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Financial Samurai

Slicing Through Money's Mysteries

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 White Cloud of Happiness

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My mother is a white cloud of happiness. 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.

A White Cloud Of Happiness

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. So she even read “OPEN” before dad! What a white cloud of happiness and positivity she is.

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 a gift. This is largely the gift giver’s 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 of happiness 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 of happiness 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!

Further Reading

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”

Book Review: The Other 8 Hours

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The Other 8 Hours is an inspirational book by Robert Pagliarini, author of The Six-Day Financial Makeover and president of Pacifica Wealth Advisors. You may have seen him on Dr. Phil or 20/20.

Publisher & Book Info: St. Martin’s Press, hard cover, 301 pages

Review: The Other 8 Hours

The main premise for The Other 8 Hours is that everybody’s day is split into three eight hour parts: work, sleep, and everything else. Rob’s hope is to get you motivated to do more during the everything else portion to maximize your own potential. 

First of all, I don’t know anybody who only works 8 hours a day. 10 hours of work a day seems more realistic. Second, who gets to sleep 8 hours a night? Sounds like elusive bliss to me. Money never sleeps, so why should you?

Let’s assume 6 hours of nightly sleep instead, which ironically leaves the same 8 hours of time for everything else!

The Other 8 Hours is an enjoyable read because each chapter contains not only practical advice, but real life inspirational stories to help motivate readers to action. Too many times we just come home, plop on the sofa, and do nothing. That’s no way to live. 

Below are Rob’s top 10 things he recommends doing with your spare time to help increase wealth and purpose.

Top 10 Creator Channels:

1) Blogging

2) Inventing

3) Writing Books, Screenplays, Music

4) Starting A Company

5) Reselling, Affiliating, and Licensing

6) Taking Advantage of Fads/Stunts

7) Working for Stock in a Company

8} Advancing or Jumping Careers

9) Freelancing

10) Turning Hobbies into Income

Blogging definitely has the potential to earn you a few shekels with enough time and dedication. I’ve daydreamed about sitting on my yacht somewhere in the south of France writing to you about saving money on champagne and caviar! Then reality sets in. However it’s always good to dream.

The item that most interests me is #2. Rob dedicates a chapter to each of his 10 creator channels, which is very useful because many don’t know where to start. He provides a road map, highlights the pitfalls, and ends each chapter with actual resources you can use. For inventing where do you go to develop a prototype, receive independent reviews, and hire an agent? Many answers are all addressed.

A Warning That Needs Following

One of Rob’s key messages, which I wholeheartedly agree, is to NOT jump head first by quitting your job and investing everything you have in your business idea. I’m sure there will be plenty of those will disagree with this premise. How can you succeed if you don’t put everything you have into your idea? You can, but simply during the other 8 hours!

We always hear the tremendous entrepreneurial success stories, but we seldom ever hear of the failures. Trust me, there are tons of failed ideas. And if you were to invest everything you have in a failed idea, it’s going to take a lot for you to get back to your previous financial state. 

Be methodical in your approach, test out your product thoroughly, and make sure you see signs of success before you quit your full time job.

The Other 8 Hours Conclusion

Who wouldn’t want more time, more money, and a better life? It’s simplistic to say a book will give you all that.  However, The Other 8 Hours helps provide a catalyst to get you going. You won’t just read a book that tells you what to do. The Other 8 Hours helps shows you how.

Do you think quitting your job to dedicate everything to your side project makes sense?

Regards,

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

Further Reading

“Capitalism: A Love Story” DVD Review

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Michael Moore thinks he is pointing out injustices through his latest documentary, “Capitalism: A Love Story“.  Instead, Michael simply reminds us that life isn’t fair in a free market economy where those who work hard sometimes get the short end of the stick through no fault of their own.

Review Of Documentary “Capitalism: A Love Story”

I find it ironic that one of the wealthiest documentary filmmakers is bashing Capitalism. Despite highlighting that 33% of “young Americans” now believe in Socialism (37% for Capitalism, 30% undecided), it’s hard to argue for a better system. 

