As featured in The Wall Street Journal, Money Magazine, and more!

Search: ebook

Keep Your Old Credit Cards Open

This article was written by in Credit. 6 comments.


There may come a time when you have no need to keep your credit score as high as possible. Perhaps you have no need for debt now and in the future. It’s not common, but there are a few methods of arriving at that point.

  • You’ve fashioned a life for yourself off the grid. You are completely self-sufficient.
  • You’ve been able to save enough wealth that any need you could possibly have can be covered with cash.
  • You have no concern about any missed investment opportunities.
  • The idea of using other people’s money as leverage bears to concern for you.
  • You may be winding down your life, with no pressing medical issues and with the comfort of knowing your financial needs are winding down.
  • You live in a community where credit isn’t a way of life. but if that’s the case, this article wouldn’t be of interest to you, anyway.

I applaud people living in modern society in economically developed nations who have shunned the use of credit despite its prevalence. To save money for everything before making a purchase is an admirable goal.

Credit will touch most people’s lives at some point, if not through the use of borrowing money with credit cards through a mortgage for buying a house. I frequently hear from people who have sworn to live a debt-free life, or are celebrating because they’ve paid off all their outstanding debt, but when asked, they add a caveat: “Oh, I’m not counting my mortgage.”

Don’t get me wrong — I’m always happy to hear when someone has completely paid off their credit card debt and their loans outside of their mortgages, but the missing piece represents the need for most people to maintain a strong credit history and high credit score.

If you’ll need to borrow money in the future, refinance a mortgage, apply for some jobs, or seek out an apartment or a house to rent, you’ll need to stay on the credit grid — in the system, so to speak — to ensure you’re not denied credit and to qualify for the best interest rates.

An interest rate that’s one percentage point lower than your neighbor’s rate can save you $50,000 over the course of a $250,000 30-year mortgage. And you could do a lot with that $50,000, and invested over time, that $50,000 could become a significantly higher nest egg.

Credit cards affect your credit score.

Two significant factors in determining your FICO credit score are the length of your credit history and your debt-to-credit ratio. Because these two factors are so important in determining your credit score, and therefore your qualification for the best interest rates in the future, there are some guidelines to follow to help you take advantage of your existing credit.

The most important guideline is simply to keep your old credit cards open, even if you don’t use them anymore.

I know there’s not many things more satisfying than paying off a credit card, shredding the plastic card, and calling the issuer to cancel the card. I’ve experienced that satisfaction first-hand.

This could have been a big mistake.

When I was working for a non-profit over a decade ago, I needed to earn some extra money, but I was starting from nothing. Actually, I was starting from less than nothing, several thousand dollars in debt due to student loans, an expensive commute, and my need to buy just the essentials for my life on credit. I wanted to build websites as a side business, and I was quite skilled at this at a time when web design and programming was a nascent industry. Unfortunately, I had no tools. I had a desktop computer that I moved from one living situation to another that was several generations beyond usefulness, and was beyond its capacity of functioning as hardware.

So I did what I could to jump-start the business. I used a retailer’s twelve-month introductory 0% APR special on their store-branded credit card to finance a purchase of a new notebook computer.

This was thirteen years ago, and I wrote on my personal blog at that time:

How can I afford it you ask? How could I not afford it? [...] Happiness costs about $1500. (Thank you Mr. Best Buy Financing Guy.)

That Best Buy credit card, issued by a company called Household Retail Bank, or HRS USA, became a thorn in my side. Like other customers experienced, after a few months, the issuer stopped sending credit card statements. As I was not particularly organized, I neglected to pay the bills every month from that point on. Had I received the statements, I would have paid — if I had the cash, anyway.

When I did receive a bill, several months later, I noticed HRS USA had charged me penalty interest back to the date of the purchase. I called and complained about the lack of statements, had them remove the penalty, and paid off the balance on the card.

And then I closed the account.

In the end, it’s a good thing I closed this particular credit card. The credit limit was low, $500 if I remember correctly, and it was my newest card. Those are the two things most important to check before considering closing a card. It did feel good to eliminate my interactions with that business, and it turned me away from Best Buy almost as much as their high prices.

