First you get the money, then you get the power

money-scarfaceAs Al Pacino said in the movie Scarface, “In this country, you gotta make the money first. Then when you get the money, you get the power.”

Al Pacino’s drug lord may not be the best moral compass for you to follow in the New Year, but we must allow that from a purely fiscal perspective, he makes a valid point.

In short, if you want to get anything done, you’d better have your financial house in order first. That applies to small business owners, the man in the street and, yes, even fictional gangsters.

And with the dawning of 2013, we’re all feeling like expanding our own financial empires, and Monthly feels like getting you there. So read on for some smart financial tips for 2013.

Cut the cards

It’s stating the obvious, but one of the biggest pitfalls for financial consumers is escalating credit card debt. The Credit Card Accountability Responsibility and Disclosure Act of 2009 was intended to “… establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan.” This being a venture of the federal government, you can imagine the impact it had (the answer is none. It did, however, allow for concealed carry in national parks, for some reason).

One reason why it would be ideal to cut credit spending is the difficulty in budgeting due to your interest rate.

Your card’s interest rate is the like the “market price” at a seafood restaurant. No one knows what it’s based on, and you have no idea

what it is ahead of time. The credit card companies can change it at whim, for reasons ranging from late payments, going over your limit, or even (shakes magic eight ball) “economic changes.”

So now that you’ve cut up the credit cards, it’s time to pay them off. But you might want to give until it hurts. In most cases, if a borrower only pays off the minimum each month, they will pay off just enough to eventually bury their descendents under mountains of debt. The average credit card debt for Americans is $7,193.  With an interest rate of 14 percent and a minimum payment of two percent, it would take nearly 29 years to pay that off. For a real eye-opener, check out the credit card calculator at

Get your head on straight

If you’re going to spend this year beefing up your bankroll, you’re going to have to square up against the biggest opponent standing in your way. Yourself.

That’s right, your own brain has thousands of ways of tripping you up as you invest, and the most important thing you can do is learn to recognize and prepare for your own biases.

For example, let’s say you blew a bunch of money investing in widgets. We’d like to think that we’re all rational human beings and that we’ll immediately zero in on the mistakes we made and fix them for next time. We’d like to think that, and we’d be wrong. Because people are not rational.

Instead, you’re almost wired to not accept your own culpability in taking a bath in widgets. You’re wired to point out the external factors that caused said bath, and to mentally blame it on others. It wasn’t your fault for investing in widgets, the situation was unforeseeable and there was nothing you could do about it. This is called retroactive pessimism, and it can blind you from seeing your own faults and avoiding making the same mistakes again.

The flip side of that is overconfidence bias, which is when you as an investor see the simple luck of the draw as somehow a function of your own brilliance.

In "Investor Psychology and Security Market Under- or Overreactions," researchers Kent Daniel, David Hirshleifer, and Avanidhar Subrahmanyam wrote, "If an investor overestimates his ability to generate information, or to identify the significance of existing data that others neglect, he will underestimate his forecast errors. If he is more overconfident about signals or assessments with which he has greater personal involvement, he will tend to be overconfident about the information he has generated but not about public signals. Thus, we define an overconfident investor as one who overestimates the precision of his private information signal, but not of information signals publicly received by all."

Essentially, this bias keeps you from listening to people who might just know better than you.

Find a creative way to launch your dreams

By Steven Weber

New avenues have opened up for using other people’s hard-earned cash instead of your own. While Internet commerce for most of us means shopping, we know that the Web has become an extremely potent channel for raising money. Up to this point, though, it’s been mostly limited to the political and nonprofit universe. Now this phenomena, of which crowdfunding is one of the most intriguing examples, has begun to impact the business, regulatory and financial environment in ways that promise great opportunity for individual investors, and have the potential to fundamentally transform capital markets around the globe.