It’ll be interesting to see if these young Americans still believe in Socialism by the time they reach their thirties and make some money. Socialism just creates a new set of problems for society. 

Is it really that bad buying a foreclosed property from someone who can’t pay their debt on time?  Property vultures are necessary to provide a floor in many devastated markets or else things go to zero and more people suffer.

There is a sense of self-righteousness when Michael tells the viewer that he can’t fight the system alone and encourages all to rise up. Michael you aren’t alone. Thousands upon thousands of us fight for what we believe in every single day. 

I wish Michael would put his money where his mouth is and donate all his proceeds to helping victims he continues to highlight.

A STRANGE PLACE

Have you ever seen a journalist report from some God-forsaken place where malnourished children are starving in the background? Do you ever think to yourself, instead of jibber jabbering away, why don’t you just shut up and provide some food for the starving children behind you? 

The documentary is kind of like that. Michael mocks ministers, judges, companies, government, and Wall St. He does so to the point where I start thinking, why not just do something other than make a documentary?

There are some important parts to the documentary which made me want to stand up and cheer. Most notably was the 6 day factory worker lock-out which got Bank of America to finally pay them $6,000 in unemployment benefits from zero. 

That made me proud, because people were standing up against a company who just threw them away like garbage. Digging deeper though, why is Bank of America responsible for their benefits just because they got some bailout money? Shouldn’t the company itself be responsible?

TIME FLIES

The problem lies in the timing of this documentary. Nobody could have foreseen that in just one year since Lehman’s bankruptcy, the economy would rebound so quickly. The fear mongering has subsided and a sense of normalcy has returned.

He praises Obama for his promises, which one year later have not all been kept. Making a shady deal with the Senator of Nebraska to get him to vote for the health care bill by exempting Nebraskans for paying is not right.  As a result, after 30 years of Democratic rule in Massachusetts, a Republican takes former Edward Kennedy’s place.

Michael trashes Wall St. for receiving $700 billion in bailout money, making it seem like everybody in the industry had a part in forcing people to buy homes they couldn’t afford. One year later, a majority of the $700 billion has been repaid with handsome returns boasted by the government. 

Are the taxpayers thanking Wall St. for their profits? No, because frankly, as taxpayers, we pay the same amount of taxes regardless of where our money goes!

CONCLUSION

I commend Michael for making another hit documentary about this latest downturn. The snark is entertaining and therefore worth the watch. He makes the viewer think about issues, but he does not convince me that Capitalism is indeed ‘evil” as all his interviewed priests proclaim. 

If Capitalism is truly evil, why is The Church one of the richest institutions in the world? If Capitalism is evil, is Bill Gates also evil for donating billions to fight disease and poverty? No, Capitalism isn’t evil and Michael Moore will profit handsomely once again.

Further Reading

Related: The Secret To Your Success: 10 Years Of Unwavering Commitment

Subscribe to my private newsletter by clicking here. More than 10 years after I started Financial Samurai in 2009, Financial Samurai’s readership has grown to over 1 million visitors a month.

Regards,

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

Charles Farrell From “Your Money Ratios” Speaks! Part II

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The following is the second and last part of my interview with Charles Farrell, the author of “Your Money Ratios“.  Charles Farrell discuss the much maligned 401k, whether Social Security will survive, and crowd favorite, how raising personal income tax levels further will ruin America!

The 401K AND ALL ITS GLORY

Question: Why do you think there are so many detractors of the 401k plan? Furthermore, do you think it is fair that the pre-tax limit contribution is only $16,500 for some 22 as well as someone who is 45? Presumably, the average 45 year old is making much more than the average 22 year old, so how come the government doesn’t propose an increased pre-tax contribution scale the older one gets?

