Local Investing

When you think of investing, do you picture a website with a neat summary of your portfolio?  Unless you are an accredited investor (meaning you have at least $1 million in net worth not including your house), your options for investing are a limited menu.  No matter what the name of the product (mutual fund, ETF, stocks), you are investing in companies that are publicly traded.  What if instead you could invest in the bookstore or restaurant that's opening down the street?  "Right now, around the country, groups of citizens both small and large are reclaiming their money as a force for positive social change," wrote James Frazier, one of the founders of a Local Investment Opportunities Network (LION) in Port Townsend, Washington.  His group is spreading the word about the effect they've had within their small town.  Here's an article he wrote that tells their story.

I am part of a group in Bellingham that is creating a similar network called the Whatcom Investing Network (WIN).   WIN is not an entity - it's basically a loose association of individuals who are all interested in making local investments.  It's a forum for us to meet each other and for businesses to meet us.  Check out this lil video of me talking about WIN at the recent Business Alliance for Local Living Economies Conference:

We just had our first meeting of investors this Tuesday.  Leading up to that, our organizing group has been enjoying such activities as studying the securities law.  The existing securities laws were put into place around the Great Depression as a way to protect investors from being scammed out of their life savings.  They are restrictive and complicated but we've mostly figured out how they work and how we can work within them. 

Here's how it might work: Harold is trying to open a chocolate shop.  He will register with the state Department of Financial Institutions that he is planning to ask for private investments, but only up to 35 non-accredited investors and only within Washington State.  He will submit his business financials and pay $50.  Then, Harold will present to WIN members and he will let us try his delicious chocolates.  At the end of the presentation, Maude and Ruth are interested in more information.  They might meet together to research the investment opportunity and perform due diligence.  Then they could meet with Harold and come up with an agreement.  Perhaps Maude will loan $10,000 and receive a weekly box of chocolates and Ruth will loan $5,000 over 5 years and get 6% interest.  Just an example, but I like this model in general for its flexibility.  It certainly has a greater burden on both the business and the investor - it's not just a quick fund transfer - but it's your money, shouldn't you be keenly interested in what it is doing?

Check out our website at whatcominvesting.org for more fun.

Stop Buying, Start Bartering

Here in Bellingham, I've had a chance to practice bartering and trading.  We've traded yardwork for fresh ground beef, tax help for a delicious dinner, photography skills for handmade hats, housing for cooking meals, modeling for mushrooms, etc.  Sure, sometimes "trading" is just doing favors for friends.  But I recently asked a stranger who is a masseuse if she'd be interested in trading some of our fresh goat milk for massage, and she said, yeah!

Psh, that only happens in your weird hippie town in the Northwest, Caitlin.  That will never fly in the bustling metropolis where I live. Not true!  You just have to ask people.  Figure out what you have to offer: stuff you have, skills you have, chores you can do, etc.  Then, when you're ogling a brick of fudge in a candy shop window, ask the owner if she needs any website work done.  Just ask.  Bartering is cheap, it's efficient, and it builds trust and interdependence within a community.

And THEN...there's trading on the internet. No longer do you have to seek out a direct trading partner.  David Roberts' article in The Grist, "Sharing and caring: the implications of collaborative consumption," describes how technology has vastly increased the efficiency of trading:

It has become incredibly cheap to connect people so they can coordinate and exchange information. When I was a kid, growing up in Ancient Times, if I wanted to sell my old banana-seat bike and get a bike with gears, I had to call the newspaper, dictate a for-sale ad, and mail them a check. Or tack up flyers around public places. I might have found a buyer, but the time and effort required would have been substantial. And I would have had no way to pinpoint the real market value of the bike, i.e., how much the person who wanted it most would pay.