Your credit cards contribute to your total available credit.

I don’t plan on closing any of my current credit cards, even though some are inactive. According to my Equifax credit report, which I checked today for free by using AnnualCreditReport.com, I have two open credit cards with a limit of $500, both American Express cards, two cards with very high limits, several with limits between $1,000 and $10,000, and one card — a Bank of America card — that does not report a limit.

According to the same report, my debt-to-credit ratio (or credit utilization ratio) — how much of the available credit I owe on a monthly basis — is 3 percent. Since I pay my credit card in full every month, that number won’t be consistent, it’s based on a snapshot of my credit at any particular time.

If I were to close my card with the highest limit, my debt-to-credit ratio would almost double, and that could negatively affect my credit score.

Your credit cards contribute to the age of your credit history.

According to my credit report, the average age of my credit lines is just over seven years. That’s not that long for someone who is thirty-seven years old, such as myself, and it’s only this long because it’s greatly assisted by my student loan account with the U.S. Department of Education, though now closed, originated in September 1995, my second year of college.

If I had a credit card at that time, the account been closed over seven years, not only no longer helping to increase the average age of my credit history, but not even listed as a closed account on my Equifax report. I have noticed that credit cards closed over seven years ago still appear as closed on the TransUnion credit report, so each bureau may handle this differently.

Like the Best Buy card opened in late 2001 and closed in early 2002, Equifax no longer keeps a record of the card’s existence. And therefore, they also no longer have a record of my missed and late payments.

I’ve had most of my active credit cards for less than my average credit history of seven years, so I wouldn’t close them now. There’s a good chance that closing one or more of those accounts will reduce the credit history as calculated by the credit bureaus, and that could reduce my credit score.

Sometimes, the choice to close a credit card isn’t yours.

I’ve had two credit cards closed by the issuer due to inactivity. Only some issuers will close a cardholder’s credit line if unused. Try to avoid this; since reading terms and conditions documents can prove to be a frustrating endeavor, call the issuers for any cards you don’t use that you’ve had longer than your average credit history. Ask the customer representative whether the card will be closed due to inactivity.

If so, keep the card active by using it for an automated expense each month, followed by an automated payment. That will keep the card active, and the automation will help you stay organized.

If you have two cards from the same issuer and want to close one, call first.

Suppose you find yourself with two Chase Visa cards, one a Chase Sapphire Preferred you opened one a year ago. The other is a standard Chase Visa card you didn’t realize you had until you reviewed your credit report and saw it listed as an active account from ten years ago. Call the customer service number and ask them to do the following:

  • Assuming you didn’t know about the ten-year-old credit card because you don’t have it in your possession or your address has changed and you never received a new card, ask Chase to update your account and send you a new card for the old account.
  • Ask the representative to add whatever your credit limit is on the new card to the credit limit on your old card. This way, your total available credit and your debt-to-credit ratio won’t be affected.
  • Now you can close the younger card while potentially increasing your credit score. With one fewer young account, your credit history’s average age will increase.

Don’t give into temptation.

If you’re the kind of person who would use any credit card that still is valid, giving into temptation whether through a compulsion to spend or just a lack of self-control, the typical advice is to close the cards and take the hit to your credit score. This is a valid decision when cost of interest from overspending outweighs the chance of getting better interest rates on future credit.

This indicates a problem that extends beyond the use of credit cards. Spending compulsions or shopping addictions are concerns you should address independently of your credit card situation.

If you keep old cards active but cut them into pieces, you may be able to better control your spending. It’s only a small barrier, though. That won’t stop someone determined from using their cut-up credit card online — card numbers can be easily memorized.

It would be nice if we could design our financial lives to be free from the credit industry. Unless you meet one of the conditions I mentioned at the top of this article, keeping a high credit score should be a concern. Therefore, it pays — in concrete savings through better interest rates — to adopt these practices which can help ensure your credit score remains as high as possible.

