Blog – Page 107

Fall in Seychelles. Or possibly spring in Seychelles. Like it matters.

You can keep your pumpkin spice latte and your wooly scarf and the sound of fallen leaves crunching underneath your boots with insulated socks inside. Fall (or if you’re less literal, autumn) is the worst season in the universe.

Summer is awesome, and anyone who disagrees is insane. Maximum sunshine and daylight, minimum clothing, etc. Spring is equally fantastic, because anticipation is often as enjoyable as the thing it precurses. And winter is death. Which means the season that precedes it is as depressing as spring is hopeful. One day we’re going to have to do a series about how to live 6 months in the Northern Hemisphere, move to the Southern every September 21, and never have to deal with fall nor winter again.

Welcome to another Carnival of Wealth. A collection of personal finance blog posts from around said globe, most interesting and some awful. (Which is a vast improvement. It used to be the other way around.) Let’s begin:

We’ll start off slowly. The Thompson family is officially on the clock. Last week we ran and poked fun at their submission about what a fantastic investment whole life insurance is. (It isn’t.) This week, the brain trust behind Becoming Your Own Bank is back again:

Whole life insurance is one of the least understood financial products, and it’s been given a bad reputation by talking heads on television and radio.

Don’t forget the talking heads at Control Your Cash, slugger. The Becoming Your Own Bank team sells whole life insurance for a living. We’ve called it “actuarial rustproofing” in the past, and that might have been too kind. We also criticized their unreadable book on this very topic, a book they sent us to review. Hopefully they’re more diligent about selling their noxious financial service than they are about reading the CoW.

Speaking of last week, that’s when we ran a post from longtime CoW contributor Canajun Finances. Except he didn’t write it, he farmed it out to a woman who’s the closest thing North America has to an Indian SEO link factory. He referenced our critique on his site, the commenters commented, we responded, and before it turns into flame Armageddon we encourage you to read his response.

If you don’t know the first thing about financial literacy, and how to build wealth instead of having your money dominate you, buy our book. If you don’t have time to read 326 action-packed pages filled with thrilling charts and subheadings, read Odysseas Papadimitriou at WalletBlog instead. Odysseas reviews the ESPN documentary Broke, about such athletes, which we still have to get around to watching but can’t wait to. Incredibly, some of the most handsomely paid people in our society manage to fall the hardest. We were going to add an extrapolating paragraph, but this deserves an eventual blog post of its own.

From Odysseas’s partner in crime John Kiernan at CardHub comes an analysis of the Bluebird prepaid credit card, a joint venture of mass retailer Walmart and ostensibly elite financial services company American Express. Pros include the easy avoidability of monthly fees, and the global assistance AmEx is famous for. Cons include…well, nothing, as long as you enroll in direct deposit.

Slavery, bloodletting and alchemy aren’t quite as popular as they were in centuries hence. So why hasn’t the absurd custom of the engagement ring joined them on the Altar of Obsolescence?

Most people are in their 20s when they get married, i.e. as poor as they’ll ever be. (Yes, they were poorer as children, but someone else was picking up the tab.) So who better to spend a few thousand precious dollars on a trinket of zero utility and the wedding to showcase said trinket? Teacher Man at Young & Thrifty had a general lament about weddings last week, and this week focuses on the particularly idiotic idea of the engagement ring.

However, in vacillating Canadian fashion, Teacher Man suggests you buy your engagement rings on Amazon instead of paying more at a retailer.

This is what we here at Control Your Cash call the Low-Tar Cigarette Argument. Don’t smoke the Pall Malls, smoke the Winston Lights instead. Much better for you, as is the Amazon-bought engagement ring. (Is it that important to you to lower your net worth? Really? Then why are you pretending to have an interest in personal finance?)

Old participant, new website. Roger Wohlner at The Chicago Financial Planner tells you why financial planning is important, in much the same way that Justin Verlander will tell you that throwing a baseball is important or Holly Halston will tell you that having sex on camera is important. This isn’t really a post, just a long and colorful if not grammatically sound graphic. It cites some survey results (e.g., “39% of U.S. adults have ZERO non-retirement savings”) designed to shock, amaze, and get you to hire a financial planner; preferably Roger.

That being said, Roger’s a fee-only financial advisor: the only kind you want to hire. An advisor who takes a cut is both advisor and salesman, which is no less a conflict of interest than a car salesman who insists that you let only his dealership’s service department diagnose and treat your vehicle.

The always entertaining and occasionally ribald Nelson Smith at Financial Uproar ruminates on “early retirement”. More precisely, he laments how easy it is to claim a disability and have your fellow citizens prop you up, even in his relatively free province of Alberta.

That’s so insensitive. My mom has restless legs syndrome. She can’t work.

