Do Balance Transfers Always Make Sense?

Balance on this!

If you've ever carried a balance on a credit card, you've probably also considered setting up a balance transfer to "hide" that balance and not pay interest on it for a while. I don't know about you, but I receive a handful of balance transfer offers in the mail every month, and those "0% APR for 12 month" offers can be very tempting.

But hang on a second. Does it always make sense to transfer a balance from one credit card to another, even at 0% APR? Let's take a look at the fine print.

I was perusing just such an offer from Discover Card when I saw that the balance transfer charged a 5% immediate fee to facilitate the transfer. Big deal, you might say. If I'm being charged a 19.99% APR on another credit card, surely paying 5% instead makes more sense.

The problem comes from just how that interest is charged. As I stated, the 5% charge is immediate, but what you might not realize is that the 19.99% charge is spread out over the year. What does that mean in real figures?

If you transfer $1,000 to Discover, you will immediately pay a $50 fee to do so. This balance will not be charged interest for a year, however.

If you kept that $1,000 on the original card at 19.99% interest, you would only face an interest charge of $16.66 the first month. This is because while the interest is higher, the charge is then divided across the 12 months. Therefore, your monthly interest charge equals $1,000 X .1999 / 12 = $16.66. With this being the case, it would take over three months for that $1,000 on your original credit card to cost you in interest what you'd be paying immediately with balance transfer.

What should you do in this situation? It depends on how quickly you can afford to pay down this debt. If you think you pay an extra $333 per month towards the principal, it makes more sense to keep it on the original credit card (particularly since the interest will be reduced with each payment). If, however, you think you need to pay this amount down over the course of a year, then the balance transfer is the better option.

So what should be your takeaway? Balance transfers are the Trojan Horses of personal finance, and, in this case, it makes a lot of sense to look this gift horse in the mouth.

Photo by SeeMidTN.com.

Lending Club Update - September 2012

As you can see in the graphic to the right, I'm finally out of the negative return area with Lending Club. In fact, since the last time I posted an update, my returns have increased by roughly 5%. To make sure my returns increase, I've changed how I look at investing with Lending Club.

How, specifically, have I adjusted my investing strategy with Lending Club? Well, in the first place, I've increased the number of loans that I hold. As I mentioned before, having so few loans in the first place is really what caused the one default to affect my returns so grievously. As of today, I have 36 loans, all of which are current in their repayment. I do plan to keep investing more with Lending Club, but I'm holding off until I get a better sense of how much I'm going to be able to work when I go back to grad school in a few weeks.

The other way that I've changed my strategy is that I am much more vigilant now concerning late payment. As you may know (and as you probably know if you're reading this in the first place), Lending Club has a trading platform with which you can sell off any of your notes at whatever price you choose (assuming you can find somebody to buy them). The drawback is that Lending Club charges a 1% fee per note sold.

How exactly have I been more vigilant? Well, as soon as I notice that one of the people that I've lent to misses a payment, I put their note up for sale. I start the price at what is owed plus the current amount of interest, and I adjust that price downwards every few days until somebody purchases it. My thought is that it's better to get most of my money back on that note, even if I end up selling it for a loss. That is, a small loss is more appealing to me than the prospect of getting larger returns due to extra charges to the borrower that accompany late payment with the risk of a large loss (the entire value of the loan).

Perhaps I'm oversensitive on this topic, but after the one note defaulted (by someone who later filed for bankruptcy), I want to limit my risk with the notes as much as possible. As I mentioned, Lending Club does charge late fees for people who are late with a payment (which would mean extra money if the borrower brings themselves up to date with their payment), but I'm a happier person by selling the notes off and not having to worry about them.

What do you think? Am I too conservative in my Lending Club approach? Let me know in the comments.

Will You Support Your Parents?, or, A Post That's Mostly Unrelated Footnotes

When you start wearing Crocs all the time,
it may be time to throw in the towel.

A recent study mentioned in the New York Times states that 35% of adults near retirement age expect to not retire at all. Their reasons for not being able to retire included, perhaps obviously, the need for the income that working provides and the insurance benefits that accompany working.*

I don't know about you, but whenever I read articles like this, I tend to reflect on the ideas put forth by personalizing those ideas. That is to say, how does this information affect me and mine?

To answer, let me start by stating that I'm pretty lucky to still have one set of grandparents alive and in relatively good health.** My grandpa still owns a laundromat which he continues to run at age 89 (though he relies more and more on my dad for the day to day duties). My grandma never really had a professional career, per se, though she did work various jobs in her life, and she also helps grandpa with the laundromat. So, while I suppose you might consider my grandma retired, my grandpa is not retired by his own choice.

And bully for him! If we're being honest, owning a laundromat is almost as passive an investment as running a business can be. Further, I don't know that grandpa needs the money that the business brings in at this point; while I'm not privy to all his finances, I don't think they're hurting. As an example, five years ago, grandpa bought the land his business is on, and three or so years ago, grandpa bought grandma a bigger house (as our family grows, so too do family holiday gatherings). In talking with grandma a few months ago, she seemed to think both of those purchases were pretty much paid off. For grandpa, continuing to have the business seems like it's his choice to help provide for our family even after he's gone.

With all that said, I wonder how many of the 35% of people in that survey are like my grandpa, who have sweet, relatively easy gigs?*** I suspect he's probably more of the exception.

However, when it comes to my parents, I don't think they're quite as set. My dad (69) retired a couple of years ago, but he still gets called in from time to time to his old work as well as helping out at grandpa's store. My mom still works during the school year. Again, while I don't know everything about their finances, I estimate that they have some money in retirement accounts, but what's there may not be enough to live on (for what I'm hoping will be a long time). On the plus side, they'll both get Social Security, and the house that they live in (that I grew up in) is nearly paid off.****

Still, I think my parents will probably be okay when they both retire. I know my mom could have started receiving Social Security benefits a few years ago, but it looks like she's planning on working at least one more year so her Social Security checks will increase.*****

So, I think that I'm in sort of lucky place. My family seems like it will be able to continue to provide for themselves into their twilight years. Still, I wonder if I should start saving a little extra money for my parents in the event that they run out of money.

What do you think? Are any of you planning on supporting your parents? Should you be? Should I be? Let me know in the comments.

*Not to get too political, but Obama wanted free healthcare for Americans, and, instead, we got legislation that says, "Buy health insurance or else we'll, fine, er, tax you." I have a hard time believing either party is happy with that outcome. After all, when not having health insurance is outlawed, only outlaws won't have health insurance. Maybe I'll drop off the plan I'm on so that I can get "Thug Life" tattooed across my chest.
**I'm very lucky in the case of my grandfather; three months ago it looked like he was going to die in a matter of days. His doctor told my family that he was just getting old and that his body was starting to shut down. It's worth noting that this is the same doctor that "missed" my dad's cancer. My parents eventually took him to the emergency room, where they, too, were unable to figure out what was wrong with him, but, not willing to give up, they took him off the various medications he was on, and he immediately regained strength and started to get better. The short of it is, a pharmacist had mislabeled grandpa's blood-thinning medication, and so grandpa was taking twice as much he should have been. The old saying is that blood is thicker than water, but it seems like there was a time for grandpa where water was thicker than his blood.
***I don't think it's 100% easy, though I do think the primary difficulty in starting a laundromat is the start up costs. Commercial washers and dryers aren't cheap, and they do need to be replaced eventually. That said, I do think the day to day aspects of running a laundromat are pretty easy.
****That said, a house as a retirement asset doesn't always seem like a great idea. After all, how many people lost 40% of their home equity in 2007-2008 that were hoping to retire? Also, if you sell your house, where will you live?
*****Eligibility for Social Security renews each year in January, so, for you extreme penny pinchers out there who are worried about your kid's retirement, you might want to start "getting busy" around March or April so you can get a January baby who will be able to suckle on the government retirement teat as quickly as possible. My dad with his December birthday had to wait nearly a whole extra year to retire.

