Financial Samurai » Reality

The Ultimate Solution For A Fair Income Tax Policy In America

admin — Wed, 28 Jul 2010 09:00:06 +0000

With the Bush tax cuts set to expire next year, there’s going to be a big debate during the mid-term elections this November! But, should there really even be a tax debate? It’s obvious that we should NOT raise taxes on small business owners and higher income, hard working Americans in a nascent economic recovery!

Everybody knows roughly 47% of Americans pay no federal income taxes. Hence, the ultimate solution for tax legislation is to strip away tax voting rights for the 47% of Americans who pay no tax, but who still get to enjoy the benefits of other people’s contributions. If you’re one of the 100+ million Americans who pay no income tax, isn’t it good enough to enjoy free public schooling, nice roads, friendly firemen and police officers protecting your neighborhood? Being thankful is a great disposition to have. Being greedy is not.

An Example Of A Family Making $120,000 Paying No Taxes:

“Say you’re married with salary income of $120,000, 401(k) contributions of $12,000, two under-age-17 kids, and a college student with $4,000 in education expenses. Assume you also bought a home this year that qualifies for the now-defunct $6,500 credit for existing homeowners. Finally, assume you’re eligible for the $1,500 credit for energy-efficient home improvements. Believe it or not, your 2010 federal income tax bill will be zero even if you only claim the standard deduction.

Your tax bill of $11,950 is completely wiped out by $13,300 in credits ($2,000 child credit, $2,500 education credit, $6,500 home buyer credit, $1,500 credit for energy-efficient improvements, and the $800 Making Work Pay credit). In fact, you’ll get a $1,350 check from the government because some of your credits are refundable ($13,300 of credits – $11,950 of tax = $1,350 of free money),” writes Bill Bischoff of SmartMoney.

VOTING TO RAISE TAXES ON OTHERS WHEN YOU PAY NO TAXES IS LIKE……..

* Dr. Phil writing a book and telling someone to lose weight.

* Suzie Orman telling you to invest in the stock market when only 2% of her wealth is invested in equities.

* A recent college graduate teaching you how to be rich.

* A hardcore vegetarian who wears leather shoes.

* A priest who preaches acceptance but expects you to burn in hell when Armageddon comes if you don’t convert.

* The United States implementing economic sanctions against emerging countries for polluting.

* A boss who tells you to work hard but goes and plays golf every other day and takes long lunches.

* US Treasury Secretary Geithner saying raising taxes is “the right thing to do” but cheats on his own taxes.

CONCLUSION

Some may argue that voting is a fundamental right as decreed by the 15th amendment of the Constitution. I agree, go ahead and vote on whether the government should implement a flat tax on those who pay nothing. It’s only fair. Just don’t go around pretending as a non tax payer, you have the right to vote on persecuting others to pay for your own free government benefits.

It’s so obvious to any rational person that if you pay no taxes, you can’t possibly be able to vote for people whose agenda it is to raise taxes on others. Yet, millions of non tax paying Americans continue to support tax increases for the rich, who may very well be the ones who help keep the millions who don’t pay taxes employed!

Friendly Americans who pay no taxes, please have a heart and enjoy your spoils and stop punishing others further. For the 53% of Americans who do pay taxes, let us decide what is the right level of income taxation to help support the economy and you guys. We might vote to raise our own taxes and dis-incentivize ourselves to work hard. So be it. At least we get to vote on our own destiny! Thanks!

Readers, do you think it’s right that the 47% of Americans who pay no taxes can vote on raising taxes for others who already pay?

Why do you think the government and the people of America allow this type of double standard?

Any suggestions on how to stop the persecution of hard working Americans?

Any other examples of “voting to raise taxes on others when you pay no taxes”?

Regards,

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

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

Why Are The Employed So Smug About The Unemployed?

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

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

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.

