Personal finance advice at Arby's

Arby's is one of my favorite fast food restaurants and served as my lunchtime destination yesterday (I had a good coupon). I was the only one there (I took a late lunch at around 2:30pm) and I paid with my credit card with a rewards program. The cashier looked at the card and said, "Be careful, this is dangerous." My confusion was evident and he continued, "I mean credit cards. They're all thieves and liars!"

So I talked with him for a few minutes about the evils of credit cards. He told me he had cut all of his up and always paid in cash. It was triggered by a combination of high interest rates and identity theft. The credit card companies gave him a hard time about which purchases were fraudulent and he finally had had enough.

It's pretty rare that someone randomly starts talking about personal finance issues, so I was surprised and pleased.

Interesting things from my credit report

I just used up one of my three free credit reports from annualcreditreport.com and found some interesting things.

• I have a $1500 Belk card with no balance. At first I had no idea where it came from. 15 minutes later I realized it is from when I had to buy a suit for my sister's wedding and I wanted the discount that came with a new card. Funny thing is they never mailed me the card! I guess I should cancel it.



• I had a $6500 Bank of America card when I was 10 years old. Luckily my 10 year old self never missed a payment. I think I vaguely remember that my (older) sister said she wanted to add me as an authorized user so I could start building a credit history. I guess she really did! The odd thing is it's listed as a joint account on my credit report. Maybe that's how authorized users are listed. I wonder if anybody who checks my credit report thinks "Whoa what was this kid doing when he was 10?" I'm also pretty surprised that a credit card company would add a 10 year old as an authorized user OR a joint account holder.



• My car loan is not with the company I thought it was. I write checks to Southeast Toyota Finance, but my loan is with World Omni. Well, a little searching reveals that World Omni is the parent company of Southeast Toyota Finance. This explains why, a few months ago when I had to call my credit card company to authorize a large purchase (new computer), the person who was verifying my identity by asking me questions from my credit report sounded so skeptical about my answers! She even asked, "Are you sure your car loan isn't with another company?" and I was like, "No, it's definitely Southeast Toyota Finance." Even with one wrong answer I passed the identity check.



• Discover Financial Services has made 15 credit checks on me in the last year. Apparently each check was followed up by sending me an incredibly thick envelope of credit card advertisements.



• Household Bank is my biggest stalker, with 18 credit checks in the last year. I've never heard of them, never gotten a credit card offer from them, nothing. Maybe they run checks for other banks.

This is only the second time I've ever checked my credit report. It was pretty fun. Credit reports should be free and unlimited, though. It doesn't cost Equifax anything to let me access it on the web. Maybe they're concerned that some of their big customers, like car dealerships, would let people log in and get the free report rather than paying for it themselves. Oh well.

Prosper Progress

I started lending on Prosper almost two months ago, mainly for the $25 signup bonus. It turned out to be pretty fun looking through loans so I ended up loaning out $325. I thought I'd occasionally make a post on how my loans are doing. Here are the loans I've made so far:



As you can see, I'm going for fairly high interest rates. I'm interested in people who are taking out small loans to rebuild their credit. Essentially they're gaming the system by getting a small loan and having Prosper report positively when they repay it on time. Since the loans are small and will probably be paid back early they can afford exorbitant interest rates.

The other interesting one was from someone with an AA credit rating who needed capital to start up a youth home. He claimed he already had contracts with the city so it seemed like a pretty sure thing.

Here you can see a summary of my account:



If you'd like to sign up for Prosper, use the following referral link and you will get a $25 signup bonus (as will I):

Shocking marginal tax rate

I just got a raise of $250/month at my job. My take home pay increased by $150.37. At first I thought that must be a mistake! I'm in the 25% tax bracket, but this represents almost a 40% tax rate! Sure enough, when I added up the various taxes that are taken out:

25% Federal
6% State
6% Social Security
1% Medicare
-----------
38% Total

Holy crap! What kind of country do we live in? This is a seriously socialist level marginal tax rate, and we're not even looking at consumption taxes yet. Of course, my overall tax rate is a bit lower, but it's crazy that of every new dollar I earn, I get to keep just a little over half of it.

When I think about stuff like this, I realize that economics is the most important issue that the government should be concerned with. Lower my taxes. Reduce the deficit. Cut educational spending in half to put us more in line with other developed countries. Get out of Iraq or charge them for our expenses. Phase out Social Security over a 20+ year period... and no I don't care that I won't get any benefits.

