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How much is your time worth?

This is a terrible question, and it usually begets a terrible answer. It’s a question that motivational speakers use to encourage people to make sure they’re optimizing their ability to earn an income. There’s nothing wrong with that per se, but it leads to some poor conclusions.

For instance, if someone earns a salary that works out to $2,000 a week and works 40 hours a week, the immediate conclusion could be that this worker’s time is worth $50 an hour. It’s a simple way of looking at a financial equation and neglects to incorporate important aspects of compensation like benefits and job security, but it’s usually the baseline that employees use when trying to determine how much money their time is worth.

Calculations like these lead to bad conclusions. You might avoid certain tasks, like household cleaning, because the task isn’t worth your time and you could hire someone to do the same work for less money. Your hourly rate for work may be $50, but that doesn’t mean that all your time is worth the same amount.

In my first main job out of college, I was working for a nonprofit with a salary of about $2,700. It worked out to about $550 per week, or $11 an hour. But wait — I actually worked closer to 80 hours a week most of the year, so the value of my time, using this calculation, would have been $5.50 an hour. The minimum wage in New Jersey at the time was $5.15.

For an Associate Director of a far-reaching program with a lot of responsibility, that’s probably not a fair rate of compensation. But I believed in the organization’s mission — and prior to being an employee, I was an unpaid intern with the same organization, and I wouldn’t believe that the value of the value of my time was $0.

Unpaid internships are like slave labor. Even though there are strict rules that govern whether an unpaid internship is legal, there’s a fine line, and companies seem to have a lot of leeway. Unpaid internships are practically necessary in some fields, taking the place of entry-level jobs, and this is especially true in nonprofit.

(That’s why I’m in the process of establishing a small stipend at my undergraduate alma mater for students in the arts who need an internship to complete their degree. Not all students are able to spend a semester or summer working for free.)

But once you’re established in a field, there should be no reason you are expected to work for free.

This is true for employees. Business owners, on the other hand, have a different approach to compensation for time and effort.

After I started Consumerism Commentary, I began working really hard to build this website from the ground up. I usually worked about eight hours a day, writing, conducting research, building some of the technology, communicating with colleagues, and eventually dealing with advertising clients.

For a long time, there was no money involved. I was essentially working for free, but I was doing something I really enjoy: building a fantastic community of people interested in personal finance. It didn’t feel like work, even though I spent more time and effort on the project that I put into my day job.

I eventually realized that I was building something, something of value. And that helped me focus on growth and working hard even when I started to make some of those calculations. When advertising revenue from the website was approaching $2,000, I started to see major potential, but I was still concerned. Even working 40 hours a week to build the site (in addition to 40 hours at my day job), the work I was doing was “worth” only about $11 an hour.

But I was creating an asset. I was creating an asset that had an important feature: cash-flow. I was building something in my own name, something I could own. I was working for a what was effectively a small wage, but it had the potential of paying off for me in the long-run.

When you work for a small wage for an employer, the only way to use that to build something for the future is if the low-paying job helps you move forward in your career. There are no guarantees that will be the case. And there are no guarantees that spending a lot of time working for yourself will result in something of value, but chances seem to be better. You have more control over your destiny.

In the nonprofit world, privileged employees, those who retired from a lucrative career and don’t really need the income or those who come from wealthy families and are supported by their wealth instead of working, ruin the industry for everyone else. If nonprofits can keep finding people who don’t need money to work practically for free, those of us who want to work in that industry but need to make a living will never be able to find good work.

There’s a lot of correlation between nonprofit work and early work at a tech start-up. Usually, the company’s leader, with a vision, encourages people to take a chance on an emerging business, and those at the beginning of a budding company are highly motivated and generally don’t care too much about salary. Again, that’s really only possible with a good amount of privilege or a willingness to live in a slum.

But there’s a key difference. When you join a start-up at that point, there’s usually a promise of later compensation. Early employees are often given equity, which encourages workers to increase the value of their equity by doing fantastic work for making the business an early success. A bootstrapped company has not a lot of cash from profits to work with, so equity is a way to fairly compensate employees.

The picture changes abruptly when that start-up receives capital, whether from angel investors, venture capital firms, or an initial public offering on a stock exchange. That equity now has some real value, and the company now has cash. And when attitudes at that company don’t change inline with their multimillion dollar funding, it creates a significant conflict, especially when the company prefers to partner with individuals through good will rather than compensation.

