Shaquille O’Neal once spent $1,000,000 in a single day


Think you’ve made some poor financial decisions before? Have you ever spent one million dollars in a single day? That’s what former NBA star Shaquille O’Neal did — before becoming a pro basketball player.

I go buy a $150,000 car. No negotiations. I don’t know nothing about negotiations. The guy could have told me $200,000 and I would have bought it. I go and get a black Mercedes because that’s what I always wanted: a black Mercedes and some nice wheels.

When he took the car home to show his father, his father said, “Where’s mine?” So, Shaq took his dad to the dealership and bought him a black Mercedes too. Then he bought a car for his mother. Then he bought clothes and jewelry so he could look good for the draft.

Many professional athletes stay on this wayward path which is why so many of them go bankrupt. To his credit, O’Neal came to his senses. He realized he needed to make smarter choices. He started looking for a financial advisor.

Most of the people he interviewed made extravagant promises that seemed too good to be true, so he steered clear. Instead, he hired “one little small beautiful Jewish man” who recommended a more conservative approach. O’Neal has been with him ever since: “He’s been good to me.”

It’s always nice to hear about a pro athlete who has not squandered his wealth.



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How mutual fund fees can cost you big bucks


Robert Farrington from The College Investor recently went to bat for one of his readers. “I feel like my advisor isn’t steering me in the right path,” his reader told him. “When I mention [index funds] to him, he changes the subject or diverts to other topics.”

Farrington ran the numbers and discovered that his reader’s financial advisor stood to gain $7247.50 in commissions by recommending expensive mutual funds. But that’s not all. “When you add in the expense ratio, this portfolio is costing the investor $11,004.71 in year one,” Farrington writes. “And potentially costing the investor $1,879.21 or more per year after!” (And that doesn’t include any commissions and fees created by rebalancing the portfolio periodically.)

Mutual Fund Fees

As an experiment, Farrington looked at what it would take to move his reader’s existing portfolio to low-cost index funds. The results were shocking: “By simply investing in a low cost portfolio, we were able to reduce total costs from $11,004.71 to just $176.60. That’s a 99% reduction in costs.

This reminds me of a story from my own life.

Boxed In by Bad Investments

Before my father died in 1995, he set up a profit-sharing plan for the employees of the family box factory. Each year, the company contributed some amount (up to 15% of all employees’ earnings per year) into an investment account. Because we didn’t know any better, we used a big-name brokerage firm to manage this money.

My cousin Nick, who is a bit of a money nerd, kept records for the box company. After a few years, he noticed something strange. Although the stock market was booming because of the tech bubble, our investment accounts were not. In fact, they were barely growing at all. He did some digging and his research left him fuming. We had trusted that the big-name brokerage firm was doing their best for us, but that wasn’t the case. They were doing their best for themselves.

When I asked Nick if he remembered this (after almost twenty years), he certainly did. “It pissed me off,” he said. The brokerage had us invested in what was called a Unit Investment Trust. Here’s how Nick describes the situation:

The Unit Investment Trust consisted of a bundle of stocks selected to be purchased by [the brokerage firm] to meet some investment criteria. Units of this bundle could be purchased for $1.00 plus an 8% commission.

At a specific time they purchased the stock and held it for one year. At the end of the year they sold the stock and took their 4% management fee and distributed the rest of the funds to those that had purchased units. Then do it all over again. I don’t recall the actual commission and fee rates but it seems that the total was about 12%.

That coupled with normal management fees of 3-5% for their funds (plus commissions) are what convinced me I didn’t like [the company]. By comparison, Vanguard’s Growth and Income Fund has a expense ratio of 0.34%. Vanguard’s 500 Index Fund has an expense ratio of 0.14%.

Can you believe it? The big-name brokerage was screwing us over to the tune of nearly twelve percent per year. It’s this kind of bullshit that makes me such a vocal advocate of do-it-yourself investing with index funds. I don’t care what kind of returns your broker promises you. They’re not going to be enough to compensate for fees of 12%! (And yes, I know, there are ethical advisors out there. But how can you tell the good from the bad?)

