Your Finance Education October 8, 2008

Every time you turn on the tv or the radio, all you hear about is the economic crisis–or the election, which has become about the economic crisis.  But what if you don’t know what makes a mortgage “subprime”?  What if you don’t know the difference between a money market, a mutual fund, and a money market mutual fund?  And what the hell is “commercial paper?”

For an education about the swirling mess around you in plain English, look no further than NPR.  Start by downloading the episode of This American Life entitled, “The Giant Pool of Money,” reported by Alex Blumberg.   It explains just how this whole mortgage crisis started.  I had to pay attention to what I was listening to–you can’t just have it on in the background–but after I heard the episode, a lot of things clicked into place.  Apparently they clicked for a lot of people, because shortly after airing that episode, NPR began a new regular podcast called “Planet Money,” which explains each new disaster with the market as it occurs on a daily basis, often through answering listeners’ questions.  This American Life also aired a second show about the economy, called, not surprisingly, “Another Frightening Show About the Economy.”

But what does that mean you should do with your money?  Generally speaking, don’t panic.  The economy  operates cyclically, and sound personal finance principles apply no matter where we are in the cycle.  Two books I have found very helpful on this topic are Suze Orman’s The Money Book for the Young, Fabulous and Broke (yes, her delivery is mildly annoying, but the info is solid), and The Complete Idiot’s Guide to Personal Finance in your 20s and 30s (or your 40s and 50s), Third Edition by Sarah Young Fisher and Susan Shelly.

And what about buying a home?  Is now the perfect time to take advantge of lower home prices?  Is it even possible to get a mortgage anymore?  And how do you avoid becoming one of the millions in danger of foreclosure?  Take a class.  Many city agencies around the country hold free first-time homebuyer workshops.  Some of them have been doing it for decades, but lately the demand has skyrocketed, so now there are even more places to find courses.  Here in San Francisco, there are five different agencies that offer homebuying workshops.  All of them are listed here, through the Mayor’s Office of Housing.  I took my class at the Consumer Credit Counseling Service of San Francisco (CCCSSF).  It was just three hours of one Saturday morning, but afterwards I felt much better prepared to tackle the prospect of buying a home, whenever that happens to be.

Two small pieces of advice regarding homebuying workshops: firstly, go now, not after you’ve already started the emotional and tempting process of visiting open houses.  Secondly, do all of the numbers  yourself.  Our instructor stressed multiple times that buying a home was the best investment we could make, since it meant we would be “breaking the rent cycle.”  But that’s not the whole picture, especially if you live in an expensive city or are not planning on staying in your first home for the entire 30-year length of your mortgage.  This article presents some compelling reasons for a New Yorker to keep on renting.  We figured out that for the first 5-10 years of our potential mortgage, we would be paying as much money in bank interest as we are currently paying in rent.  The little bit that would go towards the principle, and therefore eventually come back to us, would just be tied up in the house, instead of earning interest in some sort of savings account.

Speaking of savings accounts, now is a fantastic time to start one.  Because banks are competing so desperately for deposits, they are offering higher and higher interest rates on savings accounts.  I recently opened up a personal CD at WaMu that earns 4.93%, and a Money Market account for my business that earns 3.99%.  With a trillion dollars in assets behind it, JP Morgan is unlikely to tank with my savings, but even if it does, it’s all insured by the Federal Government.  It’s a virtual no-risk situation, even in these risky times (unless the government itself goes bankrupt).  So if you happen to have some extra money sitting around in your checking account, don’t stick it under your mattress, put it to work for you.  In this economy, who couldn’t use a little extra cash?

Advertisement

Business Credit Cards February 20, 2008

When I signed up for my WaMu business credit card, I regretted it. It’s got a pretty high interest rate and gives me no rewards of any kind. I just signed up for it because I was already at the bank and my accounting seminar instructor said it’s much easier to keep track of your finances with a credit card than with a debit card (this is true–especially if you use Quickbooks).

This week I got an offer in the mail from Citibank, so I figured it was time to switch. They wanted me to apply for their CitiBusiness Card with Thank You Network. It seemed like a pretty good deal. When you wade through the point nonsense, you essentially get 3% back on “qualified business purchases,” which they define as “purchases at certain office supply merchants, and on professional services,” and 1% on everything else you buy. You can also transfer your balance from another credit card and get 0% APR on it until May. Still, I thought I might be able to do better.