Am I Living In A Parallel Universe?

admin — Mon, 12 Jul 2010 09:00:32 +0000

As far as I’m concerned, the US economy is recovering handsomely. How could it not with packed restaurants, and traffic that makes me want to pull your hair out? The most anticipated IPO of the year is Facebook, which may very well go public for $20 billion plus dollars. Meanwhile, the whole world is hooked on Apple products with iPads ($500-800) and iPhones ($200-300) selling like hotcakes. Who needs yet another computing device? I guess millions do!

There is so much money flowing into the Bay Area, it’s hard to imagine another financial crisis on the wing. Yet, I’ve read plenty of posts on “steps to take when the next financial crisis comes” and I’m scratching my head. Am I living in a parallel universe where every other car I see is a fancy German vehicle, and I can never get a reservation at my favorite sushi joint? I feel like I’m living in a little optimistic bubble where the world isn’t falling off a cliff and is actually doing well. Tell me if I am, because bubble living is delusional living at its finest.

The stock markets, although highly volatile have recovered some 50% from the bottom and generally serve as as a leading indicator for the economy. Yet people are still talking about a double dip recession. Yes, the biggest worry is stubbornly high unemployment, but you’ll never be able to tell if you walk the streets of San Francisco.

LOTS OF POSITIVE ANECDOTES

* Commute time from the city to the airport has increased from 25 minutes to 35 minutes on average due to traffic.

* The House Of Prime Rib is always packed and calling two days before gets one a reservation for two at 10pm.

* The BMW dealer says they are moving cars at the fastest pace since 2007. The new 5 series is in, with a price tag of $72,000 for the 550i version.

* Venture Capital and Private Equity firms are flush with cash and are looking to find a home before they have to return money to investors. Foursquare, Pandora, Zynga are getting funded for ridiculously high multiples.

* Banks are cashed up and lending again based off my conversation with three mortgage brokers.

* Headhunters (recruiters) are calling incessantly and it’s already past the halfway mark.

* You can never get a tennis reservation at 3:45pm, 5:15pm, or 6:30pm at my club because people make so much money they get to leave work early or don’t have to work at all. Membership has increased by over 30% in one year.

* A house down the street received multiple offers and was in contract within 10 days.

* Advertisers have been filling my inbox seeking to do business.

* Landscaper had to delay a job for one week after already starting at my house because there was a bigger job to do elsewhere.

* Went to go buy a pair of retro Air Jordan Infrared VI shoes for $340 (package set of two) 20 minutes after Nike Town opened and they were sold out. Went to two other stores, sold out! Typical buyer? High school kid.

* I can never get on the bus after 5:30pm because the bus gets completely full in the first 3 stops of a 7 stop pick up route.

CONCLUSION

The newspapers and TV stations constantly tell us how rocky things are. Even fellow bloggers are urging caution. Yet our fearless leaders in Washington are telling us we’re recovering quite well. I’m generally wary about government prognostications, but with the amount of activity in the Bay Area, gosh darn it, I think they might be right! How else can the government raise taxes for the rich to 60% (Federal, State, City, FICA, Medicare) next year without torpedoing the economy? The government must know something, and it seems as if people are also catching wind that the good times are back again. Even if the markets drop 10% further this summer, it still doesn’t take away the fact that activity is back, and in a big way.

Readers, do you believe the economy is solidly recovering? How is your neck of the woods doing? Any anecdotes you’d like to share indicating a weak or strong economy?

Regards,

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

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

Even Lebron Doesn’t Listen To President Obama

admin — Fri, 09 Jul 2010 09:00:38 +0000

One of the most anticipated NBA free-agent announcements came when Lebron told the world he’s heading to South Beach to play for the Miami Heat. Of the six teams coveting him, really only three stood a chance: Miami, Cleveland, and New York City for obvious reasons. The other three teams: Chicago, LAC, and New Jersey will just be footnotes and forgotten.

What’s most interesting is not Lebron’s decision to make millions of dollars less to join two guys he thinks he can win championships with. Instead, Lebron’s decision to completely spurn President Obama is what really gets me thinking! No less than seven times has President Obama made a public statement insisting that Lebron join the Chicago Bulls. As you know, Obama was the Senator of Illinois before he became President. Many pundits also believe that Chicago is a better candidate for Lebron to win championships with Carlos Boozer, Luol Deng, Derrick Rose, Brad Miller, and Joakim Noah. But, nope. Not Lebron.

