Financial Samurai » Budgeting & Savings

Why Are The Employed So Smug About The Unemployed?

admin — Mon, 26 Jul 2010 09:00:21 +0000

Written by: admin on July 26, 2010.

Hear that? That is the sound of another self righteous employed person complaining about the unemployed sucking up resources and driving the government deficit further into the red. Who cares employed people?? You guys aren’t the ones who are struggling to find a job in this economy!

There are several tautologies here:

1) Few can live a comfortable lifestyle off of unemployment benefits which average $200-3oo a week

2) The vast majority of people who are unemployed want to make more money, find jobs, and do something meaningful with their lives.

3) Our budget is headed towards a $1.4 trillion+ deficit, so who cares if we’re going to spend another $50 billion to help millions of unemployed people survive for up to 99 weeks?

THE BUDGET DEFICIT DOES NOT MATTER WHEN YOU HAVE NO JOB

The big debate over the Republicans and Democrats on the latest unemployment benefit extension is how the government will pay for the bill? The Democrats say don’t worry, it’ll come from somewhere while the Republicans say cut spending elsewhere to not add to the deficit. Whatever the case may be, the budget deficit doesn’t matter if you’re struggling to survive, and at the margin are going to cost the economy an even bigger burden? We’ll have to provide for shelters and more public safety officers when crime creeps higher as desperation kicks in.

The ramifications of a budget deficit are only theoretical. People say the government will need to raise interest rates to attract foreigner capital to fund our greedy spending. With higher rates by government, a crowding out effect occurs where efficient capital doesn’t get directed to the private sector. Meanwhile, borrowing costs for citizens increase, also choking off investments. Last I checked, the 10-year yield is close to 3%, and foreigners are happily funding us. Meanwhile, plenty of people are smartly refinancing their mortgages and saving money.

People say budget deficits are also bad for our children. How can we live with ourselves knowing that our children are the ones who are going to fund our bad spending habits? We live with it just like we live with the fact that the older generation will happily collect their social security checks, while the younger generation continues to pay without expectations of anything in return!

Once again, all this budget deficit talk is just theoretical nonsense that carries very little weight in determining whether or not we should help our fellow needy citizens or not.

THE ONLY WEIGHT ON THE EMPLOYED

A portion of our paychecks are paid for by the employer. This expense (unemployment insurance) is effectively calculated into a working person’s total compensation. If the unemployment insurance expense is 6% per anum, one can assume that if an employer didn’t have to pay this expense due to 0% unemployment, perhaps a couple percent of the 6% may lead to a higher paycheck.

So here is the thing for those who argue it’s a bad thing to spend another $50 billion bucks extending unemployment benefits. Would you rather have the Federal Government pay or pass a bill to increase the unemployment insurance paid by employers by another several percent? If you choose the latter, prepare for MORE layoffs.

CONCLUSION

It continues to perplex me how vocal some employed people are about not helping the unemployed. Unless you’ve been unemployed yourself, you have no idea what you’re talking about! When you’re unemployed for an extended period of time you start doubting your self worth. You ask yourself what’s the point of life if nobody is willing to give you a chance. You give up looking because you can’t bare another non returned phone call or e-mail. Each rejection is like a blade jabbed and then turned in the soul.

As I come to the end of this article, I realize why so many employed people are so smug about the unemployed. The reason is they are very unhappy with their jobs. They can’t stand the fact that someone is getting $1,200 a month to “do nothing” while they have to work 40 hours at their miserable jobs to only earn $3,500. Miserable people like to make other people miserable. The next time you see someone irrational complaining why helping others is a bad idea, just know that they are going through their own torment.

UPDATE 7/27/10: The more I think about it, the more I believe the reason why people are so smug is because they are insecure with their own jobs and angry about their current situation. The smug take their contempt out on the unemployed to make themselves feel superior. If you were happy with your job and made millions of dollars, don’t you think you’d be more supportive of trying to help your brothers and sisters out? I think so!

Readers, why do you think there are so many people against helping the unemployed through federal funding?

Do you have a better idea for helping lower unemployment?

If you are a smug employed person, please share with us your reasoning why you are against the extension.

Regards,

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

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

Should I Refinance Now? Does A Bear Poop In The Woods?

admin — Mon, 19 Jul 2010 09:00:40 +0000

Written by: admin on July 19, 2010.

You guys know that the one and only data point I track religiously is the 10-year yield right? Well, after the 10 year yield dipped below 3%, I went to the bank with a buddy of mine to go see how much money we could borrow. The wiry banker sat us down like a loving couple and asked us to go through our finances at which point I kindly stepped out of the room and let him go first. Five minutes later, he came out with a grin on his face, so I curiously went in.

I proceeded to disclose some of my finances, and he proceeded to tell me some curious news. “Look here Sam, you can borrow up to $1.5 million dollars at a 5 year fixed rate at 3.75%!”

Holy moly really? You mean little old me, just like that can borrow that much money at that low of a rate? “So what’s the catch?”, I ask.

“Zero points, and $2,500 in closing costs. But don’t worry, we are giving you a $500 credit for being a preferred member, and frankly, if you guys both take out loans, I’ll throw in another $500 credit,” said the banker.

“Done! Where do I sign?, I ask as I think about the new Audi R8 I plan to buy with just $150,000 of the $1.5 million. Or maybe I should be more conservative and spend $100,000 on the new 2011 Porsche 911. Or actually, I heard the 2011 BMW 335i coupe is coming out for only $55,000 this fall. With all the money “saved”, time for a bachelor’s trip somewhere fun! (I’m still thinking to myself here).

NOT SO FAST FOOLIO!

Unfortunately, things aren’t that easy. I’m not eligible to borrow $1.5 million to buy anything. I’m only eligible to borrow up to $1.5 million if I want to buy another piece of property or refinance my home. Good thing I’ve got a mortgage at 4.625% to refinance, and that’s exactly what I’m going to do.

An interesting thing to note for those who have variable rate mortgages is that if it starts floating today your interest rate will be only 3.5%. But, if you can lock in for another 5 years at 3.75%, might as well do so now.

The amazing thing about this year vs. last year when the 10-yr yield was also below 3% is that banks weren’t lending. The 10 year treasury rate actually dropped to 2.25% in October 2008 but nobody could get a loan, and if they did, spreads were egregiously wide (6% for same loan), it didn’t matter! My how things have changed.

A QUICK EXAMPLE

Let’s say my mortgage is $1.5 million at 4.625% for illustrative purposes. My monthly payments would be around $7,712 a month in principal and interest. Just by having a 10 minute conversation, and filling out some paper work with minimal cash out of my pocket, I’m able to refinance a jumbo loan of $1.5 million down to 3.75%. The result is a $812 a month increase in cash flow as the payment drops to $6,940!