This is also an example of why one of the core tenets of Get Rich Slowly is nobody cares more about your money than you do. It’s very easy to trust professionals — whether they’re brokers or realtors or, well, bloggers — just because they have perceived position of authority. The advice that others give you is almost always in their best interest, which may or may not be the same as your best interest. Do your own research, get advice from a variety of sources, and in the end, make your own decisions based on your own goals and values.

Den of Thieves

At the end of his article at The College Investor, Farrington writes:

The sad part of this is that it takes a lot of time and effort to figure out what you’re actually paying your financial advisor. I spent about an hour researching the fees, expense ratios, and commissions that the financial advisor was receiving for this article. And most people won’t be spending their time doing that.

I really wish more advisors were up front, honest, and transparent about their fees. It’s why I really like fee-only financial planners. You pay a flat fee up front and get a financial plan that you can execute.

For an even longer take on how Wall Street takes your money (legally), check out Todd Tresidder’s rant at Financial Mentor. He too wants better disclosures:

I believe it should be illegal for any broker, financial advisor, fiduciary, brokerage firm, salesperson, or anyone else having contact with a client’s money to receive any compensation or distribute any payment related to that account that isn’t clearly disclosed upfront and direct in the form of a financial statement.

Written disclosures in contracts aren’t adequate because few people read or understand them, and not having any disclosure is completely unacceptable. You must show the client the money – that’s the key point.

If you really want to be grossed out by the pirates of Wall Street, read Den of Thieves, the 1992 bestseller from James B. Stewart. This book recounts the insider trading scandals of the 1980s, when names like Ivan Boesky and Michael Milken were prominent in the news.

Den of Thieves didn’t just open my eyes to the actions of these well-known crooks; it exposed just how much money the big-name brokerages as a whole bleed from our economy. And they do it by taking advantage of everyday people like you and me.



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Daily life during the Great Depression


Since the Great Recession of 2008 and 2009, there have been a lot of news stories about how awful everything is. Never mind that most Americans enjoy the best standard of living of any culture in history, people still find things to complain about. Perhaps this is because people lack perspective. They don’t realize what life was like in the past or what real hardship is.

The always-excellent Reading Through History channel on YouTube has a seven-minute video that takes us on a tour of what like was like for the typical American family during the Great Depression.

During the Great Depression, nearly one quarter of all Americans were unemployed. Even those who could find jobs struggled to get by. Wages were reduced by as much as 60% — but people were happy to have any sort of income.

The average take-home pay was about $17 per week (or around $900 per year), but many people made less. Prices were lower too, of course: a man’s shirt cost about $1, a washing machine cost about $33 (or two weeks of take-home pay). During these lean times, families had to come up with creative ways to economize.

  • To cut costs, it was common for extended families to live together. Aunts, uncles, cousins, and grandparents would crowed together. In some cases, different families would come together to share one household in order to save money.
  • Because many families struggled to get by, certain common luxuries feel by the wayside. Many people stopped going to the barber, for instance, and started cutting hair at home. (When my family was struggling during the 1970s, we did this too.) Families also stopped going to the dentist and doctor.
  • The reuse and recycling of clothing became common practice. Instead of throwing away a worn-out pair of shoes, people learned to patch them. Clothes were handed down from child to child (and person to person).
  • For families that could afford it, Saturday evening was often spent shopping. People would browse the various shops downtown. Even if folks didn’t have much money, they could still “window shop” and look at products they could dream of owning.

Radio was the most prevalent form of entertainment during the Great Depression. Radio had risen to prominence in the 1920s and became ubiquitous by the end of the 1930s. (Old-time radio is one of my favorite subjects. The first licensed commercial radio station in the U.S. started broadcasting in Pittsburgh on 02 November 1920. In the early years, radio broadcasts were free-wheeling and largely unsponsored. But by the 1930s, the format we’re now familiar with from television was starting to settle into place.)

Board games were another popular pastime. Sorry and Monopoly were both released during the 1930s and became huge hits. (True story: When I was growing up during the 1970s, my parents elected not to have a TV. Most of my extended family didn’t have television either. As a result, much of my childhood was spent listening to radio and playing boardgames with brothers, cousins, and friends — just as children in the 1930s might have done.)