Now there are swapping websites for books, clothes, movies, jewelry, babysitting, houses...anything. "The basic characteristic of these you-name-it sharing marketplaces is that they extract value out of the stuff we already have," writes Danielle Sacks in her article "The Sharing Economy." This model, also called collaborative consumption, has huge potential from an environmental perspective.  We don't need to make more stuff if we can circulate the stuff that already exists.  That Iron Man DVD sitting on your shelf is just sitting there 99% of the time.  That's inefficient.  Sacks sums it up: "the central conceit of collaborative consumption is simple: Access to goods and skills is more important than ownership of them."  Think of car sharing, for example.  According to Rachel Botsman, author of What's Mine is Yours: The Rise of Collaborative Consumption, there are three systems of collaborative consumption:

• redistribution markets that cycle used items (Iron Man DVD)
• collaborative lifestyles: sharing skills, space, assets (coworking, couchsurfing, time banks)
• product service systems that help people share or rent a product (carsharing, bikesharing)

Danielle Sacks' article ends up focusing on how entrepreneurs are going to make a lot of money starting companies that facilitate sharing.  However, she points out that the sharing economy also poses a threat to corporate profits.  When I need an ice cream maker, I might go on NeighborGoods and rent one directly from someone in Bellingham instead of buying one at Target (not that I'd ever do that).  How beautifully efficient and interpersonal!  I look at barter as a way for people to practice fulfilling their needs through other people.  Corporations have taught us to fulfill our needs through buying stuff, but we've figured out that most of the time we don't use the stuff we have.

If you're yearning for more information, check out Shareable, a not-for-profit website that acts as a sort of sharing manual, "provid[ing] individuals and groups with a playbook for how to build systems for sharing everything from baby food and housing to skills and solar panels."  Also, here's a fun Ted talk with Rachel Botsman.  One cool idea she talks about is a reputation report that would catalog your various online exchanges, so if you're an unreliable member of Paperback Swap, that information would carry over to your Zipcar reputation.  Interesting implications for privacy and whatnot, but very intriguing as an alternative to credit reports.

Move Your Money

I've been pretty busy helping to organize a Move Your Money campaign here in Whatcom County, Washington.  Our goal is to convince people to move their checking and savings accounts from big banks to local banks and credit unions.

You've already heard me tell you why you should move your money.  If not, check out the page for our local campaign and my article in the Cascadia Weekly.  Local banks and credit unions have lower fees, they support the local economy, and their decisions are made locally.

Your deposits make a difference.  The financial institution you select is a political choice and a vote for the economic system you want to see.  If you still aren't using a local bank or credit union, check out the step by step process below.  Just open a new account: find a local bank or credit union that suits your fancy using these tools.

From New Rules, here are...

7 Simple Steps To Move Your Checking Account

1. Open Your New Account
In most cases, you should be able open a checking account with an initial deposit of $25 to $100. At a credit union, you’ll also become a member and co-owner at the same time.

2. Order New Checks and an ATM/Debit Card
These typically arrive within 1 to 2 weeks. You should also consider applying for a credit card from your new local bank or credit union at the same time.

3. Ask Your Employer to Reroute Your Direct Deposit
When you open your new account, ask the bank or credit union for a direct deposit authorization form that includes your new account information. Give this form to your employer and anyone else who makes direct deposits to your account. It may take one or more pay cycles for the change to be made, so keep your old checking account open and watch for the switch.

4. Contact Companies that Direct-Debit Your Account
Using your last bank statement, make a list of any businesses that you’ve authorized to directly debit your account. Ask your new bank or credit union for an automatic payments authorization form that includes your new account information. Send this to the businesses on your list.

5. Set-up Online Bill Paying for Your New Account
If you like to pay bills online, set up bill payment information for your new account. Also, stop any automatic, recurring payments you have established through your old account.

6. Close Your Old Account
Once you have started receiving direct deposits into your new account and are sure that there are no outstanding checks or automatic debits that need to clear, close your old account. Warning: do not just withdraw the last dollar and assume the account will fade away on its own. Your old big bank may start charging you fees for having an empty or inactive checking account. Instead, follow the bank’s procedure for closing out the account.