Photo by boliston.

On Eating Out - A Tale of Two Families

"See, and if there's 6 or more, we'll charge an extra 18%!
It's brilliant!"

Both my family and my wife's family live far away from the San Diego area, so when either set of family comes to visit, my wife and I are on the hook to find exciting things to do and fun places to eat (services that Yelp and I are happy to provide).

For meals especially, my family tends to have positive experiences. For instance, they were in town yesterday, and we ate breakfast at this charming little cafe. The food was delicious, it came in a timely manner, and the waitress even squeezed fresh orange juice for me after I had requested some and been told that they had run out. We also went out to dinner the night before, and we had a similarly excellent meal (in which we were comped a dessert).

However, when I go out to eat with my in-laws, we almost uniformly have a bad time, usually in regards to service.

Now, I know what you're thinking. If one family is always treated well and the other is always treated poorly, it stands to reason that each family is getting back what it's putting out there. I've spent a fair amount of time thinking about just this topic, and, honestly, I think both families are equally as friendly. While my dad is one of the most gregarious people I've ever met, it's not like my in-laws are sullen cranks. I really think both groups are pleasant and polite.

As an example of what happens when I go out with my in-laws, last week (yes, I've eaten out a lot in the last week -- both sets of parents were here on different days for different reasons) my wife and I suggested that we go out with her family to this restaurant that my wife and I had eaten at previously and had had a good experience at.

We went on a night that wasn't busy (I think there were maybe two or three other groups there, not counting the handful of folks at the bar). We called ahead for reservations (it's kind of a swanky place, and we were bringing some aunts and uncles in addition to my wife's parents), and this was our experience.

It took probably forty-five minutes to an hour for our orders to be taken.

The food was good, but it took a long time to come out.

Finally, the waiter refused to split up our bill, even though it was obvious that there were probably 5 groups that wanted to pay separately (the math portion of this comic is so, so right on). I assume this was due to the automatic 18% gratuity due to the size of our party, and if he had split the checks, that might not have come through. This event in itself probably added 30-45 minutes to our evening because we had to go back through the bill, figure out who ordered what, and assign each a percentage of the gratuity and tax.

I don't know, when I write it out, it might not seem so bad, but I was pretty frustrated at the time (first world problems, right?). Even though it was a leisurely-paced meal where the family was mostly concerned with catching up, certainly a three-hour-dinner implies something about bad service, doesn't it? Maybe I'm just being cranky, but when we pay close to $50 per head, I expect to have an easy-going, pleasant experience.

On the other hand, maybe I'm just over-sensitive because I especially want my in-laws to have a good time (you know, so they'll like me).

What do you think? Do any of you ever have consistently bad experiences with one group of people when you go out versus consistently good experiences when you go out with a different group of people? Am I just crazy? Let me know in the comments.

Photo by Seattle Municipal Archives.

What Is It to Succeed?

In his Democracy in America, Alexis de Tocqueville asserts that "In democracies the love of physical gratification, the notion of bettering one's condition, the excitement of competition, the charm of anticipated success, are so many spurs to urge men onward in the active professions they have embraced, without allowing them to deviate for an instant from the track." While I can't speak for all democratic countries, I certainly think the "charm of anticipated success" has spurred many Americans, in particular, to create their own businesses. 


Whether these businesses end up being profitable in the long-term is frequently beside the point.  According to the U.S. Bureau of Labor Statistics in 2005, only 66% of small businesses remained in operation two years after opening, and only 44% remained in business four years after opening. Still, 100% of these businesses were started by people who expected to succeed.

See? It's not your fault, Kristen Wiig in "Bridesmaids!"
Cupcake shops have tough business models.

I guess this is what's intriguing to me. When the majority of small businesses fall apart in under five years, how can so many Americans expect success?


This topic was brought to mind as I was reading this article about how Curt Schilling, former baseball player and probable future Hall of Famer, started a video game company because he was looking to continue making money after his retirement from baseball.* All in all, he poured over $50 million of his own money into the company, to say nothing of millions of dollars in loans that the State of Rhode Island gave him.


As you can probably guess by the fact that I'm writing about it, the company went belly-up. Still, even as the company was crumbling around him, even as million dollar plus checks were bouncing, even as pregnant wives of employees were finding out at doctors' offices that they no longer had medical insurance, Schilling remained optimistic. In thinking back on the experience, Schilling said, "I had to beat the Yankees three times in nine days. I never doubted I was going to do it. My whole life was spent doing things that people didn't believe were possible, because God blessed me with the ability to throw a baseball. And I carried that same mentality into everything I did here."


In short, he expected to succeed, and this expectation cost him (and many of his employees) everything.


In bringing this up, I don't mean to subject Schilling to more ridicule than he's already received (as if Curt Schilling gave two craps about my humble dot net). All I mean to suggest is maybe, just maybe, we all shouldn't expect to succeed quite so much. Maybe we shouldn't start video game companies without having a background in programming. Maybe we shouldn't bundle good mortgages and bad mortgages together and sell them as a financial instrument. Maybe we shouldn't run for President and refuse to share our tax returns.** 


Look: I'm guilty of this thinking as well. I audition for plays expecting to get cast. For the show that I'm in now (which is a great show, a lot of fun to be in, and furthers my professional goals), I have to drive an hour and half round-trip to get to performances. So, I work from 8-5, rush home, drive up to be there by 7, get out by 11, and get home by midnight. Wash, rinse, repeat.


Look: I know a person has to work hard to get anywhere in the world. I even think this is reasonable, just, and equitable. However, my question is, at what point are we defining success? In my case, is my great success getting cast? Getting to rehearsal on time? Getting to opening night? Getting to list a decent credit on my resume?


And how much is that success worth when compared to getting to spend time with my wife? This variable has been sadly lacking for the last several weeks. I miss spending good time with my wife.


Success and reasonable living seem to be at odds.


*It's like rich athletes who go bankrupt have never heard of an index fund.
**To be fair, I don't really like either candidate. I was just having a difficult time finding an expectation of success comment for the President.

Lending Club Update - July 2012

¿Que Bueno?

Since my last Lending Club update, I am significantly closer to getting back in the black. My new total to the right, while still negative, is a lot closer to zero than it was in April. Yes, I realize the irony in looking forward to a 0% rate of return.

Why has it improved so much, you ask? Well, a limited portfolio like I have is a double-edged sword. On the one, pointy end (they'll cut you, fool), having only a small number of notes at Lending Club means that if one of your borrowers stops paying, your rate of return, like mine, will probably fall over 20%. On the other end (the end where I do the cutting), if everybody else you lend to pays on time, your rate of return will, relatively quickly, work its way back up.

So where does that land me as far as sticking with Lending Club as an investment? I actually plan to keep buying.

You see, I'm something of a contrarian when it comes to receiving bad news (though not nearly as much of a contrarian as Nelson -- how's that RIM stock working out for you, buddy?).* I think that most people in my position, after seeing a double-digit negative return figure in an investment, would probably stop putting money in that investment vehicle.

