I remember reading magazines and always seeing Columbia House and BMG advertisements all the time. All those offers for like 10 CDs for a penny each or 5 DVDs for a quarter each and I wondered, naively, how those companies made any of their money. Now, many many years older and quite a bit wiser, I quickly realized that the profit margins of many products that we see is significantly higher than what we would originally anticipate and that the whole instant gratification concept was roaring strong even back in the 80s.

Take for example, the standard offer from Columbia House these days (who is still around, much to my surprise). You get 5 DVDs for $0.49 each with free shipping with an obligation of 5 DVDs over the next two years. The DVDs at regular price are $19.95 a pop plus shipping and “processing.” That puts the total price at $102.20 plus S&P, which makes the price around $10.22 a DVD plus shipping and handling. There are special offers and stuff but ultimately you’re paying about twelve bucks I bet after all is said and done for each DVD at the minimum. How much do you think those DVDs cost Columbia House? Probably a few dollars at most considering you can get them at bargain basement Wal-Mart for a few bucks too and they have skinny profit margins.

The big thing here isn’t so much how much they make, but how little they make it seem that you’ll be spending. Five DVDs at $0.49 cents… you get five DVDs now with the obligation of only five more over the next two years. Does this sound like anything else? Yeah, it sounds like every other consumeristic thing out there getting you to obligate your money now for a great deal that turns into an average deal later on. Credit cards? Check. Payday loans? Check.

Considering Columbia House celebrated their 50th anniversay in 2005, I guess the whole instant gratification thing isn’t an entirely new concept. (And BMG, the one with the 50 CDs for five duckets ads way back when, now actually owns Columbia House)

It’s not really bragging when you talk about the value of your 401K because no one really truly cares how much money you’ve saved away and can tap into forty years down the road. While it does say something about the person saving, it’s not really all that bad if you’ve only put the minimum matching amount into your 401K because anything more is merely gravy. In fact, some would say that having too big of a 401K balance would be bad because you’re emphasizing the future and not the present. Anyway, if you’re a blogger and recently wrote a 401K balance related post (include how long you’ve been contributing), let me know (email is best) and I’ll post you with the crew I’ve found below (link in name is to the post I found the information on):

• Mapgirl: $20k+, 2 years
• Flexo: ~$40k, 5+ years
• Hazzard: Almost $100k, 6 years
• 2million: ~$118k, ~5 years
• ME: ~71k, 4 years
• bostonmichelle (of GEICO fraudulent claim fame): $152k, 12 years
• broknowrchlatr: $31k, 3.5 years
• burn: $8k, 1 year
• English Major: $10k, ? years
• Dong: $210k, 7 years
• Nick: $20k, 1.5 years
• Mike: $6k, ~1.5 years
• Tired of working: $1.1M, 25 years
• andyaluba: $9.3K, 9 months
• Tim: $26k, 1 year
• Shadox: $38k, 2 years

(I’m not going to update this anymore, it’s getting to be a bit of a bear, but feel free to leave your values in the comments… sorry folks!)

Reader Julia writes in:

Dear Jim -

Thanks for your blog – it’s swell!

Was wondering if you could share your two cents on my situation:

I have $25K in liquid cash sitting in a savings account with a variable APY of 5.05%. I have a separate account for 6 months of emergency funds, max out my $4K Roth IRA contribution, and max out my contribution to my company’s matching retirement account in addition to a small supplementary contribution. My only debt is a large student loan to the tune of $25K. The loan has a 2.5% interest rate. Should I pay more on my student loans every month cutting my 20-year loan repayment schedule in half, pay off half in a lump sum amount, or I guess there are many approaches to this situation…I’m not really sure what’s best. I have no children or other financial obligations. In a nutshell, I just don’t think it makes sense to have so much cash just sitting there. I don’t think I’m going to buy property anytime in the next 5 years (I would never be approved for a mortgage at my current salary for a living space in my current city). I’m interested in learning more about stocks, but realize there’s always a risk involved…anyway, what would you do?

