Financial Samurai » Grab Bag

The Curse Of Making Too Much Money And Not Pursuing Your Dreams

Financial Samurai — Fri, 26 Feb 2010 09:00:30 +0000

The luckiest people on earth are those who don’t make a lot of money. They’ve got very little downside and can really pursue their childhood dreams. Imagine if from the moment you graduated college, you landed a plum corporate job that paid just enough to keep you motivated, but not enough to enjoy your freedom. The longer you work the more you realize there’s really no escape, because there’s simply too much at stake. This is the problem that plagues my friend, Lyndon.

THE STRATEGY CONSULTANT WHO MAKES BANK

Lyndon just turned 30 and is having a mid-life crisis. He’s worked for 8 consecutive years at McKinsey & Co, one of the prominent management consulting firms in the world, and makes roughly $300,000 as an “Engagement Manager”. Obama says he’s rich, but Lyndon isn’t buying it when his 1,200 square foot, two-bedroom apartment in New York City costs $4,000/month. If he wanted to buy the condo, he’d have to shell out over $1,000,000, even in today’s market. To add further injury, $300,000 is really only $180,000 or so after federal (33%), state (7%), and city (4%) taxes!

All Lyndon ever thinks about is being a National Geographic nature photographer. Every single vacation is planned around some remote destination that takes two days to reach, and therefore another two days to return. Yet as a consultant, Lyndon is at the mercy of his clients. Instead of traveling to Mt. Kilamanjaro, he’s on a plane to Minneapolis in the middle of winter.

In 5 years, Lyndon knows he’ll probably continue to make more money and perhaps make millions as a partner in his 40′s. But what’s the point if he’s not completely happy? The 65 hour work weeks and minutiae are wearing his soul thin. He wants out. Yet, how does a 30 year old, who’s on a straight path to multiple-six figures rationally decide to quit his job and try and make it as a nature photographer?

NO SYMPATHY

An ant is playing the world’s smallest violin somewhere underground. While thousands are unemployed, Lyndon is on a path to financial freedom, with one of the most prestigious companies in the world, yet he’s unhappy. He doesn’t feel the plight of the less fortunate, who in his eyes are just in temporary dislocation. Everything to Lyndon is logical. When markets crumble, people get dislocated, but eventually get relocated when the markets rebound. Oh, how Lyndon too, wishes he was dislocated.

Unfortunately, nobody will give Lyndon much sympathy, except for his fellow well-to-do friends. Ironically, it is the sympathy that Lyndon seeks, which makes him only hang out with people of his same socio-economic class. He understands that most of America won’t understand him so he shuns most people.

ONE TEMPORARY SOLUTION

In two years, Lyndon will have served 10 years at McKinsey, a long enough period of time for him to not feel guilty about taking a sabbatical. He’s never taken a 2 week vacation at once, and he’s never taken more than 4 weeks off for the entire year. How could he, since the firm is paying him so much? It wouldn’t be fair to his clients he justifies to himself.

The problem with taking a sabbatical in two years is that he still has to work for another two years! He wants to see the world now. He’s restless, with unwavering confidence that he can always come back to the industry of advice and fortune.

WALKING AWAY

Lyndon decides that one of his New Year’s resolution is to reboot. After his bonus hits his bank account, he wants out, but is afraid to pursue his dreams. He’ll have $250,000 in savings with no debt to his name if he quits. Remember though, that if he works another year, he’ll save another $80,000, and then another $80,000+ every year forever. The key issue is the word “forever.” What would you do if you were Lyndon?

Readers, should we have sympathy for Lyndon? Is he cursed for making too much money? If so, what advice would you give him?

If someone so young can make so much at a company so prestigious and still be unhappy, what does this tell us about the human condition?

Have you ever experienced something to what Lyndon is experiencing now? If so, what did you do about it, and do you regret the change?

* UPDATE: To see Lyndon’s response, please read “Wealth Is An Illusion Of Happiness”

Keiju,

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

Follow on Twitter @FinancialSamura and feel free to subscribe to our RSS feed

Tax Refunds Are Good For Most People, Because Most People Can’t Save

Financial Samurai — Fri, 22 Jan 2010 15:27:38 +0000

The average tax refund is $2,400 a year, and 74% of Americans get a tax refund. I’ll consider you average for argument’s sake. At today’s typical savings rate of 1%, you’re missing out on a whopping $12 bucks in interest income! Why $12, and not $24? It’s because you have to calculate the average balance of the year if you saved every $200/month payment diligently starting January 1st i.e. January $200, February $400, March $600 etc.

