Your Money Book

We know technology is taking over more and more of our lives, and the area of credit, banking and finance is no exception.So I wanted to share two big inventions that you have to know will be pretty commonly used within the next year or two:

The first one is called person to person banking, or mobile to mobile. Starting in the spring, if you owe your buddy 20 bucks, or need to cover half of a restaurant tab, you’ll no longer need to find an ATM, or your checkbook. You just need to get your friend’s e-mail address or telephone number, and you can send the money directly from your cell phone in a few seconds.

It’s already rolled out in Europe and Asia, and will easily be embraced by tech people and the 20-something age group first, because they have grown up with the internet and on-line shopping. But the rest of us will follow, because over half the population now does some kind of on-line banking.

If you remember, the first big one is and was Paypal. An on-line company that allowed you to pay for your E-bay purchases from your credit card or bank account. That company was so successful, E-bay purchased them. It was also something the banks had no interest in at the time, thinking there’d really be no demand for on-line payment services. They were dead wrong, since Paypal now has 78 million active accounts.

But this time, when it comes to mobile person-to-person, the banks are at the front of the line to implement this technology. They’re thinking maybe 25 cents a transaction as a fee. Now, that might not sound like much, but like all their other fees and service charges, it’ll add up to a few bucks a person, and billions in total revenue.

PNC Financial and the credit union of Boeing are at the front of the line to roll out this new technology. MasterCard is working with a different provider, and Visa is already testing the program through US Bancorp.

Here’s how it works: You simply sign up for the service with your bank or another provider. Enter someone’s e-mail address or phone number to send the money, and it’ll be debited right from your account, just like any other bill payment you do on-line. The receiver just chooses to have the money deposited to a checking account or a credit card as a payment. And the great news is that cell phones are way more secure than any computer system. They are way harder to hack into, making this new person-to-person banking system safer than any of your current on-line payments.

The second one is very cool, as well. How would you like to do almost all of your banking in your housecoat, right from your computer? Within the next year, you’ll be able to make any bank deposit right from your computer at home without ever leaving your home, business, or office.

You just need to scan the cheques you’re depositing, and e-mail that scan to your bank. The financial institution processes the deposit with all those transit and account numbers on the bottom of the cheque. They’ve got the numbers on a scan, so they don’t need the original! You can literally throw the cheque away after it’s received. It really is that simple with just a computer and a scanner. Plus, going one step further, one bank in the U.S. has already started taking deposits done electronically with your smart phone.

A little less lofty is that one in five ATM’s in the U.S., not in Canada yet, scans your deposits the same way. You’re still leaving the house, but your ATM receipt is the actual scan copy of what you deposited as a receipt. Fidelity Investments ATMs were among the first, but it’s getting pretty common already. I’ve done it a number of times in the States and it’s really slick to have that copy as a receipt. What’s great is that this saves the banks a fortune, too. The payback on the software is only 14 months. But first the Canadian no-service banks need to get the software sooner, rather than later, please!

As we head into the RRSP season, which ends the end of February, lots of people are going to make a one-time annual contribution. Others are scrambling to get an RRSP loan so they can have the tax receipt for 2009. Both of those give someone an instant pot of cash to invest. In the case of an RRSP loan it also makes sure that person really doesn’t have the money to contribute for 2010, because they’re making payments on last years’ loan. Not a good idea. I’d rather have them not contribute for one year and start immediately on a monthly plan for 2010 that is actually their own money and not borrowed.

But for both these examples, a ton of people will have one lump sum of money to invest.

While we normally do not talk about investments, there was a story a couple of weeks ago that was so powerful it is worth sharing and certainly timely. While I believe investing comes after becoming debt free, except the mortgage, many people are in that enviable position.

One of the Wall Street Journal writers recently went back to the great depression and figured out how an investor would have made out in a market that went down 89% from its peak.

He took an index fund of 500 companies and calculated the returns. Now the story we hear in the media is that an investor at the height of the market in 1929 would have taken until 1954 to get back to even. Sick story, and probably enough to keep most people out of investing.

But someone who dollar cost averaged did incredibly well in a bad market. Dollar cost averaging is taking the same amount of money and investing it each and every month. The months the market is up, that money just buys less shares. The months the market is down, it buys more shares. So over time, it rides the peaks and valleys of the market.

Now, someone who started investing $100 a month at the absolute height of the market in September 1929 would probably be a huge loser, right? Wrong. Starting the worst week in the stock market with the same investment every month, that person was already even again in 1933. Now remember, those who dumped their money in all at once took until 1954 to break even. By 1936, still in the depression, the dollar cost averaging person had doubled their money. And by 1954 when everyone else was just back to even, they were up ten fold!

The difference is that you either pick the 5th horse in the 7th race or you are betting every horse in every race. Which one do you think is the guaranteed winner?

For the past few years we’ve been inundated with many get rich seminars, DVDs, free workshops, and infomercials. I’ve talked about them in the past, without mentioning names, but now it’s great to be specifically talk about these scams. Because that’s what they were, and are:

The Consumer Protection Bureau (of the FTC) has now charged some of these infomercial people with defrauding “thousands of people of over $300 million,” in their words. These include John Beck’s Amazing Profits from Real Estate, John Alexander’s Real Estate Riches in 14 days, and Jeff Paul, who has been marketing infomercials for over three years, scamming people on how to make millions on the internet.

The FTC says they’re fraud, and these people are also being charged criminally. “Thousands of people have been swindled out of millions of dollars by scammers who are exploiting the economic downturn,” said David Vladeck, director of the FTC’s Bureau of Consumer Protection. “Their scams may promise job placement, access to free government grant money, or the chance to work at home. In fact, the scams have one thing in common—they raise people’s hopes and then drive them deeper into a hole.”

Like most investments or credit rip-offs, if it sounds too good to be true, it’s too good to be true! No money down, invest in property with no down payments, or make $50,000 a month on the internet? No way, no how – never, ever!

In the 1920s the stock market collapsed when everybody needed only 10% down to buy stocks. What was the result? The great depression.

In the past few years, it was buying real estate with no money down. As a result, tons of people bought numerous investment properties. I know of a doctor in California that had eight investment properties. For the first two he used the equity in his own home, the other six are financed with no money down. Today, he’s lost his own home, and all eight so-called investment properties have been foreclosed, and he’s now bankrupt. How do you think everyone else is doing today?

In the past five years, investment firms like Lehman Brothers were allowed to leverage themselves at 33 to 1. That’s one dollar of investments used to borrow 33 times that amount. Where are those investment firms today? Every one of them is out of business, bankrupt, or was forced into a sale or merger.

These days, it’s seminars on how to get rich through real estate foreclosures, and that everybody should be dumping stocks and buying gold.

Gold over the long term barely beats inflation in return percentages. It reached $850 in 1980 before tanking. For someone who purchased gold in 1980, it would have to be at $2,300 today, adjusted for inflation just for them to break even. So today, we’re barely half-way to recovery from the ‘80’s. Yet there are ads and commercials everywhere wanting us to get rich and dump all of our money into gold.

If we’re starting to think about some of our financial goals for 2010, sorry, there are no shortcuts to getting rich. It’s slow and steady, paying off our debts, living on less than we earn, and saving some money each month. Most of the rest of these programs or scams will likely leave you in debt, and not on easy street. You can take my word for it, or do a little research before jumping into anything, or find out the hard way.