How Victoria’s Secret Gets You to Buy Underwear You Don’t Need

KMC is a thirty-something family man with a wife, three year old daughter and one on the way.  After graduating college with $5,000 in credit card debt and $9,000 in student loans, his new wife finally got him to shape up and get fiscally responsible.  He went a little overboard and developed a serious interest in personal finance.  He currently writes about the topic at Advanced Personal Finance, keep up on his writings with his feed

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Marketing and advertising has always held a certain interest for me.  Right now I’m reading a book that discusses how people influence other people.

There’s a principle called reciprocity that says people are more apt to do something for someone who has already done them a favor.  Makes sense and I’ll bet everybody can cite an example of reciprocity in their life.  It’s how most of us moved during college.

What’s interesting is that reciprocity works with strangers and even people you don’t want to help at all.  For example, an exterminator gives your house a free inspection.  You’re much more apt to buy a treatment plan from him afterward than if he’d just tried to sell you on it without the inspection.

Odds are, reciprocity has affected you.  Victoria’s Secret uses it all the time.

Yeah, yeah, get to the part about Victoria’s Secret

Fairly regularly, they send people a certificate for a free pair of underwear – no strings attached.  When we use it, though, reciprocity tells us we should really probably buy something else.  After all, Victoria’s Secret was nice enough to give me a pair of undies for nothing.  I should really return the favor in kind and do something nice for them.

This works even when the product isn’t lingerie.  But then again, how much persuading you need to buy lingerie?

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Swinging Away at Personal Finance

Thanks to the author of No Credit Needed for providing today’s post.  He run’s several different websites and has a great story about how he got out of debt. You can read about his story and sites here, and keep up on his writings with his feed.

I enjoy playing golf, but I find that I tend to “over think” my swing.  Golfers talk about swing thoughts, or “what you are thinking about right before you swing the club”.  Basically, it’s good to have a few swing thoughts, but bad to have too many of swing thoughts.  When I’m playing well, my thoughts are, “Take the club away slowly, hit down on the ball…”.  When I’m playing poorly, my thoughts are more like, “Take the club away slowly, watch the left wrist, rotate, position the club at the top of the swing, drive the knee, shift your weight, follow through, hold the finish…”.  You get the picture.  Less is more.  The same can be applied to managing our personal finances.  I like to keep things “simple”.

I like to know where I am.  I balance my checkbook, check my savings account balance, and keep my bills organized.  In other words, at all times, I have a clear, easy-to-understand picture of how much money I have and where my money is deposited.

I like to know where I am going.  I create a specific, main goal, and then break that goal down into mini-goals.  When I was getting out of debt, my main goal was “Get out of debt”.  My first mini-goal was “Pay off credit card #1”.  I even went so far as to break down my mini-goals into micro-goals.  My first micro-goal was “Send $15 extra to credit card #1”.  Simple, effective, repeatable behaviors lead to predictable results.

Two years ago, I was in debt and had very, very little money in savings.  One year ago, I was debt-free and had a little money in savings.  Now, I’m debt-free, I have a fully-funded emergency fund, and I’m well on my way to fully-funding two Roth IRAs, two ESAs, a 403b retirement plan, and a pension plan.  As you learn more about personal finance, things tend to get more and more complicated.  I have learned to do two things:  1) Know where I am.  2) Know where I am going.

I’d like to thank Money Smart Life for the opportunity to write a guest article.  I read Money Smart Life everyday, and I’m always impressed by Ben’s writing.

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How to Spot and Avoid Pyramid Schemes

Today’s contribution comes from across the Atlantic.  Thanks to the British writer over at Plonkee Money for enlightening us on pyramid schemes, keep up on his other articles with his feed.

The Great Pyramids of Albania
I always seem to want to travel to places that are someway off the beaten track, like Timbuktu, Uzbekhistan or Outer Mongolia. One of those places is Albania. I only know a few things about Albania, it used to be a virtually closed communist society ruled by the dictator Enver Hoxha and you can get the ferry there from Corfu.