If Lebron James, who is a huge Obama fan, doesn’t even listen to Obama’s words, why should the general public? It wasn’t like Obama was saying go to the Minnesota Timberwolves where they have a snowball’s chance in hell of winning. Chicago is a seriously legitimate team if not the best choice!

FIVE REASONS WHY LEBRON DOESN’T LISTEN TO PRESIDENT OBAMA

* Relationships are most important. Lebron, Dwayne, and Chris created an amazing relationship after winning gold metals in the Beijing Olympics. Their friendship transcends money, which jives well with the theory that money can’t bring happiness but friends can.

* Location matters. Let’s face it. Chicago is a crappy place to live 6 months of the year. Why on Earth would Lebron decide to move from crappy weather Cleveland to crappy weather Chicago? He might as well stay in Cleveland! Ever wonder why it wouldn’t be easier to get Dwayne Wade and Chris Bosh to go to Cleveland? It’s because Cleveland is a hard place to live unless you have family there. If you’re going to make a move, you might as well go all out and either move to Miami or LA because we all know that weather in NYC and NJ is horrendous as well.

* Charity is a good thing. At the end of the interview with ESPN, Lebron announced he is donating all proceeds raised from the “The Decision” to the Boys & Girls Club he’s so intricately involved in. With President Obama limiting the tax break for charity deduction to 28%, that penalizes those in the higher income tax brackets who are the onse who make up the majority of this country’s donations! The clear repercussion of this proposed legislation is that giving will decline by billions at the margin.

* Just say NO to discrimination. With President Obama allowing for an even higher progressive tax system, he is saying it is OK to discriminate against people based on their income. If you worked hard and spent an extra 8 years of your life after college to become a physician and make $500,000, the Democrats believe it’s OK to tax you 39.6%. Meanwhile, if you decide to goof off in school, not study and make $25,000 a year for the rest of your life, you are rewarded by only paying 15% in Federal income tax.

* Lower taxes is the result of fiscal prudence. Although Lebron has to pay 39.6% on his mega millions a year, he won’t have to pay state tax, which is a 10% savings compared to playing in California or New York, and a 6% savings compared to staying in Cleveland. If you make conservatively $50 million a year after endorsements, you’re saving $5 million in state taxes a year!

CONCLUSION

It’s been a year and a half since President Obama came to office and some people are getting tired of rhetoric. We’ve had a great recovery in the financial markets, but our employment outlook still looks murky. We are spending record amounts of money on government programs, yet the government tells other people to practice financial austerity. Federal government employees are raking it in with recession proof jobs and rising wages. Lebron has lost faith in the President and his ability to help out the Midwest and his home state of Ohio. As a result, he no longer listens, so why are you?

Readers, has anybody else lost faith in our President and his promises?

For basketball fans, did Lebron make the right choice going to Miami?

Why do you still not play or follow sports when America is a nation of sports enthusiasts?

** Very few people can claim to have worked in one job for 7 consecutive years right out of school. So before you go bashing Lebron for his decision, like Cleveland Owner Dan Gilbert who just lost hundreds of millions in franchise value, take a look at your own track record.

Regards,

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

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

Three Keys To Motivation And It Has Little To Do With Money

admin — Mon, 05 Jul 2010 09:00:41 +0000

Here’s a short 10 minute video I stumbled upon which eerily highlights several things I do and why (ie play guitar), as well as touch upon reasons why some people are willing to do things for free, and others strongly consider giving up big salaries to just work on a hobby.

NODDING MY HEAD

I find myself agreeing with pretty much everything the video has to say. Money has become a secondary motivational factor for me over the past several years. Something just happened where I’ve become satisfied in making what I make, oh my! Sure, I have a “make $1 million bucks” goal for 2010, but that’s really just one of those fun, see if I can do it goals. Autonomy, mastery, and purpose are things I look forward to now.

