The Amateur Financier

Hello, My Appreciated Readers,

I’m going to make this short and sweet, particularly as you may not be able to see it until tonight when things wrap up.  If you spend much time online, as I do as a personal finance blogger, you might have heard about the Stop Online Piracy Act (SOPA) in the United States House of Representatives (and its companion bill in the Senate, Protect IP Act (PIPA)).  In case you haven’t, or want more information about what these bills are and why they have so many people riled up, check out this story to determine just what is happening.

To protest these bills, numerous sites are going to be blacked out today, from Wikipedia and Reddit, massive sites that dominate the internet, to much smaller sites, including, well, me.  Yes, I will going offline at eight a.m. EST today, and will not be coming back until eight p.m. tonight (assuming that my sometimes not the best understanding of my blog allows me to do so successfully…).  My participation is because, well, I can see how these laws, although I believe they are well-intentioned as laws tend to be, could be misused by future (or even present) Justice Department officials to censor parts of the Internet, regardless of whether they are directly doing anything wrong, opening up the possibility of wide-spread censoring and legal actions that could drive new websites out of business.

So, for the next twelve hours, my blog will be down.  Hold back your tears, I will be coming back soon, and when I do, here’s hoping that it will be to a world that is more willing to consider the side effects of legislation being considered.  Have a safe SOPA blackout day!

Roger Raby

The world is increasingly wired.  In modern society, it’s more possible than ever for a single individual, armed with nothing more than a computer and desire to share a story, to spread information so far and wide that in the past it would have required a small media empire to have the same impact.  It’s never been easier for activists or devoted customers to spread the word about businesses and organizations that they love; from a business’s perspective, this can be great, as it allows businesses that might otherwise never be able to compete with the 800 lb gorillas in their field to get the word out and promote themselves without having to break the bank on budgeting.

But it’s something of a double-edged sword.  For every business that has watched itself being promoted by social media like Twitter and Facebook, there’s another that has had a bad decision echoed to the far ends of the internet, or watched as business that would normally be conducted behind closed doors was put on display for all to see.  It’s a new world of marketing and handling public relations, one in which many companies seems to be at a loss as to the best way to function, and sometimes, makes some pretty horrifying mistakes along the way, the sort of mistakes that can ruin reputations and corporations.

Here are two examples of such mistakes; think of this as a ‘How Not to Handle Criticism’ guide to the new media age.

Suze Orman’s Approved Card

Chances are, if you’re anything of a PF blog reader, you’ve heard of this already; it’s a pre-paid debit card being promoted by Suze Orman, personal finance guru and author of several books (including The Money Book for the Young, Fabulous, and Broke, one of the best personal finance books I’ve read).  Unfortunately, the card has some flaws; a fee of $3 each month, other possible fees, and the fact that its major difference from the typical free bank debit card (unlike other debit cards, your transactions are reported to TransUnion, one of the three credit bureaus that determine your credit score) is not as impressive as it first appears to be.  (The transactions, while recorded, will not actually affect your credit score; why would they, when debit cards aren’t really a form of credit and indicate little about your ability to repay a debt?)  All these facts were pointed out by PT Money and others, first on Twitter, then through blog entries.

How NOT to Handle the Situation

Facing criticism of the card she is approving, Ms. Orman decided the best defense was a good offense, leveling insults via Twitter towards those who criticized her new card.  (Including calling Phillip Taylor, the ‘PT’ in PT Money, ignorant.)  That ended up resulting in a small firestorm of attention from the personal finance blogging media, a surprising large (and willing to stick up for each other) group.  Although Ms. Orman eventually apologized to PT and others whom she had harsh words for, it still did little to improve her image, even among those of us who consider her advice pretty good.  (You’ll note that I’m still discussing this issue nearly a week after it first happened; not exactly the sort of promotion I imagine Ms. Orman was hoping for.)

The apology was accepted, by the way

A Better Approach

Rather than letting emotions take control, a more reasonable approach would be to calmly and rationally discuss the issue, acknowledging the problems (Ms. Orman has come out against pre-paid debit cards before, so justifying a change in position will require some effort) while stating why such a shift was warranted.  Granted, Twitter, with its 140 character maximum, is hardly the best place to have a detailed discussion, but it’s easy enough to link out to other sources that make your point (as Ms. Orman did when linking to this article, for example).  Your detractors may still disagree with you, but will better understand your position and still have as much (if not more) respect for you than they had before.

