Finance Gourmet

Bank Mortgage Scams Continue

Finance Gourmet — Wed, 16 May 2012 20:29:25 +0000

Think that after a multimillion dollar lawsuit and settlement that the big banks would start playing by the rules and treating their customers right? If so, the bridge salesman convention would LOVE to have you drop by.

Get ready for the next mortgage scam by the banks.

Single Point of Contact Scam

One of the things that the big mortgage banks were supposed to do to help their customers and stop mortgage foreclosure fraud was provide a single point of contact for borrowers to deal with on issues like mortgage modification, refinance or foreclosure avoidance. Before, borrowers were forced to call some 1-800 number where a faceless phone drone would do the standard dance. The borrower provided all of his or her information, and then the person on the phone would tell them what they needed to do.

Unfortunately, customers found that they had to start over every time they called. One mortgage modification specialist would say that they needed certain documents, then another one would say that they needed additional, or different documents, until finally, one day, a foreclosure notice showed up in the mail because the borrower had “failed” to comply with the necessary procedures.

By having a single point of contact, borrowers were supposed to be able to avoid this mess and lenders were supposed to be prevented from taking advantage of it by constantly changing the rules. However, the big lenders have found a way around this rule by, naturally, obeying the letter but not the spirit of the law.

How Banks Still Don’t Provide a Single Point of Contact

It turns out that getting around the requirement to provide a single contact for borrowers is all too easy.

First, the lender sends out a notice. That notice provides a name of a bank employee who will be the single point of contact for that borrower all through the mortgage modification process. This letter complies nicely with the law.

The scam starts when the borrower actually tries to contact this person. A single employee, of course, only works certain hours each day. If those hours happen to be 7:00 to 3:00 Eastern time and the borrower is on the West Coast where that is 4:00 A.M. to 12:00 noon, well that’s too bad. Not that it matters, because the so-called point of contact will never answer their phone anyway.

Many borrowers report that they can’t even leave a message because their contact’s voice mail box is always full. Those who can leave messages report that they are never called back, no matter when they leave a message or how many times they call.

The only answer?

Press to be transferred to another representative who will “try to help” and once again, mortgage customers are playing phone roulette with the banks and their representatives about what documents they have to provide, and to whom, and by when, and so on.

If you get stuck in this situation, documentation is your friend. Keep a journal of each and every call you make, including the time and date, who you make it to, and whether or not you leave a message. Be sure to leave a message with every call. Assuming your point of contact is a real person (maybe) and that he or she has not been instructed to not deal with you (maybe), then being an aggressive squeaky wheel might just get you the actual contact you need. When you do transfer to another representative make sure you tell them that you have called your contact many times and never gotten a return call. Those calls are recorded, and your constant communication that your single point of contact is not doing what they are supposed to be doing may eventually be helpful to your case whether in a foreclosure hearing or other legal process.

Do your best to follow the process and get your loan fixed, but if it gets too far out of hand, report the lender to your state’s Attorney General, and to consumer groups. You may even reach out to a reporter. Remind them of the settlement and the requirement that there be a single point of contact and then offer them your meticulous records detailing how your lender isn’t following through.

In the end, pay when you can, and keep all of your options open and hopefully, you’ll come out of the situation O.K.

Bank Mortgage Scams Continue originally published at Personal Finance Blog - FinanceGourmet.com

529 Contribution Limits 2012

Finance Gourmet — Tue, 15 May 2012 21:55:14 +0000

The 529 plan is a tax-advantaged college savings plan. Of course, like all plans that offer IRS sanctioned tax savings, there are rules and regulations regarding just how and when a 529 plan may be used. One of these limitations involves how much money you can contribute to a 529 plan in 2012.

Head over here if you are looking for how a 529 plan works.

2012 529 Contribution Limits

Unlike IRA plans, where there are new 2012 IRA contribution limits, or other child tax credits, there is no income limits for 529 plans. That means that you can contribute to a 529 plan regardless of whether you are a high-income taxpayer or not.

There are, however, still a few kinds of contribution limitations for IRA accounts that you want to be aware of.

