Financial Samurai

GTGTTBR (Got To Go To....)

For some reason, I generally get stuck in a middle seat close to the bathroom every time I go on a business trip.  It’s probably because I leave so little time between take off and check-in that I usually end up screwed!

The worst is when you’re just about to fall asleep and you get nudged by your neighbor for hogging the arm rest.  Come on neighbor, I’m stuck in the middle, the arm rest is mine!  The second worst thing is inhaling the lovely toilet aromas every time someone walks in and out.  Finally, add a crying baby next to you, and air travel is just lovely.

Despite my constant bad fortune on airplanes, the one thing I do recommend is sitting close to the bathroom at work. We discussed strategic seating in business school one day, and if you think about it, sitting closest to the bathroom, whether you have a cubicle or office is the absolute best place to be.  No matter how senior or junior someone is, they must go to the bathroom and walk by your desk at least a couple times a day!

Unlike the mysterious guy sitting in the corner who everybody thinks is surfing the internet all day, you get a constant stream of opportunities to develop relationships with your colleagues and bosses if you sit near the loo.

“Hey Jim, how about Mark Sanchez of The Jets the other day huh?”

“Hey Pete, so sorry Colt got injured against Alabama.  You still owe me lunch sucker!”

“Nancy, I just love your new hairstyle!  Where you get it done?”

“Susan, want to grab a coffee this afternoon?  I have something to share.”

“Christine, any tax consultant suggestions?  I can’t for the life of me figure these numbers out!”

BINGO!  All easy lines to develop your relationships internally.

The biggest risk for employees during recessions and promotion season is to be out of sight, and therefore out of mind. By sitting near the bathroom, you are unavoidable and everyone must acknowledge your presence.   Just don’t stop folks who have visible pains on their faces!

Readers, how is your work environment set up and can you think of any other strategic, no effort office strategies to keep up your profile?

Keigu,

Sam Samurai – “Slicing Through Money’s Mysteries”

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I had one mission this weekend, and that was to “high-five” as many famous people as possible.  You see, The President’s Cup descended on San Francisco and I was determined to watch America’s best golfers tee it up against the rest of the world, less Europe (that’s the Ryder’s Cup).

Did I succeed in my mission?  It depends on whether you count: Tiger Woods, Phil Mickelson, Anthony Kim, Freddie Couples, Greg Norman, Condoleeza Rice, Gavin Newsom, and Michael Jordan as famous people!  For if you do, you’ll understand why I’m never washing my hands again!

In “Revenge of The Nerds: Golf & Tennis Are #1″, we write that if you want to make a lot of money, you should think about picking up either golf or tennis. As the 30,000+ patrons at Harding Park showed me today, there’s a darn lot of different types of folks interested in golf!  All along the signature par 4, 468 yard, 15th hole you saw corporate tents with names such as: Charles Schwab, PG&E, and Mastercard filled with rich looking patrons sipping their Chardonnay’s.  Ah, to gain access to one of these tents.  Except for Citigroup, it’s good to know there weren’t any government bailed out entities partying it up on our dime, so score one for the common folk! Read more…

Can someone please give us a rational argument why implementing a Flat Tax system in America is not fair?  We don’t know if we can continue posting without thoroughly understanding this issue first.  From a percentage basis, each person pays an equal amount of their income towards taxes, and from an absolute basis, richer people pay more!

Why don’t we just start taxing people according to height?  The shorter you are, the more you have to pay!  Brilliant idea, thanks.  Here’s a commentary from a site that really got me thinking about the word “comrade” and the phrase “melt your pots for bullets.”

Those of you rich folks in the top 35% tax bracket (~$380,000 and higher) need to stop whining. You don’t get to whine. I hope this administration taxes the beejesus out of you all…it’s time you paid your fair share and get with the program. It’s only fair the wealthy pay more out of their millions and billions of dollars to subsidize the rest of us who need it the most. We are struggling in this recession and it’s time to fix the problem – by taxing the rich!

Gee whiz, last I checked, we live in America not North Korea.  Why people believe it’s fair to tax one class of citizen a higher percentage than another confuses us.  Is this not a pure form of discrimination?  Fine, let’s agree that anybody below the poverty line of $25,000 for a family of four ($10,000 for a single person) are exempt from all income taxation. Read more…

GGB By Mrs. Samurai

According to the Wall St. Journal, the Top 5 “youth magnet cities” are:

1) Washington DC – Didn’t realized that’s how they spelled San Francisco.

1) Seattle

3) New York

4) Portland

5) Austin – Washington DC

My main question is: “Where is San Francisco?!” When I can walk over to the headquarters of Twitter and ask the VP of development why my Twitter account name can only be @FinancialSamura and not @FinancialSamura(i), grab a bite to eat with Googler‘s across the street at the Water Bar, and then go drink some beers with some marketers at Facebook, how can San Francisco not be one of the Top 5 magnet cities for youth?  Yes, the city is a little bit expensive ($500,000, 600sqft studios anyone?), but these young guns all make a lot of money, and they are going to make a ton more once they get acquired or go public!  Oh yeah, ever heard of YouTube?  They’re based here too as I was reminded one day checking out a $2.5 million open house for fun.  The agent told me the young 28 year old lady and her husband were selling to move back home to Iowa!

