What’s the difference between a 12.9% interest rate and a 239,238.9% interest rate? Nothing.

December 2, 2010

This post originally appeared in a different form on Credit Card Chaser in June. Well, it originally appeared in an even more different form in our book. Either way, the post is especially valid today. Happy Thanksgiving, and happy shopping.

Read the fine print

If you can't read English, nor put a baseball cap on straight, maybe a credit card is not for you.

The average American household receives a credit card offer every 10 days. (If you’re on Capital One’s mailing list, more like every 10 hours.) That average American household accepts a lot of those offers, and carries a balance of about $10,000 on an average of 12 cards, which is at least 10 too many. The average interest rate on credit cards is around 18%. Twenty percent of those cards are maxed out, and 35% of their holders pay a monthly late charge.

A helpful rule in your economic life is to think about every transaction from the other party’s perspective. In this case, look at the handsome annuity that your credit card balance becomes in the eyes of the card issuer. If you can find an investment that pays a consistent 18%, let us know. Not only will we refund you the price of my book, we’ll retire from creating personal finance books and put all our money in that investment instead.

If you couldn’t pay your bills in 18th century England, you didn’t get to “call and work something out,” nor could you sue in civil court because your bank made its credit card application so pretty and the envelope so easy to open that you couldn’t say no. Instead, you went to debtor’s prison. Sometimes it seems as though the threat of incarceration might be the only way to get modern Americans to spend with discretion. You’re carrying more debt now than when you were 15 and working at Hot Dog On A Stick. Ever wonder why?

Money is a commodity, but it’s also a tool. A tool that can help you build a house, a career, a life. Lose control of your money, and it’s the credit card issuer that’ll determine how hard your nails will be hammered and how frequently. So when you get a mailer that reads:

“Instead of 18.9%, apply now and we’ll give you a fabulously low rate of 14.9%!”

understand that means

“We’d like an investment that pays 18.9%, but then we’d also like it to rain beer. An investment that pays 14.9% is still fantastic, though. Almost no investment in the world can guarantee that, besides the atrocious saving habits of the American public.”

Never carry a credit card balance. Sacrifice a month’s groceries and beg for orange peels if you have to. Regard paying your bill in full every month as an imperative no less important than locking your door every time you leave home. Depending on what neighborhood you live in, doing the former could save you more money than doing the latter.

If you carry no balance, it costs the issuer to keep you around. You’re a low-revenue customer. (Or better yet, a non-revenue customer.) Let the irresponsible borrowers with the $25,000 balances pay the salary of the MasterCard CEO and put the fuel in VISA’s corporate jets.

With a zero balance, you can look at the issuer/borrower relationship in a new light. You’ll notice that credit card companies plug their low interest rates and balance transfer rates like they’re being eleemosynary bighearts. “Act now, and pay just 9.9% on balance transfers!”

In other words, if you’re irresponsible enough to have rung up debt on a competitor’s card, come to us. You’ve proven yourself to be a juicy fish. You’re actually far better than that, because a 50-pound chinook salmon can only be eaten once. We can feed off your bloated carcass again and again. The issuer is saying, “Hooked on cocaine? That’s for losers. Instead, give our pure crystal meth a taste and you’ll never go back.”

If you pay in full, annual percentage rates and interest-free introductory periods become meaningless. The credit card company has to profit off someone. Let it be the ill-prepared next person, not you.

The longer your record of paying your balance in full, the bigger the limits your issuer should allow. Most introductory credit cards will only let you charge up to, say, $3,000. After you’ve paid in full for a few months, they’ll increase your limits. This isn’t to reward you for being a profitable customer, as you’re anything but. It’s in the hope you’ll slip up, charge more than you can afford, and that’s when they’ve got you. Another debtor on the hook.

This is not a condemnation of credit cards, says a man who would use his Hilton Honors AmEx at the neighbor girl’s lemonade stand if she’d only accept it (62,760 points and counting!) Credit cards are wonderful. They’re convenient, discreet, trackable, replaceable and inconspicuous in ways cash can never be. But if you use them without regard to their possible consequences, you’re the equivalent of a parent who thinks her baby’s nursery has just the right mix of temperature and humidity for storing loaded firearms.