Progress is a wonderful feeling, which is why I try and play a musical instrument and sing in my free time. Music also helps fill the void when I’m injured due to sports. Going from not knowing the chords and the words of a song, to mastering a tune from memory that’s good enough to record is an unbelievable sense of accomplishment. I’ve been working on getting the finger picking of Pearl Jam’s “Just Breathe” for the past month, and I can’t seem to get it right. But dammit, I’m going to keep practicing because it’s such a beautiful song!

After you have a certain amount of money and experience, you definitely want autonomy. You’re no longer a fresh college grad that is constantly micro-managed by senior colleagues. A sure fire way for a company to lose a star employee is to restrict their freedom and ignore their good work. Blogging is an incredible example of autonomy. Nobody is going to tell me what to write and that’s so liberating. I’ll thrive and fade with my decisions alone.

Purpose is something that can either be questioned before you start your journey or after. You can be a high school or college student who has no freaking idea what you’re supposed to do in life. Or, you can be a 20 year veteran in the workforce who has built a great resume, as well as financial security, but realize you’re middle aged now and wonder if there’s more to life since you’ve already conquered insecurity, be it financial or otherwise.

The purpose of this site was never to make money. The purpose was to just create something tangible that serves as a creative outlet for someone who was once creative. I want to be that kid in pottery class again, molding that wet clay on a rapidly rotating swivel stick.

Readers, what are several motivating factors for you in your life or in your job? Have you noticed money increase or decrease in importance as a motivational factor?

Regards,

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

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

West Coast Living – Yes It Really Is That Much Better!

admin — Tue, 22 Jun 2010 09:00:32 +0000

Despite an honest attempt to seek out more great things about the East Coast, several readers actually proceeded to bash the West Coast instead! What’s up with that? Some curiously mentioned that the East Coast is fantastic because the horrendous weather for half the year makes the other six months so wonderful. Ummm, that’s like saying you appreciate your right hand more because you chopped off your left hand! Wouldn’t you rather have both hands?

The only positive takeaway from the comments I agree with is the cluster of historically significant cities within a several hours drive. Other than that, nobody came up with any stand out reasons other than the six I provided as to why East Coast living is great. Given that the West Coast was attacked, I feel it’s important to stand up and defend our honor!

WEST COAST > EAST COAST

* Beautiful Weather. With blue skies and sunshine, we have wonderful beaches, healthier, and happier people. There’s a reason why movie stars and other celebrities work and live on the West Coast. Why do you think there are so many songs about “California Dreaming”?

* Entrepreneurial Opportunities. Google, YouTube, Yahoo, eBay, Apple, Facebook, Twitter, Microsoft, Amazon and many more innovative, life changing companies are all based on the West Coast. How many self-made 35-year old or younger mega-millionaires or billionaires can you name from the East Coast? Not many.

* Access To Asia. Asia is where the growth is and not Europe. Travel to Asia is quicker, and doing business with Asia is therefore easier. When it’s 8am in China, it’s still only 5pm here on the West Coast. Communicating at 8pm EST is no fun, and therefore doesn’t happen as often.

* Vacation Paradise. Hawaii is just a quick and direct 4.5 hour flight away! Hawaii is seriously one of the top 5 greatest places on Earth to live, and anybody who tells you otherwise has never experienced the island. Besides Hawaii, there is Tahiti, Bora Bora, Samoa, and of course many wonderful vacation spots in Asia.

* World Class Winter Sports. Lake Tahoe and Whistler have 11,000 feet high mountain resorts whereas the East Coast has icy Killington in Vermont and the Catskills in New York. I’ve been to all four places, and I can tell you there really is NO comparison between West Coast and East Coast skiing/snowboarding.

* More Peaceful People. A large reason why many people are on the East Coast is because of a job opportunity or family. As a result, resentment builds for the region because they wouldn’t be there otherwise. This is a recipe for some very grumpy people. Meanwhile, a large reason why many people live out West is for a better lifestyle as well as job opportunities and family. Because people are living a better lifestyle, you have a much more pleasant social environment.