Photo: Flickr

{ 6 comments }

The Government Wants to Regulate Bitcoin and Other Virtual Currencies

This article was written by in Economics. 6 comments.

Currencies work as a means of storing and trading value because the people who use them have faith in their value. Faith involves putting trust in an entity more powerful than oneself, whether that entity is a market or a government. Even when the value of money was based on a commodity like gold, its value required faith that everyone would value the commodity similarly. This is still a step removed from when money was based on something that had a value in its use to everyone in the community, like wheat.

Our willingness to put faith in almost any medium of exchange has led to interesting developments. The same concepts that allow us to use legal tender, dollars and cents in the United States, allow different communities to develop their own currencies. If you spend time in computer games — and many people spend a good portion of their lives socializing in virtual environments and “worlds” created just for entertainment — you might need to trade your “real” money for virtual currency that can be used in the game.

The developers who control the game also have control over the exchange rate — how much one unit of game currency costs in the “real world.” If the world is big enough, they can let the market determine the exchange rate. Virtual currencies are popping up everywhere, because from a commercial perspective, whoever controls the currency can pull profit from the exchange.

  • Facebook Credits operate in a manner similar to currency in virtual reality games. You can buy Credits to use in games and to trade for gifts online. Facebook determines the exchange rate and is also the “bank” where you store your Credits.
  • Bitcoin is likely the most popular virtual currency because it is invading on the territory of actual, legal tender. You can buy products and services in the real world using Bitcoins, often as a secondary option to cash and credit.

As long as everyone agrees on the value of a bitcoin or of any other manner of currency, does it make a difference whether people use a currency backed by the government or not for private transactions? Should anyone be concerned that transactions occur using a currency not produced and maintained by the government in power in the land or lands where the transactions take place? After all, if I wanted to buy, for example, a printer worth $100 from a friend, I could give him $100 in cash or I could trade with him using, for another example, a mobile phone we agree is worth about the same as the printer. Why not transfer $100 worth of bitcoins to him, as long as we agree on the amount?

Virtual currencies open the door for manipulation and money laundering, so the government wants to apply the same financial regulations to these virtual currencies. Traditional banks — entities that deal with the currency supported by the United States government — need to file financial reports to the government for transactions exceeding $10,000 or otherwise suspicious activity and keep accurate records of their business. So far, companies that buy and sell virtual currencies have no such regulations, and are thus more inviting towards criminals who would use such currencies for nefarious purposes.

In fact, transfers using virtual currencies can be anonymous, unlike large transfers of money using government-backed securities. You can “follow the money” to trace transactions back to a source, most of the time without difficulty, when dollars are in use; with currencies that allow anonymous transfers, it’s easier to hide the true source of the funds.

There’s no evidence of Bitcoin-funded terrorism or any large cases of money laundering that have been public so far, but the Treasury Department isn’t waiting around. They will start applying anti-money-laundering rules to virtual currencies and the companies that deal with them. The financial industry, through the American Bankers Association, is keen to ensure that regulations that restrict the free flow of money to and from all sources apply to all vehicles the same. That’s a concern that comes not out of overall security for the country and the well-being of innocent citizens who might be harmed by financial fraud, but for the sake of their own firms who don’t have to face competitors in an unregulated financial Wild West.

The Bitcoin Foundation is fighting the move by the Treasury Department to regulate virtual currency, citing the burden it would be for bitcoin merchants to comply with the new regulations.

My use of bitcoins extended to a few hours when the currency was gaining popularity. I tried using the service, which required running an application on my computer continuously. This seemed to be more that what would be necessary to use a currency, so I uninstalled the program and didn’t think much of it. Also, I haven’t played any games that required depositing “real” money to convert to credits to be used within the game — I always figured getting my money back would be more of a hassle than it’s worth to play the game. But “kids these days” are more apt than I to use their money — or their parents’ money — to advance their characters in these role-playing games that use virtual currency.

