Financial Samurai

There have been numerous studies performed over the years which clearly outline the social benefits of homeownership. In the mid-2000’s it was nearly impossible to argue against the advantages of owning a home. Research showed that homeownership led to increased education for children, lower teen-age pregnancy rates and a higher lifetime annual income for children – and these are just the advantages to family life. This doesn’t even account for the advantages versus the alternative (renting).

The government has seen this research and done their best to encourage new homebuyers to enter the marketplace. Are the statistics they are looking at still accurate? Should homeownership still be the American dream?

If you aren’t disciplined enough to save up 20% of a home’s purchase price, you shouldn’t be buying. Forever soaring home prices used to reward these risk-takers with an inflated net worth and a false sense of wealth; but having 0% equity in anything can hardly be classified as “ownership.”

What if I can come up with data that discourages people from purchasing a home? My goal is not to turn off everybody (my back-hair accomplishes this) but rather turn off those that aren’t ready.

The Discouraging Data Read more…

The Mediterranean is chilly in the Fall, ranging from 48-75 degrees Fahrenheit.  Anybody coming from San Francisco will feel right at home.  The cruise ship was packed with a couple thousand explorers.  Not only that, there were three other ships just as large following a similar itinerary.  Pretty good for the tail-end of the season in a supposedly difficult economy.

One of the best ways to travel is via a really large boat.  Every other day you’re waking up to a new city.  There’s never a need to pack and unpack your bags.  Meanwhile, the amount of activities on board is endless.  If you like service, food, travel, and a variety of entertainment, then cruising is for you.

Another positive about cruising is that you really have to time to observe your surroundings.  You’re captured, with nowhere to go, except for perhaps the tennis court on the top deck and the buffet line right below.  When you’ve had your second helping of peach cobbler ala mode and are relaxing in the jacuzzi tub, all you’re doing is contemplating.  In addition to coming up with a mercurial plan of writing full-time from a cruise ship for $12,000 a month, I learned a lot of things that I’d like to share with you.

LESSONS LEARNED AFTER 12 DAYS AT SEA Read more…

There’s a tremendous battle in Congress regarding balancing the budget.  The Democrats want to raise taxes and remove deductions for the highest income earners while the Republicans want to just cut spending without raising taxes on the richest Americans.  There has to be a combination of higher taxes and lower spending in order for there to be an agreement, otherwise the US economy will fall back into a recession since nobody will have any confidence to spend.

Given it’s the holiday season, one of the most perplexing issues is why the President and his party wants to remove charitable deductions for those in the highest two income tax brackets: 33% ($212-$380,000) and 35% ($380,000+).  There’s no doubt that the main reason why people give is to help people, however, the elasticity of giving is not vertical mind you.  There will be incremental negative consequences.

It’s estimated that roughly $300 billion of charitable contributions happen each year, with the large majority of donations coming from the wealthiest citizens.  The top 10% of income earners pay 70% of all taxes, despite earning 46% of all income.  The statistics for contributions are roughly the same for charity.

With the enactment of asymmetric policy against high income earners, some have estimated there will be a decline of roughly 2%, or $6 billion in charitable contributions per year.  2% sounds quite conservative, but regardless of the amount, there will be a decline in charity exactly during a time when charities need the money the most!

The poor have already suffered enough, let’s not make them suffer even more.  With the economy growing at an inadequate pace to soak up the ever increasing number of unemployed, we will see an increase in those falling under the poverty line.  More people needing assistance increases the financial burden on the government and a negative cycle ensues.

What the government needs to do is incentivize people to give even more, not less.  Individuals are much more efficient at identifying causes that need the most help, not big organizations.  I urge everyone to write, call, and speak up for the poor by denouncing the removal of charitable deductions for those who donate the most.

We should fight for the less fortunate always, and not just during the holidays.  Give what you can give to what you believe in.  We never know when we’ll need help, so until that day arrives, we fight for them.

Happy Holidays,

Sam

PS: Having issues containing your shopping beast?  I just wrote a new post on Yakezie.com called, “Controlling Spending The Fun And Easy Way“.  Go check it out!

Lots of cash buys you lots of alcohol, access, and action – Triple AAA if you will.  What more does anybody want?

Let’s say you’re on a hot date and roll up in the Corolla to your favorite five star restaurant, Olive Garden.  You slip the valet a $5 for the $4 valet fee and tell him to “keep the change” so he can keep it up front.  The hostess greets you coldly and says there’s no table.  You pull out another crisp $5 dollar bill and she changes her mind and seats you right away.  Normally you just order water, but tonight you get a little crazy with their $3 Bud Lights!  And afterward, since you two are all tipsy now, it’s Nintendo Wii action all night long!  Now that’s Triple AAA.

THE TEMPTATION OF CHEAP MONEY IS STRONG

Triple AAA is tempting me right now as I consider doing a cash-out refinance for one of the rental properties at 3.375% from 4% (thank you Bengenie).  If you’re in a oppressively high federal income tax bracket, you might consider doing a cash-out refinance to lower your income tax bill.