A more interesting fact from a personal finance point of view is that after the fall of the communist system there in the early 1990s, a series of pyramid investment schemes created the largest companies in Albania and involved two thirds of the population. The collapse of the schemes caused serious civil disorder resulting in the loss of two thousand lives and impoverished many thousands who had invested their entire fortunes in the schemes.

What is a Pyramid Scheme?
According to the IMF, in a typical pyramid scheme, a fund or company attracts investors by offering them very high returns; these returns are paid to the first investors out of the funds received from those who invest later. The scheme is insolvent—liabilities exceed assets—from the day it opens for business.

How Can You Spot a Pyramid Scheme?
In a pyramid scheme at least one of the following is true:
• it is unclear how actual returns are generated
• the returns are abnormally high
• the majority of the return is generated by recruiting new investors to the scheme

What To Watch Out For
Pyramid schemes may be masquerading as multi-level marketing schemes (where you sell products and also get a percentage of the profits from those you recruit to sell the products) or they may be internet based scams. You could also be introduced to one by a friend, relative or acquaintance – most people who are involved in them are being conned out of money, not conning other people themselves. Always do your own research on any opportunity and see if there is an underlying business there.

If it sounds too good to be true, then it probably is.

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Everything You Ever Wanted to Know About Getting Started With Quickbooks

Today’s article is courtesy of a reader who is a QuickBooks Pro Advisor that wrote in to offer me some advice based on my post on getting help for QuickBooks.  They agreed to answer some questions but preferred to remain anonymous.   Welcome to the wonderful world of QuickBooks!

Why Use QuickBooks?

What benefits do business owners get out of using QuickBooks, why not just track everything in spreadsheets?

Some businesses can do just fine tracking their finances with spreadsheets. These would be very small businesses with little activity. The beauty of QuickBooks is that once you have the program set-up and learn how to use it properly, you can have a vast amount of information at your fingertips. For example, in only a few seconds, you can look at a Profit & Loss report for any given period. QuickBooks can track your Accounts Payable & Receivable, Credit Card accounts, Checking accounts, Fixed Assets, etc. It’s the complete package that can grow with your business.

Another thing to keep in mind is that if your business grows to the point where you attention is needed running the business (versus doing the bookkeeping), it is much easier to hire someone with QuickBooks experience than hiring someone with your spreadsheet experience.

There are other similar software packages out there, why did you choose QuickBooks? Other popular accounting software is MYOB and Peachtree.

Since my career was started by bookkeeping using QuickBooks, that’s the program I have stayed with. By far and large, most of the clients I have worked with have come to me already using QuickBooks.

QuickBooks 101

If you could give someone setting us QuickBooks for the first time some advice what would it be?

I have witnessed the files of many people that have set-up QuickBooks themselves. It can be done, but chances are it may not be done correctly unless you have some training with bookkeeping or accounting.  While QuickBooks is user friendly once you learn it, the set-up can be complicated.

The best example I can give is someone that I know how set-up his file himself.  After working numerous hours in the file to clean it up, it was discovered that he was missing many expenses because he was not reconciling his checkbook.  As a result, his prior year’s tax returns were off and he was due refunds.  He could have received those refunds in a timely manner and avoided my cost of cleaning up his file if he took a few hours in the beginning to have his file set up and received proper training on how to use QuickBooks. 

As they say, an ounce of prevention is worth a pound of cure.

What are some common mistakes you see people make in setting up and/or using QuickBooks?

1.) Not using credit card accounts to track credit card activity. Many people without QuickBooks training will write a check to their credit card company and detail the spending in the area below. If you do not pay the credit card in full every month, you are not capturing all of your expenses and you are losing expenses that can be deducted on your tax return!

2.) Not reconciling accounts. With most modern accounting software, it is really easy to reconcile and it is a matter of checking off items that have cleared your bank. Reconciling is a great way to make sure you have entered all of your checks and/or debit card payments (again, capturing all of those expenses that you can deduct on your tax return!). An accurate balance in your checking account is also invaluable for avoiding the dreaded overdraft fees at your bank. Again, once you learn how to do it, reconciling is fairly easy to do.