I’m definitely not a proponent of giving the government more money than they deserve, but missing out on $12 bucks in interest is something I can live with and so should you.

You have to ask yourself whether you have the discipline of saving that extra $200 a month, or using it to pay down debt. Most people are not disciplined enough to pay down debt and avoid buying junk. This is why we have such massive debt problems in the first place! The government is essentially helping you “go broke to win big” by protecting 75% of American tax payers from blowing $2,400 a year without even knowing it.

A SIMPLE GUIDELINE & SOME COOKIES

A good way to decide is to take emotion out of the equation and just use a simple ratio. If the expected increase in monthly cash flow is less than 10% of your monthly net cash flow, forget about it! The extra money isn’t going to make a difference in your lifestyle, but that extra nut at the end of the year will. Turn it around, most financial advisers recommend saving at least 10% of your yearly gross income towards retirement. For a small fee, the government is helping you get to that goal.

If you really want to know whether you’ll be able to save your extra monthly income, buy a bag of your favorite cookies. Place them on your bedside table every night for 1 week, and see if you can avoid eating them. Now imagine a bag of cookies appearing every 2 weeks or every month for an entire year. Let me know how it goes!

All year long you condition yourself to live on less. Come year-end, you’ll be happy you did!

Readers, what do you think the average person should do? What’s the biggest refund you’ve ever got, and were you happy?

Keiju,

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

Follow on Twitter @FinancialSamura and subscribe to our RSS feed.

[ad#Scottrade Invest Refund Button]

The Best Post on Craigslist, And It’s All About Love And Money

Financial Samurai — Fri, 08 Jan 2010 09:00:22 +0000

Craigslist is such a fun place to surf and save money. I’ve sold a lot of junk, found some last-minute tennis partners, and even purchased some cool retro Air Jordans on the site. There’s a sale everyday on Craigslist, hence why would you ever pay full retail?

I admit that I’ve clicked on some of the “Personals” section links in the past for fun (you know you have to), but no “Woman Seeking Man” post is funnier than the one you are about to read (originally posted circa 2007). The great thing about the post is that it’s all about personal finance!

Thoughts That Crossed My Mind When Reading:

Can’t live with them, can’t live without them.

Does she really think her first post wasn’t a little over the top?

Wow, she is a woman who knows what she wants! Sexy.

So this is where gold diggers roam. Must take notes.

Damn, that guy is funny, but what a prick, no wonder why I didn’t major in finance.

KAPOW, good counter, but why does she have to talk about receding hairlines, that hurts.

Is the counter response someone else? “She” writes a lot, and needs to type shorter paragraphs.

She has a trader boyfriend already! What’s she doing seeking more men?!

Hmmm, better find a way to make more than $500K a year!

Enjoy and happy first weekend of the decade!

WOMAN SEEKING MAN: “What Am I Doing Wrong?”

Okay, I’m tired of beating around the bush. I’m a beautiful (spectacularly beautiful) 25 year old girl. I’m articulate and classy.

I’m not from New York. I’m looking to get married to a guy who makes at least half a million a year. I know how that sounds, but keep in mind that a million a year is middle class in New York City, so I don’t think I’m overreaching at all.

Are there any guys who make 500K or more on this board? Any wives? Could you send me some tips? I dated a business man who makes average around 200 – 250k. But, that’s where I seem to hit a roadblock. $250,000 won’t get me to Central Park West. I know a woman in my yoga class who was married to an investment banker and lives in Tribeca, and she’s not as pretty as I am, nor is she a great genius. So what is she doing right? How do I get to her level?