Here’s when it makes sense to work for free, whether you’re an employee, self-employed, or a business owner.

Work for free as an intern if it’s the only option you have for getting into the field you want and it will lead directly to a paid job. It’s usually not the only option, and many times interns are turned away when their trial period is over. If there are so many people who want to work for a company or an industry that they’re able to take advantage of a large number of interns, the benefits of being in that field better be worthwhile, and they better be almost guaranteed to those who survive.

Work for free if you’re building your own asset that will provide you a good life in the future. There are no absolute guarantees, but this is the kind of free work that has the best chance of really paying off. Your working for free, but the work you’re doing directly benefits you.

Work for free if you want to help an emerging company whose mission you believe in. But don’t continue working for free once the company can afford to pay you for your work. And this doesn’t include working for free as an employee, where you should be compensated always, at least with equity.

If you are a freelancer or a consultant, you can build some relationships by working for free, but only if that leads to something of value once the work you do contributes to the company’s success.

Work for free if you can afford it and the work gives your life meaning. If you don’t need to earn money from how you spend the bulk of your time awake, then why bother pursuing compensation? If you can spend your time doing work for something meaningful and something that you enjoy while still meeting or exceeding all your financial goals, the added stress of a job — of working for money — seems unnecessary.

Have you ever worked for free? What did you see as the benefits? Do you regret it, or would you do it again? Has working for free ever paid off in the long run for you?

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Over the last year, a friend of mine has been trying to convince me to move my financial assets.

I currently have a taxable investment account at Vanguard, and my portfolio consists of a mix that includes a domestic stock index fund, an international stock index fund, and tax-advantaged municipal bond funds. This friend believes that I should be approaching my investments somewhat differently.

He is a real estate broker, so he likes to think in terms of leverage. My asset level qualifies me for so-called “private banking” at most retail banks, and one of the things banks like to do for wealthier clients is hold onto their assets while offering special terms like reduced banking fees and great interest rates on a substantial line of credit.

I’ve had no need for such things thus far, but there may come a time where I want to use leverage to invest in a business, so I’ve been exploring the idea.

So far, I’ve talked to two firms. The first was the one recommended by my friend, as he manages the assets of his wife, who is a member of a prominent family that has seen success through generations in New Jersey. That’s Merrill Lynch. The other is a branch of my local retail bank, Wells Fargo Advisors.

I spoke to both separately, and they both put together proposals. Wells Fargo presented me with a team of people ready to take over my banking, while the Merrill Lynch adviser initially thought my plan was solid. Both parties drew up a proposal for me, and the two were very different. I had a much longer initial discussion with Wells Fargo, so their proposal took into account my preference for low-cost index funds, at least partly.

Neither of these teams of advisers are financial planners. They are salespeople, or stockbrokers, or financial advisers, or investment advisers, and they have products to offer. People in these roles can go by any variety of names and can be misleading to customers.

The price I pay for these products, in addition to the fees baked into investments that eat into net investment results, is generally a 1% fee for assets they manage. There are certain times when paying 1% of a portfolio’s balance every year — whether the portfolio gains or loses money — could be like paying someone’s salary. It’s far higher than the expense ratios embedded into my mutual funds.

In theory, even salespeople, whether they earn money from commissions, from kickbacks from fund managers, or from a combination of the two, should want to offer what’s in the best interest of the client. If they don’t, the client would leave, theoretically, and find a better salesperson. But I’m not so sure this theory works out in practice. Given two roughly similar investments, wouldn’t a salesperson want to offer the one that provides him with a little more income?

Legally, advisers must only sell investments that are appropriate for the investor based on the customer’s time horizon and risk tolerance. A financial planner, particularly one who is certified, is held to a different standard. A financial planner must give advice always with the customer’s interest in mind. That’s the fiduciary standard, and it would be the difference between a planner recommending a low-cost portfolio of index funds and an adviser or salesperson making decisions based on what’s more lucrative for the firm.

President Obama wants to change the regulations so all financial advisers, everyone who works for a bank and offers advice on investment decisions, are held to this fiduciary standard. This probably has more of an effect on what happens when you call up your employer’s 401(k) plan sponsor to ask for investment advice.