Charles Farrell: Many people don’t like 401(k) plans because they believe the burden of funding retirements should fall on employers and not employees; thus they would like to see us go back to defined benefit plans that are funded by employers. Well, that is just not going to happen. Employers have no appetite for guaranteeing to pay their workers for 30 or 40 years after they stop working for them.

And DB plans are not flexible enough to accommodate a globally competitive marketplace, plus they discriminate against individuals who change jobs or careers. Moreover, many DB plans (particularly government plans) are significantly underfunded and many who thought they had guaranteed retirements may be unpleasantly surprised at some point. So I think the “romance” with DB plans is misguided, but many people would like to see those types of plans again. I just don’t think it’s going to happen.

Then there is another set of individuals who don’t like 401(k) plans because of the limited investment choices and sometimes high expense structure of the plans. I agree with people on this front, and there are problems with some 401(k) providers, particularly those smaller plans that can’t drive better deals on their investment platforms.

But, most plans do offer competitive options and are low cost. It’s important for readers not to lose sight of the primary reason to use a 401(k) plan, which is the huge tax benefit provided to those who contribute; and if you get a match, that is just makes it more attractive. The tax deduction, the match and the tax deferral on growth are incredibly valuable tools to help build your capital. So even with some restrictions, the plans are basically the best place to build your retirement assets.

Regulators Are The Problem! (401K Con’t)



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Charles Farrell of “Your Money Ratios” Speaks About Retirement And Investing,

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As I wrote in my review of “Your Money Ratios”, Charles’ book sings to me. Charles has the ability to simplify complicated financial topics for the average reader to understand. His book is seriously one of the best books I’ve read on personal finance in a long while.

One of the keys to progress is learning from experts in their various fields.  Charles is gracious enough to answer some follow up questions I’ve been burning to ask after reading his book.  This will be a two part post due to the 2,800 word length of the interview.  In part I, we discover Charles’ motivation for writing his book, strategies for early retirement, and his conservative and debatable 50%/50% investment split between stocks and bonds.  In part II, we discuss the much maligned 401K, personal income taxes, why Social Security will survive, and why the flat tax is the right way to go!  Please enjoy!

WRITING “YOUR MONEY RATIOS”

Question: Was there a particular lightning bolt reason why you decided to write this book? For aspiring authors, what suggestions do you have to get your worked published in this ultra competitive field of business?

Answer: I wanted to write a book that would help average readers understand the most fundamental and critical relationships among one’s income, capital and debt, and how those things must be managed throughout your working career to build financial independence. So I took what are often quite complicated topics and figured out a way to present them in a very simple format that anyone can follow. I would like more people to enjoy the benefits of financial independence, and I hope this book does that.

As far as writing, all I can say is write about what you believe in. Hopefully, if you believe in it strongly enough, you’ll develop some expertise and then seek out ways to spread your ideas. Try to develop some niche that is reflective of your expertise. So I developed the ratios and they came out of my background in tax, finance and also working with individuals.

Think about what you do that is a little different and try to focus on that unique nature of what you do. It is a tough slog because the field is very crowded and often the least valuable information gets the most press. But you have to accept that reality and still push ahead. And then you need a little luck. Your message has to somehow get into the hands of people who appreciate and understand it. And that is hard to predict, which means you need a little luck to get it out there. So if you are going to pursue that path, I think you need to accept those realities of the marketplace.

EARLY RETIREMENT

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Book Review And Giveaway: “Secrets Of A Stingy Scoundrel”

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Author: Phil Villarreal was a syndicated film critic (one of the best jobs on earth) and is a general reporter for the Arizona Daily Star.  Phil contributes to OK! Magazine and blogs at becauseitoldyouso.com.

Publisher: Skyhorse Publishing, Inc.  244 pages in soft cover.  $12.95.

Summary: “Secrets of A Stingy Scoundrel” is a hilarious book that has been reviewed by many personal finance sites already.  Hence, I’ll take a slightly different approach.

