I’m excited to review David Bach’s new book entitled, Debt Free For Life!  I’ve been a fan of David’s books since his very first bestseller, The Automatic Millionaire.  David writes in a very easy to understand, logical sort of way which allows readers to follow his advice easily.

I remember the first time I picked up one of his books, I was at Barnes & Nobles.  I sat in a corner for an entire hour and read the book from cover to cover.  Sorry David!  I know I should have bought it instead, but I was practicing my frugal ways at that time in my life.  Actually, I still am.

For someone who is in debt, and who has never read any of David’s books, I highly encourage you to read his latest, Debt Free For Life.  Given I’ve read practically every single one of David’s books, it’s hard for me to learn anything new.  That’s somewhat of bummer since I was hoping there would be something as innovative as the “latte factor” was 10 years ago.  Still, if you’ve only read one or two of his books and are on a mission to pay down debt, this book is perfect for you.

One of the best things about book reviews is access to an author’s mind.  I ask David five burning questions to challenge him beyond the plain vanilla, and to my delight he answers most of them quite directly.  Hope you guys enjoy the insight!  There are three books to giveaway at the end of the interview!

FINANCIAL SAMURAI QUESTIONS FOR DAVID BACH

1) Why do you think people get into such deep debt? One of my theories on Financial Samurai is that people get into debt because it feels great to spend money you don’t have. Otherwise, you wouldn’t do it. Once you get into debt, it feels so great to pay down debt and get out of debt. In essence, debt provides pleasure both ways and people really like debt. Thoughts?

Personally, I don’t know anyone who “likes” debt. Even people who feel great spending money usually feel anxious and horrible when the bills come in, and people I’ve counseled out of debt certainly don’t try to get into debt again so they can feel great paying it off a second time. Two generations ago, people paid cash for everything, held mortgage-burning parties, recycled tinfoil. That philosophy and way of life has disappeared and people get themselves deep into debt because they can.

Our society has incentivized borrowing more – you can open another credit card if you need more credit, or get a tax deduction on that house you can’t afford. The good news is that I see more and more people who want to pay down debt and save money. If anything, the great recession has woken us up to the financial reality that we can’t afford to be in debt anymore.

2) You read stories about people who get into $50,000 and $100,000 levels of consumer debt. How does this happen? Isn’t everything regulated and logical from a business stand point?  In other words, the only way you can get into $100,000 worth of debt is if the credit card company approves your credit limit because your income is large enough to warrant it so.

Unfortunately, we were in an era that became permissive of debt and even seemed to encourage it. We have billions of dollars of advertising to get us to buy things we don’t need, a multi-billion dollar credit card industry that tells us the good life can be ours for the taking when we use their credit cards, banks that loan us money for homes they know we can’t afford, subprime lenders who tell us we’re “silly” to keep equity in our homes when we could “cash it out” to pay off our credit cards, and a tax system that promotes heavy borrowing by offering tax deductions. We’ve been sold a bill of goods, or a bill of debt, and now we have to pay.

In addition, many people who are deep in debt get in trouble by taking on multiple credit cards and spending beyond their means. The problem with credit card debt is that most people do not understand the insanity behind the minimum payment math—specifically, how long it will take you to pay off your current balance and how much it will cost you if you only make minimum payments. In Debt Free For Life (www.finishrich.com/debtfree) I reveal how the debt companies imprison you with basic math to keep you in debt for life. By learning their games, you’ll be able to fight back and win—and achieve real financial freedom.

3) One of my main recommendations for success is to stop being delusional. For example, if you are a terrible student who received a mediocre job and earn a mediocre salary, it is delusional for you to think that you should live like a person who makes much more by spending much more. Instead, recognize you are destined for a mediocre lifestyle, and spend accordingly.  Hence, do you think people who go into debt are more delusional than those who don’t have problems with debt? Is there a self-esteem and psychological aspect to the entire debt situation?

In my experience, it’s easy to get into debt. I can relate – I had problems with spending and credit cards in college. What set me straight was my Grandma Rose. She told me what we all know but have a hard time committing to: don’t spend money you don’t have. Each person‘s situation is different – and their reason for taking on debt will be different. Someone that believes they can spend more than what they can afford is not necessarily delusional – they may just be misinformed and as I said before they are probably mislead.

One psychological state that I can be positive about when it comes to debt is the mindset of when you are completely free of debt or on a solid path towards a debt free life. The moment you start on my Debt Free For Life (www.finishrich.com/debtfree) plan, you will begin to feel better. Just knowing you have a plan in place to pay down your debt in the right order, the right way—a plan you can carry out yourself that will save you thousands of dollars in interest fees and cut years off your indebtedness—will truly lighten your burden, however light or heavy it might be.

