Monthly Archives: February 2012

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Frugality is exactly what the economy needs

February 29, 2012 2:55 am / Leave a Comment /

Flexo over at Consumerism Commentary recently posted that frugality is bad for the economy.   Among similar statements, he says:  “The primary tenets of frugality work well within an individual’s personal finance philosophy, but once the concept becomes a movement that spreads to a greater population and businesses, the economy can’t move.”

If we look back at some of the circumstances that brought us to the current state of hurt we’re in, things were rosy.  In the first part of the last decade, real estate was no-lose.  Mortgage rates were low (due in part to an easy-money policy by the Federal Reserve that caused lenders to compete) and lending standards were lax which increased the number of homebuyers (and developers) competing against one another.  People were house-rich, and people borrowed against the rising equity in their homes to buy stuff.

This worked great, until it didn’t.  Banks failed, lending standards tightened, home prices fell.  People were trapped.  Adjustable-rate mortgages began to reset, and they continue to do so.  Those that weren’t foreclosed on are strapped, or at the very least unable to move because their homes are under water.

One can say that the economy was moving in the first part of last decade, but it wasn’t really moving on disposable income brought about by people’s labors as much it was brought on by borrowed money, and a lot of it.  Eventually the party stops, and the tab has to be settled.

Frugality is good for what ails a burnt-out economy

Following a season of excess comes a season of thrift.  People went into great debt with their houses because they could, and lots of people got into real-estate-related fields because that’s where the money was.  The problem was this: it was too much money.  A lot of money turned out to be mis-allocated when the housing bubble popped.  A side effect was that businesses all over were seeing a lot more sales because people were borrowing against their houses.  This money isn’t flowing as easily anymore, and when this is coupled with the high unemployment rate, it means harder times for a lot of businesses.

People just don’t have as much money to spend.  Or, more to the point, they have to lower credit card debt and pay off home equity lines of credit.  They have to be frugal.

This is necessary to get the economy humming again in the regular way.  Certainly some businesses are doing well now: debt consolidation agencies, used goods, pawn shops, auctioneers, and anyone else who (a) helps people to get back on their financial footing, (b) sells things that people can buy on a budget, or (c) helps people to liquidate their holdings if the bad economy gets the better of them.  But on the whole, people need to get their purchasing power back, and that means digging themselves out the hole.

Money that was mis-allocated needs to be re-allocated.  Frugality helps to accomplish this.

Source: Mighty Bargain Hunter

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Are “cash mobs” the saving grace for local businesses?

February 25, 2012 1:30 am / Leave a Comment /

I read on MSN today about cash mobs.  If you’ve heard of flash mobs — either the violent or the artistic kind — then it’s very similar to that.  The idea behind cash mobs is to give a booster shot to local businesses.  The cash mobs organize and descend on a particular local business to buy stuff.  It’s fun for the mobsters, and it’s great for the business, which gets an unusually brisk sales day.

This isn’t a bad thing, right?  The cash mobs don’t pretend that they’re going to single-handedly bring the country, or even their city, out of the financial doldrums.  If nothing else, they just plan to go out to have a good time:

We’d help businesses grow, we’d make people happy, we’d get stuff for ourselves, have a great time, and maybe we’d get a drink to celebrate afterward.

It’s the economy — a shifting economy

Brick and mortar stores have lost business with the rise of online retailers, most notably Amazon.com.  Booksellers have been the hardest hit — though to be fair, Borders Books and Music basically handed Amazon the keys to the front door! — mainly because Amazon is cheaper, has more in stock, and can be shopped in the comfort of one’s home.  Why settle for a measly 10% off of new books — with a paid membership, no less — when you can get 30% or more off every day, all the time?  Heck, why not go into a place with your smartphone and do a price comparison right there?  That’s what people have begun to do, and it’s not going to stop.

It’s the USP that will save a business — not charitable shoppers

Price, selection, and convenience can’t be the only reason that people buy things.  If it were, businesses would be worse off than they are now.  People must buy things in stores for other reasons.  The businesses that figure out how to capitalize on the advantages of buying from them over buying from Amazon will succeed.  This requires a crystal-clear unique selling proposition; the USP defines concisely the market it serves, and the key advantage it brings to that market.  For example, we have a local hardware shop.  It’s more expensive than Lowe’s in town for most items, but its key advantage is the personalized attention that the manager and staff give to their customers.  This isn’t at all to say that Lowe’s employees are rude when you find them, but it’s far easier to find a very helpful person at our local hardware store.

What’s more, a USP isn’t forever.  It can’t be.  The advantages of one particular store vs. cheaper alternatives will change, and the store has to adapt, branch out, deliver different value.