So, you might assume from this example that insulting someone, even someone with a blog and wide readership, is rude, but pretty harmless.  Suze Orman is still the host of a major money show, the writer of numerous books, and is generally well-respected in the personal finance community; she didn’t exactly suffer much for what she said.  But not everyone’s so lucky when they mess up public relations like this, as our second example shows:

Ocean Marketing and Penny Arcade

So, our next story starts with a fellow named Dave trying to order two Avenger controllers, video game controllers especially designed to be easier for disabled people to use.  He hadn’t received his controllers for a while, and wrote to the company asking about their location.  He also noted that new people ordering the controllers now were paying less than he did over a month before, and asked whether there would be any compensation for him as a result.  The response he got…wasn’t good

How NOT to Handle the Situation

Rather than honestly explaining what was keeping the controllers from being shipped, the president (and only employee) of the marketing firm Ocean Marketing, Paul Christoforo, instead sent a series of increasingly insulting and derogatory emails, while also name-dropping major gaming sites like Kotaku, IGN, and Penny Arcade.  This last one, in particular, was a mistake.

In case you’ve never had the pleasure of reading it, Penny Arcade is an amazingly popular webcomic.  (For those of you who are  bloggers, who make up more than a few of my readers, here are a few numbers to put its popularity into perspective: it has an Alexa Rank of 3378 and a Google Page Rank of 6, with tens, if not hundreds, of thousands of regular readers.  Yup, pretty impressive.)  After Dave let him know what was happening, one of the guys in charge of Penny Arcade posted a complete summary of the email exchanges, its readers took up the mantle, and in short order, Ocean Marketing was out of business, the companies that used to work with it had nothing but bad things to say, and Christoforo was begging for mercy.  I’ve never worked in public relations, but it’s hard to imagine a worse way for things to play out.  (Oh, unless it involved a mocking YouTube Video that was still less insulting than the actual email exchange.)

A Better Approach

Honestly, it’s hard to think of a worse approach that doesn’t involve actual torture.  But alright, here’s some thoughts: when approached by a paying customer who wants to know about a product delay, try being upfront about any problems that have arisen.  If a discount is offered to new customers, make sure that existing customers (particularly those still waiting for delivery) can benefit as much, if not more.  One more, from what I’m sure are dozens of lessons that can be drawn from this incident: maybe, just maybe, don’t name-drop people and organizations unless you know for a fact that they’d approve of your actions on their behalf.

There you have it, some examples of just how badly some people can mess up the process of public relations.  Try to learn from these examples about what not to do when trying to promote your business.

So, the Occupy Wall Street (or OWS, for those of us who like our abbreviations) movement seems to be dying down (or at least, moving towards a less extravagant method of trying to meet their goals). This is not going to be an article about OWS. I’m not going to comment on whether they are enlightened leaders who will help lead us to a better economic future, or whether they are a bunch of whiners who aren’t willing to pull themselves up by their own bootstraps. That’s not what this post is about.

What this is about is my attempt to answer where in the spectrum of income I happen to fall. I can say off the bat that I’m not part of the 1%, unless the country is in even worse shape than I have been led to believe. This is not to say that I won’t get there one day; one of the advantages of living in the United States is the ability to improve one’s lot in life. (I’ll leave it to the OWS crowd and their detractors to argue about the best way to make it easier to do so; I’m big enough to admit that I don’t know off the top of my head which way to shift policies to help the most people.)

Luckily for me, and for anyone else who is curious as to where they fall, there are ways to find out. The Wall Street Journal (possibly the group least likely to support the protesters’ cause, but that’s neither here nor there) has put out a calculator that allows you to enter your salary and find out your earning percentile. It’s kind of a neat concept, and given how much I think about money, earning, and where I happen to fall, I was curious.

The Calculator In Question Shown in Action

So, I decided to figure out where I stand, and then, because this entry was running a little short, I mean, my curiosity was aroused, I decided to try a few other options to see how possible (and likely) changes in my income could affect the percentage where I fall. (Now granted, the income levels will shift, at least a little bit, in the coming years, making my percentages less than 100% accurate. But hey, this is just for fun anyway, so I’m just going to run with it.) Alright, onto some annual incomes and percentages:

Occupation: Graduate Student; Salary: $12,000; Percentage: 13%; Reaction: Ouch; there might be a reason that so many of the protesters were students…

Occupation: Grad Student (with my Blogging Side Income From Last Year); Salary: $16,000; Percentage: 19%; Reaction: Well, my blogging does help me, quite a lot; not quite enough to pull me out of the bottom quintile, but hey, every bit helps.

Occupation: Biochemistry (Starting Salary with a Masters Degree); Salary: $47,000; Percentage: 53%; Reaction: Yee-ha! Right from the start, my fancy new degree should elevate me to the top half of earners in the country. Not a bad way to spend a couple years, it seems.

Occupation: Biochemist (Average Salary); Salary: $89,000; Percentage: 76%; Reaction: Hey look, with some experience under my belt, it looks like I could be earning some serious coin. Ka-Ching!

