Problem 3: Not Looking at All Sides of a Problem

This problem is usually having a point of view on an investment situation where you may have taken someone else’s word on it or never really given the question serious thought. One common financial example of this the use of a financial advisor to assist you in buying and selling stocks, mutual funds, or other investments. Whenever I consider that advice from this kind of source, I ask several questions about the source of the advice. Some basic ones may include the following:

- Does this advisor have anything to gain or lose by my decision?

- Is this advice based on the advisors own expertise or on someone else’s?

- Is this person following their on advice on that issue?

- Is the advice based on a fair analysis or a biased analysis?

- Is it to my advantage to even consider taking this advice?

- If the advisor makes any performance claim, can the claim be backed up?

- Does the advice make sense?

- After further investigation and research on my part, does the advice still make sense?

- Does not following the advice make better sense?

The current rash of mortgage problems in the US, issues like short sales because of underwater mortgages and foreclosures, is one example of this kind of decision problem in action. Many people got into this situation because they didn’t think about the consequences of taking out a home equity loan to buy expensive toys, or the possible negative consequences of an adjustable rate loan.

There are many more questions that one can ask, but the basic point is that every decision can be looked at in more than one way. It is to your advantage to ask a few questions and do at least a little work to understand what may be behind a piece of advice.

Next Lesson: Being Overconfident In Your Predictions

Money Decision Problem 2: Solving the Wrong Problem

You can have the greatest system in the world for analyzing and solving your personal or business money problems, but you would be wasting your time if you were solving the wrong problem. This usually happens if you do not think through a problem before you start to solve it. To understand how to approach a particular problem you should understand at least these things about the problem:

1. What are the limits to problem at hand?
2. How do you define a good or a bad outcome to the decision?
3. How should you measure the outcomes?
4. What do you bring mentally and psychologically to the decision table?
5. What are other ways to look at the problem?

A Mutual Fund Example
One example of solving the wrong problem is to pursue a high rate of return from a mutual fund investments without first deciding what kind of comparison or benchmark you should use to determine if the return is high enough. For example, index mutual funds that are designed to mirror the results of the Standard and Poor’s 500 index consistently outperform rough 80% of all mutual funds. The original problem may have been how to choose mutual funds with high returns. A better problem to solve would be how choose mutual funds which consistently perform better than the S&P 500.

Final Thoughts
Remember that most problems involving money usually involve something else besides money or mathematics. If you focus on the parts of the problem that are objective and that can be measured or solved with common with equations and spreadsheets, you may miss the most important part of the problem.

Next Lesson: Not Looking at All Sides of a Problem

Money Decision Problem 1: Not Taking the Time to Think About the Problem

Money Decision Problem 1: Not Taking the Time to Think About the Problem and the Decisions that Must Be Made

Before you make a financial decision, you have to know something about your needs, the effect your decision may have, and how you go about making a decision. Some common money decisions that often happens too quickly is what credit card you should have, whether to buy or sell a stock, or whether to go into debt to replace your boring old (and paid off) car for a shiny new one. Taking the time to make a proper decision can save you a lot of frustration and regret, especially if you do it consistently.

A Credit Card Example
Let’s look at the credit card situation more closely. There could be dozens of reasons why you suddenly decide that you need a new credit card. You might not have one at all, but one day you decide to rent a car and find out that you need a credit card. You might have a card already, but you find a way to transfer balances and reduce your interest rate for the first six months. Even if you think you need to take action right now, it always makes sense to think it through to see if it is the right decision for you. The following are just some of the questions you should ask yourself before you sign on the dotted line:

1. What do you want to accomplish when making the decision? - At the very least, figure out if it is a short term or long term goal.
2. Who will be making the decision? - Typically anyone who will be responsible for paying the bill and whoever will be allowed to make charges on the card.
3. How should the decision be made? - Figure out things like whether you need to decide after comparing other options, or if any one person will have veto power.
4. Does the decision significantly affect other decisions?
5. Does the decision have to be made at all? - Think about what would happen if you took no action.
6. Does the decision have to be made by some kind of deadline?
7. What’s the worst that will happen if you don’t make a decision?
8. How much time do you need to make a decision?
9. What kind of options do you have?
10. Do you have any experience making this kind of decision, and if so what did you learn?