First of all, Phil is one proud cheapo who is potentially helping millions of Americans (if they buy his book) save thousands of dollars a year.  Second of all, the breadth of stinginess is impressive, with nine chapters: Personal, Eating, Relationships, Household, Finance, Leisure & Entertainment, At The Workplace, Corporate Cataclysm, and Gross, Mean and Just Plain Wrong.

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Book Review & Giveaway: “Get Financially Naked”

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Get Financially Naked

Get Financially Naked is a fun, quick read on the importance of talking about your finances with your significant other. There are some great insights on how to talk about the most important aspects of money. The more you share, the better your future is bound to be.

Author Bios: Manisha Thakor and Sharon Kedar have their MBA’s and CFA’s and are also the coauthors of “On My Own Two Feet: A Modern Girl’s Guide To Personal Finance.”

Publisher / Physical Description: Adams Media.  Paper back.  148-pages of easy reading.

Summary: With a tag-line of “how to talk money with your honey,” how can you not like a book with this kind of wit? Personal finance books tend to be a little bit mundane and redundant, but not so with Manisha and Sharon’s latest offering.

Get Financially Naked Review



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Book Review & Giveaway: “Your Money Ratios”

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your-money-ratios

Your Money Ratios is a book by Charles Farrell. Your Money Ratios can help you get a better handle on your finances.

Publisher: The Penguin Group.  Hard cover. 257-pages. Price: $26.

Author: Charles Farrell, JD., LL.M., investment adviser with Northstar Investment Advisors, in Denver. He writes the “Retirement Roadmap” column for CBS Moneywatch.

Review: “Your Money Ratios” sings to me!  For someone who loves using ratios such as the 1/10th rule for car buying, and 30/30/3 rule for home buying, I absolutely adore this book. Charles’ writing style is very balanced and easy to understand. When it comes to math, many people, including myself fall asleep. But, if you can just do simple division and multiplcation, this book will keep you on the right path towards financial security.

Charles’ “Unifying Theory of Personal Finance” is his core philosophy that all decisions you make should help move you from being a laborer to being a capitalist. In other words, make money work for you, and not the other way around. It’s important that with every single monetary decision you make, you ask yourself will this help you become a capitalist or not.

Let’s go through Your Money Ratios with the key money ratios from the book.

Capital To Income Ratio

The first ratio Charles introduces is the Capital to Income Ratio (CIR). Capital is defined  as the savings in your 401K, IRA, annuities, CDs, cash value of your life insurance, savings, equity in commercial and rental real estate, and the fair market value of any business interests. 

Capital does not include the equity in your primary residence because it does not generate income.  The real return of your home is the rent-free use of the property once you pay off your mortgage.

The underlying goal is for everyone to have a CIR of 12 by age 65 i.e. $1.2 million in capital if you average $100,000. With a CIR of 12, one should be able to retire financially secure while living off 80% of your pre-retirement income due to the returns from capital and social security. While working we probably live on about 60% of your actual income due to expenses such as one’s mortgage, which will no longer be there when we retire.

Your finances hit a tipping point when your Capital to Income Ratio hits 2. At a CIR of 2 your earnings from you capital will generally add more to your wealth than the amount you save each year. Over a 40yr savings cycle, you contribute 30% 70% are from earnings.

See: Ranking The Best Passive Income Streams

The Savings Ratio

To get to a Capital Income Ratio of 12, Charles highlights on two savings rates: Save 12% of your annual income ever year from ages 25-40, and save 15% every year after wards. The math works, and obviously the math works even better if you can save more of your annual income.

To clarify, the Charles’ 12% and 15% savings ratios include your 401K contribution..  Charles believes that your 401K is key to financial independence due to employer matches and tax free contributions.

I challenge readers to max out their 401K and save an additional 12-15% of their gross income. Mentally write off your 401K amount, and pray it’s there at age 59.5. My strong belief is that your net worth is an illusion, except for the cash and most liquid of assets.

