This weekend we visited the See Museum in Manchester, NH. It’s an excellent hands-on science museum for the intellectually curious — of any age. In addition, they had an amazingly large LEGO model of an old mill. Up here in the Northeast, the economy of the early 20th century was dominated by the large mills producing cloth, shoes and machinery.  By the 1930’s through the 60’s, labor and raw materials became cheaper elsewhere.  The mills went out of business, stranding thousands of workers, shuttering hundreds of enormous buildings, and devastating the economies of many small towns. (Sound familiar, GM?)  Only in the last decade or two have these buildings found new life as artists’ lofts, small business incubators, and educational space.

While I enjoyed the mill model, what really caught my eye was one of the interpretive placards along the mill model that talked about employee benefits.  In the beginning, the mills brought in employees from other towns or other countries, since it took many hands to operate the vast machinery.  Eventually the labor force stratified and segmented by specialty.  As more mills grew and competed, operating margins shrank, and the relationship between management and labor grew strained.  (This really is an understatement — many fine books have been written about these troubled times.)

Management realized that it could entice good workers to stay by offering benefits that their competitors didn’t — things like Sundays off, a minimum wage, a reduced work week of only 54 hours, and access to recreational activities.  We take all these (and more) for granted today, and many of these benefits have been nationally standardized by the federal government.

Today, the pendulum is swinging back.  No longer does the employer offer much incentive, other than a paycheck, for your effort.  The current economic crisis has given companies the excuse to pare back, and only time will tell if the frozen benefits will ever be thawed and restored.  This isn’t necessarily a bad thing for the employee.  It makes it much easier to calculate what you’re actually worth to your curent employer and to evaluate other employment offers that might happen along.  In the “new” economy, employment fluidity can be liberating for both the employer and the employee.  It does put more of a burden on the employee to keep your skills up to date, to remain employable, and to be a bit creative, but isn’t that better than being chained to a desk for 30 years with only a gold watch and a handshake at the end of the tunnel?

The one benefit that tends to tie us to our employers is health insurance.  Sure, you can change jobs and get new coverage (probably), but you may have to change to a new plan that doesn’t include your favorite medical provider.  Wouldn’t it be great if you could choose a plan and stay with it, even if you changed jobs?  Employers could either help defray the cost with a contribution or just pay you a bit more so that you could pay for it yourself.  I hope this becomes part of the national debate on revamping the health-care system.  Many folks stay chained to their desk just to keep health insurance, dampening the entrepreneurial spirit.  Wouldn’t it be liberating to know that you could change jobs — or create your own job — without jeopardizing your ability to provide quality health care to your family.

What keeps you at your current job?

The concept of risk underlies much of finance.  We expect that riskier investments will have higher returns.  The riskiness of a corporate bond is one of the main determinants of its price.  But measuring — truly quantifying — risk is hard to do.

Sure, companies like Moody and Fitch assign companies risk letter grades akin to schoolgrades.  But, in college, my sister used to bake brownies for her teaching assistant to get better grades.  And if brownies can give one a boost, just imagine what you can get for the millions of dollars paid by the companies being rated to the companies doing the ratings.  It’s not hard to see (in hindsight) why we’re in the mess we are today.

Enter Freerisk.org.  A couple of slide-rule wielding financial guys who want to throw open the data and crowdsource a better solution.

While I applaud their intentions, isn’t asymmetric data the root problem?  Only the guys inside the company know the true financial picture.  The data reported in the SEC filings are the most optimistic view (within GAAP) of the true situation.  If the data is skewed, how can the result be straight?

I am intrigued by the creation of a large public financial dataset.  Could one use it to investigate things other than risk?  Expected market returns?  Geopolitical stability?  The flow of illicit funds?  If you’re interested, there a Google group forming –get in on the ground floor.

Tip ‘o the green shade to Wired Magazine (June 2009, p. 28) and to Garrison Keillor’s Lake Wobegon for the title phrase.