Now lets take a look at the principal and interest breakdown of $7,712 a month at 4.75%. About $5,781 goes to interest and $1,931 goes to principal. At a 3.75% interest rate, your monthly payment drops to $6,940 with just $4,680 in interest and a healthier $2,260 in principal! In other words, not only do you pay less overall for better cash flow management, you pay less interest a month and more principal.

In percentage terms, even though your overall monthly payment just drops by just 10% ($7,712 a month down to $6,940) your monthly interest payment goes down 21%, and your principal payment goes up 20%. Funny how math works.

AMERICANS FLUSH WITH CASH

10 Year Treasury Yield Historical Chart

The refinance wave is coming again and that means more money in consumer’s pockets. In my example above, one has $812 extra cash to buy a new iPad every month for the next 5 years if so desired. One could also use the money to buy two round trip tickets to Hawaii, eat 15 steak dinners, lease a $60,000 automobile for no money down, or pay down more debt every month as well. Oh the possibilities are endless!

Of course one shouldn’t start spending frivolously, but the point is there will be a consumption boom as hundreds of thousands of people across America see a nice uptick in their monthly cash flow. Given ~68% of Americans own homes, and consumption accounts for over 60% of GDP one should feel encouraged that our economy is not going to fall off a cliff again!

Readers, anybody still on the fence about refinancing after reading this article? Do you need a hard kick in the pants? Do you think a refinance wave is going to sweep the nation again? How’s the property market in your neighborhood?

Note: It’s advised to match the fixed rate portion of your loan with your intended length of ownership. In other words, if you plan on moving in 5 years, get a 5/1 ARM. If you plan on holding your property forever, a 30-year fixed mortgage might be the way to go.

Also be aware that you need a loan-to-value of 80% or less, and likely a 710+ credit score to take advantage of current low rates. This irony of monetary policy is that it may very well benefit those who need help the least. Another post will touch upon this topic.

Please follow the 30/30/3 rule for home buying and don’t blow yourself up, so you don’t blow us up. Thanks!

Regards,

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

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

Is Becoming A Millionaire The Rule Rather Than The Exception?

admin — Tue, 01 Jun 2010 09:00:02 +0000

Written by: admin on June 1, 2010.

Dr. Thomas J. Stanley wrote a great book called “The Millionaire Next Door” where he surveyed a bunch of folks and discovered millionaires for the most part are pretty simple, everyday people. The next door millionaires drove second hand cars, shopped at Walmart, and lived in sub $500,000 houses which were of course, all paid off. Part of the reason why Dr. Stanley’s book is such a big hit is because he appeals to a mass audience and shows us we can all be millionaires because there’s nothing really special about them!

Hence, like getting your college degree, is becoming a millionaire by the time you retire fast becoming a rule rather than the exception? The answer is “yes” if you ask Dr. Stanley and all the next door millionaires. In fact, they are probably all shaking their heads at those who can’t get there because it’s so easy for them. Success skews reality proclaims Roger at The Amateur Financier. So true. If you’re rich, you think everybody is rich or should be rich.

SO EASY, EVEN A KNUCKLEHEAD CAN DO IT!

People are fooling themselves if they think only 6%-9% of all households have a net worth of more than $1 million in America. The data only tracks what is reported and plenty of wealthy people do not report the full extent of their assets. As such, I’d venture to guess the percentage of households with at least a net worth of $1 million is more than double the stated levels.

Someone who makes $60,000 a year on average for 30 years earns $1.8 million in gross income in his or her lifetime. Save just 20% of $1.8 million, or $360,000, and let that money compound at 4% leads to well over a million dollars. Look at the lower right hand side of this site and you can see the income breakdown of 400 submissions. It’s clear more than 6-9% make over $85,000/year. In fact, over 40% of the participants make over $85,000 a year, which means after 30 years, the individual has raked in at least $2,550,000! It would take a big time knucklehead to not be able to accumulate over a million dollars by age 60.

CONCLUSION

There is more wealth out there than you can ever imagine. Right here in San Francisco, 450 workers make over $100,000 a year just from their pensions! That’s just the public sector. If you look at those working at Apple, Google, Yahoo, Facebook, eBay, you can pretty much guarantee that a large majority of them will retire millionaires if they aren’t millionaires already. Let’s not even mention all the doctors, lawyers, venture capitalists, bankers, consultants, firefighters, policemen, and trust fund babies who make tremendous sums of money. There is plenty of money running around so why shouldn’t we all have at least a million bucks by the time we are 50, 60, 65 or whenever we want to retire? We all should!

As someone once said, “Don’t share the wealth. Go out and get your own!”

Readers, what do you think? Is becoming a millionaire the default setting for all of us? Should we scratch our heads and scoff at those who do not achieve this once lofty goal? Are people who make over $85,000 a year knuckleheads for thinking a $1 million net worth is unachievable?

Regards,

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

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

Who Needs A Job When You Have A Private School Degree

admin — Fri, 28 May 2010 09:00:00 +0000

Written by: admin on May 28, 2010.

Pick any private school. The cost is about $200,000 over four years. These figures don’t surprise anybody anymore given the ever rising application volume to storied institutions such as Harvard, Yale, and Princeton. That said, there have to be some who believe $200,000 for a private school is a hard pill to swallow over an excellent public school for just $40,000.

With an estimate 17% of people aged 20 through 24 unemployed, swallowing a bowling ball may be easier than finding a desirable job post graduation. Let’s say you are one of the unlucky few who can’t find a job after a $200,000 education. Does it really matter? Let’s think about why it doesn’t really matter from the eyes of several recent graduates.

THE BOY WHO WAS FORCED TO GO

Jimmy graduates from Columbia this year with a degree in History, European History to be precise. Despite his best efforts to land a summer internship last year, none were available, so he decided to go Euro-railing with his buddies for three months. What a blast, as he traversed the continent and collected bottle caps and coasters from every bar he patroned. The total cost of his trip, including airfare, food and lodging was a mere $10,000, just 1/5th what his parents pay for 9 months of school! What a bargain he reasons.

Everything is a bargain to Jimmy because he doesn’t have to pay for anything. He was happy to attend a SUNY school for a fraction of the price, but his parents pushed him to attend Columbia. In return, they would pay for everything, so long as he promised to just do well. The pressure Jimmy faced was immense. How could he live up to his parent’s expectations? He knew he couldn’t.

With Jimmy’s fancy Columbia degree, he reasons that he’s held up his end of the bargain. He didn’t drop out and instead flourished with a 3.7 GPA and a cum laude designation on his diploma. Yet, with no job waiting for him at the end of the rainbow, is all for not? Not so says Jimmy. The diploma is worth it, and if people don’t want to hire him, it’s their problem and not his.

You see, Jimmy’s parents are multi-millionaires who live in a $2.5 million dollar house in Greenwich, Connecticut. His father is the CFO of a Fortune 500 company and his mother has never worked a day in her life. In fact, the nanny who raised Jimmy since birth is still living with his parents even though they are empty nesters. Someone has to clean up the 5 bedrooms and run errands.