Debt creates fear. Not having it creates peace of mind. This may sound like a cliché, but its true. When you have less debt, you will feel more FREE. You will have fewer worries, less stress, less tension and fewer fights at home. In short you will have less fear and more serenity.

The problem is most people don’t know how or where to start. This is why I wrote my new book. To give people a step-by-step plan to get out of debt—no matter how much you owe. In addition, I have teamed up with Equifax, one of the leading nationwide credit reporting agencies to create a revolutionary online tool called Debt Wise™. What’s great about Debt Wise is that it has taken my DOLP system and made it automatic. As a result, in literally seconds you can see how much debt you have, what order to pay it off in, and how long it will be until you are debt free. Debt Free For Life includes a FREE 30 day trial of Debt Wise.

4) Your book advocates now getting completely out of debt, and not play semantics between good and bad debt. Is this a knee-jerk reaction to the economic crisis and any personal crisis you may have recently experienced? So many businesses have succeeded through the use of debt. What about the choice of going to a great school that costs $40,000 a year in tuition and
going into debt vs. going to an unknown school for only $5,000 a year. How does one weigh the choices?

Last winter, a friend asked me about ‘good debt’ vs. ‘bad debt.’ I started giving her the standard answer about how good debts are debts you incur to buy things that can go up in value (like a home, business or college education) while bad debts are things that will depreciate or go down in value (like credit card balances). But then I had kind of an epiphany and realized, this recession has changed everything. Home equity has been dropping—by trillions of dollars over the last few years and people with college degrees are looking for jobs.

The truth is, that when you’re in debt, it doesn’t matter what you borrowed money for. The only thing that matters is whether or not you can afford to pay it off. When you can’t afford to make the payments, the only difference between “good” debt and “bad” debt is that the “bad” variety can destroy your life much more quickly. Now I’m not saying all borrowing is bad. The ability to borrow money helps us function as a society and borrowing to build assets – like a business – can make sense, if you have a real plan to repay your debt.

5) Do you think there’s a correlation with people who get into debt and those who have compulsive, addictive tendencies? In other words, those who go to the extreme and cut up their credit cards may have a propensity to do other unhealthy things such as over eating, watching too much TV, playing too many video games, smoking, and so forth? Is it possible to have a balance instead?

All types of people are in debt – as a country we have a debt problem. However, when you decide to get out of debt you will have to sit down and look at what behaviors got you into your financial situation, addictive or not. You see plenty of stories about people who are compulsive shoppers with thousands of dollars of credit card debt—but you do not have to have these tendencies to land yourself in excessive debt – it is all situational. If you have an addictive tendency that costs money and you do not have enough to support that habit—there will most certainly be a correlation.

With this said, it is possible to find balance – but you need the support and action plan to do so. What I recommend is that you first try and take control with my Debt Free For Life action plan. In the book you will find the tools and information necessary to take control of your finances and start your journey towards debt freedom. I also encourage everyone to join my Debt Free Challenge. Challenge participants will be automatically entered to win a debt busting $10,000! You do not have to be compulsive or have addictive tendencies to fall in the trap of debt; joining this challenge will help you keep a balance through the use of free information and support.

After taking the challenge, it’s time to stop digging yourself further into debt. Taking little steps can help – for instance, I’ve come up with something called the Latte Factor®. It’s based on the simple idea that all you need to do to build wealth is look at the small things you spend your money on every day and see whether you can redirect that spending to pay off debt or invest in your retirement. Putting aside as little as a few dollars a day for your future rather than spending it on little things like lattes, bottled water, fast food and so on can make a difference between accumulating wealth and living paycheck to paycheck.

TO WIN ONE OF THREE BOOKS

* Sign up for my RSS feed and if you’ve already signed up, sign up for Yakezie.com’s RSS feed. (1 point)

* Tweet this post. (1 point)

* Comment as to why you think people get into uncontrollable debt. (2 points)

* If you have a blog, link back to this contest. (5 points)

The contest ends one week from today on Friday, Feb 11th at 11:59pm PST!

Book description: Hard cover, 265 pages, retails for $19.99 pre-tax.  That’s $22 in California after tax!

For more information about David’s book visit www.finishrich.com for free resources and tools.

Regards,

Sam

Note: A free copy of Debt Free for Life was delivered to me by the PR firm, Jackson Spalding.

My mother is a white cloud.  Every time I see her, she smiles even bigger than I can ever smile.  She loves to talk stories about any of life’s teachings she’s discovered, and I generally just keep quiet and listen.  Sometimes I don’t understand everything she says, but that’s OK.  It makes me happy just knowing she’s happy imparting wisdom onto me.