It’s clear why banks have no interest in adhering to a fiduciary standard. If stockbrokers were unable to sell all but the lowest-cost investments, it would change the entire nature of Wall Street. In order to stay in business, managers of active mutual funds would need to find a new way to sell their products. Banks would have to make up the income previously generated through incentives or kickbacks in other ways.

This is why the industry has reacted to the fiduciary standard proposal by claiming that the requested regulation would make it more difficult for the middle class to get financial advice. I don’t necessarily think that’s true. It might make investment sales at a bank less accessible to those without sufficient assets for the 1% fee to generate worthwhile revenue.

But that’s not the financial advice most people should be seeking — and I found that out when I attempted it myself. The middle class, whoever that may be — the not wealthy, who may be dealing with a growing retirement investment account, a house, and maybe some additional taxable investments — needs little in the way of investment sales and more in the way of basic financial planning advice. Maybe financial coaching.

Maybe there’s a different solution. More retail banks could offer financial planning or coaching, where the employees abide by the fiduciary standard, much like independent Certified Financial Planners. The model must work because Vanguard offers this service to its customers; there’s no reason why retail banks can’t figure out how to make sure the same type of service would be profitable.

If customers really believe the best place to go for financial advice is their local retail banks, those institutions can do a better job of meeting those needs rather than just putting them in front of salespeople. If financial planners can stay in business independently, banks should be able to find a way to incorporate that type of service into their offerings.

Employers may want to follow this example, as well. When I worked for a financial company, a company whose own subsidiary managed employee’s 401(k) accounts, employees were encouraged to talk to a company-provided financial expert. It was never clear — especially to me, thirteen years ago, before I knew about fiduciary standards and financial planners — who I was talking to or how they determined their recommendations and advice.

When you walk into a car dealership, you know you’re talking to a salesperson, and you know the goal of the salesperson is to sell you something. You also know that the salesperson has incentives to sell you cars, related products, and services that generate the most profit for the dealership.

For most customers, this isn’t as clear when you enter a retail bank. For some reason, customers believe that bank employees want to help and are financial experts who offer advice. The proposal of new fiduciary standard regulations could make sure that customers can walk into a bank and get the real advice they’re seeking.

The fiduciary standard isn’t a guarantee. As Walter Updegrave pointed out in a recent article for Money, an adviser and a client can never have completely aligned motivations. A financial planner would need to give advice that is in the best interest of his or her client, but must also be concerned about earning future business from each client, winning new clients, and staying in business.

No one, not even a fiduciary, can look out for yourself better than you.

And I understand that the general reaction to that fact is that we need to educate everyone more about managing their own finances, so they know to avoid brokers who try to sell customers what’s in the company’s best interest instead of what’s best for the clients. But this is a message that doesn’t get through completely, and especially not to the people who need to message the most.

Financial planners and coaches can keep trying to make it clear that they’re better resources for most people and we can continue pushing useless and harmful money management and financial literacy classes in high school, or we can make some industry changes to ensure that the professionals people are most likely to encounter when they need help are the right type of financial planners.

I’m going to go back to the bank. I may eventually move my assets to the bank to take advantage of access to credit, but only if I can do so on my own terms, investing how I want to invest, with no additional fees.

Do you think all brokers and financial advisers should be held to a fiduciary standard?

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A week ago today I was in Phoenix. I had been there for a few days, and I had been planning to spend a month with my girlfriend away from the cold New Jersey weather. It wasn’t a vacation. We each needed to continue working, but figured we might as well do so where the weather was nice.

Early in the morning, I got a frantic call from my apartment complex’s superintendent. “Where are you?”

Groggily, I stated I was out of town and asked what was going on. “We have a major problem.” The sprinkler line in my apartment building froze and burst, dumping cold water, ceiling debris, and insulation into my kitchen. The unit below me was in worse condition, and their basement’s ceiling collapsed.

I ensured the super was aware that I recognized the seriousness, and with some trouble (a different story), I got on a flight back to New Jersey that got me to the apartment later that night. After hanging up with the super, I did two things.

