What Do Retirees Age 65-75 Do Compared To The Rest?

The Bureau of Labor Statistics & USNWR comes out with an interesting survey that seeks to find out what retirees age 65 to 75 do all day compared to the working and younger population. Apparently, not much more! More sleep, leisure sports, TV, and household activities and less work (duh) accounts for the biggest differences, a whopping 3 hrs!

In other words, whether you’re working or not, your life doesn’t change much except for the fact you don’t have to set the alarm clock anymore, and you get to watch almost 2 hours more of “Lost” and “24”! Got to love statistics. This average retirement sounds very boring, but then again by definition, average is boring!

Obama’s Universal Healthcare Proposal


In Sarah’s first online post since quitting her job as Governor of Alaska, she writes that Obama’s Healthcare Plan is “Evil” because of its support for euthanasia. Obama later explains, “Nobody is going to be forcing you to make a set of decisions on end-of-life care based on some bureaucratic law in Washington.” What’s interesting to note is how this story has garnered so much more attention rather than the costs and implementation of Obama’s healthcare plan. I have admittedly not paid attention to this debate, but feel I should. In this post, I attempt to provide a brief understanding of this controversial topic, along with various viewpoints.

THE SKINNY ON UNIVERSAL HEALTHCARE:

WHAT IS IT?
* Universal health care is also known as single-payer system, united health care system, or national health care. Universal health care is similar to the current US Medicaid program for low-income folks, and would apply to all citizens of the US regardless of the ability to pay.

WHY HAVE IT?
* Supposedly 50 million or so Americans, or almost 20% of the country’s population is without healthcare. People will argue that it should be the right of every American to have coverage, just like the Canadians and the British.

ADVANTAGES
* With a single Universal Healthcare system, Americans will save money because the new system will slash billions of dollars in administrative costs. Furthermore, 50 million people will have coverage.

DISADVANTAGES
* To provide 50 million more people with free healthcare, someone has got to pay for it. Some don’t believe big government will be able to run the new system as efficiently as the private sector.

With this quick understanding, here are various opinions from real people I’d like to share with you.

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

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

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

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

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

Government Employee Entitled to A $100,000,000 Bonus!

Yes, I know I’m being a tad bit facetious here, but not really. After getting US$45 billion in government aid, the US government and we the people of America own roughly 36% of Citigroup. The interesting debate is whether Citigroup employee, Andrew J Hall should be paid his $100 million bonus as described in his contract.

Most initial responses are with a vehement “HELL NO!” Who on earth deserves to get paid that much, people must think. However, what if Andrew Hall was responsible for bringing in $1 billion in revenue? Is it so egregious to pay the man responsible, a 10% cut? After all, $900,000,000 sure does employ and pay for many other Citigroup employee’s salaries! Should Citigroup risk not paying their star, and his team of employees for the overall sake of the firm and shareholders? As one colleague aptly put it, “RB, we live in America not North Korea!”

The Correct Change


The California Muni Bus system recently raised their one way fare from $1.5 to $2, as they desperately try to pay for another mismanaged government agency. When the fare was $1.5, sometimes you had to just eat the 50 cents change you were owed because you only had two dollar bills. Fine, your fault, no big deal. But is this the right type of thinking for those who are really looking to save money? After all, $2 is 33% more than $1.5. Would you be ok with paying $200 for that jacket if it was only $150, because the store has no change? Heck no. Government transportation systems around the world rely on this type of consumer laziness to pad their profits and make more than they normally would. Retailers who sell gift cards, either count on the consumer to lose the gift card, forget they even have it, or let the usage date expire to reaping in millions of dollars each year.

As I was on my way way home from work this afternoon, a woman told the bus driver after he started moving that she didn’t have correct change and only had a $20! He muttered something under his breath and told her to go ask fellow passengers. Come on lady, how many of us bus riders are going to have one $10, one $5, and five $1s for your $20? We take the bus! Change for $5 bucks ok, but $20? So sorry. In the end, none of the 20+ passengers had any change, and she sheepishly put the $20 bucks through the feeder!

If we’re taking the bus in the first place, we’re generally more frugal than the average person, so why would we be so lazy as to not give correct change? The answer probably has to do with convenience. Convenience is definitely valuable, no doubt. However, I want to challenge the RB30RB40 readers on this type of thinking, because collectively, over our life times, not giving the correct change ads up. Laziness is what results in late charges, and over draft fees and robs us of our financial freedom. So much about personal finance is about making conscience decisions that allow us to prosper going forward.

When the lady got off the bus, the bus driver yelled, “Correct change appreciated as always unless you got a $20! Hold on!”

Have a fantastic weekend everybody!