Not me. In the same way that when there's a plane crash, I actually feel safer getting on a plane the next day, now that I've had my first Lending Club default, I'm actually eager to keep putting money into what I consider to be high-quality loans. While it'll still be a limited investment (the biggest chunk of my investing money goes into my 401(k) right now due to my employer's awesome matching program), my plan is to get up to 50 notes in the next few months. I'll then reassess where I'm at.

What do you think? In my position, would you have stopped investing? Let me know if the comments.

*I thought about including a smiley face here to indicate that I was joking, but I figure we're all big boys here, and big boys don't need to use emoticons.**
**One might also argue that big boys don't need to use footnotes to explain when they're joking. To this harrowing assessment, I have no retort. In the words of the immortal Phoebe Buffay, "I have tasted my own medicine, and it is bitter!"

Fed Rules Make Credit Approval Harder to Come by for Stay-at-Home Spouses

Money can't buy you love, Storm Trooper. Sorry.

The Federal Reserve last year announced a new rule that requires credit card companies to evaluate personal income, rather than household income, in making credit card approval decisions. Not only did this move cause a stir among consumer interest groups, it also left many of the folks who aren’t primary household earners understandably unsure as to whether they would be able to obtain credit.

Credit scores are, simply put, a valuable commodity. Decision makers from banks to landlords to employers use these three-digit encapsulations of our fiscal responsibility to make decisions regarding suitability for loans (not to mention corresponding interest rates), jobs, and apartment rentals, just to name a few things. As a result, the difference between excellent credit and limited credit is an extremely expensive one that could create roadblocks for an individual who finds him or herself financially independent for the first time in years, as could be the case in the event of divorce or the passing of a loved one.

That is why the Fed’s new underwriting rules are so troubling to many stay-at-home spouses. Credit cards are generally considered the most attainable and efficient credit building tools, as they report information to the major credit bureaus on a monthly basis and do not require the same debt burden as a loan. However, in the aftermath of this new rule being put into effect, two things have become clear: 1) The Fed’s decision was logical and 2) It doesn’t completely shut out stay-at-home spouses from credit access.

Weight Watchers and Finances

Now THIS is an exercise I could get behind.

A few weeks ago, my wife and I started attending Weight Watchers meetings. I did this because, awesome though it may be, my long-term goals in life do not include washing myself with a rag on a stick.

To those of you who would suggest that I just eat less on my own and save the fees incurred to be a part of Weight Watchers, I would agree heartily, and then point you to how well that scenario has worked out for me in every diet I've been on since high school. This includes my own brief flirtation with the Paleo Diet a few months ago.

Also, to those of you who say that Weight Watchers is for women, I bring up the case of celebrity spokesman Sir Charles Barkley who recently lost a good deal of weight through the program. I take his involvement to mean that I will soon be pulled over for speeding and offer a ridiculous alibi. Oh wait, scratch that last bit; I forgot that he's not a role model.

And that's everything I know about Charles Barkley. Go USA 1992.

Anycrap, since its foundations in the 1960s (as seen this season on Mad Men), Weight Watchers has gone through various iterations, but the basic two ideas that it has always espoused are taking in a little bit less food than you need on a daily basis and going to regular meetings. The first pillar is pretty much standard on every diet, but the second apparently helps a lot of people to succeed (as I'm cheerfully told every meeting).

I thought about these two things, and I realized that both of them are also very helpful ways to help you succeed with money.

If you're reading this blog, you're probably not too worried about where your next meal will come from or how you're going to make rent this month. As such, you probably have an excess of money when you compare what all your monthly costs are to live and how much income you bring in. What you could do (and what a lot of people do do*) is to spend all of the money you bring in every month with no thoughts of saving money. Heck, you could take this a step further by not only spending all that you've made, but also putting extra purchases on credit.

This isn't meant to judge. Your humble narrator has ridden the credit card train to glory ruin more than once in his short life. Nevertheless, just as eating too many chicken-fried chalupas** will make your body unhealthy, spending more than you have on things that you don't need will make your financial life unhealthy. Conversely, saving on calories and saving money will make your body and wallet healthier, respectively.

On the topic of the meetings, the basic idea is to go to a public place with other people who face the same struggles that you do. From this, so the idea goes, you develop a camaraderie, and you start to hope that other people will succeed, and they start to hope that you succeed. When you combine that with the stickers they hand out for meeting your weight goals (I'm a sucker for arbitrary prizes), you find yourself positively re-affirmed when you make good choices with food.

How does this tie into your use of money? Well, in my case, this site is a public platform where I can discuss my thoughts on money, saving, and investing. While I'm not as transparent in my finances as some other bloggers (I'm uncomfortable putting that information online), just the fact that I have this website frequently makes me rethink what I want to spend my money on. For example, I've daydreamed about buying an 80-inch plasma flat screen at Costco, but, given how much money I have and the fact that I'm headed to grad school in the fall, there are so many other ways that I could better spend/save that money.

If I did make a big purchase like that, I'd probably want to share about it here. However, that purchase would be at odds with a lot of what I've written about on this site. As such, having this site keeps me accountable to person that I want to be when it comes to finances, just as Weight Watchers meetings keep me accountable to the slimmer person I hope to become.

What do you think? Has anybody else noticed the similarities between struggling with weight and struggling with money? Let me know in the comments.

*Hahaha...do do.
**I don't think this is a thing, but it sounds, alternately, awful and delicious. Awfully delicious? You be the judge.

Photo by Rennett Stowe.

On Handling Telemarketers

"Oh joy, oh rapture! A telemarketer!"

When I was first rich in spirit but poor in pocket (read: the year after I graduated college), I held a variety of part-time jobs to make ends meet. I was a part-time English teacher for a group of home-schooled high school kids. I worked at Panda Express for a while, until the manager told me that I wasn't smiling enough. I seriously considered dumpster-diving with my roommate for bottles and cans to recycle until someone pointed out to me that I probably shouldn't take personal finance/lifestyle advice from homeless people.

But the job that I liked the least was when I spent a couple of months as a telemarketer.

It was too simple to get the job; I just had to show up to a training meeting. I don't think I even interviewed with anybody, which probably should have alerted me to the fact that this job wasn't going to be pleasant. I was payed a base rate (minimum wage), but I could also get bonuses if I got a certain number of people in a single week to show up. Spoiler alert: I never made more than minimum wage.

I worked for a company that tries to set up appointments for people to get hard-sold on timeshares. Basically, if you see a car at a mall or a county fair or something, and you fill out a form to win it, what you're actually doing is giving your contact information to the company I worked for.

That brings us to step number one of handling telemarketers: don't give your personal information out if you don't want to be called.

In my company's defense, if you showed up to the timeshare presentation, you were bound to "win" something for your time. I think the top prizes were a Hummer or $50,000 in cash, but there were a plethora of lesser prizes as well (from what I heard, most people ended up with a free weekend at the timeshare). The fact that my company wasn't a scam is what kept me working there as long as I did, even though, for me, the work was miserable.

I'll let you in on a little secret: people hate telemarketers. I don't blame them. I hate telemarketers. And this ended up being my problem with the job. Some people have the constitution to be forever friendly and gracious while trying to sell people on going to timeshare presentations to people while being met with rage at being inconvenienced.

