Banking 
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How to Access International ATMs

20 Pound Sterling NoteMy wife and I still use Bank of America as our primary checking account and I called them the other day to let them know we’d be traveling and how we might be using our debit card abroad. I don’t plan on using it (we have a Capital One card for purchases) but I wanted to ask them about using ATMs abroad.

The past few days I’ve been researching the best way to exchange money, trying to keep the fees low and the accessibility high. I’ve discussed things with my friends over there and the consensus was that ATM was probably the best way. Between ATM access and us simply paying with our 0% transaction fee Capital One card, we should be paying as little in fees as possible.

Global ATM Alliance

It turns out that Bank of America has partnered with a few international banks to form their “Global ATM Alliance.” When we use a Global ATM Alliance ATM, we avoid a $5 access fee. If we use any old ATM, we would be assessed a $5 access fee. Otherwise, ATM transactions incur a 1% transaction fee to cover the exchange of currency.

Here are the partners in the Global ATM Alliance:

  • Barclays (United Kingdom)
  • BNP Paribas (France)
  • China Construction Bank (China)
  • Deutsche Bank: (Germany)
  • Satander Serfin (Mexico)
  • Scotiabank (Canada)
  • Westpac (Australia and New Zealand)

Call Your Bank

If you’re traveling abroad, call your bank to see what your international options are. I should have done this from the start, rather than poke around and waste time researching the best option. One simple phone call would’ve yielded the simple advice of “Try to find a Barclays, you can use their ATMs.” The 1% transaction fee, which covers the currency exchange, is probably the leanest you’ll ever find. You will always have to pay a fee to exchange money and it’s either listed as a fee or integrated into an exchange rate that doesn’t match the prevailing rate (this is how credit cards used to “hide” the currency transaction fee and the reasoning behind the foreign transaction fee lawsuit).

Time to pack for London!

(Photo: funkypancake)


 Personal Finance 
10
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How Much Is That in Minimum Wage Hours?

Do you ever feel like you don’t have a good handle on how much money is worth? I mean really worth, in terms of sweat and blood, rather than how much stuff it can buy? With credit cards and electronic bank statements, the true cost of money is often difficult to truly comprehend because there are so many abstractions. Money is an abstraction of labor and effort.

You earn money through labor. Some labor is hard, like in a factory or a mine, while others are easier, shuffling papers in an air conditioned office; but both types require time and energy and both result in money. The point is, spending money, rather than bartering labor for goods and services, abstracts away the value of that money and it sometimes helps to put things back into focus.

So, why don’t we?

Let’s put things back into perspective by listing popular and common products in terms of minimum wage labor hours. Using the federal minimum wage in the United States, at $6.55, we calculated how much stuff cost in minimum wage hours.

Some of the more surprising figures? That $443k party AIG threw for their salespersons cost 67,634 minimum wage hours. Lehman CEO Fuld’s cash compensation from 2000 to 2008 was $500 million – or 76,335,878 minimum wage hours (26,142 minimum wage years, if 8 hours are in a day). Finally, that $700 billion bailout package will cost 36,599,394 minimum wage years. Yikes.


Item Price Hours Days
Private 4-Year College Tuition $94,848 14,480.61 1,810.08
Public 4-Year College Tuition $24,740 3,777.1 472.14
Public 2-Year College Tuition $9,444 1,441.83 180.23
Average Wedding $30,000 4,580.15 572.52
2008 Toyota Prius $21,500 3,282.44 410.3
2009 Lamborghini Gallardo $198,000 30,229.01 3,778.63
An Ounce of Gold ~$900 137.4 17.2
6.2 carat Diamond (G, VS2) $384,500 58,702.29 7,337.79
Xbox 360 Console $259.99 39.7 4.96
Garmin nüvi 670 GPS $327 49.92 6.24
Gallon of Gas $3.15 0.48 -.–
Gallon of Heating Oil $3.38 0.52 -.–
One Million Dollars $1,000,000 152,671.76 19,083.97
$500/mo. Rent $500 76.33 9.5
$1,000/mo. Rent $1,000 152.66 19.1
Two Movie Tickets $20 3.05 -.–

We made some assumptions in compiling this list. One is that a day consists of eight hours. Another is that while the cost is in post-tax dollars, minimum wage is in pre-tax dollars (i.e. the employee still has to pay tax on the $6.55/hr wage), so things really cost more in terms of hours than what is listed.