Best,

Sam

Controlling The Urge To Splurge

I went shopping this weekend to buy myself a new pair of comfortable brown leather loafers for work. I’ve worn my $60 Timberland loafers from Shoe Pavilion (discount store) for the past two years, and they are starting to get holes. I have to say, when it comes time to shop for work clothes, I’m just so uninterested. To me, shopping for work clothes becomes a “work expense” I resent. Because dressing reasonably professionally is a necessity at work, I feel I’m not spending my money on what I want, and that annoys me. My ideal outfit, after all, is a t-shirt, a well worn pair of jeans and flip flops.

I decided I wasn’t going to buy the same old boring shoes anymore. I was on a shoe revolt! Instead of going to DSW Shoe Company or Ross Dress For Less, I went to Barney’s New York to buy a $435 pair of Tod’s loafers (see picture)! I’ve actually been eyeing this shoe for more than two years, and just couldn’t find my size when it went on sale for “only” $250 last Christmas. It’s a good looking shoe, with beautiful leather and a nice rubber sole. However, there’s no way in heck it’s worth $435, or 5X what I’d normally pay for shoes. That said, I bought it anyway, because I wanted to enjoy the shoe, at least temporarily before I see the charge come up on my credit card bill online.


I’ve really spent $0 dollars, b/c the credit card is a wonderful tool to temporarily borrow something without any cash outlay. Where people seem to get in trouble is when they actually keep the item, go figure. Barney’s has a 30 day return policy, and I expect to tempt myself for at least a couple weeks before I wake up, smack myself and realize that $435 is just an absolutely ridiculous sum of money to spend on loafers. I’m just being lazy, and not searching cheaper stores for equally attractive shoes. In the mean time, I’m going to enjoy these loafers to my heart’s content.

My system of resisting the urge to splurge is quite simple:

1) Splurge on things if you really want it, but make sure there is a return policy and that you understand the terms! The initial point of purchase is generally the highest point of euphoria, especially when not paying cash. The euphoria tends to fade over time, and the dread mounts when the bill comes due. If there was a return policy on cars, I’d be all over it! But, as my wife always says when i’m about to buy a new car, “There’s no return policy!”

2) Enjoy the item for the life of the return policy minus 1 day. You need to enjoy the good for as long as possible to rid yourself of the desire for that good. Return it one day before it’s due at the latest, b/c you may forget, or the store may try and manipulate you into not being able to return the good.

3) Take the cost of the item and multiply it by 130% to get the pre-tax income you need to make/spend. Take this pre-tax income and divide it by your hourly wage to figure out how many hours you need to work to buy that good. The first exercise is generally enough to make me not buy anything wasteful. It’s the second item that really pushes me over the edge.

4) Remind yourself never to pay full retail. The reason why luxury goods manufacturer LVMH has 90% gross margins, is because they charge customer 9X their manufacturing cost. Try your hardest to find a similar good at a much cheaper price during your “borrowing period.” Make it an adventure in savings if you will.

5) Finally, take a look at that credit card bill on-line and tell yourself how good it’ll feel not having to pay such debt and return the darn thing! The reward for not splurging is the cash/savings that remains in your bank account! Think about the lost investment returns you’ll be missing, and remind yourself that the money you spent is less money you’ll have for achieving early retirement.

After all these defenses, there are some things in life you just have to have, such as that fine Rolex watch you’ve waited 10 years for ever since graduation. Whatever the case may be, I firmly believe one should be able to treat oneself within reason. For a car, my limit is spending no more than 1/10th my gross income. It’s just when you want to have that 2nd watch, that 5th pair of jeans, or third LV handbag where things start spiraling out of control. I think you’ll have fun resisting the urge to splurge with the 5 defenses above because you’re actually getting to enjoy the item without having to buy it. Don’t ever feel guilty returning an item. It is your right, and your early retirement prerogative!

Related Post: “Mea Culpa – I Just Spent $1,450 At The Apple Store”

Rgds,

Financial Samurai - “Slicing Through Money’s Mysteries”

Going Broke to Win Big! The Ultimate Way To Budgeting

To err is human and frugal living is a necessary element to building long term wealth. At the very least, one has to spend less than one earns to accumulate savings and give oneself a chance of making profitable investments. The financial community has beaten to death basic financial practice such as: Paying oneself first, saving early and frequently to maximize compounding, and budgeting. Hence, we’ll skip these common sense practices here on Financial Samurai, and go for a new method of building wealth: Going Broke to Win Big.

The concept of Going Broke to Win Big is simple. Essentially, if you see nothing in your bank account, you’re going to do the darndest to try and build some savings and wealth. You’re also not going to be tempted to spend frivolously, either. I don’t literally mean bankrupting yourself, but simply create three separate banking accounts, and not just three separate accounts within one bank.

