Credit Cards and Conformity

I've been teaching a budgeting class for several years and I'm passionate about financial literacy for both kids and adults. I've seen first hand how bad decisions regarding credit can turn an otherwise productive life into a merry-go-round of stress, depression and anger. Before the early 1950's, credit cards didn't exist at all, and then they were only for the most credit worthy consumers.

As the credit industry expanded, Citi made its mark by soliciting customers with credit just barely below the industry standards, charging them considerably higher rates but still achieving relatively low default risks. Throughout the 90's and 2000's, the expansive availability of credit was everywhere. Jokes popped up about dogs getting offers. Business boomed. Housing boomed. And we spent and spent.

As with television, I know many people who recognize the problems of credit cards but very few are willing to do without them. Today's average order at McDonald's is 25-50% larger than before they took credit cards, even adjusted for inflation. We have racked up more ways to spend more money on more stuff that we need less than any other time in history.

So, what does it mean to jump off that merry-go-round? Pay cash. Even sitting in the restaurant where I'm writing this blog entry, I overhear a father telling a small child he can't have a soda because they didn't pay for sodas. Tough to imagine adults having the same hard conversations with their spouses about what they can and can't afford, or pay for.

In my class, I teach people to go off the grid. Cut up their credit cards- physically shred them if they're unwilling to close the account. Pay cash for everything possible, checks only when cash isn't an option. Reduce their bills by eliminating unnecessary spending. Be strategic about the spending they must do. And above all, recognize what emotional triggers get set off by money.

Credit, post-2008 Apocalypse, is going to be tougher to convince people to live without. I urge people, therefore, to consider these steps:

1) Do the math on what you're spending. If you're three months into a $150/month cell phone contract that will cost you $200 to cancel, paying the fee and waiting for 5 weeks puts you financially ahead. If your actual concern is safety, consider a pre-paid phone or the lowest possible number of minutes (30). Saying you control the cost of the meals by eating them all out only makes sense if you refuse to keep staples on hand and have to buy everything (including spices) new each time. Strategic meal planning can be extremely beneficial to know what to buy and to not end up with meat balls, feta and grape juice as a meal.

2) Give yourself permission to jump out of the world's expectations. The world wants you to have a credit card. They want you to spend, spend, spend! In the mid-1990's, the Japanese government created billions of yen out of thin air to devalue their currency and keep Japanese exports cheap compared to American dollars. Unfortunately, our government decided to follow suit, disregarding the fact that (as a non-manufacturing economy) we want a strong dollar. Weakness, when your economy thrives on consumption, leads to short term bubbles and extreme pain when they reliably burst. Not only does using credit give you psychological permission to spend more, marketing of everything from burgers to LCD TVs beckons you to do so. Then, you can look forward to paying usurious interest rates as you strive to pay them off with deflated dollars. The world doesn't want you to live debt free! But, to quote America's favorite no-debt guru Dave Ramsey, "if you live like no one else, you can live like no one else!"

The Layoff Question (Part 2)

In my last post, I addressed layoffs from the company's standpoint. Now, I wanted to flip the coin and talk briefly about them from the employee's side. Being laid off has three problems: the emotional cost, the financial cost and the opportunity cost. I'd like to offer a solution for how to address each if you've recently been laid off, or want to improve your chances of being the one they keep.

Think of this as Personal Performance Optimization.

Let's start with the emotional cost. You didn't get fired for cause (at least I'm assuming, and if you did, that's a different post!), you got laid off. Think of yourself as a bill that didn't get paid, and now you need to provide your service to someone who has more money. There might be relief if you hated your job or anger or sadness if you loved it. Maybe it was just pleasant. First things first. Unless you have a year's liquid savings (liquid = money market accounts or CD ladders and NOT your 401(k), home equity loan, etc), you should consider your new full time job looking for a full time job. By that, I mean to take the following steps:

1) Make a list of everyone you know. And I mean everyone! Neighbors, the mailman, your stylist, your accountant, your favorite barista. Your weaker social connections, folks that you see a few times a year or friends of friends, are most likely to help you get jobs. Your best friends and immediate family probably know most of the same people you do. Get the word out you're looking for a new job. You never know who knows who unless you ask, and they know what you do and who you're looking to meet. Social networking sites like LinkedIn and FaceBook are helpful for keeping track of and making new connections. 70-80% of jobs are filled on personal connections. So let's get you connected!

2) Update your resume, and make sure you strip all the meaningless wording out of it. The objective "A strategic position using my strengths to create win-win opportunities" (by the way, taken off an actual resume I received!) makes me think that not only do I have no idea what you want to do, you don't either. A better objective is "A full time position as a tax lawyer" or "Telecommuting Contract Work as an Adobe Flash/Flex developer."

3) Take stock of your current (or most recently had) position. What did you like? Hate? Think was fascinating or completely boring? Talk to friends in your field and ask them what they think you'd be good at. Take an IDAK test (a career assessment test that helps you mine out your strengths/likes and dislikes/weaknesses and then gives you a subscription to a job board).

4) DON'T get in the trap of either thinking of this as a rut or an extended vacation. And don't worry! Even in the worst markets, there are still a lot of people out there hiring.

