The Secret To Early Retirement

Sometimes I feel like a genius.  Sometimes I feel like a financial dumb ass.  Today is not one of those days of stupidity.  It hit me during bath time the other evening that the secret to early retirement isn’t spending less than you earn, saving at least 30%+ of your after tax income, buying only what you need and living a frugal lifestyle.  Nope.  That’s just status quo where one should be living that lifestyle anyway.

What I discovered is so much deeper, and so much more powerful than anything ANY of us personal finance “gurus” have discussed.  The secret to early retirement and leisurely living is so amazing that I don’t know if I should even share with you guys since I could probably write a book, do a video, and make tons of money in the process.

Alas, I’m a nice guy, and am down with helping my fellow brothers and sisters get ahead so I’ll share with you the secret.  There aren’t any gimmicks, just the straight up truth.  Before you click the “read more” button, see if you can guess what exactly it is I’m talking about.  Think long and hard.  Now that you have, know that you could have just clicked “read more” anyway because you’ll never figure it out!

THE SECRET TO GREAT RICHES AND KICKING BACK

Small Business Owners Encouraged To Fire Employees Before Tax Hikes

The Bay Area is full of entrepreneurs.  There’s something in the air that creates an almost godly electric spirit that causes people to work hard and innovate.  As 2011 nears, more and more I hear about how small business owners are clamping down in preparation for next year’s tax hikes.  Clamping down is generally not a good term to use if you are a politician who wants to create job growth.

Let’s say you make roughly $3 million in annual gross revenue from your internet business like my friend Zach does.  Not bad, but not exactly big money if you take into account his cost structure.  If his pre-tax operating profit margin is 25% after he pays the salaries of all his employees, the rent, and so on, Zach is left with roughly $750,000 subject to taxes.  If his tax rate goes up from 36% to 39.6%, for every dollar he makes over $375,000, he will pay roughly $25,000 more in taxes a year in 2011.

Well guess what?  My friend is letting go of one of his junior programmers who makes roughly $85,000 to pay for next year’s $25,000-$35,000 tax increase!  My friend feels bad letting his 2006 college graduate employee go, but he has no choice since revenue has declined since 2007, and the government is tightening the screws.  Zach believes that 2011 revenue will be worse next year than this year, and is budgeting a decline.  Thank goodness for 99 weeks of unemployment insurance!  And no, it’s not reasonable for the junior programmer to just go work in fast food after only several weeks of looking.

DON’T LISTEN TO THEIR LIES.  THEY AREN’T IN IT FOR YOU.

On A Mission To Refinance America

Recently, I’ve been on a mission to tell anybody who will listen to refinance their mortgage.  I get nothing in return, just the satisfaction of knowing that someone who isn’t a rate hawk like me can get a nice kick in the pants to save some money every month for the next 5-to-30 years of their lives.  Nobody gave me a kick in the pants when I locked in my refi, which is why I had to pay 0.125% higher than I should have because I was unsure and waited a little too long.

Banks have promotions all the time, and your duty as a borrower and saver is to identify which banks are offering the most attractive terms at any given moment.  That bank is Citibank, with mortgage rates often 50 basis points (0.5%) cheaper than any competitor out there for 5/1 and 30-year mortgage products.  Citibank is on a rampage to build up their loan book again.  As patriots, it’s our duty to spread the word and make sure we don’t fall off a cliff again!

THE BIGGEST HURDLE IN REFINANCE LAND

View Your 401K Like Social Security And Write It Off

Every month I contribute $1,500 to my 401K so that by the end of the year, the 401K is maxed out at $18,000. Unfortunately, $18,000 a year is a ridiculously low amount of money to save for retirement if you really do the math. After 10 years, you might have $250,000, and after 30 years you might have $800,000 to $1.2 million depending on the markets and your employer’s match.  Whatever the case may be, the 401K is simply not enough money to retire on, especially since you need to pay taxes upon distribution.

The government needs to get it together and raise the amount of 401K contribution for those in the later part of their lives.  How is it that a 40 year old executive who makes $250,000 can only contribute the same amount in his 401K as a 23 year old kid out of school making $40,000?  It just doesn’t make sense.  Instead, the government should allow pre-tax contributions to increase by $5,000 every 5 years so that by the time one has served 20 years in the work force for example, s/he can contribute $35,000+ a year to their 401Ks until retirement.

Let’s talk about the pencil geek IRA retirement plan for example.  If you’re one of the fortunate who are allowed to contribute, you can only fund $5,000 a year!  Whoopdeedoo!  $5,000 X 30 years later, assuming you don’t lose it in the market yields $150,000-$300,000 maybe!  Great, just enough to buy me a Honda Accord sedan when I’m grey.  Get it together government and raise that $5,000 contribution amount higher with better tax incentives.  Furthermore, let hard working Americans who make over $120,000 the opportunity to contribute regularly, and not just through odd year loop holes.  Empower people to want to save for their future!

DIFFERENT STROKES

Is It Better To Rent To Males Or Females?

Rent to Olivia Munn or…

Last night I got a written notice in the mail informing me that my tenant of 2.5 years is moving back East!  Can you believe it?  How could he leave paradise to move back home to the sweltering heat of New Jersey?  I will never know. Anyway,  I’m really sad to see him go because he was as close to the ideal tenant as possible.

Ned paid on time, was quiet, held no raging parties, and never bothered me to come fix anything.  OK, so there were several times when he needed an extra week or two to pay rent, but in the end he always delivered.

WHAT I’M LOOKING FOR IN A TENANT AS A 13 YEAR LANDLORD

* Great credit (680 or higher, and the higher the better).