Should the government have the power to regulate virtual currencies? Are national security and the protection of citizens from financial scams good enough reasons to require the government’s involvement with these transactions? I see little functional difference between a transaction in dollars and a transaction in bitcoins, for example, so if we must abide by regulations for one, we should need to for the other.

Wall Street Journal

{ 6 comments }

Learning About Investing With the Stock Market Game

This article was written by in Education, Investing. 4 comments.

In my mind, no child is too young to learn about the basic concepts of personal finance. From using money to saving money and budgeting, youngest children learn as they watch their parents behave. These are the most important lessons because parents are the ultimate role models. Financial literacy programs that wait until high school or even middle school are often, but not always, too late to to effectively change a developing child or young adult’s approach to money. The evidence is within the numerous studies showing how financial literacy programs for students at these ages fail.

Parents have the ultimate responsibility to impart good financial behavior, and lessons in schools can support good parental modeling. When lessons are taught in the classes but are not echoed by parents, the curriculum loses its value for that particular student quickly.

My initial school lessons about money probably involved learning to identify coins and simulating situations where I would be purchasing items. Consumerism is taught in school from the very beginning. And the first time the curriculum delved into more complicated themes for me was in fourth grade, perhaps nine or ten years old. All fourth grade classes played — or competed — in the “stock market game.”

Like many children, my first exposure to investing was learning to trade stocks. Readers are familiar with the stock market game. Participants are given a starting balance of a certain amount of money — not actual cash, just on paper — and use that money to buy and sell shares in companies. In the lessons, as far as I remember, we were encouraged to follow business news and find companies worth our investments. Perhaps I purchased stocks of AT&T on October 6, 1986 at at $1081⁄8 a share. I vaguely remember IBM being a popular stock among my classmates as well.

While the lessons required checking the newspapers everyday for the latest stock prices, charting the growth or decline of our money, and making more buying and selling decisions, some of us bought-and-hold — that is, we participated but didn’t see the need to trade often. Others delved further into the game, traded often, and took the game very seriously. If I remember correctly, my classmate who won the stock market game, a frequent trader who took the game very seriously, perhaps to an obsessive-compulsive level, was voted “most likely to succeed” in our yearbook a few years later. Perhaps someday I’ll follow up with him and ask how his portfolio is doing today, almost thirty years later.

Is the stock market game the best lesson for a first exposure to investing? The bottom line is that I would guess most of my fourth grade classmates grew up to be moderately responsible with their finances, what one might expect for a suburban but not particularly wealthy community. Overall, the lesson probably did no harm. But perhaps we would all be better investors today if we had been taught somewhat differently.

Perhaps the lessons for today’s fourth graders are different. Index mutual funds did not become a popular method of investing until the 1990s. In the stock market game, the goal isn’t to beat the market, it’s to finish with more money or portfolio equity than everyone else. Participants aren’t taught that you lose money in transaction fees and you are unlikely to survive in the long run through frequent trading in real life. Buying and holding index funds is, many people would argue, the best way to approach investing, but it isn’t as entertaining or full of intrigue for fourth graders as getting the opportunity to use virtual currency.

When is the right age to learn about investing for the long-term? The stock market game might be engaging for children, but at some point, lessons in better life planning should take its place.

Ron Lieber from the New York Times recently asked for book recommendations for a friend’s eleven-year-old child, in order to introduce him to the stock market. That’s the same age I had my first lessons with the stock market game. The Editor-in-Chief of Think Progress, Judd Legum, responded, seemingly to question whether an eleven-year-old is mature enough to be introduced to the stock market at all. It would be years before that child would be able to have his own account for trading or investing.

At first I thought that investing properly might be a useless lesson for a child of that age, but then I remembered my experience with the stock market game.

I looked over the curriculum for the official Stock Market Game, a program designed by the SIFMA (Securities Industry and Financial Markets Association) Foundation. I immediately noticed some major improvements to the program based on what I remember from almost thirty years ago. Most notably, traders are now faced with a 1 percent commission fee for each trade, and the concept of mutual funds plays a larger role in the game.