I just don't. I can only take so much anger and vitriol directed at me. My last shift at the telemarketing position had me just staring at the phone, petrified at being on the receiving end of somebody's wrath again. After that, I just stopped going.

However, my time telemarketing taught me how to get off of calling lists, and it's simpler than you might expect. As stated above, the first step is to not give out your number to contests and drawings.

Assuming you already fell for the first step, the next step is to calmly state to the telemarketer that you want to be taken off of the calling list. At least in California, the telemarketing agency is required by law to remove you if you ask.

The third step is to document for your own records when you asked to be removed. To be honest, the telemarketing agency may call you again (my agency was fairly low-tech, and so our "leads" were in the form of 3x5 scraps of paper with names, phone numbers, and whatever other information had been given. These "leads" were in a huge box in the middle of room, and the same person might be in the box multiple times). If they do call again, ask to speak to a supervisor, and state that you already asked to be removed from the calling list, and remind them that it's against the law for them to keep calling you.

After that, you'll probably never be called from that agency again. Unless, of course, you enter another contest.

Photo by epSos.de.

Some Ethics of Spending

So minutes, hours, days, month, and years,

Passed over to the end they were created,

Would bring white hairs unto a quiet grave.

Ah, what a life were this! How sweet, how lovely!

-- Henry VI, Part 3, II.v. 38-41.

I was watching the ... documentary? filmed series of mostly one-way conversations? I'm not sure what to call it ... Examined Life on Netflix the other evening (because I am a pretentious jerkwad)*, and one of the speakers in the film, Peter Singer, said something obvious in a way I hadn't considered before. He posed the following hypothetical situation, and he then asked people how they would handle it.

Here's the scenario:

A screen that offers time to reflect.

Suppose you're walking in a park on a bright, sunny day, and you walk past a pool that's only a foot deep. You notice that a young child has waded into the pool, and the child is obviously having some difficulty. After watching for a moment, you realize that the child is about to drown, and you know that if you act right now, you can save the child's life. This action will involve walking into the pool (which poses no danger to you as an able-bodied adult) and retrieving the child. The only reason that gives you pause is the fact that the shoes you're wearing are expensive, and by walking into the water, you will necessarily ruin them. You know that there's no time to hesitate if you choose to rescue the child; another few seconds, and the kid will drown. What do you do?

I'm fairly certain that approaching 100% of the people reading this would decide to save the child's life because, on a very basic level, most people agree that the direct saving of a life is more important than shoes, expense be damned.

However, Singer, as philosophers are prone to do, doesn't let the question stop there; he goes on to ask, basically, if you would allow your money to be lost by ruining your shoes to save a child's life, why not, in the first place, instead of spending the money on the expensive shoes, spend that money by donating to one of the various, valid charitable organizations that use your money to feed starving children?

I know some of you reading this will immediately claim that Singer's question poses an absurd reduction. After all, why go the movies when you could help at a soup kitchen? Why read a blog post when you could be learning first aid? Why do ANYTHING immediately gratifying and enjoyable when you could be helping others?**

But to react in this way is to miss an opportunity for reflection. There is truth in what he says. After all, economics studies how people spend their finite resources, and it follows (by definition of finite) that spending money on one item necessarily means that that money is unavailable for other expenditures (credit cards work to make people feel like they're circumventing this, but as anybody who has read a personal finance blog knows, the reckless use of credit cards frequently ends in disastrous results).

It is important to realize that each dollar we spend is a dollar we can't spend another way, and I think it's worthwhile to remember this on a weekly, daily, or even a transaction by transaction basis.

What do you think? Do you consider where each dollar you spend could have gone, and/or what help it could have provided? Let me know in the comments.

*Though, to be fair, you could probably add that clause to the end of nearly any sentence I've written on this site, and it would remain accurate. "Should I Drop Chase Bank?" because I am a pretentious jerkwad? Here's my Lending Club update because I am a pretentious jerkwad. Here are 6 things you don't know about me because I am a pretentious jerkwad. You get the idea. Apt, no?
**I would argue that helping others can be both gratifying and enjoyable; I find that little in life is truly an either/or situation.

Photo by psd.

**This post was featured in the Carnival of Personal Finance #364.**

Should I Drop Chase Bank?

"Chase your money" indeed!

I have frequently said to myself that if ING DIRECT could get remote deposit figured out, I'd close my Chase account. Here's some back story.

Several months ago, I posted how enamored I was with J.P. Morgan Chase because they allowed me to deposit checks remotely (even though I was also cranky with them because they made it difficult to make online payments). These issues aside, I've not been pleased with how Chase and other big banks handled themselves during the financial crisis of 2008, and I'm especially not happy with Chase losing over $2 billion in what were supposed to be low-risk hedges.* While I didn't take part in last year's push by many financial bloggers to close their big-bank checking accounts and move their money to credit unions, I appreciated the idea and thought long and hard about doing so.

All that said, I keep another set of bank accounts through ING DIRECT. Unfortunately, for much of its existence, to use ING DIRECT in a timely manner you basically needed another checking account to transfer money in and out of. You could send them checks, but that seemed like such an antiquated method considering ING was an online bank. It was like somebody offering you a free place to store your valuables, but in order to get your valuables to that location, you needed to send them via horse and buggy. What are we, Amish?

However, these draconian deposit methods are no longer the norm. As of last month, ING DIRECT has added remote deposit. As Five Cent Nickel has done a good job of explaining ING's rules for remote deposit, I'll leave you to look over the specifics there. A couple of those rules stand out, especially ones regarding limits of what how much money can be deposited and how quickly those funds will be available for use.

One cool option that ING DIRECT gives with this remote deposit is that one can either snap pictures via smartphone (like Chase does), or folks can scan the image at home and deposit online via computer. While I haven't tried the computer scanning option yet, I'm tempted to like this better than the cell phone option, as, at least with Chase, I frequently have to snap more than one picture as the first one isn't clear enough, and the Chase app on my iPhone makes me take another one.

And yet...

I'm finding it difficult to close my Chase account, and I'm having a hard time discerning why. I've written before that nostalgia can be a chief reason people make bad financial decisions, but I don't think I'm nostalgic for this account. In the first place, this account started when I opened my account with Washington Mutual back in 2000; Chase only took over my account when it took over WaMu after WaMu failed in 2008. Chase has since added fees to WaMu's "free" checking accounts, though I've largely been able to circumvent these charges due to getting paid via direct deposit (direct deposit being one of the handful of exceptions you can use to keep your checking accounts "free").

I think I just like the safety that comes with the ability to go into a brick and mortar bank. For instance, though many ATMs allow you to deposit cash, I very rarely take advantage of this. Though I've never had any problems with deposits, it feels like if there were ever a problem, I'd just be out my cash. With cash, I much prefer to go to a teller, have him or her count it, and get my receipt knowing that there can't be any confusion about my deposit.

I guess that's my sticking issue: depositing cash. To be fair, to my knowledge, there's no way to deposit physical cash to ING DIRECT, so this whole blog post has been something of a red herring. I set up what my conditions were, and I then went with an undisclosed condition. I'll keep my Chase account open for the time being. Feel free to leave your hate at my misdirection in the comments.**

On the subject of comments, does anybody out there ONLY have an online checking/savings account with no corresponding brick and mortar account? Would you consider doing so? Let me know.

