Is the Minimum Wage Too Low?
Let’s ask Joe the business owner and Sam the employee whether the federal minimum wage is too low.
Joe: Every time they raise the minimum wage I have to choose between raising my prices or letting employees go in order to keep the business running. I would like to pay my employees more but I just can’t afford it. Minimum wage should stay where it is.
Sam: Raising the minimum wage from $5.15 an Hour to $5.85 is ridiculous! That’s only an extra $28 for a 40 hour work week. What can you buy for $28, not much. Yes the minimum wage is too low but only raising it $.70 is not going to do much to help. We’re going to need a bigger raise than that to make a difference.
Of course Joe and Sam are fictional characters of my own creation but the issue is quite real. I can see both sides, both people are just trying to make a living the best way they know how. Never having had employees myself I tend to side with Sam. I can’t imagine trying to live on $5.85 a year an hour, it seems ridiculous to me that the federal minimum wage is so low. However, if I was a struggling business owner and my labor costs went up overnight I might feel differently.
What do you think? If the federal minimum wage is too low now, what would be an appropriate rate instead?
Personal Finance Review – Dragon Naturally Speaking Edition
I know by now you’re probably tired of hearing me talk about carpal tunnel but I have to share a nifty trick for anyone with sore wrists. I tried out Dragon Naturally Speaking for sending e-mails and writing this post and it’s a wrist saver! It takes a little getting used to but it’s pretty smart software and comes in handy if you don’t want to type. Since I’ve been writing less, I’ve had more time to read this week. Here’s a round up of personal finance articles this week.
– Generation X Finance talks about how much money you need when you retire
– The Digerati Life asks how you’re building your net worth
– Money, Matter, & More gives some tips on buying a used car
– Binary Dollar offers some mortgage lessons
– Sun says goodbye to Emigrant Direct
– Lazy Man tells us why we should complain about gas prices
– Free Money finance offers a tip on how to stop the flood of credit card offers
– Five Cent Nickel has a poll on favorite mutual fund companies
– Consumerism commentary lists 10 ways to prepare financially for a baby
– Mighty Bargain Hunter asks how far you would go for good eBay feedback
– Advanced Personal Finance lists 10 ways to save money in your budget
Thanks to the Mint blog for hosting the birthday edition of the carnival of personal finance last week and letting everyone know the steps they can follow to make $125 with the credit card promotion.
Carpal Tunnel Makes Me Feel Like Darth Vader!
One of the recommended treatments for carpal tunnel is to wear wrist splints while you sleep, while you type, and other times you’re using your 
wrists. I’m wearing a Futuro splint on each hand at night, at work, and various times during the day and feel like half man/half machine. Now I know what Darth Vader must have felt like with all that gear on!
The good news is I had some nerve tests on Friday and there is no permanent nerve damage. I still have numbness and pain which hopefully be controlled by rest and treatment. If I don’t improve the next step is to try cortisone shots and I’d like to avoid that. The final step would be surgery to remove a band of tissue from around the median nerve to relieve the pressure and I really hope to avoid that.
It’s strange having to avoid being on the computer when you’re on it all the time, I’m going through a bit of computer withdrawal. At least I can catch up on some of the personal finance books I’ve been accumulating but haven’t had a chance to read.
Thanks to everyone who’s sent their well wishes! I have an old copy of Dragon Naturally Speaking and am going to fire it up thanks to the suggestions of some friends and readers. I’m also going to check out a book on chronic pain the Happy Rock recommended, thanks for the tip!
The High Cost of Carpal Tunnel Syndrome
My doctor confirmed my fears yesterday, I’ve typed my way into Carpal Tunnel Syndrome. I go in for another test Friday to determine the extent of the problem.
So far it’s cost me a $25 co-pay and $45 for a pair of wrist splints. Unfortunately, the highest cost has been my lack of productivity in my job and in my side business. I’m afraid to calculate what that might cost me. The good news is I have short term disability insurance so if I have to miss work for several weeks I’ll still have some money coming in. Hopefully with the right treatment I’ll be back in business in no time and won’t have to resort to that.