If you are like me, you’ve blown yourself up through dumb investments and unscrupulous spending in the past. The key is to protect yourself, from yourself, and create that renewed sense of urgency to forge ahead and stay disciplined in your finances. You may laugh at the concept of protecting yourself from yourself, but everyone of us has the means of blowing ourselves up financially every single day. We are bombarded with temptations and we have collectively taken down the economy with overspending in recent years.

Below are the basics of “Going Broke To Win Big.” Create three separate bank accounts as follows:

1) The Go Broke Bank. The first bank account is for working capital needs, namely where your paycheck goes, and where you pay all your bills. This bank is your operationally efficient bank which has the best tools for bill pay with the most branches for accessibility. Citibank is a good example, a ubiquitous bank with good online tools, but provides ridiculously low savings rates and horrible credit card rates. Bank #1 is where you are constantly “Going Broke.” Your paycheck must be managed so that it lasts to cover all your expenses. But before you pay all you expenses, you must pay yourself first by transferring your target savings automatically to a Bank #2.

2) The Freedom Bank. The second bank is strictly for long term savings via money markets and CDs. This bank may not have as big of a footprint, but it doesn’t matter because you don’t need to access money from this bank. That’s what bank #1 is for. Due to lower overhead, Bank #2 provides better long term savings rates. Online banks such as Ally, and boutique banks such as First Republic provide fantastic rates, often 500-100bps higher than the competition. Do not tempt yourself by creating a checking account. You want money to easily come in (ever notice tellers don’t require IDs when depositing?), but very difficult to go out.

3) The Lockdown Bank.
The third and final bank is for your debt, namely mortgages, personal loans, and car loans. By loading the majority of your debt with one bank, you compartmentalize your debt which may relieve you of any mental stress related to this debt. It’s easier to tackle your debt at one bank and employ the “Snowball Method.” Furthermore, from the bank’s point of view, you may get better rates given you are such a good debtor customer. You’re buying debt in bulk from Costco if you will, and in normal times, they want your business and will give you discounts. During crisis times, it’s also good to have all your debt in one place b/c your bank doesn’t want you to cause a default cascade and will do their best to work with you.

For insurance purposes, one should set up a “checking plus” account which serves as an insurance mechanism just in case you go past $0 in your main checking account.  I’ve come close, and have breached zero multiple times over the years, and the $5,000 checking plus account I have has served as a handy buffer.  I’ve never been over by more than $300, and interest on $300 for one day is nothing.  A checking plus account should be free. If it’s not free, ask for it to be free, and if they don’t budge, find some other “go broke bank” to use.

CONCLUSION

All banks strive to cross sell as many products as they can. They try and capture you with rewards points and so forth. The goal is to protect yourself from spending unscrupulously with the commingling of monies through one bank, and to force yourself to actively manage your budget. Humans are weak, and we need to constantly remind ourselves to focus on our finances.

After using the “Go Broke” system for the past 5 years, I know exactly what’s going into and out of my checking account within 10 dollars. When the fuel tank is running low with only $200 left for the month, I should probably go on a nature hike than go play poker with the buddies this weekend. Lavish spending has gone out the window since employing this method as well. I pretend everyday that all I have left in the world is in Bank #1. The dearth of money keeps me motivated to work hard, keep on budgeting, and focus on my finances. Meanwhile, the growth of savings in Bank #2, and the decline in debt in Bank #3 is optimized and automatic.

Recommended Action For Increasing Your Wealth

* Manage Your Finances In One Place: Get a handle on your finances by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize. Before Personal Capital, I had to log into eight different systems to track 25+ difference accounts (brokerage, multiple banks, 401K, etc) to manage my finances. Now, I can just log into Personal Capital to see how my stock accounts are doing and when my CDs are expiring. I can also see how much I’m spending every month. If you are interested, they can even provide tailored financial advice for much cheaper than traditional wealth managers.

* Check Your Credit Score: Everybody needs to check their credit score once every six months given the risk of identity theft and the fact that 30% of credit scores have errors. For over a year, I thought I had a 790ish credit score and was fine, until my mortgage refinance bank on day 80 of my refinance told me they could not go through due to a $8 late payment by my tenants from two years ago! My credit score was hit by 110 points to 680 and I could not get the lowest rate! I had to spend an extra 10 days fixing my score by contacting the utility company to write a “Clear Credit Letter” to get the bank to follow through. Check your credit score for free at GoFreeCredit.com and protect yourself. The averaged credit score for a rejected mortgage applicant is 729!

Keigu,

Financial Samurai – “Slicing Through Money’s Mysteries”