If you look carefully around the web, you’ll read scores of articles about the desire to retire early.  Yours truly wishes to finish up no later than 45, as I believe working for 20 or so years is a long enough time.  I’ve done the math with various living and return scenarios and it can be done.  But the question is whether it’s a good idea?  Perhaps not.

Now that the economy is in recovery mode, it’ll be interesting to see how attitudes change towards early retirement.  Will those who’ve short circuited their careers feel the pull to return to full time work and maximize their earnings potential again?  I believe so.  What about all our “lifestyle design” and “digital nomad” friends who had a rough time landing something stable they truly love?  Possibly they’ll come back too.

Those who are able to retire early are often cherished.  I certainly admire those who are able to cut down their desires to the bare bones and live a very frugal lifestyle.  I also admire those who’ve been able to strike it rich very early!  That said, perhaps early retirement isn’t a good idea for the large majority of people.  Let’s explore several reasons as to why people want to retire early, why they exist, as well as understand why it may not be a good idea.  Someone has to argue the other side, so it might as well be me.

WHY PEOPLE WANT TO RETIRE EARLY (IT ISN’T THAT OBVIOUS!)

1) Haven’t found the right job. The number one reason why people want to retire early is because people haven’t found a job that gives them enough fulfillment to do for the rest of their lives.  Nobody quits a job they like.  If there was a job paying $80,000 a year to hike in the mornings and get massages in the afternoon, I’d do that forever!

2) Easier way out. People give up or are sub-optimal performers at what they are doing now.  Let’s say you are a research scientist who after 10 years never produces any relevant research, and finds no cures.  Instead of going on with your failure, you decide to give up, and get out of the game.  Early retirement is kind of like the cowards way of not having to be the best any more.  Some even liken it to suicide.

3) People are lazy and want things now. Society has shifted our ideals from hard work and thinking long term, to instant gratification.  Nobody has the patience to work for decades before being eligible for a pension.  We all think we know more than we do, and deserve to be the rich boss now.  When we don’t get our way, we quit, rather than letting people know we couldn’t reach our potential.

4) A feeling of hopelessness. During the downturn, a tremendous amount of people began writing about a location independent lifestyle, and breaking free from the 9-5 and really doing what you want.  It’s because of this downturn, that many people were displaced, and had nowhere to go.  If they did, perhaps they’d think differently.  In an economy where everybody is losing money left and right, what’s the point of working?

5) Realization that time is precious. With the median lifespan hovering around 80 years old, you only have 15 years of retirement to enjoy your life if you retire at 65.  People in this camp have a heightened awareness of time, and therefore do everything possible to make sure they are financially stable sooner, rather than later.  I’m a strong believer in this thought process, but at the same time, I don’t want to cut short my potential.

THE DANGERS OF EARLY RETIREMENT

1) Oops, you change your mind. Imagine retiring at 37 after 15 years of work after undergrad.  You spend the next 3 years traveling the world, living a leisure lifestyle and experiencing new things.  At age 40, you realize the reason why travel and play is so fun is because of work!  You have the urge to get back into the game, but who’s going to risk hiring a 40 year old with a 3 year employment gap? The employer will suspect you are rusty, and may just bolt after a year.

2) You run out of money. No matter how conservative we are in our retirement money needs, something unforeseen may happen.  Maybe you have a medical disaster, or your house blows down.  Maybe your investments tank due to a massive economic downturn.  Who knows what the future holds.  But if you partake in “normal” early retirement, without the mega-millions windfall, you may find yourself needing more one day.  Again, a large employment gap is perceived as riskier by the employer and you may be un-hireable.

3) You lose touch with friends and family. It’s nice to have all the time in the world to do whatever you want.  But, if your friends and loved ones are busy working all day, they can’t join you on your midday hike or adventure to Bora Bora.  They may also have a family to attend to during the evenings and on weekends.

4) You may find it difficult to start your own family. Unless you have a tremendous amount of money, raising a child may be too expensive an endeavor to undertake as early retirees.  If you never wanted to start a family, chances are you haven’t been saving for a family.  Let’s say you’re a woman who turns 35 and suddenly realizes the safety window for having a baby is closing rapidly.  May be tough to even get pregnant, let alone support a new born without the right support network.

5) You lose your own self-respect, and the respect of others. Unless you’re out there saving the world,  you might start getting depressed you are contributing very little to society.   Others will stop respecting you because you aren’t doing anything productive either.  A great many rich early retiree friends from the Dotcom bubble have mentioned they wish they didn’t get rich so quicky work a little harder for their money.

CAREFUL WHO YOU LISTEN TO

Early retirees will croon about how great their lifestyles are.  I’m sure, in some ways they are spot on.  But notice how they seldom write about the hardships they face.  They can’t, because it’s important they continue highlighting how awesome everything is, to justify their decision to no longer work.  Can you imagine spending 16 years going to school (grade school + four years of college) only to work for 10 years?  Some would surely say that’s a waste, would they not?

The worst that could happen is some aspiring scientist, musician, lawyer, or teacher decides to give up their careers because they believe traveling around the world on a shoe-string budget is so glamorous.  Years later, they realize their fingers don’t remember the notes anymore and the chemical formulas are one big haze.  Maybe they would have made it as a concert pianist, or helped discover the cure for seasonal allergies, ACHOO!  What a shame they never reach their full potential.

EARLY RETIREMENT IS SELFISH

As I strive to fulfill my goal of retiring by 45, I’ve come to the realization there’s an unhealthy focus on self.  “What do I need to amass to be comfortable?” should be replaced with “How much do I need to be comfortable while helping others?”

It’s absolutely selfish for me to even consider working less than the number of years I went to school.  I think back upon my childhood years and how much effort my parents put into raising me.  My mother would spend hours a week sitting down with me after dinner to explain mathematical equations.  My father would read all my essays and fix all the punctuations and grammatical mistakes.  I would feel like a disgrace not to at least try and do great things.

45 is just an age goal.  If I haven’t achieved my potential by then, I don’t plan on retiring even if I have the money to do so.  The point of having an earlier-than-normal retirement goal is to help keep someone focused to achieve whatever it is they set out to achieve.  Like an exam that’s 3 months away, we don’t study until the week before.  Hence, better to believe the exam is only a week away so that we are better prepared.

CONCLUSION

Early retirees sometimes like to pity those who have to work.  Yet perhaps we should empathize with those who are lost and haven’t found something they truly love to do (point #1).  It’s impossible to all be great humanitarians working tirelessly until the age of 65.  It’s easier just to give up and tell the world how fabulous your life is, and how you’ve retired on your “own” terms.

As the economy recovers, perhaps we’ll be able to bring back our lifestyle design friends to their home countries to work again.  Our early retiree friends will stop fearing failure as employers open their arms wide open and allow them to succeed.  Entrepreneurial ideas flourish once again due to an abundance of capital.  The more the wealth gap widens, the more the early retiree crowd will want to get back to work, and realize their full potential.

There comes a point when working isn’t about money anymore since we have enough.  If we all reach this point, we’ll no longer be focusing just on ourselves, but on helping others as well.  We’ll be doing something we love, that provides a sense of purpose.  Here’s hoping we all get there!

Readers, do you agree or disagree that early retirement is a selfish proposition?  Are we all just inherently selfish to begin with?

What is your ideal age of retirement and how do you know when is the right time?

Do you think once we’re back to a raging bull market, there will be less people who want to retire early?

Keigu,

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

Follow on Twitter @FinancialSamura and subscribe to our RSS or E-mail feed.

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Congratulations to the Democrats for passing a smaller, less corrupt version of Obama’s health care plan to cover the 30 million+ Americans who are uninsured.  I’ve read numerous articles about the pros and cons of this plan, and I still can’t figure it all out.  An Associated Press article writes, “Obama practically needs a spreadsheet to tell people what’s going on and when.“  That said, progress has been made.  I’d like to go over some of the basics, and end with a discussion.

LOOKING OUT FOR EACH OTHER

Unlike making money, we can only do so much with our health until genetics take over.  We can eat fruits and vegetables until the cows come home.  We can work out 5 hours a week and play another 5 hours of tennis on the weekends to improve our fitness.  But who’s to say we don’t get cancer one day and die because we can no longer afford to treat the disease?  As far as scientists can tell, if we’re destined to get some disease, we will.  Wealth helps keep us alive.

Earning a living, on the other hand, is pretty straight forward.  Don’t slack off in grade school, go to a good university, get a reasonable job, don’t slack off at work, add value, spend less than you earn, and voila!  You will be rich when you retire.  Along the way, you’ll find impasses such as economic Armageddon we just experienced.  You might lose your job, or 30% of your net worth like I did.  But that’s OK.  We just go back to school, find another profession, extend our retirement age by a couple years and keep marching forward.

You can’t march forward if you are sick.  You can’t even stand sometimes.  This is where we MUST step in and provide a safety net for those who cannot help themselves.