Since I’m pretty sure I’ll be in a lower income tax bracket during retirement (as will you most likely), I figured why not extract cash out of a rental property and increase my interest expense to shield my rental income.  With 5-year rental property money at only 3.375%, it would be foolish not to at least consider the option.

The rental market is hotter than the 49ers and I was able to increase my asking rent price by 12% last month from a year ago.  My realtor friends implored me to raise the rent by another couple hundred bucks, but I didn’t have the heart since I had already put the price out there on Craigslist, and I found a potentially ideal tenant.

By refinancing, the cash flow for the rental property increased by another 23% for a total increase of 35%.  Yet, despite this increased cash-flow, I thought long and hard whether increasing my debt to then negate my cash flow increase was the right financial decision in this low interest rate environment.  Doing a cash-out refinance is definitely something to consider if you have a hefty amount of equity in your property.

HOW TO DECIDE ON A CASH-OUT REFINANCE Read more…

Is it sad to say that only until I started this post did I realize Black Friday is the day after Thanksgiving?  No, seriously, I had no idea, which means that I never buy anything on Black Friday because I’m working or up in Tahoe baby!

Could there be anything more silly than taking a day off of work to go spend money?  It’s like taking yourself out of the work force for two years, losing all that lost income to go pay $50,000 a year in tuition to network and party it up at business school!  OK, maybe Black Friday shopping isn’t that dramatic.

The “spend more, save more mentality” is not good for your pocket book.  How about, “Let me look and buy what I really need.  And if I don’t really need it, I won’t buy it!”  That’s a much better mindset, and you know it!

Now that I realize Black Friday is supposed to be a special day of sales, I’ve begun to comb through a list of things that I may want to buy.  Of course by the time I get off work, none of the items will be available, and the parking lot will be a zoo.  There aren’t many things I want to buy, so maybe you guys can give some consumption inspiration.

MY BLACK FRIDAY SHOPPING LIST Read more…

This month is turning out to be an expensive one.  Originally, I was planning on joining the no-spend November movement given I’ll be spending more than normal during the holidays.  I’ve been tempted to buy a new or new used car for the past year since Moose is 11 years old and needs some work done.  It was basically sell Moose now and avoid the extra expenditure, or buy a new new/used car in great condition.

After much deliberation, I decided to keep Moose and do some work.  After 4 years, his brakes finally needed replacing.  My auto-mechanic of 10 years recommended I change both rotors and pads in the front since Moose is heavy up top, and just change the pads in the rear.  I followed his directions for a total cost of $705 ($400 parts, $300 labor).  $705 after tax is pretty darn good, especially after 4 years.  I’ve also heard folks spend $1,200-$1,500 on brakes before.  Expensivo!

When I went to pick Moose up, he wouldn’t start!  It turns out the battery only had a couple months left to live after 5 years.  I’m glad Moose didn’t start at the shop, rather than somewhere in the snowy Sierra Nevadas this winter!  That would have been such a disaster.  I spent another $90 for the new battery for now a total cost of $795.  Tick, tick, tick, things are getting up there.

DECIDING ON WHETHER TO FIX OR BUY A NEW CAR Read more…

A financial adviser by the name of Carl Richards wrote a perplexing post called, “How A Financial Pro Lost His House“.  To summarize, Carl bought more house than he could afford and decided to strategically stop making his mortgage payments and turn the keys over to the bank when the house lost value.  Gee, how unoriginal.

What is original is that Carl proceeded to write a book entitled “The Behavior Gap: Simple Ways to Stop Doing Dumb Things With Money” coming out in January, 2012.  Hot dog!  He’s planning on making even more money off the rest of us who already bailed him out.  At least he shouldn’t call himself a “financial pro”.  Maybe he can do the right thing and donate his book’s proceeds to charity, or pay back the debt he ran away from!  Nahh.

In the securities industry, if you cheat your clients and do the unethical thing, you lose your license.  In the financial advisory industry, if you do the same, I guess you get to write for the NY Times, get a book contract, and make more money!

CRY FOR ME READERS AND GIVE ME ALL YOUR MONEY Read more…

I’m against big government.  Politicians are wasteful with our tax dollars and like to propose empty promises to maintain power. From that ding dong Congressman who sent pictures of himself in his underwear on Twitter, to Elliot Spitzer’s indecencies – when people have too much power, they let us down.  Given this view, I am perplexed why there are those out there who vote for more government!  Do you really want XYZ government agency controlling your every move and stealing from you?

60 Minutes recently did a terrific 15 minute spot about how Congressional lawmakers can freely trade stocks based on non-public information and the very bills they are voting on!  For example, if you are on the Healthcare Committee which is about to pass a law that requires all hospitals to provide the first $5,000 in expenses for free, you can actually short hospital stocks on this information even though nobody has a clue this bill will pass!

TELL ME WHY, WHY, TELL ‘EM THAT IT’S HUMAN NATURE WHY, WHY… Read more…