Financial Samurai

The majority of us are middle class, defined as neither rich nor poor. Seriously, that’s the official definition of middle class, because depending on who you talk to and where they live, you’ll get different answers.  A $50,000 household income for a family of four is absolutely middle class in Des Moines, Iowa but is closer to poverty in New York City.

Statisticians say middle class is a household income between $25,000 and $100,000 a year.  Anything above $100,000 is deemed “upper middle class”.  It’s funny how there’s no usage of the categories “lower class” and “upper class” isn’t it?  It’s as if someone didn’t want to hurt someone else’s feelings.  In cities such as San Francisco and New York, middle class income might very well extend all the way up to $250,000 given the median house price in San Francisco is $700,000 and it regularly costs $1,000+/sqft in New York City to buy.

Whether you make $30,000 a year or $250,000 a year, I venture to guess the majority will consider ourselves middle class.  There’s an important psychology involved, and that is when it comes to financials, nobody wants to stray too far from the core.  If you consider yourself rich, you will be hunted down.  And if you start considering yourself poor, others will ridicule you for being dumb or lazy.  Classifying yourself as middle class keeps you safe and warm!

WE ALL CAME FROM SOMEWHERE Read more…

Greetings from somewhere in the Adriatic Sea!  I’ve been on vacation this past week and I’m hoping you couldn’t tell.  It’s a little hard staying away given how addicted I am to writing and interacting online.  If I didn’t care so much, I probably wouldn’t have responded to 150+ comments, published three new posts, written six new posts, and spent $200 on satellite internet connection!

As I was sitting at a lovely seafood restaurant eating linguine, grilled octopus and sipping Mythos beer, I began pondering whether I would really be able to retire early eg 40-45.  It wasn’t just a financial question, because that’s simply mathematics.  The question was really from a philosophical point of view.

If you’re still in your prime, and much of your life has been shaped by what you do for 12 hours a day, is it really as straight-forward as walking away after 10, 15, 20, 25, 30 years on the job?  It can’t be that easy.  Those of us who are the most financially meticulous probably have some target age we’d like to retire by.  We’ve got a nice 20-line spreadsheet and most likely will achieve our goals.  But, a lot of us enjoy what we do.  It’s not like we can’t have a pleasant day job and then aggressively pursue our hobbies after hours, right?

I write a post on Yakezie.com entitled, “How Do You Know When To Retire?” where I ponder not so much the how, but the how come.  Perhaps you’ll agree.  Either way, share your thoughts here or there!

Best,

Sam

No matter how long it takes, I will fight for equality.  The best system for taxation equality is providing a flat tax above a certain poverty level or income level so that everybody pays something to support our country.  If the poverty level is $20,000 for a family of four, let’s keep federal taxes low to nothing since there are already state taxes, social security taxes, and medicare taxes to pay.  However, we should probably encourage further education on why it’s probably not a good idea to have any more children if one is having difficulty taking care of themselves, despite the misplaced policy of a $1,000 child tax credit for certain income earners and below.

Perhaps the flat tax income threshold is at $33,000, the halfway point between the top and bottom 50%.  After $33,000, everybody pays a flat tax rate of 20% on all income, which includes investment, dividend, and interest income.  No loopholes, no deductions, 20% is 20%.  If you’re making under $33,000, your tax rate is lower.

Or perhaps the income threshold is above $106,800, where social security and medicare taxes disappear.  We tax people progressively up to $106,800 and then a flat tax afterward.  One of the big arguments some have against a flat tax is that it’s regressive, since the rich don’t pay any more social security and medicare taxes after $106,800.  Well guess what?  Although you don’t have to pay those taxes above $106,800, you also don’t get any benefits either!  Do you really think there is a free ride with our government of waste?  Of course not.  Please understand this point.

With a flat tax system after a certain amount of minimum income, the person who makes 10X more, pays 10X more in absolute dollars.  Nobody can logically argue against equality.  But, for those of you who feel that discrimination is the way to go, here’s a story of Bar Stool Economics which I stumbled across on online that hopefully sheds some light.

BAR STOOL ECONOMICS Read more…

Alas, after 8 weeks my primary residence mortgage refinance is now done!  It took so long that I actually forgot I was refinancing my mortgage until the bank called to ask when I could meet the notary to sign all the documents.

The process was pretty painless since I refinanced with the same bank.  I sent them the general paper work such as my W2, bank asset statements,  and pay stubs.  They did one appraisal which took all of 20 minutes and all I had to do was wait four more weeks to get it done!  The refinance this year was much easier than the refinance in 2010, boding well for the thousands of others out there who are also looking to refinance their mortgages.

I learned some new things beyond the basics which you might find useful in your mortgage refinancing or initial mortgage application process.

MORTGAGE REFINANCE TIPS TO THINK ABOUT Read more…

You’re mistaken if you believe the 99% will just rage against the 1%.  They won’t stop until they protest against half of America, and then they will turn on themselves.  After reading all the “We Are The 53%” submissions, I was inspired to write my own. The 53% figure refers to the percentage of working Americans who pay for 100% of all federal taxes in our country. The 53% blog is a response to the “We Are The 99%” Occupy Everything movement, which also shares some moving posts about people who are having trouble getting ahead.  Unfortunately, there are also some incredibly misguided posts that put blame on others for their own mistakes.

The 99% movement doesn’t represent all 99% of us because the 99% isn’t one big pity party that we’re being made out to be.  Some of the reasons for protesting are down right embarrassing.  If you have student debt and can’t get a job, please protest your school’s career service office.  If you are against corporations, please don’t use an iPhone and then go charge it at McDonald’s.  If the damn insurance company is denying you benefits, protest right outside their corporate headquarters and at the homes of their execs!  There are thousands of first generation legal immigrants who come to the States, don’t speak English, and find a way to live a better life.  We at least have a head start with the English language!

