The Worst Seat On An Airplane Is The Best Seat In The Office

GTGTTBR

GTGTTBR (Got To Go To....)

For some reason, I generally get stuck in a middle seat close to the bathroom every time I go on a business trip.  It’s probably because I leave so little time between take off and check-in that I usually end up screwed!

The worst is when you’re just about to fall asleep and you get nudged by your neighbor for hogging the arm rest.  Come on neighbor, I’m stuck in the middle, the arm rest is mine!  The second worst thing is inhaling the lovely toilet aromas every time someone walks in and out.  Finally, add a crying baby next to you, and air travel is just lovely.

Despite my constant bad fortune on airplanes, the one thing I do recommend is sitting close to the bathroom at work. We discussed strategic seating in business school one day, and if you think about it, sitting closest to the bathroom, whether you have a cubicle or office is the absolute best place to be.  No matter how senior or junior someone is, they must go to the bathroom and walk by your desk at least a couple times a day!

Unlike the mysterious guy sitting in the corner who everybody thinks is surfing the internet all day, you get a constant stream of opportunities to develop relationships with your colleagues and bosses if you sit near the loo.

“Hey Jim, how about Mark Sanchez of The Jets the other day huh?”

“Hey Pete, so sorry Colt got injured against Alabama.  You still owe me lunch sucker!”

“Nancy, I just love your new hairstyle!  Where you get it done?”

“Susan, want to grab a coffee this afternoon?  I have something to share.”

“Christine, any tax consultant suggestions?  I can’t for the life of me figure these numbers out!”

BINGO!  All easy lines to develop your relationships internally.

The biggest risk for employees during recessions and promotion season is to be out of sight, and therefore out of mind. By sitting near the bathroom, you are unavoidable and everyone must acknowledge your presence.   Just don’t stop folks who have visible pains on their faces!

Readers, how is your work environment set up and can you think of any other strategic, no effort office strategies to keep up your profile?

Keigu,

Sam Samurai – “Slicing Through Money’s Mysteries”

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The 30/30/3 Principle – Three Home Buying Rules To Follow

A reader writes in: “Hello Samurai! I like your 1/10th rule for buying automobiles and was wondering if you use some similar sort of calculation when deciding how much one should be spending when buying a home?  Thnx, Brian”

Response: Hi Brian, thanks for your question. For those who are not aware, the 1/10th rule simply states one should spend no more than 1/10th your annual gross income on the purchase price of a car.  Home buying is a tougher one, especially since people get so emotionally crazy and irrational when it comes to property.  There are several key hurdles you need to meet before buying a home.  The rules can be encapsulated in the 30/30/3 principle.

1) Cash flow. Traditionally the industry says to spend no more than 30% of your gross income on your monthly mortgage payment, but I think you can stretch it to 50% if you think you’ll be making more money in the future.  Don’t bank on it though, as this downturn has shown many people, including myself.

50% of your gross income on $50,000/month is much different from 50% on $2,000/month mind you.  You must be able to take care of your basic needs with the money remaining.  Hence, I suggest spending LESS as a percentage of your gross income the more income challenged you are.  I wouldn’t spend more than 30% of gross, if income is $10,000/month or less.

2) Down Payment. You should have at least 30% of the value of the home saved in cash.  20% is for the downpayment to avoid PMI insurance, and the other 8-10% is for a healthy cash buffer.  There are some high-risk people out there who want their home so bad that they put down only 10%, and take another 10% in the form of a maxed out HELOC loan just to get in the home.  If you don’t have at least 30% of the value of the home saved up, then it’s best to start eating only ramen to bolster savings!

3) Value of the home. Cash flow affordability is a function of the price you pay.  If you are able to meet the first two hurdles of cash flow and down payment, then you can tie it all together with a proper multiple of your yearly gross income to see what you can afford.  The MAX multiple I recommend is 5X if you meet the first two conditions, but 3X is better.  In this case, the more you make, riskier it is to go to an upper limit multiple because of  leverage.  5X $500,000 is much more daunting than 5X of a $50,000 salary for example.  You can always refinance your home, but you can never change your initial purchase price!

Good Example: $100,000/yr income, $120,000 in cash saved, $400,000 home no problem!  $320,000 mortgage after putting 20% down, and you still have a $40,000 buffer.  Your monthly payment is $1,918/month PMI at 6%, and is a suitable 23% of your monthly gross income of $8,333.  In case of layoff, you have 21 months of mortgage coverage with your $50,000 buffer.

Donkey Example: $120,000/yr income, $100,000 in cash saved, salivating for a $750,000 home.  10% down leaves $25,000 in cash, and a $675,000 mortgage since you’re doing another $75,000 HELOC to avoid PMI insurance.  Monthly payment $4,000, or 40% of your gross income.  6 month mortgage coverage ratio before you run out of cash is not enough.  Don’t do it!