* Less Crooks. Do you think it’s a coincidence that some of the biggest crooks in America such as Bernie Madoff, Elliott Spitzer, Dennis Kozlowski (Tyco), and countless dirty politicians are all based on the East Coast? Of course not. I’ll leave it up to you to figure out why.

* Environmental Movement. People love the Earth out here. California was the first to ban smoking in public places, and the state is a pioneer in recycling and emissions standards. We are the home of organic cuisine (Chez Panesse Alice Waters), Tesla Motors (electric car company), as well as thousands of tree huggers! If you love the environment and want to help save the world, you’ll love the West Coast.

* Great Athletics. The LA Lakers won their second straight NBA championship, meanwhile Pebble Beach just hosted the US Open golf tournament. The amount of events out here are incredible. During the winter, I can play golf on Saturday in 70 degree weather, and drive 2.5-3 hours on Sunday to go snowboarding in 2 feet of powder!

* Lower Power Bills. There’s never a need to use air conditioning to cool or heat yourself in many places on the West Coast given the moderate temperatures. Opening a window is all you need during the summer to get that draft going. Adjusting thermostats is a foreign concept!

* Pride. If you live on the West Coast you won’t have to make sensationalist statements such as “Florida will be torn apart in the next Tornado”, “It’s so humid in Washington DC you can go swimming in your own sweat“, “You’ll die early because you’ll never want to go outside,” “Be careful about the next enemy siege” and other ridiculous statements to make yourself feel better about yourself. You don’t have to disparage like some on the East Coast will do about West Coasters because you’re already living the dream!

CONCLUSION

I know I don’t have to give any reasons why the West Coast is a much better place to live because it’s pretty obvious. It’s like wondering whether Bill Gates is rich… duh. I give reasons anyway to highlight to those who bash the West Coast what they’re missing. It’s easy to look down upon those out West if you’ve never experienced living out here. But as someone who has lived on both coasts, the choice is obvious. Perhaps this post will make things even more obvious!

I’m here to tell you that if you are miserable out East, do more than just make fun of the West Coast. Do something to change your life by moving! The settlers did so hundreds of years ago, and so can you at much quicker a time. Have no fear in seeking a better life. You deserve it!

Readers, what are some other great things about the West Coast not mentioned in this post?

Why do people stubbornly deny reality? Do you think it’s the same reasoning as why people spend more than they earn?

Regards,

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

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

The NBA Finals Proves Location Matters For Success

admin — Mon, 07 Jun 2010 09:00:03 +0000

The LA Lakers and Boston Celtics have met 11 times in the finals. Combined, the two teams have won an incredible 32 championships in the NBA’s 63 seasons. Purists will note that only 10 of LA’s 15 championships came in LA, while the other 5 were in Minneapolis from 1949-954. Either way, there’s no doubt that the Lakers are one of the best teams in NBA history.

How is it that two teams alone combine for about half of all championships in league history? The answer is simply superstar cities which offer high wages, a huge fan base, and enough diversity in all things to keep one entertained. Let’s be frank. There’s no way the Cleveland Cavaliers, Dallas Mavericks, Charlotte Bobcats, and Utah Jazz will ever win an NBA championship. Not to say any of these cities aren’t nice, they just don’t match the star power of places such as New York, LA, and Boston. Eventually, the best players and staff all gravitate towards one of the major metropolitan areas to really compete for a championship.

MOVE IF YOU WANT TO RAISE YOUR STANDARDS

There’s a reason why the best and brightest flock to the big coastal cities of America. It’s where the best jobs, and therefore the best pay reside. The networking opportunities are amazing, and if you have New York City on your resume for example, it’s like a stamp of approval that you can handle anything.

Some will say that big city living is expensive. True. But, that’s because you are making so much more money it evens out in the beginning. As you progress in your career, your income starts to completely outstrip your basic living costs and real wealth starts to build. The upper limits of the income band are much higher, which is one of the key competitive advantages. A big city provides you the platform to make things happen.