Here are my questions specifically:

Where do you single rich men hang out? Give me specifics- bars, restaurants, gyms
What are you looking for in a mate? Be honest guys, you won?t hurt my feelings
Is there an age range I should be targeting (I’m 25)?
Why are some of the women living lavish lifestyles on the upper east side so plain? I’ve seen really plain jane? boring types who have nothing to offer married to incredibly wealthy guys. I’ve seen drop dead gorgeous girls in singles bars in the east village. What?s the story there?
Jobs I should look out for? Everyone knows – lawyer, investment banker, doctor. How much do those guys really make? And where do they hang out? Where do the hedge fund guys hang out?
How you decide marriage vs. just a girlfriend? I am looking for MARRIAGE ONLY

Please hold your insults – I’m putting myself out there in an honest way. Most beautiful women are superficial; at least I’m being up front about it. I wouldn’t be searching for these kind of guys if I wasn’t able to match them – in looks, culture, sophistication, and keeping a nice home and hearth.

PostingID: 432279810

MAN’S RESPONSE TO WOMAN:

I read your posting with great interest and have thought meaningfully about your dilemma. I offer the following analysis of your predicament. Firstly, I’m not wasting your time, I qualify as a guy who fits your bill; that is I make more than $500K per year. That said here’s how I see it.

Your offer, from the prospective of a guy like me, is plain and simple a crappy business deal. Here’s why. Cutting through all the B.S., what you suggest is a simple trade: you bring your looks to the party and I bring my money. Fine, simple. But here’s the rub, your looks will fade and my money will likely continue into perpetuity…in fact, it is very likely that my income increases but it is an absolute certainty that you won’t be getting any more beautiful!

So, in economic terms you are a depreciating asset and I am an earning asset. Not only are you a depreciating asset, your depreciation accelerates! Let me explain, you’re 25 now and will likely stay pretty hot for the next 5 years, but less so each year. Then the fade begins in earnest. By 35 stick a fork in you!

So in Wall Street terms, we would call you a trading position, not a buy and hold…hence the rub…marriage. It doesn’t make good business sense to “buy you” (which is what you’re asking) so I’d rather lease. In case you think I’m being cruel, I would say the following. If my money were to go away, so would you, so when your beauty fades I need an out. It’s as simple as that. So a deal that makes sense is dating, not marriage.

Separately, I was taught early in my career about efficient markets. So, I wonder why a girl as “articulate, classy and spectacularly beautiful” as you has been unable to find your sugar daddy. I find it hard to believe that if you are as gorgeous as you say you are that the $500K wasn’t found you, if not only for a tryout.

By the way, you could always find a way to make your own money and then we wouldn’t need to have this difficult conversation.

With all that said, I must say you’re going about it the right way. Classic “pump and dump.” I hope this is helpful, and if you want to enter into some sort of lease, let me know.

WOMAN’S COUNTER RESPONSE TO MAN! (Is this the same woman responding?)

Dear Sir,

I must confess that I was somewhat taken aback upon reading your email. Indeed, it has taken some time for me to sufficiently recuperate from my surprise. Lest your confidence quickly inflate for little reason (as we know is the predisposition for Wall St. types), allow me to hasten to reassure you that the source of my surprise was neither your candor nor the accuracy of your perception. Indeed, it is your “claimed” success in light of your poor grasp of economics which has me baffled. If the standards required to meet with financial success on Wall St. have sunk so low, perhaps I should indeed “make my own money”, except for the fact that the effort/reward ratio is far too high for my liking - especially when so many of your ilk have displayed a far more cogent grasp of market realities than you have.

By now you are likely scratching your ever-vanishing hairline in confusion, so allow me to elaborate, dear man. To build some credibility I will tell you a bit more about yourself. Though you did not mention the details of your occupation, it is clear that you are an investment banker and not a trader, as any good trader would understand that human courtships are based upon a semi-efficient open market, and not an investment banking cartel. However, your inability to grasp the realities of the dating market is not surprising, given that you have successfully employed the tools of collusion and market manipulation rather that true acumen in your supposed wealth generation.

If your grasp of finance were not a minority partner with your ego, you would realize that the “outflows” associated with my depreciating “assets” are quite certain, and therefore subject to a low discount rate when determining their present value. In addition, though your concept of economics evidently failed to move past the 1950s, advancement in plastic surgery is not subject to the same limitation. Thus, with some additional capital expenditure, the overall lifetime of “outflows” generated by these assets is greatly increased. Sad that Ashton Kutcher has demonstrated understanding of the female asset class which you, in all of your financial “wisdom”, have not.