The 99% movement might represent 10% of Americans who are fed-up and outraged by the super wealthy and our inept politicians and want to protest. For the rest of the 99%, we aren’t complaining.  Instead, we’re focusing on making ourselves better. We’re not depending on the wealthy or the government for anything.  We’re depending on our own initiatives to make things happen.  You do realize that we taxpayers made money bailing out the banks to the tune of $10 billion dollars right? Thanks Wall St!  We’re still waiting for GM to give us our money back.

Stop thinking about yourself and what the country and the government can do for you.  Start thinking about how you can add value to society and help someone before you help yourself.  Being selfish gets you nowhere because nobody will want to help you, especially if you are protesting the very people who donate to charity, provide students scholarships, help fund cures for cancer, and provide employment opportunities!

Here is my note. I hope you can share your own.

REPRESENTING THE 53% Read more…

Golf is a taxing sport which requires a lot of practice, and a lot of patience.  The first time I played golf was in the 8th grade with my father.  Although I was the 5th wheel, I got to tee it up every hole there was a backlog, and hack it up on the site of the fairway as the men played.

I remember needing to go to the bathroom somewhere on the 6th fairway and running for 5 minutes back to the club house because I wasn’t allowed to pee in the woods.  “Pros aren’t peeing in the woods Sam, neither should you.”

With an iron stick, and a ball the size of a plum, golf is one of the hardest sports to learn and excel at.  It took me literally a year of constant play to break 100, and almost 5 years to consistently break 90.  More than 20 years later, I’ve hit a plateau and can hardly ever break 80, no matter how hard I try.

Here are the similarities between golf and life that you may enjoy.

AFTER A CERTAIN POINT, THERE’S NO MORE ROOM FOR IMPROVEMENT Read more…

Do you get a thrill being broke?  For some reason, I do.  I’m not sure whether it’s that motivational fire it gives me to work harder for my next paycheck.  Or, the fact that when I have no money, I appreciate having money so much more.  Remember all the fun times you had as a student with hardly any income?  That’s the feeling I love.  Every time the bank account runs dry, I go into survival mode just like the starving student and figure out a way to make things happen.

Currently, I can’t for the life of me figure out what else to spend money on for the rest of the year besides the basic necessities.  I paid for my club membership and a couple new tennis rackets earlier this year.  There’s no need to buy a new used car anymore.  The last thing I want are more clothes and shoes after going to Goodwill 12 times this year already.  Meanwhile, there’s just only one more week-long vacation I’m planning on which has already been budgeted for.

For the past couple months, I’ve been mulling over whether to pay off some more rental property mortgage which costs 4%.  I’ve been going back and forth for a while until I just said screw it one afternoon.   I’m gonna pay a slug of this sucker off!

The next step was to decide how much to throw at it.  I refinanced to a 5-year ARM last year when the 10-year yield dropped to 2.65% in 2010, and managed to lock in the investment income rate of 4%.  4% so happens to also be my bogey for a risk free rate of return I will accept for doing nothing.

In the past, I had been just dumping all my excess cash into 5-7 year CDs at 4-4.25%.  The best CD rates of the same duration are now only yielding 2.5% after doing some checking.  Clearly, the next best risk free thing to do is pay down my 4% rental mortgage.

DECIDING HOW MUCH TO PAY DOWN Read more…

If you’re about to have heart surgery, you’d rather have an experienced surgeon operate rather than a first year resident wouldn’t you?  If you’re looking for some entrepreneurial advice, you’d rather pay $300 to listen to Ron Conway, the godfather of angel investing, rather than some 19 year old kid with a failed start-up correct?

Given you agree with me 100%, why on earth would you ever listen to someone who proposes tax policy on higher income earners if they don’t make much themselves?  If you make $60,000 a year, you have no business telling what someone who makes $200,000+ a year how they should spend their money, how they should feel about paying more taxes, how much they are paying in taxes and why they should pay even more taxes.  Why?  Because a $60,000 income earner has no idea!

If you are making hundreds of thousands of dollars or more a year and once made just $25,000 dollars, you have way more credibility talking about appropriate tax policy and how to make money, at the very least.  You might even be able to talk about the merits of education and work ethic.  But of course, those who make less will get all up in your face for saying work ethic, education, and tenacity aren’t correlated.  They aren’t if you don’t want to make money.  They are, if you do want to make money.

If you’re making a middle class salary, good for you!  America cannot prosper without a strong middle class.  But, if you are an honorable middle class citizen, you just don’t have a say on how to tax those who make more.  If you so happen to be one of the lucky tens of millions who don’t pay any net Federal taxes, you should consider not voting on candidates who want to tax the upper income earners more.  Just count your blessings that you don’t have to give money to a government that is skilled at wasting your money.  The more noise you make, the more you will draw attention to yourselves, and the Sentinels will find and destroy you.

No income earner is better than another.  Whether you make $50,000 a year or $500,000 a year, you have the same liberties.  There’s only a problem when someone who has no idea of what it takes to make over $200,000 complains that the “rich” should disproportionately pay even more of their income to taxes.

Readers, shouldn’t we trust all wealthy people who’ve been poor before instead of poor or middle class people who don’t know what it’s like to earn more and pay more taxes?

Why do people in the lower income tax bracket think they know what’s best for those in the highest income brackets?

* $200,000 is an arbitrary number since this is the income level that is considered rich by the current administration.  $60,000 is less of an arbitrary number as it is roughly 20% higher than the median per capita income.

Regards,

Sam