*There's got to be more to this story than Chase is letting on. While J.P. Morgan has admitted that the traders in charge of those funds were using different risk rules than the rest of the company, it smells awfully fishy that the "safe" investments the traders were supposedly choosing caused such a big loss.
**While I guess I've made up my mind for now, if I ever have to start paying a fee for Chase's checking account, I'll pretty certainly close it. I suspect I'll trade it for a free checking account from a credit union rather than going all online though.

Photo by neoliminal.

Update 05/29/2012: This post was featured in the Carnival of Personal Finance #363.

30 and Flirty -- An Evaluation

It's my 30th birthday today. While in reality, this is just a day not too different from either yesterday or tomorrow, there's something about this new milestone that feels resonant.* In a culture that worships youth as much as America (nay, western culture) does right now, it's almost ingrained within us to view aging with some combination of contempt, curiosity, and/or cheerlessness. This attitude was underscored in this week's episode of Mad Men where the young character Ginsberg, after doing some good work, proclaims, "Look on my works, ye Mighty, and despair!", to which Rizzo retorts that Ginsberg should really read the whole poem (which is about how even the greatest fall into obsolescence).**

Even so, I'm not one to mourn the passing of age (even as I realize that I'm now closer to 40 than I am to 18...gross) because I think that each new season of life offers advantages that each previous season did not (though there are also negative trade-offs, to be sure). In particular for me, I've always looked a bit older than my age said that I was, and so now that my age and my looks are a bit more similar, I think casting directors will have a better idea of what to do with me as I continue to audition.

Further, I'm happy with where I'm at in my life, and my life will only get more fulfilling come the fall as I start work on my Ph.D. While I don't think that further schooling is an end when it comes to happiness***, I'm actually excited about the work that I will be doing. I say "actually" because, oddly, in the last few months, I had become kind of burnt out on the ideas of deep analysis and art criticism, but in the last few weeks, I've found a couple of great, contemporary writers of long form criticism that have re-sparked my fire and reminded me of why I want to pursue this path.

In short, I feel that I, like Milhouse, can proclaim that everything's coming up Bryan.

*My wife and I were talking about going to see a play tonight as a birthday present, and I realized that she could still qualify for the "Under 30" ticket discounts that some of the theatres in the area use as a ruse to get younger people into the seats, whereas I would, obviously, no longer qualify. I wonder whether I will now enjoy the show 2-3 times as much as that's how much more my ticket will cost. What a difference a day makes, eh?
**I also found out that I'm younger than Kim Kardashian, which makes me profoundly happy for some reason.
***It has become something of a tradition with my friend group to hold roasts for the birthday boys when they turn 30. To paraphrase a line from a friend, "Bryan was recently accepted into a Ph.D. program in theatre, which is pretty great, because if the theatre needs anything right now, it's more doctors."

Photo by Aih.

Benihana Is Pretty Generous

Spoiler alert: at least in California, they can't do this anymore.

If you're anything like me, then you're probably the world's fattest man you probably enjoy the occasional nice meal out. One place that my wife and I enjoy from time to time is Benihana. What can I say? Having Mexican hibachi chefs pretending to be Japanese hibachi chefs just screams foodie haven to me.

Joking aside, Benihana is delicious, but it's dang expensive. What to do?

Well, I recently found out that Benihana is very generous when it comes to birthdays. If you sign up for their email list here (which is a drag, I know), they will send you a $30 gift certificate towards food during your birthday month. The catch is that it's only good Mondays through Thursdays. Still, $30 will pay for most of your steak dinner.*

I'll be turning 30 this month (woo-hoo!...?), and so I just got my certificate in the email. Here's hoping that $30 worth of fried rice and scallops helps drown my sorrow at being closer to death.

*I am in no way affiliated with Benihana. It's just a good deal that I recently learned about. Free money for having been born! Hooray!

Photo by NathanReed.

Do I Need a Financial Adviser Anymore?

Money and butter: both are lubricants.

When my wife and I started our full-time jobs several years ago, my wife was interested in getting a financial adviser that would keep track of her/my/our money (we weren't yet married) and suggest investments. We found a very nice, qualified person who has more or less done well for us. As we were young and didn't start out with a lot extra to invest beyond our 401(k) plans, our financial adviser exclusively invested our money in a couple of mutual funds.

In the last year, as I've grown more interested in money topics, I've started to do a lot more research on investing and what my wife and I will need to do to retire. I've taken what I've learned, and I started a Roth IRA for myself last year, and I put money into it and chose investments for it. While I don't want to go into the details of it, suffice it to say that I have not (knock on wood) lost any money in that account, and I'm even a few hundy in the black.

The problem is that I, like a good number of other adults, have come to realize and understand that mutual funds (while coming with the positive of being diversified) are not without the negative of annual fees. When you take into account that my wife and I pay an additional fee each time we make a purchase from our financial adviser (it is how she gets paid, which is fair enough), I'm not convinced that I need a financial adviser any longer to recommend which mutual funds I should invest in, particularly since Sharebuilder (my online brokerage) offers certain mutual funds for which I don't need to pay any fee to purchase.*

I guess I'm just saying that if I weren't so interested in learning about saving and investing right now, I would be a lot happier spending the money on a financial adviser to take care of my money. However, since I do spend a good amount of time each week researching money and investing, the work of a financial adviser (at least in the capacity that ours has thus far helped us) seems a little bit unnecessary.

I'm bring this up now because my wife and I met with our adviser last week, and we mentioned that we both had old 401(k) accounts (the company we work for has had three different owners since we started working for it, and with each new owner comes a new benefits program), and our adviser suggested that she facilitate rolling them over with the other accounts that we have with her. While this might be a good idea if we were especially concerned about having all of our accounts in one centralized location (which isn't necessarily a bad idea), I'm a little concerned about the fees we'll be charged to roll the money over (both from the banks as well as the chunk that will go to our adviser). When I reviewed my investments in the 401(k) last month, I verified that my money is already in low-cost mutual funds; why should I pay a chunk of money to move them to another set of mutual funds?

On the one hand, I think that I might just be being cheap. As I mentioned above, our adviser has done well enough by us, so I shouldn't be nonplussed by the fees that she gets to do her job (do I begrudge a waitress a tip for doing her job? Well, sometimes [at least on take out]). On the other hand, with my own burgeoning competence at investing, the money we pay her just seems like extra money out.

What do you think? Am I just being a jackwagon? Have you used a financial adviser, and, if so, have you had positive experiences? Let me know in the comments.

*To be fair, we're meeting with her next week, and, now that we have a bit more money to invest, it's possible that she'll advise us to invest in other avenues. We'll see.

Photo by emdot.

You've Got to Use Your Head, Son!

In my wife's department in the company, they work a lot. I mean, everybody at our company does a lot of work, but her department really pushes it every day. Because many people in her group were up against a big deadline a few weeks ago, they were asked to put in some overtime and to fill roles they don't normally fill. Everybody was stressed, but they muscled through.

After the deadline, the manager of the department wanted to do something nice for the group, so she invited those who had worked hard out to a happy hour, and she said that the first drink would be on her (well, the expense account, but still, I thought it was a pretty nice gesture -- events like these don't happen all that often). Some people had two drinks, and the manager was fine with that.

What she wasn't fine with was getting a bill that had five drinks priced at $75 a piece.

Needless to say, in the last few days, there have been some unpleasant conversations. From what I've heard, it sounds like the folks who bought these drinks were fully aware of how much they cost, and they "bought" them anyways.