One of the holiday presents I got my father was a signed copy of Andre Agassi’s autobiography, “OPEN.”  To me, the book was gold, because Andre is my idol.  It was my only copy, and I decided to give it to my father because I remember him loving to read and enjoying the game long ago.

When my father opened his present, he did thank me and showed his appreciation.  However, a week later, the book still lay on the coffee table unread.  Somewhat dismayed that Agassi was being ignored, I spoke to mom about perhaps taking the book back since I cherished it so much.  She mentioned her unused Barnes & Nobles gift card and had an idea.

Later that evening, my parents went to the Mall for date night without us.  Apparently, Carl’s Junior had a two-for-one special and my father was just dying to go!  When they returned, my mother brought me over to the kitchen and told me, “Shhhhhh, take a look at the book.  I bought another copy of “OPEN” and swapped it with your signed copy, so you can take it home!  Dad will never know!” We laughed so hard it hurt and gave each other high fives!  My mom was right, dad never found out.  Mom, who knows very little about tennis, was encouraged by my enthusiasm she even read “OPEN” before dad!

LESSON LEARNED

What you think is an amazing gift, may be quite uninteresting to the recipient.  There is a recent study saying that on average, the recipient derives only 80% of the value of the gift, which is largely the gift givers fault for not getting them exactly what they want and need.  My father was probably thinking he could just get the book at the library.

We can choose to be a black cloud, or a white cloud in every situation we face.  The way we carry ourselves makes all the difference.  When an ambulance screams by, white clouds part so the sun can beam through.  Thanks mom for being a white cloud and supporting me in so many ways.  Thanks dad for teaching me tennis.  Now go read the book already!

Happy Mother’s Day Weekend Mom!

Readers, what are you doing for Mother’s Day?  What is the one thing your mother taught you that you will always appreciate?  Can you choose to be a white cloud, or is it just all predetermined?  For those whose mothers are no longer here, may they be blessed forever.

Keigu,

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

Author: Robert Pagliarini, author of The Six-Day Financial Makeover and president of Pacifica Wealth Advisors.  You may have seen him on Dr. Phil or 20/20.

Publisher & Book Info: St. Martin’s Press, hard cover, 301 pages, $25.99.

Review: The main premise for Rob’s book is that everybody’s day is split into three eight hour parts: work, sleep, and everything else.  Rob’s hope is to get you motivated to do more during the everything else portion to maximize your own potential.  First of all, I don’t know anybody who only works 8 hours a day.  10 hours of work a day seems more realistic.  Second, who gets to sleep 8 hours a night?  Sounds like elusive bliss to me.   Let’s assume 6 hours of nightly sleep instead, which ironically leaves the same 8 hours of time for everything else!

The Other 8 Hours is an enjoyable read because each chapter contains not only practical advice, but real life inspirational stories to help motivate readers to action.  Too many times we just come home, plop on the sofa, and do nothing.  That’s no way to live.  Below are Rob’s top 10 things he recommends doing with your spare time to help increase wealth and purpose.

Top 10 Creator Channels:

1) Blogging

2) Inventing

3) Writing Books, Screenplays, Music

4) Starting A Company

5) Reselling, Affiliating, and Licensing

6) Taking Advantage of Fads/Stunts

7) Working for Stock in a Company

8} Advancing or Jumping Careers

9) Freelancing

10) Turning Hobbies into Income

Blogging definitely has the potential to earn you a few shekels with enough time and dedication.  I’ve daydreamed about sitting on my yacht somewhere in the south of France writing to you about saving money on champagne and caviar!  Then reality sets in.  However it’s always good to dream.

The item that most interests me is #2.  Rob dedicates a chapter to each of his 10 creator channels, which is very useful because many don’t know where to start.  Rob provides a road map, highlights the pitfalls, and ends each chapter with actual resources you can use.  For inventing where do you go to develop a prototype, receive independent reviews, and hire an agent?  Many answers are all addressed.

WARNING THAT NEEDS FOLLOWING

One of Rob’s key messages, which I wholeheartedly agree, is to NOT jump head first by quitting your job and investing everything you have in your business idea.  I’m sure there will be plenty of those will disagree with this premise.  How can you succeed if you don’t put everything you have into your idea?  You can, but simply during the other 8 hours!

We always hear the tremendous entrepreneurial success stories, but we seldom ever hear of the failures.  Trust me, there are tons of failed ideas, and if you were to invest everything you have in a failed idea, it’s going to take a lot for you to get back to your previous financial state.  Be methodical in your approach, test out your product thoroughly, and make sure you see signs of success before you quit your full time job.