HEALTH AND POVERTY

Watching a documentary about personal bankruptcies the other day, it was amazing to learn that 3 out of the 4 families profiled were living in poverty due to health related issues.

A beauty queen broke her neck, and couldn’t continue working.  She now lives in a shelter because she couldn’t afford to pay her medical bills.  A family of four live in their broken down car because the father severed a nerve in his arm at work, and could no longer operate the machinery.  The insurance for rehab ran out, and he was left stuck, unable to do return to his old job.

If we had a better health care system, perhaps we’d have less health related bankruptcies.  Is that so bad?  Should we not try and help others out who bet on red but get black?  We should.

THE OBJECTING CROWD

Everything comes down to money and service.  Those who oppose ask how we can afford free coverage for 30 million more people?  The opposition also asks with 30 million people in the system, does that mean my doctor’s visit wait jumps from 15 minutes to an 1 hour?  Do the citizens who can afford to pay get crowded out as a result?  Good questions, and I don’t have the answer.

However, if you were to ask me whether it’s OK to raise my taxes by a couple percent a year to insure that everybody in America can get proper health care, I say yes.  Let’s say I earn $100,000 a year, and the tax increase of 2% is earmarked for health care reform.  I’m willing to pay an extra $2,000 a year to ensure we all have the right to health care.

Whether my premiums go up $2,000 a year or my taxes go up by $2,000, it’s the same thing, so I’m not arguing where the money will come from.  Ask me to pay $2,000 more in taxes a year for some pork spending I have no idea about, I would vehemently vote no.

Let’s say I do have to wait 45 more minutes for the doctor because of a crowding out effect.  Fine, let me surf the web on my PDA, read some magazines, do some stretching, and perhaps take a nap.  Maybe I have to wait a week longer than normal to see a doctor.  That is a problem which will be solved by capitalists who will open more independent practices to meet demand.  Just knowing that I will get assistance tempers my worries.  And if you never had a shot at seeing a doctor in the first place, you won’t be complaining about a wait.

If I have an emergency, then off to the emergency room I go.  I will be treated according to the degree of my trauma.  Hopefully there won’t be millions of new hypochondriacs who abuse the emergency room system, but that is a chance I’m willing to take.

CONCLUSION

I feel it in my gut, opposing health care reform is bad.  It’s as if the karma police is watching me.  We can only do so much to control the outcome of our lives.  We don’t know how long we will live, and whether we will die peacefully or painfully.  Sickness affects a billionaire as easily as it affects a beggar.  Why should someone lose everything just because they are poor?  They shouldn’t, and that’s why I congratulate the passage of this bill again.  Let’s just make sure everybody helps pitch in, and not just those who aren’t lucky enough to be Nebraskans or particular union workers.

Readers, are you for or against health care reform?  Please highlight some of the NEGATIVES of the health care reform bill so we can get more into detail and provide a balanced argument.

* Note Consumerism Commentary has a great post highlighting “The New Health Insurance And Your Money.”  Good overview of what the bill may cost you.

Keiju,

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

Follow on Twitter @FinancialSamura and subscribe to our RSS or E-mail feed.

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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?

The article is featured in The Wall Street Journal.

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

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The Yakezie Challenge

There’s a fun hypothesis saying that you are the average of the closest five people around you.  I believe this to be true, do you?  What’s interesting about the blogosphere community is that anybody with enough intention can start a website.  Some are interesting, some are not, but regardless we can all compete with the ProBloggers and the Huffington Posts of the web in our own niche way!

Alexa is a dynamic website ranking and information company owned by Amazon, which has over 40 million users world wide.  The tool bar is free, and easy to download.  The Yakezie Alexa Ranking Challenge is straight forward.  If you’re outside of the top 200,000, get in the top 200,000 within 6 months.  I can’t even name 100 sites, let alone 199,999 sites.  Can you?  If you’re already in the top 200,000, get in the top 100,000.  And if you’re already in the top 100,000, get in the top 50,000.

There are some who poo poo the Alexa ranking system, and I recognize their two main arguments:  1) The system only tracks visitors who have the Alexa Toolbar installed, and 2) There are cases where some websites with bazillions of users have a worse ranking than sites with less users.  We don’t know why, because we don’t fully know what goes into the calculations.  It may be because readers don’t visit and just read off their RSS.  That said, the Alexa ranking system continues to grow, and is the best system we got.  At least 40 million webmasters around the world think so, and there has to be something to it if Google, Facebook, Yahoo and YouTube are ranked #1, #2, #3, and #4, respectively.

Since starting this site, I’ve been rejected as a guest poster, didn’t even get responded to, let alone make it as one of the 7 finalists for one site’s staff writer tryouts, denied admission to a personal finance blog network, and even got my first carnival submission rejected.  But through all the rejections, I took comfort in my friend, Alexa, who is always by my side motivating me to keep going.  I’m sure many of you have been rejected as well.  Here’s your chance to create our own network of powerful friends by joining in on the challenge!

BENEFITS OF BEING IN THE TOP 200,000

* You’re on page 1 of Wise Bread’s Top 100 Personal Finance Blogs ranking. I’ve heard some publishers in the Top 100 don’t even bother to associate with others outside page 1.  Oh, the snobbery!  But seriously, if you’re on page one, opportunities start coming to you, because this list has become the default ranking in the community, and the default ranking in the community uses Alexa.  Remember the 80/20 rule.  There are 440+ on the list now and I’m sure it’ll just continue to grow.  The bigger the list grows, the harder it will be to reach the Top 100.

* Motivation.  Unless you’ve got an established blog already, writing gets very lonely and discouraging sometimes when not many people come to visit.  You might say you are writing for yourself and don’t care, but if that’s the case, why make your writing public?  Witnessing progress is fun!

* If you love books, you’ll get approached by authors and publicists looking to send you tons of free books to review and giveaway.  You may even get a catalog of a publisher’s entire library of books from which you can choose from.  In fact, you will have opportunities to sample many free products if you so choose.  You know how movie stars get all those goodie bags of stuff to sample at the Oscars even though they’re already rich and don’t need more free stuff?  It’s kinda like that, a virtuous cycle of people who provide mutual benefits.  If you someday wish to write a book, you now have direct access to the very people who reject hundreds of authors everyday!

* Advertisers will flock to you, and ask you to pimp things you’ve never heard of.  Some of them, could be gems, but many will be junk traps.  The Top 100,000 ranked sites on Alexa (top 0.25%) earn 72% of all revenue, hence you can potentially earn a good amount of lunch money from your site over time.  I have been very disinterested in advertising over the past the past six months, but I’ve recently had an “a-ha” moment which I will share with you this weekend.

Update: All advertising proceeds after operating costs will be donated to charity.

* Other big sites who never bother responding to you, suddenly take notice and give you the time of day.  Those comments you leave asking for feedback or help actually get addressed.   Cut them some slack though, because I’m sure they get inundated.  You can also join plenty of “exclusive” networks if you wish.

* If you want to earn a partial living as a staff writer, you have a much higher chance of getting accepted.  Furthermore guest posting and having others guest post on your site will be easier.

* You cultivate a competitive edge, get inspired and appreciate those who are way up the rankings.  I used to think watching golf on TV was extremely boring.  After I began hacking it up on my own, I now find watching golf extremely fascinating!  Same thing with a website.  You truly start to appreciate the marketing geniuses of some bloggers out there, and therefore strive to better yourself.

* Girls or guys, depending on your sex and preference, will love you when you say you have a “top” website at the bars.  For a brief moment, you can escape your mundane day job and pretend you are someone really important.  You could try saying, “Hi there good looking, I am the the CEO & Editor of X, America’s #1 personal finance site” for example, and you’ll immediately be whisked away into la la land.

TIPS ON BREACHING ALEXA TOP 200,000 (Please share more if you have any!)

* Badge & Toolbar. Download and install the Alexa toolbar and put the badge on your site.   The Alexa toolbar is fascinating because it shows you so much detail about other sites you visit.  The badge will naturally peak interest as well.  The ranking is dynamic, and motivating.

* Content. Nothing else really matters, and that includes doing all that SEO stuff.  I had no idea what a site-map was, or what SEO (Search Engine Optimization) even stood for the first 4 months.  If you write something you feel strongly about, you’ll do great.  Try and write with a thesis.  Whether you are right or wrong is besides the point.  What’s more important is to get readers thinking about the topic at hand.  Write what you know, too, because if you try to fake it, people can tell.

* Content Length. Did you know that the average person spends just 7 seconds on a resume?  The point is that people have short attention spans, and if you write in huge paragraphs, with no breaks in the post for categories, you’ll likely lose readers.  After the 1,300th word, people’s eyes start glazing over, unless it’s superbly written.  This post violates this rule with 1,650 words, so I need to practice!

