Have you ever wondered why you pay money for some items? Many items that we buy are not essential to our everyday lives and seem to be unnecessary expenses. These items enrich the companies that sell them but don’t actually do much to enhance the lives of consumers.

Here are a few expenses that cost more than the value received. 

Television

If you don’t pay for television today, then you are lucky to get 5 or 6 channels at best. Cable television and satellite television have taken over the market. Not only do television channels get ad dollars from advertisers, they also get a portion of your monthly cable bill. You could easily pay $100 a month just for the right to watch a bunch of stations that you don’t even want. Cable television doesn’t even have ala carte items that let you pick and choose what you want to see. It’s probably only a matter of time before they find a way to charge everyone for the right to watch local channels.

Automobile Insurance

Automobile insurance makes absolutely no sense. States require that you have it so you must buy it to drive. You pay premiums for years into a policy that you may never use. If you never have an accident, the money is never refunded back to you. It is simply gone. If the day does occur that you ever have an accident then your insurance company will raise your rates. What was the point of paying all those premiums for so many years if your rate is going to go up when you finally use the product that you paid for?

Property Taxes

It doesn’t matter if your mortgage is paid off, you still have to pay property taxes. Property taxes are just like auto insurance. It’s mandatory. Many people have lost their homes for failure to pay property taxes. The problem with property taxes is that they are based on market values and not your purchase price. At least if they were based on your purchase price, the costs would be fixed. If you bought your home 10 or 20 years ago and it has appreciated significantly, your property taxes can be a beast. Why should someone have to pay property taxes based on the market value of their home if they have no intention of selling it?

Bottled Water

Your parents are probably shocked that people would pay money to drink water out of a bottle. You already pay money for tap water and now have an additional expense for bottled water. Bottled water is 500 times more expensive than tap water. So, it must be better for you? This has never been proven. Scientists have discovered that bottled water is no healthier for you than tap water.

Did you know that your grandparents were making just as much money as you in the 70’s? It may not seem like it but apparently it is true. A new study reveals that wage growth for the average U.S. citizen has been stagnant since 1970. We work more hours and for less money than our parents and grandparents did. How is this so when previous generations never made $30,000 or $40,000 dollars per year?

The United States economy may have grown during the 70’s, 80’s, 90’s, and 2000’s but the salaries of the middle class have not.  The reason for this is inflation. Factor in inflation and wages have not grown in 40 years. The price of goods and services has been outpacing wage growth. Homes, automobiles, electronics, and food all represent a larger percentage of personal income today.  A dollar today does not buy as much as it did in the 60’s.

Take a look at these statistics:

1970’s

- The average salary was $7,564.

- A quart of milk was 33 cents.

- A loaf of bread was 25 cents.

- A dozen eggs were 60 cents.

- A pound of ground beef was 80 cents.

 2009

- The median wage was $32,390*.

- A quart of milk was $1.49.

- A loaf of bread was $2.00.

- A dozen eggs were $1.99.

- A pound of ground beef was $3.99.

Costs can vary for items depending upon your location and the food product. For example, premium breads can run $4 to $5 dollars. Eggs can get as high as $3.99 and leaner cuts of beef can run $5 to $6 per pound.

The point of this illustration is to demonstrate that wages have not risen at all when you look at their buying power. Individuals are making more money today than a generation ago but they are actually getting less for their dollars. As you can see, middle class Americans have struggled just to keep pace with inflation. The wealth that was gained over the past 40 years has trickled upward and not down to the average worker.

*The U.S. median wage was $32,390 per year, according to the most recent data from the Occupational Employment Statistics

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Warren Buffett wants to own all of Wesco Financial (WSC). He is looking to make Wesco a wholly owned subsidiary of the legendary Berkshire Hathaway. Buffett’s company Berkshire Hathaway already owns over 80% of Wesco and is looking to buy the remainder of the company. So, why is Berkshire interested in buying the remaining 19.9% of Wesco?

1. Wesco operates in easy to understand businesses. The firm makes it money through insurance, furniture rental, and steel services. Kansas Bank Surety, CORT Business Services, and Precision Steel are all operating companies under the Wesco umbrella. These are all industries that Buffett has invested in before and is rather familiar with.

2. The acquisition price is a drop in the bucket to Buffett. It will only cost $500 million dollars to acquire the last 20% of the company. Berkshire will acquire the company for a mixture of cash and stock. Shareholders will likely approve the deal since it will allow them to avoid tax complications.

