Claire's Random Thoughts

I have thought a little bit more about my 42 Thing Challenge and done a little spring cleaning. My conclusion? Wow, this is more difficult than I thought it would be.

Thus, I have decided that since my magic number is 42, I will allow more grouping of items than the original 100 Thing challenger, David, allowed, especially for small items. Once again, my main objective is to reduce clutter and make moving in and out of college dorms easier. The original author’s main objective was to combat American consumerism habits. Since I’m more interested in reducing clutter, I will group smaller items into a single entity. For example, my box of writing instruments counts as one item, as does my disc wallet with miscellaneous loose CD’s and DVD’s.

I am also excluding important documents (passport, license, etc). I don’t think the original author included them either. And anything else that goes in my wallet. Oh, and keys don’t count either. Storage containers are also excluded, as they actually help create less clutter and make it easier to pack and move around (but I shouldn’t need many of them once I get rid of the junk, right?).

Rather than completely excluding clothing, shoes, accessories, toiletries, makeup, etc, I decided to count each category as one conglomerate. I have enough in these categories already and still hope to downsize on them. The rule for to prevent me from splurging in these categories is follows: No increasing the size of any conglomerate. Just like my 42 item limit, when I get one new thing (i.e. a new shirt) that belongs in a conglomerate, I must get rid of another thing in that conglomerate. However, if I decide to reduce the size of a conglomerate voluntarily, I can’t “save” up the disposal of items and replenish later.

Strategies to make this work:
1. Think twice before buying. As I discussed in the previous post, this should help me save money by reducing my huge number of unnecessary purchases.

2. Digital all the way!
Hello! It’s 2010, for God’s sake! Digital downloads are the way to go now for media, not annoying books and discs. My goal is to have digital videos and music on my 640GB external hard drive exclusively (so that’s one thing, as opposed to several hundred or thousand). Keep everything digital and sell the media if it has any value. I don’t need any more paperback books either. Ebooks on my Sony Reader are the way to go. As for textbooks, I have not yet decide if I’m going to count all of my textbooks as one item or each textbook as an item.

3. ONE of each thing
Why the hell did I have two laptops, two digital cameras, three calculators, and two cell phones anyway?

4. Sell old gadgets as I upgrade
Well, I kind of do this already, but I still need to slim down on the gadgets. Yes, I’m kind of a gadgetholic. It’s better to get rid of some now that they still have value instead of waiting and rarely using them.

5. Don’t be afraid to get rid of old, large, worthless, and useless junk
Sounds pretty logical, right? I need to stop being a pack rat and be more willing to throw things away when necessary.

I have also decided on a time frame. My goal is to slim down to 42 things by the end of the semester (when I have to move out) and keep my possessions at 42 until I graduate and move into a permanent residence.

Without farther ado, here is my tentative list (please note that some things on this list include more than one item, so I’m in trouble if it gets to 42 already). Once I get the list finalize, I can get sell/store everything else!
1. Clothes
2. Shoes
3. Purses
4. Toiletries
5. Make-up
6. Vitamins/Medication
7. Kitchenware
8. Class Notes
9. Textbooks
10. Scientific and Financial Calculators
11. Writing Instruments and other desk supplies
12. Laptop
13. External DVD-RW Drive
14. Camera
15. Camcorder
16. Portable hard drive
17. Sony ebook reader
18. Cell phone (hmm…but I have two on contract right now)
19. Sony Walkman MP3 Player
20. Bose QuietComfort 15 Headphones
21. Bose Computer Speakers
22. LCD TV
23. Playstation 3 with accessories and games
24. AA and AAA batteries and charger
25. Disc wallet
26. Rubik’s Cubes

Haha, I’m a huge techie. Is everything here really necessary? No. I guess I can’t play minimalist, which was the original idea of the 100 Thing Challenge. I can, however, simplify my life by cutting down to things I most frequently use.

I’ve really only been a finance major for just over a semester, yet I feel like I feel like I have been for much longer. At the very least, I now understand what recruiters are talking about at networking events, and I can usually figure out what most of the common acronyms stand for. Before I enrolled at NYU Stern last semester, I was able to say that everything I know about finance I learned from Prosper. Now, I may have to amend that statement and say that everything I knew about finance, prior to coming to NYU Stern as a finance major, I learned from Prosper. I came to Stern to learn finance, but in reality, I learned that I really should be here to learn (and still have a lot to learn about) how to fit into the financial world.

Prosper is an online peer to peer based lending/borrowing service. That is, some users lend to other users who borrow. Borrowers sign promissory notes upon receiving money which lenders can then hold onto and collect month to month or trade in the Prosper market. This sounds like trading any kind of financial security, doesn’t it?

