Leaving Philadelphia

Until two weeks ago, Philadelphia was my home. I moved their nine years ago on the cusp of entering college and continued living there is a young professional. To the untrained eye, Philadelphia appears to be Northeast blip between New York Banking and Washington Government whose largest accomplishments came during the Revolutionary War. When I originally arrived in Philadelphia I felt the same way because of her sarcastic and blunt residents. Philadelphia is a generational city, much less transient than its north and south counterparts, creating realism only achieved spending your entire life within its boundaries. And as time passed, I came to love Philadelphia for reasons I used to despise.

When I dropped in Philadelphia nine years ago I was a terrified teenager fresh off the ills that plague many teenagers in this country. Prey to a messy divorce, I was bubbling with uncertainty that threw my uncanny gift of understanding people into a tizzy. Unwilling to let her and my father’s problems derail me, my mom sent me north to spend the summer prior to my freshman year in college with her sister. My life immediately became a suburban middle class version of The Fresh Prince of Bel Air sans mansions, country clubs, and a witty butler. Like Will Smith in his perpetually syndicated sitcom, my personality clashed with the family members who generously took me into their home, gave me an opportunity to earn money for college, and made sure I was fed three square meals a day. But unbeknownst to me that summer instilled a framework of humility, hard work, kindness, and empathy that would ultimately lead me to my current path.

My first five years passed quickly as I earned my right of passage at one of Philadelphia’s fine education establishments. (My program was intended to be five years). I spent my time socializing with new friends and exploiting the benefits of an urban campus, and studying when the opportunity presented itself. The next four years also flew by for different reasons. Unhealthy spending habits in college kept me in Philadelphia somewhat unwillingly but recovering gave me tremendous insight into personal finance and left me with a strong sense of personal responsibility.

During my career, I have had a number of different opportunities but passed because I was immobilized by choices I had made in the past. When repaying debt every opportunity must be weighed against the pivotal question in the back of your mind: if it falls apart, will my progress stagnate or be erased? Stuck in a glass ceilinged company two and a half years ago, I explored moving to New York City. My decision against the move was attributed to high costs of living. My progress would undoubtedly be negated by doubled rent and higher taxes. I passed and the economic fall-out six months later eliminated most of the opportunities I had considered. Eventually I landed a position in Philadelphia with a larger company offering growth potential.

Year nine in Philadelphia was one of the best because I was no longer hampered by past mistakes which allowed me to finally experience life as I should have three years prior. Free from tough choices such as going out versus eating for the week, I was able to expand my social circle and was much more pleasurable to be around. I was also poised to continue enjoying life when those around me were cutting back due to uncertain economic conditions. It helped to have a stable job that offered me the convenience of living without the expense of owning a vehicle and a small reserve fund attributed to good spending habits learned from my debt repayment. But I wanted an opportunity to elevate my career further which appeared grim in the City I loved.

For those unfamiliar with Corporate America, it can be a cold and lonely place if you are unwilling to take risks. But the risks are different than those taken by entrepreneurs because they have to be controlled. Being direct with upper management about your position on company policies and processes can lead to a long vacation without pay so your intelligence must be explained with finese. For me, I did my work faster and more thorough than those around me, using my free time to take on additional projects and find mentors within my office. Taking on additional responsibilities is welcomed but only if you complete the task well. Otherwise you develop a reputation of a hard worker who is unlikely to move through the ranks. Having mentors who understand the dynamics of the company puts you in touch with managers you are unlikely to have met otherwise. But above all else, it is important to have a manager that recognizes your atributes and highlights them to their managers.

Eventually, the opportunity I wanted came knocking. A specialized team in West Palm Beach, FL sought temporary help for a few weeks to complete “mission critical” tasks for the Company. My manager approached me with the possibility of spending a few weeks in February supporting this team and I excitedly aggred to help. My work ethic and hunger to succeed impressed the team leader and I was kept on the project for several months. Once my time on the project ended, I returned to Philadelphia energized by the experience. A few weeks later, I was offered a full time position. Despite the benefits of a challenging job in a growth market, it was a difficult choice to permanently leave my friends, family, and job in Philadelphia for an unknown situation. But I was now free from credit card debt and Florida has a favorable income tax structure which made me comfortable with my decision. And my family was supportive which weighed heavily as well.

Now I am braving the heat and afternoon typhoons typical of summers in South Florida, ready to take on the challenges that lie ahead. I wouldn’t have it any other way.

