Financial Samurai

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 Read more…

$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. Read more…

Despite the government saying the economy is better and jobs are plentiful, you know they are lying.  How?  Because there are still grown adults living at home with mom and dad!  Furthermore, if you aren’t living at home with the ‘rents, then you certainly know people who do.  As an equal opportunity blogger, I thought it appropriate after writing, “How To Get Girls If You Live At Home With Mom And Dad“, to also write the other version.

There are several assumptions in this post.  First, you are likely under 35 years old, since there’s no such thing as a 35+ year old still living at home with their parents.  Second, you don’t look like Jessica Alba or a sexy version of Hilary Clinton or Janet Reno.  Third, you aren’t a princess with boku bucks to spend.  Finally, you are likely female who likes boys and your name is not Jerry Sandusky!

STRATEGIES FOR GETTING BOYS WHEN LIVING AT HOME WITH MOM AND DAD Read more…

Is it sad to say that only until I started this post did I realize Black Friday is the day after Thanksgiving?  No, seriously, I had no idea, which means that I never buy anything on Black Friday because I’m working or up in Tahoe baby!

Could there be anything more silly than taking a day off of work to go spend money?  It’s like taking yourself out of the work force for two years, losing all that lost income to go pay $50,000 a year in tuition to network and party it up at business school!  OK, maybe Black Friday shopping isn’t that dramatic.

The “spend more, save more mentality” is not good for your pocket book.  How about, “Let me look and buy what I really need.  And if I don’t really need it, I won’t buy it!”  That’s a much better mindset, and you know it!

Now that I realize Black Friday is supposed to be a special day of sales, I’ve begun to comb through a list of things that I may want to buy.  Of course by the time I get off work, none of the items will be available, and the parking lot will be a zoo.  There aren’t many things I want to buy, so maybe you guys can give some consumption inspiration.

MY BLACK FRIDAY SHOPPING LIST Read more…

Do you get a thrill being broke?  For some reason, I do.  I’m not sure whether it’s that motivational fire it gives me to work harder for my next paycheck.  Or, the fact that when I have no money, I appreciate having money so much more.  Remember all the fun times you had as a student with hardly any income?  That’s the feeling I love.  Every time the bank account runs dry, I go into survival mode just like the starving student and figure out a way to make things happen.

Currently, I can’t for the life of me figure out what else to spend money on for the rest of the year besides the basic necessities.  I paid for my club membership and a couple new tennis rackets earlier this year.  There’s no need to buy a new used car anymore.  The last thing I want are more clothes and shoes after going to Goodwill 12 times this year already.  Meanwhile, there’s just only one more week-long vacation I’m planning on which has already been budgeted for.

For the past couple months, I’ve been mulling over whether to pay off some more rental property mortgage which costs 4%.  I’ve been going back and forth for a while until I just said screw it one afternoon.   I’m gonna pay a slug of this sucker off!

The next step was to decide how much to throw at it.  I refinanced to a 5-year ARM last year when the 10-year yield dropped to 2.65% in 2010, and managed to lock in the investment income rate of 4%.  4% so happens to also be my bogey for a risk free rate of return I will accept for doing nothing.

In the past, I had been just dumping all my excess cash into 5-7 year CDs at 4-4.25%.  The best CD rates of the same duration are now only yielding 2.5% after doing some checking.  Clearly, the next best risk free thing to do is pay down my 4% rental mortgage.

DECIDING HOW MUCH TO PAY DOWN Read more…

Imagine waking up one morning to see a Genie at the foot of your bed with milk and cookies.  She grants you the wish of converting your future earnings or current illiquid net worth into $250,000 cash.

For example, say you were to work for 20 more years and earn a median income of $60,000 a year before taxes.  Instead of methodically saving 20% for the next two decades, you can get all that money right now.  Would you take it?  I bet most would say “yes” since it’s your money and the present value of a buck is greater now than later.

The big question is, what are you going to do with the $250,000?  The stock market is volatile, bonds are bubbliscious, and savings interest rates are less than 0.2%!  Perhaps you’ll use some of the money to pay off your debts, further your education, and help out your loved ones.  Or maybe you’ll invest the money in your start-up company and watch it grow into the multi-millions.

