Financial Samurai

In good old fashion political jockeying, the House finally agreed to a budget and unknown to many, they also passed a Renters Tax!  The idea is for all Americans to participate in our simple tax system and shore up our huge deficit.  The new law states that starting October 1, 2011 all renters shall pay a Renters Tax equal to half the value of their rented home as determined by the government every year.  Landlords equally pay the other half.

Example: A nice 3 bedroom, 2.5 bath property is assessed at $500,000.  A taxation of 1.2% = $6,000 must be paid once a year.  Since the renter benefits from living in the home as well as the public parks, roads, libraries, and schools, the renter writes a check for $3,000 to the local state county tax board.  Meanwhile, even though the landlord does not enjoy any of the benefits of living in the home, s/he receives rental income, potential long term asset appreciation, and the option to move back in at his or her choosing.  As a result, the owner pays for half the annual property tax by sending in a check as well.  Perfect equality.  Both renter and owner have “skin in the game” and look to better their surrounding community.

THE GOVERNMENT BELIEVES WE SHOULD ALL PITCH IN TOGETHER Read more…

The 401k has always been a curious system because on the one hand, it’s better than a sharp stick in the eye, but on the other hand, it’s simply not enough to retire on given the $16,500 cap on annual pre-tax contributions.  In fact, I was so jaded by the 401K system that I recommended everyone max it out, but mentally write it off like I do social security.  This way, you are forced to build your “real” savings and investments with your disposable income.

Recently, I got a kick in the pants when a 57 year old financial adviser named Larry told me he has over $5.5 million in his 401K!  Holy crap, I thought to myself.  How the heck did he accumulate so much, just in his 401K?  The answer was simply longevity, performance, and company match.

HOW HE GOT TO 401K MILLIONS Read more…

For my cash asset class, I pretty much dump all my money into long term CDs.  My net worth is divided almost equally into stocks, bonds, cash, and real estate.  I didn’t plan for it to be this way, it just happened and I don’t mind one bit.  I love real estate the most because I like having a real asset which is tangible, produces income, and provides a hedge against inflation.  My second favorite asset class is cash.

Cash is the only true means of passive income generation.  I literally don’t have to do anything for the interest income earned after I decide on a CD.  It just compounds and automatically renews to another similar duration CD after the initial period is over.  My goal is to generate five figures a month in interest income from my CDs by the time I retire.

QUESTIONS TO ASK BEFORE INVESTING IN A CD Read more…

Every now and again, I stumble across something that makes me wonder, “Are you a dumb ass?“  Someone forwarded me a post from a year ago where a PF blogger spent $60,000 on a luxury car right after revealing his net worth was only $55,000!  I mean seriously, is that not a little messed up or what?  It’s almost as dumb as a minimalist owning multiple Apple products, a health nut who smokes and drinks soda, a vegan who wears leather shoes, and an evangelist who embezzles millions from you.

When I innocently asked why he spent more on his car than his entire family’s net worth, another commenter responded that it was because the blogger wanted to save money by spending money so he wouldn’t have money left over every month to spend.  Huh?  What?  Hmmmmm.  That’s just dumb.

THE WORLD IS WONDERFUL Read more…

If you haven’t heard, our broke government wants to get its hands on the online poker industry’s potentially US$6 billion dollar annual revenue pie.  They’ve frozen bank accounts linked with Full Tilt Poker, Poker Stars, and Absolute Poker and have indicted 11 founding executives of the companies.  All totaled, the government wants US$3 billion in fines and restitution!

As you may know, I enjoy the game of poker.  I don’t think it’s gambling because you are playing against opponents, not the house.  This is the crux of the argument as to why the online poker industry should live or die.  The government thinks poker is gambling, but online poker executives obviously think otherwise.

If poker was gambling, why is it that we always see familiar faces win big tournaments.  Names such as Phil Hellmuth, Phil Ivey, Chris Ferguson and John Juwanda are everywhere!  You only win 49% of the time in gambling, but these guys win much more, that’s why they are so wealthy.  One interesting thing Phil Hellmuth told me at a charity event last year is that Full Tilt Poker player/shareholder Phil Ivey makes some US$2 million a month from his site!

DUMB PLAYERS ARE GAMBLERS Read more…

For those with memories longer than the time it takes to read this article, the month of May is quickly approaching, and with it, the one-year anniversary of not only the “Flash Crash”, but also the moment when the European Debt Situation grabbed financial headlines, causing an immediate crisis of global proportions.  Capital suddenly flew to safe havens in the form of treasury bills and precious metals.  The Euro fell from its lofty perch relative to the greenback, and “PIIGS” was a euphemism that forever joined our daily lexicon of favored terms.

The Euro had strengthened from its debut to the $1.60 range, but the recession pulled it back.  As it began to recover afterwards, it staged another assault, rising to $1.51 until news of debt problems surfaced at the end of 2009.  In May, the full import of the debt problems became common knowledge, and the downdraft plummeted the Euro to its lowest value in four years, a startling $1.18.  Greece was the initial focus, but then the malaise spread to concerns over Portugal, Ireland, Italy, and Spain, the remaining members of the “PIIGS” anagram.

TIME TO GO ON A DIET Read more…

An AP article highlighted how several 45-50 year old people were so thankful to have unemployment insurance extended further.  They talked about how it was “their life line” after being out of work for over a year.  I’m really proud that unemployment benefits are working and going to people who need it most.  The people profiled all sound like hard working people who just need a little bit of help during tough times.  As you know, I’m all for a 5-year “Shock & Awe Yeah” unemployment program, which probably will never pass.

Part of me wonders what happened though?  If I was 50 years old and got laid off, I would have 28 years worth of savings and investments to hold me through for potentially the rest of my life.  In fact, I would hope that I’d be about to double dip by collecting 99 weeks of unemployment while also living off the interest and dividends from my savings and investments!

If you saved just $10,000 a year on average for 28 years, you’d surely have more than $500,000, if not millions due to compounding!  If you save just $5,000 a year for 28 years, you’ll still have over $250,000 dollars thanks to the miracle of compounding.  If you don’t save and invest, it simply means you don’t think you’ll need money in retirement or during unemployed periods, hence perhaps helping out isn’t necessary?  Or maybe life just happens.

So I got to thinking, perhaps the government should skew their unemployment benefits more towards younger unemployed workers and less towards older unemployed workers.  Each year after 15 years of work experience the benefits get reduced by several percentage until they get phased out over 40 years of experience since there is Social Security.  After all, we have massive budget deficits and can’t help everyone.  What say you?

WHY WE NEED TO HELP OUR YOUTH Read more…

One of my favorite business school classes focused on Emerging Market Economies.  We read C.K. Prahalad’s book called, “Fortune At The Bottom Of The Pyramid“, which basically described how entrepreneurs were finding cost effective ways to serve the poorest people in the world and also be profitable.

Conventional business wisdom states that one must go after those consumers with the deepest pockets and the highest propensity to spend.  Prahalad argues that we have a social responsibility to help the other end of the spectrum improve their living standards and not be afraid of going bust in the process.

One of the keys that came out of helping the poor in emerging markets is the concept of micro-lending.  Micro-lending is a fascinating concept which essentially pools together the funds of people in usually small communities, and lends out those funds to a select few.  Together, a community is able to help each other more impactfully than if they were separate.  What’s also very interesting is that the tighter the community, the lower the default rates compared to conventional banks because everybody feels a deep sense of responsibility.

THE YAKEZIE WRITING CONTEST Read more…