3. The shares are currently cheap. The deal will allow Berkshire to acquire the remaining portion for right around $350 to $360 per share. Berkshire is getting a solid company with an easy to understand business model for book value. That’s a classic Benjamin Graham move.

4. Wesco is in great financial shape. The company has over $2.3 billion dollars in cash and just $36 million dollars in debt. Revenue growth has been solid increasing nearly 12.5% over the past five years. Revenue has increased for four consecutive years with the company earning $813 million dollars last year.

5. The move just makes sense. Charlie Munger has overseen the growth of Wesco for more than 25 years. With Berkshire already owning most of the company, it just makes good business sense to acquire the rest of the company. If Buffett believes in Wesco enough to buy 80% of the company then it stands to reason that he should believe it in enough to own the whole company.

PHILADELPHIA, PA–(Marketwire – September 29, 2009) – The United States Prime Rate website at FedPrimeRate is now offering discount subscriptions to the Wall Street Journal.

“We’ve added lots of new content, including new blogs and charts,” said content manager Steve Brown. “We’re excited to offer website visitors the best possible pricing for the Wall Street Journal®. It’s very widely accepted as America’s premier business and finance newspaper. As a source of first-class journalism covering the world of business and the global economy, the Journal is a vital staple in the information diet of knowledge-hungry individuals all over the world, and from all walks of life. It’s an indispensable resource.”

New subscribers can get access to the online version of the Wall Street Journal for $1.99 per week. Those who are interested in receiving the print version alone can get the Journal delivered six days per week at $2.29 per week. A third discount subscription option is to get both the print and online versions of the Journal at $2.99 per week.

The FedPrimeRate.com website also features discounts for subscriptions to the online and/or print editions of Barron’s Magazine and Investor’s Business Daily (IBD).

Recently, a graph which compares the target fed funds rate to the U.S. Prime Rate, the one-month LIBOR rate and the three-month LIBOR rate was added to the site. It’s a fascinating and telling chart which essentially chronicles the history of the global credit crisis. As numerous banks in the industrialized world were failing as a result of exposure to toxic debt, the Federal Reserve aggressively cut short-term rates to record-low levels. Commercial banks, on the other hand, responded to the same financial havoc by raising rates on unsecured, short-term interbank loans, because the risk associated with such loans increased dramatically. The resultant and precipitous decline in interbank lending produced a domino effect which led to a chocking off of lending to businesses and consumers in the U.S. and other developed nations.

About FedPrimeRate.com

The website at www.FedPrimeRate.com is the Internet’s premier information space dedicated to interest rates and personal finance.

The banking industry is always in a state of transition. Banks are also coming out with new products to attract customers. Over the past 20 years, we have seen direct deposit, online banking, banking applications, and automated tellers. All of these products were designed to save money and make banking easier for customers. So, what are banks working on now to improve operations?

Here are 3 ways that technology will make your banking life easier over the next few years.

1. Fewer Trips To The Bank

Remote-deposit capture is the new big thing in banking. Remote deposit capture allows customers to make a bank deposit without leaving their house. Customers can take a picture of a check at home. The computer receives the image and verifies the amount, check number, account number, and the bank’s routing number. A photo of the back of the check verifies that it’s been signed by the recipient. A clearinghouse then routes the funds from the check writer’s account to that of the recipient. Funds are available for withdrawal without ever setting foot in a bank

2. Fewer Bank Tellers

Banks will always need tellers to address customers but tellers are being replaced by bank technology. First, there was the invention of Automated Teller Machines (ATM). Now, a few major credit unions are trying branches with very few tellers. The bank lobbies have no physical tellers. The teller transacts all business with the customer via a video camera. The teller can see and hear the customer but the customer never physically sees a bank teller. This cuts down on robberies and reduces the number of tellers needed.

3. No More Card Swiping

Identity thieves are just waiting to steal your information with their illegal card readers. Banks are investing heavily in new technology that will no longer require you to swipe your credit card or enter your PIN number. Users can hold cards in front of a reader and the information is quickly verified.

PHILADEPLHIA, PA–(Marketwire – July 15, 2010) –  The United States Prime Rate website at www.FedPrimeRate.com is now recommending small business credit cards on offer in the American market.

“We’re really glad to see business credit cards coming back,” said Steve Brown, content manager at FedPrimeRate.com. “Small business owners all across America have been struggling to get access to loans as banks continue to hoard cash. Though the American economy is growing again, the banking sector is still hurting, with many banks still facing closure by the FDIC.”