Rules of finance I’ve learned from Prosper:
Prices of securities and interest rates are determined by the market to satisfy the laws of supply and demand
When borrowers on Prosper apply for a loan, they often start with an interest rate higher than they are expected to pay. In practice, it actually does not matter what rate they start at, as the market will adjust to a rate that seems fair considering risk and return. In this example, this borrower has a AA rating, the highest possible in Prosper. The initial offered rate was 12.50%, but at this rate, more lenders would be willing to supply money than the $15,000 demanded. Thus, during the bidding process before the loan is written, lenders compete by gradually bidding lower rates that they are willing to accept to loan to this borrower. My prediction is that within the time remaining, the loan will probably be bid down to about 7%, typical of low risk AA.

Investors demand higher expected rates of return for higher risk/volatility
So, if two investments have the same expected return but different level of risk, then it is only natural that the rate for the lower risk investment will be bid down (explained in the previous rule). Prosper offers portfolio plans, and they clearly show that more aggressive investing equates to higher expected yield.

Diversification is the way to go
Prosper’s system even suggests that you should invest with a small amount per bid and in many different loans. This is a simple concept: If you invest everything in one loan and that person defaults, then you lose significantly. However, if you invest $25 in each borrower and lend to many different borrowers, then your return will be comparable to the expected return. Some loans will default, but Prosper even calculates the expected losses based on credit rating for you.

The value of your existing security varies based on market interest rates
This is the concept of interest rate risk. Basically, the first time you decide to sell a note, you will discover that the amount you can sell it for ma not necessarily be what you paid for it with adjustments for already received payments. This is because new notes are constantly being issued, so the selling price of existing notes is adjusted for difference in yield. For example, if you bought a $25 note when the market rate was 5% but the market rate is now 7%, nobody is going to give you $25 for your note when they could buy a new one and receive 7% (provided that both notes are the same level of credit risk). Thus, your 5% note will become less valuable to compensate for the market interest rate change. Conversely, if the market rate were to go down to 3%, you would then be able to sell your existing note for a premium.

Well, there you have it. I really knew more about the fundamentals than I thought I did before I enrolled at Stern. The most important concepts in an introductory finance course I learned from real world experience from a simple peer to peer lending system! No wonder I passed the proficiency exam for the introductory finance course here

That’s right, calling the new bill, H.R. 627, the Credit Cardholders’ Bill of Rights is misnomer if not a disgrace to what any “Bill of Rights” should stand for. In fact, for responsible cardholders, this may prove to be the opposite of a bill of rights, because it will ultimately detract from responsible cardholders to pay for the revenue lost from irresponsible cardholders.

Here’s why:

On the surface, and in the land of unicorns and fairies (which is the land politicians are trying to convince us we live in), this bill appears to have good intentions to protect consumers from being taken advantage of by creditors. The reforms listed here sound good, don’t they?

The main changes:

1. Universal default eliminated. That is, if a consumer defaults on one account, other creditors do not have the right to assign the default rate to other non-delinquent accounts.

2. No charging over the credit limit fees when a consumer has exceeded the credit limit due to finance charges or other fees imposed by the credit card company.

3. No interest rate increases allowed for late payments unless the payments are over 60 days late. Consumers must also be notified at least 45 days in advance of any rate changes.

4. No more double-cycle billing method for computing interest, that is calculating interest over two billing cycles, a method was previously used to ruin grace periods.

5. A cap on credit lines for college students or people under 21 of $500 or 20% of annual income.

These are not all the provisions of the bill, but they are some of the most important. The full text of H.R. 627 can be found here. This bill is known as a “bill of rights” because it typically means that banks are less able to use tricks to trap laypeople into excessive interest and fees. However, most of the new provisions are most beneficial to less responsible cardholders who usually fail to do their research in the terms of their contracts as well as borrow excessively.

1. This is perhaps the only provision that I do not find unreasonable. In the past, some credit card companies would raise interest rates for non-delinquent accounts simply because the consumer defaulted on another account. This can be argued to be unjust, so I won’t argue against this provision for now.

2. No matter what causes a consumer to exceed a credit line, he/she should be responsible enough not to “max out” credit cards in the first place. Consumers who normally have more trouble paying back debt and are regarded higher risk are the ones who tend to max out their cards. Consequently, it is not unreasonable for them to be charged extra for their irresponsibility, especially since they pose a higher risk to creditors, and creditors do charge higher risk groups more. In summation, exceeding a credit line is exceeding a credit line, no matter what the cause. The consumer should take the responsibility to stay under the credit limit to avoid the “over the credit limit” fee that the credit card company has every right to charge, regardless of the cause.