Like Jimmy’s mother, he never needs to work either because his trust fund can easily support him for the rest of his life. Jimmy is not unique, because all of his friends at Columbia are wealthy. Just by graduating, Jimmy and his friends legitimize themselves to the world. To think about starting at the bottom of any corporate is beneath them, when they are the sons and daughters of business leaders. Hence, who needs a job?

THE WOMAN WHO PAYS HER WAY

Now lets compare Jimmy with Allison, who paid her way through Columbia. She too, could have decided to attend a school 1/5th the price, but she did not. Instead, she chose Columbia out of the belief she would get a superior education, and land a dream job in marketing. With over $100,000 in student loans, Allison is suffocating from debt, and her repayment starts 6 months after graduation. Allison has no job offer either, and has decided to wait tables until she does.

Allison doesn’t want your pity, so don’t give her any. She made the choice to spend $200,000 on education even though her middle class parents, who earn a combined $80,000 a year couldn’t afford to offer much help. Only a small few get to attend such an elite university, and for that, she feels proud to have the opportunity. Some day, she will see the benefits of her Columbia degree, just not now.

Unless the right job offer comes a long, Allison is happy waiting tables. She won’t settle, even though it may seem like she already is. If a year goes by without finding her perfect job, she’ll just go to graduate school for another $50,000 a year. Allison knows she’s smarter than most people and has a tremendous amount of pride. Don’t pity Allison for not finding work, because she’s content with her own choices.

THE SUPERSTAR

Sandeep stands above Jimmy and Allison for his brilliance. He won the National Spelling Bee at age 9, finished multi-variable calculus by the 10th grade, and is on the US national juniors squash team. Sandeep has a full ride to Columbia and like Jimmy, doesn’t have to spend a dime.

Despite Sandeep’s achievements before and during college, he too, cannot find a job as a strategy consultant. Sandeep doesn’t care, because he had a grand old time playing squash, experiencing the NYC night life, and learning something new on the side. Besides, what’s $200,000 when none of it came out of his, or his family’s pockets? Absolutely nothing. As far as Sandeep is concerned, his dream job hasn’t found him yet.

Mentally, Sandeep figures that he can take the next four years off since he worked so hard during the past four years. Maybe he’ll go explore the world and live on a shoe-string budget. Maybe he’ll try to become a squash pro in Europe. The uncertainty of his future excites him, especially since he’s armed with a free Ivy league degree!

CONCLUSION

People who go to private schools aren’t stupid, nor are they irrational. Even under the most difficult scenario where one has to pay their way such as Allison, she doesn’t want your pity. They knew what they were getting themselves into, and took a risk with their finances in order to experience “the best” education in the world.

The reason why $50,000 a year tuition exists is because enough people believe it’s worth it. If not, tuition prices would adjust accordingly. Hence, there’s really no need for mass media schadenfreude gleefully reporting that private school kids aren’t finding jobs. There’s no need for concern either. The only people making noise about a tuition bubble are parents who probably can’t afford $50,000 a year, but who believe their kids deserve the best, whatever that is!

Readers, why do you think people make such a big deal about private school tuition? Harvard could charge $100,000 a year today, and there would be more demand than seats.

Who are the people feeling sorry for private school kids without jobs?

Do you think private schools are worth it over public schools?

Regards,

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

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

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Oops! The World Is Coming To An End!

admin — Wed, 26 May 2010 09:00:58 +0000

Written by: admin on May 26, 2010.

Like clockwork, I top-ticked the markets when I wrote “The Good Times Are Back Again” this past April. The markets have since fallen about 9% as the Euro Zone goes bonkers over debt problems. But, at least the message from the post is that it’s exactly during the good times where we need to be more disciplined in our finances, because we never know when the bad times will return. Now that the bad times are back, is now the time to party like it’s 1999 and spend counter-cyclically? Nope, because with the amount of volatility, by the time you finish reading this post, the markets might be surging again!

With this market correction, it’s pretty clear that everything isn’t peaches and cream. US leading indicators have turned downwards, unemployment figures have stopped improving, and people are wondering whether Europe will be like the US, but much worse. If you’re American living in America, look at the bright side of things: the US dollar is strengthening, and the 10-year yield has declined to 3.1%, which is leading to lower rates yet again! The 10 year yield and all its glory really is the most beautiful figure to watch. It can tell the story of everything and anything.

The USD will always be a global safe haven currency, no matter how hard we try and mess things up. It’s good to see that we aren’t the only basket cases as investors sell the Euro faster than they can say tapas! What’s going on now is that money is shifting towards US assets, namely the property market. Combine an asset shift with cheap debt, and rental yields above the current risk-free rate of return (3.1%), you realize why smart money is moving into the US property market again. Only a minority will agree with the attractiveness of the US property market, and therein lies the opportunity.

During bad times, it’s always good to re-evaluate your finances. I’m not convinced the bad times are back and am actually quite sanguine about the economy. All the same, here are some suggestions just in case things get ugly for longer.

TOP 5 THINGS TO DO WHEN THE BAD TIMES ARE BACK AGAIN

1) Know where your money is. It’s important to have an idea of where every single dollar of your wealth is allocated. In a bull market, perhaps suddenly you find yourself with 50% of your net worth in the stock market vs. a 35% comfortable allocation. The best way to get a snapshot of your assets is to list everything out in an excel spreadsheet manually. Re-evaluate, re-balance, re-consider.

2) Consider being contrarian and don’t confuse brains with a bull market. Was there a reason you’ve been holding 30% cash in the stock portion of your portfolio? Perhaps the reason was exactly for times like this? It’s generally never good to panic in either direction. Imagine capitulating the morning of Tues, May 25th when the Dow was down 290 points only for the market to be up 110 points the next day? Oopsie! You will immediately notice the mass media start talking about double-dips, recessions, and Armageddon scenarios when markets fall. Meanwhile, just last month the media was talking roses. Frankly, nobody knows where the markets are going in the short-run, but in the long run, the bias is generally up.

3) Get in earlier and leave later. In other words, work harder at your job and show that you are an indispensable team player. I can promise you that every manager thinks about cost cutting as soon as we have 10% downward movements in the markets. The manager’s goal is run a profitable business units and layoffs are always on the back of their minds. Your manager thinks about a future of “what ifs”, and so should you. Buckle down, be outstanding. You can’t control the markets, but you can control how great you are.

4) Prepare for the worst, but keep faith things will be OK. Preparing for the worst means ratcheting down your expenses and getting rid of inventory. Inventory can include your mountain of books, clothes and your 3rd TV with accompanying 3rd cable box. Expenses can be that $200/month gym membership you never go to or else you’d be thin. Preparing for the worst also means looking for a new job and developing side incomes just in case your main source gets expunged. If the worst comes, you’re ready, and if things are just business as usual, you’re pumped! When you prepare for the worst, there’s only upside!