The Cost of QuickBooks

Even though I got a reasonable price on eBay, QuickBooks still isn’t cheap. How often do people need to pay to upgrade to newer versions of the software?

Intuit (the makers of QuickBooks and Quicken) has a sunset policy. They only offer support for three newest versions of QuickBooks. For example, right now they only offer support and updates for verions 2005-2007. They “sunsetted” the 2004 version at the end of May of this year. That means, you have to do an upgrade every three years. Expensive, yes. But if you break it down by yearly expense, you are spending about $60/year for your accounting software.

There is a way you can get QuickBooks for a discount. All Certified QuickBooks Pro Advisors have a discount (it varies per product, but the lowest discount is 10%) that they can pass on to others. You just need to order through them, or they can give you their information and you can order the product yourself.

 

Getting Help with QuickBooks

Where do you go to get your QuickBooks questions answered when you are stumped?

A great place to start is the Help section within QuickBooks which is found on the top navigation bar. You can type in a question and many times you get a good answer. If you do not get an answer, you can try asking over at the QuickBooks forums. If your question is highly personalized for your business, you may want to consult with a QuickBooks Pro Advisor. They should be able to help you and provide the specific training that you need.

What kind of service should someone expect to get when they hire a QuickBooks Pro Advisor? What is a reasonable price range for hiring an advisor?

When you hire a QuickBooks Pro Advisor, you should receive excellent service and you should have someone that can help you set-up/maintain QuickBooks for the reporting requirements of your business. The price range can vary greatly and really depends on the other qualifications that the QuickBooks Pro Advisor has. How long have they been consulting? Are they a Certified Bookkeeper? Are they a CPA? It also depends greatly on your location. A good thing to do is to call around and compare rates, but PLEASE do not let that drive your decision (I talk about that next).

There are many QuickBooks Pro Advisors for hire, what kind of things should someone look for as they evaluate candidates? How difficult is it to become an advisor?

For the QuickBooks Pro Advisor test, you go through some training modules and then take three tests. It is all online, and there are no moderators around to withhold the integrity of the testing. The testing does not cover all aspects of QuickBooks. That would be difficult to do because it would literally take weeks to cover everything. In a nutshell, it is a good way to verify basic QuickBooks skills and QuickBooks uses the testing to introduce how to use new features.

If you are looking for a QuickBooks Pro Advisor to hire, the main thing you should look for is experience. How long have they been using QuickBooks? How many clients have they worked with? How many businesses have they worked with that are similar to yours (e.g. construction, manufacturing, retail, etc.)? You should also ask for references from clients they have worked with in the past. You can also ask to speak with any accountants they work with. By far and large, any time you consult with a QuickBooks Pro Advisor, they should be asking you LOTS of questions to make sure they understand your business. If they don’t…beware.

You mentioned something about a certified Bookkeeper, what is the difference between a CPA and a Certified Bookkeeper?

The American Institute of Certified Bookkeepers has a certification program that one can take to become a Certified Bookkeeper. No formal education in accounting is needed to take the test, although you must meet experience requirements (currently 2 years of full-time bookkeeping). You receive books to study that encompass many things that bookkeepers should know (payroll rules, inventory, journal entries, etc.). Once ready, a series of tests are taken at a Prometric testing center. This test is moderated and the integrity is withheld. If passed, the individual is now a Certified Bookkeeper and they can put the initials “CB” after their name.

A CPA on the other hand, has gone through a college education as has taken exams to become a certified public accountant. CPAs are qualified to complete income taxes for you and they continually take courses to keep up with current tax laws.  For the most part, they can do so much more than a Certified Bookkeeper, but having a CPA as your daily bookkeeper is a bit like having someone with too much experience.

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I’d like to thank the reader for sharing their insight into the world of small business accounting.   They provided a helpful list of resources you can check out for more information.