Also see: How Much Savings You Should Have Accumulated By Age

Your Debt Ratios

One needs to differentiate between income-producing debt and income-reducing debt  When you take on debt, you need to leave enough for you to meet the savings ratio 

Owning a home and paying of your debt increases your retirement income and helps move you from laborer to capitalist.  “Deemed Income” is the investment income you get to keep in retirement because  you don’t have to use that income to pay a mortgage or rent.

Education debt, is good debt, but aim to keep it to 75% or less of your average 10 year gross income.  Financially, it is better for your kids to take on the debt than you provided they stick to the Education Debt Ratios.

Charles, like others believes there is an education bubble. Tuition costs are ridiculous and will eventually fall because income growth doesn’t support the cost. Charles advises not saving for your kids education before you save for your own! If you don’t save enough for yourself, your kids inherit your financial burden and have to take care of you. Your financial independence is a great gift to your kids.

Your Investment Ratio

It’s all about playing offense (stocks) and defense (bonds) to come out ahead. Charles recommends a permanent 50%/50% allocation your entire working life. I find this too conservative. I like following your age as a percentage to allocate to bonds i.e. if you’re 35, somewhere around 35% of your investments are in fixed income securities.

Charles is super risk adverse because he wants to avoid big losses. As an investment adviser, and given his age, I have a feeling he has seen tons of carnage over these past two investment cycles. A 50% portfolio decline requires a 100% increase to get back to even. A 80% portfolio decline requires a 400% increase!

Social Security – The Point of Contention

Charles fears Congress will go overboard in fixing SS, and create one large wealth-transfer. Despite the “fix”, SS will survive. Lower paid workers get much more out of the system than higher paid-workers, based on their actual contributions. 

It’s important for everyone to understand the basics of SS, to not change the program from a long term retirement program into a welfare program.

Your FICA tax is 7.65% from you, 7.65% from employer of which 12.4% goes to SS, and 2.9% goes to Medicare. You need to work for at least 10 years for a covered employer before you can receive benefits. Cap is on $142,800 of the income you pay in 2021, thank goodness for many. 

SS adjusts for inflation is great. And if you’re married, your spouse has the right to benefits equal to the higher of his or her OWN benefit, or one half of yours. Not bad!

By the way, if you were born after 1960, the full-retirement date to receive social security benefits is 67! You can decide to take reduced benefits starting at age 62.

Your Money Ratios Conclusion

“Your Money Ratios” has the potential to be one of 2010’s best sellers in the personal finance space. I love everything about the book, from the tone of the author, to his simple instructions, to the way the book is packaged. 

There’s no doubt in my mind that if you follow Charles’ instructions, whether you are 25 or 45, you will be able to reach financial independence by 65. Go to your local bookstore or Amazon and check it out!

Go to www.yourmoneyratios.com, type in the code 778811 to check out your ratios and see where you stand!

Recommendation To Build Wealth

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After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Definitely run your numbers to see how you’re doing. I’ve been using Personal Capital since 2012 and have seen my net worth skyrocket during this time thanks to better money management.

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Book Review: “America, Welcome To The Poorhouse”

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America, Welcome To The Poorhouse

Jane White’s book America, Welcome To The Poorhouse is an angry rant that you just may agree with incessantly.

Author Bio: Jane White is Founder & President of Retirement Solutions, LLC, which promotes 401(k) reform and provides investment education.

Publisher: FT Press. A compact 247-pages in hardcover.

Summary: America, Welcome To The Poorhouse is one angry, no-nonsense book!  Jane White blames more politicians than I can name for causing the mess we’re all in.  She plays no favorites and thinks both parties are corrupt. Phil Gram (R-TX) deregulating the banking industry is the genesis of this crisis, while Chris Dodd (D-CT) is blamed for carrying bank deregulation further by deregulating exotic financial instruments.

Review: America, Welcome To The Poorhouse

Jane even questions whether Bernanke knows anything about economics. One of my favorite assertion of her’s is that big business owns both parties, and politicians are just playing puppets to their lobbyists.



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Buy this not that WSJ bestseller 728