I spoke to my father yesterday and curiously asked him about his thoughts on assisted living facilities.  “Absolutely depressing!“, he said.  I couldn’t agree more that assisted living programs are depressing given it reminds us everyday about our mortality.

Who wouldn’t want to stay put in a home they’ve lived in for years instead?  I know I would.  Home is a special place that makes us feel comfortable and warm.  Ideally, you own your home outright in retirement and no longer have payments.  However, this is a topic for another post.

We can only hope that we remain healthy for the rest of our lives, but we’ll eventually need some help thanks to injuries or illnesses.  Some of us will have the financial strength to comfortably pay for our healthcare in retirement.  Others might have wealthy children to rely on.  But what if you do not want to burden anybody, and don’t have that much money to last?

Buying long-term care could be an ideal solution for your retirement years.

THE IMPORTANCE OF LONG-TERM CARE

Long-term care insurance generally covers home care, assisted living, adult daycare, respite care, hospice care, nursing home and Alzheimer’s facilities. If home care coverage is purchased, long-term care insurance can pay for home care coverage, such as the cost of a live-in caregiver, housekeeper, or therapist for up to 7 days a week, 24 hours a day.

Clearly, one can imagine this type of care is not cheap, often ranging from $50,000 to $75,000 a year.  You might think long-term care (LTC) is only reserved for people ages 65 and up.  However, that’s wrong as LTC insurance can be purchased and used for everyone of all ages.  In fact, according to Wikipedia, 40% of those receiving LTC are between the ages of 18-65.

According to a survey done by New York Life Insurance Company, the 2009 national average per night at a nursing home costs $220 a day, or some $90,000 a year on average.  Given the average stay at a nursing home, or need for long-term care is about 3 years, one would need over $200,000 to pay for long-term care if one doesn’t have LTC insurance.

Why Would You Want Long-term Care?

* You don’t have the financial capacity to take care of yourself.

* You don’t have any children.

* You have children who don’t want to help, or don’t have the financial ability to help.

* You don’t want to feel like a burden on your children, friends, or relatives.

What Determines Long-Term Care Insurance Premium Rates?

Long-term care insurance rates are determined by six main factors: the person’s age, the daily (or monthly) benefit, how long the benefits pay, the elimination period, inflation protection, and the health rating (preferred, standard, sub-standard).

According to “America’s Health Insurance Plans” The average age of purchasers has dropped from 68 years in 1990 to 61 years in 2005, and the number of purchasers who are under age 65 has increased significantly.

Most companies offer multiple premium payment modes: annual, semi-annual, quarterly, and monthly. Companies may add a percentage for more frequent payment than annual. Options such as spousal survivorship, non-forfeiture, restoration of benefits and return of premium are available with most plans.

According to the website Allaboutlongtermcare.com, the following chart below shows a rough estimate of a $219,000 ($150 a day), 4-year benefit LTC plan.  As we’ve already discussed above, it costs $200,000+ already for only a 3 year plan, therefore the annual premiums here are likely 30% too light.  Please note you can take various different amounts of LTC insurance coverage e.g. 2 year coverage, 5 year coverage, lifetime coverage and benefit amounts of course.

As you can see, the older you are, the more expensive LTC insurance will be.  That’s not a surprise.  Nobody really knows how much long-term care they need, because nobody knows exactly when they will start needing help, and when they will die.  However, statistics show that the median life expectancy is 80, and the majority of us will require 2-5 years of long-term care before we die.

The policy premiums of long-term care insurance are created to account for the majority of people.  Of course, if you are more conservative and believe you will live a long time, then you should consider getting more coverage.  However, life expectancy and quality of life are two separate issues.  You could live until 100 and just need care from ages 98-100.  Or, you might be unfortunate to contract something at 75, but live on in an unideal state for 25 years, requiring $2,125,000 (25 X $80,000) to pay for LTC.

CONCLUSION

If you do not have $200,000-$300,000 in liquid cash saved up, are not very healthy, and have no children to rely on to pay for long-term care, you should consider taking out LTC insurance.  Remember, LTC insurance is not necessarily an age issue, as 40% of those receiving long-term care are between the age of 18-65.  Every single major insurance company provides long-term care so shop around for the most competitive rates.

Long-term care is insurance that pays off after a pre-determined period, which is usually after both short-term and long-term disability runs out after 12-36 months if you are working.  You can tell from the charts that the cost of LTC is getting incredibly expensive, way outstripping the rate of inflation.  As a result, you’ve seen the average LTC policy holder’s age decline to age 61 from 69 according to America’s Health Insurance Plans.

Feeling like a burden is a terrible, terrible thing.  I can’t stand relying on people given my pride and guilt.  However, getting long-term care is a personal decision only you can decide to make.  Hope this information helps!

Readers, have you or your parents ever taken out a long-term care insurance plan?  Have you ever received long-term care before?  If so, how much did the care cost?

Photo: Old Man Resting In Santorini, Sam.

Regards,

Sam

Are you a man if you cannot take care of your family?  Are you noble, if you do not have a job and let your wife slave away at the office, so you can latch onto her healthcare insurance, and eat the bacon she brings home?  Hell yeah brothers!  Stay at home men of the world, unite!

The beauty of equality is that we men don’t have to work the majority of our lives away anymore.  We can be the homemakers, and be proud of it too!  With our big muscles, we can re-arrange the living room furniture with ease.  Being relatively taller, we can change fire alarm batteries every year without fear of breaking our necks.

When the general contractor comes over to remodel the bathroom, ladies can rest assured we men are less likely to get scammed by superfluous charges, such as a $1,000 wonder wall replacement.  And when the cable guy comes, you can also breathe easy knowing that we aren’t going to have a romantic encounter either!  I mean, how many times have you ever had a cable gal come over?  Never!

IS EARLY RETIREMENT CHEATING IF YOU HAVE A WORKING SPOUSE?

I’ve noticed an extraordinary trend over the past couple of years.  The trend is that more and more men are desiring to retire early.  In some cases, as early as 25!  Let’s be honest, writing about retiring in your 20′s and 30′s is a gimmick.  These guys aren’t going to sit back on the beach and get rubbed all day.  Nope.  They are going to try and develop some side income and take care of the kids.  The kick in the shins is they think their wives will be happy with their plan!

Just like sleeping with the hostess at your favorite steak house is bad, so is telling everyone you are retired while your wife still works to support the family!