You, on the other hand, are, given the uncertainty of the Wall St. job market, more of an inflation-indexed junk bond with an underwater nested call option. Though you may argue that you are more of an equity investment, my monetary minimums required from you do not change, and if you are unable to pay them, I will liquidate you without the benefit of a chapter 11, just as you would me.

Because your outflows are so much more uncertain with respect to mine, I require additional compensation in the form of a underwater nested call option on your future assets. I say underwater because, even taking into account the value of your junk bond coupon payment to me, the value of my “outflow” is in excess of the market price of your equity (which is quite low due to its riskiness associated with your poor grasp of finance and my existing claim upon your junk bond coupon).

I must thank you though for raising the question, despite the reputation cost of subjecting your weak logic to such widespread scrutiny. This took either considerable courage or ignorance on your part- and we’ll give you the benefit of doubt, just this once. My current boyfriend (a trader who lives in Central Park West, of course) and I thoroughly enjoyed discussing your response and we wish you the best of luck in your unhappy pursuit of that elusive market inefficiency.

Readers, who do you empathize more with and why? Would you rather be amazingly beautiful as a woman, or filthy rich as a man?

Keiju,

Financial Samurai – “Slicing Through Money’s Mysteries”

Follow on Twitter @FinancialSamura and subscribe to our RSS feed.

Merry Day After Christmas! Santa Bring You Everything You Wanted?

Financial Samurai — Sat, 26 Dec 2009 14:00:28 +0000

Hope everybody had a wonderful Christmas! We spent time catching up with family and exchanging small gifts. Nobody went overboard on spending, which is exactly the way we all like it. My parents have a penchant for re-gifting things from many years ago, and most of this year’s presents are no different. One of the boxes contained 15 year old polo shirts that emitted a strong scent of moth balls! I will cherish them forever, or until they fall apart, whichever comes first.

Our family realized early that buying presents for each other was quite unnecessary after we kids grew up. We therefore made an unspoken pact to gift each other things with no effort or pretense. In fact, it’s almost become a game as to how much of our used stuff we can offload onto each other! I gave a couple over-sized shirts from 2003 to my father, and a packet of dried plums to my mother. We all laughed at our gifts and took some happy photos.

Our idea of Christmas is the reunion of family. We’re a family that’s constantly scattered throughout the world, and when we get to reunite, we don’t waste much time giving gifts. Instead, we talk stories over meals, lots of meals that test all our dietary New Year’s resolutions.

May none of you have to go back to the office until Monday, January 4th or work too hard if you do! We’ll be coming out with some fun short posts for the rest of the year since it doesn’t seem like too many people are around. Happy Holidays!

Related Post: “Losing Your Way To More Money” (If you want to lose weight, you should read about my 6 month experiment. Only one thing matters and it’s not exercise!)

Keiju,

Financial Samurai – “Slicing Through Money’s Mysteries”

Grab Bag: “How Do You Deal With A Horrendous Day At Work? My Client Is So Unfair!”

FS — Thu, 22 Oct 2009 08:00:25 +0000

A reader e-mails in, “FS, I’ve just had one of the worst freaking days of the year today at work. I’ve been busting my butt for this one client for the past 6 months, and when it was time to do their semi-annual review, we actually got worse in their ranking. To add insult to injury, they also provided some negative feedback, and I’ve known this client for so long. I thought we had a good relationship. I’m so mad because I’ve spent double the effort on them this year, and went backwards. They aren’t even a big client! What would you do? Thanks, Frustrated.”

Hi “Frustrated”, I’m sorry to hear about your situation. I’ve been there before, many of times, and all I’ve wanted to do was give up and yell. What’s important is to NOT act emotionally. Go for a walk, grab a drink, and take some deep breaths before you e-mail/call the client or discuss the issue with your manager. Too many times, people write things they don’t mean in the heat of the moment and end up regretting their actions. You must go about this in a rationale manner.

5 Suggestions For Handling A Difficult Client:
1) Thank the client for their candid feedback, and try and understand their perspective. Ask the client what your competitors are doing differently, and what you can do to improve. Your competitors might be smaller competitors who treat this “small client,” like one of your “big clients.” Or your competitors may really be stepping up their service because they’re afraid of survival, and need to do whatever it takes with even the small clients. Once you get a barometer for your competition, make a mental note and decide how to execute.