Photo credit:  Flickr

When I posted recently on how to choose whether to fund your 401(k), Roth, or traditional IRA, I forgot to mention another category:  the Roth 401(k).  The Roth 401(k) rocks.  Like a Roth IRA, you put money in post-tax but then (in retirement) you take out the funds (plus appreciation!) without tax.  Unlike a Roth IRA, there is no income limit to be eligible to contribute.  For a Roth IRA, contribution eligibility phaseouts begin (for 2009) at $105k for singles and $166k for married folk.  Only about 20% of employers’ 401(k) plans offer the Roth option, but the percentage is growing.

If your employer offers a both a 401(k) and a Roth 401(k) and matches both, you might consider dividing your contribution equally between the two, to hedge against future changes in your tax rate.  Your tax rate might change if you make a lot more (or less) money or because Uncle Sam decides to change the rules.  Either way, it’s a good idea not to have all your eggs in one basket. Continue Reading »

GMAC Bank recently rebranded itself as Ally Bank.  I’m not sure if the makeover was a result of the bailout of the banks, or the bailout of GM (or perhaps, both).  The bank still offers some of the best rates available on Certificates of Deposit.  They also offer a 9-month CD that has no early-withdrawal penalty, as pointed out by a reader at IndependentBeginnings.  That’s the first I’ve heard of such an offer.  A no-penalty CD is a perfect place to stash an Emergency Fund.

I’ve kept my Emergency Fund at either E-Trade or ING.  I established electronic transfer between the two accounts.  Periodically (every month or two) I check which is paying the higher rate, and I transfer funds accordingly.

Presently, both E-trade and ING are paying a rate of about 1.4%, while the Ally CD pays 2.47%.  That might make it worth opening an Ally account.

Of course, Ally Bank is FDIC insured, which guarantees your deposits up to $250,000.

Where do you keep your Emergency Fund?

A recession might not seem like the best time to start a business, but as Paula recently wrote, a slowdown can provide you with the time and financial incentive to start that business you’ve been planning.

If you’re starting a new venture you should consider creating a limited liability company — an LLC.

Whether your new venture is selling wristbands announcing your new unemployment,  presenting makeup tips on YouTube, or tattooing pets, there is potential liability in your new venture.  While you should make every effort to deliver a quality service and satisfy your customers’ expectations, things can go wrong. Continue Reading »

There are three types of retirement investment accounts for employees: 401(k), Roth IRA, and the traditional IRA.

If your employer offers a match to your 401(k) contributions, then your first priority should be to contribute enough to the 401(k) to maximize any employer match. For example, your employer may offer to match 50% of the first 6% of your salary that you contribute. If your salary is $50,000, and you contribute 6% ($3,000), your employer will match half, or $1,500, for a total of $4,500 in your retirement account. You don’t pay income tax now on either the contribution or the match, but you will when you take it out (plus any gains) during retirement. The idea is that you’ll then be in a lower tax bracket, so you save on taxes. (I’m not sure I believe we’ll be at a lower tax bracket in retirement, but I’ll leave that argument for another post).

Fewer companies are matching these days, and it may be a benefit on the way out, but as long as it’s there, take full advantage of it — it’s free money.  Continue Reading »

My best investment is not the traditional sort of realized gain, but rather, the investment of time, love, and attention.

The investment was the decision that my spouse and I made before we started a family that one of us would stay home with the child until he was old enough for school.  Dana and I were each raised in families with stay-at-home moms, and that was what we both wanted for our child.  The problem, of course, was we both had careers, and since we started our family rather late in life, each of us had climbed halfway up the proverbial ladder.  Who would jump off?

And how would we live on just one income?  We had always had two, roughly equal, incomes.  Having one of us stay at home would mean a significant change in our lifestyle.  From “2 incomes for 2 people” to “1 income for 3 people.”  Hmmm… Not favorable math.  Continue Reading »