Why Wives Won’t Accept Working Forever If The Husband Doesn’t

* When you see someone relaxing, you too want to relax!  It’s human nature to want what other people have.  Do you really think your wife will be happy with working 40-50 hours a week while you lounge in your underwear all day at home?  Only if her job makes her 100% happy, which we know will never happen.  I would venture to guess the best jobs are liked by people 70%-80% of the time at most, which leaves 20-30% of dissatisfaction.

* Men will start to get lazy.  It’s not in our nature to cook, clean, wash the dishes, and change diapers.  We are hunters and love to play games!  Eventually, we’ll stop being as consistent with our cooking and cleaning, and our wives will notice!  We’ll get the wrong garnish at the grocery store, and our wives will blow their tops!  Men are doomed towards laziness and women will realize this sooner or later.

* Women get jealous.  You think men get jealous?  Oh my, women get crazy jealous!  There’s something about women where they must fend all other women away.  Every woman is looked at suspiciously, especially the attractive ones who enter their man’s lives.  Women probably get jealous because men make them jealous.  Men like to hunt remember!  And that includes other women.

* We must suffer together.  Again, it’s human nature that one can’t enjoy more than another.  Unless you are getting paid millions for getting a massage, there is suffering at work.  It can be the commute, the boss, the annoying colleague who eats boiled eggs for breakfast, whatever.  If your wife is suffering, she wants you to suffer too!

Once you combine laziness, relaxation, and jealousy, it’s GAME OVER!  Your woman will start to resent you, and at the very least desire to stay at home and experience what you have.  Don’t kid yourselves guys!  We must have a plan, and saying you are retiring early while you have a working spouse is not one!

How To Convince Your Woman Into Letting You Retire Early

* Talk about your dreams and ambitions.  Women love a man with ambition.  In fact, some say that men with ambition are sexier than red velvet cake!  Fill your woman’s ear with sweet plans of world domination.  You can talk about building your online empire or your desire to become a real estate magnate.  Whatever it is, your woman wants details, and wants to hear your enthusiasm.

* Always carry a smartphone.  Even if you’re sleeping in until 10am, make sure you have a smartphone to insta-respond to text messages when she checks in on you during her work breaks.  If you don’t respond within 15 minutes max, she’s going to start wondering whether you’re smoking her cigarettes, playing Xbox with 15 year olds, cavorting with other women, and get pissed!  She might also figure out that you’re sleeping in, like the lazy man that you are!

* Show encouragement.  Tell her you are proud of her accomplishments at work at least once a week.  Most people don’t really care as much about the money as they do about recognition for good work done.  Just tell her once a week how proud you are for her doing so well at the company.  Tell her you admire her work ethic.  Tell her you believe she will go places, and really mean it.

* Promise foot massages and gorilla loving.  What does every tired, working woman want after she comes home?  Not you!  And that’s because you don’t promise her foot massages and gorilla loving!  I don’t know how women can stand walking in even 1 inch heels, let alone 2 or 3 inches heels all day.  If you promise a foot massage and 3 minutes of McLovin afterwards, I’m sure she’ll let you play War Craft all night long!

* Tell her you’re doing it for us.  “Us” is the key word here.  You might be someone who is lazy without any backbone to stick it out in the corporate world and make friends.  And you know what? That’s OK, because work sucks a lot of the time!  You’re disrespected, underpaid, and unrecognized.  Nobody wants that.  It’s important to reassure your woman that you’re working on your dreams to create a better lifestyle for both of you.  Re-emphasize not only the potential of your business, but your ability to handle all the house work.

EQUALITY FOR MEN AND MONKEYS

I love our society’s push for equality.  Even though we are heading in the right direction, we aren’t there yet!  Women still get paid less then men on average, and you don’t see much diversity in senior management positions.  If we men want to retire early and have our lovely wives do all the work for us while we eat pizza and watch football, we must support our women 1000%!

Readers, is it cheating if you declare retirement and have a spouse working full-time supporting you?  Women, are you down with your man being a SAHD?  Have we reached a point of equality for men and monkeys?

Photo: Breakfast in bed my lady?  SD.

A new post is up on Yakezie.com entitled, “How To Profit From Facebook And Live Happily Ever After” just in case this stay at home man gig doesn’t work out for you.  I offer derivative careers, and ways to snag a Facebook man/woman of your own!

Regards,

Sam, Man Club For Men

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The wooden bar shimmers with beer stains as I stubbornly try to wipe them away.  Each jab of the napkin gets stuck, like a fly to Venus.  Eventually I give up as my friend returns from the Thomas Crapper smiling.

“Sam, when I get my bonus this February, I will have hit my goal of saving $1,000,000 in the bank!” said my 38 year-old friend Paul over his Guinness.  He went on to explain, “I’ve been saving my bonus every year for the past 16 years so that I can one day quit my job and do something more relaxing and fun.”

“Well done Paul!” I respond as I pat him on the back.  “But what else are you going to do?  Not many jobs in the world pay your type of income.  Are you sure you’re willing to give it all up for a life of leisure?”

“Hmm, I don’t know Sam.  I guess all I have to do is work another year, and I’ll get another $100,000 or so in bonus after tax.  Maybe I should just continue to work?” questioned Paul.

“I think a lot of people would give up their left nut to receive a $100,000+ after tax bonus every year.  Maybe you should think about taking a sabbatical instead to rejuvenate?” I replied.

“A sabbatical would be great!  But, I think my company just demotes, underpays, or ultimately lays off people who take them,” explained Paul.

“Well isn’t getting let go exactly what you want?  That way, you can get all your deferred compensation without a hitch!” I said.

“Good point!  Time to kick back and get faded baby!” Paul cheered as we chugged our beers in unison.

MORE MONEY, MORE QUESTIONS

Paul is an account manager at a major software company.  He joined the firm out of undergrad in 1996 and slowly rose through the ranks to become a “Vice President” of the firm.  Paul likes his job, but doesn’t love it as the industry’s go-go days are over.  Ever since the 2008 downturn, Paul no longer feels proud to work at his firm or in his industry.  He feels constantly assailed by politicians and people who think making over than $200,000 is evil.

Paul’s job is to simply sell his company’s software and make sure his clients are satisfied with the product.  Whenever new software company updates come up, it’s up to Paul to notify and up-sell those upgrades as well.  Software sales is not a sexy job, but it pays very well.  Paul has built friendships with his clients, often going out to dinner with their husbands or wives and attending the same charity functions.