You've got to use your head, son! Do you like having a job at a good company? Maybe it's best not to make your boss look foolish when she has to file her expense report.

I can't even fathom a scenario in which I would think it would be a good idea to put a ridiculously expensive drink on my boss's tab. Shoot, when I get to travel for my job (on the company's dime), I often worry about whether I should get the burger or the chicken, given the few dollars difference between the entree prices.

To me, it feels like the manager was just trying to do something nice for her employees, and the employees ended up throwing it in her face. On the other hand, I suppose you could make the argument that when the manager said that the first drink was on her, people assumed they could order whatever priced drink they wanted.

I was complaining the other day about an $8 beer, so perhaps I'm being a little too harsh. What do you think? Is this behavior justifiable? Let me know in the comments.

P.s.: To put the drink cost in perspective, I was at an upscale bar last night, and I asked how much a drink of Johnny Walker Blue would be (as it was the highest-priced drink my feeble mind knew about). The bartender said $35, which is less than half as much as the drink these folks got at the happy hour.

P.p.s.: If you're curious what the drink was, here you go.

Friday Links

Daisy asked "What's your deal breaker?" For me, it's no kissing on the lips. Well, for me and Julia Roberts, that is. Well, for me and Julia Roberts as Pretty Woman in Pretty Woman, that is.

There's a great post here with 10 secrets to a happy marriage. The secrets are just delightful.

Where's Waldo? WHERE'S JASON!?

Erika gave some very timely advice to me when she wrote about the Comparison Trap. I just got a list of my upcoming classmates for the fall, and they're all pretty amazing; my jaw actually, physically dropped open a couple of times. All I can be is who I am. All I can do is what I can do and what I can learn to do.

On the topic of grad school, Slate had a thoughtful opinion piece.

So, you want to do a Phd?

The New York Times provided an insightful piece on how Facebook can make you feel left out.

The Billfold posted a positive piece on how this person's life was better because he saved money. Who'da thunk it? Also, a piece on girls and the hot mess dilemma that I don't feel like I can recommend without sounding sexist (although, to be fair, I feel like it applies to a lot of guys too, which is why I enjoyed it).

Want to Save Money? Lower Your Standards

Last night, a buddy and I went to go see the very meta horror film A Cabin in the Woods. If you have ever enjoyed a horror movie (or, if you think that all tropes in horror films are overdone), I encourage you to see it. I can't say too much more than that without the risk of spoiling it, so I'll leave it at that.

After the movie, we decided to go get a drink and catch up. We were at a mall that had an allegedly Irish-themed bar (inasmuch as waitresses in short plaid skirts equals Irish), so we went in. I ordered a draft beer, and my buddy ordered a whiskey; our tab came to $17 for our two drinks.

I'm not going to say that I was shocked at the price, but even as I ordered, I knew the price that was being charged was going to be ridiculously high when compared with the actual cost of the goods. I don't blame the bar (a for-profit organization) for setting its price point high either; after all, those plaid skirts aren't going hike themselves up. In fact, I'm not going to blame anyone for anything.

All I'm going to say is that my buddy and I probably would have had as good of, if not a better time, at a more reasonably priced bar. Because of their cheapness, I have an unreasonable fondness for dive bars. Their price points tend to be what I hope to pay for my adult beverages.

What can I say? Paying $8 for a beer just isn't in my wheel house. Based on how the franchise I went to is expanded its locations and growing as a business, apparently a lot of people are willing to frequently overpay for their drinks, and I say good for them. They must be a lot more financially secure than I am.

Of course, in the above story, the choice of bar was more of a choice of convenience than anything else. That said, for my friends out there who enjoy the occasional drink responsibly, if the bar that you're at has any sort of theme (unless that theme is darkness and pitcher specials of Miller High Life), you're probably going to be paying too much for drinks*.

What do you think? Does the perceived niceness of a bar make you want to pay more for the same alcohol you could get elsewhere? Let me know in the comments.

*A notable exception to this rule is when you drink for "free" in Las Vegas while you're gambling. While you'll be indirectly paying too much for the drinks when you lose Junior's inheritance at the blackjack table, getting "free" drinks in and of itself is a hard price point to beat.

Some Great News

I finally heard back from the Ph.D. program, and I was awarded a great financial aid package which will include full tuition as well as some additional funds. For this fundage, I'll be working as a TA and on the school's theatre journal.

So, with this news, it looks like I'll be a Ph.D. student come the fall! Here's to higher learning!

What isn't as obvious, still, is the total time commitment work as a TA will take up. I'm hoping to continue working at my current job for at least a while. I'll need to work on figuring that out, because I don't want to leave my boss in the lurch.

Still, I'm pretty ding-dong happy right about now. I can't wait!

Lending Club Update - April 2012

Behold the figure!

That figure that you see to the right of this text represents what my current returns are from my Lending Club account.

A negative return? Why is it so low, you might ask? The answer is simple: one of the people to whom I lent money decided to stop paying, and that person's loan was just charged off. The change is so dramatic from this point because I only have 16 total loans, so any one default is going to affect me enormously. As Lending Club itself has suggested, the more loan notes you own, the less any individual default hurts you.

See the print screen from the site describing Lending Club's efforts to get the person to pay.

"Recovery unlikely," eh? So you're saying there's a chance...

This person's default was a bit surprising to me as he (I assume it was a he) had one of the higher credit scores available on the site (the best credit score that someone can have on the site is an A1 -- this guy had an A5). His loan was also relatively meager (approximately $6,000); loans under $10,000 have tended to be my lifeblood at Lending Club due to the fact that I believe that they are safer loans to take as smaller payments are theoretically easier to make.

In retrospect, it seems like this guy was probably applying to Lending Club as a last-ditch effort to stay afloat financially. I'm basing this assumption on the fact that his credit score (which you can monitor on the site) has basically gone into the crapper the last few months. It seems like the last thing he needed was more debt.

In short, investing in Lending Club in the minimal fashion with which I have invested is an especially high-risk/high-reward enterprise. I'm positive there are plenty of other folks out who have a comparable number of notes as I do who have no defaults; conversely, I'm also fairly certain that there are those who have more defaults.

The only real way to lower the volatility in your Lending Club portfolio with some certainty is to own more notes. Even so, even easily explained double-digit losses give me pause. Still, the truth of the matter is, I'm only out about $23 and change; this wasn't the sort of loss that means I'll be stuck eating cat food in my retirement.

What do you think? Have you invested with Lending Club? What have your experiences been? Let me know in the comments.

Coupon Codes and You

That's right; all the coupons.

Just about every time I make a purchase online, I tend to do a quick Google search to determine whether or not there are any coupon codes available for me to save some money. It takes seconds (unless you're still signing in through AOL via dialup, grandma!), and it can save you some serious cash.

The website that I do this the most with is Restaurant.com. Their coupons are already discounted ($25 certificate for $10? Que bueno!), and I've seen coupon codes that take up to an additional 90% off that discounted price ($25 gift certificate for $1? Sign me right up!). In fact, if you look at the banner for Restaurant.com down towards the bottom of this page, you can easily see what the coupon code is for whatever day you're looking at.

What can I say? I'm a helpful son of a gun. You're welcome, America (and Canada ... no one else, though).

Of course, a definite problem with Restaurant.com is that it doesn't cover all restaurants (it tends to promote local restaurants at the expense of chains), and there are some areas in the country that it doesn't cover at all (I'm looking at you, Fargo, North Dakota).