I did most of my research at CreditCards.com. This site is basically just a list of rewards cards. They don’t provide much specific information about any of them. For that you need to visit the card provider’s web site and read the terms and conditions. You really need to read the fine print carefully, because there is some weird stuff in there. For example, I got pretty excited about the Chase Business Cash Rewards Card, because it advertises in HUGE type that you can get 5% cash back with every business purchase. When you read the fine print, however, you discover that this only happens when you spend exactly between $2,000 and $2,500 every month. This is clearly a rule that was written just to screw the undiscerning applicant, since there is no logical reason whatsoever to encourage people to spend within that precise $500 range. The American Express Blue card has similar bizarre restrictions.

Other hidden rules have to with sliding rewards scales.  You can theoretically earn 3-5% cash back on lots of cards, but if you spend, say, less than $1,500 a month, you’ll only get 0.25% back. This makes more sense from a business perspective (after all, the more you borrow, the more interest you might have to pay), but it’s still kind of sleazy.

In the end, it came down to the CitiBusiness Visa and the Amex SimplyCash.  The CitiBusiness Visa was tempting because of the huge signing bonus (10,000 frequent flyer miles when you first enter the site, 15,000 when you’re trying to leave it), but Citibank web sites are extremely slow and unreliable on my computer.  I’ve also heard some not nice things about Citicorp as a company.  So I went with the Amex, because the rewards were simple, high (5% on business purchases, 1% on everything else), and never expire.  As an added bonus, Amex will also give you discounts at lots of major companies through their “Open” business network, like Delta, Hertz and FedEx Kinkos.  The discounts average 3-5% and it’s automatically deducted from your credit card statement, so you don’t have to remember to show or mention anything at checkout.

If I were just starting out, I might sign up for both cards, since some retailers don’t accept American Express.  I’m just going to keep my WaMu business Visa for now, though.  It may not give me any rewards or cash back, but it has an awesome online module to track my credit profile (including free FICO score tracking!).  WaMu websites are the best in banking, in my opinion.  They’re simple, fast and provide all of the information I need in a format that makes sense.

Merchant Services Chosen January 11, 2008

Well, it happened about a week later than I wanted it to, but I have finally chosen Thompson Merchant Services to process my credit cards. They were neck and neck for a while with WaMu’s TransFirst merchant services, who cost a little more but provided excellent service and assistance during the sales process. They both offer competitive rates on a package that includes a gateway, a merchant account and a virtual terminal. They both respond to questions and submissions quickly. The deal-breaker was the SSL certificate.

Thomas’ NexCommerce gateway, run by Authorize.net, comes with SSL encryption built in. For those of you who did not read the previous merchant services posts, an SSL certificate is a safety wrapper you buy for your web site so that identity thieves can’t steal your customers’ personal info when they buy things from you online. TransFirst’s Transaction Central requires that you purchase your own SSL certificate, which is pretty standard. Normally, this is not a big deal. GoDaddy can provide you with one for $20 a year or less, depending on how many years you buy up front (and their 24/7 customer service is second to none). The problem is that my web site is just one subdomain in a web hosting package my fiance and I use for all of our various web projects. In other words, our main domain is my fiance’s design business, www.burning-house.com, and my Sweet Meats web site is actually located at meat.burning-house.com. The domain name http://www.sweet-meats.com just points you to that meat folder on the burning-house web site.

So, back to my gateway issue: an SSL certificate can only be added to the main domain of a hosting package (the burning-house.com one), which means that I would have buy another web hosting package and move all of my Sweet Meats files over to a new server. I just don’t have the time or the money for that right now.

NexCommerce will not set up their gateway for you unless you have a few things on your web site first:

1. Customer Service number or email.
2. Return/Refund Policy (including “no refunds” if this is the case).
3. Merchant Privacy Statement (a sample privacy policy may be found on the Better Business Bureau’s website at: http://www.bbbonline.org/privacy/sample_privacy.asp).
4. Website Secure Order Page along w/shopping cart (order page doesn’t need to be functional yet but must be present)
5. Delivery Method and timing are clearly stated (like “Products are shipped 24-48 hours after receiving your order via UPS Ground, Fedex 2nd Day”, etc.)

Some of these things are links on every page of my wholesale site and some are found in pages like “Terms of Use” and “FAQs.” I’m also a little confused about what they mean by “Secure Order Page.” We’ll see what they have to say about that tomorrow and if they’ll actually give me the gateway. Only one week left before the CGS in which to get everything working. Yikes!