And as expected, technology has changed the game significantly. because the program is designed for students from fourth grade throughout the last year of high school, younger students can play a more basic game while older students have the opportunity to delve into more complicated concepts like limit orders and trading on margin.

But still lost in the mix is the biggest lesson I’ve taken away as an adult: trading in the stock market is a surefire way to lose money. You can get lucky occasionally with good picks once in a while, but over the long term, that type of record can’t be maintained. You can’t expect the Securities Industry and Financial Markets Association to be incredibly interested in teaching the concept that you’ll most likely be better off in the long run if you invest in mutual funds that passively track the broader stock market, buying more in times where the media seem to amplify times of financial crisis, and holding for as long as possible to take advantage of time. That’s now how the securities industry makes money.

Age eleven or earlier is a good time to introduce the concept of investing, but I’d balance any stock market game with lessons about long-term investing and planning, broader concepts that can be applied to more than checking Yahoo Finance every day for stock prices.

Photo: Flickr

{ 4 comments }

Proposal: A Formula for Your Personal Human Capital

This article was written by in Career and Work. 6 comments.

Calculating your net worth is easy. First find the value of all your assets, including your bank accounts, cash lying around the house, investments, and major assets like real property. Next find the value of all your liabilities, including loans, credit card balances, bills you have to pay soon. Subtract the liabilities value from the assets value and you have your net worth. If you want more detail around that, here’s how to calculate your net worth, with discussion about nuances of the calculation.

Knowing your net worth is a great starting point for gaining control of your monetary situation with an eventual goal of financial independence. Net worth provides an answer to “Where are we now?” that is essential, especially when tracked over time, for feedback on whether your financial decisions are working to your benefit.

Net worth is only part of the story of a person’s full worth. You’ll also need to track your income and expenses to give yourself context for increases or decreases in your net worth month to month. But even this does not tell the complete story.

Financial capital is the monetary value of everything you own, your net worth, but human capital looks outside of just today’s assets and liabilities. Human capital has many definitions, but from a personal perspective, your human capital is your ability to earn income or increase your net worth in the future. A human resources department look at human capital from the business’s perspective, but that’s not what the intent is here.

Personal human capital much more difficult to measure than net worth or financial capital because it relies on qualitative analysis rather than quantitative analysis, and requires some educated guesses rather than provable measurements.

It’s possible to increase your human capital by achieving certain tasks or taking a specific approach to living your life. If it’s possible to increase something, there must be a way of measuring it to determine if you’re successful, and if so, how successful you are.

In general, the things that increase your human capital are also likely to increase your appeal to potential employers. Some companies refer to their employees as the “human capital” of the business, and that concept isn’t far from what I’m exploring.

These are the factors that will go into the formula for calculating your human capital. This is an open discussion; if you have any suggestions for tweaks, provide comments below, and we can discuss changes, and ultimately build an official human capital formula.

Education related to the field you’re pursuing. Some careers require more advanced degrees than others. For example, doctors complete a graduate medical program beyond earning a bachelor’s degree and have residency requirements before they can be placed in a full position; a teacher requires state certification, in some cases a master’s degree, and continuing education; a certified public accountant requires a degree or experience plus a successful certification.

In general, the more education you have, the more you have an ability to earn more money throughout your lifetime. The biggest gap is between those with just high school diplomas and those with a college education.

Let’s call this variable er (for education — related). Its value will be the years of education beyond high school that pertain directly to your current employment. It may be zero if your work is in a completely different field than your education.

Other education. It’s very common to pursue a career unrelated to your degree. Many friends studied one subject in college and either found a passion in another field or were faced with reality that seemed to required pursuing a career in a more lucrative position. Not all unrelated education are equal in terms of human capital, however. An education in music limits what you might be able to pursue other than an arts-related career if you aren’t already in an arts-related career.

The pertinence of the specific course of study decreases as you distance yourself from college through time, so at some point, it’s more relevant that you’ve earned a bachelor’s degree — any bachelor’s degree — than what you studied. This variable will be es (for education — supplemental).