I’m not saying that there aren’t people who have it rough in modern America — there are always people who struggle! — but I think it’s important to have some perspective before grousing about how awful the world is today.



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What ‘Silicon Valley’ Can Teach Us About Entrepreneurs


You would think that after some thirty odd years, the tech industry would have accrued more parodies. But with only one movie and a handful of geeky shows available to watch we’re not even close to getting started.

One show rises above the rest in its wit, charm, and outright ability to roast its namesake. HBO’s Silicon Valley is what other geeky tv shows wish they could be.

Today I’m going to take a look past the gags. And we’ll discover together what Silicon Valley’s writers actually think about entrepreneurs.

1. “I’m Offering You $4 Million Right Now!”

From the very beginning of the show, our protagonist, Richard Hendricks, falls head first into the whirlwind of Silicon Valley’s startup culture.

His boss at Hooli catches wind of his “game-changing” compression software and offers to buy it. At the same time, a Bill Gates-esque Peter Gregory offers to fund Hendricks’ possible startup, Pied Piper.

The poor young software engineer is literally on the phone with Gregory as Hooli’s Gavin Belson ups the ante to $10 million.

The insanity of the moment so rocks Hendricks that he leaves the room and pukes in a trashcan. But in the end, he decides to go with Peter Gregory’s offer of $200,000 and a 10% stake in Pied Piper over Belson’s $10 million buyout.

When visiting a doctor for his sudden (and understandable) anxiety, he learns about another entrepreneur who was faced with the same situation. The doctor can’t remember what the guy chose, but only that he had blown his eyes out trying to kill himself in the end.

Hilarious Realism

While Hendrick’s situation is quite funny for the audience, it’s pretty realistic for anyone who has tried to gain funding for their startup.

Throughout the show, other people in Silicon Valley spout their ongoing or failed startup attempts. Even the lowly clerk at a local liquor store has a startup idea.

But only entrepreneurs know how low of a blow these opening scenes really are. You feel bad for the joe-shmo with the startup idea. You feel the weird exhilarating anxiety Hendricks experiences.

But above all, you realize that this comedy is actually the harsh reality we all live in. If you don’t take the $10 million dollars will you regret it later? Or if you take the startup money, will you fail miserably and wish for the $10 million?

We see both the plankton who get gobbled by the likes of Facebook and the fish that morph into whales (the Microsofts and McAfees of the world).

But what’s the lesson Silicon Valley wants us to learn up front?

Don’t always take the $10 million. Don’t be a sell-out. But just so you know, you could end up a clerk at some liquor store if your idea actually isn’t good.

2. “I Didn’t Know Any of This Stuff Was Due Yet…”

Entrepreneurship isn’t exactly like fishing. You can’t just toss a line out there hoping for clients to bite.

But some entrepreneurs make that exact mistake.

At the beginning of Silicon Valley, Richard Hendricks makes a similar mistake.

He shows up to his first meeting with Peter Gregory empty-handed.

Gregory starts listing off various business items including a business plan. Richard and his “co-founder,” Erlich, sit there dumbfounded. “I didn’t know any of this stuff was due yet…”, Richard stammers.

Gregory berates the newly minted CEO saying, “DUE?” He explains in exasperation that the compression algorithm is merely the product. That he’s asking about the company, Pied Piper, that will deliver the product.

He sends our show’s not-so-dynamic duo away with an actual deadline to fulfill.

“This Isn’t A High School Project.”

Over and over again in the first few episodes, Hendricks is taken aback as more and more business duties thwack him over the head.

We see him unable to cash his startup check because he never registered Pied Piper with the IRS. He runs out of money (credit) almost immediately. And he narrowly avoids getting beat up by a pipe layer over the purchase of his company’s name.

If you’re an entrepreneur, you may not run into some of these silly mishaps. But you might have assumed your product or service was enough.

You might have even created a website, started a crowdfunding campaign or just thrown a few ads onto the internet. And soon you found it’s not enough. This isn’t fishing, it’s business.

And you completely forgot about the business that delivers your product or service.

I might be preaching to the choir when I say entrepreneurship isn’t as easy as a high school group project. But sometimes, we just need to remember the basics.

