After the Credit CARD Act of 2009 was signed into law, we saw how credit card issuers started making life tougher for their customers. In short, banks were levying fees on their customers indiscriminately, affecting both the good and the bad.
This has been going on for months. Lawmakers have publicly condemned it, and made requests to the federal reserve, but all to no avail. This week, however, an amendment to expedite the Credit CARD Act (giving it an effective date of December 1st) has passed the House of Representatives in a better-than-average bipartisan manner (only 53% of Republicans opposed it), and I’m hopeful for all of our sakes that a similar measure quickly passes in the Senate.
I read through the words in both versions, and found a few differences, which might make it take longer to work through Congress:
In the House
The House version (full text) makes an exception for depository institutions (banks) with fewer than two million credit cards in circulation. It also comes with various clarifications to make sure that the new law doesn’t apply to banks and creditors who haven’t punished their customers (many of whom continued to pay on time and remain in good standing) in advance of the new law.
It also includes new features starting at Section 6 which state that:
- if you receive notice of a new fee, and you pay off your balance in full, or cancel your account, that won’t negatively impact your credit score
- there will be a nine-month moratorium on rate increases with a start date of the enactment of the Credit CARD Act of 2009
If these amendments pass, the moratorium would start December 1, 2009, instead of nine months after the law was passed, on about February 22, 2010.
In the Senate
The Senate version (full text) includes no additional clarifications or amendments, only a date change to December 1.
Flexo and I don’t agree on everything (if everybody did, life sure would be boring), but we agree that Congress should pass each idea into law based on its own merits, and not bundle them together into a jumbled mess of unrelated ideas. In this case, if you want to expedite a law, then document the new date and move on. Now’s probably not the time to be adding new regulations.
I’ve been in touch with Ramit Sethi since not long after he began writing on his blog, I Will Teach You to Be Rich, almost five years ago. It is no surprise to me that Ramit, after enhancing his writing with years of practice on his rapidly-growing website, has published I Will Teach You to Be Rich, which is right now the number one book on Amazon.com under personal finance and number three on Amazon.com overall. This is not simply a republication of the blog like some books presented by other bloggers-turned-authors. I would consider the book, released yesterday, to be one of the best books about money management for twenty-somethings. I’ll explain why in this review.
I’m not praising this book because I’ve known Ramit (through the internet) for several years. In fact, when I first discovered his blog, I was skeptical of the kid right out of college promising to teach people how to be rich. He wasn’t rich as far as I could tell; how can someone with no real experience make such a claim? I found out quickly that Ramit is a great teacher who can connect with his audience, and in all honesty, personal finance isn’t difficult conceptually. The biggest problem is cutting through the noise and misinformation, and Ramit’s background with psychology provides some insight on the barriers between conceptual knowledge and behavior.
Ramit’s book and his blog are not for everyone. The author’s style can be harsh; yet, on a scale of one to Suze Orman in abrasiveness he would only score a seven. He manages to mix insults with jokes, judging ever so slightly the stupid mistakes not of his readers, but of his readers’ friends. The book is built upon a framework of a six-week program — what self-help book would be complete without a reducible metaphor — designed to take a personal finance newcomer from freshman status to savvy long-term investor. Ramit claims readers will succeed even if pursuing only 85% of what is written in the book.
I Will Teach You to Be Rich contains actionable suggestions in the book, and 85% of the tips within would keep a money management novice busy. Many of these tips are refreshing. It is clear that Ramit is not a fan of obsessive frugality, a view that I share. Ramit also claims to be unsatisfied with the concept of budgeting, but offers a “Conscious Spending Plan:” essentially a budget with more syllables and a trademarkable name, recommends the envelope system of managing expenses, and offers two models for dividing income into buckets for planning expenses.
The elements of the six-week program illustrate the most important concepts in Ramit’s plan to helping readers work to attain the status of “rich:”
- Optimizing credit cards: using credit cards as a tool for expense maintenance, protection, and building credit
- Optimizing savings: finding high-interest savings accounts with no fees while not wasting time chasing rates
- Opening investment accounts: taking advantage of tax-advantaged retirement accounts with brokers friendly to new investors
- Managing expenses: using the aforementioned Conscious Spending Plan to decide where your money should be going
- Automating the system: removing human intervention from the financial machine to allow more of your money to work for you
- Investing to earn more: foregoing products designed to make money for the financial industry rather than for you
Many books we are accustomed to seeing in this genre are written by financial advisers, professional money managers, or those formerly or currently closely tied to that industry. Thankfully, Ramit breaks away from their traditional advice by advocating low-cost index funds and target retirement funds, stressing the lack of necessity of a professional financial planner for most individuals. Thankfully, Ramit shares the data to support his claims. Yes, it’s true that Ramit missed a calculation, but you’ll find that the concept of the benefit of compound interest is still sound.