7. Enjoy your new local banking relationship!

This checklist was produced by the New Rules Project’s Community Banking Initiative. Visit newrules.org/banking for articles, graphs, studies, and more.

Your 401(k) is Lame

Remember that other time when we talked about community investing?  Yeah, that was fun.  But now you've forgotten about it.  Here's a list I've been compiling of other places to make alternative investments.  With funds like these, you generally have to get in touch with a staff person and "make an inquiry."  They want investors who are really interested in what their money will be doing, not just how much interest they will get.

Come on, people.  Take your money (or some of your money) out of dumb ol' aggregate index funds and force it to do awesome things:

•  Equal Exchange (a fair trade coffee/chocolate cooperative)
  -You can invest in stock at a min of $10,000 for a min of 5 years, usually 5% interest.  Equal Exchange is a worker cooperative; they can reject any investor they please.  I'd suggest this investment if you are really into cooperatives (like me!).
  -You can invest in an Equal Exchange CD for a min of 3 years, usually 1% interest.
• LEAF Fund (job creation in low income communities)
  -min investment $5000 min term 2 years, usually 1-3% interest
  -55% of loans to consumer food cooperatives
  -25% of loans to worker-owned cooperatives
  -the rest to alternative staffing organizations and cooperative manufactured home associations (eg buy the land your trailer home is on as a community)
• RSF Social Investment Fund
  -min investment $1000, min term 90 days, current interest rate 1%
  -provides mortgage loans, working capital lines of credit, and inventory financing exclusively to non-profit and for-profit organizations dedicated to improving the well-being of society and the environment
• Community Economics Investor Note
  -min investment $2000, 1-10 year term, 1-2.5% interest
  -channels investment capital to community land trusts, limited equity cooperatives, and community-based nonprofit organizations creating housing that is permanently affordable to low-income people
• The Carrot Project (local food production in the Northeast)
  -Seems cool. Unclear whether they are currently accepting investments.  Get in touch with them if it looks interesting to you...
• Cooperative Fund of New England
  -min investment $1000, no set term, 1-3% interest
  -invest in cooperatives in New England.  pretty obvious.  They are totally solid.  I don't know what I'm waiting for to invest with them.
• New Spirit Ventures (sustainable agriculture)
  -I literally just heard about them yesterday.  Make an inquiry to find out more.

If you haven't noticed, I'm getting really jazzed up about cooperatives.  Perhaps a post on that soon.

SPECIAL BONUS MAP:

Slow Money is a group that facilitates investments in small farms. Check this out to find a way to invest near you:

Slow Money Financing Programs Map

This is a working map of debt and equity programs across the US that are relevant to small- and mid-sized agricultural producers.
Mapped by Alex Moore, http://www.breadrising.com

View Slow Money Financing Programs in a larger map

Note: if a fund says "accredited investors only," that means your net worth must be at least $1 million to invest.  Usually there is a $100,000 minimum investment for accredited investors.

How to Do Your Taxes

Here are the basic concepts.  Go to irs.gov if you have doubts.  Do not blame us for your errors.

Basic basic:  Federal and state income taxes are withheld from your paycheck during the year based on an estimate of how much tax you owe.  The amount withheld is determined when you fill out a W4. When you file taxes, you calculate how much you actually owe and whether you paid too much or too little.  If it's way extreme in either direction, you might want to adjust your W4 with your employer.

What is an exemption?
Each exemption represents a person.  If you are filing single, bam, you have one exemption, move on.

What is a deduction?
A deduction is an amount that gets subtracted from your taxable income. 

Then what is a standard deduction?
Turns out that the IRS lets everyone take a deduction!  This is the standard deduction.  If you are single, your standard 2010 deduction is $5,700.  If I made $30,000 last year, I would subtract $5,700 and my taxable income would be reduced to $24,300.