What’s interesting is that Julia’s particular situation is very similar to my own (and many other recent college graduates several years out of college) and here’s my response:

Thanks for the email… I think you shouldn’t pay off your student loans for a couple reasons:
1) The interest is deductible if your salary is under a certain amount, it’s low though and you may be making more than that amount, I think it’s 60k or something in that range. (I looked this up after I sent the email, you can deduct up to $2500 in interest a year and the phase out for single filers is $50-$65k)
2) Your 5.05% is greater than 2.5%, which is sort of the situation I’m in right now too and I haven’t been paying off more than the minimums to the student loan because of that differential. See, that 5.05% is risk free, which would be different than your money in a brokerage account.

As for what to do with the money… I’m not really sure. I’d put it in a brokerage account and in some mutual funds, you’ll have to decide what you want to do with that money. While you aren’t thinking of a house at the moment, having that down payment money there is always a plus.

What would you recommend?

I had written a post in which I talked about some companies I love and one of them was GEICO, mostly because they were cheap, and bostonmichelle left the following comment:

You like Geico only because you’ve never had a claim or any other problem. Someone put in a fraudulent claim against me, and [Geico] just went ahead [and] paid them even after:

1. I submitted professional photos (at a claim shop) documenting the total lack of damage to my car.
2. I submitted my own photos of my car backed up against a truck of the exact same model of the claimant’s to show there was no way my little car could have damaged his huge truck’s back bumper, and
3. I spent 2 hours on the phone with various people there begging them to look at the photos and tell me how I possibly could have caused that damage.

So, they pay anyway, and my insurance record gets dinged cuz they did so. I had to pursue this case because there was NO WAY I was going to pay higher insurance because they are so stupid. After spending many hours talking with MANY stupid, lazy people at Geico, I finally get a guy whose wife had a fraudulent claim against her. HE got it and fixed my insurance record. It still showed they paid out, but I was now shown as “not at fault.”

Idiots. I’ve gotten the best deal and the best service of my life going through Costco (one of your other favorites). They use Ameriprise, which has been wonderful so far. Plus, you can pay your premiums with a credit card. I bet you could save even more money with them – plus you won’t risk your sanity, insurance record, or finances should you actually need to use your insurance.

I was pretty surprised to hear this mostly because insurance companies aren’t in the business of paying out a lot of money needlessly, they’re usually on the other extreme, looking for ways to get out of paying for something. So I asked for more details and bostonmichelle provided:

The claim they paid was about $450. It sure would have been cheaper to listen to their customer and not the claimant (they lost me as a client immediately, and I’ve been telling my story ever since), but I’m sure they had their reasons.

There was no police report since we both agreed at the time that there was no damage. I hit the guy while I was rolling from a standing stop – about 1 or 2 miles per hour. He had a dented bumper on his tall SUV, but my bumper (on my short little Sentra) was far too low to do that damage. I had hit his tow package hanging down below his bumper. We both agreed there was no damage. Neither of us had a camera in our cars.

He later sent me a quote for $700 or so from a repair shop. It listed his make & model, so I went to a dealer who let me park up right next to the back of the same model and take photos. I had clearly hit the tow package. If he had no tow package, the front of my car would have gone clear under his truck, which certainly might have damaged MY car -but not his.

I sent those pics in AND I went to Geico’s claim shop which put a measuring tape on the front of my car and took their own pics. There was absolutely no damage to my car at all. They sent those pics in. When I talked with the various Geico people, most didn’t have access to the pics. And, no one WITH access ever called me back.

The one guy who helped me knew what it was like to have a fraudulent claim. He didn’t see the photos either. He just had been through it himself and was sympathetic. I don’t know the insurance business, so I can’t answer your questions any more than that. You can post this email if you like. Anyone who wants to help share the pain of dealing with Geico on a claim is doing a good deed, that’s for sure.

By the way, I have NEVER had an accident – one that was my fault or someone else’s. And, I’m 36 and have my license for 20 years.

Again, I would get the hell out of there, if I were you. At least look into Costco’s service. I think you’ll be pleasantly surprised.

Basically it sounds like the person she hit pulled a fast one on Geico and they fell for it, leaving bostonmichelle holding the bag. While you can’t do anything after the fact, this is why it’s crucial to keep a camera nearby (nice if you have a cell phone camera) to take pictures at the scene of the accident in order to have some sort of proof. Your word is nice but evidence is nicer.

There are unwritten rules (until now!) with regard to chipping in some cash for a BBQ, how much of a gift you should get for housewarmings, weddings, etc; and many of the multitude of events you’ll likely attend now that you’re an upstanding member of the community. In general, you want to pay your own way and not be the jerk people talk about when they BS around the campfire. If you bought 8 drinks and the $25 entree at lunch and everyone else stayed sober, don’t offer to split the check or someone will want to split your lip. Don’t be the guy that’s always at other people’s houses drinking their beers. Don’t be the guy that throws in a ten on a meal that cost $9.75.

The Basic Rule:
It worked in Hammurabi’s day and it works today – an eye for an eye. You always pay your way, you always get people back, you never take advantage of someone else’s generosity, and always err on the side of paying too much and never on the side of paying too little. It’s okay to forget sometimes, especially if drinking is involved, and most people won’t count one for one but we all recognize trends and who seems to be a little tighter than the rest.

Buying Rounds:
We all know the guy who will gladly take a beer but can’t find his wallet later on during the night. If you don’t want to drink, gently decline and you’re off the hook. If you want to buy your own, gently decline. If you take someone else’s offering, be sure to get them back sometime during the night. You’d think this would go without saying but… it doesn’t.

Dining Out:
The whole idea of splitting a restaurant bill only works if everyone pretty much got the same priced thing, plus or minus a few dollars. While I’ve never personally been in the situation where there was ever a disparity past like three dollars, I’ve heard stories from people that have. Listen guy who got the lobster when everyone else got turkey sandwiches, don’t suggest they split the check. You look like a jerk for saving ten bucks. Splitting the check isn’t an opportunity to save money, it’s an opportunity to save some time.

Carpools, Rides:
Carpooling to something? The national average for gas is in the $3 range so it’s certainly not cheap, be sure to offer to chip in a few dollars to help pay for hauling your sorry behind from A to B. Sometimes it might be worth it to just fork over five or ten (whatever you think it costs to drive to the place, divided by the people and then add a few dollars) without asking, if the driver refuses then offer again; if they still refuse, thank them politely and buy them a drink sometime.

Parties, BBQs:
First, ask the host if they want you to bring anything. If they say no, ask them they want you to bring beer or wine. If they still say no, look for a tip jar or something when you show up and throw in what you think you’re eating and drinking. If there isn’t one, remember to invite them to your party or BBQ the next time around and don’t ask them to bring something. If they say yes to anything, do that and you’re done.

Group Gifts:
This all depends on how much you make but I think that $20 is always a safe number (or whatever that safe number is in your circles) when it comes to chipping in a few dollars for a housewarming or a boatwarming or a whatever gift. Don’t be that jerk that throws in a fiver and thinks it’s all good because it’s not (unless it’s a bicycle warming).

Wedding Gifts:
Consider how much it likely costs the lucky couple for you to attend their event and give them a gift that’s commensurate to that cost, adjusting up if they’re close friends. If you have no idea how much you think it costs, the safest number is $100 (which won’t be that far off). For example, if you’re invited to a wedding where you’re the date, spring for something about how much you think the wedding cost them. If you have been great friends with the bride or groom for many many years, get them something a little (or a lot) nicer.

These rules are of course just guidelines that you should adjust for your group’s financial picture. My friends all have full time jobs and so these rules and their dollar amounts are good enough, if you’re in college then you probably want to adjust some of the numbers down a little. Scratching together a hundred dollars for a wedding gift is much harder for someone in college than someone with a job and everyone understands this. Also, $100 may make sense in Baltimore and in most places, but perhaps not in Manhattan.

Ultimately, the general rule still applies regardless of where you are, pay your own way and don’t take advantage.

In the past there has been great debate as to why personal finance bloggers are so willing to share their net worths but aren’t so forthcoming with their salaries – I was one of them (until recently, now I don’t share either, ha!). It’s been talked about on other blogs as well but I wanted to put forth my theory as to why it doesn’t bother us to learn Tiger Woods’ or Bill Gates’ or the President’s salary and it’s not terribly outlandish (and you’ve probably heard it before).

People keep their salaries private because they use it to compare how successful they are against others. If you make $30,000 now and your friend is making $35,000, then you feel bad (if you think you don’t feel bad, please be honest with yourself; if you still don’t feel bad, I applaud you because you are likely in the minority). Why is the other guy making $5k more than you? Why are you paid less? Why is he or she paid more? Am I a jerk for even thinking this? The answer is there is no answer, there are plenty of reasons why the other person is making more (or less) and it likely has nothing to do with you or his or her ability. Oh, and you’re not a jerk, it’s natural to compare anything. The other person might be paid more because they started at a time when the competition was hot; the other person might be paid more because they’re doing a slightly different job; the other person might be paid more because they honestly are better than you or harder working and you just don’t know it. Ultimately, there are plenty of reasons and a majority have nothing to do with you… but it’s hard to accept that. That’s why you don’t share salaries. You don’t want other people to feel bad and you don’t want to feel bad yourself; it’s okay.

So why doesn’t it bother you to find out how much Tiger Woods makes? You can’t compare to Tiger Woods unless you’re Phil Mickelson or VJ Singh, you’re probably neither (if you are, shoot me an email!). You don’t compare yourself to Donald Trump, you don’t compare yourself to Martha Stewart, and you don’t compare yourself to Steve Jobs – that’s why it doesn’t matter if you know how much they bank each month.

Oh, Steve Jobs makes a dollar each year… you probably make more and I think he’s okay with that.

Hmmmm… according to an MSN Money article, Bruce of Virginia has $50k in credit card debt that has netted him thousands of dollars in interested because of 0% APR balance transfer credit card offers socked away into high yield savings accounts, taking advantage of something that personal finance bloggers have been writing about for years now. Now, it makes you kind of wonder about the whole 0% balance transfer arbitrage game now that it’s hit “mainstream” with articles in MSN Money, tipped off probably on Weston’s Your Money forums, but credit card companies still offer them, often times with no fees.

Only recently did Discover add a balance transfer fee to their transfers, likely because a lot of folks were targeting Discover before Citi, the other balance transfer target; and so you wonder if the free money will come to an end?

Personally, I think the balance transfer arbitrage game is too risky and not really worth the effort (do you really want to have $50k in credit card debt, even if you’re making money?) so I stopped after my first round of offers. However, if you really do want some extra spending money and I don’t mind the hassle, it’s definitely an easy way to make some extra scratch and the steps are pretty straightforward.

FMF shared his list of companies he promotes for free and asked for everyone to share their list so here’s mine:

• Vanguard – Not surprising, I’m a big proponent of Vanguard as well. They currently have my SEP-IRA, Rollover IRA, and my fiancee’s regular brokerage account; every single time I’ve talked to someone there, they’ve been courteous and able to help me within minutes. I had a couple tricky situations too but they were able to easily tell me how to fix it and I was on my way. Plus, their funds are ridiculously cheap…
• Costco – Again, another one off FMF’s list, I heart Costco because of their low prices and their money back guarantee (I’m fine with them not taking back electronics after six months, screw the people trying to game the system) though sometimes the long lines can be a little frustrating if you want to walk out with only a couple things. I like how they’ve expanded their line of products to include more seasonal items. I love their ribeye steaks, great prices and pretty good cuts, and their tire center.
• GEICO – For my demographic, I pay pennies for auto insurance and Geico is part of the reason why. I’ve been with them for as many years as I’ve been driving and every bill the amount they charge gets lower and lower. Just this past month I renewed my policy and the price had fallen $25 to $301.00, you can’t really beat that! (I don’t carry comprehensive or collision insurance, though if I added those with $1k deductibles the total would only be $607.00 — hmmm maybe I will get it.) Plus they have the Caveman and Gecko commercials.
• Kingston – These guys make RAM and are currently owned by Micron but they have a lifetime warranty on their products that I’ve used twice without any complications whatsoever. In each case I just read them some numbers off the chip, they asked for my address and bam… next memory in a couple days.

Today, I’m going to tackle one of the most seemingly unsurmountable pieces of personal finance advice out there: you should have an emergency fund. Before you read on further, this is a Devil’s Advocate post, which means I’m going to try to argue the other side even though I don’t believe it. So… before you read on, let me be absolutely clear … you should have an emergency fund, but if you want a few reasons why you shouldn’t… here they are.

First off, let me go over what I consider an emergency fund. It’s money you set aside for a real bad rainy day in a bank account, whether its a high yield online savings account or just a regular old savings account at your local bank; it must be in an account where the principal is protected. Putting it in a brokerage account, that’s not an emergency fund because the principal could evaporate on a really bad stock market day. So, why don’t you need an emergency fund…

Most Emergencies Are Small…
or if they’re big, they’re really really big. So, in most cases the emergency fund you have will either be way too much or not enough to handle the emergencies of life. If I were to guess the number one emergency that pushes someone to dip into their emergency fund, I’d say it would have to be for auto repair. Even if you follow the most aggressive recommendation of three months, a few hundred bucks for an auto repair probably won’t do too much damage to the emergency fund so your money would probably be better served in a brokerage earning market appreciation rates than whatever minimal rates you’d get in a savings account.

Credit Cards Can Get You By
If you go by the rule that you need 3/6/9/12 months of salary, you probably have that much on your credit cards. In fact, when you do face an emergency, it’s probably a good idea to pull out the plastic first even if you have the emergency funds because you can probably get at least 1% in points from it.

You Have Insurance
You probably pay hundreds of dollars a month in auto, home, life, and medical insurance; so why do you need thousands of dollars saved away for emergencies? Bust a tooth? Use dental insurance. Flooding in your house? Home insurance. Crash your car? Auto insurance. While it certainly makes sense to have a few dollars saved away, having a year of your salary sitting in an account earning a sad rate of return is simply not a strong financial decision.

Ultimately, what you want is to strike a balance between having no emergency fund and having too much earning a low rate. Certainly, since this is a Devil’s Advocate post, I think that having an emergency fund is a very strong financial decision (despite what I said in the last reason) and one that everyone should definitely start once you can.

• Nickel is in need of some help with his 415(c) issue.
• Did you know that there are almost a million accidental millionaires? Seriously, I have accidents all the time and never have I become a millionaire.
• JLP takes a look at Jason Clements view on mortgages.
• MBH says Debit, Schmebit to the latest debit offers.
• Flexo writes about a sucker who bought eight grand in Forever Stamps. Someone has to teach that guy about inflation…
• Gas is freaking expensive, check out these five gas tips from GenX and reduce your reliance on those evil terrorists!
• Need cash? Got blood? Donate plasma!
• Are we living larger or just living differently? Lazy Man takes his first cut of two at this issue.
• Ben kicks Trump while he’s down… if you didn’t know, Trump got fired this week.
• The old adage is that you should spend about a third of your take home income on your housing, so Golbguru asks… how much do you spend on housing?
• SVB comes up with a flowchart to help you figure out what exactly happened with the whole subprime lending thing. I’m a fan of the “default on house” step.
• Sun writes about how he switched to Vanguard’ss E-Service to avoid the new fee that replaced all other fees when Vanguard changed their fee structure.
• If you’re looking of something to do with your kids this summer, Raising 4 Boys has a good list of movie theaters giving away free summer movies.
• If you’re thinking about where your next dollar goes when it comes to retirement, be sure to pay off credit card debt after you contribute to a matching 401K but before anything. The rewards you reap from stemming the flow will far exceed any potential gains you may get from any IRA.
• You should smoke and fire detectors in your house, but you shouldn’t put rechargeable batters in those smoke and fire detectors. Rechargeables are designed for quick bursts, not the long and low sustained demands of a detector… plus you won’t know when it dies.