Second, let's talk about the financial cost. If you have plenty of savings and no debt, well done! If you don't, I recommend taking your severance package (if you got one), and budgeting out as many complete months of bills as it will pay, then write the checks out and act like the money's not in your account. Being laid off in January and knowing that you're okay until March is of tremendous comfort. Then, start paring down your life. Being laid off is a great time to think about what you actually want to spend money on. Cancel any misc. services like cable, extra phone/fax (if you have a cell and a land line both), housekeeping, massages. If you're in big trouble, get a night job driving pizzas or bar tending, and concentrate your days on scouting out companies you want to work for.

Be realistic in the jobs you're looking for. Be prepared to negotiate an offer that you'll be happy with for a year. Prospective employers will give you some freshman forgiveness if you job-hop a lot in your early 20's. But if you're still doing it in your early 40's, it makes you seem unstable. Think about the benefits that are most valuable to you. Money is important, but so is the quality of your outside life. Are you a mom who wants to be home every day by 3:00? Are you a community activist who considers a company's philanthropy as important as their product? Are you a road warrior? Think through the atmosphere of the job as much as the comp package.

But... don't be afraid to try something new! If you've always been an employee, try independent contracting. If you're mobile, try a new city. I moved from my hometown Cincinnati to Columbus to Cleveland to Denver. It wasn't a path I expected but I made some wonderful friends along the way.

Lastly, let's talk about the opportunity cost. If you're holding out for the perfect job, it doesn't exist. But you can make any job a great job by following these three rules:

1) Get your boss promoted. If you interview with someone who comes across as someone you wouldn't want to push up the corporate ladder, don't work for him. Trust your instincts here. I either have the luckiest streak in the world or just decent instincts about this because I've truly liked and respected every boss I've ever worked for, and they've all been promoted while I was on the team.

2) Make lots of acquaintances. If you work in a larger company, organize a round-table lunch with other departments. Talking to people on the phone or through memos for a year can't do as much for a relationship as getting to know them face to face.

3) Learn about how you can make other people look good. Get in the habit of sending short (1-2 sentence) emails to people's bosses if they do a particularly great job or a favor for you. Sending it to them is nice, but most bosses will send it to them anyway with an additional kudos or more. If you have a good idea, talk about it with co-workers and if they can add to it or make it better, present it jointly.

I love helping other people get connected to jobs they love. If I can help you, please ask! :)

The Layoff Question (Part 1)

Layoffs hurt.

Ask any of the estimated 50-70% of Americans who are one paycheck away from financial ruin, or any middle manager who's just been handed a headcount or payroll number he must meet.

Unfortunately, a market like 2008 means that companies have to make some difficult choices. Even firms with proud track records of never having laid off in their history are making cuts. However, I'm confident the amazing American economy will see brighter days. In the meantime, here are a few ideas for companies looking to optimize future performance.

First, shine some light on your non-compensation costs.

What would happen if a company made its budget internally-public to its employees? While senior management can do a certain amount of high-level cost cutting, employees will be able to cut much more precisely because they're on the front lines and know exactly how certain measures will impact them. Some ideas may be extremely easy to implement like replacing paper coffee cups with mugs or automatically printing 2-sided copies. Others may involve vendor switches based on personal relationships senior management might not know about (i.e. the accountant who's married to the VP-Sales of an office supply vendor and can get you a better deal). A team building contest to see who can eliminate the most waste from their department with a prize people care about like extra vacation time or dinner with the CEO would likely generate ideas with cumulative savings worth far more than their cost.

Second, make continuous cross-training a part of every department.

Service reps who can also process business are more likely to have both have less downtime and integrate valuable suggestions from customers. Processors may be fried at handwritten order forms. Customers may complain about the slow speed with which orders get processed. If there were a way to have orders entered directly on line into the database, both the speed and accuracy problems could be solved. There's tremendous value in asking your employees on every team "What tools do you need to make your job easier?" Very often, these will line up with the corporation's goals.

Third, create as many "producing team leaders" as possible.

If a company is trying to eliminate non-revenue generating positions, it may helpful to divide the part of the work load that can be divided among the team, give the team leader a raise or extra bonus to coach/mentor the team and hold him responsible for 60-80% of the work load (to leave room for mandatory responsibilities like reviews, interviews, etc) of a non-team leader. By the work that can be divided, I mean attending management meetings, running non-confidential reports, doing business analysis. If you work with a team of high achievers, sending a non-manager to speak for the team may yield similar results. Alternatively, if you have a low-producing or split team, this is a great opportunity to find out what's holding them back.

Employees, freed up and given the tools to be amazing, will astound you every time.

I am a self-confessed Left Brainiac

The left side of your brain is rational. I don't have anything to back this up, but I think the left side of my brain must take up at least 80% of the total space, because things that don't make sense drive me nuts.

I love efficiency. I started on my process management kick in middle school, when my friends would tell me they were hungry. That thought, plus an old green duffel bag from my dad and $20 in seed capital from my mom (she was my original angel investor!) put me in business selling candy bars. Everything went in a black and white spiral notebook - how fast inventory was turning over, profit margins, even candy weight - when you're carrying your entire supply on your back, it takes on more importance! I switched out my Snickers for Blow-Pops in the spring because the mark up was higher. Also, chocolate and sticky Cincinnati summers aren't the match made in Heaven one might think.

Fast forward 20 years. I'm now an adult with a responsible job, a FICO score and my own bottle of fabric softner. I still have the kid in me saying "You know what would be awesome... !" and filling in the blank with some crazy idea. Then there's the other part of me that's already mentally forming a spreadsheet with a cost-benefit analysis, timeline and project scope to see if that thing I was just dreaming of is a good idea.

My favorite equation: Goals = Dreams + Deadlines