Financial Samurai

The Bay Area is full of entrepreneurs.  There’s something in the air that creates an almost godly electric spirit that causes people to work hard and innovate.  As 2011 nears, more and more I hear about how small business owners are clamping down in preparation for next year’s tax hikes.  Clamping down is generally not a good term to use if you are a politician who wants to create job growth.

Let’s say you make roughly $3 million in annual gross revenue from your internet business like my friend Zach does.  Not bad, but not exactly big money if you take into account his cost structure.  If his pre-tax operating profit margin is 25% after he pays the salaries of all his employees, the rent, and so on, Zach is left with roughly $750,000 subject to taxes.  If his tax rate goes up from 36% to 39.6%, for every dollar he makes over $375,000, he will pay roughly $25,000 more in taxes a year in 2011.

Well guess what?  My friend is letting go of one of his junior programmers who makes roughly $85,000 to pay for next year’s $25,000-$35,000 tax increase!  My friend feels bad letting his 2006 college graduate employee go, but he has no choice since revenue has declined since 2007, and the government is tightening the screws.  Zach believes that 2011 revenue will be worse next year than this year, and is budgeting a decline.  Thank goodness for 99 weeks of unemployment insurance!  And no, it’s not reasonable for the junior programmer to just go work in fast food after only several weeks of looking.

DON’T LISTEN TO THEIR LIES.  THEY AREN’T IN IT FOR YOU. Read more…

Elephant > Moon. Eh?

One of my graduate school friends recently found himself out of a job.  It was a tough slog, but at last, he and his co-founders decided to shutdown their startup and start something new.  Nobody is really going to feel sorry for Greg, as he joined Google the year they went public and cashed out on a couple million dollars in stock options over the next 4 years.

His $180,000 a year salary was nothing to sneeze at either, but also nothing too spectacular in the land of $1 million dollar starter homes.  In a nutshell, Greg is the typical Silicon Valley success story who busted his butt to get ahead, networked like no other, and fell victim to a downshift in the economy these past couple years.

There are literally thousands of millionaire 30-somethings in the San Francisco Bay Area who are underemployed or just not working because they haven’t found that great idea, or that premium company fit yet.  Why should they bother wasting a companies’ time and enlist only to quit 6 months to a year later when something better comes along?  That’s not fair to the company and so they do the right thing and wait.

When I asked millionaire Greg about his thoughts on the government extending unemployment insurance to 99 weeks he let out a big “YIHAW!“  You see, Greg has been collecting unemployment insurance for the past 16 weeks via the solvent state of California, and he is worried that Obama will crack down on people like him once Federal care starts kicking in.

A MILLIONAIRE’S TAKE ON COLLECTING UNEMPLOYMENT AS A MILLIONAIRE Read more…

Hear that?  That is the sound of another self righteous employed person complaining about the unemployed sucking up resources and driving the government deficit further into the red.  Who cares employed people??  You guys aren’t the ones who are struggling to find a job in this economy!

There are several tautologies here:

1) Few can live a comfortable lifestyle off of unemployment benefits which average $200-3oo a week

2) The vast majority of people who are unemployed want to make more money, find jobs, and do something meaningful with their lives.

3) Our budget is headed towards a $1.4 trillion+ deficit, so who cares if we’re going to spend another $50 billion to help millions of unemployed people survive for up to 99 weeks?

THE BUDGET DEFICIT DOES NOT MATTER WHEN YOU HAVE NO JOB Read more…

Bloomberg highlighted an interesting chart stating that for the first time ever, working seniors outnumber teens in the labor force.  Currently 6.6 million people over the age of 65 are working or are looking for work compared to 5.9 million 16 to 19-year-olds.  Back in 1948, the numbers were only 2.9 million people over age 65 and 4.4 million teens, respectively.

This chart has enormous implications for the American workforce as people live longer and longer.  Let’s go into the reasons why there’s been a decline in teenage workers and such a rapid increase in older workers shall we?

TREND ANALYSIS Read more…

Here’s a short 10 minute video I stumbled upon which eerily highlights several things I do and why (ie play guitar), as well as touch upon reasons why some people are willing to do things for free, and others strongly consider giving up big salaries to just work on a hobby.