**This post is featured in the Carnival of Personal Finance #286-Check Your Math Edition**

Filed Under: Bad Examples, Credit Cards, Economics, Education Tagged With: , , ,

It’s Only a Money-Back Guarantee If You Ask For It

November 15, 2010
Growling wolf

You want that in 20s or 100s?

Here’s how to get $495 for a couple minutes work, depending on how you calculate time.

We recently attended a $475 conference for authors, a four-day event that’s supposed to help you sell books. (We’d love to give details, but shouldn’t.) The conference consisted of little but obvious advice, something we loathe here at Control Your Cash and that you should too.

It was a seemingly endless panel of incestuous salespeople in complementary fields. The ringmaster, an energetic little man who writes books about how to market and promote books, followed his introductory comments by welcoming the man whose vanity press he publishes on. After 90 minutes of him, we were treated to a “best-selling author” whom that publisher signed, and whose one book hasn’t even been released yet (but if her promotional materials were any indication, it’ll be fecal.)

Fleshing out the program, a book editor who just so happens to work with the publisher. Then someone who designs book covers for you’ll never guess who. And about 6 more, including a guy who styles himself as and went to the trouble of trademarking the slogan “America’s Hottest Young Speaker!” (with exclamation point.)

The editor, for instance, was offering her services at a very special price for conference attendees, normally $1997 but for you, now, today, right here, only $1497. Do you like saving $500? Etc. Laughably brazen sales techniques must still get results today, in our Decade of Irony, or these conferences and their merchants wouldn’t exist.

Whatever we were hoping to get out of the conference, this wasn’t it. Plus the clientele were depressing: so earnest, and so over their heads. The vanity publisher’s PowerPoint presentation contained rich nuggets like “Use every method at your disposal to promote your book.” Everyone in the audience would diligently write that down, perhaps for fear of forgetting the nugget and relying on memory to recreate it later. (“Wait. Was it some or many methods I’m supposed to use? Or all? Maybe it’s none. Why didn’t I pay more attention?”) We talked to one 30ish Canadian* attendee who’d been “working on a non-fiction book for, oh, aboot 7 years now, eh?” Only he wasn’t Thomas Aquinas, and his book wasn’t the Summa Theologica. Still, it didn’t stop our ambitious new acquaintance from passing out business cards with “AUTHOR” on it in a far bigger font than the one his own name was in.

Dolorous, 60ish ladies ready to write their memoirs. Twitchy, malodorous people of indeterminate sex. Self-consciously wacky cats who accessorize their suit jackets with sweat pants and sandals, presumably to be the one freak noticed by the agent whose boss ordered him to give someone, anyone, a six-digit advance this weekend and this weekend only.

Yet with sufficient coaxing and yelling from the conference’s speakers, the undead attendees rose in enthusiasm. Which lasted and lasted. The conference did teach a lesson in human behavior: we now know how Tony Robbins achieved power. We also know how Benito Mussolini did.

With a book in print, another under construction and something of a reader base, we were parsecs beyond the other conventioneers. We didn’t need to learn how to write a proposal (excuse us, “How To Write a Game-Changing Proposal To Put You On Top Of The Amazon Charts To Stay!!!!!!”). Nor did we need to learn Choosing A Million-Dollar Title, The Secret To Getting 5 Million Radio Listeners Talking About Your Book, nor The Six Indisputable Truths Of Book Publishing That Those Crooks At Random House And HarperCollins Would Rather Die Than Tell You About.

The weekend’s final speaker was the outlier: a legitimate agent from a real New York agency, one that’s actually sold books from talented and successful authors whom you’ve heard of. That agent’s talk was fast, inspiring, and informative, but not worth $475. (Aside: he thought our book’s cover is “crap”, and gave 13 reasons why; mostly to do with font choice, clip art and the blue bars on the top and bottom. It’s tough to be objective, especially while deferring to his informed opinion, but ours remains the best cover anyone saw all weekend.)

