Personal Finance Blog

Tips And Stories To Help You With Managing Money

Your Zip Code Tells All

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Zip Codes can determine retirement communities and then market hearing aids to residents.
Zip Codes can determine retirement communities and then market hearing aids to residents.
Zip codes do more than tell the postman where to deliver your mail.

Data companies and retailers use the zip to accumulate an amazing amount of personal data you thought only you and your hairdresser knew for sure. Such as your body type, your marital status, your health habits, educational level, how many children you have (including if you are expecting) and their age groups, if your home is for sale, your political preferences, if you are getting divorced, etc., etc., etc.

Acxiom, one of the country’s biggest data brokerages, for instance, reports that it has information generated by zip codes on 190 million Americans. The company’s largest competitors, Datalogix and CoreLogic, have similar databases.

These companies can tell, by combining the swipe of your credit card and your zip code, whether you are the Jane Doe who lives in Denver, or the Jane Doe who resides in Cascade, Montana. They can use the information to predict what you are likely to buy next. It’s called predictive analysis or predictive modeling. For instance, if you’re buying maternity clothes, the merchant knows that baby supplies are next. He can start bombarding you with specifically directed ads.

Those who use the data say it’s good business. It helps the merchant to target advertising to certain customers, saving advertising money and giving better service to those who buy. On the other side of the scales are those who argue that the trade-off in indiscriminate use of personal information is unacceptable.

Once the information gets into their databases, the users may swap among themselves so that you go from the merchant to the insurance salesman to the financial institutions, hotel chains, auto manufacturers and even Facebook. “Some of these data brokers know us better than we know ourselves,” said Pam Dixon, executive director of World Privacy Forum.

What makes it easier for retailers is of major concern to folks such as Dixon whose primary objective is to protect your privacy. They are concerned not only that your personal information is up for grabs, but at the prospect of what could happen if it gets into the wrong hands.

A growing number of merchants, including the grocery store and even the gas station, are asking for the customer’s zip code. You probably don’t have to give it. In Massachusetts, the Supreme Court ruled that zip codes are personal information that purchasers don’t have to share. California has a similar law. It’s possible to ask that the data brokers not share your information, but few people know that or act on the knowledge.

The Federal Trade Commission has become involved and is asking the nine major data brokers to explain how they collect, store and share the information they gather. Most of the companies report that they don’t reveal information such as Social Security or drivers license numbers. But the oversight agency wonders what would happen if the databases were hacked, opening a huge can of identity theft concerns.

With technology finding new and interesting ways to learn everything there is to know about everyone in every context, striking a balance between information and privacy is likely to get more attention.

Big Data About You Turns Into A Billion Dollar Industry

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With our data, analysts can predict what we will do in the future with a high degree of accuracy.
With our data, analysts can predict what we will do in the future with a high degree of accuracy.
Data brokers make a living by tracking the financial well-being of Americans and sharing the information with companies that specialize in services to those who are struggling.

It’s tricky. Sometimes the information is used by unscrupulous businesses that target the poor and elderly, including telemarketers who peddle scams via the telephone. Referring someone who already is in debt to a high-interest loan company for additional debt may not be doing them a favor. Lawmakers are wary and keeping an eye on the situation.

In its less worrisome guise, Big Data directs information to businesses that have legitimate interests in helping those who are in a bind. These include payday lenders, debt consolidation firms and other marketers.

Among the sources the brokers use to glean data are websites you browse, the credit cards you apply for and surveys to which you respond. Certain zip codes can suggest a high proportion of people who are in a financial bind. By tracking these and other sources, the brokers can then sell the information to the interested companies.

One data broker, List Connection, is adept at finding potential customers by learning who is at least 90 days in arrears on payments. According to its website, it can generate leads that are excellent prospects for payday loans, secured credit cards, debt consolidation, sub-prime credit and other financial assistance.

The List Connection data is intended for firms that are genuinely interested in helping people with bad credit, said Ken Wood, vice president for management.

Because of the potential for unscrupulous use of personal financial data, U.S. Senator John (Jay) Rockefeller, West Virginia, who heads the Senate Commerce Committee, has developed legislation that would allow customers to read and, if necessary, correct their information. The ability to opt out of the lists is included.

Rockefeller named one broker, Multimedia Lists, as one that offers such “get-rich-quick” schemes as questionable promotional offers, sweepstakes, contests and other dubious opportunities that might raise unreasonable expectations in those who are desperate.