INCOME GROWTH STALLS OUT

When Paul first joined his firm, he was making about $40,000-$60,000 a year for the first couple of years.  In his third year, he got promoted to Associate and saw his base go up to $80,000 and his bonuses rise up to $100,000.  In his 6th year at the age of 28, Paul was promoted to Account Manager and saw a base increase to $150,000 a year with bonuses up to $250,000.  By age 31, Paul got another promotion to Vice President with a new base salary of $200,000 and bonuses that could go as high as $500,000.

Paul has been a Vice President for seven years now and saw a 50% slash in his 2011 bonus to $250,000 because of a 70% decline in his company’s earnings.  Paul isn’t delusional, and recognizes that making $500,000 a year is still an incredible amount of money.  However, a part of him wonders,”why bother” working hard anymore given his pay is no longer based on merit, but on the overall health of his company, which he has no control over.

One of his buddies a couple years ago gave him a dose of reality, “Paul, software sales is a bullshit job and you know it.   Don’t you want to do something else more meaningful with your life?“  Paul has been thinking about this statement ever since.

PROGRESS IS HAPPINESS

If ever there was a case that proved “progress” is more important for happiness than “money”, this would be it.  For the years that I’ve known Paul, he’s been on the up and up.  I love him for his frugality.  He drives an 8 year old Honda Accord, buys clothes from Macy’s only on sale, and looks like just another regular guy.  I also like Paul for his generosity, always fighting tooth and nail to pay whenever we go out to eat or drink.  It’s just in his nature, and I’ve had to resort to paying while he goes to the restroom or is distracted with a pretty waitress.

Now that Paul’s income is no longer rising at a steady clip, he’s starting to lose interest in his job, yes even with his large income.  Paul enjoys working with his clients, but there’s this deep nagging feeling that he could be doing something different with his life.  Paul has always wanted to be an entrepreneur, but when he graduated, his firm gave him a job offer he couldn’t refuse.  As a result, all of Paul’s entrepreneurial dreams have been put on hold.

Paul told me that when he first started working for his software company he vowed to quit his job once he saved $1,000,000 cash in the bank.  Now that he has, he doesn’t know what to do.  For the past 16 years, Paul has only done one thing, and that’s sell.  Like Lyndon in “The Curse Of Making Too Much Money And Not Pursing Your Dreams,” Paul enjoys photography, but doesn’t have the skill to become a professional.  Like me, Paul enjoys to write, but I don’t know if he will have the discipline to write constantly and live off peanuts as he makes a name for himself online or never in the publishing world.

Maybe Paul is entering a mid-life crisis and just needs a nice new Porsche 911 Turbo?  The fact of the matter is that after 16 years, Paul is bored.

HOW MUCH DOES IT TAKE TO LIVE FINANCIALLY FREE?

With $1,000,000 spread across several banks at age 38, I consider Paul to be wealthy.  His wife has a stable job and makes around $100,000 a year.  The $1,000,000 in the bank is only the liquid portion of his wealth.  He also has about $450,000 in his 401K, $500,000 in deferred compensation, and around $800,000-$1,100,000 in real estate equity from multiple properties.  In other words, his net worth is around $3 million dollars.

If Paul quits his job, his roughly $10,000 (base) to $30,000 a month (base + bonus) in after tax income goes out the window.  He also loses $500,000 in deferred compensation that vests over 3 years if Paul can’t successful be laid off, as opposed to quitting or getting fired.  Paul doesn’t have to worry about health care because he’ll just go on his wife’s plan.  However, what’s the fun in having so much free time if he can’t spend it with her, Paul wonders.

Suggestions for those who want to quit their jobs:

* Calculate your cash burn: Paul’s total monthly expenses is around $6,000, a frugal amount considering his $10,000-$30,000 monthly after tax income.  Hence, with $1 million cash in the bank, he is covered for 167 weeks or roughly 14 years.  If Paul were to sell his house and free up $400,000-$500,000 in equity and reduce his total monthly expenditure to $4,000 a month, he’ll have 350 months of living expenses equaling 30 years.

* Calculate your total non day job income:  Paul generates about $3,000 a month from his cash savings in the form of various 3.5-4% long-term CDs he’s taken out.  Furthermore, if Paul is able to be let go by his firm, he will receive his $500,000 in deferred income over 3 years at roughly $165,000 gross a year.  If Paul maintains his $6,000 monthly expenditure, he should have no problem living worry-free for at least 3 years without having to drawn down any of his $1 million in principal.

* List out all your plans.  After calculating all your passive income, you’ve got to come up with a list of things you’d like to do that will hopefully make you money.  It is a blessing to do what you love and earn a living at the same time.  Unfortunately, few people have this terrific combination.  Given Paul has saved religiously for the past 16 years, he can now seek to do something he truly wants to do, and not worry so much about the income anymore.  Paul lists: working with disabled children, working for UNICEF, teaching, starting his own financial advisory practice, working as an animal trainer at the zoo, and writing for a travel magazine as his ideal jobs.

* Investigate what the potential income is for your new endeavors.  I can tell from Paul’s list that the most he’ll make is probably $40,000-$50,000 a year, except for his own business, which could be infinite.  If we add up Paul’s $3,000 a month in guaranteed passive income + $3,000-$4,000 a month in likely salary from what Paul really wants to do, he can’t cover his $6,000 monthly expenditure without drawing from his savings, since it takes $8,000-$9,000 in gross income to spend $6,000.  As a result, Paul needs to either downgrade his living standards, save more, or make more.

* Think about family.  Paul and his wife (33) currently do not have children.  They aren’t sure whether they do want children but will seriously think about kids over the next 3 years.  A child could literally mean a 10-20 year difference between when one can retire!  With education costs soaring out of control, one could very easily spend $500,000+ on their child through college.  Granted, many families live on much less for their kids, but Paul is conservative and would rather have more money than less money for his kids.  If Paul and his wife do have a child, his wife has to keep on working while Paul takes care of the child or vice versa.

* Put it all in a spreadsheet.  It’s easy to talk through the income and expenses, however you need to build a spreadsheet with every single line item to make sure you aren’t missing anything.  The last thing you want to do is quit your job and find out you forgot about that pesky $500 a month student loan bill!  After you’ve put everything in a spreadsheet, discount your income by 10% and increase your expenses by another 10% to add an extra layer of conservativeness.