Local businesses with a rock-solid USP, a heart for customer service, and a keen eye for delivering value that lower-priced competition can’t, will do fine.  Local businesses that don’t will get eaten alive (though maybe a bit later if a cash mob strikes).

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Get Serious About Enterprise Mobile Device Security or Face GRC Repercussions

February 23, 2012 9:38 am / Leave a Comment /

Gartner declared 2011 the most complex year the mobile industry has ever experienced so just imagine how 2012 is likely to shape up. The researcher expects more handsets and tablets to appear and new services to emerge that exploit mobile payment, context, social networking, and location-based advertising. Near field communication (NFC) and RFID increasingly will carve out roles in mobile.

Similarly, employees will demand a choice of devices, fueling the growing adoption of the bring-your-own-device (BYOD) approach. Not surprisingly, enterprises will be forced to develop and support applications on a wider range of mobile devices and platforms.

The growing smartphone base combined with increased sales of media tablets is forcing a reassessment of the best practices to support mobile. Controlling burgeoning costs driven by device heterogeneity and bring-your-own-device models, while maintaining agility, is imperative, notes Gartner. But most important of all is security, which carries serious GRC implications. Below wiredFINANCE summarizes key steps you should take now to secure your mobile devices. (more…)

Source: Big Fat Finance Blog

Posted in: AccountingNews / Tagged:

The joy — and relief — of giving things away

February 16, 2012 2:10 am / Leave a Comment /

My wife and I have been enjoying a couple of localized Facebook pages that serve as ongoing virtual yard sales.  People know each other to some extent, people post pictures, people raise their hand if they want something, and people deliver the goods.  We’ve gotten some neat things, and we’ve gotten rid of some of our stuff that had past its usefulness.

Overall, a good time is had by all.

It’s not fun to have an expensive item that you can’t sell

A little over a year ago I bought a parlor grand piano on Facebook from a local person.  I regretted buying it even before as they were moving it off of the truck.  (Two things that I learned from this experience: (1) trust your gut, and (2) if you’re buying a bulky item, don’t let the seller bring it over to show it to you before you’ve bought it, because that creates a sense of indebtedness that weakens your negotiation.)

So, I had this piano that really wasn’t what I wanted.  It was taking up a lot of room.  It was old, and the more I researched how much it would take to fix it so that it played even passably well, the more depressed I got about it.  I truly had bought a dog, and I disliked looking at the thing, which was displayed prominently in our foyer.  I couldn’t avoid looking at it every day.

So, I proceeded to try to sell it.  First, I asked friends.  A few looked at it, but everyone turned it down, even at a price far less than what I paid for it.  I tried selling it to piano dealers, but they wanted nothing to do with something that old.  I tried selling it on the Facebook bargain sites that my wife and I were frequenting.  (The person who sold me the piano was on those sites.  How’s that for eating crow?)  Several people said that it was beautiful, but I was thinking: “I don’t care that you think it’s pretty, blah blah blah.  Just buy it.”  I tried Craigslist, but all I managed to do was attract a bunch of people trying to scam me with fake cashiers’ checks.

Giving something away is more than just the money

After the last person who was mildly interested in the piano didn’t bite, I decided to take getting rid of the thing seriously.  I had slowly resigned myself to having to take a big loss on it, and now I just wanted it to be gone so I could get the space back.  I had gotten I put the piano on Freecycle.org.

Free is a powerful word.  It took only two days to be rid of that beast.  No scammers, no window shopping, no anything.  The new owner picked it up for me, brought some help, and it was gone.

If you give something away — especially something that you don’t really want anymore — it doesn’t matter that there’s no money exchanged.  The fact that it’s gone is enough.

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Source: Mighty Bargain Hunter

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If the tax deduction for mortgage interest goes away, so what?

February 10, 2012 3:10 am / Leave a Comment /

The mortgage interest tax deduction is one of the best sales tools that real estate agents have at their disposal. It costs them nothing to mention that in all but the most expensive homes, all of the mortgage interest on a primary residence is a federal tax deduction if you itemize your deductions.

Sounds fantastic, but the catch is that the interest is a tax deduction, not a tax credit.  So if you pay $10,000 in primary residence mortgage interest during the tax year, you don’t get $10,000 off of your tax bill.  You get $10,000 times your marginal tax rate, or at most a few thousand dollars.  It’s a bit like paying a dollar for a quarter.

On the chopping block.  Is it really a disaster?

Flexo over at Consumerism Commentary mentioned that the mortgage interest deduction was on the chopping block at the national level.  The deduction is definitely in the sights at different levels, from state offices to federal congressional supercommittees.