Applying Microcredit to America

This winter I read Muhammed Yunus‘ Banker to the Poor to gain a better understanding of how he built a successful system of microcredit in Bangladesh. To succinctly summarize, Yunus extended loans under $250 to women living below the poverty level. Yunus believed women are naturally inclined to use the money for their family while men are naturally inclined to use the money on themselves, forming the premise of Grameen Bank. Although minor, access to credit allowed these women to slowly pull their families above the poverty level and provided their children with ambitions of an education and better life. This model works because Grameen Bank borrowers know that this is the first, last, and only chance to elevate their social status. And RGE Monitor provides additional insight into why microcredit has been successful.

Translated into English, a little bit of credit acts as a catalyst for women outside the labor market, turning them into economically productive individuals. Once they become economically productive, they can pay back small loans. But they’re not productive enough to pay back medium-sized loans.

To put it another way, the interest on a microloan isn’t really return on capital, it’s return on labor. It’s just that without a tiny bit of capital, the labor is nascent and can’t be tapped. That’s why microcredit works, and why larger loans are much less popular.
- Why microfinance works, economics notwithstanding

Despite relative success worldwide, microcredit has not seeded itself in American culture. Proceeds of microcredit loans are typically used to acquire raw materials for an intial batch of finished goods or tools required to perform a service. In order for this model to work in the United States, borrowers would need to be living below the poverty level and have no access to credit. In other words, Borrowers must feel a sense of urgency to repay these loans. But typical microcredit lenders in America are providing loans in excess of $10,000 to borrowers with bad credit. Having had access to credit in the past, typical American microcredit borrowers do not feel that sense of urgency.

Before leaving Philadelphia, I asked a trusted business advisor why the Grameen Bank model isn’t widely used in the United States. It was his opinion that high costs associated with forming a business lead to a slow absorbtion rate. This provides a barrier to entry that prohibits would-be entrepreneurs from selling their handmade goods or providing their services. Undeterred, I’ve been evaluating solutions since that conversation.

Tonight I had a sudden moment of insignt on the subject stemming from an innocuos conversation about my new home in South Florida. Chatting with my roommate, we explored the similarities and differences of the area to our respective home towns. As both of us are from up north, the promise of endless summers is the most notable difference and our mutual draw to the area. We continued our discussion and I noticed the absence of squirrels and pigeons. I spent the first 27 years of my life in the northeast corridor, and cannot recount a day when I didn’t see at least one of the aforementioned animals in my daily routine. But in my brief time here my mind has been preoccupied with the process of moving and I failed to notice their absense. And it hit me. What if the barriers to entry of starting a business in the United States were removed?

In my opinion, a microcredit organization could be formed by relying on two distinctly different funding sources. First would be grants used to pay the upfront monetary expense and clerical cost of forming a business. It is reasonable to expect Borrowers below the poverty line are unable to read or write, and would be unable to form a business on their own accord. If a microcredit organization provided a legal business shell as a service for its customers, this could potentially make loans under $250 a viable form of credit in the United States. The second funding source would be fees and interest on the loans themselves. Loans would originally be funded by private investment, and the proceeds would be reinvested in the company to build equity, provide capital for additional loans, and eventually reduce reliance on outside funding.

Although effective APRs on the loans would be higher than traditional funding sources, they would fall far below the predatory APRs of payday loans.

The BlackBerry / OS X Paradox

Last year I made the switch from my dilapidated Motorola Q which was held together with scotch tape, to a new phone with PDA functionality. In my mind there were only two options for me; the sleek iPhone or the robust BlackBerry Curve. When I was purchasing my new phone, both the iPhone and BlackBerry Curve were at the same price point, $199. But AT&T also provided the option to purchase a refurbished BlackBerry Curve for $69. Having purchased refurbished phones in the past, I had no qualms that the phone would work as well as a brand new one. For a few days I went back and forth between the two phones, comparing and contrasting features based on price. An outlier with the BlackBerry Curve was whether or not I would be able to syncronize the phone with my MacBook, an advantage that the iPhone had. A representative at AT&T gave me information on PocketMac which eased my concern. Ultimately, I went with the BlackBerry Curve because of simple-to-use push e-mail, its ability to run third-party applications, OS X compatability, and lower price.

For the first eight months that I owned the phone I had no problems outside the nuances that plague every piece of technology on this planet. But in April, I started to notice regular problems with my Curve including the phone becoming slower, large wait times when using e-mail and messaging features, and delayed key responses. In addition, newer applications arriving for BlackBerry devices provided error messages stating they could not run on my Curve. After speaking with friends who also own BlackBerry’s, I was told a software update would fix most if not all of the issues I was seeing. Being technologically inclined this is a simple process — unless you own a Mac. After scouring BlackBerry’s website for the updated system software I discovered I needed BlackBerry Desktop Software which is only available for Windows operating systems. Perturbed, I went to my local AT&T store to have the software updated by the support representatives. When I arrived I was told only an authorized AT&T support center could update the software, the nearest of which was almost an hour drive from where I was staying in West Palm Beach. I was frustrated by the circumstances caused by a perfect storm of cross-platform incompatibility and AT&T not having the proper infrastructure to assist all of its customers.