3. This provides less of an incentive for consumers to pay on time. Revolving credit is extremely flexible, and minimum payments are rather low, so it is not unreasonable for creditors to expect timely payments. If a consumer cannot even afford to pay the minimum payment on time, then that is a sign of financial trouble and higher risk, which means that the credit card company should be allowed to charge more to compensate for such risk.

4. When a consumer applies for a credit card, it is his/her responsibility to read the contract and know how payments are calculated. Don’t like this billing method? Don’t get the card. Or just don’t carry a balance on that particular card.

5. This provision, out of everything in the bill, bothers me, personally, the most. “College student” is defined as either someone in college (go figure) or under the age of 21 (or both, of course). This bill will cap credit lines on any single card to either 20% of the student’s annual income or $500, whichever greater. It also caps the total amount of available credit to 30% of the student’s annual income “Unless a parent, legal guardian, or spouse of a college student assumes joint liability for debts incurred by the student in connection with a college student credit card account”
Actually, I’m wondering what happens to existing credit lines that are far greater than these limits. It will be ridiculous if I have to give up my tens of thousands in credit lines that the banks voluntarily assigned me and I have always used responsibly because of this new ridiculous regulation. Sure, college students often don’t have much money, but shouldn’t the amount of credit extended still be up to the creditor-debtor relationship? This is why credit card companies should start small for college students and increase based on responsibility. There is nothing wrong with credit card companies electing to give out low $500 credit lines to college students, but it definitely shouldn’t be a limit if the cardholder can handle more responsibly. Again, these credit card companies increased my credit lines voluntarily because I proved myself as a responsible and deserving cardholder. I always have cash to back my purchases, so what’s the problem with giving me a little more leeway? Sometimes that $500 limit isn’t even enough for a single purchase! Such ridiculously low limits, which mean practically no borrowing, will make it extremely difficult for young adults to build a good credit history, which will make it more difficult for them to apply for mortgages or car loans in the future.

How does this ridiculous for responsible consumers?
The credit card adviser from bankrate even agrees that good cardholders may suffer under this new law. This new bill will cause credit card companies to lose an estimated $10 billion per year in pre-tax income. Thus, credit card companies will have to think of new ways to raise revenue or reduce expenses, and this will result in good cardholders subsidizing the $10 billion loss caused by lost revenue from irresponsible cardholders. This may include shorter or the elimination grace periods, and reduction of rewards programs. Shorter grace periods affect responsible consumers, because people who use credit cards for convenience and rewards and pay their balances in full will be charged interest for their purchases, even when they have cash to properly back such purchases. Rewards programs are the main reason such responsible consumers use credit cards. Using a credit card while you have cash to back the purchase, collecting rewards points, paying the balance in full without interest, and redeeming the rewards for purchases that would have been otherwise made with cash doesn’t sound too shabby, does it? Too bad the era of grace periods and rewards may end, or at least be considerably reduced.

While this bill may appear to have good intentions, it is flawed in a way that unfairly hurts creditors, which in turn, will cost responsible consumers. It also unjustly penalizes younger consumers, like myself, who have demonstrated the ability to use credit responsibly. Is it right to give irresponsible cardholders a break when the creditors’ lost revenue will be subsidized by responsible cardholders?

“A penny saved is a penny earned” –Benjamin Franklin

Roughly 2.5 centuries ago, a very wise man, Benjamin Franklin, introduced a new proverb that we still hear today. I’m sure he simply meant that spending less money was a great way to build wealth, and that’s still true if not even more true today.

First, let’s break down the US tax system:
25% federal income tax
9.3% state income tax
6.2% social security
1.45% medicare
…58.08% to keep
This is neglecting additional taxes that we all pay, such as sales tax and property tax. The above calculation is above is also missing payroll tax.

Sorry Ben, your overall concept behind this quote is wise, but your quote may need to be updated due to the way our government in the 21st century is run. I would trust that you wouldn’t approve of the tax system changing so drastically that your proverb isn’t even accurate anymore.

This “proverb” may need to be updated to “A penny saved is two pennies earned.” And my dad also added “A penny taxed by the US government is two pennies spent” when I discussed this earlier today with my family.

So, I am thinking of pennies in a brand new way from now on. I’ll either have to mentally cut the taxable income I am making in half as I am earning it or double the price of everything I’m spending money on in order to get an accurate estimate of the real price I am paying for goods/services.

We would think that it would be more logical for Americans today to save a penny once in a while, which is roughly equivalent to earning two pennies. Unfortunately, most Americans tend to make one penny and spend two, just like the US government does. The proverb may need a slight update (although I wish it could go back to being earn one = save one), but the overall concept behind it should not be forgotten.

This post was inspired by Tony H’s “Everything I Know About Business I Learned From Poker” article.