 Personal Finance 
5
comments

Define Class with Financial Planning Time Horizons

Grandfather & GrandsonI was talking to reader Mike Cannon, who lives a frugal lifestyle and runs a small business called Ascent Solutions Group in Maryland, about Aldi (more on them when I get a chance to check one out) when the conversation shifted off to an idea one of his professors at Maryland once told him about class (as in middle class, upper middle class, etc). I think it’s a very different and helpful way to look at class and how it should be defined, rather than how it is defined today (i.e. poorly).

His professor said, and I’m paraphrasing, that it’s far better to define class by looking at their financial planning time horizons than anything else. The higher you go in the class spectrum, the farther out the time horizon is.

At the low end of the extreme, the extremely poor are thinking only as far as their next meal. As you move up the spectrum, those living from paycheck to paycheck have a time horizon of two weeks (or their paycheck frequency). In both classes, the concept of saving is difficult because income is less than or barely meeting their expenses.

The middle and upper middle class are looking a few years to forty years into the future. They’re contributing to their retirement plans, contributing to their kid’s 529 plans, saving for their first/next home, or saving for their first/next car. Saving is possible here because income has exceeded expenses to the point where you can save for the future.

As you get even farther up the class spectrum to the upper class (and whatever is past that), you begin seeing people planning for their grandchildren and their grandchildren’s education. Once you have met your needs, you begin thinking about your future and your children’s children.

I think that’s a far better way of defining class than any income ranges or net worth figures. It’s about mentality, rather than income and I believe it’s a far healthier approach towards class than talking income. What does it matter being upper class if your expenses force you to spend the vast majority of your income? One stretch of bad luck and you could lose it all (just think about any number of bankrupt celebrities) and then you’re no “better” off than someone in a “lower” class. In fact, I would say that the stress of living on the edge of disaster is far worse than the enjoyment you get out of living in a huge house or driving half a dozen fancy cars. I’d much rather be happy living the simple life within my means than feeling the pressure to produce to sustain an expensive lifestyle. I suppose that’s why they say money can’t buy happiness.

What do you think about this definition of class?

(Photo: indieink)


 Personal Finance 
10
comments

New Lincoln Penny Features Four Rear Designs

The U.S. Mint announced the four designs of the new penny to debut next year on Abraham Lincoln’s birthday, February 12th. They will be rolled out in three month intervals, starting Feb. 12th, with a Lincoln commemorative silver dollar released in 2009 as well. It’ll be the first time in fifty years that the penny will have changed and each of the four rear designs will show milestones in his life:

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Log Cabin design, his birthplace

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Indiana rail splitter design, where he worked as a young adult

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Illinois State Capitol design, where he served as a representative

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Half-finished US Capitol design, representing his work to build/preserve the Union

If you’re a fan of trivia, you’ll be happy to learn that Abraham Lincoln was the first person to appear on a regular US coin in 1909 (the penny of course). Here are 49 other fun facts about money.

Lastly, some want to see the penny abolished all together!

New Lincoln penny designs unveiled [CNN Money]


 Your Take 
47
comments

Your Take: How Much Cash Do You Carry?

Fat Wad of Cold Hard CashI’m not asking because I want to rob you, though if you carry more than a grand I would be tempted (just kidding! :) ), but cash seems like such an outdated way to stay financed.

How much do you have on you right this very second? I just checked my wallet and I have $142, which is far higher than what I normally carry. It’s that high because two weekends ago we took a trip to Ocean City, MD with some friends and I did one of those “pay with credit card, take the cash” moves at a restaurant (Citi mtvU offers 5% cashback and I have student loans to pay off!) so that boosted the amount.

(Click to continue reading…)


 Your Take 
19
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Your Take: What Does Rich Mean To You?

I listen to the American Public Media’s Marketplace shows almost every day (this was before Lynnae, Steve and I were on last week, which was really cool!) and a few months ago there was a personal finance segment, in which a caller asked about annuities in their IRA. About halfway through the answer, the personal finance expert, Chris Farrell, describes “rich” as someone who has maxed out their IRAs ($5,000/yr) and their 401(k)/403(b)s ($15,500/yr) and still has discretionary income to contribute towards investments.

I thought it was a great definition of financially rich because it was both concrete (gives a set dollar amount and criteria) and financially responsible in its message (meaning rich people should max out their IRAs and defined contribution plans). Of course, rich is a much broader word than dollars and cents and I would extend that definition to include some comments about happiness, family/loved ones, and fulfillment (basically fulfillment of Maslow’s entire Hierarchy of Needs, in a sense), but I want to leave that out of the discussion for now).