What are itemized deductions?
Taxpayers should itemize when their total deductions are greater than the standard deduction, i.e. a single taxpayer gave more than $5,700 to charity.  Other deductions include uninsured medical expenses, mortgage interest payments, theft, etc.  Most people don't need to itemize.

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Do I have to file?
If you are single and your income was at least $9,350, then you are required to file.  If you made less than that, you might want to file anyway because you may get refundable tax credits.

What is the difference between a refundable credit and a nonrefundable credit?
If you owe $1,000 in taxes and you get a $2,000 nonrefundable credit, you will not get money refunded to you.  Nonrefundable credits can only reduce your taxes owed to $0, they can't go below that to give you money back.  Most credits are nonrefundable.  Refundable credits, like the Earned Income Tax Credit, can give you money back.

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Ok I'm ready.  How do I actually DO my taxes?

1. You need to have all of your W2s from any employers you worked for in 2010.  If you had any interest income from savings accounts etc, you need a form 1099 for each account.  If you haven't received forms that you were expecting, track em down.  The time grows nigh.
2. If you have less than $58,000 of income, you can definitely use Free File.  If you have more than $58,000 of income, you can use Free File fillable forms, which might be sort of lame but also might be really easy.
3. Fill in your information.  Follow directions. 
4. Don't be a chump: use direct deposit if you get a refund.

Get the Making Work Pay Credit

If you worked in 2010, you get this random refundable credit, which is 6.2% of your income up to $400 for a single taxpayer.  If you're using FreeFile, the software will help you do it.  If you're filing on your own, claim it on Schedule M.

If you are paying for tuition or paying back student loans:

Read this page about education credits.

Oh, and don't forget to file state income taxes.  They are separate.

Watch "The Money Fix"

Do you know how money is created?  Here's a hint:  most of it is not created in a mint.  Most money is created as debt: you take out a mortgage and POOF the bank creates that money based on your promise to pay it back.  It's sort of mind-boggling and confusing.  The first 10-15 minutes of "The Money Fix" detail the process of how money is created as debt, so at least watch that.  Here it is:

Do the United States need to "win the future?"

I was seriously taken aback by the language of President Obama's State of the Union, primarily his theme of "winning the future."

At the beginning of the speech, he spoke of a "new era of cooperation" between Democrats and Republicans.   But from that lip-service phrase, he launched into a declaration of competition.  America has to win and everyone else has to lose.  “We need to out-innovate, outeducate and outbuild the rest of the world. We have to make America the best place on earth to do business...that’s how our people will prosper."  He mentioned that China has the world's largest private solar research facility, and our expected response is: we must build a BIGGER one.  They have the fastest supercomputer, we will build a FASTER one.  No one questions the Holy American Dogma of being number one.


In this way, America can "win the future," Obama said.  "The future is ours to win." Wtf does that mean?  The future is not a trophy or a promotion.  Usually when you win something, it means everyone else necessarily has to lose.  If America wins the future, who loses it?  The rhetoric of American competitiveness, although always pervasive in our history, sounded particularly insane to me in this State of the Union.  It conjures images of frenzied Americans with bulging eyes ripping apart other nations, somewhat like feeding koi:

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Maybe it's because I just read No Contest: The Case Against Competition by Alfie Kohn.  Kohn debunks the idea that competition is the most efficient model to make people prosper, as Obama suggests and most Americans accept.  As Americans, we compete in every aspects of our lives.  Kohn shows that competition is not the most efficient model to educate, conduct research, play, or work.  Obama said we have to "win the race to educate our kids."  In context, he's not even comparing our students to Chinese students or anything, it's just a race against...time?  Kids growing up?   Obama said: "we need to teach our kids that it's not just the winner of the Super Bowl who deserves to be celebrated, but the winner of the science fair."  What he clearly means is: only winners should be celebrated, and everyone else who submitted a science fair project is a loser and can't be a scientist.  This, of course, reflects the language of Obama's Race to the Top education competition, which pits schools against each other to compete for funding.