2) Provide your client with a list of things you have done for them during the voting time period. Perhaps it was a project earlier in the vote they may not have remembered. Ask the client to evaluate whether the things you did were helpful, and how you can improve if what you did were not. Many times the client is inundated with so many things that they take for granted what you’ve done for them in the past or simply do not remember! Make sure you remind them, especially during this process. In fact, after this first hiccup, make sure you remind them prior to the review.

3) After getting a better understanding of where they are coming from, start providing your perspective. You may be understaffed, or the client may not be considered one of the priorities in your firms rankings. Whatever it is, provide some background and make them understand your side of the story. For example, the client may be at the bottom tier and you aren’t given the proper resources to service this client as a result. Make the organization the “bad cop”, but mention to them you will do all you can to service them with the resources you are provided. More often than not, the client will appreciate your feedback. Make sure you are not trying to make an excuse for your poor results. It’s imperative to just lay out the facts. They might not be aware they aren’t the biggest client in the world!

4) After both sides get a better understanding of each other, you have to decide whether it’s worthwhile to pursue what they’ve asked. Obviously, in the ideal world, you’d be #1 with everybody. However, you can’t be all things to all people. The time you spend with this small client, may be time you don’t spend with a big client. If your big client’s relationships start suffering, you are definitely doing the wrong thing and will be penalized eventually. If you are resource constraint, like many are during this downturn due to layoffs, you must focus on the top 20-30% of your clients who provide the majority of your revenue. It’s the “80/20″ rule, and it’s held true by that rough estimate for the longest of time.

5) Finally, you must manage your manager’s expectations because at the end of the day, results affect your pay and potential promotion. Are you getting overly upset because your manager actually doesn’t care so much about this small account? Any rationale manager should understand that it’s more important you do well with your big accounts, and take what you can get for the small accounts, especially if you are resource constrained. And if she doesn’t, it is entirely up to you to properly educate the manager about the revenue upside and the cost associated with service i.e. the time spent, and the time not spent on other more important accounts.

CONCLUSION

I have a feeling you are somewhat of a perfectionist who wants to be the best at anything you attempt. The problem with perfectionism is that it’s wrought with disappointment. We end up taking things too personally. We may even start getting that annoying back pain I wrote about in a previous post, “The Book That Changed My Life & Made Me Rich Again,” because we are so stressed! Maintain a rationale approach and have a candid conversation with both your client and managers to find a reasonable resolution. Best of luck!

Readers, feel free to share your thoughts on dealing with a bad day. We all have one!

Keigu,

Financial Samurai – “Slicing Through Money’s Mysteries”

Follow me on Twitter @FinancialSamurai and subscribe to our RSS feed.

Ken Lewis from Bank of America is Gone! Noooo!!

Financial Samurai — Thu, 01 Oct 2009 08:00:04 +0000

A reader writes in: “FS, not sure if you heard the news, but Ken Lewis is stepping down as CEO of Bank of America by year end! My colleagues and I work for a boutique bank, and were all hoping Ken would go on an acquisition binge again and take us out at a huge premium just like he did with Merrill Lynch. What are we going to do? A couple of us have already made plans to buy nice presents for our wives this Christmas on hopes that big Ken would show us the money! Who do you think will be the new Ken to take us out? Thanks, Jeff”

Slicing Response: Hey Jeff, we heard! We consider Ken Lewis to be one of America’s greatest Empire Builders of this century. After swallowing Countrywide Financial, Ken’s decision to pay $50 billion for Merrill Lynch BEFORE the market opened when futures showed a 5% decline, rather than AFTER the market close was amazing! What’s overpaying by at least $25 billion more among shareholders? Ken was a great hero to thousands of Merrill employees for bailing them out. Ken was also seen as the savior for many others in the industry who knew that so long as there was someone out there paying huge premiums, there was a chance at striking it rich.

It’s clear Ken’s desire to conquer the world got him in a little bit of trouble. John Thain, ex-CEO of Merrill Lynch was a genius in orchestrating his firm’s sale right before disclosing billions in losses a couple months later. Too bad he had to spend $1 million decorating his office during the worst downturn of our lifetimes! $50,000 toilet anybody? Several poker buddies from Merrill did very well thanks to Ken & John, so we know where you are coming from.