The conference came with a 100% Money Back Guarantee, capitalized prominently on its website and mentioned in the diminutive boss’ opening comments. This is the kind of offer that consumers consider a pleasantry, rather than an actual condition of business, but it does mean something. The founder (we’ve gone this far without giving him a pseudonym, but let’s call him “Ron”) specified that if you talked to him at the end of the conference, and hadn’t received your money’s worth, he’d refund it.

As you can imagine, once the conference concluded it wasn’t easy to get Ron alone. Each of the 299 other attendees wanted to shake his hand and pose for pictures, including one who asked Greg to hold the camera. Boom.

After shooting he handed it back to her, then asked Ron for a few words. Greg was displaying our copy of Ron’s most popular how-to manual, letting him know that he at least got $20 out of us. Greg even donned the ridiculous name tag that came with the conference registration packet.

“Hi. I don’t believe I got my money’s worth.”

Worst case scenario? Ron refuses to refund the fee, we dispute it with American Express, avail them of the money-back guarantee on his website, and all should be well.

Had a full argument ready to go, too. It went like this: “Before the final speaker hit the stage, I didn’t learn anything that I didn’t already pay for (pointing to Ron’s book.) Look, I get what you’re doing here, and you probably make a lot of money at it. But this…really wasn’t for me. I already have this book (points to a copy of Control Your Cash), and…” All this stayed unuttered, because Ron reached deep inside himself and found that extra gear that only the best salesmen possess.

Steer the conversation to a part of the ballroom where we can have something approaching privacy? No way. Instead, let’s have as many eavesdroppers as possible. The other attendees will be incredulous and shame you into withdrawing the refund request.

“I’ll give you your money back, but you’re telling me you didn’t get FIVE THOUSAND dollars worth of value out of this conference, let alone 500? (to an adjacent guest speaker) Hey Brent! (back to Greg) Do you know Brent?”
“Not personally, no.”
“Brent, this guy says he didn’t get $500 worth, can you believe that?”

Brent contributed an angry look and a few questions that he thought were rhetorical. Yes, we did attend the conference and no, we didn’t get our money’s worth.

At this point Greg thought, “Do other people really fold at this point? Is this what Ron’s hoping for?” It seemed that it’d be more embarrassing to backpedal.

Of course, along with Ron’s book and ours, we brought our receipt.

Ron opened his checkbook, filled in the amount and the payee, and briefly saved his signature for a final flourish. He then raised his voice a little and said, “Here. Now, I’m going to sleep well tonight.
(dramatic pause)
I hope you can.”

Greg thanked him for being a man of his word. Ron neither responded nor made eye contact.

Stand your ground, especially when it’s expensive not to. If you’re entitled to something, take it. If the house you’re about to close on has a cracked slab and an uneven garage door that somehow escaped inspection, insist the seller fix them before you hand over a check. Don’t just live with it. From the viewpoint of a semi-established author, nothing in that conference began to cover its price. For a would-be author, awash in naivete and convinced of his own incipient brilliance, it’d be easy to justify the price (along with the expense of coming to Las Vegas to spend it.)

Halfway home, it turned out Ron wrote the check for $20 too much. And though we’d paid for the conference with a co-branded Hilton HHonors card, because Ron refunded the money with a check, we got free points to redeem for part of a hotel stay.

*slow

**We’re a top pick in The Best of Money Carnival Magical Penny Edition**

Filed Under: Book Promotion, Credit Cards, Education, Seminars Tagged With: , , , ,

The Last Book Review (Part II of II)

November 4, 2010

Looks like someone needs to buy Control Your Cash: Making Money Make Sense

If you missed Part I, check here.

Dan Thompson’s arguments in Discovering Hidden Treasures are largely on point, even if he evidently hasn’t bought a starter home in some time. The hopefully titled American Recovery and Reinvestment Act is indeed a dismal failure. Our elected federal representatives spend an obscene and unsustainable amount of money. Health care isn’t so important that bureaucrats need to keep it out of the hands of profit-seekers; rather, it’s so important that profit-seekers need to keep it as far as possible from bureaucrats. If you tax people for making a lot of money, they’ll respond to the incentive by working less or moving to a more favorable jurisdiction, thus defeating the purpose of increasing their taxes in the first place.

