Financial Samurai

Slicing Through Money's Mysteries

During Market Panics Debtors And Investors Win While Savers Lose

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I’m feeling a little sadistic right now. A large part of me is hoping the equity markets take a big dump again before the end of summer. Bring on the pain baby! I thought I was absolutely done with refinancing my primary residential mortgage in 2010 when I got 3.625% for 5 years. But, I just called my banker on 2/3/2015 and he says I can now get 2.25% jumbo and no points or fees for the same duration! Because I would simply refinance with the same bank, the process would be streamlined since they have all my documentation.

What is this world coming to? Who does that, putting more money in the pockets of consumers who never asked for it?  Why save me thousands of dollars a year in interest expense when there’s a guy who’s been out of work for over two years and needs it more? If I do the refi, living in my house will be cheaper than living in a 2 bedroom rental.  Something is wrong with how government policies are working. The more the Fed and the Treasury meddle, the more unintended consequences result.

Those with debt are the bad guys right?  We’re living in houses we can’t afford to pay in cash, and we refuse to live in crappy rentals whose landlords never do any updating.  Debtors are living it up because they can, and know there’s only one life to live.  There’s no point making money if you aren’t spending your money.  Meanwhile, savers are getting squeezed as their rates head to 0% and their equity investments go down the tubes.  Debtors are being rewarded again for living beyond their means and that’s just fine by America and our politicians.

ROLLING THE DICE WITH CHEAP MONEY

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Understanding The Debt Relief Industry

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The debt relief industry doesn’t really have the greatest reputation for some reason or another.  Perhaps the reason is because we secretly harbor resentment for people who get in way over their heads and look for solutions other than paying off their debt!

When you can solve your debt situation yourself by begging, pleading, calling your creditors to come up with a repayment program, why would you let a debt settlement company charge exorbitant fees?  If you make your case strong enough, you might even get the credit card company or the bank to forgive a portion of what you owe!

Thanks to the horrendous economy in recent years, consumer debt levels have risen to alarmingly high levels.  From buying that new car you shouldn’t have, to big screen TVs that ruin the feng shui in your bedroom, to luxury clothing with 95% margins that never get worn, to nice vacations which you think you deserve, to $100 meals per person, people’s consumer debt has blown up in a bad way.

Never fear though!  With the government ready to bail you out with incredibly long unemployment benefits, free money for your mortgage, and credits for paying on time (shouldn’t you do that anyway?), some consumers will be alright.  But for others, in come the debt relief companies to save the day!  Maybe.

The Issues With Debt Relief Companies

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Will Greece Default And Blow Up The World?

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16.8%.  That’s how much the current Greek 10-year bond yield is producing thanks to their debt mess.  16.8% is a juicy 13.9% higher than the current US 10-year yield to put things in perspective.  The question on everybody’s mind is will lawmakers pass a new 5-year, 28 billion Euro austerity plan in order to tap a 5th installment of the bail out money available to repay almost US$10 billion worth of maturing bonds this August? We shall see come Thursday, June 30 whether the Greek Parliament implements the package if it passes on June 29 in the first place!

More than a year has passed for the market to digest the European debt crisis, but after a year of hand wrangling, pretentious pronouncements by aggravated government officials, and raucous rioting in the streets of Athens, nothing much has changed. The economic recovery that was to produce the growth and tax revenues to bail out the sinking ship of “PIIGS” has never materialized, and patience is running thin as potential defaults creep into the not too distant horizon.

The European version of Wall Street’s “CDO” meltdown has gradually unfolded over the past two years, beginning with leaks in the press that something was askew in Greece near the end of 2009. As the truth of the financial depth of deficits finally surfaced, the crisis hit front-page news headlines in May 2010, when it became apparent that the financial malaise was not confined to Greece alone. A new anagram, namely the “PIIGS”, entered our daily lexicon. Portugal, Ireland, Spain, and possibly Italy had similar, but different, according to finance officials, debt and deficit problems.

The crisis was met with proposed bail out packages from the stronger banks in the region that claimed that capital stress tests would prove their stability to meet most any contingency. Each proposal and subsequent approval was accompanied by pompous protestations from each government that debt payment schedules and bloated deficits were no longer issues to be concerned about, at least until the next revealing story in the press negated everything that was previously said. This bumbling scenario has been repeated countless times to the point that confidence in the respective governments has all but disappeared.

18 STRIKES AND YOU’RE OUT!

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Small Business Credit Card Issuers: The Good, The Bad, and The Ugly

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Searching for a new home. Canoe on the lakeWe all know the old adage, “you can’t judge a book by its cover.” What you might not know is that banks apparently had this in mind when branding business credit cards. You see, one would think there’d be significant differences between general-consumer and business credit cards. However, according to a recent Card Hub study, the only thing that really distinguishes a business credit card from a general-use card is the fact that a company is liable in addition to an individual cardholder.

Oh, and the fact the new credit card law (CARD Act) only applies to consumer credit cards. In light of this, a clear hierarchy of business credit card issuers actually emerges when you compare the extent to which issuers recognize the bond between consumers and business credit cards and in turn proactively apply CARD Act protections to these spending vehicles despite their branding.

Ultimately, you are left with a list of the good, the bad and the ugly business credit card issuers.

The Good

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The European Debt Crisis is Still Alive and Kicking

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For those with memories longer than the time it takes to read this article, the month of May is quickly approaching, and with it, the one-year anniversary of not only the “Flash Crash”, but also the moment when the European Debt Situation grabbed financial headlines, causing an immediate crisis of global proportions.  Capital suddenly flew to safe havens in the form of treasury bills and precious metals.  The Euro fell from its lofty perch relative to the greenback, and “PIIGS” was a euphemism that forever joined our daily lexicon of favored terms.