CONCLUSION

Who wouldn’t want more time, more money, and a better life?  It’s simplistic to say a book will give you all that.  However, The Other 8 Hours helps provide a catalyst to get you going.  You won’t just read a book that tells you what to do.  The Other 8 Hours helps shows you how.

WIN ONE OF TWO BOOKS – CONTEST ENDS ONE WEEK FROM TODAY

* Tweet and follow for one entry.

* Sign up for our RSS or E-mail feed for one entry.

* Comment about a project you are working on during your other 8 hours for one entry.  Do you think quitting your job to dedicate everything to your side project makes sense?

* If you have a blog, link back and highlight the contest for three entries.

Regards,

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

Michael Moore thinks he is pointing out injustices through his latest documentary, “Capitalism: A Love Story“.  Instead, Michael simply reminds us that life isn’t fair in a free market economy where those who work hard sometimes get the short end of the stick through no fault of their own.

I find it ironic that one of the wealthiest documentary filmmakers is bashing Capitalism.  Despite highlighting that 33% of “young Americans” now believe in Socialism (37% for Capitalism, 30% undecided), it’s hard to argue for a better system.  It’ll be interesting to see if these young Americans still believe in Socialism by the time they reach their thirties and make some money.  Socialism just creates a new set of problems for society.  Is it really that bad buying a foreclosed property from someone who can’t pay their debt on time?  Property vultures are necessary to provide a floor in many devastated markets or else things go to zero and more people suffer.

There is a sense of self-righteousness when Michael tells the viewer that he can’t fight the system alone and encourages all to rise up.  Michael you aren’t alone.  Thousands upon thousands of us fight for what we believe in every single day.  I wish Michael would put his money where his mouth is and donate all his proceeds to helping victims he continues to highlight.

A STRANGE PLACE

Have you ever seen a journalist report from some God-forsaken place where malnourished children are starving in the background?  Do you ever think to yourself, instead of jibber jabbering away, why don’t you just shut up and provide some food for the starving children behind you?  The documentary is kind of like that.  Michael mocks ministers, judges, companies, government, and Wall St. to the point where I start thinking, why not just do something other than make a documentary?

There are some important parts to the documentary which made me want to stand up and cheer.  Most notably was the 6 day factory worker lock-out which got Bank of America to finally pay them $6,000 in unemployment benefits from zero.  That made me proud, because people were standing up against a company who just threw them away like garbage.  Digging dipper though, why is Bank of America responsible for their benefits just because they got some bailout money?  Shouldn’t the company itself be responsible?

TIME FLIES

The problem lies in the timing of this documentary.  Nobody could have foreseen that in just one year since Lehman’s bankruptcy, the economy would rebound so quickly.  The fear mongering has subsided and a sense of normalcy has returned.

He praises Obama for his promises, which one year later have not all been kept.  Making a shady deal with the Senator of Nebraska to get him to vote for the health care bill by exempting Nebraskans for paying is not right.  As a result, after 30 years of Democratic rule in Massachusetts, a Republican takes former Edward Kennedy’s place.

Michael trashes Wall St. for receiving $700 billion in bailout money, making it seem like everybody in the industry had a part in forcing people to buy homes they couldn’t afford.  One year later, a majority of the $700 billion has been repaid with handsome returns boasted by the government.  Are the taxpayers thanking Wall St. for their profits?  No, because frankly, as taxpayers, we pay the same amount of taxes regardless of where our money goes!

CONCLUSION

I commend Michael for making another hit documentary about this latest downturn.  The snark is entertaining and therefore worth the watch.  He makes the viewer think about issues, but he does not convince me that Capitalism is indeed ‘evil” as all his interviewed priests proclaim.  If Capitalism is truly evil, why is The Church one of the richest institutions in the world?  If Capitalism is evil, is Bill Gates also evil for donating billions to fight disease and poverty?  No, Capitalism isn’t evil and Michael Moore will profit handsomely once again.

TWO DVDs TO GIVEAWAY

* Share with us your thoughts on whether you think Capitalism is good or evil and why.

* Follow on Twitter and provide color in your tweet.

* Sign up for our RSS and E-mail feed.

Competition ends Sunday, March 28!

Regards,

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

Social Security Act FDR

The following is the second and last part of my interview with Charles Farrell, the author of “Your Money Ratios“.  We discuss the much maligned 401k, whether Social Security will survive, and crowd favorite, how raising personal income tax levels further will ruin America!

The 401K AND ALL ITS GLORY

Question: Why do you think there are so many detractors of the 401k plan? Furthermore, do you think it is fair that the pre-tax limit contribution is only $16,500 for some 22 as well as someone who is 45? Presumably, the average 45 year old is making much more than the average 22 year old, so how come the government doesn’t propose an increased pre-tax contribution scale the older one gets?