First, I called my insurance company to let them know about the situation. Second, because I knew I probably wouldn’t be able to see the apartment myself until late in the evening, I asked a friend to stop by and assess the damage, taking some photographs. Thankfully, he was available and able to help out.

The insurance company requested that the apartment maintenance staff not remove anything, and I relayed that message to the super, but I didn’t expect them to comply as safety was their primary concern.

By the time I landed and a car dropped me off at my apartment, it was twelve hours after the initial call. The damage in the kitchen was very bad. The carpets throughout my unit were soaked. All in all, however, much of my personal property was fine. The neighbors downstairs were not as lucky.

The landlord determined the best way to deal with the mess would be for me to move all of my belongings out of my apartment so they could begin the repairs immediately. I asked for and received recommendations for moving companies and by the end of the week had a storage facility located, a moving company booked, and the insurance company agreeing to pick up the bills.

The pack-out and move-out lasted several hours yesterday as the temperature plummeted from thirty degrees to zero. But now I’m still waiting for communication with the landlord to determine when the work will start, how long it will take, and how they intend on discounting my rent for the period of time during which my apartment building is uninhabitable.

The damage to my items is generally isolated in the kitchen and the dining room, and my dining room is relatively empty because I converted it to a photography studio.

Liberty Mutual, the insurance company that covers my automobile insurance, renter’s insurance, and umbrella insurance, offered me two options. I could receive a check to cover the depreciated value of my damaged items, with a later reimbursement once I replace those items, or I could use Liberty Mutual’s service for replacing those items, where a company that partners with the insurer seeks out replacements for each of the items and sends it directly to any location I want, thereby avoiding issuing a check to me.

I chose option number one, as my current living situation might not require immediate replacement of everything and I plan spending time away from my apartment.

The insurance company also offered to pay for a hotel, but one of my friends offered up some space in his home. Liberty Mutual will also pay for living expenses, like food, that are above and beyond what I would be spending normally, while I’m out of my apartment.

Communication with Liberty Mutual has been a little difficult, but part of the problem is that the similar problems have occurred in homes across the Northeast region of the United States, and insurance companies are busy dealing with a large number of claims. In my apartment complex alone, a day or two after my incident, there was another burst pipe that flooded a different building. There is obviously insufficient protection during cold weather.

My landlord also hasn’t been very communicative. The super has been nice, but all I know about the repairs is that they expect it to take a week. I think the repairs, including fixing any water damage, replacing the carpets and wood floors, ceilings, walls, and kitchen appliances might need more like a month.

Renter’s insurance is inexpensive, but I’m thankful to have it. I would really love for this incident to be over so I can get back to Phoenix — and get back to life, to work, and to warm weather. After last year’s winter in New Jersey, my plan was to avoid as much of it as possible. And on one of the coldest days, I was brought back, and I’ve been too busy taking care of the emergency to be able to write some articles for Consumerism Commentary.

I can’t complain too much. As I’ve mentioned, with friends, insurance, money available for emergencies, and perhaps some luck, this incident hasn’t been nearly as bad as it could have been. I do feel bad for my neighbors who experienced much more damage and disruption in their lives.

One observation this event has allowed me to make pertains to my accumulation of stuff. Over the past decade, I’ve lived in just two apartments. Prior to that, in the six years after graduating college with a bachelor’s degree, I lived in at least seven different places. While moving around, there was never a big opportunity to settle in and accumulate stuff. That has changed over the past decade.

There’s a lot of items I could get rid of, things I don’t necessarily need in order to live a happy life. But I don’t subscribe completely to the idea of minimalism. Just because all I need to live are a few items, that doesn’t mean that I should limit my life to the bare necessities.

Keep in mind that my living needs are different than many readers. I am an unmarried individual without children. I have no family to support. Thankfully, no one is affected by the flooding in my apartment other than me (and my neighbor downstairs). If my family were displaced by an event like this, the situation would be very different.

With good insurance coverage and a landlord that doesn’t try to weasel out of responsibilities (at least so far), I can be confident that I can return to a great place to live.

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For several years, it was a February tradition on Consumerism Commentary to look for moderation on Valentine’s Day. Many young couples would like to use the day to express their love, but might not have the financial means to do what television commercials make you believe is normal. If you have additional ideas, feel free to share them below.