The Euro had strengthened from its debut to the $1.60 range, but the recession pulled it back.  As it began to recover afterwards, it staged another assault, rising to $1.51 until news of debt problems surfaced at the end of 2009.  In May, the full import of the debt problems became common knowledge, and the downdraft plummeted the Euro to its lowest value in four years, a startling $1.18.  Greece was the initial focus, but then the malaise spread to concerns over Portugal, Ireland, Italy, and Spain, the remaining members of the “PIIGS” anagram.

TIME TO GO ON A DIET

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Book Review & Giveaway: Debt Free For Life by David Bach

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

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

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

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

FINANCIAL SAMURAI QUESTIONS FOR DAVID BACH

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The Best Way To Lose Weight And Become Debt-Free

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Best way to lose weight and become debt free

The best way to lose weight is easier than you think. Let me explain after wearing the same size 33″ jeans since 1999.

Yesterday was one of those perfect gastronomic days. For breakfast, there was all you can eat fruit and pastries. For lunch, some deliciously “low calorie” Greek baked spaghetti with garlic bread you see to the left. To top off the evening, a bone-in filet mignon, with baked potato with the works, blue cheese wedge salad, and a couple glasses of pinot noir from Napa Valley.

All told, I probably consumed some 5,500 calories worth of food! I didn’t feel incredibly sick to my stomach (OK, maybe a little bit!) because I made sure I played an hour and a half of tennis before dinner. It was actually a wonderful experience since I normally eat half as much. When I was in the cab ride home, I had an epiphany.

Perhaps the reason why there are so many large folks in America is because people purposefully gorge themselves in order to lose weight! 

Eating great food is such a wonderful pleasure that it’s irrational not to.  It trumps any negative feels about packing on weight otherwise we wouldn’t let ourselves go. 

Furthermore, the reason why there are so many people in debt is because it’s just so rocking fun to spend money you don’t have! Finally, it feels great once you pay back that debt! Double pleasure going both ways is why there is such a correlation.

The Best Way To Lose Weight: Gain Weight

Let’s say you are mildly obese at 5 feet 11 inches and 230 lbs. You enter into a weight loss competition with your fellow 5 foot 11 inch pal who is also slightly overweight, but weighs in at 180 lbs instead.  Back in college, both of you were lean 160 pound fighting machines.

The goal is to lose 10% of your body weights in 3 months i.e. 23lbs for contestant #1 and 18lbs for contestant #2.  Going from 230lbs to 207lbs is clearly MUCH easier than going from 180lbs to 161lbs.  Yet, 10% is 10% and contestant #1 is calling contestant #2 a chicken for trying to bend the rules.

Hence, if I were a betting man, I’d bet on the contestant #1 (230 lbs) all day long!  The mildly obese person not only will have an easier time losing weight, he’ll get to brag to his opponent and all his friends that he lost a whopping 23 pounds!  He’ll gain a renewed sense of self esteem even though at 207 pounds, he’s still a little hefty.

Meanwhile, the 2nd contestant, despite getting down to the 160-170 level is a loser even though he looks fitter than contestant #1 at 200-210.  The next time there is a weight loss competition, you bet your big buns that contestant #2 is going to gain a massive amount of weight so he can win!

The Big Downer

Here’s the real kick in the nuts for the contestant #2.  Not only does he lose the weight loss challenge, he also misses out on all those years he could have gorged himself on tasty food! 

Eating is such a wonderful experience as I was kindly reminded of last week.  To be able to eat to your heart’s content is a luxury unlike no other.

Contestant #1 was able to overindulge for years after college and gain 70 pounds. He enjoyed all of his meals, never felt guilty enough to do anything, and seldom ever had to work out. 

Now, contestant #1 can also capture the glory of losing weight, because it’s so much easier to do so when you are so much heavier.

Related: The Ideal Weight Pisses Me Off

Debt Reduction Is The Same Game Plan

You may be wondering what this weight loss shenanigan has to do with personal finance and I’ll tell you.  The parallels to gaining weight to lose weight is the exact same reason why people go into debt to get out of debt! Think about it for a bit.

How awesome is it to spend all this money which isn’t yours to go on vacations, drive fancy cars, and have fine things?  You’ll spend years enjoying the good life with other people’s money until your natural instincts kick in that you perhaps need to stop.  It’s exactly why most people don’t keep gaining weight forever.

The day you decide that living the high life is over, you challenge yourself to get out of debt.  You start a journal, a blog, a budget.  Whatever it is, you start something that will get you out of debt. 

The more in debt you are, the greater the feeling once you finally do get out of debt. You are rewarded both ways for irresponsible financial habits and as a result, you may very well gain some weight and get into debt again!

Recommendation To Lose Weight And Become Debt-Free

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Planning for retirement when paying for private grade school
Link up your accounts and see whether you’re on track to retirement in great shape or in poverty

This post was originally published on October 25, 2010 and updated on July 29, 2020. I was annoyed at how difficult it was to lose weight and how some people got so much praise for losing so much weight. I’m about 168-170 lbs still, which is not bad. But I could lose about 10 lbs.

Blink And Blink Again: Your Unconscious Mind At Work

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It’s safe to say that before you began reading this post, you had no idea you were blinking.  Blink, blink, blink.  Whatcha going to do about it now that you are aware of your fluttering eyelids?  My guess is that your memory will last as long as a gnat, and you’ll forget as soon as you finish reading this post.

It’s amazing how we can blink roughly 36,000 times a day and not even be aware.  Yet, if we were to be consciously aware of our need to blink, we’d probably drive ourselves mad.  How great it is that our bodies protect ourselves from insanity by doing the things for us we have no desire of doing ourselves.

SUDDENLY YOU’LL WAKE UP

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