-Free Bookkeepers Hiring Test 
–Bookkeeping Tips
-Find a Bookkeeper
-Find a QuickBooks Pro Advisor

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Entrepreneur Interview – Sharing Tips on Daytipper.com

Do you have a favorite tip you like to share with friends and family?  Well now you can share it with the world on DayTipper.com.  Nathan Preheim, a founding member of DayTipper, shares some entrepreneurial tips with us today that he learned from starting the company that built DayTipper.

Entrepreneurial Teams and Collaboration
DayTipper is a joint venture between yourself, Shane Lowry, and Tyler Munson. Each of you brings a different skill set to the team. For someone who is starting a business how would you recommend finding quality business partners?

I can’t underestimate the value of a solid core team. When starting a business, I think the biggest factor that will contribute to success is choosing the right management team. I was fortunate in that Shane and I worked together previously at Bigstep in San Francisco. I was well aware of Shane’s skill set, work ethnic, and technical prowess. Early on, I tapped into my network of former colleagues and let some folks know that I was looking for a designer. Tyler’s name was mentioned, and I initiated contact. Network, network, network!

One of the temptations I run into is trying to do everything myself. The benefits of this are that I have full control and the reward is all mine. However, I am limited to the amount of work I can do and there are areas in which I suffer because I don’t have much expertise. From your experience, can you tell us the benefits & drawbacks to working with business partners and any advice you might have on working successfully with them?

I think recognizing your own deficiencies and finding talented people to fill those voids is vital. I am definitely aware of my own limitations. In the end, I decided that giving up equity actually increased my long term success significantly. Sure, my stake is a bit diluted now, but Daytipper wouldn’t be where it is now without Shane or Tyler.

There are other upsides to having partners. Our structure is pretty organic and we don’t have a strict level of hierarchy. I like to think that most of our strategic decisions are made democratically. Tyler might float a good idea, Shane might bring up something that Tyler didn’t think about, and then I might adapt the idea for a different implementation. We challenge each other, constructively, and as a result we are more likely to evaluate situations from multiple angles.

If you do take partners on, I recommend giving them complete ownership and accountability for their discipline. Tyler is responsible for all of our branding efforts. Shane and I will provide our input, but ultimately, how we choose to portray the Daytipper brand is up to Tyler. Empowered partners are happy partners.

How did you decide what kind of relationships/agreements/legal structure should you form with your partners?

Vitamin T, LLC is the parent company, and Daytipper is our first product. We are a limited liability corporation. I am the majority owner and Shane and Tyler are both equity partners.

You live in a different part of the country from your business partners. What have you found is the most efficient and effective way to communicate and collaborate with them?

Yes, we do operate offices in both San Francisco and Omaha. Tyler and Shane work in San Francisco and I live in Omaha. I do travel occasionally to San Francisco and work out of that office, but the majority of the time we do work remotely. Skype, instant messaging, email, and cell phones make it pretty easy. Accountability is more important though.

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Where Can You Find a Guaranteed 10% Return?

Making his money work so he doesn’t have to, that’s the goal for today’s guest writer, Lazy Man.  If you’re interested in learning about using Prosper or alternative income streams, subscribe to his feed.

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J.D. from Get Rich Slowly had a reader ask where I can I find a guaranteed return of 10%. The short answer is that there is no place where you can get a guarantee of 10%. If they were common, no one would be buying treasuring bonds, CDs, or putting money in high-interest savings accounts at much cheaper rates. In fact, if a 10% guaranteed investment did exist, and it was easy for the common man to get it, inflation would adjust upwards of that 10% level. Business owners would realize they could be more profitable taking that guaranteed return rather than taking a risk that their business would outperform it. Some would probably just quit the business all together, but others would simply charge more for their products, because they are inherently taking more risk.