5) Look around and realize today is just like yesterday, which will be just like tomorrow. If you didn’t have a media stream telling you the world is ending, you’d never let financial losses affect your well-being. Your happiness is all in your mind. You have the power to choose to be happy. It doesn’t cost much to touch base with family and friends or go for a walk in the park. Too often, we close inwards and worry about how we’re going to retire comfortably during market turmoil. Things come back. They always do.

CONCLUSION

Remember to focus on things you can control and let go of things that wiggle and squirm. If you choose to let fear enter your mind, you might as well use it to fuel new creation. Downturns are exactly the time to start something or do something better. Cherish meltdowns and embrace the challenge!

Readers, what do you do when market turmoil hits? How do you adjust, if at all? Why do you think people capitulated on May 25th and do you really think there will be a double-dip recession

Keigu,

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

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

The Emergency Fund Fallacy

admin — Fri, 21 May 2010 09:00:53 +0000

Written by: admin on May 21, 2010.

It continues to perplex me why there should be a distinction between an emergency fund and your general savings. If you have $100,000 in the bank, what is the difference between calling it $100,000 in savings, and splicing the funds into $10,000 emergency money and $90,000 savings? The answer lies in the fact that people who need to create an emergency fund likely always have “emergencies” and are weak with their spending and savings!

Let’s say your name is Mr. Benjamin aka a $100 dollar bill. You’re relaxing with your fellow Benjamins in the bank, hopefully earning at least a 4% interest rate using the “DVD Method To CD Investing” and having a grand old yield maximizing time. A Benjamin’s purpose is to provide a solid source of liquidity and risk free interest income for the owner upon his or her retirement.

Some Benjamins are lucky. Their owners don’t discriminate between one bill or another. They treat each bill with vital respect i.e. they don’t touch it! Some owners are just nutty, always disturbing their party and separating one Benjamin from another. “Listen up Benjamins! 100 of you are to relocate to this side of the tracks, and the other 900 Benjamins get to kick back and relax!”

YOUR CRUTCH WHEN YOU CAN WALK JUST FINE

As soon as you start identifying some of your savings as emergency fund money, that portion becomes “at risk.” Your emergency fund becomes a slush fund that tempts you to spend because you don’t have the discipline enough to lock away your retirement money. You bring your savings to the front lines, allowing you to justify your desires because you’ve earmarked other monies for retirement.

Having an emergency fund is a crutch. You start thinking in emergency fund type increments. That’s a lovely iPad my emergency fund can cover no problem! Or, let’s buy a brand new car and take out a loan since our emergency fund can take care of the payments! 1/10th rule for car buying? What’s that! The list of stuff you start wanting gets longer and longer until you no longer can control your temptation.

Worse yet, some of you might treat your emergency fund money like gold and never spend it! What does that mean? It gives you a green light to spend all your other money at will because you feel artificially complacent that no matter what, you’ll still have your piddily emergency fund to depend on. This could be the more dangerous result, since an emergency fund is generally only a small fraction of your overall savings.

CONCLUSION

As soon as you identify the weakness of the emergency fund concept, you’ll realize that you’re just making excuses for your spending and savings habits. Instead of creating an emergency fund, go broke to win big and lock your money away. If you have to create an emergency fund, you are scraping at the bottom of the barrel with regards to your personal finances.

Do you think multi-millionaires have emergency funds? Nope. They have tax efficient muni bonds, private equity investments, and liquidity. Stop thinking so small and start thinking bigger, holistically if you will! A dollar here is the same dollar there. Focus on fixing what’s most important, your money habits.

Readers, do you agree or disagree with the emergency fund concept and why? Do you agree with me that creating an emergency fund is a way to shimmy around one’s mental weakness in finance?

PS For those with emergency funds, I still commend you. Because if it’s a difference between having no savings, and having an emergency fund, then having an emergency fund wins all the time! Just be careful not to get complacent and stop there. Keep on building the nut!

Keigu,

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

Hire A Financial Adviser or Lose Money All By Yourself For Free?

admin — Fri, 14 May 2010 09:00:00 +0000

Written by: admin on May 14, 2010.

The following is a guest post from @NealFrankle of Wealth Pilgrim. Neal is a Certified Financial Planner, a fellow Yakezie member, and all around good guy. Hope you guys enjoy!

During strong markets, anyone can make money. During weak markets, everyone gets hurt. For the most part, all ships rise and fall with the tide, financial adviser or not.

So what’s the point of having an adviser?

(I have my own answer to this question and it may surprise you.)

But before we get to my answer, let’s explore the wild and wonderful world of financial advisers and our clients.

1. Financial Advisers are Salespeople.

I know. I’m a financial adviser. We sell products and ideas. We sell baby….we sell.

In fact, most of our training is in sales, not financial planning and not investment management. If you read “How to Become a Financial Planner” you realize this is true. A financial adviser might have specialized training as a Certified Financial Planner (for example) and that does provide education that helps us plan. But we’re still salesmen. We gotsta make a living and that means most of us are going to sell you something if we can. Show me a financial adviser who has been in the business and survived more than 10 years, and I’ll show you a pretty sharp salesperson.

2. We don’t have a crystal ball.

If you really expect your financial adviser to beat the market year in and year out you should get a job as a stand-up comedian because you’re funny – and not in a good way. If your adviser does great is some years, she’ll do crappy in other years. It’s this risk/reward thing you’ve heard about. (Unfortunately, it is the way the world works.)

3. We have feelings.

If you cut us…do we not bleed? If you tickle us…do we not chuckle?

Yes…. we do.

However, and this is a huge one, if we’re any good, we don’t let our feelings interfere with our work.

This is one difference between us and you that explains why the best of us are worth what you pay us.

I’ve been in this business for over 25 years. Do you want to know how many times smart (I mean super smart) clients call me up with ideas that are super dangerous? How about, “all the time.”

When the market is strong, you get greedy. You want to take more risk and that’s a bad idea. And when I say “bad”, I don’t mean it in the Michael Jackson cool way either. I mean, bad as in…really dumb.

Let’s say you work out a 20 year investment plan that ends up with you sipping Sake on some sandy beach when you retire. You look at a number of 20-year periods and see that the historical worst-case is a loss of 40% for an all-equity portfolio. That’s too steep for you so you select a portfolio with less potential risk – and lower historical worst-case losses.

Everything runs great – until the market takes off. At this point, left to your own devices, you get greedy and put everything into the market. The moment you do that, your risk skyrockets and if things don’t turn out, you might get wiped out.

But if you work with a good financial adviser (and listen to her) this won’t happen. She’ll remind you of your long-term plan and bring you back down to earth. Don’t thank us….it’s our job.