Your remaining years of work. Your age plays a role in your human capital, but it’s related mostly to how many years you may be able to continue working, from either a physical or mental perspective. This is impossible to predict with certainty, but an estimate is fine. Unless you work at a job that is literally killing you slowly, it’s safe to say you can continue working until you’re at least 70 if you need to. So one possible approach is to subtract your current age from 70. This variable will be labeled y.

Your years of experience. The more you work in your field, the more of a chance you have of receiving jobs with more responsibility and higher compensation. Jump to a new field, and if your job function is different, you may have to work from the bottom again. Measured in years, your experience will be called x.

Your brand cultivation. If you’re well-known in your industry — perhaps you are a published author, speak at conferences, or are a household name — you are better positioned for earning a living in the future. Judging our own brand presence is difficult to do, and the more popular you seem to be, the more likely it is you’ll overestimate your importance. Neil Gaiman can probable call any television producer and get a job writing a script for writing any television show and his books are quite popular, but his talents may be overshadowed by the shadow of the brand of someone like Stephenie Meyer, whose agent can likely close a lucrative deal with one call.

And just ask any reality television star who was famous for fifteen minutes — your brand can disappear and lose relevancy in an instant, so this is something that can change frequently.

Just give yourself a brand cultivation value of 1 to 10, with 10 being a name you see in the media every day, and 2 being published for a niche audience, like a scientific journal. This will be the variable b, and I expect most people should rate themselves a 1 or a 2.

Your human network. How many people call you call out of the blue and ask for a favor, with a reasonable expectation that these people will help you to the best of their abilities? That’s the real value of a human network. If you can tell someone you need a job and they can come back with some suggestions, you’re able to make use of your human network. If you haven’t cultivated a network, your reach is smaller. This is similar to a “Klout” rating on Twitter; how influential are you?

Forget about your number of LinkedIn connections, Twitter followers, or Facebook friends. How many people can you really count on to be connected enough and willing to help you in a time of need? This is the value of your human network, or the variable n. It has a maximum of 60, because after about 60 the value of each additional connection will decrease.

Your involvement in a community. If you are involved in volunteering for an organization or active in your local economy, your human capital is higher. Involvement tends to increase your human network and your brand cultivation, but it has value just on its own. Consider how involved you are in activities outside of your job, on a scale of 1 to 10. This is the variable i.

Your drive for advancement. You will only move forward if you want to succeed. I’ve worked with people who were satisfied with where they were in life. They had no desire to earn more money, no desire to advance in their jobs, no desire for additional responsibilities. That’s a happy place to be, and if that’s you, you’re bound to stay roughly where you are. But if you’re fully driven to advance and are motivated to move forward with the income-earning aspect of your life, you can reach the potential that is promised by the other factors.

It’s not bad to not be driven towards advancement. Many people put a higher priority on other aspects of life, like family. There’s no judgment of values, but the drive to move forward greatly affects your human capital and earning potential. Rate your drive from 1 to 10, and label it with the variable d.

Your health. Health is important because it can affect your ability to earn income over your lifetime as well as your likelihood of facing a medical problem. Of course, someone completely healthy can have an accident that requires expensive medical care. Insurance companies do a good job of understanding someone’s health profile and likelihood of costs related to that person, but there’s no need to get that level of detail for our human capital calculation. All I would look for is a health rating, from 1, dying, to 10, in great shape with no real health risks.

Smokers receive a low rating while working out regularly would move the needle higher. This is the variable h.

Bonus points. Special skills and attributes are bound to affect your human capital. Use this list to define a value for the variable z, with a maximum value of 10. Add one point…

  • … for each major language you speak mostly fluently, other than your primary language.
  • … if you are an optimist rather than a pessimist.
  • … if you are proficient at public speaking.
  • … if you have a variety of interests outside of your career.
  • … if you can play a musical instrument or are otherwise inclined towards a talent with arts.
  • … if you are skilled in the forward-looking field (as an application developer, for example).
  • … if you are able and willing to be flexible with your future goals and career paths.
  • … if you are self-motivating and like to get things done.
  • … if you have a strong support network of friends and family who help you emotionally, not necessarily with business
  • … if you travel at least occasionally, exposing yourself to different cultures.