The first 529 plan contribution limit comes from the plan itself. Since 529 plans are administered by each of the 50 states, there can be 50 different plan rules. For each plan, there may be both an annual contribution limit and a lifetime contribution limit. In addition, for states that offer a state income tax deduction for 529 plan contributions, there may be a limitation on how much of each year’s contribution may be deducted.

For example, the State of Colorado has no annual contribution limit, but restricts contributions to a Colorado 529 plan once the account balance hits $280,000. On the other hand, California 529 plans allow contributions until the account balance is $350,000.

For some taxpayers, the most important 529 plan contribution limitation isn’t actually a 529 plan limit at all. IRS rules state that contributions to a 529 plan are a gift. Therefore, to avoid triggering potential gift tax implications, contributions must be limited to under $13,000 each year, which is the 2012 gift tax limit. A married filing joint couple can contribute up to $26,000 per year, which is considered one $13,000 gift from each person.

Special Gift Tax Rule for 529 Plans

There is a special rule for 529 plans regarding gift taxes. Up to five years of gifts can be made in advance to a 529 plan without triggering any estate tax or gift tax implications. In other words, a single person can contribute up to $65,000 in a single year to an individual’s 529 plan. However, such a contribution is considered an advance on future year’s gifts. Therefore, if one contributes the full $65,000 into a 529 plan, then no additional gifts may be made for five years.

Again, a spouse may contribute the full gift amount as well. In this case, a married couple that files jointly could contribute $130,000 in a single year to a 529 plan as long as they did not make any additional gifts to that same person for the next five years.

529 Contribution Limits 2012 originally published at Personal Finance Blog - FinanceGourmet.com

Credit Bureau Phone Numbers

Finance Gourmet — Tue, 08 May 2012 16:05:35 +0000

Your credit score is a critical component of your financial well being. Your credit score is computed from the information in one of your credit reports. Those credit reports are maintained by the major credit bureaus. If there is an issue with your credit report, you’ll have to fight your way through the standard red tape of major corporations with the added complication that you aren’t really the credit bureau’s customer, so they really aren’t very interested in hearing from you in the first place. Finding a useful credit bureau phone number is, therefore, sometimes tricky.

Before Calling a Credit Bureau

Before you grab your phone and dial, consider whether or not calling the credit bureau will actually be useful to you. For example, if there is some incorrect information on your credit report, it may be better to dispute the wrong information in writing. Even if you call directly to the CEO, disputes still have to be made according to the credit bureau’s dispute procedure, so calling the wrong number is a waste of time.

Also, if you wish to enter your own customer statement into your credit report, that can be done electronically as well.

However, there may be times when you need to directly call the credit bureaus, in that case, try to find the right phone number for the function you are trying to achieve.

If you want to get your credit score, you may want to check into one of the free online credit score services such as Credit Karma, Quizzle or Credit Sesame.

Phone Numbers for Credit Bureaus

These phone numbers may change in the future.

Experian Phone Numbers

Order Credit Report: 1-888-397-3742
Dispute Information on Credit Report: Call specific number on your credit report
Report Fraud or Identity Theft: 1-888-397-3742
Credit Freeze: State Dependent

Transunion Phone Numbers

Free Credit Report if Denied Credit Call: 1-800-888-4213
Order Credit Report By Phone: 1-800-888-4213
Dispute Items on Credit Report: 1-800-916-8800
Place Fraud Alert on Credit Report: 1-800-680-7289
Place Security Freeze on Credit Report: 1-888-909-8872
Main Number: 1-800-916-8800

Equifax Phone Numbers

Report Fraud and Place Fraud Alert: 1-888-766-0008
Place Security Freeze on Credit Report: 1-800-349-9960
Credit Report Inquires: 1-800-685-111
Order Credit Report and Credit Score: 1-866-493-9788

All three credit bureaus have a unified system to allow customers to opt-out of marketing offers and junk mail based upon your credit report. In other words, you can tell the credit bureaus to stop selling your credit report information to credit card companies and lenders. The phone number to opt-out of marketing from all three credit reporting companies is: 1-888-567-8688 (1-888-5-OPT-OUT)

Don’t forget that you can also get one free credit report from each credit bureau every year at annualcreditreport.com

Credit Bureau Phone Numbers originally published at Personal Finance Blog - FinanceGourmet.com

Credit Sesame Scam or Legit?