Answer: Many people don’t like 401(k) plans because they believe the burden of funding retirements should fall on employers and not employees; thus they would like to see us go back to defined benefit plans that are funded by employers. Well, that is just not going to happen. Employers have no appetite for guaranteeing to pay their workers for 30 or 40 years after they stop working for them. And DB plans are not flexible enough to accommodate a globally competitive marketplace, plus they discriminate against individuals who change jobs or careers. Moreover, many DB plans (particularly government plans) are significantly underfunded and many who thought they had guaranteed retirements may be unpleasantly surprised at some point. So I think the “romance” with DB plans is misguided, but many people would like to see those types of plans again. I just don’t think it’s going to happen.

Then there is another set of individuals who don’t like 401(k) plans because of the limited investment choices and sometimes high expense structure of the plans. I agree with people on this front, and there are problems with some 401(k) providers, particularly those smaller plans that can’t drive better deals on their investment platforms.

But, most plans do offer competitive options and are low cost. It’s important for readers not to lose sight of the primary reason to use a 401(k) plan, which is the huge tax benefit provided to those who contribute; and if you get a match, that is just makes it more attractive. The tax deduction, the match and the tax deferral on growth are incredibly valuable tools to help build your capital. So even with some restrictions, the plans are basically the best place to build your retirement assets.

Regulators Are The Problem! (401K Con’t)

Now, the 401(k) plan itself is not the problem. 401(k) is just a reference to the tax code section that allows for pre-tax deferrals, which is a great idea and a great tax benefit. It’s the regulations and the heavy costs of ERISA that create the challenges. At some point, we may see the ERISA issues relaxed and allow for more open plans. Some big plans already are very flexible and allow employees to open their own brokerage accounts within the 401(k), but unfortunately many aren’t. As technology improves, I expect we will see more flexibility on the investment side.

I wrote an article on the prospects of eliminating or reducing the ERISA burden for Investment News last October that your readers might appreciate.

If you happen to work for a large employer, ask about a self directed brokerage option; you may have one and not even know it; or you might be able to get your other co-workers to help push for that option.

Plus, as mentioned in the book, a lot of this could be addressed by increasing the IRA limits to equal the 401(k) limits and then let employees choose how they want to save. If you like your employer plan, then use it. If not, use your own IRA with the same deduction limits.

With respect to the tax deduction, there is one limit for those under age 50, which is $16,500, and another limit for those 50 and over, which is $22,000. I personally don’t think it’s fair to have a disparity in contribution limits based on age. Everyone should get the same tax benefit opportunity, which at this time means everyone should be able to do $22,000 if they desire.

SOCIAL SECURITY

Question: Social Security’s existence is something you vigorously defend in your book. You highlight that even if nothing is done, people retiring 30-40 years from now will still receive at least 70% of their benefits. You also discuss how you are afraid that the government will over-shift the burden of social security onto those who need it the least. Why do you think the government doesn’t do a better job in aligning the costs of the program with the users?

Answer: Social Security is one of the most successful programs because it is pretty simple. We take in money as a contribution from wages and we pay out money to retirees. It is a good hedge because the assets are not invested in the markets and it’s not a bad idea to have a portion of your income guaranteed by a government pension that you paid for. Having a basic social security benefit actually allows you to take a little more risk with some of your other money.

The problem comes when you pay out more than what people contributed, which is what is happening. The reason this happens is because of a flaw in the structure of social security. It was structured as a social welfare program, not a personal property or ownership plan. Thus, Congress can change the rules whenever they want. And it is easy to grant benefits to get votes especially if you don’t require people to contribute more to fund those benefits. I mean who wouldn’t want a bigger retirement benefit without having to pay for it?

That is what needs to change. We each need a property right in our contributions, meaning it’s our money and in general our payment is based on what we put into the plan. This is critically important to ensuring its long term viability. People get frustrated when they pay in and then don’t receive a fair deal on the payout.

Readers should fight for a property right because they are contributing a huge amount of their pay into Social Security. It is about 12.4% of everything you make up to about $107,000 (you pay half and your employer pays half; or if you’re self employed you pay the full 12.4%). Then readers must save another 12% to 15% in their own plans, which takes us to a savings rate above 25% of pay which is more than sufficient to ensure a secure retirement. But if that 12.4% that goes into Social Security is primarily granted to someone else, then you’ve got a big problem.

The funding issues can be easily fixed at this time if voters insist on electing political leaders who promote a property right to Social Security. Politicians won’t do the right thing until they are convinced that voters want it, so let them know that’s what you want.