Oh, bollocks, as the Brits say. See here for our opinion of people who have at least a single functioning limb and would rather have a handout than be productive.

Dividend Growth Investor reminds us that wishing won’t make anything so. A portfolio that creates enough income to let you live comfortably isn’t just going to fall from the stratosphere. Start with the end in mind. How much are you going to need? How big an outlay do you need to get there? This post also contains our favorite feature of Dividend Growth Investor’s, whereby he explains what certain famous multinationals do:

PepsiCo, Inc. (PEP) engages in the manufacture and sale of snacks, carbonated and non-carbonated beverages, dairy products, and other foods worldwide.

No one else finds his explanations amusing? Fine, whatever.

Advantages to living in California:

Sun
Ocean, depending on where you live
Beautiful people, again depending on where you live

Disadvantages to living in California:

Fundamental constitutional rights ignored (try finding a sheriff who’ll grant you a concealed weapons permit)
Beautiful people, who can be a curse as often as they’re a blessing
Regulations so onerous that they spill over into the 49 less crazy states. Like the difficult-to-remove tag on every hair dryer that reminds you that the State of California has determined that touching the cord could result in residual lead poisoning, thus you shouldn’t let your kids lick said cord.
Gas approaching $6/gallon

From Andrew at 101 Centavos, a detailed explanation of why gas costs so much in California. One big reason is that California has the 2nd highest gas taxes in the nation, 50¢ a gallon. That was enacted by the same legislature that requires retailers to sell a summer blend that allegedly reduces particulate matter, which means wholesalers can’t buy from neighboring states with less onerous requirements, and…why do 38 million of you live there, again?

Your unemployment benefits are taxable. Blame Michael at Financial Ramblings for the wonderful news.

From another planner, Ken Faulkenberry at AAAMP Blog, the Fundamental Question of Investing: How do I break down my portfolio by asset? Buy stocks and bonds, and you have to watch their movements. Buy a mutual fund, and you might be so spread out that your returns will be low. Buy our $3 ebook and we’ll explain how to avoid the tedium that comes with buying individual stocks.

Mouth-breathing people on the street aren’t the only ones with uninformed political opinions. Check out the people Divya at Nerd Wallet quotes in her piece on the presidential election. From the chairman of a venture capital group:

Romney is a private equity guy, so his experience lies in outsourcing jobs and sending them overseas—that’s the private equity model. Obama, however, has always tried to keep jobs in the USA, as evident with GM and Chrysler.

This from a man whose own biography tells us that he’s sent over $5 million overseas to educate foreigners, instead of keeping that money right here in the USA. (That last clause is sarcasm. Obviously his money is his to do what he wants with, but would it kill him to not be a hypocrite?)

Let’s not forget what the federal bailout of GM and Chrysler was – taxpayer funds, confiscated from the middle class, to prop up formerly formidable companies dying from incompetent management. Chrysler wasn’t, and isn’t, even a public company. At the time it was bailed out, Chrysler was owned by a private equity firm. To have a piece of Chrysler, you had to be a billionaire or something close. The Obama administration gave those owners $7 billion of your money, and today the United Auto Workers union owns 1/3 of Chrysler.

As for General Motors, the former largest corporation in the world filed for Chapter 11 bankruptcy under the Obama administration. When a public company goes bankrupt, the process is pretty straightforward: bondholders get paid first, then preferred shareholders if any, then common shareholders. (We didn’t make up that hierarchy. Go ask the federal government’s own Securities and Exchange Commission.) Instead, the Obama administration changed the rules and compensated the unions first. The federal government flat-out purchased General Motors with your money, because creating automobiles is something elected officials should have under their purview.

Here’s another of Diyva’s quotes, this one from a tax consultant:

(Romney) has no concept of what small means, therefore the only interest he has and will always have is in big business.

Is she serious? Mitt Romney, what a cad. It’s almost as if he’s the presidential candidate who authorized using the taxes of millions of ordinary Americans to bail out two multibillion-dollar corporations.

Finally, a quote from a “marketing consultant”, whatever that is:

Romney is so far skewed to the Fortune 100 and can be expected to completely ignore entrepreneurial businesses. Romney’s economics are skewed toward moving money out of my middle-class and working-class customers and into the hands of the already-rich.

That’s the narrative, but whether it’s true is irrelevant.

20 years ago, independent Ross Perot garnered 19% of the vote in a presidential election despite a) running against an incumbent, b) quitting the race with a few weeks to go, then jumping back in, and c) selecting an unelectable running mate. Perot was 10 times richer than Romney is today, but no one decried Perot for his wealth. Far from it. His one major selling point was that he was a businessman, not a career politician. In the America of 2012, lots of people regard lots of money as something to apologize for.