When I first started using the internet regularly, my favorite site was neopets. According to the records I just looked up, I first started playing on September 24, 2000, when I was not even 12 years old. Little did I know, “business” in the Neopian world was actually very similar to online business, and my “wasted” hours on neopets may have actually inspired me to start my online business I have been conducting since I turned 18 and was legally allowed to sell on the internet. My online business is quite simple, I simply sell things (profitably of course) on ebay, amazon, half.com, or in some cases, craigslist

By the way, my username on neopets was the least creative possible: claire_chiang

When I first signed up for neopets, I just explored the site and their neopian world. After a certain point, I became so obsessed that I often dreamt about it as if it were real. I think my interest in becoming rich in neopoints, the currency in neopets, sparked my continual interest in the game. The main reason I wanted to play was because getting rich in neopoints, even though that meant nothing in real life, gave me the upmost satisfaction a kid could feel.

What I learned:

1. Buy things on sale, sell them in your shop for more
Simple, isn’t it? I constantly looked for items in the shops that the neopets site put items in, and I bought merchandise cheaply and sold it in my small personal shop for more.
Now, I look for big discounts online that I find on forums specifically designated for users to post good deals, and I buy stuff, receive it, and sell it for more on ebay/amazon/half.com

2. Discount cards (or coupons) are your friends
Neopets used to have a system with discount cards, but I think it was discontinued a few years ago. They would simply give the user a certain flat percentage off all merchandise bought at in site-generated shops. The less I pay for merchandise, the more of a profit I make selling it, right?
Now I use online coupon codes heavily to make good deals even slicker.

3. Sometimes it’s appropriate and in your best interest to haggle
In the neopets shops, you were allowed to haggle to get better prices, which again meant higher profits (or just simply lower prices if I actually wanted the items I was purchasing)
Of course I wouldn’t do this at a major retailer, but haggling is a must with street vendors or in some cases, small privately owned stores. Ok, maybe this isn’t really that relevant to my online buying/selling business, but it’s still a good example in how to save money applied from neopets.

4. When selling things in the marketplace, price your goods to be slightly cheaper than the next lowest price so that your items sell right away
In neopets, I learned that items in my shop would sell almost instantly if I priced everything 1 neopoint cheaper than the next cheapest in the shop wizard. The shop wizard is basically a search function to search all the user-operated shops to compare prices and list them in ascending order. Making everything 1NP cheaper is a great strategy, unless the next lowest price is significantly lower than all the other prices. If that’s the case, then buy the significantly lower priced one and sell both of them for 1NP lower than the next price.
In real online business on Amazon or Half.com, I basically do the same thing, except I list everything for 1 cent cheaper instead of 1 NP. That way my inventory typically turns over at a very high speed, and I don’t have to worry about running out of space to keep my stock, nor do I have to worry about items that depreciate over time.

5. Don’t just make money from operating, also invest your money properly or find a high interest liquid bank account.
In neopets, there was a stock market as well as different types of bank accounts. I always made sure to open the bank account with the best interest possible and to collect my interest every day. I also did a little day trading or short term stock investing, but that’s optional for the risk averse.
When I run my online business with high cash flow, I make sure to never let money sit in a low or zero yield checking account. Instead, I signed up for the paypal money market fund to earn interest while money is in my paypal account, and I always have my sales deposited into high yield money market checking accounts or higher rate savings accounts. I might do another post on my banking structure later, so if you are interested, keep posted.
In our current economic state, investing is probably optional. However, it will be an option I will definitely go for in the future if and when the economy stabilizes.

6. When you get ahold of a limited edition or rare item, hold onto it. It will probably appreciate more than cash at its current value will.
Some items in neopets were issued at one point and never given out or sold again, so they naturally appreciated in value over time. When these items were issued and I held onto them for several months, they typically became very valuable. Examples include paintbrushes and job coupons.

7. You can sell stuff that you got for free
That’s right. There were a few daily opportunities to get free stuff just by visiting a place and clicking, such as omelettes, jelly, and the tombola. If I was lucky, I sometimes got valuable items from the daily freebies that I was then able to turn around and sell for a good amount of neopoints.
Opportunities like this may be harder to find in real life, but when one presents itself, I never refuse. Some argue that it’s unethical to sell things that one obtains for free, but I respectfully disagree. If a transaction can be agreed upon, it means both parties involved are satisfied and feel as if they will have more to gain from completing the transaction than not completing it. So, as long as there is somebody willing to buy the item you are selling, it doesn’t matter how much you paid for it.

So there I have it. Neopets was not a complete waste of my life during my middle school and early high school years. Although it was a highly addictive and arguably unhealthy hobby, it was a good model of the real online business world that inspired me to start trying to make a profit online.