NODDING MY HEAD Read more…

As a tennis fanatic, it would be remiss of me not to mention the greatest match in tennis history when American John Isner beat Frenchman Nicolas Mahut 70 to 68 in the 5th set last week.  That’s right 70 games to 68 games in the fifth set because one must win by two in the fifth set at Wimbledon.  The 11 hour, 5 minute match spanned over 3 days and finished when John Isner hit a solid down the line two-handed backhand to seal the deal.

The previous record for longest match was at the 2004 French open, lasting now just a paltry 6 hours and 33 minutes.  It is completely unfathomable that a match could last so long, simply because it is unconscionable how Nicolas Mahut could hold serve over 60 games in a row to survive!  The physical endurance is one thing, but what’s most impressive is the mental fortitude both players had to never give up.

LESSONS LEARNED Read more…

The following is a guest post by Hime, one of Financial Samurai’s first readers.  Hime is a manager at a strategy consultant firm who likes the violin and going on unplanned adventures.  Hope you enjoy!

All right everyone, how many times have you read an email and said to yourself “I don’t feel like replying now I’ll just do it later” only to have that email disappear into the deep abyss and completely forget that you left the sender hanging?

Come on, I know you’ve done that at least once.  If you do that more like every third email – CLUNK!  That is me hitting you over the head with an oversized rubber hammer as I resist the urge to shake the stubbornness out of you.  Think I’m overreacting?  Maybe a little but I am trying to save your career and relationships so please pay attention!

DON’T LEARN THE HARD WAY Read more…

If I’ve learned anything in the work place, it’s that most people simply want recognition for a good day’s work.  Pay and promotion are secondary to a simple gesture of a pat on the back or a “well done.“  Yet, why is it that praise is so often lost in the shuffle?  When just saying “thank you” is so easy and cost effective, silence often replaces.

I remember going through a rough stage in my career where I felt invisible.  Like Ralph Ellison’s protagonist in the Invisible Man, even with 1,369 light bulbs shining brightly around his basement room, he still felt like nobody noticed.

“I am a man of substance, of flesh and bone, fiber and liquids – and I might even be said to possess a mind.  I am invisible, understand, simply because people refuse to see me.” This quote has stuck with me for well over two decades since first reading Mr. Ellison’s 1952 classic in high school.

THE MYSTERY Read more…

Every year, there’s inevitably a headhunter or a competitor who gives me a ring to ask whether I’m interested in leaving my current firm for a hefty salary increase.  And every year I turn them down because I respect the people I work with, like the camaraderie, and believe in my firm’s management and future.  My 10th year anniversary is coming up, and just like how I freaked out for a couple days before turning 30, I’m starting to wonder whether I’ve become too content and also too comfortable with what I have.

Dodging bullets is a myth, but I can safely proclaim that I dodged at least one bullet by not taking an offer from a firm that inevitably went bankrupt.  Phew, I sometimes remind myself.  But, what about the other firms I wonder.  If I joined them, would I be making more money and doing more in my career than ever before?  Maybe, I don’t know.  What I do know is that many who have job hopped have indeed made an incredible amount more and rocketed their careers than if they had stayed.

LOYALTY CAN BE OVERRATED Read more…

The LA Lakers and Boston Celtics have met 11 times in the finals.  Combined, the two teams have won an incredible 32 championships in the NBA’s 63 seasons.  Purists will note that only 10 of LA’s 15 championships came in LA, while the other 5 were in Minneapolis from 1949-954.  Either way, there’s no doubt that the Lakers are one of the best teams in NBA history.

How is it that two teams alone combine for about half of all championships in league history?  The answer is simply superstar cities which offer high wages, a huge fan base, and enough diversity in all things to keep one entertained.  Let’s be frank.  There’s no way the Cleveland Cavaliers, Dallas Mavericks, Charlotte Bobcats, and Utah Jazz will ever win an NBA championship.  Not to say any of these cities aren’t nice, they just don’t match the star power of places such as New York, LA, and Boston.  Eventually, the best players and staff all gravitate towards one of the major metropolitan areas to really compete for a championship.

MOVE IF YOU WANT TO RAISE YOUR STANDARDS Read more…

Pick any private school.  The cost is about $200,000 over four years.  These figures don’t surprise anybody anymore given the ever rising application volume to storied institutions such as Harvard, Yale, and Princeton.  That said, there have to be some who believe $200,000 for a private school is a hard pill to swallow over an excellent public school for just $40,000.