* Check out the charts.  The following chart is my recommended savings rate and amount one should have at various stages of their working lives.  The number where I would comfortably say you can quit your job and do anything you want without any fear of going into poverty is around $3,000,000 in liquid savings, as that will throw off at least $60,000 a year in interest income at 2%.  For others, it may be more or less.  It depends on your lifestyle.

* Will a long vacation or sabbatical do the trick?  If you work at a reputable firm and have been there long enough, the firm should have a sabbatical policy.  Paul’s firm allows up to a three month, full salary sabbatical for every 10 years he works at his company.  Since he’s been there for 16 years, he’s well over due.  A sabbatical will likely affect your compensation, but it’s a small price to pay for 3 months of bliss don’t you think?  Well, it depends on how much you make.  Ironically, the less you make, the better the sabbatical!  There is a dark side to early retirement which everyone needs to read.

THERE NEVER SEEMS TO BE ENOUGH

Despite Paul’s hefty savings and assets, Paul still has doubts on whether he should call it quits in his lucrative career and become an entrepreneur that might pay nothing for years.  Even if he joined a non-profit organization that pays $50,000 a year, he wonders if he will get tired of the bureaucracy and not be able to adjust to the pay .  His promise 16 years ago of quitting once he hit $1,000,000 in savings now looks suspect.

We can do all the analysis we want and probably still not be able to make a 100% certain decision on how much one needs to save to quit their jobs.  I have a feeling the answer is different for everybody.  The real questions we should all be asking are: What do we plan to do once we quit our jobs?  What are the alternatives?  And what are our skills and interests that will allow for a rewarding experience?

The way I see it, here are Paul’s best choices:

1) Figure out how to be included in the next round of layoffs so Paul doesn’t lose his $500,000 in deferred compensation.  Furthermore, Paul gets 2 weeks of severance for every year he’s worked plus a minimum 4 weeks bonus and all his accrued vacation days paid.  We’re talking around 40 weeks of severance plus $168,000 a year for 3 years in deferred compensation as Paul figures out his next path.

2) Continue working at his job, but take it down a notch so that he’s doing just enough to stay employed, but not enough to feel frustrated if he doesn’t land that big client or fails to get recognized for good work.  This is the safest route which will allow him to continue to bank $100,000+ bonus checks, earn his $200,000 base salary and provide for his future family if he so decides.

3) Take it easy at his job and seriously develop his side business until it generates an amount equal to 50-100% of his $200,000 base salary.  This might take years, and could be accelerated if Paul decides to dedicate his efforts full-time on his side business.  But, how many people on earth can develop a side business that generates $100,000-$200,000 if they are working full-time?  Let’s be honest here.  $10,000-$20,000 sure… but 10X that?

4) Take a sabbatical for 1-3 months to recharge.  Paul still gets to earn his $200,000 base salary while he’s away, and maybe when he returns, he’ll realize just how much he enjoys his job.  He could use the 1-3 months to develop his business idea as well.

5) The worst choice is quitting his job, losing his $500,000 in deferred compensation and severance and having no side business up and running.  This move would be done out of anxiety, but a promise kept 16 years ago.

Bartender!  One more round of Guinness for the both of us please!

Readers, what is your recommendation for Paul?  Should he quit his job since he’s reached his target savings goal and has already dedicated 16 years of his life to his job? 

Could you quit a $200,000-$500,000 a year job that you liked, just because you don’t love it?  Is loving your job overrated?

Regards,

Sam

Photo: Reading Entrepreneur Magazine On The Beach. Sam.

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$180,000 by age 30, $500,000 by age 40, $1 million by age 50, and $2 million by age 60. These are the rough estimates for what I think everybody needs to have in their 401Ks to have a reasonable attempt at a comfortable retirement. If you read the comments from my “401K amount by age” article, you will notice that those in their mid-30s and below tend to disagree with these amounts, while those older generally agree, verify, and accept.

I don’t know why younger folks aren’t willing to follow along. It’s often times just rebel and justify why they aren’t saving.  ”Live life!“, they say.  True, but who says you can’t live life while saving?  The easiest way to learn, is to listen to an older person who has gone through what you will go through. Perhaps it’s immaturity, or the way things are where every generation needs to question the next generation and the status quo.

There’s really no mystery to money. The more you have, the more you can make.  It’s all about building the NUT large enough so that when you make a fortuitous 10% return, you’re pulling in an extra $50,000-$100,000 on your $500,000-$1 million portfolio.  Saying you doubled your returns from $10,000 to $20,000 due to contributions is fine, but it’s really chump change and misleading.  Build the nut, so that you can have real returns.

If you aren’t on retirement track based on my 401k age chart and disagree with my figures, just do the math YOURSELF and see whether you’ve saved enough to retire on. I don’t think you’re going to like the results.

There’s one question that kept coming up over and over again, and that’s, “How can I save so much, if I don’t make so much?” It’s a fair question that needs addressing. One commenter mentioned my table must be of “California Currency”, which made me chuckle. The problem of not making enough and therefore not being able to save enough is an honest problem which I’d like to address via a change in mindset and a chart.

HOW TO SAVE FOR RETIREMENT IF YOU DON’T MAKE MUCH

* If you don’t find it painful saving money, you’re not saving enough. If you’re not sweating at the gym and your muscles don’t feel sore the next day, you might as well go eat a double cheeseburger with a milkshake and fries because you’re just wasting your time. The same goes with saving. Since you’re in the lower income bracket, savings is not supposed to be easy. If you’re not feeling the disposable income pinch of putting away, 20%, 25%, 35%, 50% of your income into your 401K, IRA, or savings account, you simply are not saving enough. You need to feel the pain, so you are forced to change your spending habits.

* Recognize that you are not rich. For whatever reason, you do not make a lot of money. It could be by choice (messed up in school, less lucrative field) or misfortune (laid off, accident, starting over). Once you recognize you are of lower income, you’ve got to come to grips with the fact that retirement is not going to be filled with milk and cookies.  Think tasty water and crackers instead.  You’re going to be working longer and harder than others. You’ve got to save more than your wealthier friends simply because you have less.  If you only make $50,000 a year, what on earth are you doing driving a $25,000 car? That’s 50% of your gross income, and around 65% of your net income! If you guys only earn a combined $70,000 a year and have a child, what are you doing living in a 3 bedroom apartment that costs $2,500+ a month? Downsize to a two bedroom apartment and save the difference. A family of four in Tokyo live in 600 square foot, 2 bedroom apartments!  Don’t act rich, because you are not.