Once the background questions are settled and you have a good understanding of your overall situation, you have to start dealing with the decision making process. You should finish gathering any information that you need to make a decision. For credit cards, this would be things like late fees or other penalties, how much interest you will be charged, and what kind of no-interest grace period you have. These kinds of details should be spelled out in the agreement. If you don’t understand it, don’t sign it. If you don’t see it in the agreement, then it’s not part of the deal.

The next big steps are making the decision and carrying it out. If you decide to do something, then follow through. If you decide to do nothing, then take no action, no matter how tempting it may be. If you decide to change your mind, go through the same decision process. Don’t make the mistake of being logical and systematic the first time through and then being very informal the second time you wrestle with the same decision. Every decision is a combination of your analysis and your judgment. If you have a consistent process, you’ll likely improve the quality of both your analysis and your judgment.

Final Thoughts
Keep in mind that a credit card can turn out to be a long-term relationship. If you pay your bills in full every month, it can be a very happy and harmonious relationship. If you fall behind, it can turn real ugly real quick.

Next Lesson: Solving the Wrong Problem

Franchising in Response to Unemployment

Several years ago I found myself unemployed for the first time in my 30+ year career. After the initial panic and rearranging of finances so that day to day expenses could be met, my partner and I started talking about options and decided that we would look into franchising. Franchising offered the promise of “being your own boss”, “90% of franchises are successful”, “building for retirement”, and “doing something fun”.

Being my own boss was definitely attractive since I tend to have definite ideas of how things should be run. I was also still on the rebound from the shock of unemployment. Little did I understand at the time, what being your own boss really means. You’ve got it all… the good, bad, and the ugly. There is also the mind switch from working in the business to working on the business. Give this some thought if you are thinking about starting your own business whether it is a franchise or an entrepreneurial venture.

As for the “90% of franchises are successful”, that may be true overall or may have been true in the past, but I would now take this with a grain of salt as opposed to “with statistics like those, how could we possibly be in the bottom 10%?” A franchise is a great way to get a head start on your business, but it is not a sure thing. You must be willing to follow the franchisor’s formula as closely as possible to help ensure your success. Looking at success rates within your prospective market niche is also a must.

As we looked into franchise options the next hurdle was choosing a business. The internet was a logical place to start and we did take a serious look at a fitness offering. Being on a successful fitness program at the time, this seemed a logical fit for the “fun” portion of the equation. It also appeared to be a real growth industry at the time. We met with the regional manager, went over the “Uniform Offering Circular” and met with a couple of franchisees.

At the same time, we got hooked up with a franchise consultant through FranChoice. This was probably one of the best moves we made during the process. The consultant talked to us about our backgrounds, work style, financials, etc. and then presented several options for franchises. He also told us about a program through Guidant Financial whereby I could parlay 401(k) funds into capital for the business venture. Shortly after starting our discussions with the consultant, we found a red flag with the fitness franchise… no “Discovery Day”! This is like a day long interview at the franchise corporate headquarters with the executives of the franchise. If a franchise doesn’t offer “discovery day”, be very suspicious.

We worked with our franchise consultant and went through the process of discussing our lifestyle, what we wanted out of the business, etc. He provided several concepts that may have worked out better than the one we chose, but rather than really look at the business, we looked with our hearts and emotions.

After doing a phone interview and a “Discovery Day” visit, we were off and running with a commitment for one location under our belts and an option for a second location. Little did we know what a ride we were in for.

Franchising can be a viable option when you find yourself unemployed, but several lessons learned need to be remembered:

• You need to think about working on the business as opposed to working in the business
• Find out the real success metrics for the business you are considering - not just revenue per day
• Understand what kind of employees you will have in your chosen business
• Choose with your reason and not your emotions
• Think about your investment risk and how your market niche is performing

Everybody Be Cool This is a Robbery!

I completely laughed hysterically when I heard Tim Roth say those words in Pulp Fiction, but in real life it’s not quite as funny. Despite the increasing options for banking online there are still times a visit to a physical bank or ATM is required. Interestingly, as much as technology in Internet banking has developed so have the modern day physical security measures as well.