INCOME TAXES

Question: Taxes are set to go up for “the rich” who make $200,000 or more in 2011. How high do you think the marginal federal tax rate can go before Capitalism stops working? We’re strong proponents of a flat tax system on individuals above the poverty line given as a percentage of income as well as the absolute dollar amount of taxes paid is completely equal. What are your thoughts on the flat tax, and why people argue against its fairness?

Answer: I am also for a flat tax system for most taxpayers. To me, it makes the most sense. Far too much of our productive brain power and resources are going toward tax management and it’s quite honestly a waste of energy. The only reason we have to do it is because the tax code has become so complicated. I used to be a tax attorney, so I know this area pretty well. But the reason it is complicated is because so many taxpayers lobby for exemptions and want special treatment. They don’t want to compete on a level playing field. And since tax benefits are one of the main ways legislators can reward voters, we have a 10,000 page tax code that is basically incomprehensible.

As far as rates getting too high, we have been through multiple high and low tax cycles. So if rates rise too high, they will reduce economic growth and in the end hurt the average American, at which point people will eventually vote in leaders who want to reduce taxes. The key is to try to reduce your tax rate as much as possible during the high tax cycles by using every tax planning tool that applies to your situation.

As far as the actual tax rate, if you raise individual rates (combined federal and state) up into the 40% range, then I think it will have a detrimental effect on the economy. We are there in many states in the U.S., and I think it will hurt those states.

Readers, would love to hear your thoughts on whether you think Social Security will really be around in 30 years.

Do you think maxing out your 401K alone is enough to retire comfortably on, especially if you believe there’s no SS in your future?  Is $16,500/yr max + any matching really enough to retire on?

Finally, if a smart fella like Charles believes in the flat tax, why don’t you?

Keiju,

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

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Charles Farrell

As I wrote in my review of “Your Money Ratios”, Charles’ book sings to me. Charles has the ability to simplify complicated financial topics for the average reader to understand. His book is seriously one of the best books I’ve read on personal finance in a long while.

One of the keys to progress is learning from experts in their various fields.  Charles is gracious enough to answer some follow up questions I’ve been burning to ask after reading his book.  This will be a two part post due to the 2,800 word length of the interview.  In part I, we discover Charles’ motivation for writing his book, strategies for early retirement, and his conservative and debatable 50%/50% investment split between stocks and bonds.  In part II, we discuss the much maligned 401K, personal income taxes, why Social Security will survive, and why the flat tax is the right way to go!  Please enjoy!

WRITING “YOUR MONEY RATIOS”

Question: Was there a particular lightning bolt reason why you decided to write this book? For aspiring authors, what suggestions do you have to get your worked published in this ultra competitive field of business?

Answer: I wanted to write a book that would help average readers understand the most fundamental and critical relationships among one’s income, capital and debt, and how those things must be managed throughout your working career to build financial independence. So I took what are often quite complicated topics and figured out a way to present them in a very simple format that anyone can follow. I would like more people to enjoy the benefits of financial independence, and I hope this book does that.

As far as writing, all I can say is write about what you believe in. Hopefully, if you believe in it strongly enough, you’ll develop some expertise and then seek out ways to spread your ideas. Try to develop some niche that is reflective of your expertise. So I developed the ratios and they came out of my background in tax, finance and also working with individuals.

Think about what you do that is a little different and try to focus on that unique nature of what you do. It is a tough slog because the field is very crowded and often the least valuable information gets the most press. But you have to accept that reality and still push ahead. And then you need a little luck. Your message has to somehow get into the hands of people who appreciate and understand it. And that is hard to predict, which means you need a little luck to get it out there. So if you are going to pursue that path, I think you need to accept those realities of the marketplace.

EARLY RETIREMENT

Question: There seems to be a big movement among the Gen Y crowd to “retire” earlier, rather than the traditional age of 60-65. For those who wish to retire by 45, what would you suggest their Capital To Income Ratio target be, as well as thoughts on getting into mortgage debt?

Answer: Retiring early is a great goal, and if you want to do so, here are some things to consider: Because you won’t qualify for a social security benefit at that age (and won’t accrue the maximum benefit as you are not working through age 65) and you won’t have medical coverage through medicare, you would need to bump up your CI Ratio to at least 16, which at a 5% distribution gets you to 80% income replacement at that age. But the math on those numbers is pretty tough. In your mid 40s, you’ve probably only been working for 20 years or so. Thus, it would be difficult to accumulate savings of 16 times pay after only 20 years of work once you factor in taxes. But if you have some sort of windfall event, like selling a business, getting fortunate with stock options, or an inheritance, then that would help.