* Do the math. One commenter asked how he can put away $17,000 a year in his 401K and then another $5,000 in his traditional IRA if he “only” makes $70,000 a year. I told him to do the math. He did the math, and he did it all wrong!  This is what he calculated:

70k – 17k (401K) = 53k —> Fine. 
53k * 0.4 (taxes)= 31.8k —> 40% tax rate on a $53,000 income?
31.8k * 0.2 (after tax) =25.4k —> What’s this extra 20% tax?
25.4k-5k (Roth) = 20.4k —> Why contribute to a Roth after tax, when you can contribute to a traditional IRA pre-tax?
20.4k/12 = 1.7k per month. —-> Wrong.  Should be around $35,500 net = $2,960/month, 74% more than what is stated.

The effective tax rate on a $53,000 income is around 17%.  Add on 9% state tax, and at most he’s around 26%.  His Roth deduction is fine, if he doesn’t want to contribute $5,000 in a traditional pre-tax.  However, I always recommend paying less taxes than more.  I am shocked how little people understand what their effective tax rates are, and the difference between pre-tax and post-tax contribution. Do the math people. You have more than you think!

* The new normal is a lower rate of return.  Anybody telling you to input more than a 5% constant rate of return on your investments is being too aggressive.  The days of 8%+ portfolio returns are gone in an environment of 2% long-term treasury yields.  There is an inextricable link to fixed income and equities, and baking in more than a 2.5X return over the risk-free rate is a stretch.  We can increase our assumptions once we see an uptick in inflation, corporate earnings, and risk appetite, but not now.

* Realize that making more money is a choice, especially if you live in a developed country.  According to one researcher, it only takes around $34,000 to be in the top 1% of world income earners. Meanwhile, $33,000 so happens to be the middle line between the top 50% and bottom 50% of US income earners. You have a choice to work more than 40 hours a week to get ahead. You have a choice to have as many or as little kids as you wish. You have a choice to start a business and make extra income on the side. You have a choice to get in before everyone and leave last, while proposing new profitable ideas for your company.  You don’t have to be a top income earner, you just have to make enough to be happy and save.  We live in a free country, not North Korea.

* Vote for Obama.  With a ~$2 trillion dollar deficit generated under the Obama administration, the incumbent is your best bet for ensuring that social welfare programs, unemployment insurance, affordable healthcare, and low taxes continue for the middle class.  By raising taxes on “the rich”, the Obama administration is effectively redistributing wealth to lower income individuals through government programs.  Republicans are more focused on cutting spending to balance the budget, and not raising taxes given our system already has a progressive structure already.  Both systems have its merits and flaws, but if you are making under $200,000 and your retirement accounts are light, from a financial point of view, you’re better off voting Democrat at the margin.

A SYSTEM TO GRADUALLY INCREASE YOUR SAVINGS

Now that you’ve changed your mental outlook, here’s a proposed savings chart I developed to slowly turn the screws so that you get to your retirement goals.  Here are some following assumptions:

FINANCIAL SAMURAI RECOMMENDED SAVINGS RATE CHART

Assumptions for the chart:

* No matter what your income level, you are saving some money.  Develop the savings habit early and always.

* As your income level increases, so does your savings percentage rate.  Challenge yourself to save more as you make more.

* It’s important to keep your rate of spending slower than your income and savings growth.  Don’t let lifestyle inflation derail your plans.

* After you have maxed out your 401K at $17,000, the after-tax savings is simply the difference in your income X savings rate – $17,000. The after-tax savings amount is higher than reality, because you have to pay taxes on the gross income. Hence, multiply your after-tax savings by your Federal + State marginal income tax rate to get your true after-tax savings amount.

* At around $65,000-$85,000, I am assuming you should be able to maximize your 401K contribution, and save more money. In other words, try and target $65,000-$85,000 in annual income as soon as possible.

* I stop at a 35% savings rate to allow one to enjoy their income.  Furthermore, at a 35% savings rate at $100,000-$200,000, you will have more than $5,000,000 in retirement savings if you consistently save for 43 years assuming a 5% constant rate of return.

* If you can save more than 35% of your gross income, go for it! After you earn $200,000, you should gradually aim to save 40-50% of your after tax income.  We stop at $200,000, because this is the level President Obama deems rich, although plenty of people who make more have difficulty saving a well.

FINANCIAL SAMURAI 401K RETIREMENT SAVINGS GUIDELINE RECAP

CONCLUSION

The good thing about not making much money, is that you are used to living on not much money, and therefore you don’t need much money to retire on!  With the above assumptions and chart, I hope I’ve provided a guide for those who have wondered how they can save so much if they don’t earn much at all.  Savings should be an automatic way of life.  Always save money before you pay yourself.  That way, you will always operate in the confines of your disposable income.

Another good thing about retirement is that when you are retired, you do not have to save for retirement.  That 5-35% savings rate I discuss in my charts disappears, making you suddenly that much richer.  Meanwhile, you’ve hopefully paid off all your debts, and can live in your home mortgage-free for the rest of your life.  But, even if you still have a mortgage, or are renter, with the above system, you should still have enough money to support you until the end.

Please try not to make excuses for why you cannot save even just 5-10% of your pre-tax income in your 401K.  I lived in super expensive Manhattan on $40,000 a year and managed to put away $15,000 into my 401K.  $40,000 in Manhattan is like $35,000 in San Francisco, and only $25,000 in the MidWest.  You just have to make a choice whether you want to build a safety net for your retirement or not.  Hopefully you will continue to make more money the longer you work, making saving more money easier and easier.  You’ll wake up 10 years from now and amaze at how much money you’ve managed to accumulate.

It’s really up to you.  See you at the beach!

Readers, do you think my savings chart is reasonable?  What percentage of your income are you saving?  

Photo: Oahu Sunset, 2010. Sam.

Regards,

Sam

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The 401K is one of the most woefully light retirement instruments ever invented.  The worst is the pathetic IRA which limits you to only $5,000 if you make under $58,000 a year for a traditional IRA to completely participate.  Meanwhile, you have to make less than $110,000 a year for the privilege of contributing after tax dollars in a a Roth IRA.

Give me a pension that pays 80% of my last year’s salary for the rest of my life over a 401K any time!  With the government only allowing individuals to contribute $17,000 a year in pre-tax income into their 401Ks in 2012, once again, our politicians fail us with their regulations.

You know from a previous post that the average 401K balance is around $70,000-$80,000, which is incredibly low given the median age of an American is 36.5.

As an educated reader who is logical and believes saving for retirement is a must, I’ve proposed a table that shows how much each person should have saved in their 401Ks at age 25, 30, 35, 40, 45, 50, 55, 60, and 65.  We stop at 65 because you are allowed to start withdrawing penalty free from your 401K at age 59 1/2.  Meanwhile, I pray to goodness you don’t have to work much past 65 because you’ve had 40 years to save and investment already!

HOW MUCH YOU SHOULD HAVE IN YOUR 401K AT DIFFERENT AGES

The assumptions for the below chart are as follows:

* For the first fully year out of school, you only contribute $8,000 to your 401K.

* After the first year, one maximizes their contribution every year to their 401K plan without failure.  We already agree that $17,000 a year in contribution is much too little, therefore contributing less is illogical.

* Average starting working age is 22.  But you can follow the number of years working as a different guideline if you graduate later or earlier.

* $17,000 is used as the conservative base case maximum contribution amount for one’s entire working life.  Hopefully the government will increase the max contribution amount over time.

* No after tax income contribution, although more power to you if you have the disposable income to do so.

* The low end column assumes $17,000 X the number of years worked.

* The higher end column will assume $17,000 X the number of years worked X a 5% constant rate of return which is aggressive in this environment.

* Excludes any company match or profit sharing completely.  The idea is that by excluding company match and profit sharing, that will more or less make up for the years in which one loses money in the stock or bond market.  Furthermore, each company’s 401k match program is different.

* The Lower and Higher Amounts encapsulate at least 60% of all 401K levels for those who contribute the maximum amounts.  There will be those with less, and those which much, MUCH greater balances thanks to higher returns.

* You are logical and not a knucklehead.  Just by searching this topic, you are taking ownership of your retirement and are thinking ahead with an action plan.

FINANCIAL SAMURAI 401K RETIREMENT SAVINGS GUIDELINE

From the results, we can conclude that even after 43 years of consistent saving, you only have around $723,000 to $2,618000 in your 401K.  Let’s say you live for 20 years after retirement, you only get to live on $36,000 – $131,000.  If goodness forbid you live to age 95, then you can only live off of $24,000 – $87,000 a year!

We know from simple economics that thanks to inflation, a dollar today will not go as far as a dollar 40 years from now.  Private school tuition will probably cost over $100,000 a year in 20 years, so who knows what medical, food, shelter and energy costs will cost then.  One thing is for sure, prices will be much higher.

To play around with various compound growth and contribution assumptions, you can use this compound interest calculator.

TRUST NOBODY BUT YOURSELF

Contribute the maximum pre-tax income you can to your 401K for as long as you work.  This is the absolute MINIMUM you can do to help ensure a comfortable retirement.  After you have contributed a maximum to your 401K every year, contribute at least 20% of your after tax income after 401K contribution to your savings or retirement portfolio accounts.  That way, you will have potentially DOUBLE the amount in total retirement saving if your household income is $100,000 or more.  If your household income is closer to $50,000, you should still see a nice 30% boost to your retirement savings if you consistently save 20% of your after tax income.

Treat your 401K just like Social Security and write it off completely from your mind.  Do not expect either accounts to be there for you when you retire, just like how you should never expect the government to ever help you when you’re in need.  Just imagine 30 years from now, the government deciding to raise penalty free 401K withdrawal to age 80 from 59.5?  Unfortunately, you need the money at age 60, and because you withdraw, the government imposes a 30% penalty on top of the taxes you have to pay.  Don’t think it can’t happen.  Expect it to happen!

The only thing you can count on is after tax money you’ve invested or saved.  Consider raising your real savings percent after 401K contribution to 50% as soon as comfortably possible.  The easiest thing to do is make 401K maximum contribution automatic, and save every other paycheck for the rest of your working life.  Once you maximize your 401K and save over 50% of your after-tax income for at least 10 years in a row, you will be financially free to do whatever you want!

Readers, care to share your thoughts on your age and how much you have in your 401K?  If not, do you agree with the estimates above based on age or years of experience?  What are some of the things you notice from the chart?

If you want to blast holes at the Ideal 401K Chart, ask yourself why you are blasting holes.  Could it be that you are actually just making excuses for your own lack of saving discipline?

How much of your after-tax, after 401K/IRA contribution are you saving?

Note: For those who think this type of savings is hard, Grace Goldoni saved $300,000 by 18.  And for those of you who think I believe in just hoarding cash, I don’t.  There’s no point making money if you don’t spend your money!

Follow Up: For those asking “How Do I Save So Much For Retirement, If I Don’t Make Much?“, I’ve written a 1,500+ word post on how to get there, with a chart guideline as well.

Photo: Occupy SF Tent, by Sam.  Might be your home if you don’t max out your 401K and save more.

Regards,

Sam

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

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

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

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

Best,

Sam

One of my favorite income streams is rental property.  I’ve bought several apartments over the past decade and plan to continue buying more.  A particularly popular rental I have is a two bedroom, two bathroom condo with parking and a view of the park.  It’s not fancy, but the location is fantastic and it has everything one needs to live a good life in one of the best areas of San Francisco.

My first tenants lived there for 5 years and actually got married after their second year.  Incidentally, my second tenants also married after two years of living there and now want to extend for a third year.   Perhaps the apartment is just blessed with love and good feng shui.  Whatever the case may be, I’m putting the two marriages in my marketing material if I ever sell!

What I do know for sure is that owning rental property is like running a business.  The goal is to maximize revenue, reduce turnover, and control expenses.  Landlords aren’t evil and aren’t always rich as some tenants might believe.  Instead, most landlords are just trying to build their own retirement portfolios with the best product offering possible.  Raising rent is nothing personal.  It’s just business between two willing parties.

RENTAL PRICE THEN VS. NOW – EVERYTHING TURNS TO GRAVY

When I first rented out the place 8 years ago, I was charging $2,150 a month.  Two years later, I raised the rent to $2,600/month where the tenants paid for three more years until they had a baby and decided to rent something larger.  When the current tenants moved in a couple years ago, I had the opportunity to raise the rent again to $2,999.  The $3,000 rental level is a relatively big hurdle in San Francisco for a young couple to pay, so I was wondering after a couple of years at $2,999 how could I tactfully go about raising the rent again without scaring them away.  After all, the economy has rebounded nicely and rents around the city have moved higher.

The goal of every landlord is to get as close to market rents as possible while having as little turnover as possible.  As I said earlier, this couple had gotten married during their second year living in my place, and I figure they have no intention of moving.  The apartment can easily accommodate a baby or two for several years as well.  I estimate my apartment’s current market rent is roughly 3,300-$3,400 now, or a full $300-$400 higher.

I’ve been a good landlord.  I respond to all their e-mail inquiries and fix whatever problem they might have within a couple of days.  Hence, I’ve built some goodwill with them.  They also locked in $2,999/month almost at the bottom of the stock markets when the Dow fell through 7,000.  As a result, they probably saved at least $100/month because of their timing.

* SoMA = South of Market St in SF

STEPS TO INCREASE RENT AND EXTEND A LEASE

1) Figure out whether or not they are happy where they are. The happier they are, the more likely they will be willing to pay a higher rent to stay.  Moving is stressful, costly, and a complete pain.  What is their happiness worth?  If they’ve been paying on time and have had relatively little complaints, chances are they are pretty happy.

2) Go on Craigslist and figure out what a comparable property is renting for. You need to be in-line with the market.  Once your tenants have lived in your place for a while (1-2 years), they will have grown attached.  Also, if you haven’t raised your rent for 1 or 2 years, you are probably under market rents by at least 1-2% a year.  You should make your tenants feel like they are still getting a deal.  If you raise the rent to the middle of the average comparable, you’ll achieve this goal.

3) Know the maximum you are allowed to legally raise the rent.  If you have a condo (not rent controlled), you can technically raise the rent by up to 10% in San Francisco with a 30 day notice.  With a 60 day notice, you can raise your rent by up to 60% up to market value if needed.  Make sure you give your tenants ample warning.

4) Assess the financial impact of what will happen if your tenants move. Your place might sit empty for a month while you try and find equally comparable tenants.  Ask yourself whether you will be willing to go back and not raise the rent to encourage them to stay, and whether you are willing to spend the time finding someone new.

5) Understand their employment situation and their industry cycle. If one tenant works at Facebook, and the other is an investment banker, you can be pretty confident they’ve done extremely well over the past couple of years.  Facebook’s valuation has literally doubled in the past 12 months, so a raise of 1-10% is totally digestible, especially if it’s within the range of your comparables.  Understand your tenant’s occupations and you will have terrific insight into what you can charge.

6) Make it easy for your tenants to pay you. Prepare a lease extension agreement for one year with the desired new rent and lease terms filled in.  Make it as easy as possible for your tenants to sign and return back to you.  That includes e-mailing them a copy and having them mail it in with their next rent check, or faxing back the document with their signature.  The easier you allow your tenants to sign a transaction, the more likely they will.

7) Offer your tenants proof that they are getting a good deal. If your tenants are expressing some doubts, show them comparable apartments that are much more expensive to make them realize what a reasonable deal they have.  Make them feel special by reminding them of your promptness in communication.  Now is the time to utilize your goodwill.

8) Set their minds at easy regarding future rental increases. Mention that you will probably not raise the rent next year, to give them comfort in the fact that they are paying more rent this year.  In the contract, you can highlight that by signing an extension, they are protected from having to move out in 30 days notice if you the owner decide to sell the place.  Whether you end up raising the rent again in a year is a different matter.  But for now, you have no intention to.

CASH FLOW IS KING, BUT HOW DOES $1,200,000 IN EXTRA WEALTH SOUND?

Eight years ago, the annual rent for this particular property was $25,800 a year at $2,150 a month.  With the 10-year risk-free rate at roughly 4.5%, the property was worth about $573,000 ($25,800 / 0.045), ignoring any risk premium required for maintaining the property.  In other words, if one didn’t have any mortgage or expenses, the property is equivalent to $573,000 in the bank earning $25,800 risk free.  Nothing is risk free of course, and there will always be expenses such as property tax and insurance, but stay with me as I show you how things work.

At $3,100 a month, the annual income is $37,200.  Assume that the 10-year risk-free rate is still at 4.5%, the property is now worth $826,666 ($37,200 / 0.045).  Pretty nice to increase your assets value by $253,666 thanks to rent increases over the years right?

Now get this, thanks to massive quantitative easing (printing money) by the Federal Reserve, and a sluggish economy, the 10-year yield has now plummeted to 2.1% as of 8/28/11 vs. 4.5% seven years ago.  The system is awash with liquidity.  Now take $37,200 in annual rental income and divide by 2.1% and the property now is worth $1,771,428!  In other words, it takes $1,771,428 cash in the bank at a 2.1% risk free rate to earn $37,200 a year in income.

Take a bit of time to really soak this information in.  As a landlord generating $37,200 in annual income, your property has appreciated by  $1,198,428 and you didn’t have to do anything except keep happy tenants and be a good landlord!  Of course nothing is really risk free, even the 10-year US Treasury bonds you are buying.

If inflation starts coming back, your rental property by definition inflates since it is a real asset.  In an inflationary environment, you can raise the rent more, and you are now valuing your property not as a risk free income return, but as a rapidly appreciating asset which you should consider selling at some point.

Your property is only worth what someone is willing to pay for it.  And if you are a rental property buyer you should command at least a 1% premium over risk free, which would value the $37,200 annual income property at $1,200,000 ($37,200 / 0.031) at most.  However, if you understand the analysis above, you will realize that rental properties have sky rocketed in value thanks to the economy ironically, and the Federal Reserve.

DELICATE DOES IT

I actually don’t enjoy raising the rent on my tenants.  I feel guilty, especially as the monthly mortgage has gone down about 23% since the refinance a year ago and 32% since first purchase.  However, inflation affects us all, and that means the variable costs such as maintenance, building materials, and labor go up which needs to be covered by rent increases.  But, if you’re finding that the market has moved higher, by all means consider raising the rent on your existing tenant.  It’s your property, which should be treated as a business.