4. We know what works.

I’m speaking here about long-time veterans. We’ve worked with clients for decades and we’ve seen every mistake known to man. We’ve seen what happens when people get greedy or afraid. We’ve seen what happens when people try to predict the future or ignore it. We’ve seen what happens when people don’t force their children to be financially responsible.

Tap into our knowledge and experience. You’ve got one financial life. We’ve been part of hundreds of them. No we’re not any smarter than you are. We’ve just changed more financial spark plugs than you have. We know the right wrench to use.

5. We know what’s good for you.

That’s right. You read it right. We know what’s good for you and you don’t.

How many times have you gone to the dentist for a cleaning only to find out you need a new crown? Me too. It might hurt but you’re better off by knowing the truth and taking care of it…right?

The same thing happens in financial planning. You come into the office thinking everything is “wunderbar”. We stick a financial thermometer up your……I mean…in your mouth……and we tell you what medicine you need to start taking.

We tell you:

Which retirement plan to participate in.

How to protect your beneficiaries.

How often to update your trust and what to look for.

How to balance your portfolio.

How to use Inherited IRAs.

6. We aren’t perfect.

We’re just people. The vast majority of us are honest and want to help you. But a few of us aren’t. You’ll have to use your own judgment to find the right person to work with.

As nice and honest as we are, we make mistakes. We work with a lot of people and we forget things. When we do…don’t get angry. Just remind us and be kind.

Bottom line, being a financial adviser is the best small business idea I could think of. I love being in it. Not because I think I make you more money – although I try to do that as best I can. I’m proud of what I do because I help people get what they want out of life with less risk and less cost.

I charge for what I do and I’m worth it.

Regards,

Neal

Germany’s Missed Opportunity To Save Greece & Themselves

admin — Mon, 10 May 2010 09:01:33 +0000

Written by: admin on May 10, 2010.

Yowza! Source: NY Times

Over 11 million people are estimated to have died by the hands of the Nazis during the Holocaust just 65 years ago. 5 to 6 million of the 11+ million were Jews and over 300,000 were Athenians during the Axis’ occupation of Greece. It’s a fallacy to blame modern day Germans about the atrocities of the past. Yet, just because the demons have all died, shall we forgive and forget? Absolutely not. The offspring and relatives of the 11+ million dead live on, and their stories will never ever be forgotten.

With a GDP of US$3.6 trillion, Germany is now the largest economy in Europe as well as the 4th largest economy in the world. Germany also has roughly $50 billion in estimated loans to Greece, a large amount, but not an overwhelmingly debilitating amount given the size of their economy. Saving Greece helps the Germans and the rest of the 27 EU members who in some way were all negatively affected by Germany decades ago.

GRAND STANDING AND FINGER WAGGING

Instead of taking this opportunity to save the world and make up for the atrocities of their past, Germany has decided to play politics, wagging their fingers violently at Greece for their complete, and utter mismanagement of their economy. Make no mistake, the Greek fiasco is a crisis of politics, and not of economics, yet.

To put it simply, Greece’s budget deficit in 2009 was 12.7 per cent of GDP, and its overall debt was 113.4 per cent of GDP. We’re talking one naughty, highly indebted country who spent way more than it earned for years and years and years. Even debt-addicted America only has a overall debt to GDP ratio of 88%, and we tried hard to mess up our economy!

How can Greece be so foolish in their spending one might ask? That’s easy, Greece knows their backstop is the European Union and politicians are to blame once again. A dirty politician is the same in every country. Politicians make promises they cannot keep, and spend more than they take in to get elected and feed their egos. Discipline is thrown out the window when it comes to being able to gorge on other people’s money and not your own. The empty promises are always the next politician’s problems!

When Greece gave up its Drachma currency in 2001, they did so unwillingly, but with the promises of a brighter future. With the might of 26 other member countries, many of whom are much larger such as Spain (4X bigger), it behooves Greece to live like Gods and spend like the wind. The problem lies in timing, and a complicated web of debt that creates knock-on effects for all countries.

THE REAL SOLUTION: GERMANY’S CHANCE OF A LIFETIME

For all those guilty German souls who feel bad their people pillaged much of Europe in the 1930s and 40s, now is the chance to improve their future legacy. Imagine if all the citizens of Germany came together and voted for their government to be the white knight and bailout out Greece all by themselves. Not only will the Greek be more forgiving of Germany, but so will every other European Union country perhaps. The Germans have a phenomenal opportunity to change perceptions and negative stereotypes held by millions.

Germans are suffering needlessly because of uncontrollable past events. If I were living in Germany, I’d vote for a Germany-lead bailout with pride. Maybe my future taxes get raised to pay for the bailout. Or maybe not, as the German government decides to raise taxes on only the top 10% of income earners like we do here in the US.

In any case, I’d vote with vigor because I’m sick of people looking at me funny and discriminating. Instead, politicians are playing the blame game and publicly trying to humiliate each other. I don’t want my kids to ever, ever suffer from what someone did 100 years ago. Chalk up $50-150 billion in German bailout money as unpaid interest of war reparations compounded over the past six decades. The amount will never eradicate the past but at least it’ll help their future.

THE WORLD STEPS IN INSTEAD

Concerned that the fiscal damage could spread throughout the EU and the world, EU members and the IMF have pledged $1 trillion ($750 billion up front, $300 million over the next 3 years) to bail out Greece, but most notably the Euro. And since the United States is the largest contributor to the IMF budget at 17%, our share of the $1 trillion IMF package could be as high as $40 billion bucks! That buys one heck a lot of spanikopita!

It’s safe to say that nobody knows exactly how much bailout money Greece needs, because it’s almost impossible to quantify the value of their debt to all their fellow European Union members. What is known is that the strongest members of the European Union like Germany, can easily provides a $50+ billion bailout package and save their brother. By not leading the charge, and letting the IMF and the US take control, Germany misses their oipportunity to make a difference. Worse, the world will wonder why the largest economy in Europe, with much to lose if Greece goes under, didn’t do more while others did.

CONCLUSION

The US sub-prime crisis teaches us that without a concerted bailout, we all suffer. We can blame Wall St. for creating exotic financial instruments which nobody understands. We can also blame homeowners who bought way more house than they knowingly could afford. But when crap hits the fan, we all get smeared, so we might as well all pitch in. Once the rescue package arrives, we then enforce stringent regulations and make hard admonitions against guilty parties in hopes a crisis never happens again. But rest assured, as long as humans exist, crises will happen.

Greece is to Bear Sterns what Spain is to Lehman. Greece should consider itself lucky it’s relatively small, and first to announce it has a debt problem. You know they will get bailed out, because The EU and the IMF can’t risk contagion. The problem is, once Greece gets bailed out, many of our Spanish friends might do a little more binge spending and say, “Nosotros tambien! Si, como no?“ One by one, the fear is that every single EU country with a little bit of debt takes advantage of moral hazard and stop paying. You thought The Moral Hazard of America was bad, you ain’t seen nothing yet!