Finance Gourmet — Mon, 07 May 2012 19:45:24 +0000

Credit Sesame is another in a growing list of online services that allow you to view and monitor your credit score for free. We’ve already looked at some of these services. First, we checked to see if Credit Karma is a scam. Then, we looked at whether Quizzle is a scam. Credit Sesame looks like these other online service on the surface, but let’s dive in an look deeper.

Just like we noted when doing our Credit Karma review, the credit score you get from Credit Sesame is not a free FICO score. While the Credit Karma score comes from Tansunion, the Credit Sesame credit score comes from Experian.

Like the others, the company makes money thanks to advertising from financial companies, like credit card issuers and lenders, as well as getting commissions on referrals to products. In fact, the company says that one of the service they provide is to “Optimize Your Current Loans.” If you sign up for Credit Sesame, you’ll know doubt be informed that you could save hundreds of dollars by signing up for other cards or loans that, of course, you can click on a link in order to get started right away.

Credit Sesame vs Credit Karma

In addition to using different credit bureau’s credit reports to calculate your credit score, there are some differences in the features between Credit Sesame versus Credit Karma.

Credit Sesame offers a “What If” modeling tool that predicts what will happen to your finances based upon a different credit score. It’s a no brainer that a higher credit score yields lower interest rates, but this tool lets you see just how much you might save depending upon whether your credit score was a little higher, or a lot higher.

Credit Sesame Safe?

It is always difficult to decide whether to trust an online service like Credit Sesame with your confidential personal information. At some level, if you are going to use their service you have to trust them, just like you do when you give a bank or financial institution your credit information, social security number and the like. There is never any way to know 100 percent for sure if something is safe, but there is a reality check that typically can show you the way.

For example, Credit Sesame was founded in April of 2010, so it hardly qualifies as fly-by-night two years later. The company has also been profiled by several mainstream news publications, who, theoretically, would have noticed if the company was a bald-faced scam.

Second, the company has raised nearly $7.5 million in capital from some well known investors and venture capital firms. This isn’t a blank check for trust, but running an online scam generally doesn’t go hand in hand with raising several millions of dollars from investors. If you were trying to run off to Rio with a bunch of money, pocketing the millions you got from investors is probably faster and more lucrative than selling off the financial data of little old ladies.

Finally, the founder of the company has a real, verifiable track record as an entrepreneur who not only has founded financial companies in the past, but also sold them to very legitimate financial corporations.

In the end, Credit Sesame offers a useful service for most users.

Credit Sesame Scam or Legit? originally published at Personal Finance Blog - FinanceGourmet.com

Facebook IPO 2012

Finance Gourmet — Mon, 07 May 2012 03:18:22 +0000

After years of speculation, rumor and guesses as to whether Facebook stock is a good investment at all, the company has finally announced plans to go public. Facebook will trade on the NASDAQ under the ticker symbol FB following its IPO. Like many other technology IPOs of late, this offering will leave CEO and founder Mark Zuckerberg in iron-fisted control of the company. He’ll control approximately 57 percent of the voting power in the company after it goes public, leaving shareholder lawsuits as the only chance for investor control.

The company indicated and initial public offering range of $28 to $35 per share. This would value the company somewhere between $77 billion and $96 billion dollars, which is close to many technology pundit’s wishes of a $100 billion valuation. Regardless, of where within that range it prices, Facebook will be the internet IPO ever. With a $100 billion valuation, Facebook would be close in market value to long established technology companies such as Amazon and Cisco.

The IPO would raise something in the $11 to $13 billion dollar range, although the company will only get half of that. Investors in the company are cashing in a big pot of chips in order to lock in gains for their own investments and for their venture capital funds. That isn’t necessarily a bad sign, but an investor who thinks that there is a lot of upside left in Facebook’s stock price wouldn’t be so eager to sell at the beginning. However, many of the investors were early stage investors in the company who made very risky bets that have already paid off much more than can be usually be expected. No one can blame them for wanting to take some money off of the table.