Another couple of website that I like to use when I'm looking for deals on things are Slickdeals and Woot. What I like about Slickdeals is that it provides a lot of different discounts that users have submitted. As the site has a devoted base of users, the deals are updated constantly. Woot has more of a deal of day feel to it, although Sellout section of Woot reminds me a bit of Slickdeals (and there is some noticeable overlap between the two sites.

A problem with both of these sites, however, is that it takes more of a long game view on spending money. That is to say, if you've been holding off on buying a flat screen tv, and Woot eventually offers a discounted price on one, you can buy what you were going to buy anyway at a discount (this is called being a crafty consumer, like Dr. Zoidberg fancies himself). It becomes a problem, however, when you start viewing the deals as something that you have to buy, without really needing the item (see my post on my problem with clever/nerdy t-shirts).

Recently, I came across an additional website that provides coupon codes for both local and national stores, so you can always search for what you need when you need it. The site is called CouponCodes4U.

The national stores include places like Lowe's. There are also pages where you can get Crutchfield coupon codes (for your audio speaker needs wants) as well as Dick Blick art materials coupon codes (which is a local art supply store here in San Diego.

In short, I think the above websites are pretty handy, albeit for different reasons, and I think that it could be useful for most everybody reading this site (read: people who like to save money).

Do you take time to search for coupon codes before you buy things online (or in brick and mortar stores)?  Let me know in the comments.

Photo by the Italian voice.

Friday Links

The male half of Newlyweds on a Budget had to go to the emergency room about a week ago.  Here's to wishing him a speedy recovery, and kudos to him for the first words to his wife about the possibility of needing to go to the ER being, "How much does it cost to go to the Emergency Room?"

The Free Financial Advisor explained the difference between a certified financial planner (CFP) and a certified financial analyst (CFA).  What did you do?

Debt Black Hole compared Cylons and bill collectors for you (oh my!).

Bach at Adept Debt described how she sold her wedding dress, which is a really sensible thing to do to a piece of clothing you'll only wear once.

Finally, Grantland has a fun couple of articles you should check out: one on one of my new favorite tv shows ("Happy Endings"), and the other an interview/fancy meal that was shared with Aziz Ansari (which includes commentary from the person who was typing out what had been dictated -- META!).

Are You Frugal or Downright Cheap? - Guest Post

If there is one positive that has come out of the Great Recession and the sputtering economy, it’s that people have become much more mindful of how they spend their money. People have discovered that they have far less control over how much money comes in, than they do over how much money goes out. Budgeting and belt-tightening have become the watchwords for families of all economic stripes, unleashing everyone’s inner-frugalness. It wasn’t long ago when you would have been scorned for being cheap. Now you’re praised for being frugal. Who knew?

If you’re still struggling with the concept of frugality for fear of appearing cheap, you need to understand the difference and why one is considered to be urbanely smart while the other one is considered to be, well, cheap.

Frugality requires a sophisticated approach to finding ways to stretch your dollars. Saving money is not necessarily the primary goal; rather it’s realizing more value for your money. In doing so, your money goes further. Isn’t that the same thing as saving money, you ask? Maybe, but what we’re really talking about is a mindset. No one wants to appear cheap, but if you are able to acquire roughly the same accoutrements of life as you did before you watched your money, that’s being smart, not cheap.

Being cheap, however, is simply another form of greed that pits you and your money against everyone else in the world. It’s not about how much money you can save; rather it’s more about how much you can keep from others. Cheapskates aren’t looking for more value; they’re looking for more victims.

A prime definition of a cheapskate is the character of Alan Harper, from the show Two and a Half Men. Here are some examples of his extreme cheapness:

• He lives for free in his friend’s beach house, and never offers to pay rent.
• He always leaves the table at a restaurant just as the check arrives, so that he can avoid paying the tab.
• He sneaks deviled eggs in to the movies instead of buying snacks. Cheap and smelly!
• He only puts $5 worth of gas in his car at a time in the hopes of being able to use someone else’s car to travel.

The airwaves are overrun with shows, blogs, books, and newsletters on living the frugal life. Some people have even elevated (or denigrated depending on your viewpoint) it to a sport (i.e. extreme couponing). Whole industries have launched to cater to the frugal lifestyle (Groupon, Restaurant.com) and some that were once spurned are suddenly en vogue (thrift stores, dollar stores).

There is no shortage of ideas, tips, and resources for living a frugal life style. But be careful. Some are impractical. Some are kind of weird. And some border on just being cheap. Here’s a smattering of ideas and tips taken from a number of blogs and articles on frugal living with our take on their frugalness.

• Take your teen clothes shopping at a consignment store (Very smart – for $30 they walk out with a bunch of trendy and vintage shirts and jeans they pick out themselves)
• Use Restaurant.com certificates to dine out. (Why wouldn’t you if you could save 50% for a dinner out?)
• Re-use coffee grounds for a second or third pot. (Really?)
• For fast food places that only allow one coupon per visit, send your kid in first to order with one coupon and then follow him in with a second coupon. (Sounds pathetic, but what the heck.)
• Getting together with friends: Suggest a potluck and BYOB. Wine tasting gatherings are always popular. (Your friends will appreciate it)
• Take old or stained t-shirts and fashion them into underwear (weird)
• Designate a no-spend weekend. Plan activities at or near your home that won’t require one dime to be spent (smart)
• Go dumpster diving. One person’s junk is another person’s treasure. (weird, pathetic and probably illegal).

You get the picture. The bottom line is that anything you can do within your range of comfort to squeeze more value from your money and your time, is the smart thing to do. Frugalness is a state-of-mind that, when practiced regularly, can only improve your finances and your overall well-being.

Aubrey Clark is an editor and writer for DirectBanc.com, a website that provides low interest credit cards and credit card information.

Friday Links

Hank Coleman wrote about creating passive income with a laundromat.  My grandpa owns a laundromat, and I think this is a great idea (assuming you can afford the start up costs).

W at Off-Road Finance wrote an article a couple of months ago that is amazingly thorough in its recommendations for how to plan a Las Vegas trip.

Zero Hedge posted a series of graphs comparing how the young and old have done in saving money between 1984 and today.  In short, the young are saving less, and the old are saving more.  It's eye-opening stuff.

Splitsider posted a history of the old television show "You Can't Do That on Television."  See, I knew Canadians were good at something because creating Shopping Detox and Financial Uproar.

Finally, Cracked has a great list of five ways modern men are trained to hate women.  There's a lot of truth here, even if it's written for a comedy site.

Mega Millions, Probability, and You

If you haven't heard, this Friday's Mega Millions lottery jackpot, which already has an estimated pay out of $500 million, will be the largest lottery prize ever won (assuming somebody hits all six numbers).

It's hard for me to fathom that much money. That's half a billion dollars, just for matching numbers. Incredible.

Now the odds for winning that prize are a little more than 1 in 175 million. This got me thinking, if the jackpot has a larger number than what the odds are, shouldn't every person have a reasonable positive expectation if they played the lottery? But, you can't really ever expect positive returns from a lottery, right?

As math is a fuzzy subject for me, I deferred to my buddy the math whiz (he wrote a post for me on the NBA lockout a few months ago). Here's what he had to say.

"Hey Bry,

Great question.  Some of the math of probability isn't super fresh in my mind (though I'd say it's one of my favorite areas of mathematics), but I'll offer what I can.  First, I would say that what you said isn't wrong, but the situation is more complex.