Companies like ADT Security have been investing in cutting edge security technology for physical bank security systems. I used to think that ADT specialized in high level home security, but they have a number of high tech tools for financial institutions. Banks are starting to use some of the biometric systems such as iris, smart card and fingerprint readers.

They’ve also started integrating alarm verification, interactive video and live remote video monitoring.

While it seems like bank robberies are something out of the old west a quick search on Google news reveals that they continue to happen every day. It is one of those things that everyone always thinks happens to someone else. It is always nice to see the company providing the security system to my local bank. If it is a company like ADT I know my bank has chosen well and has the right technology to keep me and my money safe.

Loan Fraud - What to Look for

I’ll never forget the first spam I received involving an African prince who would send me oodles of money. Unfortunately, these types of loans continue to proliferate the Internet and take advantage of people. The trend has only gotten worse as people are more desperate in these hard economic times. They prey on people desperate to get student loans and other types of financing. The most common type of fraud is called an advance fee loan scams. In this situation the person is told that they have been guaranteed a unsecured loan for a large sum of money. They simply need to pay the processing fee.

Here are a few of the signs that the company may not be legitimate.

• A lender who isn’t interested in your credit history
• Fees that are not disclosed clearly or prominently
• A loan that is offered by phone
• A lender who is not registered in your state

Do business with licensed companies. Ask your state banking or finance department about the licensing requirements for lenders and loan brokers, and find out if the company has complied.

If you are the victim of a fraudulant crime you can visit https://www.ftccomplaintassistant.gov/. This site helps people who have been victimized by credit card theft. It helps the government to aggregate data and ultimately apprehend those responsible for the fraudulant crimes.

The Power of Money, Endorsement and Identity Theft: Jeremy Schoemaker vs. Google Money Tree Case

Jeremy Schoemaker, known for his Shoemoney.com is one of the authoritative bloggers on the Net today. His company and personal branding is so powerful, that every marketer wants to capitalise on them - even doing it illegally.

This is a classic case of identity theft for the purpose of making more money through the power of endorsement.

The case study

One of Jeremy Schoemaker’s favourite photos is him holding a cheque of a large sum - thanks to his successful make money online business ventures.

Unfortunately for him, this photo is allegedly used by an advertiser to promote Google Money Tree, a ’system’ to make money online through Google, which later found to be a scam.

That’s where the problem lies: Unauthorised use of images to endorse a product without any permissions is already considered illegal and unethical. In this case, the image is used to scam people.

The impact toward Jeremy’s brand images is devastating: People assume he endorses the Google Money Tree, so that many people join the program simply due to the fact that Jeremy, the Shoemoney, ‘endorses’ the system. When the system is deemed to be a scam, so does Jeremy!

He is, of course, not happy with the stolen identity and false endorsement.

Endorsement and mind game: Why advertisers pay big bucks (some steal endorsees’ property as freebies) to get ‘celebrities’ to endorse their products.

Although Jeremy Schoemaker is not your typical celebrities - he is one of the blogging celebrities that is made famous for his financial achievement through blogging and building businesses surrounding it.

The main reason advertisers splash a large sum of money on endorsers that always are public figure is this: to get into prospects’ mind.

Jeremy is a public figure - he build his business and personal branding relentlessly. In blogging world, Jeremy Schoemaker means make money online, blogging celebrity, and branding powerhouse.

Many advertisers want to touch the corner of Jeremy’s robe so that Jeremy’s positive attributes, such as charisma, authority, mindset, and knowledge, are transferred to their products, or at least related to their products.

This way, advertisers get into prospects mind, by saying “Jeremy uses this system to make money,” “Jeremy believe this product is excellent,” and any other assumption.

Obviously, the more authoritative your endorsees are, the stronger visual and emotional bait your product has.

How would this affect the endorsee? He/she could be related to the product, and as the product is successful, his/her image and personal branding will be enhanced, too. Of course, this also applies to the contrary.

Stolen identity that is used to scam: a devastating negative ripple effect

In his Shoemoney.com blog, Jeremy wrote a clarification post that clearly stated that he has nothing to do with the Google Money Tree scam, and indicated that he will pursue a lawsuit against the owner of Google Money Tree system.

Jeremy did the clarification to stop the negative ripple effect that could bring his businesses down altoghether. Clearing his name will take a lot of resources, including money and time.