Occupation: Biochemist in Pennsylvania; Salary: $105,000; Percentage: 82%; Reaction: Apparently my home state is pretty generous to biochemists, allowing us to clear six figures, on average. Not too shabby.

Alright, one more; although this is fun, I should probably be getting back to the whole process of earning that degree so I can earn some of those high incomes.

Occupation: President of the United States; Salary: $400,000; Percentage: 98%; Reaction: I don’t think I’ll ever be the President of the United States (I’m not nearly good enough at begging for money and playing politics to become mayor of sizable city, let alone President), but I did think it was interesting that I COULD be the President and technically still be part of the ‘99%’. Helps to put things into perspective, or something, I suppose.

Alright, that should be enough for now. It’s definitely kind of interesting to see where different wages stack up in the scheme of the country’s overall earning. On that note, back to increasing my percentage!

One of the advantages of being a chemist (besides the incredible attractiveness that is associated with guys who study science) is the interesting perspective it provides you on things completely unrelated to science.  I suppose that happens with every profession, of course; whether you are a butcher, a baker, or a candlestick maker, you tend to apply your personal knowledge and experiences to the world around you, including your finances.  What your profession teaches you about the world, you’ll tend to apply to your money as well.

A Chemist, doing Chemist-type things

Which brings us back to the thought at hand: chemistry.  One of the main considerations in chemistry is the concept of limiting reagents. Not to get too deep into the finer points of chemistry, a limiting reagent is the species that reacts which limits how much of the product(s) can be generated.  Determining the limiting reagent enables you to figure out how much of the product(s) that can be made (and when you’re in lab, determining how much of the product(s) you’ve been able to make).

That short little paragraph might not be enough to explain the concept (which is usually the subject of a solid lecture or two in a general chemistry class), so let’s consider a more familiar example: a fire.  To have a fire, you need three things: an ignition source (such as a spark or a match), something combustible to burn (wood, oil, a candle, whatever), and oxygen.  In most situations, the oxygen is effectively unlimited (even a huge fire can’t consume more than a tiny, tiny portion of the oxygen that makes up 24% of the atmosphere) while the combustible material is limited.  The amount of fire you can generate is limited by how much material you have to burn.

The Limiting Reagents When Investing

All of this got me thinking about investing, and what limits the amount of money you can earn throughout your investment career.  It occurred to me that what limits your investment returns varies throughout your lifetime.

• When you are young: Your investment returns are primarily limited by how much money you invest.  The difference between investing $4000 per year and $5000 a year when you have only $10,000 set aside will make a big difference in how much money you’ll have in the future.
• When you are older: As you age, though, the amount of money you invest starts to become less important; the impact on your net worth between investing $4000 and $5000 is much less pronounced when you have a net worth of $500,000.  Instead, the amount of profit you generate is much more dependent on how much of a return your investments generate; the difference between a 8% return ($40,000 on our $500,000 example) and a  6% return ($30,000) can make a big difference in your final net worth.  (Particularly when the miracle of compound interest starts to kick in.

When exactly does the change over occur, from greater dependence on amount of money invested to greater dependence on investment return?  Well, there’s no exact dividing line; as your investments keep growing, the amount your future net worth grows will start to rely more and more on investment returns.  Assuming most of your investments are in stocks and that said stocks return about 10% each year, investment returns will generate more income when your total amount invested is ten times your yearly investment amount.  So, if you’re putting aside $5000 a year, your investment return will exceed that amount when you have $50,000 in your account (or around that amount).

The Lessons to Be Drawn

While thinking about all this, a few lessons occurred to me.  First, when you’re younger, the most important thing to how your net worth grows is how much you invest, not the return you earn.  It’s better to get started with your investment as soon as possible, rather than obsessing about finding just the perfect investment.  When you are starting out, worrying too much about your investment choices will just delay your net worth’s growth.

Next, as you grow older, the importance of a solid returning investment grows and grows.  While it is tempting to hide your money in safe investments and not take on any risk, keeping your money growing requires taking on a certain amount of risk.  Keep a portion of your money in safe investments (to protect yourself from declines in value) but remember that you need to keep growing your money as well.

The last, and most important lesson that I’ve drawn from this line of thinking, is that there are lessons that can be learned about managing your financing all around you.  Applying what you learn throughout your life to your money and personal financial management can yield lots of interesting insights.

What sort of lessons has your job taught you?

• Choosing Which State's 529 Plan to Use
• Weekend Personal Finance Review
• Over Half of Millenials Would Save Money and Pay Down Debt vs. Invest in Stock Market and Real Estate
• Starting Small - $1000 or Less Investments
• Deciding How Much Life Insurance Your Family Needs