I guess this rhetoric shouldn't suddenly surprise me - it's the same cowboy "we're number one" swagger as usual.  Sure, educating our kids and doing scientific research and building high-speed rail are great projects.  But framing it as "we won't be happy until South Korean kids are dumber than American kids" and "our high-speed rail is faster than yours" just sounds, well, insecure.  We're a nation that loves to one-up.  Over and over, Obama used the idea of a race, a battle, a war, a contest.  Why does the rest of the world have to lose in order for Americans to prosper?

Be Your Own Boss. Start a "Business."

There's a job scheme that's been annoying me lately.  The most direct way to introduce it is to recall those "summer job" ads for Cutco knives.  Via Vector Marketing, CutCo makes most of their sales through "independent sales representatives."  Here's an article by Scott Schlimmer that explains his experience with Cutco.  He got an offer in the mail when he was 18 years old which promised him an $18 an hour job.  He bought the required $200 sales kit and then was instructed to practice selling to his "nearest relatives and family friends."

His account is worth quoting because it outlines the basic model that I want to discuss:

"My parents, relatives, and family friends did buy Cutco. They did not buy because they were wowed with the products. They bought because I was selling to them, and they were supportive. This is what Cutco preys on. Bring in young kids. Use these kids to make sales to the kids' family and contacts. 

Once you have sold to all of your family and friends, what do you do then? Vector does not give you leads. As if the $100+ dollars each family member has spent on knives is not enough, Vector then has you pull your leads from them. You ask each person for 10 leads...

The seller does not get paid just to show you the knives. There is no $18 per hour. You get paid a minimum of $18 per appointment. However, it is extremely embarrassing to request the minimum, because that would indicate that your commissions are low."

In researching this, I've learned that this is called network marketing or affiliate marketing or home-based business marketing or just direct selling.  Not surprisingly, wikipedia has some pretty clear descriptions going on.  There's a fine line between this model and an illegal pyramid scheme.  Here's how it usually works:

1. Use the language of entrepreneurship to lure students and low income workers in.  Phrases like "start a business," "be your own boss," "flexible work schedule," or promises of high hourly wages or commissions are common.  This angle is obviously very appealing to people whose other employment options may be low-paying service or retail jobs.
2. Make the new contractor purchase a sales kit.  Could be $99, could be $400.
3. Train the contractor in how you want them to sell: what to say and what to purposefully omit.
4. The contractee makes appointments through his social network to "demonstrate" products and make a high pressure sales pitch.
5. His friends and family buy products because they know and like him and want to help him.
6. Not surprisingly, there is a lot of markup and most of the profits go to the company.

Sure, lots of companies have salespeople.  But there are a few things very wrong about network marketing.  Most obviously, it commodifies relationships.  Would you buy $100 knives if you saw them in the store?  Probably not.  Would you buy $100 from your nephew Joey who just spent the last 45 minutes earnestly going through his sales script in your living room?  Probably yes.  It hijacks the trust between people.  It's not word of mouth if someone else is putting the words in your mouth.  When people are able to avoid traditional advertisements, marketing people find other ways. 

Once someone sells knives to everyone they know, CutCo has no obligation to that contractor.  She has served her purpose by exhausting her social network.  From a labor perspective, this is a brilliant strategy.  Salespeople don't get paid for training and have to buy a sales kit or put down a deposit to even start, so even if the person sells nothing the company still has $100.  Unless she sells more than $1000 of merchandise, her commission is 10%.  That might almost cover the cost of the deposit - a triumphant break-even, unless you count gas money.  One of the forums had a post from a CutCo corporate employee boasting that their knife factory in New York was unionized.  Seriously?  You don't see any inconsistencies there?