San Francisco and Silicon Valley are the absolute meccas for social media, venture capitalism, and the internet.   Every single management consulting firm and major financial institution (a populist “boo”) are here too.  If you’re in college, or are thinking about transferring to a new city, think about San Francisco.  Take it from a guy who has lived in DC, New York City, and has been on countless business trips to Portland and Austin, San Francisco rocks! Read more…

A reader writes in: “Hello Samurai! I like your 1/10th rule for buying automobiles and was wondering if you use some similar sort of calculation when deciding how much one should be spending when buying a home?  Thnx, Brian”

Response: Hi Brian, thanks for your question. For those who are not aware, the 1/10th rule simply states one should spend no more than 1/10th your annual gross income on the purchase price of a car.  Home buying is a tougher one, especially since people get so emotionally crazy and irrational when it comes to property.  There are several key hurdles you need to meet before buying a home.  The rules can be encapsulated in the 30/30/3 principle.

1) Cash flow. Traditionally the industry says to spend no more than 30% of your gross income on your monthly mortgage payment, but I think you can stretch it to 50% if you think you’ll be making more money in the future.  Don’t bank on it though, as this downturn has shown many people, including myself.

50% of your gross income on $50,000/month is much different from 50% on $2,000/month mind you.  You must be able to take care of your basic needs with the money remaining.  Hence, I suggest spending LESS as a percentage of your gross income the more income challenged you are.  I wouldn’t spend more than 30% of gross, if income is $10,000/month or less.

2) Down Payment. You should have at least 30% of the value of the home saved in cash.  20% is for the downpayment to avoid PMI insurance, and the other 8-10% is for a healthy cash buffer.  There are some high-risk people out there who want their home so bad that they put down only 10%, and take another 10% in the form of a maxed out HELOC loan just to get in the home.  If you don’t have at least 30% of the value of the home saved up, then it’s best to start eating only ramen to bolster savings!

3) Value of the home. Cash flow affordability is a function of the price you pay.  If you are able to meet the first two hurdles of cash flow and down payment, then you can tie it all together with a proper multiple of your yearly gross income to see what you can afford.  The MAX multiple I recommend is 5X if you meet the first two conditions, but 3X is better.  In this case, the more you make, riskier it is to go to an upper limit multiple because of  leverage.  5X $500,000 is much more daunting than 5X of a $50,000 salary for example.  You can always refinance your home, but you can never change your initial purchase price!

Good Example: $100,000/yr income, $120,000 in cash saved, $400,000 home no problem!  $320,000 mortgage after putting 20% down, and you still have a $40,000 buffer.  Your monthly payment is $1,918/month PMI at 6%, and is a suitable 23% of your monthly gross income of $8,333.  In case of layoff, you have 21 months of mortgage coverage with your $50,000 buffer.

Donkey Example: $120,000/yr income, $100,000 in cash saved, salivating for a $750,000 home.  10% down leaves $25,000 in cash, and a $675,000 mortgage since you’re doing another $75,000 HELOC to avoid PMI insurance.  Monthly payment $4,000, or 40% of your gross income.  6 month mortgage coverage ratio before you run out of cash is not enough.  Don’t do it!

I highly recommend making sure you pass the 30/30/3 principle before making the biggest purchase of your life.  It’ll be good for you in the long run, and it’ll be great for neighbors and the entire financial system as there will be less of a chance you’ll foreclose.  Best of luck in your house hunt!

Readers, feel free to send in more of your questions.  We may not always have the most agreeable answers, but we’ll share with you what we think makes the most sense.

Regards,

Sam
Financial Samurai – “Slicing Through Money’s Mysteries”

Alrighty, thank goodness it’s October!  After declaring September to be frugality month (“Samurai September”), I’m finally free to splurge on as much junk as I want!  Was it painful for a recovering spendaholic to not buy anything other than food for a whole month?  Damn straight it was!

Here are some things I learned along the way:

1) By writing out a promise whether it is on a piece of paper stuck to your refrigerator, or on a world-famous website, your goals become REAL.  Writing out my goals really motivates me to stick to them.  It’s just like when you have your To Do List on a notepad.  If there’s one thing that’s not crossed out, you do your darndest to execute .  Focus on the mission soldier!

2) When your goal is to not spend money, you start revisiting things you already have and enjoy them again.  I went through my 1950′s baseball card collection that I had stashed away in the closet and had a fantastic time reading all the stats of great players such as: Mickey Mantle, Sandy Koufax rookie, Roberto Clemente, Yogie Berra, and Al Kaline.  I picked up my dusty Martin acoustic guitar and learned how to play: “This Is The First Day of My Life,” by Bright Eyes, “Every Rose Has It’s Thorn” by Poison, and “Blackbird” by Paul McCartney pretty well.  Finally, my old Klein mountain bike sure got plenty of good use as well.

3) Once I got in the habit of appreciating all that I have, I started not wanting to buy new stuff.  My five year old G4 iBook is a great example of making due with less.  In fact, I wanted to start selling stuff and getting rid of clutter.  There’s no sacrifice in my mind anymore about not buying new things out of desire.  The only things I need to buy now are things out of necessity, such as replacing my loafers given they have holes in them.

4) Time really goes by quickly. I still remember very clearly when I wrote my declaration, and now it’s over.  But, what remains is a nice chunk of change in my savings account because I didn’t splurge on stuff I didn’t need.

5) It’s more fun doing things together! I joined a club of like-minded individuals who want to be millionaires eventually.  I discovered a guy who works three jobs to make ends meet (Brian at My Next Buck).  Brian then introduced me to another fella who was $101,000 into debt and decided to deliver pizza to pay it off  (follow Jeff on Twitter @DeliverAwayDebt.  Jeff is freaking hilarious, and makes me want to go work at In N’ Out Burger for kicks!).  I then was able to call into Blogtalk Radio and speak to Baker at Man vs. Debt and Jim at Bargaineering about their views on using cash and credit cards.  It’s just FUN to speak to, and trade e-mails with random folks, all with the same purpose of becoming financially independent. Read more…