Don’t fret! The first place to look for the new Ken is probably at large commercial banks. John Stumpf, CEO of Wells Fargo could be a potential suitor. He spent $13 billion for Wachovia Bank, and might want to continue expanding. The problem with John is that he seems like a pretty rational guy, so it may be hard to get him to pay a massive premium, whatever your fair value is.

We don’t think you have to worry about not having enough suitors if you have a decent business, and strong brand name in your niche. There will always be plenty of folks who want to rule the world. You just have to play to their egos! We wish Ken the best. Maybe he’ll turn up at the other Bank of America, Citigroup. :) Go USA!

Keigu,

Shogun – “Slicing Through Money’s Mysteries”

PS: Jeff, so thoughtful of you to go shopping for your wife so soon! Making us look bad man. Thank goodness it’s now October, and we can spend like crazy again. Just kidding.

Do Higher Taxes Lead To Socialism In America?

FS — Tue, 01 Sep 2009 08:00:12 +0000

One Big Family

Someone once said, “nothing is certain except pressing the reply all button by mistake and taxes.” How true the saying as we face rising taxes under the new administration. Supposedly 32% of Americans filers pay ZERO TAXES! I doubt this statistic sits well with the other 68% of files who pay taxes. I also doubt the percentage of non-tax payers could be that high, but either way, even 15% is a lot. The good thing for high income earnings is that the highest marginal tax rate has come down by almost half since the 70′s. Furthermore, generally if you are paying no taxes, your adjusted gross income is less than $8,350 as a single, or $16,700 as a married couple. Wouldn’t you rather make more money and pay taxes than make little money and pay nothing?

Given we don’t blog for a living, and several readers asked me this afternoon “whether I think higher taxes lead to Socialism in America, Yes or No only”, my answer and thesis is therefore: “Yes, higher taxes do lead to socialism in America.”

SOCIALISM

Some people bristle when they hear the word “Socialism.” I just use the word Socialism as a term for the redistribution and equalization of wealth. Socialists share the belief that capitalism unfairly concentrates power and wealth among a small segment of society, and therefore creates an unequal society. It’s true, life is unfair. I wish my parents were Bank of Mom & Dad billionaires who bought me a condo during college, and then a black Ferrari afterwards, but nope. No such luck! Socialism is just a political idealogy that occurs every time America gets in a whole lot of DO-DO-BROWN.

The hyper-capitalists of America helped bring us down with their inventive slicing and dicing, and securitization of leveraged products. And ironically, it was the hyper-capitalists who got bailed out the most over the past 18 months. The survivors over at AIG, Bear Sterns, RBS, Citibank, Bank of America, and Merrill Lynch are back in a commanding position now that the “bull market” has returned. Just look at their share prices. Remember, Andrew Hall at Citigroup is getting a $100,000,000 bonus due to his correct bets on oil this year!

Everybody knows that the Obama administration plans to raise the highest marginal tax rate from 35% to 40%. Sucks for those making over $372,950. It also sucks for those making over $171,550, because your marginal tax rate will probably go from 33% to 36%. The proposed increase in taxes is a given, and serves to redistribute the wealth from the “rich” to the “poor.” Unfortunatley for the rich, this comes at a bad time because the economic collapse has been 10X more effective in equalizing wealth than by simply raising federal taxes by 5%. See “The Less You Have, The Less You Lose.”

The question we should ask ourselves is: “Is Socialism bad?” It’s probably downright evil for hyper-capitalists because it incentivizes those who can make more to do less. But, for the rest of us, who aren’t making big bucks, and who need some help from this current recesssion, maybe Socialism isn’t so bad after all. Maybe we should support Obama’s big government initiative, and taxation policies as we might all benefit? We never know when disaster will strike, and it’s worth knowing that if it does, we have big brother ready to take care of us.

ASYMETRIC THINKING

Most would love to pay lower taxes, but there is an asymetric thought process here. The more you make, the more you dream of paying zero taxes because the absolute savings is huge. If you make $1 million dollars a year, your effective tax rate is around 40%, and your marginal tax rate is over 50% if you live in places such as California and NYC. Thoughts of wiping out $400,000 in tax expense makes the rich salivate, and some unfairly start cursing the “deadbeats” who don’t pay a single cent. Yet, ask the rich to trade places with the poor, and you won’t get a single taker. Funny ain’t it?