I'm not trying to pick on CutCo alone.  They are just a good, well known example.  Amway, Primerica, Tupperware, and Avon are others that operate like this.  When I search for these companies, I get lots of hits of long angry forum threads screaming "IT'S A SCAM!!"  Well, obviously I think so too, but they're not doing anything actually illegal. Some of these companies include a "multi-level marketing" aspect where salespeople have to recruit other salespeople, coming even closer to a pyramid scheme.  When it comes down to it, these companies are not offering real jobs and are just being exploitative and it's up to you to realize that.  This is where the deceptive recruiting comes in.

"What would the opportunity to own your own business mean for you? 
An opportunity to make more money, be your own boss, spend more time with your family, give back to your community, create a legacy for your children, or build something uniquely your own." (Amway recruiting materials)

Amway's four founding principles are Freedom, Family, Hope, and Reward.  Primerica's slogan is "Freedom Lives Here." At the end of one of their promotional videos, one fine print statement says "the images of luxury travel, homes, and purchases are not intended to demonstrate the earning potential of typical RVPs/Representatives."  These companies adopt the ol' familiar American rhetoric of taking initiative and not being a drone to shepherd you into a position where you probably will make less than a drone and compromise the integrity of your personal relationships to do so.

your life as an amway salesperson.  results may vary.

Sure, you make money - By taking it from people you know and then forking over most of it to some lame company.  I've been particularly angry (can you tell...?) about this since encountering a few people I know who are talking excitedly about "building their business" or being "promoted" after recruiting new people.  This is not starting a business.  This is marketing someone else's business.

One more point.  With Amway, you can buy anything you can think of online through an "independent business owner" and he will get a commission from it.  The logic is, if you're buying something anyway, like toilet paper, why not give my buddy Jonathan a cut of it?  Your desire to achieve the feeling of helping someone out may trump your usual comparison shopping.  And worse, it will further confine you to buying into Amway's way of doing things.  Buying a t shirt through your your buddy Jonathan's Amway products because you want to help Jonathan effectively blocks you from filling that need by buying a t shirt produced locally, sustainably, from someone you know, etc.

Now I'm all riled up.

Get yer Utils

The word utils is bandied about quite often here at Cheapions HQ.  Short for "utilities," wiki calls utility a "measure of relative satisfaction."  For example, I get a lot more utils out of 4 oz of dried apricots than I do from 4 oz of peanuts due to my great love of dried apricots and relative indifference towards peanuts, unless they are honey roasted or something magic like that.  We use utils when considering many decisions, for example, whether to attend an event.

Basically, it is useful to have an internal gauge of value instead of relying on external factors like prices or peer pressure.  What is this item or experience worth to me right now?  Buying General Tso's chicken for dinner when you are 3 blocks from your house is a different choice than buying it when you've been in the Minneapolis airport for 6 hours and you're very hungry and you have already licked the salt out of your little bag of peanuts which were not even honey roasted.  I read this quote that someone said somewhere: "Thrift becomes stinginess when it prevents you from having something you want and can easily afford."  Mmm.  I get so many utils from dried apricots that it becomes irrational to not buy them because they're a little expensive.
 

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Recognizing your priorities is a really important step in figuring out how to allocate your money.  People think of budgeting and saving as a form of dieting in which you have to deprive yourself of things you like.  But really, budgeting and/or saving is just a way of focusing your resources so you can get more of the things or experiences you like.  And then, there's the wonderful consideration of opportunity cost.  If I don't buy this falafel, what else could I do with these $7?  I could make an entire pizza or get 3 chocolate bars or rent a pair of snowshoes.  If I don't go to see Iron Man 2 tonight, what else could I do during that time?  You get the point.

Or do you?  If you have a full time job, consider the opportunity cost of that employment.  What do you give up in order to perform that job?  Timewise, perhaps you spend 40 hours a week at the office and maybe 5 hours a week commuting.  What costs do you accrue in order to be at work and adhere to the dress code?  Gas money, subway passes, wardrobe, lunches eaten out, etc.  What are you getting out of the arrangement?  Yes, money, but what else?  All I'm saying is, your biggest choice in your whole life and your biggest choice every day is what to do with your time.  Spend your time how you want to.