I stopped the tradition of sharing frugal Valentine’s Day ideas by 2010, as I was all ready farther away from a frugality mindset myself. For me, I had a substantial income from my own business, and I was simply counting down the days before leaving my day job to pursue Consumerism Commentary full time.

Frugality wasn’t the first thing on my mind, personally, but it was and is still an important approach for couples throughout the world.

I understand that Valentine’s Day is just another day, and couples can and should be expressing their love every day. I also understand that the holiday is almost purely commercial in nature; Hallmark is only one of the companies that view the holiday as a pay day.

And other retailers excel at making the public believe that spending money is essential for expressing love. But here’s the thing. There are very few worse things you can do as a couple than going into unnecessary debt. I can’t imagine there are people who go out and buy a luxury car for their partner with a giant bow, but Lexus wants you to think there are.

Celebrate Valentine’s Day in a way that bears no resemblance to the commercials. I say avoid mass-produced “love” encouraged by jewelry, luxury vehicle, tropical resorts, and florist companies, and take a personal approach.

LoveThe reality is that for a good portion of couples, frugality isn’t just a choice, but the only choice. The recession officially ended years ago, but its effects still linger. Millions of people are unemployed or underemployed, and paychecks for everyone but the highest paid workers haven’t risen.

Looking at Valentine’s Day through a frugal lens can allow you to express your feelings without sacrificing your financial condition as you stretch to afford to spend a night in a hotel, go on a cruise, or buy a car.

Here are some of my suggestions for experiencing a frugal Valentine’s Day this year, some serious, some with tongue firmly planted in cheek. (And if everything works well for you this holiday, perhaps your tongue may find its way somewhere else.)

1. Make your own greeting cards. Hallmark would have you believe that people love receive cards that play music when opened. Of all the lies commercials tell, this has got to be the worst. No one likes cards that play music, especially eight-bit monophonic music. No one likes personal recordings in cards, unless they’re really funny.

Even standard greeting cards aren’t worth the price. I can never find one that expresses my thoughts accurately. If I could find a card, what would that say about my thoughts? If a card truly spoke for me, my thoughts about love would have to be so generic that thousands or millions of others would express their love the same way.

I refuse to believe that any individual’s brain cells and synapses are aligned in the same way as thousands of other people.

The bottom line is that it takes little effort to hand-write a note or design your own card. You don’t need mad Photoshop skills to make something, either. You can visit this site for some free designs that allow you to easily add your own text. Or just find a photograph of the two of you together and add a note. It’s so much more personal and meaningful.

While you can find $0.99 Valentine’s Day commercial cards, the more popular cards at Target or CVS can cost $5.99, $6.99, or more, while at a Hallmark card store there’s virtually no limit.

2. Pass over the brand-name chocolate. A chocolate connoisseur won’t be impressed with Hershey’s or M&Ms, so the real chocolate is going to be more pricey. Chocolate is a great comfort food because its chemicals stimulate pleasure centers in the brain. You can spend $60 to $100 ordering chocolate to be delivered to your loved one’s place of work on Valentine’s Day. For this, Edible Arrangements is one of my favorites. You can get fruit and chocolate!

But it’s expensive. I’ve found over the years from Consumerism Commentary readers that chocolate is a Valentine’s Day necessity. Suggesting the elimination of chocolate will start reader riots. Here’s the frugal twist. Buy some fresh fruit and chocolate powder or chips from the grocery store instead, and spending the evening making your own chocolate fondue. That way, you take a food favorite and save a lot of money while enjoying a fun couple’s event.

3. Don’t rent pornography. Rather than supporting a dangerous industry, pick up the camcorder, mount in on a tripod, and get to work. If you’re too shy to film your own, peruse your local sex library. If you do, however, choose to take the do-it-yourself approach with your partner, please be sure not to upload your work accidentally to a public website. Lives have been ruined — though in a few cases, fortunes have been made. But chances are slim that you’re the next Kim Kardashian.

4. Avoid lingerie. Here is something that’s pointless. Why spend a lot of money for a small amount of clothing, particularly if the desired end result is the removal of said clothing. Stay naked. Nudity is sexier.

In the past, readers have suggested a strip tease as a fun, frugal, sexy activity to get the night started. You don’t need new lingerie when the focus is on the removal; in fact, a strip tease that starts with business attire might be hotter. If you’re into that kind of thing.