Das Eisen schmieden, solange es heiß ist!

Readers, do you think Germany should lead the charge in bailing out Greece? If so, will it help change perceptions about their role in World War II?

Can we blame Greece for behaving badly? After all, they don’t have the Drachma to worry about anymore.

How big do you think this European debt crisis will become?

Keigu,

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

Folllow on Twitter @FinancialSamurai and subscribe to our RSS feed.

The Dark Side Of Early Retirement

admin — Fri, 30 Apr 2010 09:08:45 +0000

Written by: admin on April 30, 2010.

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

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

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

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

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

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

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

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

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

THE DANGERS OF EARLY RETIREMENT

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

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

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

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

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

CAREFUL WHO YOU LISTEN TO

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

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

EARLY RETIREMENT IS SELFISH

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

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

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

CONCLUSION

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

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

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

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

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

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

Keigu,

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

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

Don’t Have Children If You Can’t Take Care Of Yourself

admin — Mon, 19 Apr 2010 09:00:04 +0000

Written by: admin on April 19, 2010.

In “How To Dramatically Increase Your Job Security For Life“, the article suggests managers are more inclined to fire those workers who have nobody to support but themselves. As a result, one should strategically at least hint at the intention of starting a family to protect oneself from unemploymentville. Clearly I’m being somewhat flippant. My goal is to make people realize that relationships and emotion play enormous roles in shaping work success.

Whether you work for a small family business or a large corporation, hiring and firing is a very personal decision that comes down to one or only a handful of decision makers. By tugging at their souls, and increasing their guilt factor, you’re well on your way to dramatically higher job security for life.

Let’s say you’re not particularly wealthy, nor make a particularly impressive amount of money. You still have loads of student loans and consumer debt to pay off. In essence, you’re the typical American! Shouldn’t you be putting on your air mask before helping others?

Child raising is estimated to cost anywhere between $250,000 to $1 million from birth to after college. If a family can’t even have the discipline to save 20% of their paycheck after contributing to their 401K and IRA, how can one consciously start a family?

$250,000 ISN’T A LOT, YET HOW MANY CAN SAVE THAT MUCH?

A typical person graduates college by 22. If you’re really slow, perhaps 25. $250,000 divided by 25 is only $10,000/year in after tax costs to raise your child. If you’re in the 25% tax bracket ($68,000-$137,000 income), you’ll need to make roughly $13,000 in gross income to net $10,000. Right off the bat, you’ll have to save anywhere from 10-20% a year to pay for your child. Sure, for the first 10 years you probably won’t be spending $10,000 a year, but what about for the last 15 years with tuition costs and inflation?

Any private college worth attending costs over $40,000 a year. Let’s say little Johnny is brilliant and gets a 50% scholarship. That’s $20,000 a year right there plus another $15,000 a year for living and school expenses. Even public schools run about $20-$25,000 a year nowadays in tuition and living expenses.

The $1 MILLION DOLLAR PROPOSAL

In “Do “C” Students Deserve “A” Lifestyles“, the article suggests the government impose restrictions on what certain people can buy based on their average GPA in high school or college. For example, only if you have a 3.7/4.0 or higher in college, are you allowed to buy a BMW. A 3.5 GPA allows you to buy a Honda Accord or cheaper, and those who couldn’t even crack 2.5 are restricted to biking or walking.

The idea is that if you were smart enough to get straight “A’s” in college, you are smart enough to realize that buying a $5,000 Hermes handbag, and spending more than you make is a sure way to financial ruin. Conversely, if you were dumb enough to not try in school and not realize the importance of education, then it’s best to leave the weapons of mass financial destruction out of your hands. Society shouldn’t have to bail you out in the end.

As the government continues to infiltrate all our lives, may I suggest a new proposal. Unless your household net worth is over $1 million, no American household is allowed to have a child! OK, so $1 million is likely too high of a hurdle, but you get the idea. Institute minimal financial standards, such as having at least a positive net worth and a declaration of a 10 year financial game plan before a couple can start a family.

Think about all the positives that will come out of this legislation:

1) Population control. We are the #1 user of Earth’s natural resources. Curb population growth, decrease our fiscal burden, and let the world live longer.

2) Improved financial health. Those who really want kids will stop messing around and really start saving and working on their finances.

3) Increased care for the child. With a net worth of at least $1 million, there’s a lower chance your child will experience neglect due to lack of funds.

4) More well-rounded children. With more resources, a child can take as many art, music, sports lessons as he or she wants. After school tutoring is no problem, neither is a cultural immersion trip overseas.

5) Less divorce and happier parents. Without the strains of money (the #1 item couples argue over), there’s less stress for couples. Happier couples mean happier, less trauma-exposed children.

CONCLUSION

With over 143 MILLION orphans around the world, maybe we should think thrice about having children. Perhaps the Duggars family, with their 18 kids aren’t really doing “God’s work.” Maybe they’d do better adopting 18 children who need help instead.

We all have the right to do whatever we want, but should we? If we aren’t willing to help feed or adopt a starving child, at the very least, let’s not add another by making sure our financial health is in order first before having our own.

People frequently say there’s no right time to have children. That’s baloney. The right time to have children is when you have an unwavering desire to care for someone for 18+ years. Your finances are the least of your worries because they’re set, and you have a clear plan for child raising. If you have no plan, no money, and no intense desire please don’t have children. Figure out how to take care of yourself first.

Readers, what are your thoughts about the government instituting a $1 million net worth rule before Americans can have children? Too radical?

What do you think about the Duggars and their 18 children? Will you be willing to pay for their food, shelter, and children if their parents can no longer afford to?

How do you suggest we help the millions of orphans?

What advice would you give a couple thinking about having children? When is the best time?

Please explore UNICEF, and recommend other organizations which seek to help children who lack the basic means for survival.

Keigu,

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

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

How To Dramatically Increase Your Job Security For Life!

admin — Fri, 16 Apr 2010 09:00:34 +0000

Written by: admin on April 16, 2010.

A fantastic topic came up over dinner one day regarding how to increase job security in today’s highly volatile economy. The usual tips came up, such as: be invaluable, develop strong internal relationships, and never call in sick on a Friday (slacker). All tips were logical, but the more we drank, the more out of the box we thought until we reached the best employment insurance strategy of them all: Make babies and start a family!

Starting a family could be the #1 way to ensure long term employment. With a family, your employer must not only consider your situation, but the situation of every single person you support. The more kids you have, the more bullet proof you become! Imagine a scenario where your boss is faced with firing 10 employees out of 100, or 10%. How do you think she chooses?