The Fair Credit Reporting Act prohibits marketers from using sensitive credit information, such as credit scores, unless it is to make a firm offer of credit, such as a credit card or auto loan. But those who collect personal credit data argue that some information, such as whether you are facing foreclosure or have been denied a credit card, should be allowable information for their uses.

The delicate balance between legitimate uses of the data and the potential for misuse has become a serious issue for privacy advocates.

Ed Mierzwinski, consumer program director for the U.S. Public Interest Rearch Group, is one who believes in stronger safeguards. “We shouldn’t use our most private information for just any marketing purpose. We need additional protections,” he said. His group is pushing for more transparency as to who is buying information and how they are using it.

Some of the larger brokers, such as Epsilon, respond that they have built-in guidelines and assure that their clients use them. The Direct Marketing Association also insists that clients adhere to its guidelines and reports those that do no to the Federal Trade Commission.

As the debate heats up, it appears likely that more curbs may be put on the way your personal financial information can be used.

Finding the Right Business Idea For You

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The 600,000 plus franchised small businesses in the U.S. account for 40% of all retail sales and provide jobs for some 8 million people. SBA.gov
The 600,000 plus franchised small businesses in the U.S. account for 40% of all retail sales and provide jobs for some 8 million people.
A lot of people want to start their own business. There are a number of obstacles to doing so, but the first, biggest one is usually finding the right business idea. There is good reason for this concern – finding the right business idea is often the most basic difference between the success and failure of any upstart business venture. Go into the right business and you can be on an elevator ride to the top. But the wrong business can be a one-way ticket into bankruptcy court.

How do you go about finding the right business idea for you? The best ideas are always the simplest, so we should keep the searches as close to home as possible. It’s generally a mistake to think that a business venture has to be into something exotic. Quite the contrary – the more familiar you are with the idea, the easier it will be to make it a success.

Use the following as starting points to help you find the right business idea.

Converting what you do on your job into a business

Very often the best business ideas can be found in the job you’re in right now. If you can take what it is you’re doing for your employer, and convert it into an activity that you can sell to clients and outside customers, you may have landed on the best business idea possible.

There are a number of advantages to doing exactly this:

  • Since you are already doing on your job the kind of work you will do in your business, you probably won’t need to get any additional training.
  • Since you have experience and even a routine, you’ll have the kind of confidence in your work that all business owners need.
  • Converting your job to a business will be a lot less risky than plunging into something completely new.
  • If the new business venture fails, you can always go back to your old job or to a new one, with no break in your work experience.

An example of converting your job skills to a business will be someone who is working as a bookkeeper on their job, offering their services out to multiple clients and customers on a retail basis. Another example is a person who handles IT on the job, that offers his or her services out the general public.

See what skills you use on your job that you could sell to the public.

Doing what you know – but don’t do on your job

For some people the best skills they have are ones that they never use on the job. For example, you might be an accountant who is also a whiz with computers. You may not get much of an opportunity to use those computer skills on your job, but you may be able to take them and use them as the basis for starting side business. As the business grows, you can begin thinking about quitting your accounting job and making your computer business your full-time occupation.

Make a list of all of the skills that you have, but don’t forget to include those that you don’t use on your job. It may turn out to your best and most marketable skills – from a self-employment standpoint – are not at all related to the work that you are currently doing.

Doing what you love

This is more risky than converting your job skills to a business, but it can also be a major reason why your business will be more successful than you ever dreamed.

In most cases, our highest income earning capability will be found in doing work that we like best. While that may seem self-evident, most people take a job in order to meet financial obligations, then settle into it and make it a career. Whether or not they actually like the work never enters into the equation.
work-together
The typical outcome of that arrangement is either job burnout, or planning your career around retirement (usually early retirement). On the retirement side, the idea is often that you’ll begin doing work that you actually like once you retire, and can afford a pay cut.

But what if you didn’t wait until retirement to start doing what you really like to do? If you like the work enough, you may actually find that you no longer have interest in ever retiring at all! And once again, if you really like the work that you are doing in your own business, there’s a better than even chance that you will make more money than you ever have.

Doing work that you actually like to do is a greatly underestimated “secret” to business success. So along with inventorying your skills, spend an equal amount of time determining what it is you actually like to do.