Employees would face a lock-up period of around 180 days during which time they would be prohibited from selling their shares that they have earned over the years.

Although there is less concern that Facebook will end up trading underwater quickly and staying there like recent IPOs from Zynga and Groupon, there is some concern about Facebook’s lofty valuation. At the high end of the range, Facebook will trade at 99 times earnings, a multiple higher than virtually all of the S&P 500 companies according to Bloomberg.

Still, there is so much buzz around this IPO that there is little doubt investors will both swarm it under and take the shares higher in the short term. The question remains if Facebook stock will be a good investment for long-term investors. For the average investor, this trade is a gamble, but one many are willing to take. Time will tell if this is the next great thing in corporate America, or another AOL that looked like it couldn’t fail, until every realized that it couldn’t succeed.

Facebook IPO 2012 originally published at Personal Finance Blog - FinanceGourmet.com

2012 Tax Tables

Finance Gourmet — Tue, 01 May 2012 19:44:24 +0000

The IRS tax tables for 2012, for use in filing 2012 taxes by April 2013, will be published in the fall of 2012.

However, the estimated tax withholding tables give an accurate assessment of how the 2012 tax tables from the IRS will look. Note that these 2012 tax bracket tables are no to be used for calculating your 2011 taxes that you file before April 2012, but rather for the tax year from January 2012 to December 2012. Those taxes will be filed in 2013, but estimated tax payments calculated throughout the 2012 year should use these IRS tables.

The 2012 standard deduction amount is the same.

2012 Estimated Tax Tables

If your 2012 filing status will be Single then your tax rate for estimated payments is:

Income under $8,700 = 10%
Income over $8,700 but under $35,350 = $870 + 15% of amount over $8,700
Income over $35,350 but under $86,650 = $4,867.50 + 25% of amount over $35,350
Income over $86,650 but under $178,650 = $17,442.50 + 28% of amount over $85,650
Income over $178,650 but under $388,350 = $43,482.50 + 33% of amount over $178,650
Income over $388,350 = $112,638.50 + 35% of amount over $388,350

If your 2012 filing status will be Married Filing Jointly then your tax rate for estimated payments is:

Income under $17,400= 10%
Income over $17,400 but under $70,700 = $1,740 + 15% of amount over $8,700
Income over $70,700 but under $142,700 = $9,735 + 25% of amount over $35,350
Income over $142,700 but under $217,450 = $27,735 + 28% of amount over $85,650
Income over $217,450 but under $388,350 = $48,665 + 33% of amount over $178,650
Income over $388,350 = $105,062 + 35% of amount over $388,350

Remember that whenever you are required to make estimated tax payments there is a general rule provision that you can use instead of calculating your estimated payments with the EST tax tables. The IRS decrees that if you pay 100 percent of the amount of taxes you paid the previous year, then you will not be subject to underwithholding penalties.

However, this does not mean that you will not owe taxes. Your tax rate will still be calculated based upon your actual income for the year. What it does mean is that you can make smaller quarterly estimated tax payments without being penalized for underpayment. You do need to be sure that you will be able to make your tax payment the following spring when you file your taxes, or you may be subject to interest and penalties at that point.

For higher incomes, those with an adjusted gross income (AGI) above 150,000, the general rule requires that your estimated tax payments equal 110 percent of your previous year’s taxes to avoid paying an under withholding penalty.

Other 2012 tax tips and advice is available here on Finance Gourmet.

2012 Tax Tables originally published at Personal Finance Blog - FinanceGourmet.com

Apple Earnings Good or Bad?

Finance Gourmet — Mon, 23 Apr 2012 20:06:32 +0000

Apple reports earnings on April 24. This report is actually for earnings from the 2nd quarter of Apple’s fiscal year, even though corporations on a calendar year are reporting first quarter earnings right now. (Several tech companies reported earnings last week.)

After a rough week for the company in the headlines, these earnings will likely be used as a gauge for the short-term future of Apple stock.

Recently, Apple has been the subject of legal action from the Justice Department regarding alleged price-fixing for ebooks. Although this makes up a tiny portion of Apple’s revenue, it is a major key in how the Apple store works. If there is a problem with this model for books, there could conceivably be issues in other markets as well.