* Personality. Realize that you can’t please everybody all the time.  If you write with no thesis, no conclusion, no personal spin, then what’s really the point?  The great thing about the internet is that the market place is so huge, if our friends in America aren’t stopping by, maybe our friends from Australia will!

* Frequency. If you can post 2-4 times a week, that’s good enough!  You can try posting everyday, but you increase your chances of burn out, and you’re not getting maximum exposure for the articles you’ve written.   Notice how comments fade from your post after a new one comes, even though the older article is only a day or two old.  Instead, use the days off to visit other sites, comment, build relationships and let your articles percolate.

* Branding. Get an image that one can easily recognize as you.  Go to Gravatar.com, and use that image in many things you do.   There are a lot of Davids, Johns, and Jims in the community.  Instead, sign off as a variation of your site, or your site itself because nobody has a monopoly on your common name, and you may confuse others.

* Read & Comment. Actually read an entire post and get the concept.  If the post is too boring, skip it, but if it’s interesting enough, share your thoughts.  Comments inspire writers, because it shows that someone is listening.  There will be reciprocity.

* Twitter. Twitter is probably the best micro-blogging tool out there, which I don’t do enough because it’s off during the day.  I’m amazed how some have thousands of followers, and can also follow hundreds of people as well.  Make sure you have a widget that will allow others to retweet your content easily.

* Guest Post. I’ve only done only one guest post, and that was with Wise Bread six months ago.  I would have done another, but my second guest post got rejected because it was deemed too controversial.  Surprise!  Since then, I haven’t guest post for another site and have diverted all my attention here.  The rejected article hasn’t been published here just in case you’re wondering, but it will.  If you can write quality content on bigger blogs, while producing quality content on your own site, that’s probably the best way to go. 

Update: The rejected article is now up: “How To Get Your Super Motivated Boyfriend (SMB) To Marry You”

* Promote Others. If you’re scraping the bottom of the barrel in the rankings,  be selfless and promote others relentlessly.  Even if you are doing OK for yourself, promote others freely.  That includes re-tweeting and highlighting other articles on your own site.  The higher ranked sites will be appreciative and eventually return the favor.

* Don’t Think About Making Money. Because it will likely take a year or so if you’re lucky to earn over $1,000/month from your blog, the money you receive may demotivate you.  As soon as you start writing for money, you start losing your soul and it’s not as fun.  Write what you want to write, and the money will come.

CONCLUSION

If you just focus on two things, focus on content and promoting others. We’ve taken the initiative to start something on our own, so we might as well give it our best shot.  Like all ventures, it’s not easy maintaining the intensity and team effort goes a long way.  If we’re all in the top 200,000 by summer, we’ll be quite an influential bunch!  Just think about all the things we can do.

Once you break your particular Alexa benchmark, you can officially call yourself a Yakezie (pronounced yah-KAY-zee, and not to be confused with Yakuza).  Fail to achieve your goal in six months and you don’t have to chop off your pinky!  Who’s in?

TO JOIN THE YAKEZIE ALEXA RANKING CHALLENGE

1) Install the Alexa toolbar if not already and comment what your current Alexa ranking is, so we can keep track.

2) Write consistently 2-4 times a week.

3) Install the Yakezie badge.

4) Announce on your blog that you have joined the challenge.

5) Selflessly promote others.

6) Stay committed!  Quitters are not desired in this challenge.

* Feel free to contact my trusty Shinpan contact@saveeveryway.com to join the Yakezie Google Groups if you wish.

We’ll revisit this post right after the 4th of July and see how far we’ve come!

One Month Update: Progress Through Adversity

Keiju,

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

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

Related posts:

1. Samurai’s Alexa Ranking Challenge Update: Progress Through Adversity
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If I read one more biased article pushing people to convert to a ROTH IRA I’m going to lose it!  Not to be melodramatic or anything, but the lack of unbiased analysis is like seeing a sea of zombies instructed to walk off a cliff. Wake up zombies, wake up!  Don’t make a decision without seeing what lies down below.

The ROTH IRA conversion idea is that those who have pre-tax funded retirement accounts such as a 401K or Traditional IRA pay taxes UPFRONT in 2010, so as to not pay taxes when you retire.  This is just absolute hogwash donkey dumb for a large majority of people out there.

Proponents of the ROTH IRA conversion argue:

1) Tax rates are low and are just going to go up in the future.

2) You will likely make more money in your retirement years, and hence pay more taxes.

3) Paying taxes now improves performance in the long run all else being equal.

THE SAMURAI REBUTTAL:

1) The government is smarter than you.  They are geniuses at spending other people’s money, and extracting as much money from you! Despite so much red-tape, when it comes to fiscal and monetary policy, they’ve got geniuses running the show.  Sure, back in the 70′s and 80′s the absolute marginal tax rates were higher, but there were many more income levels of taxation, and if you calculate the inflation-adjusted income levels, we’re actually better off now!

Think about why the government introduced this wacky piece of legislation from the government’s point of view.  Obama and team are running a $2-3 trillion deficit.  How the heck are they going to fund their binge spending?  By introducing a new idea to be able to allow millions of people, and billions of dollars to be taxed right now to shore up their deficit!

They float the idea, that doing a ROTH IRA conversion is a GREAT IDEA, knowing in the back of their minds that taxes can’t go much higher than what Obama is proposing already.  Furthermore, the government gets people who make over $100,000/yr excited when they say “no income cap in terms of contribution and conversion”!  Another smart move so they can collect MORE tax dollars from the wealthier population now.

2) Love your enthusiasm that you think you’ll make more in your retirement years than in your prime 30-50 earning years.  But I just have one question.  Are you crazy? Let’s say you average $100,000 / year until you retire.  To replicate $100,000 in income, you will have to have at least 25X your income in capital, or $2.5 million at a 4% risk free return to produce $100,000/year!  The last time I checked, the best 5-yr CD’s now pay 3%, which means you need 33X your income as capital to produce $100,000 of income.  GOOD LUCK!

Let’s say Social Security brings in $25,000 a year, to make $75,000 still requires you to have $1,875,000 in liquid assets at a risk free 4% return.  When people are struggling to accumulate 10X their income in retirement savings, what makes you think you’ll be able to achieve 19-33X?

Let’s be realistic here guys.  The only age group that might make sense are those in their 20′s, when their earnings power and therefore tax rate is still relatively low.  Then again, if you are earning a smaller amount, the absolute tax savings won’t be that important anyway.

3) The results are the same based on 2nd grade math. Whether you pay taxes now and let your investment grow tax free, or you let your pre-tax investments grow, and then tax it upon retirement results is more or less the same! Don’t believe me?  Do a calculation yourself.  Here’s an equation: Y = A * B.  Re-arrange to A = Y / B.  Or Y = A * B is equal to Y = B * A.

CONCLUSION

Whenever something sounds too good to be true, it probably is. There is a reason why the government is offering this new “one time”, no income limit ROTH IRA conversion in 2010.  The reason is they need your money!  The government knows that they can’t possibly raise income taxes much further than the already 5-10% increase Obama proposes in 2011, otherwise nobody would work, and capitalism would fall for good!

Lucky for you, you’re not a mindless zombie listening to everything the government and other sites tells you.  You realize there are seven no income tax states in America you can retire in, thereby immediately wiping away 5-10% of your taxable bill.  If you move to Hawaii, the state can’t legally tax your pension or retirement contribution!

It’s a good problem to have if you are making more in retirement than during your working life.  However, the facts reflect a high unlikelihood you will have have 20X-33X+ your income  in capital to draw from when the time comes.  And remember, 20X your income is just the BREAK EVEN amount in taxes you’ll have to pay, all else being equal.  You need to have 30X+ your income as capital for a ROTH IRA conversion to make sense at an interest rate return of 4%. Even if you do have 30X your income in your 401K, you can draw on the NUT at a much LOWER level to keep you in a lower tax bracket.

Never pay taxes unless you absolutely have to. Can you imagine when you’re about to retire, the government introduces new legislation which benefits Traditional IRA and 401K holders by offering LOWER tax rates?  Meanwhile, over the past 20-40 years, the government has been using your ROTH IRA conversion to spend on a party that one day needs to be repaid.  I’d be pissed.  Don’t let the government trick you into converting.  Once you pay them, you can NEVER get the money back.

Readers, if you don’t agree, don’t be shy and tell me why.   I’m sure I’m probably missing something, but I don’t know what.

If you believe in paying more taxes up front with a ROTH conversion, do you mind giving me 25-35% of your money now?  I promise I will give you your money back when you retire in 20-40 years.  Some new guy will be in office but I promise!

If you are from the FBI or government watch guard, sorry, but the people have the right to know THE TRUTH.  Your “Cash For Clunkers” program put in debt 200,000 people for cars they didn’t need.  We won’t allow hundreds of thousands more to not fully understand their decisions.

If you do agree with this article, please share with others to prevent them from walking off a cliff. Have a nice day.