Actionable tips are scattered throughout the book. In one section, Ramit includes a script for convincing a credit card customer service representative to drop a late fee. In another, he presents a detailed account of how he made twenty car dealerships compete for his business. In yet another, Ramit offered concrete advice for negotiating a pay raise with management. Many of the chapters include short essays provided by other bloggers, such as Nickel from Five Cent Nickel, JLP from All Financial Matters, J.D. from Get Rich Slowly, Jim from Bargaineering, Gina formerly from Lifehacker, Trent from The Simple Dollar, and myself.
While most readers of Consumerism Commentary may find the advice within the book to be simplistic and basic, I Will Teach You to Be Rich should be at the top of the list for most recent or soon-to-be college graduates. Ramit Sethi’s style of writing isn’t for everyone, but it doesn’t take long to get past the attitude. This book is a worthy competitor among other recent money management books for the age group like Suze Orman’s The Money Book for the Young, Fabulous and Broke, and Ramit’s immediate connection with the target audience makes his book more likely than others to be read, enjoyed, and followed.
I spoke with Ramit several days ago to record a conversation in which we answered several questions from Consumerism Commentary readers, sharing our thoughts and picking fights over our disagreements. I haven’t decided whether to publish the recording on Consumerism Commentary, but Ramit insists that I offer the MP3 of us answering your questions to anyone who buys the book from Amazon.com and forwards the receipt to me at flexo@iwillteachyoutoberich.com within the next 48 hours. You’ll receive an hour-long recording (if Ramit edits it down from about 90 minutes, but it’s all good stuff) of the two of us answering questions about the best accounts, saving, investing, and automating your money. It was a fun conversation, although as I’ve admitted to other people, Ramit outclassed me at every turn.
Last night, Ramit Sethi from I Will Teach You to Be Rich got together over Skype to chat about money. We spent about 90 minutes answering the questions provided by Consumerism Commentary readers last week. Ramit came up with this idea to coincide with the release of his new book, aptly named, I Will Teach You to Be Rich. This book will be released on Tuesday, and at that time I will share my review of the book and explain how you can acquire an MP3 of my conversation with Ramit.
Here are the topics we discussed in the call:
- One piece of financial advice for someone just starting out on their financial journey.
- What America can do to ensure future generations are adequately prepared to handle their finances.
- Our ideas about frugal dating.
- Sacrificing happiness in the present by saving too much for the future.
- One financial move we each made that we now most regret.
- A personal finance topic in which we don’t practice what we preach.
- Putting together a real, workable budget.
- The role of values in relation to spending.
- How one knows when he or she is rich.
- Whether a recent graduate with significant student loan debt should paying it off faster or begin saving for a house.
- Whether someone close to retirement should pay off a mortgage faster or save more for retirement.
- Credit card rewards programs, 0% balance transfers, and chasing rates to “make” extra money.
- Limiting the subconscious effects of marketing.
- Personal ethics in investment decisions.
You will be surprised at some of our answers, and I would say that Ramit outclassed me at every turn. If this sounds interesting to you, when I review the new book, I’ll explain how to download the MP3.
Ramit Sethi from I Will Teach You to Be Rich is currently putting the final touches on his first published book, aptly named, I Will Teach You to Be Rich. He’s probably tweaking the final paragraphs as I write this. Ramit’s new book, which will be released on March 23, includes a few pages I’ve contributed focusing on smart ways to get out of debt. As long-time readers might guess, my contribution focuses on what I’ve been calling the Debt Avalanche, but doesn’t stop there. There is so much more in this book, and I’m planning to write a full review. But the two of us have more plans, including something we think is going to be fun.
Ramit and I are setting up a one-hour call to answer reader’s questions about absolutely anything, no holds barred. Of course, the call will focus on personal finance, including saving, investing, debt, budgeting, just about anything you can name if it’s related to what people need to know about money. I’m looking forward to this chat, I imagine the two of us on the phone are going to be quite entertaining.
We’ll be making a recording of this phone call available as an MP3 to certain readers, and details concerning how to receive the recording will be forthcoming in the next two weeks. Until then, Ramit and I want to get started on planning the discussion so we need your questions. You can ask more than one, and feel free to be creative. Either leave your questions here as a comment below this post, or, if you’d rather not share just yet, email your questions directly to me (flexo at this domain name).
Ask your questions now and listen to Ramit and I discussing the answers in a few weeks.
Suze Orman, the guru of personal finance gurus, is offering her latest book, 2009 Action Plan: Keeping Your Money Safe & Sound, for free. Through January 15, you can download this 209-page book without paying a cent.
Here is the download link for the free PDF version of this book.
The book tackles credit, retirement investing, saving, spending, paying for college, emergency funds and insurance. Suze’s approach is forward, demanding and aggressive, but that may be what some individuals need to experience.
This book is available as a free download through January 15 only. You can also download this book in Spanish.
Last week, I received an official-looking notice in the mail. You know the type: the envelope requires you to tear the perforated edges in a specific order and contains security ink so the contents cannot be seen until opened. There is a return address on the envelope but no business name.
In my experience, the more the envelope looks official, the more likely it is to be junk mail. So I ignored the mail, as I often do, and left it in my incoming “file.” Yesterday, I went through the “file” to make sure I wasn’t missing anything important, and opened this particular envelope.