CONCLUSION

By the time you retire from a superstar city, you can practically move to any other city in the world, and your living expenses will be cheaper. Whereas if you start off in Altoona, Kansas, you’re pretty much stuck. It makes sense that if you want to be the best, you should compete with, and surround yourself with the best. The Lakers have the marquee player in the West with Kobe Bryant and the best coach in Phil Jackson. Boston’s Doc Rivers and the big three aren’t too bad either. The A players want to be in the best locations, and so should you.

Readers, for the younger readers especially, what’s holding you back from moving to a bigger city if you’re looking to build greater wealth?

Do you believe superstar cities offer more career and wealth building opportunities? Or do you believe bigger cities just cause you to go broke?

Who do you think will win the NBA championship?

Regards,

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

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

Only The Poor or Super Rich Say, “Money Can’t Buy Happiness”

admin — Thu, 03 Jun 2010 09:00:44 +0000

Whoever said, “money can’t buy happiness” is either poor or wealthy beyond their wildest dreams. The incessant amount of studies by researchers trying to prove money can’t buy happiness is simply a result of the researcher’s own poverty. Because they are financially mediocre, researchers are trying to console themselves that it’s OK not being wealthy. Generally, researchers have a higher sense of self because they have more educational training. Hence, it tears them up when they see other “lesser beings” make more than them. Meanwhile, those who continue to highlight research stating that money can’t buy happiness are trying to justify their own financially unspectacular selves as well!

You see, the financially mediocre are all in cahoots with each other. They’ve banded together to proclaim that being middle class is good enough. It probably is good enough for most people, but not for these unsatisfied folks! If being middle class or poor was good enough, then they’d leave well enough alone and be happy in their financial mediocrity. It’s a hard pill to swallow, but swallow they must. Not everybody can make multiple six figures, live in million dollar houses, and pay cash for luxury automobiles. That’s just life and they are trying to bring you down. Don’t let them!

THE TRICKY RICH

On the flip side, only the super rich say “money can’t buy happiness.” They’ve got all the luxury in the world, with not an ounce of financial worry. It must be nice never having to budget during Christmas season. It must be nice going to $1,000/head charity galas and paying $200 for front row seats to watch the great Itzhak Perelman play violin. These types of people need to fight for the poor because otherwise, they’ll be deemed as greedy bastards.

The guilt factor the super rich have is enough to say statements such as, “The rich aren’t paying their fair share of taxes!” Even if you taxed Warren Buffet 99%, he’d still make more than 99% of the population. Of course it’s OK to raise taxes when you have so much wealth it doesn’t matter! The super rich will lecture us not to stop focusing so much on money and just following your dreams. Don’t listen to them for one bit! They’re just trying to win you over and pretend to be like one of you.

DEFINITELY HAPPIER

I don’t know about you, but I’m very happy making more than I did 10 years ago. 10 years ago, I was worried whether I could afford getting desert for two on a date. Now, the cost of a seven layer chocolate cake for $8.99 doesn’t even cross my mind, only the 3 miles I’ll have to run tomorrow instead. 10 years ago, I used to be more stressed at work because I didn’t want to risk getting fired since I had no safety net. Now, I’m focused on all the good things at work and don’t worry about face time issues, work place politics, and kissing every rump that comes around. 10 years ago, I would never be able to consciously buy two round-trip tickets the day before to celebrate Valentines week on Lost island. Now, I’m excited to go on more last minute adventures because experiences are what matter most!

The reason why money does buy happiness is because once you have money, you don’t worry about money anymore. All the stress that comes with a lack of money melt away. You’re not pissed at your friends for short-changing the pot during a group meal outing. You don’t care if you get a flat tire and have to spend $200 to replace. You’re just not worried anymore, and that feels fantastic!

Money also allows you to buy fantastic memories. Most would agree that your happiest moments are spent with friends and loved ones. If you have money to travel and be with those you care about, is that not happiness production? It absolutely is. What about all the fun times you had taking salsa lessons or playing tennis at the club? Not a cheap endeavor, but so fun, and made possible by money.