* Not a psycho killer.  You know the ones with crazy eyes when you talk to them.

* Has a stable source of income, which could include interest income if s/he has no job.

* Has enough money in the bank to cover at least 18 months of rent  if they lose their job.

* Good prior landlord references

* Longer than 1 year duration at his or her job.  Longer the better.

* A pleasant demeanor i.e. not an axe murderer.

If a candidate possesses all of the above attributes, I’m more than likely to rent my apartment to them.  It’s really not worth taking a risk on a poor tenant and end up missing out on months of rental income due to non payment, or litigation!  The real question I have is whether it’s better to rent to males or females and whether it matters at all?  Let’s discuss.

WHO MAKES BETTER TENANTS: MALES vs. FEMALES?

As a landlord, all you want is : 1) On time payment, 2) zero complaints, and 3) minimum wear and tear.  In other words, if I could rent to a robot who doesn’t have to move and always sends me a check electronically on time, that would be the best!

1) DEPENDABILITY: It’s pretty much a wash between men and women.  Men are just as flaky as women and women are just as dependable as men, sometimes.  Actually, if I exam all the females I know, they are all pretty damn dependable, whereas some of the guys just tend to be complete flakazoids who are never on time.  OK, women are favored here 60/40.

2) COMPLAINTS: Men pride themselves on being able to unclog the toilet, change light bulbs, fix holes in walls, and pain(t).  Women, not so much.  I’ve heard of stories where women will call their landlord to squash a spider.  Come on now, a spider is like 1/1,000,000 the size of you!  Men get the nod 70/30.

3) WEAR AND TEAR: This is a tough one.  Men tend to enjoy throwing parties with lots of loud music and fountains of alcohol.  Keg parties, strip parties, bachelor parties, birthday parties, shaking hands with Hilary Clinton parties you name it!  Women don’t throw ragers as often as men for some reason.  Furthermore, it is the unmarried woman who tends to sleep over at the boyfriend’s house more often than vice versa.  Hence, there is less wear and tear if you rent to a woman and therefore women are 70/30 favorites.

Bob the friendly dog walker..

CONCLUSION

Based on my three variables, I’m having trouble deciding which is the safer sex to rent to.  Women just seem so much more respectable and less violent.  How many serial killers do you know are women?  In the movie “Pacific Heights”, Michael Keaton was a man and not a woman.

My gut tells me women are better, but the funny thing is my last tenant of 2.5 years was a man, and he was great!  If you don’t mind sharing your thoughts on who you’d prefer to have as a renter, I’d much appreciate it!

* Please note that it is illegal to discriminate against a potential tenant based on sex, race, or creed.  However, it is legal to ask a question and wonder out loud.

Recommendations:

* Manage Your Finances In One Place: The best way to become financially independent and protect yourself is to get a handle on your finances by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize. Before Personal Capital, I had to log into eight different systems to track 25+ difference accounts (brokerage, multiple banks, 401K, etc) to manage my finances. Now, I can just log into Personal Capital to see how my stock accounts are doing and how my net worth is progressing.

* Shop Around For A Mortgage: LendingTree Mortgage offers some of the lowest refinance rates today because they have a huge network of lenders to pull from. If you’re looking to buy a new home, get a HELOC, or refinance your existing mortgage, consider using LendingTree to get multiple offer comparisons in a matter of minutes. Interest rates are at all time lows in 2015 due to volatility and unrest in the markets. When banks compete, you win.

* 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.

Updated on 1/20/2014

 

The Four Different Ways To Spend Money By Milton Friedman

The reason why Warren Buffet is so great is because he’s able to distill the most complicated financial topics into very simple terms.  Lucky for us, there is someone like Warren in the economics world.  Regular reader, Investor Junkie who disagrees with the government’s unemployment insurance extension, but agrees with the cessation of rising taxes, highlights a fantastic video by the great economist Milton Friedman about four different ways of spending money.

Professor Friedman’s examples are simple and perfectly to the point.  In an environment where we are spending other people’s money on someone else (deciding how other people’s tax dollars are spent), we don’t maximize the value of the dollar because we simply don’t have much at stake.

Professor Friedman highlights that people spending someone else’s money on others is a “distributor of welfare funds.”  Strong words with a certain amount of truth wouldn’t you agree?  In “The Ultimate Solution To A Fair Tax Policy In America”, I discuss the concept of limiting the voting ability of the 47% of non tax paying Americans on raising taxes for the other 53%.   Don’t worry, voting rights for everything else is status quo.  The reason why I suggest this rational solution is because it makes sure the country isn’t overrun by those who have their cake (don’t pay taxes) and get to eat it too (enjoy the benefits).

One can easily see an America where 90%+ of citizens don’t pay taxes and stick it to the 10% rich because it’s rational to look out for your own interests.  It’s up to balanced people who believe in equity to continue fighting for those who perpetually get unfairly blamed for our economy’s problems.  It really is ironic, because if everybody studied hard in school, volunteered their time to help others, and were self-sufficient (doesn’t have to be wealthy), America wouldn’t have nearly the amount of problems we have now!

The 4 Ways Of Spending

1) Spend your own money on yourself.

2) Spend your own money on somebody else.

3) Spend somebody else’s money on yourself.

4) Spend somebody else’s money on somebody else.

Readers, do you agree or disagree with Professor Friedman’s thesis that the 4th way of spending is the worst way of spending?  If you do agree, why do you think people feel it’s OK to spend other people’s money as they wish?

Regards,

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

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The Ultimate Solution For A Fair Income Tax Policy In America

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: