This article was written by Matthew Paulson of Getting Green, a webzine which discusses topics of personal finance, money management, investing, debt reduction and more. At Getting Green, we’ll provide you a steady stream of tips, tricks, and ideas on how to get closer to financial independence. If you enjoy this article, be sure to check out some of his articles or subscribe to his RSS feed.

The internet really has only been a place of commerce for about a decade now, and still people are searching to find their gold mine on the internet. A lot of people want to strike it rich, yet a lot of digital miners end up finding nothing but fool’s E-Gold. There are a lot scams for businesses on the internet, and you need to avoid them like the plague. But how does one know that a business is a scam? There are some big red flags that you will notice about a company to determine whether or not it is a scam. If a company has any of these red flags, you should be very wary about dealing with them.

If a company has no contact or extremely limited contact information, you should be worried. Most scam artists don’t want you to be able to find them after it’s a scam. If it was a real business they would give you all the contact information in the world so that you might be able to ask them questions and perhaps buy into their product if you think it’s a viable option. If they only provide you with an email address or a post office box, keep a very close eye on the business. If you give them money, there’s very little recourse you have if you cannot find them.

If the company tells you that you will make a lot of money for next to nothing when it comes to work, just ignore the claim to begin with. Everyone loves the idea of something for nothing, but it just does not happen. Making money requires hard work, a lot of hard work. Don’t fool yourself into buying into these foolish claims.

Should a company provide fraudulent association information, you know there’s a problem. A lot of scam companies will post the logos of the Better Business Bureau or another trade association to make their pitch more legitimate. You should independently verify the claims that they are associated with the BBB or other organizations. If you find out they are lying to you, get packing immediately!

When a company does not have a verifiable reference or testimonial, you should definitely stay far away. A lot of companies will have “testimonials”, however they are often times scams. Most diet pills have anecdotal testimonials, but none of those pills work. You have to be able to get references from the company about other individuals and companies who have gone through their system and been successful. Get as much information about the individuals giving the testimonials as possible, and contact them to see how legitimate the business is.

Finally, if they rush you to make any sort of decision, you know you’re in trouble. They know that if you wait long enough you might find out some information that might lead you to believe something else than the information they have been showing you. Ask lots of questions, and if they pressure you to buy in, this is probably not a place to do business with.

As a result of working in the defense industry, I’m very cognizant (as is anyone who works in this industry) of the impropriety of any sort of kickback, whether it’s something minor like lunch or something huge like … a job. However, kickbacks are a way of life in the private sector and so it’s always surprising when you see a story about something semi-private get busted for accepting kickbacks. In the last year, you’ve seen lots of 401k plan administrators come under the microscope for accepting kickbacks for offering certain funds… but most recently, it look like eight universities have been settled allegations for accepting “payments, travel and other perks” from lenders.

My fiancee used to work at L’Oreal in their purchasing department (she was a trained biomedical and chemical engineer, but go figure how big companies do business) and would get free lunches all the time from vendors selling things like labels and plastic bottle caps (she worked in hair coloring). I spent a few months working as a materials manager (rotational program and that rotation, not doing software development, was probably the best rotation I ever had…) and had to be very cautious in accepting anything from anyone because kickbacks are a huge no-no and being caught accepting one had serious repercussions.

I only had government backed loans (Stafford, Perkins) in college but this probe investigates the “private” loans, those that aren’t backed by the government, and so it’s appropriate that universities don’t receive kickbacks for offering a particular bank’s loan - especially if that loan isn’t in the best interests of the students. I didn’t even know that universities accepted kickbacks but I think that was naive of me. If there is every a gray area and an opportunity to exploit it, someone will until an attorney general shuts it down (way to go New York! Eliot Spitzer really set the tone… and now Andrew Cuomo is continuing the tradition).

I’m glad someone with visibility into these types of issues is able to watch the consumer’s back.

The writer of Blueprint for Financial Prosperity will accept kickbacks in the form of “payments, travel and other perks” and it is not illegal for me to do so. So please, someone send me two tickets to somewhere warm and sunny.

When my friend refinanced her mortgage, I was surprised that she had to pay for title insurance all over again (and title insurance is not cheap, in fact, it’s pretty ridiculously expensive for what you get). See, the way I saw it, she paid for title insurance the first time around and it insured that her title was clean for her. So… if it was clean then (and insured against mistakes, fraud, etc.), why would she have to get it again considering there was only one change between the first time she bought it and the second time, the lender providing the loan. When you get title insurance, they’re supposed to double check that all the t’s are cross and all the i’s are dotted, and then insure you against their own mistakes. If you’re still the owner, why do you need to buy it again?

Well, it turns out that the title insurance follows the loan and the insurance policy expires when the loan is paid off. When you refinance, the new lender pays off the old lender, which means the old loan is paid off, and the title insurance expires… and you get the opportunity to pay for title insurance all over again. Talk about a scam that is totally legal…

If you thought you received a lot of junk mail before, wait until you buy a home. Overnight, you’ll see your junk mail practically double as the credit card offers are now joined by their friends, the refinancing offers, the home warranty offers, and the “random services you didn’t even know you needed” offers. Oh yeah, not to mention realtor’s curious to know if you’re interested in other homes in the neighborhood. The first week alone I must have received a dozen refinancing offers wondering if I’d be interested in turning my monstrous 30 year fixed mortgage payment to a svelte 5/1 ARM payment of like fifty bucks!

Well, a year or two later, the junk mail has been trickling to a halt, in part because of the housing slowdown and perhaps they’ve picked up on the fact that I wasn’t going to refinance (doubtful). Honestly, I can’t imagine anyone refinancing within a month of closing from a fixed to an ARM but it must happen otherwise they wouldn’t send this junk out (I can see it the other way around though, I bet that’s more likely).

Anyway, recently I received a noticed from an official sounding National Deed Service, Inc. in Washington D.C. offering to get me a certified copy of my deed for the low low price of $59.50. They cite official sounding sources in their recommendation, saying the U.S. Government Federal Citizen Information Center recommends that I have an official or certified copy of my deed; and they implore me to get one because it’s very important. And it is important! Except I and every other homeowner already has a copy, you got it at closing or soon after.

Now, what if you can’t find yours and really want it? Well, just call up your county clerk and make a request for one and you’ll probably pay some sort of minor fee (not $60) to have them pull it up and mail it to you. The Washington Post calls it a scam but I think it’s just an opportunistic company looking to cash in on people who don’t know any better. In the case of National Deed Service, Inc., they do add this notice near the order form in all capital letters: “Many government records are available free or at a nominal cost.” So, while National Deed Service, Inc. isn’t trying to scam you, they are offering a service at a price that makes it worthwhile for them to do it - it’s just a ripoff for you.

Money has a valuable little series called 25 Rules to Grow Rich By that I’ve been reading through and my only complaint is that each rule is devoted to its own page and that you can’t see all of them (or at least maybe a 1 - 5, 6 - 10, etc) on one page so you can pick which one you want to read. So, since I am such a proletariat, I’ve done just that (with links) below:

FYI, the category headings are my own, I take full responsibility for inaccuracies.

Home Ownership, Mortgages, and Debt


1. For return on investment, the best home renovation is to upgrade an old bathroom. Kitchens come in second. [link]
2. It’s worth refinancing your mortgage when you can cut your interest rate by at least one point. [link]
3. Spend no more than 2 1/2 times your income on a home. For a down payment, it’s best to come up with at least 20%. [link]
4. Your total housing payments should not exceed 28% of your gross income. Total debt payments should come in under 36%. [link]
5. Never hire a roofer, driveway paver or chimney sweep who is going door to door. [link]

Retirement & Investments


6. All else being equal, the best place to invest is a 401(k). Once you’ve earned the full company match, max out a Roth IRA. Still have money to invest? Put more in your 401(k) or a traditional IRA. [link]
7. To figure out what percentage of your money should be in stocks, subtract your age from 120. [link]
8. Invest no more than 10% of your portfolio in your company stock - or any single company’s stock, for that matter. [link]
9. The most you should pay in annual fees for a mutual fund is 1% for a large-company stock fund, 1.3% for any other type of stock fund and 0.6% for a U.S. bond fund. [link]
10. Aim to build a retirement nest egg that is 25 times the annual investment income you need. [link]
11. If you don’t understand how an investment works, don’t buy it. [link]

Saving for Emergencies, College Education, Everything.

12. If you’re not saving 10% of your salary, you aren’t saving enough. [link]
13. Keep three months’ worth of living expenses in a bank savings account or a high-yield money-market fund for emergencies. If you have kids or rely on one income, make it six months’. [link]
14. Aim to accumulate enough money to pay for a third of your kids’ college costs. You can borrow the rest or use some of your income to help out when your child is in college. [link]

Insurance

15. You need enough life insurance to replace at least five years of your salary – as much as 10 years if you have several young children or significant debts. [link]
16. When you buy insurance, choose the highest deductible you can afford. It’s the easiest way to lower your premium. [link]

Credit

17. The best credit card is a no-fee rewards card that you pay in full every month. But if you carry a balance, high-interest rates will wipe out the benefits. [link]
18. The best way to improve your credit score is to pay bills on time and to borrow no more than 30% of your available credit. [link]
19. Anyone who calls or e-mails you asking for your Social Security number or information about your bank or credit card account is a scam artist. [link]

Buying Stuff

20. The best way to save money on a car is to buy a late-model used car and drive it until it’s junk. A car loses 30% of its value in the first year. [link]
21. Lease a new car or truck only if you plan to replace it within two or three years. [link]
22. Resist the urge to buy the latest computer or other gadget as soon as it comes out. Wait three months and the price will be lower. [link]
23. Buy airline tickets early because the cheapest fares are snapped up first. Most seats go on sale 11 months in advance. [link]
24. Don’t redeem frequent flier miles unless you can get more than a dollar’s worth of air fare or other stuff for every 100 miles you spend. [link]
25. When you shop for electronics, don’t pay for an extended warranty. One exception: It’s a laptop and the warranty is from the manufacturer. [link]

Jonathan at My Money Blog recently wrote about using an empty bank account as a buffer or firewall to protect you in the event you have a questionable or risky account (like PayPal) that could potentially be compromised. The idea is that if someone managed to make their way into your Paypal account, they could only try to empty an otherwise empty account. This is a great strategy I’ve employed for a couple years now using my ING Direct account as the firewall because it’s so easy and straightforward to open a new account (after you already have one).