The bad news is that in order to give my wrists and median nerves a rest I’ll have to cut way back on the time I spend on the computer. This will likely mean fewer blog posts and fewer items sold on eBay for a while. If anyone is interested in writing a few guest articles while I rest my wrists just shoot me an email via my contact form.
One word of advice to those that use the computer extensively in their life, get an ergonomics expert to checkout your workspace and posture. Believe me, it’s worth it!
How Money Can Change A Life
What would you say to a drug dealer who asked to bum a cigarette? My answer was pretty simple, “I don’t smoke”. He laughed and said I was smart, I told him he should quit. Of course at that point I didn’t know he was a drug dealer and gang member, that came out later as we sat and talked on the courthouse steps. I was there for jury duty; he was there to work out a deal for getting caught selling drugs.
Since it was his first offense he had gotten off with three years probation and was waiting for a ride to his new home in the suburbs. Just 5 months ago he could have walked the 12 blocks from the courthouse to his home in “the hood” (his words, not mine) but now he had a better place to go. I couldn’t help but think as he told me his story how fortunate he was and how money really can change a person’s life.
A Second Chance
The change started 6 months ago when he met a young lady that wasn’t from his part of town. She was actually from a whole different world than him, wealthy parents living in a huge home in a nice neighborhood. As their relationship grew serious he met the parents and they offered him a second chance, a new lifestyle. If he’d lose the guns, drugs, and gangs, he could move into their home, away from a life destined for jail or death.
A New Life
He jumped at the chance. He’s cut his ties with his old neighborhood, has a steady job with benefits, and is now free of the drug charge that loomed over his head. He likes her parents, loves her, and wants to change his life. It seemed to me he was sincere. I could tell he was a smart guy he picked up on stuff quickly and asked smart questions. With the right support and motivation I bet he’ll go far.
A Rough Start
Obviously, he made a choice growing up to lead the troubled life that he did. There were people born in his same neighborhood that hadn’t followed the dangerous and illegal lifestyle he had. However, the cards were stacked against him from the beginning. His dad was in jail so his role models growing up were gang members and drug dealers, that’s what he learned, that’s how he knew to get by.
We talked about how one night he robbed a cocaine dealer then “partied like a rockstar”. He started learning about guns when he was five years old. His cousin was in the same gang as him and was on the FBI most wanted list for multiple murders. He painted a pretty bleak picture of life in the fast lane, the only life he knew. Luckily for him, he has discovered how money can change a life and now lives in the safety of suburbia. Through the graciousness of his wealthy ‘in-laws’ he has a safe place to live, food on the table, and a regular job to help him earn an income.
Making Adjustments
“Dealing drugs makes you lazy”, he told me. He wasn’t used to having to show up every morning and put in a full days work. I told him I didn’t like going to work all day either. I let him know there were legal ways to make money other than going to a job. I talked about all the different ways you can make money online and explained the things I’ve learned over the last year. I told him it took time & patience to make it work but anyone could do it.
Parting Words
When his ride finally pulled up two hours later I didn’t know quite what to say. I had so much more to tell him. So many more questions to ask, so much more advice to give. I said something uninspiring about how he should be sure to stay out of the old neighborhood and check out making money online legally.
I never got his name, never gave him mine. I’ll probably never see him again; I hope he sticks with his new life plan. I wish I would have emphasized what an opportunity his girlfriend’s parents had given him and that he should take advantage of it. I should have told him about Chris Gardner’s story chronicled in The Pursuit of Happyness, how perseverance can lead to great outcomes. I hope our two hour conversation had some impact on him. I wish I could have done a better job answering his questions. What would you have told him? What gems of advice would you have shared to help motivate the guy to stay on the straight and narrow?
Jury Duty is Costing Me Money!
I’ve been summoned for jury duty, my first time going through the process. I called into the informational phone number listed on the summons to find out what time to arrive, where to park, etc. and discovered I was actually going to be losing money while on jury duty!
The courthouse is downtown and the recorded message let me know I would need an all day parking spot. Then it informed me the city would not provide parking, I’d have to find it on my own and I should expect to pay $10 at nearby lots. From what I’ve heard, you are paid $4–5 every day you serve jury duty but that only covers half the cost of parking! If I’m there the rest of the week, I could end up spending $25 on parking. I know its part of my civic duty to participate in the process but it would be nice if they could at least provide somewhere to park.
Another bummer is that the parking lots only take payment in cash. I always put everything on my credit card to earn the rewards so I never carry money on me. I’ll have to make an extra trip to stop by my bank’s ATM to pull out some money, and of course gas prices aren’t getting any cheaper. You can bring your own lunch so at least I won’t have to pay for a meal at noon. I try and stay away from situations that lose money but this is one I can’t avoid. Not only is it something I should do as a citizen but they fine you if you’re a no-show so I’ll be there bright and early, losing money to help keep our streets safe
Update: Jury duty was quite an experience. The two eye opening hours I spent visiting with a reformed drug dealer and gang member made jury duty well worth my time.
High Energy Bill Edition – Personal Finance Review
Our first big energy bill for the summer came this week. The summer is always a killler not just because it’s so hot but also because my wife has stopped working and needs to keep the house cool all day long. We did have the AC tuned up a few months ago so hopefully its running as efficiently as possible.
Although the bills are high, it sure is nice to come in out of the blazing July humidity into a nice cool house. Just like many other personal finance issues, we have to weigh the cost of something vs. how it effects our quality of life. I’m sure we could save $50–$75 a month by turning the thermostat to 80 or even all the way off but it would make for a very sweaty and grouchy family. Here are some other personal finance topics to consider from this week.
– Money, Matter, & More got the car he wanted for the price he wanted.
– I’ve often wondered the effect credit card arbitrage has on your credit history, especially now that I’m going after $125 in bonus money. Five Cent Nickel puts my fears to rest as he discusses credit card bonuses and credit score.
– The Digerati Life discusses how occupation, education, income and net worth determine social class.
– Flexo learns a lesson from the hilarious TV show The Office, “If there’s anything to learn from The Office, it’s not to be a selfish jerk about money“.
– Congrats to Lazy Man on his wedding! Now the party is over and he looks back at the cost of his wedding.
– Free Money Finance asks if you can save $2000 a year buying store brands. I save a good deal of money buying store brand cereal but I don’t know about $2K a year.
– Binary Dollar tells us about Geezo, a social finance website. It’s nice to see Henry back in action!
– Mighty Bargain Hunter has discovered that just because you’re smart doesn’t mean you’re rich.
– Jim has a good list of financial accounts you should and shouldn’t have.
– Sun does double duty telling us about his Zecco surprises and writing a guest post about mutual fund distributions at Gen X Finance while Jeremy is away.
– Raising 4 Boys put together a list of sales tax holidays for back to school shopping. These holidays are one of the ways you can avoid paying sales tax.
– Articles from Money Smart Life were featured on two different sites last week: The Carnival of Personal Finance at BrokeAss Student and in the creative Festival of Frugality at Mr. Credit Card.
What Would You Do With An Extra Paycheck?
What would you do with an extra paycheck? My wife finished her teaching job in May and we thought her last paycheck would come at the end of July. We were thrilled to discover recently that she would actually be in paid August as well! My first reaction was to plan another impromptu vacation this summer with the extra money. Of course then reality set in and we decided to just save it since we’re going down to one income.
Decisions like that are hard to make. When what you’d like to do isn’t what you know you should do it’s tough to suck it up and make the smart choice. I guess in this case its short term thinking vs. long term. If we spend it on a vacation we’ll have a fun trip this summer. If we save the money it will come in handy down the line as we’re adjusting to a big drop in income.
The fear of not having enough money won out over the desire to take another vacation. We’ve decided to save the money for rainy day. Of course, just because we’re not taking the vacation now, doesn’t mean we can’t take it at some point in the future. It may turn out we’re just fine without the extra paycheck and can afford to spend it on some fun. Only time will tell but for now we’ll sleep a little better knowing we have some extra money tucked away.
Money Mistakes To Avoid – Misunderstanding Risk
Fear and past experience are too often what drive our perception and preparation for risk.
Past Experience
The article “Seven Money Mistakes to Avoid” in Smart Money magazine talks about “availability basis”, a term psychologists use to describe how people measure risk mentally. We rely on images and emotions that come easily to mind when gauging how to prepare for this risk. For example, if someone called to sell you flood insurance and you had just watched television footage of the New Orleans flood you may be likely to buy flood. If on the other hand, it was the middle of August and hadn’t rained a drop in a month and a half you might turn them down.
Fear
While past experiences can cause us to underestimate risk, fear often causes us to overestimate the likelihood of an event. The article uses the example of extended warranties to get the point across. The likelihood of your electronics purchase failing in the near future is low but the fear of an $800 piece of equipment failing a year down the road is enough to cause many people to shell out for an extended warranty.
Probability
The article suggests we often ask ourselves what’s the best or worst that could happen, when in fact we should ask what’s likely to happen. For example, the average person from 35 – 64 years old is six times more likely to miss an extended amount of work due to a bad injury than they are to die. However, more than two thirds of Americans have life insurance but fewer than one third have disability insurance. We’re spending all this money insuring our family against death when in fact we’re more likely to be without work because of injury.
How to Prepare for Risk?
There are people who spend years studying for advanced degrees on managing risk so we can’t expect ourselves to understand all the probability theory and statistical concepts associated with measuring risk. What we can do is not let fear get the better of us and not discount risks just based on our personal experience.
One good way to accomplish this is to ask friends, family, and co-workers questions about your concerns. This gives you a way to talk through the risks you’re trying to protect yourself against and will broaden your perspective on what the actual risks are and different ways to handle them. How do you manage financial risk in your life?
Money Mistakes To Avoid – Loss Aversion
We covered the first money mistake yesterday and learned not to save with the right hand and spend with the left. The next mistake the Smart Money magazine article covers is a psychological effect that affects many of us, loss aversion.
Loss Aversion
I like the way that Wikipedia explains the concept. Ask yourself this question, “would you rather get a 5% discount, or avoid a 5% surcharge?” Numerically the end result is the same but people feeling loss aversion are more afraid of a loss than they are motivated by a gain so they choose avoiding the 5% surcharge. The Wikipedia article mentions some studies that suggest losses are twice as psychologically powerful as gains.
Financial Effects
So what’s an example of loss aversion? Smart Money uses the case of a penny-pincher who is so fixated on reducing the “loss” of paying too much for gasoline that they’ll drive halfway across town for cheaper gas, burning extra gas and putting more miles on their car. Loss aversion often creates such irrational behavior where people actually end up spending more money in an effort to avoid a loss.
Another negative financial effect of loss aversion is the tendency to play it too safe when it comes to investing. Keeping all our money in conservative investments in an effort to avoid loss will erode our net worth in the long run thanks to ever present inflation. More conservative investments such as bonds are less likely to have huge drops in price like stocks but after their lower returns are gobbled up by inflation the purchasing power of money accumulated over a long time frame is greatly reduced.
Overcoming Loss Aversion
The article suggests that the best way to overcome loss aversion in investing is to take a broad view. Don’t focus on the immediate effect of your investment but rather look at its long term implications. Your investments will go down every now and then but it’s okay. You won’t lose any money unless you sell, over time the investments value should have an upward trend. This is easier to do if you put together an investment plan that will help smooth out the highs and lows. The article suggests:
“A well-diversified portfolio should limit the volatility, and some mutual funds, such as asset-allocation and balanced funds, can help keep the ups and downs in check.”
Does loss aversion effect you? Have you ever made an irrational decision to avoid a loss that ended up costing you more money in the long run?
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I'm Ben Edwards and I've been addicted to personal finance since I was 12 years old.
That passion for money has paid off for my family - so in 2006 I founded Money Smart Life to help you afford the life that you want. Read My Story...
