Financial quacks

Whenever I rail against journalistic innumeracy, which is often, I tend to point out that journalists are normally creative arts-graduate types, who frequently have very little grasp of numbers. In turn, this means that they're at risk of being taken advantage of by people claiming to perform wonderful "demystification" services for them.

Today I came across one of the most egregious such quacks, in the form of Galia Gichon of Down To Earth Finance. Ms Gichon is teaching a MediaBistro course next week, where, for a mere $65, she will dispense advice on how to "get a grip on debt" and other such staples of the personal-finance pages. Judging by her Q&A on MediaBistro today, however, you'd be better off spending that $65 on getting blotto in the nearest bar. Certainly, any halfways-decent personal finance book will be much cheaper and much more useful.

Here's the advice that Gichon thinks is particularly germane to New York freelance journalists:

1) Hire a Bookkeeper. As a freelancer, this is one of the most important financial decisions you can make. You will save so much time and be able to focus on getting more business.

WHAT??!! This is completely insane. Bookkeepers, at their best, save you time and cost you money. Freelancers, in general, have lots of time and very little money. Saving time is not top of the list of most freelancers' priorities. Spending money on a bookkeeper, I think it's fair to say, is right at the bottom. What would a freelance journalist do with a bookkeeper, anyway? Give her a pile of receipts and ask her to add them up in the hope that they might count as a business expense? Get her to add up this year's invoices so she can see just how little money she's actually made?
Bookkeepers are necessary for small businesses which have relatively high gross income and relatively high expenses. Freelance journalists have relatively low incomes, and nigh-on zero business expenses. Unless you need a bookkeeper to pay your phone bill, hiring a bookkeeper is a complete waste of money. .

2) Make Your Savings Automatic. Set up an automatic savings account into a money market account or mutual fund. Most freelancers are not saving enough of their income. Get it out of your checking account and into a place where it is harder to touch it - without having to think about it!

Automatic. What a good idea. Every two weeks, when I get paid, I can just take $150 and put it into my money market account. By the end of the year, I'll have saved almost $4,000! Except, oh, hang on a minute, I'm a freelancer. I don't get paid every two weeks. In fact, I can go a couple of months without any income at all.
Automatic savings make no sense in the context of a freelance lifestyle. They're predicated on a steady income – which is the one thing a freelancer, pretty much by definition, doesn't have.

3) Clean Up Your Old 401(k). Chances are many of you have a lingering 401(k) from previous jobs. Consolidate them and roll them over into a rollover IRA at a discount brokerage firm (i.e. Fidelity, Schwab, Vanguard, T. Rowe Price). Streamline your investments!

More ways to spend money! First spend $65 on Gichon's course, then spend more money on hiring a bookkeeper, and now spend more time and money still, tranferring your investments from one place to another. This involves selling all the securities you own (you'll get charged for that), moving them elsewhere, and then buying a whole bunch more securities, which might even be the exact same securities you owned in the first place. You'll get charged for that, too. If you buy mutual funds, there might well be up-front fees as well. And this is all in the aid of... streamlining your investments. But streamlined investments don't return any more money than non-streamlined investments. Plus, are Fidelity and T Rowe Price any more "discount" than any other brokerage firm? I really don't get this at all. It seems like a very laborious way to make yourself feel that you're doing something, when in fact you're not achieving anything.

4) Deal With Your Debt. Many freelancers use credit cards as a way of managing cash flow. While this sounds like a great idea, many of you find yourself with that "revolving" balance that doesn't seem to go away. When you have a month with extra income, put that extra away and then use it for those drier months. Also, STOP using your credit cards and focus on paying your balance down.

I'm no fan of credit cards, that's for sure. So this isn't completely atrocious advice. But it offers precious little in the way of specifics: if I'm a freelancer with a revolving balance on my credit card, and I have extra income one month, should I "put that extra away" or should I "focus on paying my balance down"? (Answer: the second. It's always better to pay down debt than to save. But Gichon doesn't make that nearly clear enough.)

5) Shop Around For Health Insurance. Today, freelancers have many more options for health insurance than they used to. Check out Mediabistro's resources or EHealthinsurance.