Also, with respect to a mortgage, once you want to live off the returns on your financial assets (retire), you really need to be debt free. I can’t stress how important that is. Thus, by the time you stop working, you want to be out of debt. But, that doesn’t mean you should be a renter, because if you rent you are paying a “deemed” mortgage, meaning the mortgage of your landlord, and your rent will continue to go up year after year, so you never have a rent free place to live. Thus, if you want to retire early, you may need a mortgage to buy your house and then you need to work hard to get it paid off by your early retirement date.

Question: I have a fear that once I get to retirement, I’ll ask myself “Now what?” and “Is this all there is?” In other words, I’m fearful that retirement isn’t as fun as the journey to retirement. What are your thoughts, and are these fears irrational?

Answer. I think you are correct to be concerned about “now what.” You have to think of retirement as another phase of your life; one where the returns on your capital give you freedom to do things that maybe you couldn’t do when you didn’t have financial independence. Think about what you enjoy doing and who you enjoy working with or spending time with, and allow the returns on your capital to facilitate more of that lifestyle.

Question: Do you think some people choose to not really care about their retirement? Perhaps those who retire with nothing are actually the luckiest people on earth? They were able to live life to the fullest for 40 years after college, and spend everything they earned. Using an extreme example, Bernie Madoff lived a life way beyond his wildest dreams. At 75 years old, an in prison, who really wins? Some would argue Bernie.

Answer: Yes, I think there are many people who just simply don’t want to plan. Some will get lucky and may do alright even if they don’t plan, just like somebody wins the lottery every week. But most who do not plan will experience lots of economic hardship as they age. And you just have to ask whether you want to run that risk.

INVESTMENTS

Question: You suggest keeping a fixed Investment Ratio of 50% stocks, 50% bonds from ages 25-59, and to 40% stocks and 60% bonds ages 60 and beyond. A number of readers, myself included wonder whether this is too conservative? Would your advice have changed if you wrote the book before the crash of 2008-2009?

Answer: I have always been a big advocate of balanced investing, meaning a split of your money between diversified stocks and very high quality fixed income holdings. I wrote the book before the recent market declines, it’s just that it takes awhile to get things published. The 2008 to 2009 decline just helped emphasize my point. So I have always pushed investors to adopt this approach.

Think about it this way, when you invest in stocks, your return is uncertain. There are no guarantees and past performance is not indicative of future returns (you’ve seen that warning before). And there are periods in modern markets where returns are negative for 20 or more years, Japan for example. So you can’t ignore that possibility. Now couple that with the fact that you will only live one historical cycle in the markets.

If you get stuck in a bad cycle, you may end up saving for 30 years and not have much to show for it. So I like to have a plan B, which is the interest return you get from fixed income investing. I lay this out in the book and go through the theory of why I think it’s important to have a plan B. And the amount in fixed income needs to be sufficient enough to make a difference, and 50% is, which is why I suggest people consider that type of allocation.

Basically, the interest payments from bonds serve to balance out the uncertainty of investing in stocks. And I think you need to build a base in high quality fixed income to allow you to invest and take the risk in equities.

But of course, every person needs to decide for him or herself how much risk they want to take. My feeling is that investors have been warned multiple times about the potential longer term risks of investing in stocks, and if they choose to ignore the warning, then they do so at their own peril.

Readers, feel free to share your thoughts on whether you think a 50/50 bond/stock split is appropriate throughout your investing life.  Don’t bonds look quite bubblicious right now?

Why does there seem to be a movement to retire early?  How feasible do you think it is to get a Capital to Income ratio of 16X?  Note: The CI ratio is simply the the amount of liquid assets you have to survive off of, divided by your average lifetime yearly income.

Stay tuned for part II where we can really sling some mud!

Keiju,

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

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

Author: Phil Villarreal was a syndicated film critic (one of the best jobs on earth) and is a general reporter for the Arizona Daily Star.  Phil contributes to OK! Magazine and blogs at becauseitoldyouso.com.

Publisher: Skyhorse Publishing, Inc.  244 pages in soft cover.  $12.95.

Summary: “Secrets of A Stingy Scoundrel” is a hilarious book that has been reviewed by many personal finance sites already.  Hence, I’ll take a slightly different approach.

First of all, Phil is one proud cheapo who is potentially helping millions of Americans (if they buy his book) save thousands of dollars a year.  Second of all, the breadth of stinginess is impressive, with nine chapters: Personal, Eating, Relationships, Household, Finance, Leisure & Entertainment, At The Workplace, Corporate Cataclysm, and Gross, Mean and Just Plain Wrong.

My favorite chapters are Relationships and Gross, Mean, and Just Plain Wrong.  Interestingly, the Relationship portion only has 3 tips vs. 30 tips in Gross.  Why is this Phil?  I think the main reason for the brevity is because Phil doesn’t want to totally ostracize the female reader and get the feminist movement on him!  Phil is also married, and I can see his wife shaking her head in disapproval with every tip he writes.