The article focuses on a series of solutions that I thought weren’t particularly related to the question. The solutions mentioned require an extraordinary amount of luck in being at the right place at the right time, with the right knowledge. None of them really scale well as you can’t plan for such opportunities. One example was a person who visited a donut shop every day and one day found out how he could help out the shop and make some money for himself. How many thousands of dollars did the donut shop visitor have to spend eating donuts there everyday to make his $3,000? Is he going to start eating donuts at all the donut places in an effort to find more stores that need new donut mixers?

Some of the real estate examples in the article didn’t strike me as accurate either accurate either. Sell a place for 107K and there’s going to be transaction costs that probably bring it back to around 100K meaning that you’ve wasted a lot of your time. And if you can’t sell it right away, you’ll start losing money. It’s easy to make being a landlord seem like an easy way to make money. “$20,000 can often easily kick off $2,000 per year in cash” is a huge stretch. More than likely, you are going to lose money each money on the rent. There’s a chance that you can find one bargain and maybe rent it for positive cash flow, but this is 1 in 10,000 search in many places – not easy by any means. For an example, in my old Boston suburb, there’s a difference of $500/month in my mortgage and the rent. I hope to break even with tax benefits, equity, and appreciation. It’s a similar situation out in Northern California where I moved to.

In the end, you might not be able to get a guaranteed 10% return. However, many experts believe that you can come very close with a mixture of securities over the long-term. Just like you can’t guarantee me there’s no such thing as a pink penguin, I can’t guarantee you a 10% return. We can only look at the vast amount of evidence to date and make conclusions. Some years you’ll make more and other years you’ll make less, but it seems to be the case that in an average lifetime, you’ll probably be in the 8%-12% range. Such results have been proven over and over again.

In a slightly unrelated note… in the comments J.D., seems to have found that blogging is not passive income. That’s exactly why I call blogging alternative income. I made the same mistake thinking it was “passive” when I started because it can earn me money while I’m on vacation. However, I probably work twice as hard when I’m blogging than I do at my day job.

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A Great Reason to Lease, Not Buy, a Car

KMC is a thirty-something family man with a wife, three year old daughter and one on the way.  After graduating college with $5,000 in credit card debt and $9,000 in student loans, his new wife finally got him to shape up and get fiscally responsible.  He went a little overboard and developed a serious interest in personal finance.  He currently writes about the topic at Advanced Personal Finance, keep up on his writings with his feed

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When it comes to their money, some people do inexplicable things.  I came across an appalling figure the other day.  The average length of a car loan today is 70 months – nearly six years!  Now couple that stat with the fact that, on average, people only keep their cars three to five years.  If you do that, it doesn’t take a calculator to figure out you’re digging yourself into a hole.

Upside Down
Being ‘upside down’ is the term used to describe when you owe more on something than it’s actually worth.  When you’re talking about cars, it can happen surprising easily.

As a rule, new cars immediately lose value as soon as they’re driven off the lot.  It takes several months or even a year of payments to owe less than the resale value of the car.  For that period of time, you’re upside down.  The longer your loan term, the longer it takes to get to the break-even point.

So it seems that what more and more new car buyers are doing is not entirely paying for a car before they turn around and sell it.  Then they buy another car and roll the old loan balance into the new loan.  After a few cycles of this, you’re driving a Chevy with a Mercedes-size loan.

The Numbers
To put numbers to the point, let’s say you want to buy this nice new Toyota Camry with a loan of $20,000.  If you finance for five years at 6.24% (what my bank offers), you’ll be paying $3,333 in interest over the life of the loan.  If your loan term is three years, total interest is $1,770.  Financing for the longer term nearly doubles the interest you pay.

If you decide to trade in that car after four years, you still owe over $4,000 on the loan.  No problem – just roll that into the loan for your new car.

Do this a couple of times and you’ll quickly be driving a car worth half what you owe on it.

Lease Instead
Since evidently a great many people are doing just that, it seems they should be leasing instead of buying.  At least at the end of a lease you don’t owe any money (assuming you fulfill the terms of the lease).  Not only that but you’ll be able to afford more car than you would by buying outright.

Like I said, people do unbelievable things when it comes to money.