I highly recommend making sure you pass the 30/30/3 principle before making the biggest purchase of your life.  It’ll be good for you in the long run, and it’ll be great for neighbors and the entire financial system as there will be less of a chance you’ll foreclose.  Best of luck in your house hunt!

Recommendations:

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For Tenants: Take a moment to check your free credit score through GoFreeCredit.com, a company I trust. If you are in a hot rental market, or really want a particular rental, you should have your credit score as part of your application for your landlord. I am a multi-property landlord and highly value a credit score and report. Those who come to me with their credit score stand out above others who don’t. If you do not want to pay for the credit monitoring, simply cancel within the grace period.

For Homeowners. LendingTree Mortgage Refinance offers some of the lowest refinance rates because they have a huge network of lenders to provide mortgage loans, home equity loans, and home equity lines of credit. If you’re looking to buy a new home, consider using LendingTree to get multiple offer comparisons in a matter of minutes. When banks compete, you win.

Updated: 2Q2014

Losing Your Way To More Money

At the beginning of every year, I tell myself that I’m going to eat better and exercise more. Yet, every December, I look and weigh exactly the same and get frustrated until the New Year, when the cycle starts anew. My theory on weight is simply that we all have a weight range we fluctuate in, and every 5 years that band increases towards the heavier side! That was my excuse for my lack of improvement.

I used to also think that our weight was 70% hereditary and 30% diet and exercise until I saw the show “The Biggest Loser!” Now I think the ratios are the complete opposite. If you really want to get motivated and cry at the same time, you’ve got to watch the show. The show’s concept is simple. After 3 months of boot camp, whoever loses the most weight wins gobs of money! The results are astonishing. Season 7’s winner, Helen lost an amazing 140lbs from her original 255lbs start weight. Go Helen!

The Biggest Loser show demonstrates that with enough motivation and discipline we can lose a lot of undesired weight. In fact, for 7 seasons in a row each of the winners have lost over 100lbs!

FOOD EXPENSE & GOALS

On average, I spend about $20 a weekday for food and $100 per weekend for a total weekly cost of $200 and a total monthly cost of around $800! I had no idea how much I was spending until I decided to write everything down for two weeks and annualize accordingly. $800 was clearly overkill, especially since it accounts for over 65% of my then, discretionary spending.

When the downturn hit, I decided to do an experiment partly to bring down my food expenses by 30%, and partly because I was inspired by The Biggest Loser, to shed 15lbs and get down to my college fighting weight of 160. At 160 lbs, my
Body Mass Index
would be 23 (18.5-24.9 is normal weight) from slightly overweight at 25.5. If Helen can lose 140 pounds, why can’t I lose a lousy 15?!

Go Broke To Win Big HELOC Edition – Maximize Your Home Equity

Some of you have asked me to write about property, a topic still dear to me despite the correction. First and foremost, I believe a property is not so much an investment but a lifestyle decision. When we choose to buy property, we’re choosing to plant roots in a neighborhood we love, and build our lives accordingly. Not to say you can’t do the same renting. When you have a large financial commitment to your abode, you tend to be less transient, all with a heightened sense of awareness that your home brings you great pleasure but also great financial responsibility.

When people get in the mindset of buying a property to flip, things can go seriously wrong due to the illiquid nature of the asset and the high transaction costs. Although the hurt in property has been broadcast everyday in every media outlet for the past year, less than 3% of the housing stock trades a year. In other words, the large majority of property owners shouldn’t be affected unless they just had to sell today. This is not a post about the merits of owning vs. renting, a topic which we can get into later.

Buying property is relatively straightforward. Your high tax bracket is killing you, you have at least 30% of the properties’ value in cash so that you can put 20% down and have a 10% buffer, you believe you’ll live in the place for 5-7 years, the rental yield compares favorably with the current gov’t 10 yr risk free rate, the place is nicer than anything available in the rental stock, and the location is good, so you buy. Let’s assume you own a piece of property, and you’ve got a nice big fat juicy Home Equity Line of Credit (HELOC). You’ve noticed the HELOC rate drop to an outrageously low interest rate equal to Prime, or 3.25%. What do you do with it?

Diamond Engagement Rings Bling Bling!

One of my good friends is getting married, and he asked me, “Sam, what on earth am I supposed to get her for an engagement ring?” What a question, that’s not easily answered.  Generally, the right answer is “whatever she wants“!  However, as we all know, sometimes ladies are harder to read than a children’s book in large print!

Before we begin, if any of you single guys out there want to attract the ladies, bust out the turquoise diamond ring guide book from Tiffany’s in any public space. The white book from Cartier will also do. I take the bus to work everyday, and I remember as soon as I took out the book from my bag, every single lady on the bus looked over. Just think, one of the great pick up lines to a staring woman could be, “Excuse me, but my friend asked me for his advice on this particular design (point to book), what do you think?” Clearly, if you use this line, you should not be proposing!

In the spirit of personal finance, let’s discuss some tips for buying an engagement ring.