I respect Jeremy Schoemaker and would like to look forward for a positive outcome of this.

Image by fotologic.

How to Improve Your Sense of Security in Uncertain Economy

People are often being overly reactive when it goes to bad situations.

The recession itself is happening largely due to global public reaction toward financial crisis, that is more often than not, doesn’t actually affect them directly whatsoever.

Negative outlook on financial issues cost the community lost productivity, thus worsening the effect of the financial crisis.

As a major part of your community, you, in whatever way possible, need to feel secure about your financial stature.

Why? Because if you feel secure about your financials and your life in general, you will be able to affect the community surrounding you.

Sense of security

Improving personal sense of security has never been this important in the past decades.

Sense of security is driven by facts and assumptions. The more you assume, the more insecure you will be. The more you identify facts, the more secure you will be.

Sense of security = know more facts and less assumptions.

Assumptions can be ‘altered’ into and identified as facts - no matter they are right or wrong - if you increase your knowledge through learning from reliable sources.

Facts also related to control. If you want to feel secure, you need to gain (and regain) more control on your life based on a set or series of facts.

Financial sense of security

In term of finance, assumptions leave you unguarded.

For example, consider these statements: “Stock A will go up in 10 minutes.” “Real estate B will increase in value.” etc.

The problem in the above example, is due to the fact that nobody can guarantee the above statement. Any guarantees on such would be classified as misleading, even illegal.

On the other hands, facts can secure your personal finance and help you see things from the right perspective.

For example, consider these statements: “I’m getting a 10% rate of return on my investment.” “The foreclosure houses I bought make me $150 positive cashflow per month.”

Warren Buffet, the maestro of investment, do all of his investment based on intrinsic value - the facts - not based on the floating stock value on stock exchanges - the assumptions.

Again, it is all about control. “Sure things” improve control, hence reducing investment risks.

How to improve your financial sense of security these days

You need to get more facts about personal finance. You will eventually find out that there is a certain consensus between personal finance experts about some of the best practices in managing your finances.

Such knowledge you acquire should be enhanced with tools that can help you with a more exact (and measurable) facts. For example, the use of Savings Calculator to learn how much you would receive within a period of time can provide you with a measurable fact that allow you to decide what’s best for your personal finance - finding savings account that yield you more, finding new investment that can increase the speed of your money, and so on.

Nevertheless, your diligence in increasing your financial knowledge will determine how secure you feel about your personal finance, and how well you cope (and thrive) in today’s economic crisis.

Image by bragadocchio.

Protecting Yourself from Identity Theft

Are you being paranoid?

Some people consider being paranoid is normal if they deal with anything that involves the share of personal info.

That is particularly a case in online shopping and financial service applications.

Regarding online shopping - although sometimes considered as technophobia - the fear of technological advances, including the Internet - the paranoid of stolen private information is more often reasonable than not, particularly today.

Identity theft

One of the reasons people being paranoid about anything involving the share of personal info is identity theft.

According to Wikipedia, Identity theft is basically a term used to refer to fraud that involves stealing money or getting other benefits by pretending to be someone else.

This fraud causes damages beyond money - your reputation, both online and off line.

There are four type of identity theft, according to Wikipedia:

• Financial identity theft: using another’s identity to obtain goods and services.
• Criminal identity theft: posing as another when apprehended for a crime.
• Identity cloning: using another’s information to assume his or her identity in daily life.
• Business/commercial identity theft: using another’s business name to obtain credit.

All causing reputation damage, and most cause financial problems for the victims.

What identity thieves can do to you

Most commonly, they will use your identity to buy goods and services, as well as applying for credit.

The latter often causes severe problems, because your identity is linked to your credit report - when identity thieves apply for a credit (and of course, they will not pay when it’s due), it’s your name linked to the credit; Not paying the credit will not only cost you money, but also problems with the collection agents and ultimately, leaving ‘red marks’ in your credit report, decreasing your credit score.

Being paranoid, on lesser extent, actually helps you to deal with the risk of identity theft

Although being paranoid is obviously unhealthy, it does arguably help you being cautious is a good way to protect yourself from identity theft.

Many people who are victims of identity theft thought that it would not happen to them - unfortunately, they realise it when it strikes them.

There are ways to help you deal with identity theft, some of them available online.