It's important to remember that there are both helpful and harmful nuances to the system that affect the expected return on a lottery ticket.  On the helpful side, you have opportunities to make money without hitting the jackpot (if you get x, y, or z numbers right).  On the "harmful" side (as it relates to expected return), you could win the jackpot but end up having to split it with another winner, or two other winners, etc.

Let's pretend that those nuances weren't there.  (You may know all of what follows in this paragraph, but I'll just cover the bases.)  If you were to buy 175,000,001 lottery tickets for $1 each, you'd of course spend $175,000,001.  Odds are, 175 million of those tickets would not hit the jackpot and thus would give you no money.  The remaining ticket would hit the jackpot, which we'll pretend is $350 million (not far from the actual current situation, right?).  That means your profit from buying all those tickets would be $175 million (rounded up $1). 

The thing is, you're obviously not going to buy that many tickets, and that's where expected return comes in.  To find the expected return on a ticket, I believe you would divide the profit by the cost in the above scenario (at least in this case, because the number of tickets purchased is equal to the $ spent).  So, yes, you'd have a positive expected return of $1 for every ticket purchased (ie, a *profit* of $1 for every ticket purchased).  However, the concept of expected return isn't very helpful on an all-or-nothing investment with incredibly long odds.  The reality is that there is a very high chance of you winning absolutely nothing, and that only changes if you buy an incredible number of tickets.

Then, the math would be further complicated by the nuances mentioned above."

What do you think? Will you be trying to win Friday's prize?  Let me know in the comments.

Photo by cpradi.

"Southland" Personalities and Money, Part 3

This article is a continuation of the ongoing writing that Jana at Daily Money Shot and I have been doing about the television show "Southland."  If you haven't been watching the show, you'll have several months to catch up before a new season starts in the fall (hint: don't get too invested in Detective Lydia Adams' partner(s) as they all, well, you'll see).

Today, I'll be focusing on Officer Sammy Bryant.

Personality Type:  The still-young veteran.

Background:  Sammy worked as a detective for the first few seasons of the show, where he investigated narcotics and gang activity.  After his partner was killed in front of him by a group of gangbangers, Sammy kidnapped and nearly murdered the person that he thought was responsible for his partner's death.  He realized that his conscience wouldn't let him murder, and, as a result, he requested a change from being a detective to being a training officer.

This past season, he's been paired with Officer Ben Sherman, for whom he played an appropriate foil as Sammy had gone through and dealt with many of the same strong, angry emotions that Ben portrayed in the last few episodes of this season.  Tragically, Sammy's experience couldn't deter Ben's inexperience, and season four ended with Ben shooting and killing the object of his fury.

Oh, also, Sammy's ex-wife was maybe the most annoying character on tv.  I was not unhappy that she didn't appear in this last season.

Analysis:  It is telling that Sammy was pushed to the edge with grief over his partner's death, but he still couldn't let himself murder whom he believed to be the guilty party.  While Sammy made mistakes by going rogue and kidnapping the gang member, he stopped short of murder, and, in doing so, was able to turn his life around.

Money Personality:  Though it is not a matter of life and death, many people out there have made a series of bad choices in their lives when it comes to money.  However, it is only a fortunate few who have had the gumption to say, "Enough!" and to then resolve to make better choices and to lead healthier lives when it comes to money.

In particular, I'm thinking of Andrea at So Over Debt, Annabelle over at Shopping Detox, and, of course, my "Southland" buddy, Jana at Daily Money Shot.  I love reading about how they're working to turn their lives around when it comes to money, and I think you will too.

Real Answers to Money Questions, or Why I Hate the Radio

Trust ye the voices that come from this?
Do so at your peril!

As I was driving to work this morning, I was switching between my preset radio stations.  One thing that adds to the pain of my morning commute is that most of the music stations that I listen to don't actually play music in the mornings.  What they play instead are these annoying morning shows where the local talent, scrambling for something to talk about, comes up with incredibly stupid things that I can't believe anybody would want to listen to.

Perhaps you're familiar with shows like this too? The ones that make you want to merge across 6 lanes of traffic and take out as many people as you can? No? That's just my own murderous rage? Good to know.

With how little I think of these programs, you can imagine my surprise when I heard that the station was going to have a segment where people could call in and get answers to their money questions ... by some guy who was adopting a Boston accent.  I say "adopting" because he didn't keep the accent up the whole time.  That should have been my first clue that I wasn't going to like the segment.

Having said that, let's take a look at the callers' issues and see if I can provide better answers.

Caller 1:  This guy's issue was that he had received a speeding ticket, and he had not paid it on time.  Because of this, the original cost of the ticket ($391) had increased to $700, and he wanted to know what to do about it.

DJ's Advice:  On his way to the courthouse to pay the fee, the DJ recommended that the caller should keep an eye out for change that was minted prior to 1965 because of the higher silver ratio that this change contained.  At one point, the DJ referred to pre-1965 coins as coming from "the early nineteenth century, " ostensibly to clue listeners in to the fact that he was dropped repeatedly on his head as an infant.

Pictured: Money from the early 1800s.
Never mind the obvious date.

And that was it.  That was the actual advice given.  While I consider myself to have a pretty good sense of humor, even in humor of the irritating and the absurd, I wanted to reach my fist into the radio, have it travel through the airwaves, and punch this mouth-breather right in the back of the head.

REAL Advice:  In the first place, don't be the moron who doesn't pay his ticket on time (also: don't be the moron who speeds).  But since this caller was already past this, the only reasonable advice I can give would be to get into contact with the county clerk to see if you have any options.  Beyond that, you might attempt to appear in court and explain your situation and throw yourself at the mercy of the judge.

However, because our friend the speeder is already late in payment, I suspect that he'll have to pay the full amount.  With that being the case, I'd advise him to sign up for traffic school if he's eligible, so that he can get the ticket off of his record to ensure the ticket doesn't affect his insurance.

Caller 2:  From a theoretical standpoint, this question was more interesting to me.  This person asked if he should save money for retirement by putting money into a 401(k) or a Roth IRA.

DJ's Advice:  The DJ told him to put money in the 401(k) because the caller would not have to pay taxes on that money.

This is absolutely not true!  Money is put into a 401(k) pre-tax; that is to say, you don't pay taxes on the money right now (and money contributed lowers your current tax obligations), but you will have to pay taxes on the money when you take it out.

REAL Advice:  A frequent benefit of 401(k) plans is that your employer will usually match what you put in, up to a certain amount.  Because of this, if you can swing it, you should max out what you put into your 401(k) to ensure a full company match.  When you do so, you are receiving a 100%, immediate return on your money.  You can put up to $17,000 into your 401(k) for tax year 2012 (up to $22,500 if you're older than 50).

If you have more money that you'd like to invest for retirement beyond maxing out the company match with your 401(k) (and if you'd like to have a comfortable retirement, you should pretty definitely do so), I recommend looking into a Roth IRA, assuming you are not making too much money to contribute.  You can put up to $5,000 a year into your Roth for tax year 2012 (up to $6,000 if you're older than 50).  Studies have shown that people who have both a Roth IRA and a 401(k) tend to have more retirement savings than those who only have one account or the other.

I guess the real take away for this article is that, if you have a money question, you should NEVER CALL IDIOTS ON A MORNING RADIO SHOW.  Search the internet instead.  Google is your friend.

Photo 1 by infousX.
Photo 2 by Kevin Dooley.