The notice informed me that Citi was kind enough to increase the credit limit on my primary credit card by a few thousand dollars. I have never approached my credit limit, so I wasn’t sure why they were suddently this generous.
A credit limit increase, if not used, is a good thing for two reasons.
If you spend the same amount with a higher credit limit, your credit utilization ratio decreases. A lower credit utilization ratio could have a positive effect on your credit score. A higher credit score can lead to all sorts of advantages, such as qualifying for a lower mortgage rate.
More credit is available to use in case of emergency. Using a credit card to help you through an emergency is rarely a good suggestion, but having credit available can be part of your overall emergency fund plan. If you need to pay a medical expenese immediately or rent a car in an emergency, credit cards can come in handy. A higher limit provides more flexibility. The goal is to pay as little interest as possible, so credit usage is healthier if you can pay off the balance every month.
Credit cards companies increase limits because they want people to spend more. In today’s economic climate, they don’t want everyone to spend more, only those who they deem to be low-risk consumers. I guess I am part of this group. People like me will help cover the risk the issuers take on by offering credit to more risky individuals.
Unfortunately for the credit card companies, this limit increase won’t encourage me to spend any more than I do currently.
Photo: JCKole
Costco and American Express are offering a $25 bonus in the form of a statement credit for new customers who make their first purchase using their TrueEarnings® Card.
The TrueEarnings® Card from Costco and American Express also offers significant cash back awards on most purchases, including 3% on gasoline and restaurants, 2% for travel, and 1% everywhere else. This cash back is unlimited, so you don’t have to worry about an annual cap. You’ll even earn cash back when shopping at Costco, which from what I understand already has low prices.
There is no annual fee for current members of Costco, but that’s the catch. You have to be a member of Costco to be approved for this card.
Also consider the equivalent card for businesses, the TrueEarnings® Business Card from Costco and American Express. This is a very similar card, but it does not offer the $25 statement credit with your first purchase. This card does, however, offer 5% cash back on gasoline rather than 3%. Therefore, if you plan on spending more than $1,250 on gas and if you don’t need $25 right away, the business card may be the better choice.
I recently explained my history of having no money and as promised, will now come clean with the mistakes I’m still making:
I’m driving the wrong car
I’ve never owned a car long enough to get it inspected. The first Jeep Cherokee was a lease, and I foolishly let them talk me into not converting the lease into a purchase. Then I couldn’t afford the new Jeep Cherokee, so I took it back and they gave me a Dodge Neon with a loan amount equal to the price of the Neon plus about $6,000. Then I crashed the Neon. That was actually okay, but only because I had Gap Insurance. Always get Gap Insurance, friends. It literally saved me from being homeless.
Years later I got a Scion xB. That thing was delicious, but I grew ever more jealous of my wife’s Prius, so I traded up and got one of my own. Sometimes I wish I hadn’t done that, because I now have a $595 monthly car payment. I know it doesn’t equal out, but it sure feels good to fill the tank only once every two weeks. I’m taking care of the Prius the way I forgot to with the Scion, and I fully intend to drive it until it won’t drive anymore. I think it’s due for inspection sometime this summer.
I love shiny electronics, and they love me
Like most geeks, I have a rapport with computers that is difficult to establish with other humans, and I tend to hoard sources of entertainment. Gadgets are an expensive hobby. It never seems that way to read about them, because the journalists get them for free. I have to remind myself of that. As an Interaction Designer, I’m always looking for a more elegant solution, for more ways to automate my life, and I can rationalize any purchase by telling myself that exposure to these things will help me in my career.
That’s how I managed to “buy” an iPhone. But as you’ve guessed, I put it on a credit card. Nearly everything I own that is worth something was put on a credit card. But I’m committed to stopping that. As of this writing, I have just over $7,000 in credit card debt, which I expect to have paid off within the next 16 months.
So, I have to keep telling myself that I don’t literally need an Apple TV, or a 1 Terabyte external hard drive. When I force myself to think about it, there’s nothing in the entertainment compartment of my lifestyle that is actually broken. It’s just not perfectly elegant, and for right now, because other things are broken, that’ll have to do.
I don’t sell enough of my stuff
When I upgraded my iBook to a new MacBook last May (see previous problem with shiny electronics), only about $1,000 of the purchase went on a credit card, ’cause I managed to sell the iBook on eBay for about $600. I’ve got a boatload of unused electronics that I could be selling, but it seems like such an effort to even bother writing descriptions for them. If you have any advice for doing this more easily, I’m happy to hear it.
The interest rates are too high
On both our cars and the house, our interest rates are higher than they could be. At the time, of course, it was the best we could do. I should mention at this point that my wife’s credit history is slightly worse than mine, and until we started making mortgage payments, my FICO score was on the positive end of “Fair”. Naturally, the FICO isn’t the only thing that creditors look at, but mine has increased roughly 70 points in the last year. One of these days, I should really look into refinancing at least one of the cars.
It’s somewhat painful to admit mistakes, especially when they’re ongoing and not likely to change anytime soon. But if you don’t acknowledge there’s a problem, the likelihood of it being fixed goes down to zero. So, it’s a start.
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