HOW MANAGERS THINK BEFORE FIRING YOU

The first exercise a manager will conduct is comparing the cost of each employee with the benefits (revenue) generated by the employee. The second stage of evaluation is figuring out who are the manager’s friends (aka cronyism). The friend of the manager can truly be a friend, or someone who makes the manager look so good, it’s impossible to let that person go. The third step a manager must think about is what will happen if business revives and she needs to rehire the person let go. The more difficult he or she is to replace, the lower the chance he or she will be let go. Finally, given most people are not heartless robots, the manager will consider the firing repercussions of not only the at risk employee, but all who depend on him or her.

If there are two equally mediocre candidates, one who is a single woman with no family to feed, and another who is a widowed mother of three children in day care, who do you think the manager will let go? There’s very little doubt in my mind that if you have a family to take care of, you are at a tremendous advantage in terms of employment security compared to your single or non-married peers. With a family, your boss tests her soul, and goes with the decision that provides the least amount of guilt.

CONCLUSION

So how about it folks? If you’re petrified about losing your job, you might want to tell your boss you’re pregnant, or are working on starting one big happy family of your own. Once your boss knows, unless she’s the Devil herself, you’ll never be considered a candidate for the chopping block ever again!

Readers, what are your thoughts about employees with families and whether or not they are less fire-able than those without?

Should we try and start a family to protect our careers?

Do you think it’s fair if companies discriminate against single people when it comes to pay and employment?

Follow up post: “Don’t Have Kids If You Can’t Take Care Of Yourself”

Regards,

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

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

Play Games To Save Money And Achieve Your Goals!

admin — Wed, 07 Apr 2010 09:00:25 +0000

Written by: admin on April 7, 2010.

It’s difficult to save money and not splurge on things you want. Let’s face it, those financial goals you made this year will need as much help as you can get. One of the key ways I save is to play games. Let me show you what I mean.

SAMURAI SEPTEMBER

Last July, I made a resolution not to spend any money on things other than basic necessities such as food and my bus pass in September. Even filling up Moose with gas was pretty much off-limits as we decided to do a lot of biking, walking, and carpooling instead.

By naming September, Samurai September, the game was set in motion to see if I could succeed. Not only did I not spend any money that month, I didn’t spend any money in October either! I wanted to beat the rules of my game, and break the record by as far a margin as possible. The feeling is just like trying to smash the Pacman record by a wide margin, so nobody will ever unseat you.

THE “I WON’T SPEND MONEY UNTIL…..” GAME

The game is really easy and fun to implement. Pick something that you hope for, and not spend on anything until your hopes turn true.

1) Until… the 49ers and Redskins make the playoffs. I love the 49ers and Redskins and I also love the new LED HGTV technology that has come out. The picture quality is amazing! Since these 40″+ TV’s are $1,300+, I promise I won’t buy a new LED HGTV until either team makes the playoffs!

2) Until… I record 10 songs and sing to an audience. Music is one of my great passions, especially trying to sing and play the acoustic guitar. I’m pretty horrible, despite practicing for the past 10 years. Within those ten years, my desire for a new, beautifully constructed Martin Brazilian Rosewood guitar has emerged partly due to an increase in income. Yet, I’ve promised not to get a new guitar until I put together my darn 10 song play-list, and get the guts to sing to a live audience.

3) Until… both electrical car seats stop working. Folks know I love cars. I’m going for a record 4th year in a row of owning one car. It’s quite an accomplishment since there was a time where I went through eight cars in ten years. Currently, my passenger side electrical seat no longer adjusts. Thankfully, it’s set in a comfortable position. Not until the driver’s seat breaks will I buy a new car! With the dealer offering a handsome $1,500 trade in value for Moose, I’d rather poke my eye out than trade Moose in and spend $20-50K more for a new car!

4) Until… I can touch my toes without bending my knees. Flexibility is as important as physical strength when it comes to sports. As the tennis season revs up, it’s important to strengthen my core and stay limber to prevent injury and beat the competition. Not being able to touch ones toes is pretty darn pathetic. Luckily, it’s pretty easy to work on! Hence, if I’ve promised not to buy any more tennis and general sporting gear (shoes, raquets, clothing, bags, etc) until I can comfortably touch my toes.

5) Until… I get a raise or a promotion. Finally, if you want to really play a serious game, which corresponds completely with personal finance, tie your goals back to work. Promise yourself that until you do get that raise or promotion you won’t spend money on anything superfluous until that day. By setting this target, you will focus on your greatest money making asset, you!

CONCLUSION

Finding reasons to save money is pretty boring compared to finding reasons to spend money. If you can create fun reasons to save money, stipulated on things that have nothing to do with the actual savings process (football playoffs), I think you’ll find it much easier to build your freedom fund.

Time can be your friend or your enemy when it comes to savings. The weak see more time as leading to more opportunities to spend and blow up their budgets. The strong see time as an opportunity to build savings and watch their investments compound. The great thing about this game is that it’s scalable to whatever you wish to strive for. Once your goals are achieved, you may be so happy that you may not even need to spend any money!

Readers, any goals you’ve set for yourself to achieve before spending any money? Any type of games you play?

PS Another game played starting last summer was to not buy a new laptop (bought and ultimately returned) until this site broke Alexa 500,000. 500,000 was breached last winter, and I’m still playing until this site can get into the top 35,000.

Keigu,

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

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

The Benefits of Debit Cards Over Cash and Credit Cards

admin — Mon, 05 Apr 2010 09:00:29 +0000

Written by: admin on April 5, 2010.

As a credit card user who takes advantage of rewards programs while paying on time, I was intrigued when a representative from ACE Pink Prepaid Debit Card approached me about supporting our site and letting us learn more about their product. Let’s talk a little bit about the benefits of a debit card over cash and credit cards, as well as any detriments.

DEBIT CARD BENEFITS

1) Protect yourself from yourself. The most important benefit of using a debit card is that once your account goes to zero, you aren’t able to spend. If you’ve only got a debit card in your wallet, you will theoretically never spend more than you have, which is a very healthy thing in this age of consumerism. Customers can load the ACE debit card up to $5,000 per day at an ACE location or up to $10,000 a day with direct deposit. The maximum balance on the account is $10,000.

2) Peace of mind with insurance. The second most important benefit of a debit card over cash is insurance. Instead of carrying around a couple hundred bucks in your wallet, just carry a debit card. If you get jacked on the streets while shopping, you can rest assured the robber won’t be able to use your card, and if they do, you have the debit card issuer on your side. I never recommend anybody ever put up a fight with a mugger by the way. Your wallet/purse is not worth injury or your life, especially if you have a replaceable debit card.

3) Rewards programs. The ACE Pink Prepaid Debit Card’s award to the consumer is that it donates a portion of all revenue to help fight breast cancer – a total of more than $350,000 in the past two years. Their policy of giving back is very much in-line with this site’s policy.