Some of the “poor” on the otherhand think the “rich” are greedy capitalists who already make enough and should stop complaining. I would hypothesize that if the poor eventually got rich, many would change their way of thinking. Take this interesting phenomena for example: The vast majority of college students are poor by definition, and the majority are for higher taxes and big government programs (Democrats) to help the people. In college, it’s just cooler being a Democrat and demonstrate against big bad corporates. I remember picketing against one shoe corporation for providing deplorable conditions and wages in Vietnam. I believed in my cause, and I also had nothing better to do because my homework was done!

Yet, why is there a gradual political shift 10 years out of college? It’s because people vote with their pocket books, and the cool poor college kids are finally earning some taxable dollars. Interestingly though, if you become extremely wealthy, the balance shifts back to the Democrats, because it really doesn’t matter how much you tax them, they have enough money to last many lifetimes.

PROPOSAL

The Flat Tax is the easiest solution to America’s tax debate. If the flat tax is 15%, and you earn $1,000,000 you pay $150,000 in federal taxes. If you make $60,000, you pay $9,000. How is this not fair? How is this not easy to understand either? On an absolute level, the richer person pays $141,000 more in taxes, and on a relative basis, the richer person also pays 16.7X more in taxes because his income is 16.7X more!

With a Flat Tax system, there is less gray area and less painful hours of tax preparation to go through. Could it be that the multi-billion tax prep industry have super-lobbyists with big bucks brainwashing government officials never to change our complicated system? Conspiracy theorists believe so! Simplier and fairer tax systems help discourage tax cheats as well and would help increase the overall revenue to the government.

REALITY & ACCEPTANCE

Unfortunately, there’s less than a snowball’s chance in the Sahara, America will adopt a flat tax system over the next 8 years. The rich need to embrace higher taxes. In this market upswing, the rich are gaining the most anyway. We’ve been spoiled by lower taxes for the past decade, and it’s now time to pay the piper.

If you’re making much more than Obama’s $250,000 bogey, do your best to defer every dollar above $250,000 into a deferred retirement plan. If your firm doesn’t go bankrupt, you would certainly gain from deferring your income to when you don’t have any income i.e retirement. The funny thing is, even if you amass $2 million cash, you are considered average based on the interest income generating power of $60-80,000 a year. Finally, see if you can set up residency in one of the seven no income tax states. At the end of the day, if the US gets out of this funk, even with higher taxes, we all win!

So what do you guys think? Do higher taxes lead to Socialism in America?

Related Articles:

“We’re Ignorant Idiots! Tell Us Why A Flat Tax Isn’t Fair!”

“Make 10% More Return Forever – Move To Nevada”

“The Less You Have, The Less You Lose”

“Obama’s Universal Healthcare Proposal”

“Government Employee Entitled To A $100,000,000 Bonus”

Keigu,

Financial Samurai – “Slicing Through Money’s Mysteries”

Follow me on Twitter @FinancialSamurai

Grab Bag Weekend: The Woman I Love Is So Powerful!

FS — Sun, 09 Aug 2009 03:36:00 +0000

Question: A reader shoots me an e-mail and asks, “Sam, how’s it going man? I just found your blog searching for diamond engagement rings and I want to thank you for your “Bling Bling” article. I’m wondering, what size rock do you think I should get for my woman? I ask because she makes literally 5X more than me, and is a Senior Vice President at one of the major retail companies.

She has over 100 people working for her in the marketing department, and I’ve seen her crack the whip on others before, and it’s scary! However, when she’s with me, she’s a completely different person. A jokester, goofy, and SO caring.

I love her to death, and I want to give her the best. But, I’m a middle school teacher, and only make $47,000 a year! I can maybe spend $10,000, but that’s going to be really tight for me, and basically wipe out my savings. We’re both in our mid 30′s and have been dating for over 5 years now. Thoughts? Thanks! John”

Response: Hi John, thanks for your e-mail inquiry. Welcome to Financial Samurai! First of all, I want to commend you for being a school teacher. The state should be paying you guys the big bucks, and not Andrew Hall from Citigroup his $100,000,000 bonus! There are several ways to answer your question, so let me offer some suggestions. I asked your question to a number of my female friends today as well so I can give you a balanced answer.