Thompson speculates: what if our elected representatives decide that maybe 401(k)s, the tax-free boon that so many of us are counting on for retirement, should be taxed after all? Will a government really stay that true to its word – especially when that word was given to the citizenry by an almost entirely different set of politicians from a generation ago? The book’s first worthwhile sentence appears at the quarter turn:

Most families and business owners make financial decisions out of necessity rather than preparation.

That’s in the middle of a tangential reference to Thompson’s career as a competitive water skier. He follows it up with his first piece of non-obvious advice, which is not to fixate on rate of return.

Huh? Why the hell not? What should I care about if not this?

He gets to this in due time…but even the fun of pointing out examples of the author’s inability to write gets old after a while. Thompson points out that when people retire, they should earn money from their investments rather than from working. Well, thanks for that.

Thompson intermittently inserts more stories about his childhood throughout the book, presumably to give a dry topic a human face. But the stories are dreadful. No one cares what vegetable he hated as a kid. His arguments often start off logically; e.g. Social Security won’t be there for you, so you need to invest for your own retirement. But then he tells us that standard retirement plans – 401(k)s, IRAs – are bad.

Huh?

He argues that retirement plans are bad because the people invested in them assume that

  • they’ll grow
  • when you start drawing from them, you won’t be in a punitive tax bracket.

He adds that mutual fund companies will screw you by assuming you’re too lazy or incompetent to do the math. They’ll claim that a 10% annual return followed by a -10% return is a 0% return, rather than the -1% return it really is.  Thompson maintains that you shouldn’t finance anything, e.g. a truck, that’s going to depreciate. (Agreed. As we say here at Control Your Cash, buy assets and sell liabilities. But good Lord, does it take Thompson a while to get there.)

To build wealth, Thompson recommends you create a “private banking system”, which is a roundabout way of saying (we think) incorporate and pay yourself first.

In the second half of Discovering Hidden Treasures he touts the financial metric of Economic Value Added, which is just after-tax profit less cost of capital. Thompson says EVA is important because when a business or person subtracts capital from profit, it forces him/her/it to put every dollar to work. If your capital isn’t earning you interest, put it somewhere where it will.

Finally, almost 2/3 of the way through, Thompson has all the answers for where to put your money. Someplace better than a retirement plan (see above.) Someplace better than a bank, which charges interest. His perfect vehicle for stashing your money?

Mother-loving whole life insurance.

It’s at this point that we’d have felt cheated had we paid for our review copy of Discovering Hidden Treasures. See the previous post for why whole life insurance is a waste of money.

The most entertaining line of the book:

If you take 1000 people from birth to death, 75% are still alive at age 65. So it would be safe to say that statistically speaking 3 out of 4 people will die after age 65.

Wait, how do you figure?

Notes for the author. This is not a comprehensive list:

  • It’s “midst”, not “mist” (p. 11)
  • principles/principals? Seriously? This confuses you? (p. 26)
  • a plural noun don’t takes a singular verb. (all over)
  • if something’s “unprecedented”, you don’t need to tell us it’s “never been seen before” (p. 28)
  • for the love of God, when you type “$” you don’t have to write out the word “dollars”. Never. Ever. In English, we even call that handy typographical marvel the “dollar sign”. It has “dollar” in it! (everywhere)
  • a thing can’t be “very unique”. It’s either unique or it isn’t.
  • Roth IRAs aren’t capitalized. Well, the IRA part is but the Roth isn’t. (p. 35) It’s a guy’s name, not an acronym.
  • saying that a particular URL “can be found on the web” and including the “www” doesn’t exactly paint you as tech-savvy.
  • things don’t “yo-yo up and down”. The verb “yo-yo” implies the direction the thing takes.
  • question marks end questions. Periods end statements. (p. 53)
  • using “needs” as a noun is all sorts of douchey. (throughout)
  • You can get something free (of charge.) You can get it for nothing. You can’t get it “for free.”
  • And above all, passages are slowed down by use of the passive voice. (See what was done there by us?)
Filed Under: Bad Examples, Book Promotion, Education, Insurance Tagged With: , , , ,
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