4) Convenience. A debit card can be used for online transactions, ATMs, and anywhere that Mastercard and Visa are accepted. Essentially, the debit card is a fantastic cash replacement for most transactions, except for when you lose NCAA tourney bets!

5) Love & Attraction. Susan G. Komen is a genius at trademarking the color pink for fighting breast cancer. If you are a male, and bust out one of these cards on a date, I’m pretty certain the card will be a fantastic 15-30 minute talking point. If you are at the bars, and tell the bartender to “keep it open,” I’m pretty certain women will want to inquire about the card. If you are a woman using the card at the bar, guys will most certainly use your card as a talking point as well!

DISADVANTAGES OF A DEBIT CARD

1) Protecting Yourself From Yourself. If you are at the BMW dealer and really want to splurge, you might only be able to buy a set of wheels instead of the whole car with a $10,000 limit from ACE or any other card. That said, I’m sure if you demonstrate your financial muscle, they’ll increase your funding.

2) Men Mock Men. If you hang out with a bunch of unruly, insensitive dudes, they might mock you for being a good guy and carrying a pink card. If you’re too insecure to use it, then you best keep it hidden or use cash or a manly credit card instead.

3) A Card Is Still A Card. The reason why paying in cash is so painful is because cash is real, and a debit card is less real. Although you can’t spend more than you fund in your debit card, you can spend it all if you are weak.

4) Fees. Debit cards can charge $10/month on average for it’s use. The good thing is that if you are going to the ATM machine several times a month, that cost negates out.

CONCLUSION

I’ve never really thought about using a debit card until now. Having been jacked at gun point in a strange land before, I’m hesitant to carry more than $100 in my wallet. If I could carry zero cash in my wallet and just use a debit and credit card, that would be the ideal scenario. A debit card is a useful tool for many of the reasons stated above. Just remember to spend responsibly!

Readers, what are your thoughts about debit cards vs. credit cards and cash? How many cards are in your wallet, and what is the maximum amount of cash you feel comfortable carrying?

Regards,

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

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

We Have Peanut Butter, But No Bread – Making Do With Less

admin — Fri, 05 Feb 2010 09:10:25 +0000

Written by: admin on February 5, 2010.

After a long week, the last thing either of us want to do is cook. We don’t go out because of the rain, and delivery for the 3rd time this week is out of the question. Inglorious Basterds arrives in the mail, and we just seek something sufficient and efficient to eat.

Unfortunately, as we raid through the cupboards all we find is peanut butter, with no bread and spaghetti with no sauce. We also find stale crackers, and a pound of dried pumpkin seeds, but that’s it. Drats! Good thing I keep looking, because I find my canister of protein powder which I forgot I had. The filthy drink contributes today.

We pour stale crackers onto our plates, along side two heaping spoons of peanut butter. To wash it all down, a lumpy and not so delicious vanilla protein shake each. It was nostalgic, eating like college kids again.

FIVE KEY TAKEAWAYS

1) Even if someone says, “there’s nothing left in the house to eat”, there’s always something. We just aren’t looking hard enough.

2) It often takes two things to create an even yummier whole e.g. peanut butter sandwich. We realize why teamwork is highly valued.

3) Food can be a wonderful experience, but hunger can be a pain. We forget that much of the world eats for sustenance, and not for pleasure.

4) All the pain goes away once we sleep. Meanwhile, eating less than normal feels great the next morning. There’s no bloating, money is saved, and although we’re still a little hungry, we have the energy to feed ourselves again.

5) We adapt to what we have. A large house inevitably fills with clutter.

CONCLUSION

Sometimes things just don’t go according to plan. Yet, we all have an amazing ability to adapt to our surroundings and make do with less. It’s refreshing not always wanting more. Dig out your old things and enjoy them again. Call your friends you’ve lost touch with and catchup. Our reservoir of sustenance runs deep. We just have to discover it all again.

Readers, anything you’ve experienced recently where you had to adapt? What did you learn from your experience?

Have a great weekend everyone!

Keiju (Regards),

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

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

Do “C” Students Deserve “A” Lifestyles?

admin — Mon, 01 Feb 2010 09:00:42 +0000

Written by: admin on February 1, 2010.

Back in the 9th grade, I remember goofing off quite a bit with my buddies. We skipped class, stayed out late, and essentially did a lot of stuff that was detrimental to our grades. Despite working with plenty of Spanish speaking colleagues during my part-time job, I still only got a “C” in Spanish because I didn’t care. All I wanted to do was have fun, and fun is what I had!

My parents spoke to me one evening and asked, “How are you ever going to be a great business man if you can’t even get an “A” in math? Do you think award-winning scientists get “C’s” in high school chemistry? Do you think Andre Agassi doesn’t practice hard every single day?”

The questions stuck with me because ever since I was 12, I wanted to be a “business man.” I remember getting picked up in a sweet Mercedes 300 SEL by one of my father’s friends to take us to their mansion party. The whole experience with the infinity pool, car, food, and servants made me want to do what they did, whatever that was!

After the pep talk, I began caring about my grades through college. I didn’t want a silly thing like grades to get in the way of my dreams.

THE QUESTION TO ASK ALL PEOPLE

It’s pretty rational not to study, because studying sucks. Most people are probably “C” or “B” students given the law of natural distribution. Hence, do “C” or even “B” students deserve “A” lifestyles? If you were a mediocre student, who went to a mediocre school, who works at a mediocre job, why do you think you deserve more than a mediocre lifestyle?

THE SOLUTION

To get people out of debt, we need to make people realize they are unworthy of the stuff they buy, even though they see their neighbors live it up. Maybe their neighbors all got straight A’s at some prestigious university and are doctors? We can’t compare ourselves to others, because we don’t know for sure what others make.

Given we have such an omnipresent government, perhaps they should make it mandatory for everybody to have their grades and universities revealed before they are allowed to purchase anything. For example, only people with 3.5 or higher GPA’s are allowed to buy Armani clothes and Mercedes Benzos. 3.0 GPA folks, sorry, only Gap and Hondas for you! The government can regulate spending by those who need the most regulating assuming there is a correlation between grades and commonsense of course. Just imagine if we had this big brother program for potential home buyers 10 years ago. We’d all be saved, right?

CONCLUSION

In reality, all we can do is be cognizant of our own achievements and spend accordingly. If we can knock some reality into the average person, then maybe, just maybe people will spend in-line with their incomes.

Let all the go-getters who are passionate about everything they do soak in all the success. Let those who never complain and work when others are playing make all the money. The rest of us can just kick back, whine about why life isn’t fair and tell ourselves why we deserve better.

Readers, do you believe that a main reason for tremendous consumer debt is because there are delusional people who think they deserve more than they can really afford?

If people want all the fancy things in life, why don’t they just work harder in school, be the best employee, or invent something successful to accommodate their desires?

What GPA did you get in HS/College, and will you be justifying your spending habits in the discussion below?

Keiju (Regards),

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

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