Tax Refunds Are Good For Most People Because Most People Can’t Save

Bet You Can't Eat Just OneThe average tax refund is $2,400 a year, and 74% of Americans get a tax refund. I’ll consider you average for argument’s sake.  At today’s typical savings rate of 1%, you’re missing out on a whopping $12 bucks in interest income! Why $12, and not $24? It’s because you have to calculate the average balance of the year if you saved every $200/month payment diligently starting January 1st i.e. January $200, February $400, March $600 etc.

I’m definitely not a proponent of giving the government more money than they deserve, but missing out on $12 bucks in interest is something I can live with and so should you.

You have to ask yourself whether you have the discipline of saving that extra $200 a month, or using it to pay down debt. Most people are not disciplined enough to pay down debt and avoid buying junk. This is why we have such massive debt problems in the first place!  The government is essentially helping you “go broke to win big” by protecting 75% of American tax payers from blowing $2,400 a year without even knowing it.

A SIMPLE GUIDELINE & SOME COOKIES

Playing Until My Knees Swell And Feet Bleed

knee2009 was the year I rediscovered tennis.  Ironically, I figured I’d better utilize the club as much as possible because I couldn’t afford any other luxuries after the markets imploded!  Just last year, I failed miserably at breaking a 10 handicap (got to 10.2 and ricocheted) in golf and decided to quit before I threw my bag into the lake.

For the past 15 years, I forsook the game I played so diligently as a youngster.  It was boring running around, hitting a ball back and forth.  Now, I’m hooked again because of the camaraderie of the game.  Although tennis is an individual sport, there’s a team aspect to it if you join a league.  Meanwhile, my evil plan is to get my wife to get good enough so we can play some competitive mixed doubles my next summer!

PHYSICAL PROBLEMS MATERIALIZE

Why Becoming Debt Free Is Not A Great Idea!

 

We Don't Need No Medicine!

We Don't Need No Medicine!

I’m pleased to bring you a guest post by faithful reader and commenter, Larry Ludwig (bio below).  He writes a thought provoking piece about challenging the norm of becoming debt free.  You’ll be smarter after reading this, guaranteed!  Enjoy, and as always, feel free to debate away!  Rgds, Financial Samurai

You’ve heard the financial gurus like Dave Ramsey perform pasectomies on his show and Suze Orman with her numerous “I have 50k in debt” guests.  The gurus all say, debt is bad, credit is evil, and being debt free is nirvana, yada yada yada.  While I do think as a whole Americans have too much consumer debt, the goal of being completely debt free is actually a terrible idea. Let me be specific: buying things that depreciate with debt is bad, that big screen TV, new clothing or car.  Most of the financial gurus do not make this distinction and make all debt to be “evil”.

I believe Rich Dad/Poor Dad Robert Kiyosaki has said it best, “There is good and bad debt and being debt free is more risky than having good debt.”.  Now before you go off on my recommendation of Robert and his questionable background, I believe his statement is sound and correct.

The primary reasons are:
•    Opportunity Cost
•    Asset Allocation
•    Inflation
•    Tax Deductions
•    Arbitrage
•    Leverage

Laptop Returned, Money Saved, Old Computer Optimized!

Goodbye my pretty.

Goodbye My Precious!

After much debate, I walked over to the Apple store and returned my oh so sweet Macbook Pro.  Today was the last day until the return policy expired.  I actually felt a little bit sad, because I got to see the laptop when the store clerked cut open the sticker to make sure I wasn’t returning a couple cement blocks instead.  My reasoning to return were quite simple:

  1. No reasonable bids came in for my 8GB, iPod touch for $199 because the day after Apple stopped their promotion of a free iPod with every Macbook purchase, they lowered their price from $239 to $199!  I didn’t change my pricing until the second week, and by that time, it was a little too late to negotiate.
  2. My guest post failed to get published within two weeks at this large personal finance site.  I made a submission with outline, thesis, and bio which was immediately responded to and accepted the very next day.  Several hours were spent writing 1,350 words, as well as several more hours revising.  Although they have confirmed receipt of my 2nd draft, it’s still in the queue.  At least I got a nice $10 gift card at Amazon! :)
  3. My cash flow cannot afford $1,465 for September because a $1,700 bill is coming due for a couple airlines tickets purchased at the end of August.  I try to only buy stuff through cash flow, and never touch savings, otherwise how will I ever build a big enough nut for retirement?  Going into revolving credit card debt is NOT an option and never will be!
  4. I made a promise not to buy anything in September and feel guilty breaking a promise.  With only 6 more days left to go for the month, I need……… to……. stand…….. strong……… and fight the spending addiction!  I wonder if this is how a recovering addict feels, where every day of non-use, and in my case non-spend, is a victory?  It feels good to go 24 days in a row without buying anything other than food!
  5. Finally, my wife actually fixed my old iBook G4!  Its speed is as good as new thanks to several updates and clean ups.  Too bad the battery life only lasts 25 minutes now.

Mea Culpa – I Just Spent $1,450 At The Apple Store

The Apple IIc!

The Apple IIc!

Despite making a promise on August 31st to buy nothing this September, I broke down and bought a 13-inch Apple Macbook Pro yesterday.  You see, I was tempted by two things.  1) Apple’s promotion of getting a free $230 i-Touch with every notebook purchase, and 2) Steve Jobs is back in  San Francisco this week to address new product launches!

EXCUSES

  • I have been looking for a new laptop for two years now given my current 12″ i-Book is a hand me down from my wife.   It’s got only 512megs of RAM, a 20 gig hard drive, a sticky space bar, and is slower than a herd of turtles stampeding through peanut butter!
  • My wife, on the otherhand, has a shiny 1-year old Macbook I bought her for Christmas.  Clearly, I am a little bit envious.
  • I walked down aisle 7 at Walgreens and a Loreal shampoo bottle told me, “Because you’re worth it!”
  • Nobody really buys me anything for my birthday and the holidays except for my wife.  I take it back.  My mom got me a nifty plastic cube with a clam in it last winter.  I think she found it in an old cubbard.  So who’s going to buy me anything?  Cue the violins!
  • Furthermore, $1,450 really isn’t $1,450 once I get my $230 rebate in the mail for my i-Touch.  I can then sell the darn thing on Craigslist for $199 and bring my total outlay down to $1,051!
  • Besides, how am I supposed to be a prolific personal finance writer on such old equipment anyway?  I can barely do any editing on my 12-inch screen.  Oh, the justifications of spending come spouting out now, and I can’t help it.

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?!