My tenants signed a one year extension at a new rental agreement price of $3,100.  That’s a 3.3% increase, which in the grand scheme of things is not much given how far the economy has come from just two years ago.  I should raise the rent to $3,300-$3,400, but I just feel too guilty as they are great tenants.  Despite the small increase, when you consistently increase the rent and lower your mortgage payments, the spread get huge over time.  My ultimate goal is to raise the rent to $3,500 by 2015 in minor 3-4% annual increments and have a cash flow generating machine with no debt.

Being a landlord is not that difficult if you have a good property which attracts good tenants.  The most important thing is to spend a thorough amount of time screening your prospective tenants before allowing them to sign the lease.  A rule I hold steadfast on is that a tenant must earn at least 45X the monthly rent as annual income.  That’s $135,000+ in this case.  Bank assets should also show at least 10X monthly rent in liquid net worth.

So there you have it.  Hopefully the tips above will help you maximize your rental income and extend your lease!  Know that as interest rates have declined, your rental property has rocketed in value as well!  If all that’s not enough, at the very least you’ve paid off years worth of principal.  Seriously consider rental property as part of your retirement portfolio, because at the end of your mortgage, you will own a real asset free and clear.  And what’s better than living rent free where nobody can ever kick you out and tell you what to do?  Priceless.

Landlords, any other tips you have for raising rent and ensuring you have the best return on your property?

How much has your rental property increased using the current 10-year risk free rate vs. when you purchased it?

Do you know of any easier ways to take advantage of the Fed and increase your wealth without having to do much at all?

Best,

Sam

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For the first time in a while, I attended our regular Friday home game last night from 9pm to 2:30am.  I used to love going all the time until I started this site actually.  Now, the thrill of writing and interacting has taken over.  Furthermore, I realize how hard it is to make a decent buck online.  To lose a couple hundred in one hand when you play well, yet get runner runnered is a horrible feeling!

No longer are my poker outcomes compared to my normal salary.  They are now compared to my online income which makes things that much more painful when I lose since my online income is so much smaller.  In fact, I use my online income as the barometer whenever I’m thinking of spending frivolously to help keep me in check.

A lot of us poker players like to justify our habits by saying that poker isn’t gambling and that it’s skill.  Although I believe poker is 60% skill, that still leaves 40% left to chance.  Would you bet someone $500,000 if you had a 60% chance of winning and a 40% chance of having your hand chopped off?  I wouldn’t, but some would!

THE ADDICTION RETURNS TEMPORARILY

I bought in for $200 among a sea of sharks with average stacks of some $$400 high.  Everybody loves to make fun of me when I play because I’m known as the tight one.  “Uh oh, Sam is in?  Watch out for those pocket Aces!” they would chide.  “Yes, guys, I only play pocket Aces, so watch out!” is always my retort.  I have an absolute allergic reaction to losing money because I pretend I’m a minimum wage blogger trying to survive in this hard, cruel world.

After being down about $35 bucks for most of the night, I had finally won a couple hands than put me in the black by $90 at 1am.  $90 divided by $200 is a 45% return I reasoned, and it was time for me to go.  To put things in perspective, I was still the smallest chip stack with $290 as now people averaged $700 as re-buys built the action.  But, my buddies wouldn’t let me leave because the rule of course is that you can only leave early when you go broke, or else you have to stay to the bitter end.  Oh yeah, now I remember the other reason why I’ve stopped playing!

The Last Hand

Up 45% and the second to the last hand of the night I’m dealt pocket Queens.  My heart starts racing, because my goal is to just limp or fold until the clock struck 2am. After someone raised pre-flop to $6 with 3 callers, it was my turn to decide.  There’s no way I’m playing 4 way with Queens against these degenerates so I pop the bet by 7X to $40.  Call, call, call!  Crap, they really do love to gamble.  The flop comes 10, 7, 3 and everyone checks around to me.  Of course I bet the pot, a crisp $100 bill gets thrown in the middle, leaving me with only half my chips remaining.  Everyone folds except for the animal to my left.

By this time I’m thinking shitake mushroom, I’ve got $140 committed to the pot and there’s no escaping now.  Why didn’t I quit while I was ahead?  I should have just done something Herculean and limped in and not controlled the action by raising pre-flop.  My pocket queens could be losing to two pair, trips, pocket Kings, or pocket Aces.  When the 4th card hit, a seemingly harmless 5 came out.  I checked.  After a brief moment, where I was hoping my opponent would also check, but he bet another $140!  My heart sank.  Fine, whatever, I’m pot committed so I shoved the rest of my chips in.  Going from +$90 to down $200 sucks, and I promised myself during the show down that I wouldn’t return for another 6 months.

When I showed him my pocket Queens, he sat stunned.  I think may have begun to cry.  He mucked his cards and stared at the remaining $50 left in chips, cashed out, and walked away.  I took him for $290 on just one hand to double up to over $600 and that addicting feeling and thrill was back!  “Nobody pushes me around,” I start thinking in my head.  I feel invincible on the inside, like I belong with the sea of sharks dictating the action.  On the outside, I just tell everybody I got lucky, thanked them for playing, and until we see again.

AFRAID OF THE RUSH

There’s no doubt that in those last tense moments a wave of exhilaration came over me.  I was afraid and excited at the same time, longing for every little posturing and eye twitch to reveal itself.  For that moment, I was a poker junkie again, ready to quit my online endeavors and turn pro.  Of course, that is preposterous thinking, but it was fun while it lasted.

I’m back to reality now, sitting in front of my computer typing away.  I think about how each $200 bet is like working for several hours online trying to get an advertiser.  The rush of gambling is intensely pleasurable no doubt about it, but it’s not for me.  I don’t like the person I become when I lose as I’ve lost plenty of big hands before.  No, I probably won’t be returning to the Friday night home game for a while.  I’m too afraid of what the rush will do to me.

Readers, have any of you ever been hooked on poker or gambling in general?  Have you ever come to a moment where you realize you’re at the edge of the cliff, and one more step and you could lose it all?

Money saving tip: Really start comparing gambling to some of your side income endeavors to put things in perspective.  If it takes you 10 hours of work to make $100, you might think thrice before placing a bet.  It’s easy to just think of your money as chips and frivolously bet it all away.  Have a limit of how much you can lose, and once you hit that limit, walk away.  Leave that ATM card at home and don’t borrow money from friends.  Live to fight another day.

Regards,

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