Well, there's a nice plug for MediaBistro. But I'm pretty sure that most freelance journalists either don't have health insurance, or they have the cheapest insurance they could find. I doubt that many are overpaying for it.

6) Do a Check-up on Your Expenses. Are you still using that fancy-shmancy gym? What about those magazine subscriptions that are lying around? How about those extra cable channels that you never watch? A 6-month check-up on your expenses can clean up your checkbook and find an extra few hundred dollars every month.

Again, doesn't this seem a little tone-deaf when aimed at freelance journalists? How many hand-to-mouth freelancers do you know who belong to a "fancy-shmancy gym"? I'm sure that if there are any, they are most certainly "still using" it. And magazine subscriptions – for one thing they're rather necessary for journalists; for another, you can't just cancel them and save money. No one subscribes to magazines every month. I'm all in favour of cutting down on expenses: in New York, it's astonishing how much money can be spent on food, drink and cabs. But these examples, are, frankly, lame. Don't tell journalists to consume less media, tell them to buy fewer shoes!

7) Don't Be in Denial. Many freelancers claim that they can't deal with their finances. Well, the successful freelancers have learned how! It's not that hard, but you do have to be proactive. Take a class, read a book and hire a fee-only financial advisor. A little financial knowledge goes a long long way.

It's not hard to deal with your finances: take a class (which costs money), read a book (which costs money), and hire a fee-only financial advisor (which costs money). Why do I get the feeling that this Gichon woman doubles as a fee-only financial advisor? Most freelance journalists have negligible savings, and if you have negligible savings, your need for any kind of financial advisor is slim to zero.

Frankly, I'm not surprised that Gichon sees lots of people who can't think straight about money: you'd have to be pretty financially stupid to fall for this claptrap and pay for her services in the first place. But if Gichon's a quack and a huckster, that's all in a grand old American tradition. What I really can't understand is why MediaBistro is lapping it all up. Don't they have a former financial analyst as editor-in-chief? Shame on them.

Posted by Felix at 21:05 EST

Comments

Nice one. You had me laughing all the way to the bank :)

Posted by: pdberger at 16:49 EST, March 23, 2005

You are so adorably outraged! Felix says GRRRRR!
Can you say more about your objection to consolidating all of one's old 401(k) accounts? While I understand that it costs money to sell/re-buy all in one place, it does also contribute to a simplified financial existence and more clarity about the true state of one's investment picture. In general, I tend to think that vagueness is enemy number one for financial health.

Posted by: Amanda at 10:49 EST, March 24, 2005

My objection was only partly to the idea of "streamlining" retirement accounts -- although I do think that such streamlining is pretty useless. Retirement accounts are the ultimate buy-and-hold investments: just stick the whole thing in an index fund, and forget about it until you retire. The more you try to "manage" that kind of thing, the worse you'll do.

More to the point, however, when it comes to the top financial problems faced by freelance journalists, "I've got too many retirement accounts and I can't keep track of them all" is maybe not the most frequently heard. The advice might have been good for certain people, but for freelance journalists it'll be irrelevant 90% of the time, and way down the list of priorities the other 10%.

Posted by: Felix at 13:39 EST, March 24, 2005

the other thing which is wrong with the 'bookkeeper' idea (betch a dollar she wants to be your bookkeeper, too, after the course) is that most freelancers have very few transactions to keep track of - twenty-five hundred for this, a thousand for that, etc. Bookkeepers are helpful for keeping track of a lot of transactions.

Posted by: dave s at 17:26 EST, March 29, 2005

I wish I could afford the gym, or better yet a personal trainer.

Saving seems to go against my sense of adventure. I like living on the edge, but it does get old after a while. If you're serious about saving, try putting aside a small portion of your income as you get paid. I shoot for 10% off the top, and it is working fairly well.

I also found a neat little money organizing system. Check out Too Busy to Budget.

Posted by: Dee at 20:44 EST, April 11, 2005

Brilliant, Felix!

As a self-employed artist and former freelancer I'd never have guessed that a financial journalist could provide such lucid entertainment.

Not bad advice on your part either...

Posted by: johntunger at 13:06 EST, April 26, 2005