So, first you should read Jon’s article then remember that I recommended using ING as your buffer. (please use this self-serve ING Direct $25 promotion page if you’d like a referral)

Apparently the US Patent and Trademark Office has been granting patents to folks who apply with their tax shelter ideas, which they consider business practices, and the Internal Revenue Service is upset because this gives the impression that a patented practice is legitimate or even legal. Businesses are then marketing these tax shelter strategies with the government’s seal of approval, which a patent is not, and the IRS is concerned people will be screwed in the process.

“A patent carries with it no assurance whatsoever that the patented process, transaction or structure will pass IRS muster,” IRS Commissioner Mark Everson told a Congressional hearing in July. “We are concerned, however, that taxpayers may be confused about this.”

There are other wider reaching ramifications of this but I think that this part of the issue is most important to consumers like us. It’s not hard to believe that the various parts of the government don’t exactly talk to one another on a daily basis (just try getting anything from the government, it seems like parts of one department don’t even talk to each other) so it’s not surprising the USPTO is granting patents even though they don’t know much about the ever changing tax laws.

So if you’re shopping around for tax preparation services, remember that just because a process is patented doesn’t mean it’s legal or legitimate in the eyes of the IRS.

Story via Fortune Magazine.

Carl D. Grossman reneged on a deal and stole $150 from me. Yes, I am a sucker for sending my money to a stranger and trusting he would refund it if I couldn’t use a voucher. I am not crying about the voucher, I just think it’s strange he would rip me off at the tail end of the deal in this way and I was hoping for some advice as to what I should do.

Remember when I posted about needing frequent flier vouchers for the trip I’m going away on this next week to Lake Tahoe? Well, a certain Carl Grossman of Joplin, MO emailed me saying he had a Delta voucher that I could try to use. I talked with him a couple times on the phone and he seemed and sounded like a honest guy. Carl, at one point, even told me he was an honest person and I believed him.

Carl Grossman wanted $250 for the voucher and we agreed that I would send him $150 now and $100 after I redeemed the voucher, while I trusted Mr. Grossman I did hedge myself a little so in the event he was scamming me (which was still kinda likely depending on what unsavory characters you deal with) I would only be out $150. He agreed. This is what vexes me… he sent me the voucher Fedex next day and I received it the next day. When I went to the airport I was told 1) I needed Carl D. Grossman actually there with photo ID and 2) there weren’t any discounted seats available (some Q or Z class, I forget). So, I called up Carl with the bad news and said I had to send it back. He agreed to send me my money back and I mailed off the voucher. Except the money never returned.

A week later I called Carl Grossman and he said he sent a money order and would look into it with the post office and call me back. I waited two days and called but he didn’t answer. I called his home number which he answered and he hung up on me. I’d been officially scammed and I’m not exactly sure what I can do, that’s where I need your help. What should I do? (besides suck it up)

I was reading the Freakonomics blog (if you liked the book, you’ll love the blog, it has a lot of good stuff on it) when Stephen Dubner mentioned a report put out by CipherTrust, a security management firm. They studied the first two weeks of October and saw that all phishing attacks originated from less than five zombie networks (computers taken over by spyware/malware/backdoors/etc and send out these emails likely without the owner’s knowledge). Less than five!

Remember, if a bank or Paypal or financial institution ever unexpectedly contacts you via email, never click on a link in that email no matter how genuine it looks. If it were really urgent, they’d call you (they have your phone number) and if it’s not urgent, you can call them.

High Yield Investment Programs are nothing more than glorified Ponzi schemes meant to do one thing - separate you from your money in a clever and exciting way. Avoid these at all costs. Avoid the brainwashing. Avoid losing your money in a “get rich quick” scheme, they only get a handful of people rich - the creators of the scheme.

What is a Ponzi Scheme? In 1920, Charles Ponzi promised to double your money in 90 days. Guaranteed. His original scheme involved buying postage stamps in other countries and exchanging them for stamps here, earning a great rate of return as long as he could convert the stamps back into cash. He started a business, starting taking in investment money, and when he discovered his scheme was harder than it seemed, he was soon paying off earlier investors with the money from later investors - the classical pyramid scheme. Anyway, you can see where it goes.

Ever heard of 12 Daily Pro? You invest money to buy advertising credits, you autosurf the web (for seven minutes they show you a bunch of websites, 25 seconds each), and you earn a return on the advertising 12 Daily Pro earns. Sounds good right? Check out ABC4 and do a search for 12 Daily Pro and watch all the great expose videos.

Watch Boiler Room and pay very close attention to the poor guy that Giovanni Ribisi’s character gets to buy into the latest “hot stock.” Then watch as he gets him to buy in more after it goes down. Don’t be that guy.