5. Turn off electrical appliances. No television, no lights, nothing that draws power provided by an outside source. Light a candle if you need to see, but otherwise just get in bed and cuddle in the dark… without the aforementioned lingerie.

Save a few bucks on the electricity bill for the night.

6. Skip the gourmet dinner. Filet mignon at Ruth’s Chris is unmatched in terms of taste. Another one of my favorites is the four-course fondue dinner at The Melting Pot with cheese, salad, entrees, and dessert. Dining as an experience is an important part of life for many people, but it isn’t a frugal choice. Those Melting Pot dinners can easily cost upwards of $100 for two, especially once you add in the alcohol.

I’ve been somewhat successful, romantically if not culinarily, cooking myself for the more important occasions. It helps that I don’t cook often; when I do, it’s a special occasion in itself. And remember, when it comes out, it smells the same whether it’s McDonald’s or Omaha Steaks.

7. Create a playlist. They tell me that mix tapes are out of fashion in the twenty-first century. I was big on mix tapes throughout high school and even college. It was never a challenge for me to find songs that I wanted to share with other people, and since I already owned the music for the most part, the only cost was blank audio tapes. Towards the end of college, blank tapes gave way to blank CDs.

When I first started exploring frugal Valentine’s Days, the MP3 player was the device of choice for listening to music. But even in a few short years, the iPod is gone and people listen to services like Spotify on their mobile devices. This has become my method for enjoying music as well. And one thing Spotify does well is allow users to create their own playlists — mix tapes of today.

So create a customized Valentine’s Day playlist to share with your spouse or lover.

8. Find free entertainment. Outdoor concerts in February might not be popular where you live; this doesn’t happen in cold New Jersey, but it may be an option in Arizona, for example. Chances are good you might be able to find some music or theatrical performances for free somewhere near you, if you don’t live somewhere rural.

Some city symphony orchestras and theatrical groups offer free concerts at certain times of the year, so you may be able to find some quality entertainment without spending much money.

Also check out these 5 romantic outdoor day-date ideas under $30.

Note: Don’t feel bad if you are without a partner on this Valentine’s Day. All of the above activities can be accomplished as well, if not better, on your own. If you have any additional frugal Valentine’s Day tips, be sure to leave comments here.

♥ Happy Valentine’s Day from Consumerism Commentary! ♥

Photo: slightly everything

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How My Money Mindset Changed Four Times and Helped Me Succeed

by Luke Landes

Any self-help guru would agree that how you think about money shapes your behavior with money. If you want to improve your financial situation, whether to get out of debt or to reach financial independence, your relationship with money is the first thing that must change. If you believe you will never be able to ... Continue reading this article…

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Robert Kiyosaki Gives Readers a Second Chance

by Luke Landes
Robert Kiyosaki [via YouTube]

Over the years, I haven’t been too kind to the best-selling author, Robert Kiyosaki. He’s certainly built a successful empire, and a large community people respect him for his business acumen, his willingness to try or to appear to try to help others, and his advice. However, I’ve always found his advice thin at best ... Continue reading this article…

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New 529A Plans Help Disabled People Save Tax-Free

by Luke Landes
Wheelchair

Now that the government backed down on its proposed changes to 529 plans for future education expenses, we can expect the same tax benefits present for education to be applied to families and individuals who face expenses caring for disabled people. Families will be able to deposit funds into special savings accounts, called 529As, and ... Continue reading this article…

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5 Questions Before Applying for a New Credit Card

by Luke Landes

Since the credit crunch in the midst of the latest recession, credit card solicitations have seen a significant increase. Unless you’ve opted out, and good luck with that, you’re probably getting junk mail from credit card issuers with invitations to apply for the latest credit card offers. Don’t get too excited, especially if you have ... Continue reading this article…

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401(k) Contribution Limits for 2015

by Luke Landes

The 401(k) contribution limits and maximums are increasing in 2015, and there are other tax changes to 401(k) to note.

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Raise Money-Smart Kids: The Opposite of Spoiled, by Ron Lieber

by Luke Landes
ron-lieber1[1]

In Ron Lieber’s The Opposite of Spoiled, the author offers suggestions for raising money-smart kids based on the stories of hundreds of parents.

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