CONCLUSION

When people start telling you money can’t buy happiness, take a good hard look at their own finances. They are likely telling you this because they don’t have much money themselves. They haven’t tasted the freedom money buys. And if they so happen to be research PhD’s, well you can forget about their advice right there. If they are super rich, then you know they are lying as well so as to not look ignorant. Money can buy happiness because money buys peace of mind and opportunities for great experiences. Don’t be fooled by ego-consoling research and those who espouse! They are just trying to keep you from achieving your financial goals so they can feel better about themselves.

Readers, why do you think scientists try and prove that money can’t buy happiness? Do you agree that those who believe money can’t buy happiness generally have poor financials? Would you not be giddy as a school girl if you inherited $100 million buckaroos? If so, for how long?

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

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.

The Emergency Fund Fallacy

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

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”

An Extra Seven Hours A Week

admin — Mon, 17 May 2010 09:00:34 +0000

I’ve been a little more active on Twitter recently and I noticed something quit interesting. Starting at around 10pm PST, the chatter goes silent. I tend to stay up until midnight to 1am, and because nothing is happening on Twitter, I focus my attention elsewhere. I usually wake up sometime between 5:30am-6am and spend time checking e-mail, responding to comments, stretching and seeing what’s going on online. Again, absolute silence until about 7am PST when things start coming alive. Where is everybody during the silent times? Sleeping?

There was a time where I’d sleep 7 or more hours a day, but no more. For the past 10 years, my body automatically gets up after 6 hours of sleep and never later than 6:30am on the weekdays, and 7:30am on the weekends no matter when I go to bed! Poker until 3am? Good morning sunshine at 7:30am! Actually, I wish I could sleep in until 9am, but I just can’t. Part of the reason for my automatic clock is that I eat regularly, and therefore have the desire to use the restroom regularly. Time to go, my body says and I get up. Unconsciously, there must also be a strong feeling of guilt that I’m wasting my life away sleeping.

7 HOURS A WEEK LEADS TO 30+ HOURS MORE A MONTH

Imagine if you had 30 hours more a month to do what you wish. What could you accomplish? I bet you could accomplish a whole lot of amazing things. If you read 60 pages an hour, you could read six, 300 page books a month! If it takes you one hour to burn off 500 calories, you could lose 15,000 calories or 6-8 pounds a month! Whether it’s mastering a musical instrument or building a business, an extra 30 hours a week is an incredible competitive advantage. This is where drive comes in.

It’s a ridiculous fact that we spend 1/3rd of our lives sleeping. If you live until 90 years old, doesn’t it make you sick that 30 of those years were spent sleeping? It makes me sick, because I’m so conscience about the brevity of life. To put it another way, let’s say you want to “increase” the length of your life by extending the conscience portion. By sleeping one hour less every day, you increase your conscience life by 15% (60 years to 69 years), assuming you sleep 7 hours a day! Suddenly, it’s as if the 90 year old is living until 104 years old (104 X 66% = 69 years old)! Perfect.

CONCLUSION – WORK WHEN OTHERS ARE AT PLAY

Small changes (wake up one hour earlier) leads to great changes over time (a 9 year longer conscience life span). It may be tough to wake up earlier and sleep only 5-6 hours a day at first, but trust me when I tell you that your body will get used to it and start wanting to wake up. Maybe you’ll have to cut down your late night drinking and partying, but it’ll be worth it in the end.

My mother used to tell me growing up, “Use your summer vacation wisely and work when others are playing.“ At the time, all I really wanted to do was hang out with my buddies and go skateboarding. She was right of course, because as soon as I started buckling down and focusing, I was able to exceed expectations. Yes, you might find me corresponding at 6am PST on certain days, don’t worry. It’s me, and not an automated robotic sending something out. In fact, I can’t wait to wake up every single morning and check my messages and see what’s going on in the world. There’s so much activity, I wish I didn’t have to sleep at all!

Readers, how many hours a night do you sleep?

What is the minimum amount of hours you think you can sleep and still be functionable?

What would you do with an extra 30 hours a week?

Keigu,

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

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

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

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

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

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 White Cloud of Happiness

admin — Sat, 08 May 2010 09:00:20 +0000

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”