What is not in doubt is that Apple will continue to dominate the tablet computer market and that its prolific iPhone will continue to be a huge player in the smartphone market. There is little doubt among analysts that things in the marketplace look good for Apple in both the short and long-term.

In fact, the only real question about Apple stock these days seems to be whether the company’s shares have risen too far, too fast. The stock, which hit $600 earlier, has declined to closer to $575 per share. There are two main concerns about Apple’s stock. One, is have investors simply gotten ahead of themselves, in which case share prices would hold at this level or rise much more slowly going forward. The second is has the company’s extraordinary growth finally topped out, in which case, share prices might need an actual reset in the marketplace.

As CEO Tim Cook likes to point out, the markets Apple is in are huge and they are growing. Additionally, it isn’t like Apple has an 80 percent market share in mobile phones. There is theoretically plenty of room for Apple to grow there.

However, just because Apple doesn’t dominate the entire smartphone market, it may dominate the smaller high-end smartphone market. In other words, if everyone who wants, and can afford, an iPhone already has one, then the company’s growth is on shaky ground. There are few analysts, however, who espouse this theory.

Some technology pundits have begun suggesting that Apple will see reduced subsidies from carriers for the iPhone. However, Apple has multi-year agreements with carriers, so any impact from such a move would be down the line. In addition, unless a dazzling Windows Phone or Android phone comes to market, Apple still has remarkable leverage with carriers. In fact, some analysts question whether Sprint gave up too much to be in the iPhone market. That isn’t something that you worry about right before a company is forced to agree to less favorable terms.

Expect Apple’s stock price to move dramatically following the earnings announcement, but the expect whatever movement occurs to be tempered over the coming weeks as clearer heads prevail.

Check Apple’s investor relations webpage to listen in on an audio webcast of the earnings conference call.

No related posts.

Apple Earnings Good or Bad? originally published at Personal Finance Blog - FinanceGourmet.com

Tech Earnings Week

Finance Gourmet — Sun, 22 Apr 2012 16:59:37 +0000

This past week featured the earnings release of several major technology companies, coming closely on the heels of major earnings announcements from other tech companies, including Google and Apple.

IBM Earnings

First up, IBM reported revenue of $24.7 billion leading to earnings of $2.78 per share. The consensus estimates from analysts were a bit higher for revenue, but a bit lower for earnings per share. The company did raise its full-year earnings guidance, but it wasn’t enough. Investor reaction wasn’t pretty with shares dropping 2.4 percent the following day, and continuing down. The technology giant closed on Tuesday before reporting earnings at 207.31 and closed Friday at just 199.55. IBM’s results have also been blamed for the general downward direction of the markets for the end of the week.

Still, IBM has a long history of boosting its share prices, primarily by buying back enormous amount of stock each year.

Intel Earnings

Intel’s earnings didn’t make investors any happier. The stock has had a pretty good run-up as of late, so anything other than a gangbusters quarter was likely to lead to a poor reaction. Intel shares got it. The stock closed before earnings on Tuesday at 28.48, but finished the week at 27.60.

The company reported revenue for the first quarter of $12.9 billion and net income of $2.74 billion. Earnings per share were 53 cents.

Microsoft Earnings

Microsoft reported earnings on Thursday. Unlike Intel and IBM, the software giant’s earnings news did not disappoint investors. Rather, the stock rallied more than five percent on Friday.

The company reported third-quarter results (of its fiscal year) of $17.4 billion in sales and a $5.1 billion, or 60 cents per share, profit. Although 60 cents is slightly lower than last year’s 61 cents a share profit, that number included a one-time tax benefit to the company’s bottom line.

The big news out of Redmond was that personal computer sales rose last year. Many technology pundits have been forecasting a decline to the rise of personal computing devices like tablets and smartphones. That data translated into a four percent increase in Windows sales ahead of next year’s release of Windows 8, which, once again, is considered a make or break product for the company.

It wasn’t all good news. The company reported lower sales in its entertainment business, which consists primarily of its Xbox gaming system. The aging platform is reaching saturation, where pretty much anyone who wants to have a current Xbox system already has one. Since the company isn’t expected to release an update to the system in the near future, this is an area where weakness will likely continue.