With an estimate 17% of people aged 20 through 24 unemployed, swallowing a bowling ball may be easier than finding a desirable job post graduation.  Let’s say you are one of the unlucky few who can’t find a job after a $200,000 education.  Does it really matter? Let’s think about why it doesn’t really matter from the eyes of several recent graduates.

THE BOY WHO WAS FORCED TO GO Read more…

Like clockwork, I top-ticked the markets when I wrote “The Good Times Are Back Again” this past April.  The markets have since fallen about 9% as the Euro Zone goes bonkers over debt problems.  But, at least the message from the post is that it’s exactly during the good times where we need to be more disciplined in our finances, because we never know when the bad times will return.  Now that the bad times are back, is now the time to party like it’s 1999 and spend counter-cyclically?  Nope, because with the amount of volatility, by the time you finish reading this post, the markets might be surging again!

With this market correction, it’s pretty clear that everything isn’t peaches and cream.  US leading indicators have turned downwards, unemployment figures have stopped improving, and people are wondering whether Europe will be like the US, but much worse.  If you’re American living in America, look at the bright side of things: the US dollar is strengthening, and the 10-year yield has declined to 3.1%, which is leading to lower rates yet again!  The 10 year yield and all its glory really is the most beautiful figure to watch.  It can tell the story of everything and anything.

The USD will always be a global safe haven currency, no matter how hard we try and mess things up.  It’s good to see that we aren’t the only basket cases as investors sell the Euro faster than they can say tapas!  What’s going on now is that money is shifting towards US assets, namely the property market.  Combine an asset shift with cheap debt, and rental yields above the current risk-free rate of return (3.1%), you realize why smart money is moving into the US property market again.  Only a minority will agree with the attractiveness of the US property market, and therein lies the opportunity.

During bad times, it’s always good to re-evaluate your finances.  I’m not convinced the bad times are back and am actually quite sanguine about the economy.  All the same, here are some suggestions just in case things get ugly for longer.

TOP 5 THINGS TO DO WHEN THE BAD TIMES ARE BACK AGAIN Read more…

I’ve been a little more active on Twitter recently and I noticed something quit interesting.  Starting at around 10pm PST, the chatter goes silent.  I tend to stay up until midnight to 1am, and because nothing is happening on Twitter, I focus my attention elsewhere.  I usually wake up sometime between 5:30am-6am and spend time checking e-mail, responding to comments, stretching and seeing what’s going on online.  Again, absolute silence until about 7am PST when things start coming alive.  Where is everybody during the silent times?  Sleeping?

There was a time where I’d sleep 7 or more hours a day, but no more.  For the past 10 years, my body automatically gets up after 6 hours of sleep and never later than 6:30am on the weekdays, and 7:30am on the weekends no matter when I go to bed!  Poker until 3am? Good morning sunshine at 7:30am!  Actually, I wish I could sleep in until 9am, but I just can’t.  Part of the reason for my automatic clock is that I eat regularly, and therefore have the desire to use the restroom regularly.  Time to go, my body says and I get up.  Unconsciously, there must also be a strong feeling of guilt that I’m wasting my life away sleeping.

7 HOURS A WEEK LEADS TO 30+ HOURS MORE A MONTH Read more…

The following is a guest post from @NealFrankle of Wealth Pilgrim.  Neal is a Certified Financial Planner, a fellow Yakezie member, and all around good guy.  Hope you guys enjoy!

During strong markets, anyone can make money. During weak markets, everyone gets hurt. For the most part, all ships rise and fall with the tide, financial adviser or not.

So what’s the point of having an adviser?

(I have my own answer to this question and it may surprise you.)

But before we get to my answer, let’s explore the wild and wonderful world of financial advisers and our clients.

1. Financial Advisers are Salespeople. Read more…

If you feel like debating, head over to “The Dark Side Of Early Retirement” and get your fix.  I stand by my main thesis that nobody quits a job they love to do.  Someone who is able to find a fulfilling job is one of the luckiest people on Earth.  We shouldn’t make fun of them for being a “loser” as one commenter put it.  Instead, we should figure out what makes them tick!

Everybody gets bored at something after enough repetition.  That’s why it’s key to have many different interests which straddle both the mental and the physical aspects of your life.  No surprise that interesting people have a plethora of interests.  These people also probably have a higher than normal level of commitment to their activities which make them that much more intriguing.

THE TOP 5 “I CAN’T BELIEVE THEY’RE PAYING ME TO DO THIS!” JOBS Read more…