Now that we have all the variables, we need to put them into a formula that makes sense.

Ch = (y + 0.1d × (er + 0.5es + x + 5b + 0.25n + 0.5i + z) ) × Log(h)

The result, Ch, is a factor for human capital that can be applied to your income today to predict your future lifetime income.

Example

Let’s say a person for the example, Harry, has two years of post-college education relating to his field and four years of unrelated education. At the age of 35, he has at least another 35 years of work ahead of him if he does’t retire. He has 10 years of experience in his current role. He is relatively unknown in his field, but is well-respected within his organization, so his brand penetration is a value of 1. He has worked to build a network of colleagues and leaders in his field, and estimates there may be 10 people he can count on if he needed a professional favor.

He is moderately involved in his community and with his college alumni association, and rates himself a 5 in this area. He rates his health a 7 thanks to eating well and exercising regularly. let’s say Harry’s fully driven, with a score of 10 out of 10 in that category.

Harry receives 6 bonus points based on his answers to the above questions. Using the above calculation, his human capital, Ch, is 54.93.

Now that we have a number, we need to know if it’s good or bad. In the formula, brand cultivation is heavily weighted. If you’re famous, the possibilities are almost endless. I did limit the factor, though, because as I mentioned above, most people are likely to overestimate the importance of their own brand. A good result will be higher than the number of working years left (y) plus ten, a mediocre result would be around y,, and a bad result would be below y..

We can use the number to estimate the future income of a person, not taking inflation into account. With a result of 48.83 and a salary today of $50,000, we can roughly estimate Harry might earn $2,746,569 over the rest of his career. That takes into account his potential for growth, which relies on things like his brand strength, his health, his experience, and his attitude.

You can’t always just use your annual income as a guide, though; if your income is not sustainable or temporary, use a figure that is similar to what someone who does your work might earn if the extra circumstances weren’t applicable.

Is this accurate? It would require extensive research to determine if the income prediction is valid, but the purpose of the formula is to create a metric that can be used to track progress in the increase of human capital over time as well as person-to-person comparisons.

What do you think about the formula for human capital? Do you agree with the weightings? Are any factors missing?

{ 6 comments }

Capital One 360 Savings Account Review

by Luke Landes
Capital One 360 Logo

Capital One’s decision to acquire ING Direct was a great strategic move, but the deal had a few problems. Because ING Direct’s parent company, as part of a European bail-out agreement, was required to sell ING Direct in the United States and in other global locations, and to cease using the ING Direct name, Capital ... Continue reading this article…

25 comments Read the full article →

Subcontract the Work You Don’t Want to Do

by Luke Landes
Chinese outsourcing

Until he was caught by a security firm hired to investigate a suspected hacking, an employee of an unnamed company took advantage of an extreme inefficiency in the job market. He was reportedly earning a six-figure salary as a computer programmer — I suppose programmers are called developers in the parlance of our times — ... Continue reading this article…

6 comments Read the full article →

Plan for the Payroll Tax Cut Expiring in 2013

by Luke Landes
Tax rates

Missing from discussions about the so-called fiscal cliff is the option to continue the payroll tax cut. To boost the economy, President Obama and Congress introduced a stimulus bill in 2010 that reduced the payroll tax, money collected at the time of each paycheck from employers and employees (workers with W2 forms). The employee’s share ... Continue reading this article…

20 comments Read the full article →

Naked With Cash

by Luke Landes
Sara Stanich CFP

It’s time to get naked! Naked With Cash is a series and feature at Consumerism Commentary where selected readers anonymously and publicly track their finances. Each month, the seven participants share their financial reports, exposing the results of their recent, everyday, financial choices. With feedback from a few financial experts, participants in “teams” and other ... Continue reading this article…

5 comments Read the full article →
Page 1 of 2412345···Last »