EMC Earnings

EMC is the world’s largest maker of corporate data storage equipment, and the owner of VMware. It’s earnings, therefore, show specific insight into how big business technology spending is going.

The company earned 37 cents per share on revenue of $5.1 billion, an increase of 11 percent. The company attributes much of that gain to continuing demand for cloud computing. However, the company’s outlook for the future disappointed investors who dropped the stock down four percent on Friday.

eBay Earnings

On Wednesday, eBay reported quarterly revenue of $3.3 billion, and a profit of $725 million or 55 cents per share.

The company, which also owns popular payment service PayPal, foretasted similar profits for next quarter.

Unlike the others, eBay’s earnings impressed investors who pushed the stock price from a Wednesday close of $35.87 to a close on Friday of $40.29.

Tech Forecast for 2012

The outlook for technology stocks for 2012 looks mixed right now. If the economy manages to maintain its slight upward growth, it looks like the tech bellwethers will be in good position to capture the upside. However, if economic growth fizzles, it looks like customers and business will have no problem quickly retrenching and quashing tech spending for the remainder of 2012.

If you are going to be investing in tech during 2012, keep a sharp eye on the economic indicators going forward. The industry does not have the momentum to rise in the face of an overall decline in the economy for the remainder of the year.

No related posts.

Tech Earnings Week originally published at Personal Finance Blog - FinanceGourmet.com

Get Rich Investing?

Finance Gourmet — Sun, 15 Apr 2012 16:46:54 +0000

Albert Einstein once said that the most powerful force in the universe was compound interest. What most people don’t understand is that, while powerful, compound interest needs a lot of time to work.

Unfortunately, when most people start looking for financial planner, or stock broker, or just researching how to invest on their own, they start with unrealistic expectations of how rich investing can make them. The most important thing to remember is that it takes money to make money, even in investing.

If you aren’t starting with a million dollars, you won’t be making a million dollars any time soon.

How Fast Can Investing Make Me Rich?

When a lot of people start investing, they start with something like their 401k plan or other retirement plan. Usually, they contribute a small part of their paycheck each month. Over time, the money adds up nicely, but not to the extend that makes anyone excited. After saving up some money outside of a retirement account they start thinking about online trading, or investing in something that grows faster. Not to put too fine of a point on it, they want to get rich fast.

Unfortunately, that isn’t really how investing works. If you don’t already have a lot of money, investing isn’t going to make you a lot of money, no matter how well you do.

Let’s say that you have $10,000 to invest. You can risk it all and invest in the riskiest investment strategy out there. Now, let’s say that I’m the best investor in the entire world. I’m so good that I earn you 50 percent return every year, with no fees or expenses. In other words, this is completely unrealistic.

There is no one who can do this. Not Warren Buffet, not the best mutual fund, not the best hedge fund, not even Bernie Maddoff’s ponzi scheme. No one. In fact, if you start talking about a 50 percent annual return with any financial professional anywhere, they will start talking you down, because 50 percent is utterly unrealistic.

But if you could earn 50 percent return per year, how fast could investing $10,000 make you rich?

Let’s see what happens if you earn 50% on your money every year.

Start Investing: $10,000
After 1 year: $15,000
After 2 years: $22,500
After 3 years: $33,750
After 4 years: $50,625
After 5 years: $75,937
After 6 years: $113,906
After 7 years: $170,859
After 8 years: $256,289
After 9 years: $384,433
After 10 years: $576,650

After a DECADE, you finally have half a million dollars.Now, at this point, compound interest really does start to work. Of course, you had to have a few hundred thousand dollars before it gets impressive, and remember we’re talking about very unrealistic returns here.

Not really what you were expecting is it?

What about the more standard 10 percent return?

How Much Can You Really Earn Investing?

There are just as many people out there who will tell you that a 10 percent annual return is unrealistic as there are who will tell you that a 10 percent annual return over time is completely realistic. It is important to remember that no matter which one it is, they are talking about average annual return, but for the sake of simplicity, how much would you have after 10 years at 10 percent?

