invest in a car.
Why save ? The Lord is coming back soon!
If I make more money, I will lose my food stamps!
If everybody got out of debt, the economy would collapse!
You'll always have a car note.
Just put it on the card and we will worry about it when it comes in..
Being debt free isn't for everyone.
It's only money! We'll make more.
I must be able to afford this (car, house, etc.)since I was approved for the loan.
I'll just use a cash advance from my Mastercard to pay down my VISA.

I've heard more than one of these over the past few years, and I'm sure you have as well.

Question is, have you ever made some of those excuses to yourself? I know I have!

To keep the ball rolling, tell us a few things that you've heard broke people say – or have said yourself! Leave a note in the comments!

Starting A Side Business: Making Money From Blogging

By Mr. Money 10 Comments

From time to time I get questions about blogging from friends and family members. They know I've started a couple of blogs and made them somewhat successful, and they want to know how they might go about setting up their own successful sites.

At this point I usually start talking to them about how much work it is to blog, how you have to constantly be writing content, promoting the site, networking and researching SEO. After I've been talking to them about this for a few minutes usually their eyes start to glaze over, and they begin to realize that making a blog successful isn't an going to be an easy project. Most of them ditch the idea before they even get started. To me that's a big mistake because starting a blog, while it is a lot of hard work, can also be extremely rewarding – both monetarily and in other ways.

If You Treat Blogging As A Business, You Can Make Good Money

Once they've heard just how hard blogging can be, they often move on to the question of how I can afford to spend so much time doing something that is essentially just a hobby in their mind. At this point I have to explain how I started blogging as a hobby, but after a year or so of constant effort I realized that it could be so much more. Blogging has the potential to become a nice side income, and if you work especially hard and have a bit of luck – you can turn it into a full time income. Because of that I started to treat my blogging more as a business. I think without that added benefit of being able to make quite a bit of money from blogging, I may have stopped writing quite some time ago.

While I haven't matched my day job income yet from my blog, I am blessed to say that it has been enough to replace my wife's day job income so that she could stay home with our son that was born 5 months ago. To me that's huge, having the peace of mind that this extra blogging income creates is priceless.

A Blog Has Almost No Startup Costs

One of the great things about launching a blog is that it has almost zero startup costs, but has the potential to make quite a bit of money. What costs can you expect to incur right at the beginning?

Domain name: You can usually find a domain name for anywhere from $7-10 a year. That's dirt cheap.
Hosting: You can find a cut rate hosting plan for about $5-10/month. That's only a few cups of coffee! I'm on a higher tier plan now with Media Temple, and that costs closer to $30/month.
WordPress: The standard for blogging software, the self hosted version of WordPress is actually a free product!
WordPress theme: You can find a ton of free themes to start with (which I recommend), but premium themes like Thesis, Genesis, Catalyst or Headway will cost you anywhere from $70-165.

Those are the main things you'll need to pay for. So for anywhere from $67-$200+/yr you can start your own money making business. That's not a bad deal!

I actually started another site last weekend. In about 1 hour I bought a domain name, added the domain to my hosting account, installed WordPress and the Thesis theme. Now it's up and running and being indexed by Google! Once you have done it a couple of times, setting up a new site is a breeze!

The Main Blog Costs Are Related To Your Free Time

To me the biggest cost that there is related to blogging is the free time you'll lose to writing content, promoting your site, getting backlinks, tweaking your site, networking, engaging in social media, etc. There are endless tasks to perform with a blog, and if you don't enjoy it, you could burn out pretty quick. For me I would probably have blogged as a hobby anyway, and doing it for money just made it all the more attractive. I don't mind spending 20-30 hours a week on my sites because I actually enjoy the entire process. For others it might be more of a chore. Make sure you go in with eyes wide open.

How To Make Money With A Blog?

Making money with a blog isn't easy, and it takes time. In order to make real money, you'll need to start building up content, get plenty of backlinks by participating in carnivals and writing for article sites, guest posting and a variety of other things.

As a general rule, however, if you do everything the right way, you can probably expect to be making at least something by your 5th or 6th month. My first site didn't take off until the 6th month, and at that point it's been a money maker ever since. This site you're reading this post on started making money it's second month because I already had some contacts to sell advertising to from my other sites.

So what are some of the biggest sources of income for some of the bigger sites?

Google Adsense: by far the biggest. to do well with adsense you have to write about the right topics though. Check out other successful sites to see what they write about. I suggest adding Adsense right away, better to have the ads there from the start, and possibly make some money!
CPM ads: If you can find a premium ad network that will accept you – and if you have enough traffic, CPM ads can pay pretty well.
Direct sold banner ads: If you can sell ad banners directly, it can do pretty well. The key is finding people who want them.
Affiliate sites: sites like shareasale, flexoffers.com, linkshare.com and a variety of credit card sites do pretty well for me as well. Promoting these works best with posts usually -reviews/etc. Banners in the sidebars don't tend to do as well.
Your own info products: If you can come up with an ebook or other info product that people are willing to pay for, you'll have a nice source of recurring income.
Get paid to sites: If you have a blog it's a good place to promote “get paid to” sites like cashcrate.com, swagbucks, ebates and others that will pay you for referrals.
Paid posting: I have become a staff writer at a couple of places in exchange for payment for each article. Usually in the range of $10-75 /article depending upon how long you've been blogging and the quality of your work.
Use your blog as a launching pad to write a book: I haven't done this, but I know of several bloggers who used their site as a means to write and publish a book.

What it really comes down to is that your income opportunities are only as limited as your imagination!

Some Things To Remember About Blogging

I won't go in depth in this post as far as step by step instructions on starting a blog, but here are a few tips for things I've learned about blogging.

Less is sometimes more: I've found that my adsense ads do better when i have fewer ad placements on a page. I put one or two ads in a well placed location, and it tends to do better than say 3 ads on the page.
Do your research: take the time to do some research as to what the popular and newsworthy items of the day are. Write about those things because people are searching for them. Do your keyword research.
Content is king: having good content is key. The more you write, the more content that you have that gets indexed by google – and the more chances you have for coming up in the search engines.
Do blog carnivals: participate in blog carnivals, they're free backlinks, and backlinks are like gold.
Don't expect huge money right away, it takes time: I think it was 6 or more months before i made any real money. Have patience, it will come.
Network with other bloggers and help each other: Sometimes blogging may feel competitive, but actually it's more of a team challenge. If you can cooperate, give each other links and promote each other's content -you all win.

So there's my brief intro into blogging as a business. I'll probably be writing more about this in the coming weeks. In the meantime, however, if you're interested in starting a blog, here's a comprehensive ebook on how to make money with a blog.

You can get $5 off by using this coupon code for a limited time: som5

Have your own blogging tips, or questions that you'd like answered? Tell us your thoughts in the comments!

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