UPDATE 07/19/10: If you ended up not listening and converting, and are stuck with a higher tax bill than your ROTH is worth since the markets declined, don’t worry.  You might get a second chance by “recharacterizing” your loan.

Keiju,

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

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

Related posts:

1. The Katana: Help Haiti If You Can 1/17
2. Charles Farrell of “Your Money Ratios” Speaks! Part I
3. Conventional Wisdom Leaves Much to Luck

Searching For Fortune On The Fund's Yacht

With great pleasure, I announce the launch of The Samurai Fund!

Thesis: Through random selection based solely off permutations of reader’s names (personal or site title), we are able to create a long-only mutual fund that will outperform the S&P 500 index!

Fund Details: $1,672,003 billion launch, $100/share NAV, with 17 positions equally weighted.  Concentrated multi-strategy portfolio with defensive names in the alcohol and utility space, as well as higher beta names in technology and health sciences.  Small caps and large cap names included.  S&P 500 start value 1,115 benchmark.

Investment Outlook 2010: The stock market continues to rebound, but at a slower pace.  Inflation and interest rates remain benign, leading to a re-emergence of consumer spending.  Housing stabilizes with 30-year mortgage rates staying below 6.5%.  The government maintains record spending to stimulate the economy and the unemployment rate begins to fall in the second half of the year.  The S&P 500 increases by 10-15% with a blue-sky target of 1,322.

Duration & Rules: One year.  The bottom 3 performers will be up for review every quarter. To stay in the fund, one must write a convincing argument as to why we should not cut our losses.  Picks down more than 20% also will be re-evaluated.

Goals: To have fun, learn something about the stock markets, prove a theory that luck plays a big part in performance, and to build better relationships with the community.

Contributors: Please retweet and spread the word to any of the social media sharing sites below.  We need all the support we can get to outperform the professionals!  Contributors are encouraged to provide updates and commentary as the months progress.  If anybody wants to do a portfolio analysis below, please feel free to do so!

*** STOCK PICKS SUMMARY WITH CONTRIBUTORS ***

FINANCIAL SAMURAI

Company (Ticker): Boston Beer Company (SAM)

Market Cap: $668 Million at entry price $46.60.

Commentary: Love Samuel Adams beer, but with no dividend, lofty valuations and minimal earnings growth, it’s hard to see this defensive stock providing alpha to the fund.  People need to drink in good times and bad!

DAVID AT MBA BRIEFS

Company (Ticker): ABM Industries (ABM)

Profile: A building maintenance and facility services company.

Market Cap: $1.09 Billion at entry price $20.65.

Commentary: The stock doesn’t look like it’s going to do anything spectacular in the short term but ABM is predicted to have consistent earnings growth throughout the year and has beat the analyst’s estimate every quarter for the last 4 quarters.

ABM is currently trading at $21.14 and the 1 year target estimate is $25.50. Volume peaked at 700k shares the week before Christmas and then dropped way off, and its trading well above the 50 day and 200 day moving averages, so it’s hard to tell if the stock price is going to continue to rise, trade sideways, or drop this week.

Not exactly a sexy stock but facility services should be fairly recession-proof and should do even better now that we’re supposedly heading into a bull market.

CHARLIE

Company (Ticker): Harman International Industries (HAR)

Market Cap: $2.44 Billion at entry price $35.28.

Profile: Engages in the development, manufacture, and marketing of audio products and electronic systems in the United States and internationally.

Commentary: Don’t know a thing about the company but will be interesting to find out!

CREDIT CARD CHASER

Company (Ticker): Calgon Carbon CP (CCC)

Market Cap: $786 Million at entry price $13.90.

P/E: 20.26X

Earnings Growth 2010: 47.2%

Profile: Manufactures and markets products and services employed for separation, concentration, and purification of liquids and gases (huh?).  Drinking water and wastewater treatment, enviro remediation, and industrial process apps are its customers.

Commentary: Better than average predicted earnings growth for 2010 and trading right around the middle of its 52 week high so it could have some potential. I don’t pick individual stocks but this will be a fun one to watch!

DON AT MONEY REASONS

Company (Ticker): Monsanto Co (MON)

Market Cap: 45.03 Billion at entry price $81.75.

P/E: 21.75

Dividend (yearly): 1.30%

Earnings Growth 2010: 34.7%

Profile: Monsanto Company, together with its subsidiaries, provides agricultural products for farmers in the United States and internationally. It has two segments, Seeds and Genomics, and Agricultural Productivity.

Commentary: Monsanto has been beaten down pretty badly (it was at it’s high, over $145 per share), so it has some room to rise! People need to eat, and MON has some of the best engineered seed available.

FREE FROM BROKE

Company (Ticker): Berkshire Hathaway (BRK-A)

Market Cap: 152.89 Billion at entry price $99,099.

Profile: a holding company owning subsidiaries engaged in a number of business activities. The most important of these are insurance businesses conducted on both a primary basis and a reinsurance basis. Berkshire also owns and operates a number of other businesses engaged in a variety of activities.

Commentary: Can you bet against the Oracle of Omaha? Until recently, Berkshire has done remarkably well year after year, investing in well known companies such as Coke, American Express, and P&G.

STEF AT 151 DAYS OFF

Company (Ticker): Steris Corp (STE)

Market Cap: $1.65 Billion at entry price $27.97.

P/E: 14.56

Dividend: 0.44 (1.60%)

Estimated Growth in 2010: 4.1% (ouch!!)

Profile: Steris Corp develops, manufactures, and markets infection prevention, contamination control, microbial reduction, and surgical support products and services to healthcare, pharmaceutical, scientific, research, industrial, and governmental customers worldwide.

Commentary: With the hysteria of swine flu in the past and Lord knows what kind of mutation it will bring in the future, the company will stand strong in years to come. Medical tech stock tends to be a defensive stock during the bear market and move steadily in a hot market. You would DEFINITELY want it in your portfolio!

DANIEL AT SWEATING THE BIG STUFF

Company (Ticker): Big Lots Inc (BIG)

Market Cap: $2.42 Billion at entry price $28.98.

P/E: 13.88

Earnings Growth: 11.5%

Profile: Big Lots, Inc. operates as a broadline closeout retailer in the United States.

Commentary: As a discount retailer, it does well when the economy struggles. In 2010, as the economy only begins to improve, Big Lots should continue to have success in the discount market.

THRIFTY GAL AT CHASING PROSPERITY

Company (Ticker): PG&E – Pacific Gas and Electric (PCG)

Market Cap: $16.89 Billion at entry price $44.65.

P/E: 11.86X

Earnings Growth 2010: 7.6%

Dividend yield: 3.7%

Profile: PG&E is a public utility company that provides electicity and natural gas to northern and central California.

Commentary: Pop culture reference: villan in ‘Erin Brokovich’

LEAN LIFE COACH

Company (Ticker): Toyota Motors (TM)

Market Cap: $140 Billion at entry price $84.16.

P/E ratio (ttm): Nada – They’ve been losing money for the first time in over 50 years!

P/E ratio (fwd): 25X

EPS Growth: Yahoo lists 1200%? From zero that won’t be too hard!

Profile: One of the largest car companies in the world.

Commentary: Challenged by some quality issues they will likely continue to suffer for a few more months but I believe their commitment to continuous improvement (Kaizen) will help them out of this rut.

The continue to build good cars that have generic styling that appeals to a wide market. They are coming out with some new technology including plug in hybrid and are revamping the Lexus brand to draw in the younger crowds. If you like fast cars check out the Lexus all carbon body LFA!

PATRICK AT CASH MONEY LIFE

Company (Ticker): Compellent Technologies, Inc. (CML)

Market Cap: $704 Million at entry price $22.68.

P/E: 146.90

Earnings Growth 2010 (estimate): 31.0%

Profile: Compellent Technologies, Inc. is a provider of enterprise-class network storage solutions. The Company’s storage center is a Storage Area Network (SAN), that is designed to significantly lower storage and infrastructure capital expenditures, reduce the skill level and number of personnel required to manage information and enable continuous data availability and storage virtualization.

Commentary: Aggressive earnings estimates for a company that has yet to register large profits. I guess my entry will mimic the elements of the S&P that drags down the rest.

LEN PENZO

Company (Ticker): Lenar Corp (LEN)

Market Cap: $2.4 Billion at entry price $12.77.

PE: N/A (divide by zero – never a good sign)

Dividend Yield: 1.2%

Earnings Growth 2010 (est): showing losses

Profile: A leading home-builder in America.

Commentary: As I mentioned earlier, I think housing is on very flimsy stilts. The current anemic upturn (if you can call it that) only propped up due to government subsidies and bailouts so I would never recommend a home builder as a stock pick in 2010. But the rules are the rules, and as such I expect this component of your honorable Samurai fund to weigh it down like an old rusty boat anchor. LOL

EVOLUTION OF WEALTH

Related posts:

1. The Katana: Lauching The Samurai Fund To Prove A Theory 12/28
2. Samurai Predictions And Resolutions For 2010
3. Everybody’s A Financial Genius!

Raging against the machine is in my nature.  It annoys me to no end when I read about injustices such as government raises during our recent implosion.  I once skipped a morning of work to demonstrate against an apparel company which used racist slogans.  Up yours Abercrombie!  As I age, I’m discovering a more peaceful side that just accepts things the way they are.

There’s a lot of messed up things in the world such as war, poverty, and corruption.  Some things we can try to explain, and some things we can’t.  And yet, I wonder if every irrational thing has a rational reason?  Let’s look at some examples and decide for yourself.

The Kid Who Just Wants To Have Fun

Everybody knows that grades start accumulating in the 9th grade, and without good grades and SAT scores, the chances of getting into a good college, and therefore landing a desirable job goes down.  Is it really so bad that Johnny High doesn’t go to Yale, and become a rich physician?  What’s so bad about community college and working for $20,000/yr at a dead end job which he enjoys?  Nothing at all!

Johnny High’s decision to not study hard in high school is perfectly rational.  He chose to have a whole lot of fun, while other kids were miserable studying and participating in extracurricular activities to boost their resumes.  When he’s 35 years old and still working at his job with the same salary, he’ll think back at all the fun he had in high school and smile.

Who’s to say that being a multi-millionaire physician and going to Yale is good anyway?  He could end up incredibly miserable, with tremendous amounts of anxiety everyday as a doctor. Instead, Johnny High chooses to live a more relaxing life, and doesn’t care about money.  If he did care about money, he would have studied harder.  And if Johnny starts to care about money, he may go to grad school and give himself another shot.

The Lady Who Loves To Eat

Two years ago, my friend Shirley at 5 feet 3 inches tall, weighed 205 pounds.  She was considered obese, and didn’t have a boyfriend.  Sure she was out of shape, and longed to have companionship, but what she loved more than anything else was pizza, strawberry frosted cupcakes, and Mountain Dew.  Food was her first love, and everything else came second.

Shirley’s decision to eat herself into obesity is perfectly rational.  Shirley is proud of her body just the way it is, and therefore continued to consume copious amounts of food.  A year ago, Shirley asks if I’d like to work out with her once a week.  I say sure, but why the sudden desire to exercise?  She mentions there’s a guy that caught her fancy at a party, and she wants him to notice her.

Six months later, Shirley is down to 150 pounds, and is happily going out with her new man.  Pizza and cupcakes are no longer Shirley’s first priority, he is.

The Chain Smoker Who Enjoys His Lucky Strikes

Smokers know that smoking damages the lungs, instigates cancer, and shortens lifespans.  Yet, smokers smoke because the pleasure from smoking outweighs the long term detriments.  Smokers are willing to accept the pain of lung cancer for the buzz of nicotine.

After spending $100 on cigarettes a month for years and coughing up blood for weeks, a relative of mine decided to quit.  The desire to live long enough to see his daughter give birth outweighed his desire for nicotine.  It’s been 6 years since he last lit up, and grandpa visits his granddaughter every Sunday.

The Consumer With Seven Credit Cards

People realize that credit card debt is the highest debt around, yet thousands still don’t pay off their debt in full every month.  Credit card debtors are willing to pay 10%+ interest rates because the pleasure they derive from the items they buy outweigh the burden of debt.

Eventually, the pleasure from buying an incessant amount of useless things wears off.  Unfortunately, the payments still remain.  Some go cold turkey and cut up their credit cards, while others find second jobs to accelerate their debt repayments.

The Mediocre Blogger

Consistent blogging is hard.  If you want to create one of the best blogs, you’ll spend hours a day trying to develop relationships with others.  You’ll submit to every single carnival, write tons of guests posts, publish more frequently, be absolutely self-less in promoting others, respond to all your comments and buy an iPhone so you can become a Twitter and Facebook maniac to keep in touch with your readers.

Yet, you realize blogging is a hobby, which shouldn’t get in the way of a vacation, a relationship, or your full-time job, which is what really pays the bills and allows you to reach financial independence sooner.  You don’t let blogging take over your life, especially if you are the obsessive type.  It’s OK to step back and not publish as frequently.  It’s OK not to be the most popular and get all the awards.  Your main goals are to have fun, meet some new folks, learn, perhaps make a little money on the side, and find your own voice.  I love having a mediocre blog, and so should you.  It means we’re balanced!

The Defunct Politician

Corrupt politicians exist because we let them exist.  We elect corrupt politicians into office and allow them to take advantage of the system for their own good.  If we don’t like what they do, we vote them out.  The people of Illinois did just that to ex-Governor Rod Blagojevich, and impeached him for wire fraud and bribery.  We are pumped that 1,700 people from the Department of Transportation now make over $170,000/yr from only one, two years ago.  If we weren’t, we’d cause a raucous.  Instead, I went online to learn everything about becoming a DOT analyst!

The majority of people voted for George W. Bush that’s why he did a second term.  He may not have found the WMD’s, and sent thousands of troops in harms way, but at least he kept America safe from further terrorist attacks since 9/11.  Apparently, the Republicans caused this entire financial mess, and the people voted for change.  Whose now to blame for 10.2% unemployment, one year later?  It’s rational to assume that most Americans want bigger government involvement in our daily lives, massive budget deficits, and higher taxes.

The Miserable Employee

The miserable employee is OK with being abused, taken advantage of, and underpaid by her boss.  Everyday she happily comes in knowing that it’s just another day in paradise.  The miserable employee stays at her job because her fear of the unknown is much greater than the misery her work and boss brings.

Fast forward five years later, the miserable employee continues to stay miserable at her job so she never has to take any risks and therefore never has to fail.  The miserable employee, if she were truly miserable, would have found a new job by now.  All her complaining and whining is just smoke screen, as she secretly enjoys job security more than anything else.

The Absent Minded

Finally, ever forget to do something you tell yourself to do just moments earlier?  Damn, I forgot what I was going to write…. Oh yeah, for example, if you forget to pay your bills on time, it’s because bills aren’t important to you, and you are willing to pay late fees.  You forget your anniversary because you really don’t care about such things.  If you did, you’d have a present ready for him or her and waiting!

The next time you feel there’s something you should remember but can’t, tell yourself this: The reason why you can’t remember is because the thing you’re supposed to do is not important.  If it were important, you’d remember!

CONCLUSION

From the examples above, it sure seems like everything is rational.  We do things which seem wrong to others, but really makes perfect sense.  The next time you start feeling pity for someone or questioning their actions, don’t.  Eventually, everything comes back to center. If not, it’s because things are fine just the way they are!

Readers, do you agree that everything is rational?

Why do we care so much about how other people are?  Is our concern really our own selfish projections?

Shouldn’t we just leave people alone and let them be?  Everything seems to take care of itself in the long run, does it not?

Happy Holidays everyone!  Stay-tuned for the next Katana where we introduce a fun community event everybody can partake in next week.

Keiju,

Financial Samurai – “Slicing Through Money’s Mysteries”

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

Related posts:

1. How To Dramatically Increase Your Job Security For Life!
2. Do “C” Students Deserve “A” Lifestyles?
3. The Most Important Tip For Job Hoppers: Join People, Not Firms

Art by Daryl Cagle

People have been freaking out lately by a weak US dollar.  I’m here to tell you it doesn’t really matter.  Did you know that 60% of Americans have never left the country and less than 25% of Americans own passports?  Most of the 40% who leave come back, so it’s only a temporary amount of time when their purchasing power may be relatively hurt.

An even better statistic states that only 20% of Americans speak a foreign language.  Hence, where the heck are the 80% of Americans going to go if they can’t communicate with the locals?  Ok, so they may understand what “I want a double quarter pounder with cheese please” in English means, but we aren’t going very far if we can’t speak another language.  Sure a vacation is fine, but it’s not like we Americans are suddenly going to relocate overseas and establish roots.

If you are an American who makes a US$ denominated salary, buys US$ denominated assets like property, consumes Levi’s jeans, and never plans to leave the country, what are you freaking out about? The US Dollar can depreciate by 90% against the Euro, and it still wouldn’t really matter.

INFLATION FEARS OVERBLOWN

Economic theory states that for every new dollar printed, inflation will rise by a commensurate amount, eventually.  You can read more about the IS/LM model at work here, but it’s boring as hell. The issue is that the output gap is running at 7-8%, so there’s still a ton of slack and you don’t have to worry about inflation.

Yes, it might suck that your BMW becomes prohibitively expensive in the short run, but in the long run, if European and other foreign producers desire to sell to the US, they will find ways to lower their prices accordingly.  In the meantime, shouldn’t you be buying American in this economy anyways?

You might argue that so much of the input costs of the final good comes from foreign labor and parts.  That’s true, but all you have to do is move down the cost curve in your consumption patterns.  Instead of buying the TV from Best Buy, you go to Costco.  Instead of buying the couch from Pottery Barn, buy from WalMart.

GOOD FOR EXPORTS

A weak USD helps US exports, making our goods cheaper to foreigners.  If we can’t sell goods at home due to a weak economy, what a blessing it is to sell to foreigners!  We dump our inventory on them, and make some money in the process!  The problem is the US is a relatively closed economy with exports as a % of GDP hovering at 11%, or #157 in the world compared to Singapore, at 173%.  In this regard, a weak dollar only helps a small percentage of the economy, but also  argues the point that we are a self sufficient country.

The most interesting exchange rate competition lies between the Korean Won and Japanese Yen.  Over time, you’ve seen Korea’s export economy resemble that of Japan’s export economy.  Toyota is matched up against Hyundai, while Sony battles with Samsung Electronics.  Korea’s export manufacturers are eating a lot of their counterpart’s bento boxes recently!

FUNDING OUR DEBT

Many fear that if the USD continues to depreciate, foreigners will stop funding our debt (buying our treasuries).  That could be true, but frankly, foreigners like the Chinese are STUCK with over $800bn in US treasuries!  If they stop buying our pitifully yielding 3.3% 10-year Treasuries,  their US Treasury portfolio is going to tank, and they are going to lose billions more!  Would you chop off your arm if you only had to chop off your pinky (accept lower rates)?

China can’t help but not continue funding our debt because it is one big “virtuous” cycle.  Americans need cheap money to leverage ourselves to buy cheap Chinese goods (we imported $340bn worth of Chinese goods last year), and China likes selling their cheap goods to us.  The world knows Americans are addicted to consumption and in a way, foreigners are like junket Casino operators who extend credit to addicted American gamblers.  One day we will have to pay back the loan, or face a big man in a dark alley ready to break our knee caps. But, for now, the USD will remain the reserve currency of the world as foreigners can’t live without our consumption power.

CONCLUSION

Let’s be very clear here.  The fear of a weak USD stems from the protectionist mentality of America’s business and political leaders whenever a recession hits.  A weak currency invites “foreign invaders” who end up purchasing more of our assets, goods & services which for some reason folks don’t like.

There’s also a pride issue for those who really care about our currency.  We’re embarrassed when we see that the USD no longer buys 100 Yen to the dollar.  But, who cares?  Honda Accords are made in the US anyway!  A weak US dollar is a symptom, not a problem. Get over it and start chanting, “USA, USA, USA!”

Update: In “Samurai Predictions and Resolutions for 2010” you’ll see why a weak USD doesn’t matter.  The reason is simply because I’m bullish on the USD!

Readers, do you agree with the thesis that a weak US dollar doesn’t matter?  If so, why do you think it’s necessary to have a strong US dollar?  And please, do mention how many languages you speak.

Keigu,

Financial Samurai - “Slicing Through Money’s Mysteries”

Follow on Twitter @FinancialSamurai and sign up for our RSS feed!

Related posts:

1. The World Stock Markets Are Crashing & You’re Going Shopping?!
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Unless you’re perfect, there will be times when things don’t go your way.  You’re last to be picked in PE class, Yale says, “thank you, but no thank you”, and your girlfriend/boyfriend dumps you for another man/woman.  Do you start sulking?  Or do you get up, get angry, and prove to yourself you’re worth it?

Some people are so afraid of rejection, they never put themselves out there.  They reject themselves before even giving others a chance!

Lame Excuses:

“Why would this school accept me?”

“Why would she want to talk to me?”

“I don’t deserve a raise so I’ll never ask.”

“I’m not good enough to work for this firm, so I won’t bother applying.”

“What if everybody thinks what I say is stupid?”

“My writing is horrible, why would anybody want to read anything of mine?”

These types of thoughts crush dreams, lead to low-self esteem and mediocrity. 

Change the way you view rejection with these 5 strategies:

1) Always ask yourself, “What is the worst that can happen?” On a scale of bad things, 10 being some terrorist attack and 1 being a puppy pooping on your carpet, getting rejected by a firm, girl, anonymous publisher is around a 3.  It’s no big deal!

2) Success is a numbers game. When guys go out to bars, those who don’t care about rejection (point #1) usually succeed because they ask the most amount of women out as possible!  If your chance of scoring is 10%, and you only ask 2 girls to have a drink with you, you’re going to have a snowfall’s chance in the Sahara of getting the girl’s number.  You need to ask 10 girls to even have an opportunity for one to not think you’re a creep!

You may think your green marble has nothing to offer, but I bet if you put it up on Craigslist or Ebay there will be someone looking to buy it.  The scale of these two sites is huge; you are maximizing your numbers game.  It’s the same for finding a job.  Make enough phone calls, ask enough people and attend enough networking functions and you will get there.

3) Put your rejections in plain site as a badge of honor and take some of them personally! I’ve got my college, work, and publisher rejection letters all taped up on my refrigerator and office wall for me and all to see.  Six months ago, I approached some personal finance network asking if I could join and they told me to go away.  Awesome!  Every time I see the e-mail, it motivates me to write more and grow the Financial Samurai brand.  I’ve asked a couple of the major PF writers for help before, and some have never bothered to reply back.  Sweet!

The best rejection that keeps on giving is my college wait-list rejection.  Being rejected from one of my target schools has given me 15 years of non-stop energy to prove their decision wrong.  It’s a gift that keeps on giving! I must admit it’s an interesting scenario when I have to deal with interviewing candidates from this particular school.  Honestly, it makes me absolutely giddy to watch their football team crash and burn this year!

4) Seek out rejection! Rejection is like adrenaline during a fight or flight scenario.  You’ve heard about people lifting cars and doing miraculous things because of their body’s natural defense mechanism kicking in.  Whenever you attempt something new, seek out somebody at the top of his or her game and get rejected. Turn your rejection into Popeye’s spinach and pound away.  Benchmark yourself to them and work your butt off to prove them wrong.

I remember when I was in my mid-20’s, I was rejected from joining my senior colleagues on a client visit because they said, “it’d be too crowded.” What they really meant to say was I was too junior, inexperienced, and they didn’t believe I could hold my own.  They may have been right, but I enjoyed taking their rejection to mean they were embarrassed of me.  I used this rejection to work an extra 20 hours a week on my communication skills, while buttressing my knowledge of my particular product area so I would come across as the consummate professional.  It worked, and I was promoted a year later.

5) Know that even the best get rejected. Michael Jordan got cut from his sophomore high school basketball team. President Obama went to Occidental for undergrad because he couldn’t get into any of the Ivy League schools.  Sandra Lee from “semi-homemade” got rejected by all the TV execs before becoming ubiquitous in the food network space.  Look at them now.

CONCLUSION

So I ask again, will you let rejection crush your spirits, or raise your determination?  You need unwavering focus in order to succeed in a world full of talent.  You have seen many examples where you know you can do better.  Effort requires no skill.  Go out there, get rejected, knowing that each time you do, your hunger grows until you finally succeed!

Readers, how do you deal with rejection?  What are some of the things you use to get you all fired up to succeed?

Keigu,

Financial Samurai – “Slicing Through Money’s Mysteries”

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

Related posts:

1. “The Happy Loser” Archetype By Clotaire Rapaille
2. How To Get Your Super Motivated Boyfriend to Marry You
3. Interviewing Is Like Dating – Hubba, Hubba!

GTGTTBR (Got To Go To....)

For some reason, I generally get stuck in a middle seat close to the bathroom every time I go on a business trip.  It’s probably because I leave so little time between take off and check-in that I usually end up screwed!

The worst is when you’re just about to fall asleep and you get nudged by your neighbor for hogging the arm rest.  Come on neighbor, I’m stuck in the middle, the arm rest is mine!  The second worst thing is inhaling the lovely toilet aromas every time someone walks in and out.  Finally, add a crying baby next to you, and air travel is just lovely.

Despite my constant bad fortune on airplanes, the one thing I do recommend is sitting close to the bathroom at work. We discussed strategic seating in business school one day, and if you think about it, sitting closest to the bathroom, whether you have a cubicle or office is the absolute best place to be.  No matter how senior or junior someone is, they must go to the bathroom and walk by your desk at least a couple times a day!

Unlike the mysterious guy sitting in the corner who everybody thinks is surfing the internet all day, you get a constant stream of opportunities to develop relationships with your colleagues and bosses if you sit near the loo.

“Hey Jim, how about Mark Sanchez of The Jets the other day huh?”

“Hey Pete, so sorry Colt got injured against Alabama.  You still owe me lunch sucker!”

“Nancy, I just love your new hairstyle!  Where you get it done?”

“Susan, want to grab a coffee this afternoon?  I have something to share.”

“Christine, any tax consultant suggestions?  I can’t for the life of me figure these numbers out!”

BINGO!  All easy lines to develop your relationships internally.

The biggest risk for employees during recessions and promotion season is to be out of sight, and therefore out of mind. By sitting near the bathroom, you are unavoidable and everyone must acknowledge your presence.   Just don’t stop folks who have visible pains on their faces!

Readers, how is your work environment set up and can you think of any other strategic, no effort office strategies to keep up your profile?

Keigu,

Sam Samurai – “Slicing Through Money’s Mysteries”

Follow me on Twitter @FinancialSamura and sign up for our RSS feed.

Related posts:

1. The DVD Method to CD Investing: The Only Way To Achieve Maximum Yield
2. Samurai Reflections of October & Goals for November
3. The Reply Button Is There For A Reason

Fight Inequality Forever

Can someone please give us a rational argument why implementing a Flat Tax system in America is not fair?  We don’t know if we can continue posting without thoroughly understanding this issue first.  From a percentage basis, each person pays an equal amount of their income towards taxes, and from an absolute basis, richer people pay more!

Why don’t we just start taxing people according to height?  The shorter you are, the more you have to pay!  Brilliant idea, thanks.  Here’s a commentary from Money Bluebook that really got me thinking about the word “comrade” and the phrase “melt your pots for bullets.”

“Those of you rich folks in the top 35% tax bracket ($373,000 and higher) need to stop whining. You don’t get to whine. I hope this administration taxes the beejesus out of you all…it’s time you paid your fair share and get with the program. It’s only fair the wealthy pay more out of their millions and billions of dollars to subsidize the rest of us who need it the most. We are struggling in this recession and it’s time to fix the problem – by taxing the rich!”

Gee whiz, last I checked, we live in America not North Korea.  Why people believe it’s fair to tax one class of citizen a higher percentage than another confuses us.  Is this not a pure form of discrimination?  Fine, let’s agree that anybody below the poverty line of $25,000 for a family of four ($10,000 for a single person) are exempt from all income taxation.

Here’s a reasonable 15% Flat Tax Example:

“Poor” Man Income: $50,000 / year.

“Rich” Man Income: $1,000,000 / year.

How much does the poor and rich man pay as a percentage of their income? 15% each = equality!

How much tax does the poor man pay in absolute dollars? $7,500.

How much tax does the rich man pay in absolute dollars? $ 150,000

———-> The rich man earns 20X more than the poor man, but also pays 20X more than poor man in taxes!  Equality!

Let’s put a twist to this example.  Let’s say the rich man is a 50 year old ER doctor who saves lives every single day.  He spent 15 years after high school studying, and $300,000 in tuition to become a doctor.  Is it right to reward this doctor who studied harder than most of the population with a higher tax rate just because he makes $1 million a year?  One could argue this doctor deserves a tax holiday, or should spend regressively less on his taxes.  But then, the honorable $50,000/yr school teacher says she’s helping people too, and should pay less taxes as well.  It gets complicated, but not with a flat tax!

CONCLUSION

Should we tax everybody who makes more than us an even greater amount than we are taxed to help subsidize our own living?  Should I buy the domain name: “Financial Socialist Samurai’s of America?” We are craving for rational reasons from the personal finance community as to why the flat tax is not fair. Everybody understands racism and bigotry is bad.  Why then do we accept discriminating against income levels?

Mathematically, the flat tax makes perfect sense and expunges words such as “should, fair, subsidize” from the tax argument.  What the government has is a serious spending problem, and Obama needs to hire Financial Samurai as an economic advisor.  The first thing we’ll tell him is the mother of all personal finance advice: spend less than you earn! We have a monster budget deficit due to reckless spending and this must stop.  The second thing we’ll tell Obama is: discrimination is illegal! Damn, maybe we shouldn’t have revealed the secrets, for now it’ll be hard to make millions from the government.  

Readers, give it to us.  Tell us we’re stupid, insensitive, whatever you like, but please back it up with your thoughts as to why. We’ve always accepted our taxes at whatever income level we grew with.  Believe it or not, we’re apolitical.  We’re just middle class citizens who believe in equality and fiscal prudence.

Related Post:

“Do Higher Taxes Lead To Socialism In America”

“2010 Federal Income Tax Brackets (Estimated)” over at our friends at Bargaineering

“Obama’s Universal Healthcare Proposal – Different Viewpoints For A Better Understanding”

Keigju,

Financial Samurai – “Slicing Through Money’s Mysteries”

Follow Us On Twitter @FinancialSamurai and subscribe to our RSS feed if you like the post!

PS: Congrats Mr. President for winning the Nobel Peace Prize!  Go USA.

Related posts:

1. Do Higher Taxes Lead To Socialism In America?
2. The Ultimate Solution For A Fair Income Tax Policy In America
3. Tuition Hike For The Poor Is Like A Tax Hike For The Rich

Maximum Yield Cabbage

When we first bought our $1,200 HDTV six years ago, we told ourselves never to go to the movies again until we watched enough DVDs to pay for the purchase.  Every time we went to the movies, we’d have to pay on average $20 for tickets.  A promise was made that only after we watched 75 DVD rentals ($1,500 bucks in movie tickets saved – $300 for Netflix fee), would we treat ourselves out to the theater. We reached our goal within two years, and in the four years afterwards we’ve only gone to three movies!

We realized that once we went through the initial 6 month waiting period for the latest movies to come out on DVD, all was fresh again.  We’re now programmed to watch movies with a 6 month lag, bringing us the same opening night excitement.  The annoyance of someone sitting right in front of you in an empty theater and jabbering away is no more!  Furthermore, a 52″ screen and six point surround sound system sure helps replicate the big screen experience!

THE DVD METHOD OF CD INVESTING

Our programmed way of movie watching translates directly into how we  employ our CD investment strategy.  With the money we carve out for retirement savings (not emergency fund),  we seek the highest yielding CD regardless of duration.  Current 5-yr CDs are at 3.5-3.75% for example vs. 1.2% for short term savings and 1 year CDs.  Every year we don’t put money in a 5 year CD is 2.3%-2.55% in lost interest.

Some may argue inflation risk.  Great we say, because rates certainly aren’t going to ramp instantaneously, but if they do, we’ll just dump our next year’s cash into another 5-yr CD with a higher rate.  Let’s say for one year, we earn 4% in a 5-year CD vs. 1% in a short term savings account.  With a positive 3% spread, our 2nd year short term savings account yield would have to ramp to 7% on average before the benefit of the first year is negated.  At 7%, you should happily throw in another chunk of change.  This is a problem of positives, not negatives.

There is a chance that you will need to tap your funds before the very initial 5 year period is done.  The worst “penalty” that can happen for a 5-year CD is the forefeiture of 6 months worth of interest.  Big deal!  Chances are low you will need the money after you’ve built an emergency fund.  By locking up your money, you are saving yourself from yourself.

CONCLUSION

Nobody knows how high inflation, and therefore rates will go.  But, what we do know is that long term yields are generally always higher than short term yields.  The yield at each duration reflect inflationary expectations.  After waiting patiently for 5 years, your entire cash savings portfolio will return the highest yield possible.  Meanwhile, every year, a good chunk of money comes due so you will always be liquid.

I’ve got six, five year CD’s yielding 6.5%, 6%, 5%, 4.5%, 4.2%, and most recently 3.75%.  The average yield is therefore about 5%, easily surpassing the current savings rate & current 5-yr CD rates of 3.5-3.75%.  You are allowed to withdraw the interest portion of your CD as well, thereby lowering the need to withdraw the entire tranche and incur a penalty.  By employing the DVD method of CD investing, your cash yield is optimized and you practice good long term savings habits along the way.

BONUS: Inflation Fighting Tips & How To Think About Inflation

1) Take on debt. If inflation is really coming, the solution is to take on as much fixed debt as your balance sheet can handle beforehand.  Inflation literally inflates away your debt, given you will be paying back your fixed debt with inflated future dollars.  In essence you are shorting treasuries, which will go down if inflation goes up, thereby making you money.

2) Buy hard assets. You may also think about buying as much hard assets as you can afford (property and commodities are good examples but not cars), because by definition your assets will inflate higher with inflation.  Your cash, on the other hand will be eroded by inflation, so you must at the very least always seek maximum yield.

Readers, feel free to share your CD laddering and savings tips!  Do you believe inflation is on the horizon, and therefore higher rates given all the monetary expansion?

Related Post: “Going Broke To Win Big”

Keigu,

Financial Samurai

“Slicing Through Money’s Mysteries”

Follow us on Twitter @FinancialSamurai and sign up for our RSS feed.

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There is current controversy stirring because a British Conservationist believes we should let pandas go extinct and “put them out of their misery” because they are “stupid” and possess poor survival skills.  My question is, if the Panda looked like Golem from Lord of The Rings, would there still be an uproar?  The Black Rhino and Beluga Sturgeon are equally as endangered but you never hear about them.

I was at an MBA recruiting fair the other day and I noticed several of my fellow corporate representatives spend a disproportionately longer time with one particular candidate.  Where average conversations last 3 minutes, conversations with this one candidate would last 10+ minutes.  Coincidence this candidate was probably the most physically attractive person there?  I don’t think so.

STUDIES SAY

According to a study released in 2005 by the Federal Reserve Bank of St. Louis, “beautiful” people tend to earn 5 percent more an hour than people who look like me.  Economists also found that women considered obese in terms of their body mass index (BMI) in both 1981 and 1988 earned 17 percent less than women within their recommended BMI range.  Short men also are disadvantaged by 3% vs. their taller counter parts as well.

Whether we like it or not, better looking people have an advantage over normal looking people with all things being equal.  If you had a 5% advantage over the house, you could literally bankrupt any major Vegas casino. In fact, as one who’s studied publicly traded gambling companies such as Wynn and Las Vegas Sands, any customer win percentage greater than 3% leads to massive losses for the quarter.

Golem from LOTR

WHAT ARE WE SUPPOSED TO DO?

We shouldn’t hate good looking people for being beautiful.  After all, looks are an exogenous variable that nobody can control.  Instead, we need to accept our attributes and improve on what we have, the endogenous variables if you will.

1) Work out. If you wanted to lose the spare tire, you know you can.  Just look at all the contestants on “The Biggest Loser.”  They all lost at least 30% of their body weight after 3 months!

2) Eat right. Donut, latte, ice cream, pizza say goodbye.  More than working out, eating right is the most effective way to lose weight.  See “Losing Your Way To More Money.”

3) Groom. Wash your face, pop your zits, smell nice, get a tight haircut or professional style, and make sure there is no broccoli in your teeth.  Ask one of your closest friends or family members to give you an honest opinion of how you look.

4) Invest in a modern wardrobe. You need an outfit that blends in with your manager or potential employer. Wear nice shoes too. There’s something about a beautiful pair of shoes for both men and women, that just stands out and says success.  Women love to check out guys shoes, as well as other women’s shoes.  Feet are our foundation, strap some nice leather on them.  Looking the part lets you earn the part!

5) Keep your hands dry. Sweaty palms really leave an impression; a bad, sickly, clammy impression!  Hence keep a small towel in your pocket to dry off your hands right before you’re about to shake.  Some talcum or baby powder in the other pocket works well too!

CONCLUSION

Life isn’t fair, but unattractive people have a tremendous advantage over beautiful people. Attractive people can’t get that much better looking, but we can!  Why do you think the “ugly duckling formula” in movies always works so well?  Let’s use our comeliness to our advantage and wow our colleagues.  From every line of work, you will find very successful not so attractive people.  Perez Hilton, celebrity Blogger is a great example and blogging phenom.  Not that attractive,  he decided to do something about it and lost 40 pounds.  We’ve been so used to his sloppiness, he now looks relatively handsome with his new weight and threads!

Since the original thesis is that better looking people earn more, we rationally should want to look better, and we can!  Let’s not let the beautiful people beat us out on things we equally deserve!  Unattractive people of the world unite! :)

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“Losing Your Way To More Money”

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Keigu,

Financial Samurai

“Slicing Through Money’s Mysteries”

Follow me on Twitter @FinancialSamurai

Related posts:

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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

Related posts:

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Back in the last downturn from 2001-2003 I had incredible back pain. I couldn’t sit for very long, and my legs were going numb. Doctors told me I had sciatica, a pinched nerve down my spine that spread to the tips of my toes. Even the process of driving wore me out so I decided to stop driving altogether. One day, my colleague and I were walking towards a restaurant to meet a client and he collapsed. Apparently, he was suffering from the same symptoms I was going through. However, in his case, he had a family to take care of with his newborn child, and he was losing much more than me (“Less You Have The Less You Lose”) in the downturn.

I was the junior guy, and he was the senior guy. When rumors came a long that our compensation was going to be slashed in half, I hoped out loud that I would outperform since I didn’t make much in the first place. Half of nothing is still nothing I reasoned. When my bonus was slashed in half like everybody else, I was not a happy camper and asked my mentor how pitiful was I? I didn’t complain too loudly due to the rounds of layoffs, but I couldn’t help feeling disappointed in myself. He explained to me in a funny way I will never forget. He said, “Sam don’t worry, you don’t make much so it doesn’t matter anyways!” He went on to say, “Look at me. I have a big mortgage, a new family to support, got cut in half too and I make A LOT more than you do!” Gee thanks! At the time, I didn’t really appreciate his brutal honesty, but fast forward 7 years later, I know exactly what he’s talking about. My mentor’s absolute income likely declined 10X my amount, and he was so stressed out his fear and anger manifested itself into debilitating back pain.

About two months after his collapse, he told me he was entirely pain free. The markets still weren’t great, and I remember having to fork out $700 bucks for a brand new Herman Miller Aeron chair because I couldn’t sit. He gave me a copy of “Healing Back Pain,” by Dr. Sarno. There was NO WAY after seeing him crumble to the cement pavement that day, and limping around for weeks after that his back pain was healed. I was skeptical that an easy to read, 180-page paper back book could do wonders and get him to go out golfing with clients again. None of the massages or chiropractic visits did anything to help my pain so what’s a fluff book going to do for me?

THE SECRET, THE SOLUTION

I want to share with you the simple premise here, if you promise to go buy the book (you can type “Dr. Sarno” or “Healing Back Pain” on the right in Amazon), check it out at the library, or at least read most of it next time you’re at Barnes & Nobles or Borders Books
Controlling The Urge To Splurge style, which by the way isn’t too cool for books. “Healing Back Pain” asks us why is there such an epidemic of chronic back pain in society, when there was none before. The answer is that in such a fast paced high-pressured world, our minds get stressed out to extreme overload. In order to cope, our minds manifest physical chronic pain to help with the fear, anger, and anxiety we face everyday. The simple phrase, “Stress Kills” is the truth. By going to physical therapists or chiropractors, we are accepting into our lives our mind’s manifested chronic pain. What’s even worse is attempting back surgery.

When I read the book, I had nothing left to lose. I already spent $700 on a comfortable ergonomic chair, and around $800 already in chiropractor visits. I love the chiropractor and insurance by the way, but that’s a different story. For 15 bucks, I figured why not get Dr. Sarno’s book and see if it helps. I read the book in two days and started to adopt its recommended therapy. The therapy is to be mindful of what is making you upset. It may be that your firm is going through major rounds of layoffs, or your child is sick. It may be that your boss is treating you unfairly, and that you got passed over for that raise and promotion. Whatever it is, just be mindful of what is bothering you. The next step, is to tell yourself to simply stop manifesting this coping pain, because you already know what it is, and you will solve the problem yourself. Bring the disturbance to the forefront, and just accept it for what it is. On the more painful days, just be more forceful. Feel free to shout at yourself for creating this pain, and just be mindful again.

I remember keenly what was bothering me for those two years. I had just joined my company so I had something extra to prove. A client fired me and asked to be covered by my senior boss because I was so green. My pay was disappearing. I was living in a new city without many friends and no family. 9/11 happened and I was absolutely devastated. I used to go to conferences at The Windows of The World restaurant at the very top floor and started to develop a phobia of heights. Finally, I was thinking every day that I would be let go due to the LIFO method of layoffs. I also remember back in college biology lab, I couldn’t sit for more than 1 minute on a stool because of my back pain. That was the year something really horrible happened to a friend, and I had just broken up with my two-year girlfriend at the time. Thank goodness I met my wife just a couple years later.

I practiced Dr. Sarno’s “therapy” for just over a month and then I forgot about it for a couple weeks. I realized after driving to work one day and getting to my desk, that I had just experienced a painless commute. That was 7 years ago, and I have NEVER had chronic back pain or numbness in my arms again! I do have the occasional numb bum, but that’s because of my poor posture and typing too much on the computer.

CONCLUSION

Healing my pain through a month of mindfulness changed my life forever. The pain made me less productive at work, grouchy, and unsociable at times. Instead of going to a client outing, I made excuses why I couldn’t go. It was pathetic. By not developing my relationships, I ultimately hurt my business and my income. Some to the extreme can describe that “C” in Geometry as literally costing millions in life b/c they didn’t get into the “right school” and therefore wasn’t able to get the “right job.” Not spending the $15 bucks on “Healing Back Pain” would have been an even worse career move.

Readers, if you have any type of chronic pain, including TMJ which affects your face/jaw, I recommend giving this book a read. Give it a couple months, and let me know if you feel better. I believe you will, and I promise I do after all these years and frightful downturns. Please feel free to share your stories of healing here. No amount of money can ever replace our health!

Related Post: “Losing Your Way To More Money”

Buy The Book Here: Healing Back Pain: The Mind-Body Connection

Regards,

Financial Samurai – “Slicing Through Money’s Mysteries”

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

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