To date, the Federal Deposit Insurance Corporation (FDIC) has closed 90 banks in 2010, which, so far, is a faster pace of bank closures when compared to 2009. Between the beginning of 2009 and July 17, 2009, the FDIC closed 57 banks. The FDIC closed a total of 139 banks during all of 2009. Another troubling fact: unnumbered banks across the country are defaulting on their TARP payments.

“We like the new Ink line of business credit cards from Chase because they offer great rates, reasonable terms and conditions, and they have a very strong bank behind them,” continued Brown. “Chase is on an extremely short list of banks that emerged from the banking crisis virtually unscathed. We believe that a bank as strong and responsible as Chase has the financial strength and corporate culture necessary to provide some of the most consumer and business-owner friendly credit products around.”

Many factors have contributed to banks scaling back on lending to small businesses. Since the subprime mortgage-inspired financial crisis unfolded two years ago, banks have had to operate within a powerfully negative economic environment: a severe banking crisis, a devastating recession, rising unemployment and defaults, disinflation and the very real threat of deflation. As a result, the credit card industry contracted sharply. Another major factor: the market for credit-card receivables completely dried up. During the credit boom years, banks would bundle up all kinds of credit-card debt, including business-credit card debt, and sell this debt to investors on Wall Street — very similar to the way mortgages were packaged and sold to investors. Credit-card securitization contributed much to the ready flow of credit to all types of consumers and businesses, as banks were more than happy to pass the risk associated with unsecured debt onto Wall Street. However, the fate of this market was to become another domino felled by one of the many financial shockwaves created by the subprime-mortgage crisis. Business credit cards became so risky and unprofitable for banks that many business card accounts were either closed or had their credit lines severely limited.

Advanta, a company that specialized in small business credit cards, closed all of its card accounts on May 30, 2009. Advanta Corporation filed for bankruptcy relief in November, 2009. The FDIC closed Advanta Bank Corporation in March of 2010.

Chase emerged from the global banking crisis and subsequent Great Recession as one of America’s strongest and most resilient banks.

“Have you seen how complicated it is to get a Small Business Administration loan?” quipped Brown. “Business credit cards are not just a great way to get quick and easy access to short-term financing. Small businesses owners can benefit from the rewards programs that come with many business cards, and they can also stay more organized with monthly and yearly expense reports that many business credit card issuers provide. A business credit card also helps a business build its credit rating, making it more likely to get approved for a traditional bank loan in the future.”

The typical small business owner who uses a business credit card for short-term financing is a responsible borrower. According to the Federal Reserve, less than 20% of small business credit card holders carry a balance.

About FedPrimeRate.com
The website at FedPrimeRate.com is the Internet’s premier information space dedicated to interest rates and finance.

Buy Like Buffett is now offering a Jobs Board. The jobs board will focus specifically on finance related jobs (Jobs in the investment industry, banking industry, accounting professionals, finance professionals, personal finance writers). A listing on our site is just $30 for 30 days. Job hunters can search through job listings and find a career that fits them. Happy Job Hunting!

Fannie Mae (FNM) and Freddie Mac (FRE) are two of the most hated agencies on Wall Street. These quasi government agencies are blamed for much of the problems related to the housing crisis. They are criticized for backing risky loans and encouraging an environment of risk taking by guaranteeing liar loans. Many politicians and citizens have even called for the abolishment of both agencies. Although Freddie Mac and Fannie Mae may be terrible investments, they are a necessary cog in our economy.

Fannie Mae and Freddie Mac play a crucial role in our economy. They provide guarantees for most of the housing loans that are given to individuals for real estate purchases.

Here are a few reasons why these agencies are necessary evils.

Without these two agencies, homeowners would find it nearly impossible to get a loan. Banks would only lend money to individuals with excellent credit. This doesn’t mean that people with bad credit should get home loans but individuals with good credit should have access to funding. Banks would not take the risk of lending to individuals with good credit without federal backing.

There would be no more long-term mortgages. Lenders would not grant 20 or 30 year mortgages to borrowers. Loans would be much shorter in term length. Banks look to make a quick profit and would not tie up their funds for such a long period of time. For example, a 10 to 15 year loan would be favorable financially to borrowers over the long run but would constrict the number of borrowers looking to borrow.

These two agencies have actually helped bail out the banks indirectly. The billions that have been pumped into Fannie and Freddie have been paid out to cover losses on mortgages granted to national and international banks. The banks would have been sunk if Fannie and Freddie had gone under. The $150 billion dollars in taxpayer bailouts will never be repaid but has helped to stabilize the United States economy. The entire mortgage market would dry out without the government aid.

What do you think should be done with Fannie and Freddie?

Photo by: NotionsCapital

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