I asked some bloggers earlier this week what it meant to them and here’s what they said:

I’d like to know, how much is “rich” to you?


 Personal Finance 
52
comments

Star Trek: How We Will Abolish Money

My wife and I are avid fans of Star Trek (no surprise there right?). Having grown up watching Star Trek: The Next Generation and continuing on to Deep Space Nine and even a little Voyager, but recently we’ve been watching the four seasons of Star Trek Enterprise. It’s the one with Scott Bakula as Captain Jonathan Archer of the NX-1 Enterprise (there it is to the right) and the only one set in the near future. I have no idea how the seasons were received when they aired but we’re really enjoying them because it’s not set hundreds of years into the future, only a hundred and fifty. In future Earth, we’ve developed warp drives, transporters (though we’re not comfortable using them), and have made contact with alien species (no universal translator, just a really good translator).

One of the interesting aspects about Star Trek is how it treats money. Even a mere 150 years into the future, there is no concept of money. People do their jobs because they take pride in their work, satisfaction in their accomplishments, and work hard because they don’t want to let down their peers or their society but receive no monetary compensation. While they get all of their needs satisfied (food, shelter, entertainment), no one is saving for retirement because there’s nothing to save.

It was always difficult for me to see the logical jump from society today to anytime in the future where money is obsolete. Entire industries exist solely because money exists (mortgages, finance, banking to name a few) and you can bet your last dollar they’ll do anything it takes to make sure money keeps on existing. So how are we supposed to get from our money driven world to one where money has no meaning?

By having social norms overtake market norms. It’s an idea I first read in Predictably Irrational. In one of the chapters of Predictably Irrational, Dan Ariely talks about how in the workplace we’ve replaced a bit of the market norms with social norms. In the days of Ford and the assembly line, workers punched in and punched out. They worked for the paycheck, trading in their time, effort, and expertise for money. It was a clear trade, punctuated by the sound of time card machines. As we’ve moved away from a labor based economy to a service based economy, social norms have begun to replace market norms.

I have friends who work 40+ hours a week but are compensated for only forty, the extra being spent “to get the job done right.” I routinely worked a few hours over forty myself to get the job done because I didn’t want to let my team down (I was very fortunate to be on very strong teams that didn’t find ourselves under the gun or behind on deadlines). I didn’t work those extra hours out of the goodness of my heart but I also didn’t do it for direct compensation. I worked those hours because I knew I had an obligation to both the project’s clients and my teammates. It was the social norms, not the market norms that compelled me, and so many others, to work without direct monetary compensation.

It’s an interesting idea and while it clearly doesn’t explain everything, it’s the first time I’ve read of an idea that will even take us in that direction. Eventually social norms can overtake market norms, a social support infrastructure will be put into place, and we’ll have abolished money, developed warp drives, met alien species, and find ourselves cruising among the stars!


 Credit 
11
comments

The Hidden Costs of Cash

Cash Is So Last MilleniumDid you know that paying cash actually costs you more than paying with a credit card? Did you know that if you are pay in cash, you end up subsidizing the transaction fees for credit card payers? Unfortunately, it’s entirely unavoidable, hidden, and no one is at fault other than good ole Daddy Economics. Let me explain.

Imagine you are a store owner and on any given day, 50% of your customers will be paying with a credit card and 50% will be paying with cash. Credit cards, while convenient, represent an added cost of around 3-4% for you, the store owner, and you’d love to be able to pass that additional charge onto the credit card paying customer individually. Unfortunately, you can’t because of merchant agreements and, more importantly, because you can’t identify the credit card paying customers ahead of time.

The end result is that you, as store owner, consider credit card processing fees an expense and build it into the cost of everything to everyone, including cash customers. The 50% of your customers paying cash will end up subsidizing the transaction fees of the other 50% of customers that pay with a credit card.

From the perspective of the shopper, this means that every time you pay cash, you’re paying a little more than what you should’ve if credit card didn’t exist. While you can’t recoup the costs simply with a 1% cashback card, you certainly can cut down the premium by at most a third of a percent. Ultimately it’s the credit card company that benefits from the added convenience of everyone swirling around credit, to the tune of 3-4%.

This is an economics concept known as an externality, though they’re often best used to describe other scenarios as well (such as how the true and total cost of driving should include pollution and its impact on residents living near highways). The true cost of using a credit card isn’t actually felt by the card user or the store owner, it’s felt by cash paying customers even though they aren’t aware of it.

Interesting huh?

(Photo by phatcontroller)


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