Do the foundational work of starting your business before you go full steam with your ideas, services, or products. A business plan, registration, copyrights, etc.

Plan several AdWords campaigns ahead. And incorporate these plans into your overall business plan. If you’re struggling to do that, click here for some useful AdWords advice.

If you line up all of these things correctly, your backers and investors will bow at your feet.

And you’ll be more likely to succeed.

3. “The More Eyes On it the Better, I Guess”

From watching movies like The Social Network, you already know where this is going. And yet, you’re still going, “UGH! Don’t let them see your work!”

If you’ve seen the show, you know Richard Hendricks lands himself in hot water long before he even knows about Pied Piper’s potential. The character has such a bad case of imposter syndrome that even the slightest interest in his website garners trust.

He quickly realizes the Hooli software engineers he’s talking to are just making fun of him. But it’s too late. He’s already given them access to his groundbreaking algorithm.

It comes back to bite him later. Hooli’s CEO puts together a team to reverse engineer Hendricks’ software and try to beat Pied Piper to market.

Don’t Give Away the Secret Sauce

Learn from countless entrepreneurs before you. Trust no one.

Don’t give in to flattery. Your idea is your baby.

No matter if it’s wiper blade technology or a revolutionary surgical technology, don’t give away your secret to anybody. Have everyone you meet with sign an NDA. And keep everything as confidential as you can.

Even if you’re in the process of pitching, you could see someone else living your dream if you’re not careful.

“We Could Be the Vikings of Our Day!”

Almost every minute of Silicon Valley is filled to the brim with useful and biting satire. If you haven’t watched the show, it’s time to start binging all four seasons.

And while you’re watching, engage. You’ll learn a lot more about yourself than you ever should while watching a sit-com.

And once you’re done bunging the show and are ready to get your business idea rolling, be sure to contact us.



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An introduction to money management from Stanford University


Personal Finance for Engineers (CS 007) is a new course being offered during the 2017-8 academic year at Stanford University. Led by MBA (and Stanford graduate) Adam Nash, the class explores real-life situations using the latest info from behavioral finance and practical statistics. (Here are Nash’s thoughts about the first class, including a survey of his students.)

Nash is making his lecture notes available via Slideshare. Here are links to the sessions that have been completed:

Here, for instance, are the slides from the seventh lecture, “Good investing is boring”.

Future sessions of the class will cover topics such as real estate and taxes.



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Returns are almost never average


In the world of personal finance, we make a lot of assumptions. We have to. In order to project our financial futures, we have to make assumptions about our future income, about the future of the stock market, about future inflation rates and interest rates and a million other things.

When we make these assumptions, we generally work with averages. When we project future stock market performance, for instance, we base our numbers on average past results. Again, it’s not wrong to do this; there’s no method that’s actually better.

That said, it’s important to always remember this fundamental truth: Average is not normal. The stock market rarely offers average returns.

The Vanguard Blog recently published a chart that does a great job of illustrating this idea.

Average returns of stocks and bonds

This chart shows annual bond returns and stock returns for the years 1926-2016. Each point plots the intersection of these two returns. As an example, Vanguard has labeled the dot for 2016, during which stocks returned 12.7% and bonds returned 2.8%. They’ve also placed bands indicating typical ranges for bond and stock returns.

Look at the results:

  • During the past 91 years, stocks have offered returns in the average range only six times.
  • Since 1926, bonds have offered returns in the average range 27 times. (While bond returns do vary, their variation isn’t as extreme as stocks.)
  • Taken together, only twice in 91 years have stocks and bonds both offered average returns in the same year.

The point of the Vanguard piece is that we shouldn’t use average market performance as a benchmark for financial success. “Your compass for progress should be your required return, which is an output of your financial plan,” the author writes. He continues:

Your required return is based solely on your personal investment plan, which, in turn, is based on your unique situation and circumstances. Your required return drives your asset allocation decision, helping you build a balanced portfolio that can appropriately moderate both risk and volatility.

Focus on your own life, on your own goals, and on the numbers necessary to reach them.