I called customer service, explained the situation, and asked for early eligibility to switch to an iPhone which was naturally compatible with my MacBook. After about 30 minutes on the phone, a note was placed on my account that provided me with early eligibility. Set to upgrade to the iPhone that day, many of my friends on Twitter encouraged me to wait for the unannounced-yet-expected iPhone hardware and software upgrade in June. Knowing I would be disappointed if I upgraded to an iPhone only to have it made obsolete two months later, I decided to wait.

On Friday I went to my local AT&T store to upgrade now that the iPhone 3GS hype has dissipated. The helpful customer service representative saw the note on my account from earlier and allowed me to order a Black iPhone 3GS. Since my elgibility date in the computer was January 2010 she said an early upgrade form was required which would potentially take two to three days. Understanding of the situation I left after ordering the phone. This morning I received a call that I was unable to upgrade to the iPhone, but she would help me upgrade to another phone if I desired. While I would typically be amenable to another phone only the BlackBerry and iPhone offer the levels of e-mail functionality that I need. After allowing the news to sit for a short period of time I called AT&T customer service to see if there was anything they could do. I spent 25 patient minutes on the phone with a customer care representative who kept rehashing the same suggestions I had heard in the past. Use the PocketMac software, go to an AT&T service center, use a Window’s enabled laptop, or switch to a different phone altogether. I finally asked to speak to a manager to see if there was any way for me to switch to an iPhone.

When Steve joined the call I was delighted to know he was a fellow Mac user as well. He was empathetic to my situation but informed me his hands were tied because of the contract that AT&T has with Apple. I inquired about adding a second line of service, selecting the iPhone for that line, and cancelling my existing phone number with a waived cancellation fee. Unfortunately, he was unable to waive the AT&T cancellation fee and it would cost me an additional $10/month until my existing contract expired next July. He offered to upgrade me to a newer BlackBerry but I was conerned that I would be facing the same problems again in the future and it would reset my eligibility to purchase an iPhone. He apologized for being unable to help me out and offered me a $20 service credit for the next three months as a consolation for being inconvenienced by a phone that cannot be upgraded. While not the exact resolution I was hoping for, it makes the six month wait for the iPhone slightly easier to bear.

Culminating a Deal

On Monday I leased a Royal Blue Pearl Acura TL with Ebony interior, and I almost received the exact deal that I expected. In my last two posts Leasing my First Car and Leasing an Acura TL I discussed what I learned about the leasing process through the abundance of information on the web and my spending threshold for this particular vehicle. To summarize, my goal was to pay no more than $435/month for the car (including sales tax of 6.5%) and only pay inception costs at signing. My monthly payment assumed I would be able to purchase the cost at invoice, included a $500 buffer for unexpected fees, a $1,505 dealer lease contribution per Acura’s website, and a residual value and money factor (market value of the car after the lease ends and interest rate) from my research. Inception costs include the first month’s payment, tags, title, and a $700 Acura dealer fee which I estimated at $1,400 to $1,500. It should be noted that based on the above, every $1,000 added to the price of the vehicle translated to $30/month on the lease payment.

Prior to signing my lease on Monday I had visited the dealership to test drive the TL and build a rapport with the salesman. I attempted to negotiate a price prior to signing my lease, but the salesman assured me that the dealership would not negotiate until I was ready to consumate a deal. When I returned ready to make a deal I started the negotiation process well below my target lease payment. This is due to the dealership wanting to guage my spending threshold. If I came it at my target payment, I would likely pay more than I wanted to. My initial offer was $400/month with $1,500 down and the dealership came back with $470/month with $2,000 down. After standing firm, they returned with $470/month and $1,500 down.

Frustrated by the process the salesman brought me into the financier’s office to have a chat. When speaking with him I started asking detailed questions about what I was paying on the car. First, I noticed I was paying about $600 over invoice for the car. I demanded to pay invoice for the car and the financier explained I was paying invoice, but there was a $595 bank fee — charged by American Honda Finance Corporation, for their costs. I was then assured that the bank fee I was paying did not include a profit margin for the dealership. The bank fee fit into my threshold of $500 over invoice, but did not explain why I was paying an additional $35/month on my lease.

My next question involved the lease cash from Acura which the dealership listed at $1,000 and I had researched to be $1,505. I questioned this and the financier showed me his price sheet that listed lease cash for my model — the TL without navigation, at $1,000. When I brought up the lease cash being $1,505 on the website they still refused to budge. I was told that their hands were tied on the matter and there was nothing they could do. But that $500 discrepancy should have only added $15/month to the lease payment making my maximum payment $450/month which was $20/month less than my quote. After the negotiation hit a stand-still I left the dealership.