The tax refund cometh

For once I filed my tax return in a timely fashion and now I'm reaping the reward. I already have my refund! It was direct-deposited into my ING savings account on Friday. Now the question is what do I do with it? Well I already used it all up (or rather, it's partially used up and partially scheduled to be used up on Monday).

My tax refund was bigger than I expected -- about $1100 total. I put $700 in my Scottrade account, $100 in my emergency fund, and $300 in the Sharebuilder account I set up for my nieces and nephew. In one fell swoop I took care of presents for their birthdays and Christmas! Of course I still have to get them tangible presents, but they can be pretty cheap and thus easy to pick out. For instance, my nephew's birthday is next week and I bought him a jigsaw puzzle of the cover of a Beatles album.

The shocking thing is that the account now has almost $700 in it (including the $50 opening bonus). Granted, that's to be divided between the three of them, but it's a not insignificant chunk of change! Seeing that large figure really validated this idea to me. I could have bought $600 worth of stuff and today there would be hardly anything to show for it. Certainly most of the presents I've bought for them in the past have been put away or forgotten.

Buying patiently

I haven't done much trading in the last few months. I haven't sold anything despite the market falling and showing no signs of stopping. It's a liberating feeling to not be tied to the whims of the market.

I bought some shares of Washington Mutual while it was down (it's still down). I suspect that it will survive, or be bought by a larger bank, and in a 5 years the credit crunch will be a distant memory.

I also bought some more shares of AAV while it was down (it's also still down). It's mysterious in the way it moves, but I think the future for natural gas is strong. In 5 years we'll see if I'm right!

It's interesting to look back and think about the profits you could have had, while also trying to remember what you thought at the time, your hopes for the future. I could have (and desperately wanted to) sell AAV when it was up 40%, but at the same time I thought, well I don't need the money, and 40% is peanuts compared to what it can do over the long term. I still think that's right, although wouldn't it be nice to get both!

Tips are bad, mmkay?

Stealth Wealth wrote an article about why he thinks the practice of tipping has gotten out of hand. I agree and further I think the practice has become counterproductive, at least when it comes to restaurants.

Let's look at some of the effects of the current system.

No special service required -- tipping isn't for special service, it's for standard service. People will pay 15% unless service is truly terrible. Unfortunately, people will only pay 20%-25% for very good service. Since 15% is the norm, that translates to a 5%-10% tip for special service... not very motivating!

Quantity over quality -- Going along with the above, there is an obvious emphasis on quantity over quantity. It's generally more profitable (and definitely more of a sure thing) to give good service to 6 tables than to give excellent service to 3 tables. Waiters always tell the hostess "No I'm not too busy, give me the next table!" They will never say "Gee, give it to X, his last table left quickly and I want to continue providing excellent service to my existing customers."

Service depends on what you order -- Have you ever gone out for lunch, by yourself, and gotten something small like a salad with just water to drink? Your waiter's motivation to provide good service is approximately zero. It takes as much effort to refill your water glass as it does to bring that other guy another $4 beer.

Time is a factor -- Want to sit at the table and reminisce with your friends for 2 hours getting free refills all the while? Most people realize that they should tip more in that situation, but few pay significantly more, meaning a 50% tip instead of 25% or 30%. That's why service trails off.

Waiter takes blame for restaurant mistakes -- Most people recognize when a problem isn't their waiter's fault, but some don't.

Stereotyping leads to self-fulfilling prophecies -- If you look like a bad tipper, you will receive bad service, and you will most likely leave a bad tip. Or if you're a regular customer and you frequently leave bad tips, you will get bad service. I think pretty much every restaurant has some groups like that. When I was a waiter, we would seriously try to avoid getting stuck with a certain group of 6 or 7 old women who came in once a week. Suddenly everybody would be taking a smoke break, going to the bathroom, or whatever. It was funny. The reason was that they would all order fairly small meals, only drink water, and for a tip each one would round their bill up to the next dollar.

All of those issues could be resolved by paying waiters a normal wage. People could still leave tips if they received truly exceptional service. Bad service could be addressed by speaking to the manager (which is almost universally more appropriate and effective than not saying anything and leaving no tip).