Trying something entirely new

This is where the truly high risk business ideas come from. Since you are stepping out of your comfort zone – often well outside of it – the risks are increasing commensurately. For that reason, this is not the recommended course in determining the right business for you – even though it may be the main method people use to find business ideas.

But if you are going to go this route, there are some steps you can take to minimize the risks:

  • Thoroughly research any new business idea before taking a plunge into the business itself.
  • Find a mentor who could help you learn the business.
  • Apprentice into the business before entering it – a good example would be taking a part-time job in the kind of business you want to go into.
  • Start the business as a side venture, that way you have your full-time job in case the business fails.
  • Avoid putting serious money into the venture until you can prove that you can first generate a cash flow.
  • Make sure you have a well thought out back-up plan – failure is a definite possibility here.

If none of these suggestions look scientific, that’s because finding the right business idea has a definite hit-or-miss quality to it. Consider using each of these methods to come up with the right business idea, or better yet, blend two or three methods. If you find a business idea doing work that you love, where you already have tangible skills, your chances of succeeding in the business will multiply dramatically.

Make Your Kids Money-Wise

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When you start thinking about the facts of life that your children need to know, remember that money is one of those facts. It’s the rare human being who doesn’t need to know, early or late, how to manage personal finances. And in this case, early is always better.

A foundation in finance can protect your children as they venture into the adult world. For instance, when they come up against the cold hard facts of things such as student loans. The Consumer Financial Protection Bureau estimated in 2013, for instance, that seven in ten college seniors graduating in2012 had an average debt load of $29,400 going into their productive years. More K-12k programs in financing are being offered, but still too many young adults launch themselves into the working world with no idea of what to do with the money they hope to make. Many of them will end up in the financial morass that will affect their well-being throughout their lives.

What to teach kids about money? First of all, you can’t teach what you don’t know. If you don’t feel prepared, learn what you can about budgeting, debt, saving, investing, <a href=”http://www.coolchecks.net/”>checking accounts</a>, etc. Then involve them in discussions and practice of these elements.

Remember that they will pay more attention to your example than anything that you may tell them about money. A bad example will offset any advice you offer. Make them part of family financial matters and don’t let them grow up thinking that their whims and desires cancel out reasonable spending policies. Honest dialogue and consistent example will take care of the first lessons in the fundamentals of money management.

Make your teaching concrete, with an underpinning of the basic principles, as well as the techniques. Encourage them to set money goals, to prioritize wants and to share. The principles, including the truth that you can’t reasonably purchase things you can’t afford without consequences, hopefully will stay with them for life.

Too many modern children grow up feeling entitled and blaming others when things go awry. A foundation of wise money management will help foster honesty and the sense of responsibility that are the basis of sound finances. Ideally applied, it’s the foundation on which a child can learn to handle debt and save something to meet future needs.

Having a little spending money is essential to learning how to manage resources. Ideally, it will be tied to responsibilities. That’s how it works in the adult world. Having a little to spend gives the child the opportunity for practical application of what you’ve been telling them. Resist the urge to micromanage. You won’t be on the spot when they are making those adult decisions. If they make mistakes, point out the inevitable consequences. (They can only spend their money once and when it is gone, there isn’t any more until the allotted time. And make that stick.)

People who have succeeded financially in this world point out that an early start is one of the best predictors of who will make it. Warren Buffett, for instance, started his first business at age 6. If it’s feasible, make opportunities for your children to dabble in finance. A lemonade stand or garage sale will facilitate that.

Talk to your kids about consumerism, impulse buying and the effect that advertising may have on one’s spending. Suggest a “cool-off” period before any considerable purchase to help distinguish between “wants” and “needs.” Being required to wait a month for something perceived to be a “need” may help recast it as a “wants.”

Money is a tool to help achieve the things you desire in life. Ignoring the laws of financial health can have serious consequences. That’s the message your children need.

Don’t Let Lifestyle Inflation Overwhelm Your Finances

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Protecting Your Money So It Can Grow In Value
Protecting Your Money So It Can Grow In Value

So often, people watch their careers flourish and their incomes grow – but no matter how fast they do, somehow their overall financial situation seems to go nowhere. Sometimes, it even gets worse. How can that be? It’s called lifestyle inflation, a kind of financial cancer that can render your finances a complete wreck, even as your career takes off.

