Finance – Page 13

Poor People Largely Choose To Be That Way

July 11, 2011

ADDENDUM, 7/11: Read the comment below. The idiot who caught Derek Jeter’s 3000th hit is “a couple of hundred thousand in debt.” Too bad he can’t sell lipid deposits on the open market.

It’s one thing to misplace a winning lottery ticket worth 7 digits, and never find it in the one-year window to claim your prize. It’s something far different to have the ticket in your possession and willingly hand it over to the person you bought it from.

The man in the photo who hasn’t spent the last 16 years having non-stop sex with supermodels is Christian Lopez. On Saturday he caught the ball with which Derek Jeter tallied his 3000th hit.

How much is that ball worth?

Of the twenty-eight 3000th hits in history, only Wade Boggs’s in 1999 and Jeter’s were home runs (and thus could be caught by fans.) The husky gentleman who caught Boggs’s gave it back, too. So 3000th hit balls are difficult to price, given that apparently all of them are with the guys who hit them or their descendants.

Baseball’s two traditional career milestones for non-pitchers are 3000 hits and 500 home runs. There are 28 players with 3000 hits, 25 with 500 home runs, giving us something approaching a basis for comparison. The last guy to hit 500 home runs was Gary Sheffield, who’s nowhere near as famous as Jeter, and sure enough, the guy who caught Sheffield’s 500th home run ball also returned it.

The last player of Jeter’s fame to hit 500 home runs was his ~~boyfriend~~ teammate, Alex Rodriguez. Finally, we’ve got a price: that ball sold for $103,579 last year.

The memorabilia market has fallen somewhat since then, but on the other hand Jeter’s would have been the only 3000th-hit ball available for purchase (at least until Tony Gwynn sells his and uses the proceeds to buy a week’s supply of Twinkies.) So let’s call it a $100,000 ball, and forget that 12 years ago some idiot paid 30 times more than that for a chunk of $8 cowhide. (Which still isn’t the highest price anyone’s ever paid for a baseball.)

Christian Lopez gave something worth $100,000 to a guy who’s made $200 million in his career, but it’s not as if Lopez is walking away with nothing. The Yankees and Jeter gave him:

suite tickets for the rest of the season ($9,250)
4 front-row seats for yesterday’s game ($1,200)

And the following items, signed by Jeter:

3 bats (about $600)
3 balls ($450 or so)
2 jerseys ($800, given what they’re selling for on eBay)

That’s officially $12,300 in swag, but that figure comes with an asterisk. The tickets, bats, balls and jerseys cost the sellers virtually nothing. The seats were presumably already sold to a corporate sponsor, whom the Yankees will give a bump to. The jerseys, bats and balls cost the team no more than a couple hundred bucks, but Jeter making ink come out of a Sharpie magically enhances the items’ “worth”.

The first two items on that list have no lasting value, and the remaining ones have no utility. Also, their value is determined largely by speculation. In other words, despite their positive price tags, the items that Christian Lopez received were what we here at Control Your Cash would not classify as assets. (It’s right there on page 8 of the book, which you really need to buy.)

We define an asset a little differently than accountants do. To us, an asset is something you own that will help your net worth grow. Baseball tickets, enjoyable and worthwhile as they might be, only help your net worth grow if you sell them. Same deal with game paraphernalia, but at least the latter will last indefinitely. By the most generous of estimates, Christian Lopez sold a legitimate asset for 12¢ on the dollar. Most people take a while to watch their assets lose 88% of their value. Lopez did it in barely an hour.

The reactionary response to this is “karma”. Lopez will enjoy some transcendent benefit, even greater than the $88,000 he lost, by marginally enriching a multimillionaire. If karma exists, an example of it would be having a prohibitively expensive baseball land in your lap in the first place. Giving it away is insanity. (For an example of karma, regard the grounds crew worker who caught the Mark McGwire ball later deemed to be worth $3 million, and returned it to McGwire. He now works as a public defender, representing people who steal purses from old ladies.)

Stay alive long enough, and eventually you’ll receive a windfall – whether from a obliging housing market, a dead uncle, or a washed-up shortstop. Knowing what to do with that windfall – or at least not discarding it – is what separates the wealthy from the witless.