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Books about money that might make appropriate Christmas gifts


“My brother sucks with money,” a friend told me the other day. “I’m thinking of giving him a book about money for Christmas. Do you have any recommendations?”

“Honestly, I’m not sure gifting a book about money is the best way to help,” I said. “I know you mean well, but from my experience this sort of gift has the potential to create hard feelings rather than help. Sometimes it creates resistance rather than acceptance.”

“But didn’t you get started with your financial turnaround because people gave you books about money?” my friend asked.

“Good point. That’s true,” I said. “But that was because I was at rock bottom. My friends could tell that I was ready to listen, that I wanted help. Before that, if somebody had given me a book about money, I wouldn’t have liked it.”

“I’ll tell you what,” I said. “I’ll draw up a list of books you might want to consider, and I’ll publish the list at Get Rich Slowly sometime soon. Sound good?”

“Sounds good,” my friend said.

After some consideration, I’ve put together a short list of books about money that might be appropriate for gifting. If you too want to help out a friend or family member, these are great options. But as I warned my friend, try to be certain the intended recipient is ready to listen. Otherwise you run the risk of pissing them off.

Books About Money

My default recommendation is Your Money or Your Life by Joe Dominguez and Vicki Robin. My friend Michael sent me a copy of this book when I was at the lowest point of my financial life. (But he only did so because he could tell I was ready to read it.)

Your Money or Your Life introduced many concepts that nowadays we take for granted in the world of personal finance. It covers budgeting, mindful spending, financial independence, simple living, and your true hourly wage. And it conveys the info using real-life stories from real-life people. (The book can get a little New Age-y in parts, so keep that in mind.)

That’s my default recommendation. Based on the subject’s circumstances, though, I might suggest a different title. Here are some examples:

  • For young adults just starting out, I recommend I Will Teach You to Be Rich by Ramit Sethi. Sethi’s book is filled with actionable advice applicable to kids just out of college (or high school). It covers topics such as salary negotiation, basic investing, and smart use of credit. This is an essential money manual for people in their early twenties.
  • What if it’s too late to catch your intended recipient before they develop bad habits? When it comes to books about debt reduction, there are several good options. If your friend is Christian (or open-minded enough that they don’t mind religious talk in a book), then Dave Ramsey’s The Total Money Makeover is the gold standard. For short and sweet, I like Debt is Slavery. For touchy-feely, try the excellent Dear Debt by Melanie Lockert (which I’ll review next Sunday!). And an often-overlooked past bestseller is How to Get Out of Debt, Stay Out of Debt, and Live Prosperously by Jerrold Mundis [my review].
  • For parents with young children, consider The Opposite of Spoiled by Ron Lieber. This book covers work, allowances, consumerism, charity, gratitude, and more. It’s a terrific guide to instilling financial wisdom in our youth.
  • For folks you suspect might be interested in financial independence and/or early retirement, I think Work Less, Live More by Bob Clyatt is a great bet [my review]. It’s not as intense as some other FIRE books can be, yet it offers plenty of sensible advice. If “intense” is actually appropriate, then consider Jacob Lund Fisker’s excellent and hard-core Early Retirement Extreme. (But I’d only suggest that if the person you’re giving it to has expressed an interest in early retirement and/or has an analytical mind.)

Just typing this list, I’m filled with trepidation. Giving gifts that attempt to teach an overt lesson is…well, risky. It’s not the best approach. Instead, I think it’s often better to come at things sideways. In the case of helping somebody get better with money, I might pass along a book that’s more subtle, something tangentially related to the subject.

Books Obliquely Related to Money

For instance, I’m a huge fan of all of the following — and none of them come across as “preachy” (especially if you include a personalized note that explains how the book changed your life).