It’s important to realize that income and net worth are not the same thing. Income is how much you make, but net worth is what you’re left with after all your living expenses are paid. If those expenses are too high, you will never see your net worth rise – and your finances improve – no matter how high your income is. That’s what lifestyle inflation does to your finances. And it’s something we all need to be on the lookout for.

What is Lifestyle Inflation?

Lifestyle inflation has become so pervasive that it even rates a dedicated definition from Investopedia.com:

“Increasing your spending when your income goes up. Lifestyle inflation tends to continue each time someone gets a raise, making it perpetually difficult to get out of debt, save for retirement or meet other big-picture financial goals. Lifestyle inflation is what causes people to get stuck in the rat race of working just to pay the bills.”

That’s the general idea. On a mechanical level, lifestyle inflation looks like higher living expenses, more debt, and very little in savings and investments. You’re in the trap if that combination remotely describes your financial situation.

How Lifestyle Inflation Overwhelms Your Finances

Lifestyle inflation is virtually a default setting. Unless you’re intentional about managing your finances, your living expenses will continue to grow, eating up every extra dollar you earn and sometimes even more.

Have you ever played that game what would you do if you had $1 million? There are different versions of that question, but it comes down to what would you do if you suddenly came into a very large windfall of money? It’s fun to imagine, but if you listen to the answers that most people give you begin to get a solid idea as to how dangerous lifestyle inflation can be.

When confronted with the prospect of coming into a large amount of money, people almost instinctively read off a laundry list of how they would spend the money. Very few ever contemplate how they might save and invest it. In reality, this is what often happens to people who win the lottery or inherit a large amount of money. In short order, they end up broke.

That’s the essence of lifestyle inflation. We all have an almost limitless number of wants in life, and when the money becomes available those wants are magically converted into needs. The difference between wants and needs is more than just semantics. Wants are something that we would like to have – needs carry a certain urgency. The transition from wants to needs often happens as a result of a pay raise, a promotion, or the receipt of a windfall.

The Worst Part – You Don’t Even Know It’s Happening

Most times, you won’t even recognize that lifestyle inflation is taking place. That’s because the whole concept is rooted in emotion, rather than logic.

Let’s say that you get a $10,000 increase in pay. $3,000 will go for income tax and payroll deductions, so you’ll really have only $7,000. You reason that this is the perfect time to replace your old clunker with a brand-new car. You then go from no car payment, to $400 per month. But what the heck, with a big fat raise swinging the monthly payment should be no problem, right?

There’s a good feeling that comes with having extra money. So in addition to buying yourself a new car, you also increase your eating-out from once per week to twice, at an extra $50 per week. You also decided you need to new clothing, and about $1,000 should do it.

Let’s add that up. $400 per month a new car payment comes to $4,800 per year. The extra restaurant meal per week at $50 each comes to $2,600 per year. And then there’s the $1,000 for clothing. $4,800 plus $2,600 plus $1,000 comes to $8,400! Not only does that combination eat up your entire $7,000 net increase in pay, but you’ve also overspent.

Making more money feels good, and that’s the problem. When you feel good, your defenses are down and you enjoy the extra financial freedom. Since it quietly, gradually goes into consumption, none of the extra income ever makes it into the bank.

That’s how lifestyle inflation creeps into your life, and keeps you from ever getting ahead financially.

Preventing Lifestyle Inflation From Happening

It’s easy to see lifestyle inflation happening in the lives of other people. But it’s more complicated when we’re engaging in it ourselves. If that’s been your pattern in the past – and the evidence will be inflated credit card balances and an undersized bank account – you’ll have to take concrete steps to get it under control.

Try these steps to get out of the lifestyle inflation trap, and put you on the path to financial independence:

  • Track your spending – make sure you know exactly where your money goes
  • Reduce or eliminate any expenses that are not absolutely necessary
  • Set up payroll savings plans; you can direct money into a savings account, mutual funds, and of course retirement plans (yes, even IRAs if you don’t have an employer plan)
  • When ever you get a raise, increase your payroll savings by the amount of the net pay hike
  • When ever you get a cash windfall, use it either to payoff debt, or to put into savings and investments – don’t give yourself the opportunity to spend it on something you don’t really need

Unfortunately, lifestyle inflation can easily become a way of life – it is for millions of people. Breaking out of that habit will be like going on a diet, except that this one will be a financial one. That means that it will be painful at first, but once you get control of your finances, your life will get progressively easier. It’ll will be like creating a new automatic pilot for your life, one that will stack the long-term deck in your favor.