Stop being paranoid, start being cautious

You can actually start a simple measure to protect yourself from identity theft - never, ever share your personal information with non-trusted and questionable third-parties, either in online shopping or financial service applications.

However, to ensure your reputation and credit report protected, you might want to consider the help of identity theft protection service providers. They are more than ready to help you protect your identity, both online and off line.

Some of the big names providing such services are Lifelock and TrustedID.

Which one is the most suitable solution for you? You can learn about Lifelock VS TrustedID from the Net.

I also suggest you to read Lifelock Reviews and other identity theft protection reviews to learn others’ experience with the service provider.

Last but not least, don’t apply for any credit cards or credit applications on sight! Managing your personal finance closely will naturally decrease the potential of identity theft.

Image by CarbonNYC.

Money Market: For People that Always Looking for Something More

It is common that people always look on ways for their money to grow more in speed and value.

While expecting their money to grow in speed and value, people always consider and weigh between risk and yield. Naturally, higher risk yields higher result. On the contrary, lower risk yield lower result.

The battle of risk and yield always present in one’s mind, and often attributed to one’s personality traits - for example, in outdoor activity, do you like bungee jumping or strolling in the park? Your answer will be one of the indicators of your risk tolerance toward investing your money.

How much do people want more?

As people always look for something more, the quantity of ‘more’ in people’s mind is widely different, depending on the personality traits, investment outlook and personal finance budgeting and planning.

There are investment instruments that allow you to choose the investment type that best suited to your situation.

Investment in stocks, mutual funds, money market, certificate of deposits, etc. along with the macroeconomic trends will determine how much you will get out of your investment.

Money market

I would like to focus on one of the most common investment option, but not many people aware the benefit of - money market.

According to Wikipedia - In finance, the money market is the global financial market for short-term borrowing and lending. It provides short-term liquid funding for the global financial system.

Normally, investing in money market by opening a money market account yield more return than the conservative saving account.

According to M&T Bank eMoney Market website, the Annual Percentage Yield (APY) of money market is 3.25 per cent, compared to the 2.25 of national savings average.

Just like other forms of investing, you can open an online money market account, such as M&T Bank eMoney Market Account.

Money market might have the right compromise between risk and yield for some person. I personally recommend money market account (and do not recommend savings account) as part of diversification in your personal finance budgeting and planning to achieve your financial goal.

The Need to Protect Your Income

The issue of income protection has been in everybody’s mind for long, especially in tough times. It is obvious that people always looking for a form of save haven for their hard-earned money.

A question that often being raised is, “if anything happened to me, will my family or others that depend on me be able to survive?”

Nobody can deny that sometimes we forget about what is best, not only for us, but also for our loved ones. Some people has a motto of ‘work hard, play hard.’ Even though everybody’s life is his/her own to decide, people often forget the priorities in life. People need to secure the fruit of their labour first, then ‘play hard’ on the remaining, later on.

Sadly, people do love tarrying - ‘I will do it tomorrow’ seems to be the norm in society. People realise their true priorities after misfortunes or unfortunate events happen - bankruptcy, downsized, disability, sickness and even death. Then, people start panicking and taking any advices they can get from, that unfortunately, not always the best advices you should receive.

Consider the following statement about protecting your income.

…a recent survey …found that 25 per cent of Americans are worried about losing their jobs within the next six to 12 months because of weakening economic conditions, while 28 per cent are concerned about losing their income because of an accident or illness that would make them unable to work. The study also revealed that 41% of employees with 401(k) or similar retirement accounts would be willing to borrow from such accounts to cover lost income.

The survey does describe the economy outlook today, and people do have all their right to be worried. A form of income protection, such as income protection insurance, is needed to minimise your worry and turn your energy to seek other income alternatives, such as starting out businesses, instead.

I would like to recommend you to start protecting your income and your asset more sooner than latter, and set a plan of action to be implemented for, at least, 6 months period. This will create a physical and psychological safety net that let you prepare for the worst.

If you looking for ways to protect your income, look to the people you trust or income protection specialists for advices. A word of advice, though - always look for a second opinion. Do your homework, and doing the right thing will eventually ’save’ yourself and your loved ones.

Again, stop worrying and start acting today, before you regret that it is all too late.

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