—————

In 2007, Barry Bonds hit his 756th career home run, the most of any player in history. The fan who caught the ball sold it at auction for $750,000 to someone who then publicly asked people how to dispose of it. And did.

Bonds himself summarized the Control Your Cash position on throwing away money, far more succinctly than we could.

He’s stupid. He’s an idiot. He spent $750,000 on the ball and that’s what he’s doing with it? What he’s doing is stupid.

Barry Bonds is a man who knows the value of a dollar.

**This article is featured in the Yakezie Carnival-Summer Vacation Edition**

Filed Under: Bad Examples, Capitalism, Finance, Net Worth Tagged With: 3000 hits, bonds, christian lopez, derek jeter, mcgwire, new york yankees

Wells Fargo, You’re Not Helping.

July 8, 2011

If you haven’t used a Wells Fargo ATM lately, you’re really missing something. They now let you deposit checks without an envelope. You can even buy stamps. And, they provide you with free corporate propaganda. To wit:

This is the most misleading, unhelpful, counterproductive advice offered by a major financial institution since BankAmericard (VISA’s predecessor) used the ridiculous slogan “Think of it as cash.”

Despite what Wells Fargo tells you, don’t think of anything as “extra” money. There is no extra money. Not for you, not for Carlos Slim Helu. We’re all slaves to scarcity – it’s what forces us to make choices, opting for the college fund over the Bora Bora trip. (Although if you’re going to study English or philosophy, the latter might be the better buy.)

This is the same fallacy that gamblers use to rationalize with when they win on their first spin of the slot machine. “It’s OK if I lose it. I’m playing with the house’s money.”

By that logic, it’s no big deal to lose your entire paycheck. After all, you’re playing with your employer’s money. Which makes about as much sense as a bank considering “bonuses” to be a separate class of money distinct from the kind that comes in your salary.

If it’s yours, it’s yours. It doesn’t matter whether you spent hours in the hot sun harvesting watermelons to earn it, or if you found it on a street corner. It’s all green to the salesman at the yacht store, or wherever else you decide to squander it. (And don’t kid yourself: the yacht salesman doesn’t think of the money he receives from you as “extra.”) If you’re going to spend some of your money intelligently – say by buying undervalued stocks, or refinancing your house should interest rates have fallen enough – why wouldn’t you spend all of your money intelligently?

Look; unlike some people, we don’t make it a habit of bashing commercial banks just for existing. A lot of this country’s collective personal financial pain of the last few years could have been avoided if people had spent a few minutes reading the agreements they’d made with banks before signing those agreements. You shouldn’t begrudge Wells Fargo one dime of what they take in credit card interest payments. Nor was it wrong for them to foreclose on the house of anyone who refused to honor their mortgage.

But this seemingly innocent ATM screen “tip” belies something more sinister. The implicit message is that instead of investing your bonus or tax refund yourself…well, Wells Fargo has an idea as to who might do it better.

“Set aside this money in your savings account”? Wells Fargo’s basic savings account requires you to keep at least $300 in it. Do that, and they WON’T charge you a monthly $5 service fee:

$5 a month = $60 a year = at best, a -20% rate of return on your money.

Never mind that if you want to keep $299.99 in your account, it costs Wells Fargo a miniscule fraction of a penny to “service” it. The remaining $59.9999…. is pure profit for almost no incremental effort or risk on their part.

But if you’re enough of a fat cat to keep $300 in your new Wells Fargo savings account, gently recommended by the friendly reminder on the ATM screen, you’ll enjoy the bank’s generous interest payments.

Of .03%.

In other words, if you keep $299.99 in your account, doing so will cost you $60 over the course of a year. But if you keep $300 in your account, you’ll be 9¢ ahead.

That’s in current dollars, of course. If inflation stays higher than .03%, which it will, you’ll still be losing money regardless of how much you keep in your savings account. Meanwhile, the bank will be loaning out your ready cash at far greater rates.

But you don’t have to earn a better return on this savings account balance – after all, it’s just “extra”, right?