So yeah, make sure you register to vote.

From Cameron Daniels at DQYDJ.net, a guaranteed 348,000% return on equity.

Really? Really. The only catch is that you have to start with $1. Cameron is goofing on the principle of leverage, which is the one way most of us can build lasting wealth – i.e., with other people’s money.

Finally, this week’s head-scratching excerpt comes from Harry Campbell at Your PF Pro, regarding real estate prices:

Here in San Diego, it’s a seller’s market but the prices have still remained low

Still, Harry’s got some worthwhile information about real estate investment trusts and whether they’re worth buying if you don’t have the resources to invest in real property.

Check us out on Investopedia. And again. New content here every day, too. New CoW Monday. Goodnight now.

Milton (Bradley)

We’re exaggerating, but not egregiously. We recently received an email from a reader named Milton (a real email, not one we concocted to create a mailbag with.) He understandably requested anonymity, but here’s the gist of it:

I’ve been enjoying your blog since I discovered it (via the Simple Dollar– talk about a fortunate turn of events) and am reading through all of the entries (having already read your ebook… twice). I read the one about the site Digging Out From Our Mess, [NB: A site we’ve lambasted on here, and for good reason] and clicked the link to their site. Based on their About page and updated totals, in almost exactly three years they’ve managed to reduce their debt load by a whopping NEGATIVE $281.39. I found CYC after I’d already started my own deprogramming and had eliminated my debts, and have begun investing and building wealth. But even at my worst (read: dumbest) I don’t think I was this bad at personal finance. At the very least, I didn’t think it was a good idea to trumpet my ignorance to the web-surfing world.

300 million more like him, and this country could be a superpower again. We asked Milton to explain how he – a presumably ordinary cat with the same hopes and desires as most of us – started building wealth and this is what he had to say:

I live and work in New York City. I’m the IT Manager for a mid-sized engineering firm. I’ll be 44 in about two weeks, and am single with no children. I have three sisters and no brothers. My parents were born in Puerto Rico and came to the mainland US in their late teens.

You refer to your own “deprogramming”, which implies that the old you thought it was awesome to incur debts and not care. Is that accurate?

Yes. We grew up poor and didn’t learn about money and finances. Like everyone else I know, my parents didn’t teach us about money. My father never learned English and worked at menial jobs his whole life, squandering what little money was left after expenses. My mother stayed home with us and did what she could with what little we had and didn’t build up any savings.

God, how depressing. And how typical, to think that life’s purpose is misery. It was a common belief in Milton’s father’s generation and those previous, and still a fairly common one today. (That’s a comment about the menial job, not a joke about having 4 kids.)

It wasn’t all bad. Among the lucky breaks were that I did not go to college and avoided many of the pitfalls of growing up in an impoverished area. I’ve never used tobacco or illegal drugs, I rarely drink and I don’t gamble. After jumping from one job to another for about 3 years, I settled into my current job and within 8 years had been promoted from mail clerk to computer specialist. At 29 I was making more than twice as much money as my father had ever made (adjusted for inflation). Even my financial ignorance had a bright side. Thanks to my mother’s distrust of credit and debt, I didn’t get my first credit card until I was 27. I was debt-free and had a $1,000 line of credit. So there I was, making good money with only a few monthly expenses. Just like Dad, I’d spend whatever was left after the bills were paid. Unlike Dad, I had a LOT of disposable income to dispose of. Computers, home electronics, art supplies, novelty gadgets, exercise equipment… anything that caught my eye was as good as purchased. I had the money, why not enjoy it? As my credit limits rose so did my spending and my interest rates (up to 29.99% at times). I funded my 401(k), but only about 1/3rd of the maximum. At some point I had actually set up my withholding so that I was only getting back a relatively small refund each year, which I then dumped into a savings account that was earning .3%. I’m not the sort to spend much time looking back at what cannot be changed, but I cringe whenever I think of where I could be today if I’d had a better understanding of money when I was young.

Of all the dumb things to do (and we all do dumb things), Milton picked some of the least dumb ones. The standard vices aren’t just of dubious morality, they’re expensive. Fortunately, the ones he picked were easy to fix: if you want a greater 401(k) contribution, contribute more to your 401(k).

What made you see the light?

I think that getting older and paying more attention to finances is what woke me up. I was getting to that age where you start to think about retirement options, and I also realized that I was paying around $750-800 a month in finance charges on my credit card debt. Gads, it makes me ill to think about that again. After a couple of aborted attempts, I managed to wipe out around $24,500 of debt in around 18 months (helped in large part by the $12,000 that was sitting in that savings account… sigh). A few months after that, I finally stopped wasting money and started building up my savings (Trent would’ve been proud of my emergency fund). Happily, it was around that time that I found your site and finally began to understand how it is that I could make my money work for me instead of the other way around.