Come on Phil, you and I know there are at least 10 ways to really save money in a relationship!  You know, like forgetting your credit card, making a b-line to the restroom due to food poisoning, and asking the parents to pay for the wedding.  But wait, I think you touched on some of those already!  Can I be your guest contributor in your next book?  The titles of the three relationship tips are: Yay WNBA, The Dutch Are A Wise And Just People, Art Of The Well-Timed Fight/Breakup.

The Gross and Mean chapter is simply vicious. We’re talking “stealing” the bartenders tips, pretending you’re a clairvoyant on Craigslist, and never getting married (which should be in the relationships chapter!).  The chapter is full of ethical dilemmas which can be argued either way.  Maybe that’s the secret of saving a ton of money?  If you can consciously never tip the pizza man or your waiter, you’ll save 15-20% of your annual eating out expense.  In my case, that’s around $6,000 X 17% = $1,020 a year in savings!

CONCLUSION

Secrets Of A Stingy Scoundrel is a finance and humor book wrapped up into one.  I’m pretty sure we’ve done many of the things in his book already.  I remember when I was a kid, I’d go to 7-11 and fill my entire Big Gulp Slurpee cup with candy and then add in the slush!  I was poor, so don’t hate.  The book is a fantastic gift to friends, offering 100 “practical” ways to save money.  If I got this gift for my birthday or Christmas, I’d be pumped!

GIVEAWAY GUIDELINES – 2 Books, Feb 6 Deadline:

* Share with us your one ethically challenged money saving tip.

* Sing up for our RSS or E-mail feedback and comment that you’ve done so.

* Tweet this post and follow on Twitter.

To Buy Click: Secrets of a Stingy Scoundrel: 100 Dirty Little Money-Grubbing Secrets

Keiju,

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

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

Author Bios: Manisha Thakor and Sharon Kedar have their MBA’s and CFA’s and are the coauthors of “On My Own Two Feet: A Modern Girl’s Guide To Personal Finance.”

Publisher / Physical Description: Adams Media.  Paper back.  148-pages of easy reading.

The Summary: With a tag-line of “how to talk money with your honey,” how can you not like a book with this kind of wit?  Personal finance books tend to be a little bit mundane and redundant, but not so with Manisha and Sharon’s latest offering.

The first point of interest simply lies on page two.  All page two says is “To All Women…”  As I am not a woman, I immediately began preparing myself for some male criticism.  Does ‘To All Women” really mean “Stay Away All Men”?  To my relief, the real meaning of page two is about empowering women to become financially independent on their own.

Getting financially naked really is about having as clear of an understanding of each partner’s finances as possible.  The authors don’t want women to one day wake up realizing all their money is gone after their husband invested their finances in some unscrupulous investment.  Women need to have a full grasp of each others finances so that there are no surprises.  Even before marriage, our authors go through steps to discover whether a couple is financially compatible.  Financial matter shouldn’t be taboo among serious couples.

“The Five Power Steps To Financial Success” provides useful tips on dealing with the five key lifetime expenses: home, car, retirement, kids, and extended family.  For better or worse, you get the family too!  One of the most eye-popping nugget of information is that the average cost to raise a child from birth to 17 is $184,000!  Move to NYC or San Francisco, perhaps that figure is closer to $300,000.

The book concludes with some simple tips on savings and investments, namely with the objective of keeping things simple.  But, this is not a book about savings and investments, it’s a book about improving communication. The Appendix contains a wonderful list of answers to scenario questions such as “Should we combine bank accounts now that we’ve moved in together” and “What do we do because I’m a saver and he’s a spender?”

In summary, “Get Financially Naked” is a wonderful little book for women and even men to read.  The key message is about improving communication between couples so that money becomes a natural point of discussion.  For those women who find opening up about finances to be especially difficult, this book is especially for you!  For guys, it’s like reading the occasional Cosmopolitan magazine.  Seeing a different perspective helps widen your own perspectives!

GIVEAWAY RULES: TWO PRECIOUS BOOKS!

* Share Your Thoughts On: Why do you think women have a harder time opening up about finances than men?  Why is talking about your finances with someone you care about so taboo?  Should couples reveal all their financials before marriage, or should that not matter since the union is “for richer or poorer”?  Is not talking about money a cultural or gender phenomenon?

* Tweet & sign up for our RSS feed and comment that you’ve done so.

* Entry Deadline is Saturday, January 23rd.

You can learn more about the book here, or buy the book directly from Amazon: Get Financially Naked: How to Talk Money with Your Honey

Keigu,

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