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Personal Finance Review – Vacation Edition

The bags are packed and we’re ready to go!  When I’m out on a much needed vacation in the coming days, you’ll have articles from guest writers and an interview to keep you entertained.  Have a good weekend everyone, here are some money articles for the week.

– Generation X Finance reminds us Your 401k is Not a Savings Account

– Blueprint for Financial Prosperity went to a real estate auction.

– Lazy Man asks what money advice you’d give yourself if you could go back in time

– Five Cent Nickel gives 10 tips for a successful moving sale.

– Money, Matter, & More tell us 25 things he does to save money

– Free Money Finance is shocked by how little people have saved for retirement.

– The Digerati Life covers 10 things you can do to avoid money fights

– Mighty Bargain Hunter talks money offense & defense.

– The Suns Financial Diary moves from Sharebuilder to Zecco

 

 

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Would You Rather Make More Money Or Be With Family?

I met a lady last night that answered this question the hard way.  She came to the US from Honduras three years ago, leaving behind her family in search of a better paying job. Now she’s decided the extra pay is not worth being separated from her kids and parents and is counting down the days until she can return home to her family.

Hard Working Woman
Adela spends 10 AM – 3 PM at a local restaurant then works 3 PM – Midnight cleaning our office building.  As I worked late last night she commented on a picture of my son when she stopped by my desk to empty the trash. Despite her broken English and my ignorance of Spanish we managed to use Google Maps, Babelfish translation, and a whiteboard to communicate.

She works two jobs and is saving up money for her family. She has a two-year old son here in the States with her but left a son and daughter with her parents in Honduras that she sends money to.

Family Over Money
She talks to her kids back home twice a month, every other Monday.  Although she is providing more money for them than she could back home, she misses them dearly.  She’s decided the extra money isn’t worth being separated from family and will return home when she has a chance.

Balancing Blessings & Ambitions
Hearing her story made me a little embarrassed to be complaining about not having enough family time. My job might not be the most enjoyable and might keep me long hours but at least I only have one job to worry about and my family lives in the same country and the same city.

Of course this makes me wonder if I’m being unappreciative of what I do have. I guess I could just be thankful for my blessings and not push so hard for changes in my life.  It is hard, for me at least, to find a balance between enjoying what I have and working hard for what I want.  I’m glad I met Adela, she reminds me to slow down and appreciate the things in my life but to also not be afraid to venture out and attempt to improve it.

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How My Local Banker Saved My Credit Score

I talked the other day about online banking vs. local banking and how I think using a combination of virtual and brick & mortar banking is the best strategy.  A close call on my credit score this week reminded me of the value a local relationship brings.

Credit Card Crisis
I opened a business credit card that I haven’t been using because it doesn’t offer me cash back for my purchases.  When the statement came for the credit card I filed the envelope away in my to-do pile knowing I hadn’t used it yet so I didn’t owe any money. Or so I thought.

When I finally got around to opening the statement I had few nasty surprises. First off, the card carried a $25 annual fee I wasn’t aware of.  Secondly, the fee had shown up on the previous month’s statement and was now long overdue.

Banker to the Rescue
As soon as I realized what had happened I called up the lady that had setup my business account and credit card. I explained the situation to her and stressed that my main concern was damaging the business credit with missed payments and unpaid balances.

She assured me she would take care of the whole thing.  Sure enough, later that day she called back to let me know her branch had paid the fee for me and worked with the credit division to make sure nothing negative would be turned in to the credit reporting agencies.

Banking Benefits
Thank goodness for my local banking relationship.  I was able to talk to a person instead of submitting a ticket online and awaiting a response to my problem.  Not only that, I was able to get immediate help from her.  No navigating phone menus and sitting on hold for 15 minutes. 

Maybe most importantly, there was no follow up necessary on my part after the initial call.  I didn’t have to waste my time babysitting the problem, coordinating between the different bank divisions and customer service reps.  My banker was able to take care of an important credit issue for me right away and all it took was one quick & easy phone call.

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