If you don’t need your bonus to feed and clothe yourself with immediately, then put it in your 401(k). If your tax return (which you shouldn’t have received anyway, because it meant the IRS enjoyed your money interest-free all year long) is burning a hole in your pocket, invest the money in a depressed commodity. Or use it to further reduce an outstanding debt.

The rule remains eternally valid: Always look at a transaction from the other party’s perspective. What are they getting out of it? In this case, they’re getting near-unfettered access to your money.

And nothing is worth that.

**This article is featured in the Carnival of Personal Finance #318: The Breaking Bad Edition**

Filed Under: Bad Examples, Estate Planning, Finance Tagged With: bank of america, banks, checking account, savings account, wells fargo

9/10 of a Penny Wise and Pound Foolish

July 6, 2011

Here’s a fun idea for a drinking game: gather your alcoholic friends around the TV at 6 pm or 11 pm (or if you’re truly committed drunks, 7 am.) Turn on the local news. Anytime an anchor uses the phrase “pain at the pump”, do a shot. If the same phrase appears as a graphic, do 2 shots.

The standard wisdom is that not only are the gas companies setting their prices criminally high, but that it’s crucial that we as consumers take whatever means necessary to economize. It’s thus a moral imperative to find the cheapest gas we can, wherever that might be.

This cultural obsession with recording and comparing gas prices has led to the proliferation of websites devoted to posting prices- Gas Buddy, Gas Price Watch, etc. Even MSN recently got in and took the concept mainstream. Each site helpfully prompts you for a ZIP code and then tells you where you can go to save a few pennies a gallon.

Here’s what’s happening with gas prices in the ZIP code that contains Control Your Cash’s world headquarters.

(Yes, we have a local retailer named “Terrible’s.”)

The cheapest gas on the map is at Location 1, in the southeast. Say we’re stuck in the inconvenient northwest, where retailers are gouging us with expensive $3.85/gallon gas, and we want to take advantage of that sweet bargain-basement $3.79/gallon gas on the other side of town.

To accentuate the point, let’s assume we drive a car that sips fuel judiciously. So we get in our theoretical 36 mpg Honda Civic and drive to the 7-Eleven, ready to fill the trusty coupe’s 13.2-gallon tank. But wait. The needle’s only at the 1/4 mark. Should we drive around the block a few dozen times and thus save even more?

Let’s say we act rationally and don’t. That means we buy 9.9 gallons, and save 6¢ on each one. For a total of 59¢. Easy street, here we come.

And it was only 5 miles out of our way, 10 miles round trip, which means we burned .27 gallons to get there. Or $1.07. Net loss 48¢, not including the 20 minutes or so it took to drive there and back. Even if you value your time at a mere $8 an hour, that’s another $2.67 you’re out for a total of $3.15 just to hunt for cheap gas.

You see? That military-industrial complex has its fangs in so deeply, that they’ve now got it costing us $3.15 just to shop for gas, let alone buy it!

The problem is obvious – there just isn’t that much difference between cheap and expensive gas in the same locale. It’s not like we chose an extreme example to illustrate this. We didn’t go looking for the part of the country that filled the bivariate conditions of having the smallest discrepancy between low and average prices, and the maximum distance between them, only to happen to find that place in our backyard.

Gas Price Watch and its ilk seem to have enough regular readers to stay viable: it boasts 173,382 “member spotters”. If that many contribute to Gas Price Watch, then at least as many must use it, right?

What a waste of resources, brainpower, bandwidth and more.

In the extremely unlikely event that your neighborhood station is selling gas for $6/gallon while one half a mile away is selling it for $4, then fine; go out of your way to buy the cheaper stuff. But under any set of real-world circumstances, you’re mildly crazy if you don’t simply fill up where and when it’s convenient.

**This article is featured in the Totally Money Blog Carnival #27, the Titanium Edition**

**This article is also featured in Totally Money Blog Carnival – Trivia Edition – July 18 2011**

Filed Under: Finance, Making Smart Choices, Math, Net Worth, Travel Tagged With: cheap gas, gas price shopper, low gas prices, pain at the pump, shop around