  • The Seven Habits of Highly Effective People by Stephen Covey has helped millions of people achieve happier, more productive lives. When I first read this, I thought it was pop psychology at its worst. How wrong I was. The older I get, the more I realize this book is filled with solid advice. Mr. Money Mustache and I have had a couple of conversations about how the ideas in this book are important to building a mental framework that leads to financial success.
  • The Road Less Traveled by M. Scott Peck is another massive bestseller that can lead to improved psychological and emotional stability. The first section on discipline is especially powerful. Peck says that we can achieve mental and spiritual health by using four tools to cope with the challenges we face: delayed gratification, acceptance of responsibility, dedication to truth, and balance. (When I pulled The Road Less Traveled from my bookshelf to write this blurb, I realized I’m in a place in my life where I ought to re-read it. That’s what I’ll do this afternoon.)
  • The Magic of Thinking Big by David J. Schwartz is another million-copy bestseller that Mr. Money Mustache and I both admire. [Here’s his review.] This book was written in 1959, and it feels like it. (Sometimes it seems like something out of Mad Men!) But once you get past the funny phrases and outdated anecdotes, The Magic of Thinking Big is dense with practical ideas for making your life (and the world) a better place. Topics covered include how to cure yourself of excusitis (“the failure disease”), how to build confidence and destroy fear, how to make your attitudes your allies, how to get into the action habit, and how to use goals to help you grow.
  • A modern companion to these three classics might be Grit: The Power of Passion and Perseverance by Angela Duckworth. When I first found this book a year ago, I re-read it four times in a single week. It’s that good. Duckworth’s thesis is that while talent and skill do matter, grit — the combination of passion, patience, and perseverance — matters more. Grit has fewer practical action steps than the other books on this list, but it’s a modern book in a modern style that might be more accessible to many people.

Finally, another way to impart financial wisdom is through biographies. For example, I enjoyed The Snowball by Alice Schroeder, which is a thick and thorough look at the life of Warren Buffett. Schroeder shows how Buffett’s path to wealth started from a young age, when he’d go door to door selling chewing gum and soda pop to people in his neighborhood. This money “became the first few snowflakes in a snowball of money to come,” she writes. Then she chronicles the next seventy years as he becomes one of the richest men on Earth.

How do you feel about giving money books as gifts? Have you done this in the past? If so, which book did you give and how was it received? Has somebody given you a personal finance book before? How did it make you feel? Did you learn from it? If you wanted to give a gift that would help a friend or family member improve their circumstances, what would you give?



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Travel Deal Tuesday is the best day of the year to shop for flights


I suck at making plane reservations. That probably sounds ridiculous, but I’m not joking. Whenever I travel — which is fairly often — I put off booking flights because I find the process so tedious. As a result, I miss out on the best deals.

Turns out, I’m accidentally in luck. According to the research arm of the travel app Hopper (about which, I know nothing except it looks similar to Kayak), tomorrow is “Travel Deal Tuesday” — the best day of the year to shop for flights.

Based on its archive of “several trillion prices from the past several years” (!?!?!), Hopper writes:

Fare sale activity significantly spikes on the Tuesday after Thanksgiving.

Last year, we observed more than double the normal fare sale activity on Travel Deal Tuesday. In 2015, we saw fare sale activity spike by 6X the normal volume.

The airlines offer major discounts because travel demand tends to die down following Thanksgiving. Most travelers have already booked their holiday airfare, but haven’t started planning their winter getaways yet.

This chart form Hopper shows the number of sale fares in the weeks after Thanksgiving 2016:

Travel Deal Tuesday

This info is handy handy handy for me.

Right now, I need to book a January flight to Orlando, an April flight to Virginia (then Orlando or Nashville), and possibly a February flight to someplace sunny. Instead of putting off the process any longer, I think I’ll take advantage of “Travel Deal Tuesday”. (But I’ll probably use Kayak to research prices unless you guys have a better recommendation. Should I give Hopper a shot?)



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Black Friday vs. Buy Nothing Day


I’m off for the Thanksgiving holiday — my favorite time of year. I’ll be hanging out with family and friends, and hope that you do the same.

Here are some things to consider during the next few days:

  • If you haven’t already, now is the time to set ground rules for your family’s holiday gift exchange. Will you be drawing names? Setting price limits? Giving gifts only to children? Be sure everyone’s on the same page for the Christmas season.
  • Holiday bonuses will soon be appearing in paychecks everywhere. I recommend spending a few minutes to decide what to do with the money. You don’t need to set a budget — though it couldn’t hurt — but at least make a plan for spending and saving.