Milton emphasized his point with a sigh, so we won’t pile on, but you see what he did there? Every personal finance site in existence tells its audience to “create an emergency fund“, which is horrible and self-defeating advice. Why? Because it implies that you’re not in an emergency right now. Milton was, and didn’t realize that having a debt load twice the size of your savings counts as an emergency. (Nor did he realize, at least not immediately, that there’s a way to halve said debt load which is so easy that it’s easy to miss.)

How have you begun investing and building wealth? That is, what have you invested in (beyond the stuff you were investing in before, like 401[k]s and stuff)?

I am fully funding my 401(k) now and paying attention to where my 401(k) funds are allocated. I opened an account with Vanguard and put some of my savings in a mutual fund and the rest into a brokerage fund. I’m invested in ETFs and a bond fund (specifically, VTI VNQ VXUS and BND). When my profit-sharing bonus comes in at the end of the year I am planning to invest in a few stocks as well. I will be looking for stable and profitable companies with good fundamentals. I plan to try my hand at real estate within a year or two. I’m hoping that the housing market and interest rates stay depressed for a few more years. (NB: Douche.) I have vivid dreams of owning multiple homes on 15-year fixed-rate 2.95% mortgages that I can pay with spare cash (deep breaths… deeeeep breaths…). It’s a challenge for me to do something risky, but it’s too good an opportunity to pass up. I live in a co-op and do not want to buy a house in New York City; I am researching locations where I can get a good deal on a modest house in a good area. I have other plans that involve comic book artwork (which I dabbled with in the ’90s) and I might see returns from that sooner. At worst, it will provide some extra money that can go 100% towards wealth-building. If the stars align, this plus a few rental properties might allow me to retire early. And of course, I pay all of my credit card balances in full every month. (Italics ours, not that they were needed.)

How much time do you spend on this?

Too much, because I started investing 2 months ago and I’m still at that anxious stage. I’ve already gotten it down from checking my finances several times a day to 3 or 4 times a week. By the end of the year I should have that down to once a month. Long-term, I intend to stay on a once-a-month schedule for my investment accounts and a quarterly schedule for my 401(k).

Is there any advice you’d give people who are just discovering CYC for the first time? Like, what recommendation worked better for you than you thought it would? (Or what would you avoid?)

The most useful thing would be to follow your advice about removing emotion from the equation. I imagine that a lot of people who read your site become indignant at the implication that they’re doing a lousy job of managing their finances (and in some cases, their lives). A defensive attitude is an obstacle that can derail their attempts to get their finances (and lives) in order. It may sting to be told that what you’re doing is stupid, but the sooner you realize that what you’re doing IS stupid the sooner you can stop doing that and start doing something smart. The best advice in the world won’t do any good to a person who leaves in a huff because they think failure should be rewarded with a pat on the back.

Couldn’t have said it better ourselves. Although we did say it differently, in the footer: This is personal finance for people who want results, not coddling. Milton’s doing fine (repeat: fine) and there’s no reason why you can’t, either. He didn’t grow up with any inherent advantages, obviously. The closest thing he had to one was his abstemious mother and her example. On balance, that’s a lot to compensate for a diligent if financially unsavvy father, in a house with 6 hungry maws, where English wasn’t even the first language. To recap, and this couldn’t be simpler if we used puppet theater:

Don’t flush money down the toilet (drugs, alcohol, gambling.)
Fund your 401(k) to the max, and get the matching funds. Free money.
Treat consumer debt with aggressive therapy, i.e. living ascetically until the debt’s all gone. The occasional “splurge” defeats the purpose, and keeps you poor longer, if that’s what you’re into.
Then, once and only once that’s done, can you start investing. Investing, not speculating. Speculation is for rich people. The aspiring don’t have that luxury: they need to build wealth methodically before building it in riskier ways.

What else should Milton do? He’s on a smarter path than the vast majority of people. He needs to spend less time checking his investments, but he acknowledges as much. We can blame that on how new he is to investing. It’s like when a formerly sedentary person develops and commits to an exercise-and-diet routine. Once you do, it’s only natural to weigh and measure yourself abnormally frequently. Then, when the pounds and inches start falling off more slowly (because you’re getting closer to perfection, and thus there’s less room for rapid improvement), you eventually start checking the numbers less and less often. Milton bought assets, sold liabilities, and is now enjoying the inevitable increase in wealth that follows. Spend your money on things that further your wealth, don’t spend it on things that don’t, and you’ll get rich no matter how otherwise stupid or lazy you are. It never fails. You don’t even have to be smart like Milton.

Carnival of Wealth, Fall is Awful Edition

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