Finally, maybe you’ll do absolutely nothing with the $250,000 and just keep it liquid for a rainy day.  The political landscape is pretty horrific as there’s no way the Jobs Act Bill will get passed since it attacks charities and municipal bonds which fund state construction.  Massive layoffs are imminent before the holidays despite cashed up corporate balance sheets because demand is uncertain.  You might very well be in for rough times, and that $250,000 + $1,600/month in unemployment insurance will help you get through!

Genies are appearing in front of many homeowner’s beds thanks to Ben Bernanke and the Fed’s low interest rate policy.  Few people would have ever expected the 10-year yield to drop below 2%, but it has.  Cash-out mortgage refinances are tempting people night and day now, but the party can’t last forever.  Ben’s nickname is “Helicopter Ben” for making it rain money.  I prefer to call him “Bengenie.”

WHAT I’D DO WITH $250,000 OF MY OWN MONEY (REMEMBER, IT’S NOT FREE MONEY!)

* Look for attractive 8%+ yielding 2 bedroom, 2 bathroom rental properties.

* Decide which municipal bond ETFs to buy.  Examples: CMF, CXA, HYMB, INY, ITM, PVI, NYF, PWZ, PWA, SHM, SMB, SFI.

* Invest $10-20,000 into the Yakezie Network for better user experience, interface, etc.

* Look for offshore high yielding, but stable assets given the USD will likely continue to remain weak or depreciate.

* Send $15,000 to my parents to help contribute to their home remodeling project.  Good luck guys!

* Do absolutely nothing with all leftover funds and wait for a potential recession to come when Obama gets re-elected.  There could be much better opportunities in the stock markets as a result.

Readers, what are some of the considerations before accepting the Genie’s wish? 

What would you do with an extra $250,000?

Regards,

Sam

There’s only been one bank that has consistently treated me like cow poop all these years and that’s Bank of America.  When I saw its shares dip to $6.5 (-45% YTD) during our S&P downgrade meltdown, I couldn’t help but wonder whether it was just karma striking back.  Granted, Bank of America has some wonderful people working for the firm.  I guess it just so happens that I hardly encountered any of them.

During the financial crisis in 2008, I spread my money purposefully to Bank of America given that I was afraid any and all banks could fail, and the FDIC only insured up to $250,000.  Before BoA, I had been banking with Citibank, USAA, First Republic, and a little bit at Chase.  As the markets began to recover in 2010, I withdrew all my savings and expiring CDs and refinanced a mortgage away from Bank of America because I just couldn’t take how uncompetitive BoA’s rates were and how poorly I was treated.

Banks are a commodity business that takes in money and pays you a certain rate, and lends out your money at a higher rate.  It’s what banking analysts call the net interest margin, or NIM for short.  The bank should provide safety, liquidity, and access.  You know what the differentiating factor is in a commodity business?  Good service.  Someone forgot to tell Bank of America!

I HAVE FEELINGS TOO BANK OF AMERICA BAILOUT Read more…

According to Fidelity, one of the largest 401k providers in the world, the average 401k balance is now around $71,500.  In three not so short years, we’ve finally breached the peak average balance of $69,000 in 2007.  Hooray!  At the depths of the crisis in 2008, the average 401k balance plummeted 25% to around $50,000.

401k participation levels hover at a respectable 71% for those making $40,000-$60,000 a year.  Participating levels are therefore clearly much higher for those making more, but the exact number is unclear.  For those making $20,000 to $40,000 a year, the participation level drops to just 53%, which is understandable.

Let’s say the average age surveyed is between 30-35, you can now see how absolutely pathetic these balances are if you are actually depending on your 401K to retire.  You should consider “Treating Your 401K Like Social Security And Writing It Off“.  Don’t depend on any of this money being there when you retire.  You need to have the mindset of always maxing out your 401(k) every single year while saving at least 20% of your income after full contribution.  There really is no other guaranteed way to retire comfortably if you aren’t saving a good amount.  The power is all in your hands!

SAVING IN YOUR 401(k) IS A MUST Read more…