It sounds like you guys are in love, and there’s a good chance she’ll say “YES!” Given the high likelihood of success, you don’t have to get her something extravagant to woo her over. She’s already yours. The most important thing is you show that you’ve done your research, and get her something she has shown interest in. She must be aware of your rough income level, and the massive budget cuts and therefore potential pay cuts in education. Therefore, it is highly unlikely she expects something more than you can afford. You should take her for a stroll in a shopping district and wander into a jewelry store to help her naturally reveal her tastes.

Your girlfriend might regularly hob knob with similarly wealthy people, but it is you that she wants to be with. By choosing you, she’s showing she doesn’t care about how much money you make. She may have a lot of expensive clothes and accessories, but that doesn’t compare to anything you give her. Many financially successful and single women have revealed in the past that they would give up their fancy title and big paycheck if they could find the man of their dreams. After all, what’s the use of making so much if you have nobody to share it with?

Your woman is already highly confident. Even if you spent just $3,500 and got her a 0.5 carat, G, VS2 ring, I’m sure she will LOVE IT and treasure it forever. I don’t think she’ll care what her friends think because she’ll be so happy she’s engaged! She definitely won’t care what her subordinates thinks, and may actually appreciate not having something so extravagant to show off. She can afford a 3 carat Tiffany’s if she wants to, but that’s nothing special because it won’t be from YOU. At the end of the day, put in the research, focus on quality over size, and plan something romantic and well thought out. Time and time again women tell us it’s the thought that really counts. With all your research so far, it’s clear you are going to do the right thing!

Readers, any advice you have for John? Please keep your e-mail questions coming! It’ll be great to discuss the trend towards more female breadwinners at a later point. I have a feeling that many guys would love to have a sugar mama, especially after this recession. I know I would!

Keigu,

Financial Samurai – “Slice Through Money’s Mysteries”

Follow on Twitter @FinancialSamura

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Grab Bag Friday: Alligator Arms

FS — Fri, 07 Aug 2009 05:27:00 +0000

QUESTION: Tim, a reader sends in an e-mail asking, “Sam, I have a friend who is notoriously cheap. Whenever we go out to eat with a group he disappears to the bathroom when the bill comes. Whenever we go out drinking, everybody buys a round of drinks except for him. What should I do? The last bill came out to $100 each from $70 because he and his wife disappeared! And why is it that every time we go out with clients together he never volunteers to put his corporate card out? He drives an expensive car, and always has expensive threads so why am I always stuck with the bill? It’s so frustrating!”

RESPONSE: Well Tim, I have to say that your friend is a 100% cheapskate, and you may want to stop inviting him out or doing anymore joint client events together. He is taking advantage of your kindness, and your willingness to let things slide. As far as I’m concerned, you can equate his lack of contribution to stealing. The next time he goes to the bathroom right before the check comes, just simply take your time and wait until he gets back to pay his fair share. Better yet, follow him to the bathroom, shake one out, and return together. He can’t escape!

The client event situation is tricky because you don’t want to look like a cheapskate yourself by asking to split the bill in front of the client. Nor do you want to have an awkward moment when the bill comes, and you don’t readily pay because it’s just you and the client with your friend nowhere to be seen. However, I’m sure you and many others have had their expense accounts squeezed with closer monitoring in this economy. Don’t let your friend’s alligator arms harm you and your business. Again, wait for him to return, and if he’s there already firmly ask him to put his card down to split the bill if he’s not making any motion. He cannot refuse in front of the client. An alternative is to simply pay to avoid awkwardness, and tell him to pay you half the bill in cash. Don’t let him say he’ll get you next time because it is a false promise. Tell him you need his portion to pay off your expenses.

Freeloaders are an undesirable bunch who nickel and dime people to death. The sure solution for preventing an unpleasant experience is to weed these people out of your social life, one by one. You don’t want to hang out with these “friends” because they don’t care enough about you to not take advantage of you. If they were truly a friend, they’d be clamoring over the bill and refusing to let you pay. Once you equate their cheapness to stealing, you won’t let them short change you ever again.

Readers, what are your experiences with cheap friends and how do you address the issue?

Have a great weekend everyone!

Best,

Sam

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