Starting with $10,000: $25,937
Starting with $25,000: $65,843
Starting with $50,000: $129,687
Starting with $100,000: $259,374
Starting with $250,000: $648,435

I don’t know about you, but until you get to $250K, those numbers don’t seem very impressive.

But, look what happens after 20 years:

Starting with $10,000: $67,275
Starting with $25,000: $168,187
Starting with $50,000: $336,375
Starting with $100,000: $672,750
Starting with $250,000: $1,681875

Those numbers are a little more impressive. But, it took TWO DECADES to get there.

What it all adds up to, is that investing is slow. All of those people out there who are billionaires didn’t get rich by investing $25K or even $100K. They got rich by running companies and businesses. Even then, it usually took decades.

As far as those who got rich “by investing”, they got rich by investing millions and billions of dollars. Even Warren Buffet didn’t get rich investing his own money. He went out in the beginning and got people to invest millions of dollars with him. If he started with just $250,000, and somehow had the exact same track record, he’d have millions of dollars by now, but not billions.

When you start investing, be sure you understand the reality of expectations. Do some quick math to see how much money you would have, even if you doubled your money every year, and then realize that isn’t going to happen. But, if the 100% return numbers aren’t impressing you, you can be pretty sure that you won’t be impressed by what happens at 8 percent or even 10 percent either.

It takes a sizable starting investment to end up with a million dollars before decades have gone by. Always remember, compound interest is very powerful, but it is also very slow.

Get Rich Investing? originally published at Personal Finance Blog - FinanceGourmet.com

Google Lower Cost Per Click Doesn’t Matter

Finance Gourmet — Fri, 13 Apr 2012 04:44:54 +0000

Google just reported its quarterly earnings. They did very well, beating pretty much every analyst’s numbers. Those who want to nitpick will complain that the price per click has gone down. However, that isn’t really surprising considering that the number of clicks went up. There are some issues coming with Google’s stock, but this isn’t one of them.

Google Cost Per Click Down

Google’s advertising model is based on advertisers paying either “per click” or “per impression.” Actually, advertisers pay per every thousand impressions, but that isn’t the point. Advertisers who pay using the per click model pay a certain amount each time someone clicks on their ad, but nothing if the ad goes unclicked.

A smart online advertiser using the per click model will determine how much each click is worth. There can be many ways of determining this, and numerous intangibles are considered by some advertisers. However, the most simple concept would be something like this.

Maximum payable cost per click = Amount of revenue generated per click / Number of clicks necessary to generate revenue.

In other words, if you generate $1 per transaction (this is called a conversion) and it takes you 10 clicks to generate one transaction, you can pay no more than 10 cents per click, which break even. You’d have to pay nine cents per click to generate a profit.

Google chooses which ads to display using an algorithm that takes into account several factors including the quality of the ads, how often they are clicked, how often they convert, and so on. However, all other things being equal, the highest paying ad is placed first. Furthermore, each advertiser can set various limits on the way their ad dollars are spent. When an advertiser’s limit is reached, his ads no longer display, regardless of their offering price.

With this in mind, we can see that if the number of clicks go up, the cost per click will go down, assuming all other factors are unchanged.

Here is how it looks.

Advertiser A offers 50 cents per click, up to 1,000 clicks per some time period.
Advertiser B offers 25 cents per click, up to 1,000 clicks per some time period.

That means that:

The CPC will be 50 cents so long as there are 1,000 or less clicks.
The CPC will be less than 50 cents if there are more than 1,000 clicks.
The more clicks there are beyond 1,000, the further the CPC will drop.

As you can see, if advertisers make no changes to their advertising budgets and limits, the CPC will always drop when the number of clicks increases.

In fact, if the number of clicks and the the CPC increase at the same time, then that is an indicator that advertisers have dramatically increased their ad spending on Google. Because, in order for both the CPC and the number of clicks to increase, the additional CPC must offset the lowering power of an increasing number of clicks.

The other big news out of Google’s earnings today was the so-called stock split being used to shore up the founder’s control of the company. This isn’t really necessary, and we’ll explore why tomorrow.

Google Lower Cost Per Click Doesn’t Matter originally published at Personal Finance Blog - FinanceGourmet.com