Also, now’s the time to decide whether you’ll join the fray on Black Friday — or opt out by making it a “buy nothing day”.

Black Friday

A new study from the American Research Group shows that “shoppers around the country say they are planning to spend an average of $983 for gifts this holiday season” — the most since the start of the Great Recession.

Planned spending for Christmas 2017

For many people, the Christmas shopping season starts this Friday. The day after Thanksgiving — now dubbed “Black Friday” — has become something of a ritualized cultural experience, and one of the biggest shopping days of the year. (It’s not the biggest shopping day of the year, but it’s in the top ten.)

Buy Nothing Day

While some of my friends subscribe to the “take the day off to find bargains on Black Friday” school of thought, I’ve traditionally sided with another camp. On the day after Thanksgiving, I observe Buy Nothing Day.

For the past 20 years, I’ve elected not to shop on Black Friday. It’s one way for me to avoid consumerism. I don’t begrudge others their bargains and shopping fun, but I choose not to participate. This year will be no different.

Buy Nothing Day 2017

Regardless which path you plan to pursue — Black Friday or Buy Nothing Day — please spend responsibly. Buy only what you need and can afford. Don’t be lured into impulse purchases. Avoid debt. And most of all, enjoy the spirit of the season.

Have a safe and happy Thanksgiving. I’ll be back on Monday.



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What to do if you’re the victim of identity theft)


Text fraud alertLast month, Kim was a victim of identity theft. Somebody used her debit card to make a large purchase of cosmetics.

The thief first tried a couple of test transactions for amounts of $0.01 and $0.00. (How is a $0.00 transaction even possible? I have no idea.) When those worked, she went all-in. She charged $555.90 to the account.

Fortunately, Kim has an excellent bank. USAA both phoned and texted to let her know something seemed suspicious. Then, over the next week, they worked with her to keep disruptions as minimal as possible.

In the end, nobody knows exactly what happened. How did the ID thief get Kim’s debit card info? How were they able to buy $555.90 in cosmetics? What’s to prevent this from happening again? All that’s certain is that Kim lost a great deal of time (but no money) handling this hassle.

Credit Where It’s Due

Since the incident, I’ve been coaching Kim on what she can do to protect herself. We’re not taking a comprehensive approach (as suggested in this very thorough identity theft resource at the Personal Finance subreddit). I don’t feel like this event warrants more than increased vigilance. To that end, we’re taking three specific steps.

  • First, it’s important that she check her transaction history regularly. Money nerds like me do this several times each week. Kim isn’t a money nerd. All the same, I think it’d be smart for her to go online and scan her account statements every Saturday morning.
  • Second, I showed her how to access her free credit reports from AnnualCreditReport.com. The U.S. government has mandated that consumers be allowed to view their credit reports from each of the three major reporting agencies once every year. If you’d like, you can obtain reports from all three credit reporting agencies at once. Or, you can stagger your requests, possibly requesting one report every four months from a different agency. (Kim’s credit report came back clean — nothing unexpected.)
  • Finally, I had her sign up for a free account at Credit Sesame. Credit Sesame is one of many online tools to monitor your credit score. (I like that it analyzes which parts of your credit score or strong and which are weak.)

Kim's credit score

We didn’t find any additional problems. The cosmetic purchase appears to have been a one-time thing. (Or maybe the quick action from Kim and USAA managed to prevent additional problems.) We’ll keep a close eye on Kim’s accounts for the next several months, though. If other problems occur, we’ll escalate the protective measures.

Sidenote
On a lark, I checked my own credit score with Credit Sesame. Drat! I came in at 810, fourteen points lower than Kim. As always, I’m penalized because I don’t have enough sources of credit. If I could get a mortgage (like I want), my score would be better.

My credit score

Still, I shouldn’t complain. My credit score has increased a few points this year. (My credit score was 804 when I got a new credit card in February.)

Deter, Detect, Defend

If Kim’s situation had been more severe, we would have used the U.S. Federal Trade Commission’s excellent site devoted to helping people recover from identity theft. The site includes a comprehensive list of steps to take if you believe your ID has been stolen. It will also walk you through the process of creating a personal recovery plan.



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