Five minutes later I received a call from the salesman who made a last attempt to earn my business. He told me that the financier would do the deal at $448/month but I would have to return to the dealership immediately to complete the deal. Considering that the monthly payment was within the range that I wanted to pay, I accepted and returned to the dealership.

Overall, the negotiation process took about two hours and I was happy to have received what I felt was a fair deal. I had hoped to pay about $13/month less on the lease but I needed a car immediately and the residual value and money factor was set to change the next day. Ultimately, I decided paying a little more on the lease negated the risk of losing the deal completely due to potentially unfavorable residual vaues and money factors in the next month.

Leasing my First Car

The last vehicle I owned, a 2002 Ford Focus SVT was sold at a loss because the monthly payments were more than I could bear. When I sold my car, I was nearly bankrupt and cut every expense that I could to repay outstanding credit card debt. Living in Philadelphia; a walkable city with an effective public transit system, allowed me to free myself from the taxing cots of vehicle ownership. But a recent relocation to the sprawling suburbs of South Florida has prompted me to acquire my first car in four years.

I used to love cars, customizing little tidbits to make them mine. As a teenager I tore apart the dashboard and door panels of my aging Ford Taurus to build the best stereo systems a limited budget could buy. After that car’s untimely death on the backroads of suburban Maryland, I acquired a Ford Contour which quickly gained a new stereo system with kickin’ bass. Throw in money wasted on a pointless exhaust system and an air intake to increase the car’s meager 125 hp engine and I was in heaven. When the transmission on that car gave out, the cost outweighed the value of the rapidly depreciated american car and I traded it in for the Ford Focus. This car too received a music makeover with satellite radio and a tasteful subwoofer install courtesy of my friend Dave.

But as I have aged my view on cars has changed from them being an asset worth monetary investment to a liability of which the cost should be reduced to a minimum. Instead of driving a car until the wheels fall off, I like the flexibility of switching to a new vehicle at a relatively often pace. I would rather spend less on a vehicle; monthly payments, cash at purchase, and maintenance, and accumulate the savings as a downpayment on a house. When making my decision on whether to lease or buy, I contemplated four scenarios. Purchasing a new car, purchasing a slightly used car, purchasing a heavily used car, or leasing a new car.

I immediately ruled out purchasing a new car, because I would owe more on my note than the car was worth as soon as I drove it off the lot. I ruled out purchasing slightly used because without a substantial down payment, my car payments would be high. My friends suggested to put more money down on the car to reduce my monthly payments, but that would be counterintuitive to saving for a house. I ruled out a heavily used car because of high maintenance costs and social pressures to drive a nicer vehicle. Despite downsides including mileage overages (should they occur) and costs to repair wear and tear on the car when it is returned, I felt leasing was the best option for me. It allows me to drive a new car, pay only my cost to use it, and save an extra few hundred dollars per month towards my house.

Leasing a car is a complex financial transaction that goes beyond the monthly payment and cash due at signing typically advertised on manufacturers websites. After reviewing countless websites on automobile leasing, the two most helpful have been LeaseGuide and RIDE with G. On top of refreshing my basic knowledge of leasing, these websites taught me that sales tax laws on leases vary by state, that the sales price of the vehicle should be negotiated before payments are discussed, and why to get a breakout of where cash due at signing goes.

Tax Laws
Understanding tax laws is important, because some dealerships may list the taxes inappropriately. Through my research I learned that the State of Florida taxes the actual lease payment, however certain dealerships attempted to tax me for the entire vehicle and wrap that into the lease payment. The difference could save between $25 to $30 per month on my lease payment.

Sales Price
Like purchasing, the sales price of the vehicle should be negotiated prior to any discussion on your monthly payment. A $2,000 to $3,000 deduction in the sales price, will immediately translate in my favor as a $60 to $90 improvement on my monthly lease payment. In addition, sales price negotiation should exclude any incentives by the manufacturer.

Cash at Signing
There is a difference between inception costs and vehicle price reduction. Inception costs include a first month’s lease payment, dealer fees, DMV fees, tire fees, and other miscellaneous costs. Inception costs should be paid out of pocket, as not to be paying interest on menial fees. However, I learned to double check inception costs because one dealer tried to charge me a $500 premium on a lease acquisition fee charged by the manufacturer. Vehicle price reduction is similar to making a down payment on purchasing a vehicle. But because leasing is a way to rent the vehicle, that down payment will not translate into tangible value. For instance, if the car is totalled in an accident you will not get that money back.

Armed with this knowledge, I am confident I will get the lease payment I want on a new Acura TL.