This could be a personal disaster for homeowners that are depending on the deduction to make ends meet, as it can amount to several hundred dollars or even over a thousand dollars per month (annualized).  For everyone else, it will spell the end of a nice kickback from Uncle Sam.  In the long run, though, the removal of this subsidy (just like the removal of any subsidy) will affect home prices for everyone.  Removal of the mortgage interest deduction makes homes marginally less affordable, which pulls the price down a bit across the board.  So, it’s pay higher prices with a deduction, or pay lower prices without a deduction (and have a lower mortgage payment).

The deduction is irrelevant

What is relevant, though, is that rates are extremely low, still.  As of this post, 15-year mortgage rates and 30-year fixed mortgage rates are 3% and 4%, respectively.  Fixed, as in your payment will still be the same at the end of the mortgage, but it will hurt far less than it does now.  They may go down further, but they can’t go down much further.  (I doubt banks will ever pay us to borrow money.)

So pay no worries to the federal tax deduction for mortgage interest.  Watch instead the rates themselves.  It’s a great time to borrow for the purchase of a house if everything else makes good financial sense.

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Talking Numbers: Buying Opportunity in S&P?

February 9, 2012 6:12 pm / Leave a Comment /

Talking Numbers Hub Page

Source: Business & Finance News - Yahoo! Finance

Posted in: AccountingNews

Mr. Rebates is turning 10 … and giving away $10,000

February 8, 2012 12:49 am / Leave a Comment /

I’ve talked about Mr. Rebates before many times.  This website, which has now been around ten years, allows you to save money online through thousands of stores simply by clicking through Mr. Rebates on the way to the online store.  The rebates accumulate until you reach $10.00, and then you can request them through PayPal.

After you sign up, they’ll even kick in $5.00 toward your first payout.  Got friends?  If they sign up through you, then whatever rebates they earn will trigger a 20% commission to you.  Forever.  (It doesn’t reduce their rebate at all.  This is a thank-you bonus from Mr. Rebates to you.)

For the Valentine’s Day season, over 200 stores — like 1800Flowers.com, Ghirardelli Chocolates, ICE.com, ProFlowers, and many more — have increased rebates.

Finally, to celebrate Mr. Rebates’ 10-year anniversary, they’ll be giving away $10,000 to one lucky winner who visits Mr. Rebates while they’re logged in.  One entry for one visit per day through the end of February, 2012, so there’s the opportunity for another 22 entries into this sweepstakes if you sign up today!

Mr. Rebates

Source: Mighty Bargain Hunter

Posted in: AccountingNews / Tagged:

The magic of compounding has left the building?

February 3, 2012 2:56 am / Leave a Comment /

You’ve heard of the magic of compounding, right?

If not, here’s a quick version.  Let’s say you have a savings account that earns 1% per month.  (Don’t laugh too hard.  My dad had one that paid this rate at one point.)  Let’s say also that you put in $1,000 at the start of 2012, and never add anything more.  According to the Rule of 72, after about 72 months, I’ll have about $2,000.  In another 72 months, I’ll have $4,000.  In another 72, $8,000.  The amount in the account doubles each 72 months it sits there.  This happens because the amount that I’m basing the 1% earnings on increases a little bit each month, until some day, it gets really fun.  Almost like magic.

The amount of magic depends on the amount of the rate

Are you still laughing about when I proposed an account that earns 1% per month?  I wouldn’t blame you.  Some of the higher interest rates for checking accounts now are about 1% per year.  About all we can say about these kinds of rates is that they’re better than nothing.  (If you’re earning nothing on your money, try to earn something on it.)

At rates of 1% per year (or less) the magic still happens, but the magic isn’t exactly making-a-jet-plane-disappear magic.  The doubling would still happen, but it would be almost the end of the century before that happened.  And to boot, your $2,000 might only barely buy a nice suit.  Break out the champagne!

Banks are scared to lend now.  They’re reeling from the shakeout in 2008.  As a result, interest rates on savings accounts and checking accounts goes down as well.  And the fees get tacked on.  It’s just not a magical time to be a saver.

What’s the key to building wealth, then, if it’s not through saving money?

Putting money in the bank is low-risk, but it’s also low-reward.  Now, it’s extremely low-reward.

The key, I think, is to take calculated risks, and work to produce something.  Find a need, and serve customers to fill the need.  If you can deliver on time for the price agreed on, that’s a lot more than many businesses do.

This isn’t “stick money in a bank account and it grows while you watch Twilight” easy, but that’s what the times demand.  There’s barely any reward for doing it this way today.

Maybe the magic will come back into compounding, but until then, make your own magic.

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Source: Mighty Bargain Hunter

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