So what is crowdfunding? It’s really a new name for the age-old process of raising money outside normal investment channels, but using the resources and scope of the Internet. Think of a writer taking private subscriptions for a novel, a sculptor trying to obtain money from wealthy donors to build an art installation, or a filmmaker raising funds from friends and family to produce a movie. Add in the global access represented by the Internet and the potential increases exponentially. Up to now, the use of this type of funding for business enterprises has been very tightly regulated (and that’s a good thing); however, the regulatory environment has begun to evolve to reflect the dynamics of the 21st century, and the implications for new capital formation and innovation are staggering.

The JOBS act, signed by President Obama in April 2012, created a new exemption from registration by U.S. companies offering securities through an SEC-registered “CrowdFunding” platform. Under this model, companies who are not licensed broker-dealers can register with the SEC and conduct business as funding portals.

In order to protect investors, most companies raising public funds must go through a lengthy registration process. However, there is always a trade-off between protecting investors and limiting the ability of individuals to invest in new, innovative, but sometimes risky offerings. The SEC has recognized that in many cases the cost of registration may be both burdensome and unproductive, and may actually detract from innovation and creativity. So it has created exemptions from registration for certain types of private offerings.  However, these offerings have strict limits on how they are marketed and promoted, and significant restrictions on who can participate. These offerings are typically limited to a group known as accredited investors, defined as an individual or couple with a net worth of $1,000,000 excluding their residence, or income exceeding $200,000 in each of the two most recent years ($300,000 for joint income.)

Under the new JOBS Act, the SEC was given until Dec. 31, 2012 to issue the new regulations governing crowdfunding in a venture capital environment. This deadline will probably be extended (no news on that as of Monthly’s press time) as the SEC regroups itself under a new chairperson. However, the first set of rules, known as the “Sunshine Act,” was released last summer. They involve a relaxation of general solicitation guidelines for accredited investors; in plain English, expanding the use of the Internet in publicizing and promoting new ventures, but still limited to accredited investors. The next set of rules could deal with the use of  crowdfunding platforms to solicit capital funding directly from individual investors, who would not have to be considered “accredited” in order to participate. This would have the effect of opening up new channels of business investment to a new universe of potential investors.

A number of crowdfunding internet businesses are already in successful operation, using rewards-based models. These models could allow them to evolve into true investment portals as SEC guidance becomes clearer. One of these,, began in 2009 as a funding site for creative ventures, and has raised over $350 million for over 30,000 projects, from more than 2.5 million people. Kickstarter fundraising cannot be used at this time to offer financial returns to investors, only special recognition, a copy of creative material like a limited edition, or an opportunity to participate in the rewards of the project.  While Kickstarter doesn’t vet every project, they do have a due diligence process to screen folks wishing to have their project listed.  Funding is an all or nothing proposal; potential investors use their credit cards to make pledges, and they are not charged for their investment until 100 percent of all funds for a project have been successfully raised. Then the money is released, and Kickstarter takes a small fee. The project sponsors must successfully complete their project as represented to the investors; otherwise they are legally obligated to refund all of the money raised.

Recent Kickstarter projects requesting funding include an electromagnetic radiation detector that plugs into your iPhone (fully funded) a choose your own adventure book based on Hamlet, featuring ghosts, jokes, and a previously unseen pirate fight, (also fully funded)  Nightwing, a TV mini-series based on characters from Batman (about 50 percent funded,) as well as numerous albums, concerts, books, dance performances, and aspiring musicians.  It’s an intriguing concept, and in the near future we are likely to find out how this decidedly 21st century approach might open up the world of start-ups, business development and venture capital to the ordinary investor.  In the meantime, you can check out how crowdfunding works for yourself at

Steven Weber, Gloria Harris, and Frank Weber are the investment and client services team for The Bedminster Group, providing investment management, estate, and financial planning services. The information contained herein was obtained from sources considered reliable. Their accuracy cannot be guaranteed. The opinions expressed are solely those of the authors and do not necessarily reflect those from any other source.