Blog – Page 195

Carnival of Wealth, Fall into Fall Edition

September 12, 2011

UPDATE: Submission form link for next week’s carnival fixed. Sorry about that.

There’s nothing more depressing than people who talk about “the end of summer” when it’s not even mid-August. Do you suck the joy out of everything else too, or just the best season of the year? We’ve still got a few days remaining before that infernal equinox. Enjoy it while you can.

That being said, this is our final CoW of the summer. Not the final CoW of the summer, just ours. Next Monday we’ll be hosting the itinerant Totally Money Blog Carnival, which means the Carnival of Wealth will stop by Financial Uproar for the briefest of respites. You’ll be in for a treat. Nelson, the guy behind Financial Uproar, has almost as little patience for stupidity as we do. Plus he’s funny, and can spell and punctuate.

Next week’s CoW will work the same way it always does: just submit by midnight Saturday. And to get in on the Totally Money Carnival, submit here. Now, on with the show:

Speaking of counting summer’s chickens before they’ve hatched, Jon the Saver at Free Money Wisdom points out that “One of the best times of the year for many families is the summer.” He’s right: most families rank summer in their top 4 seasons. He suggests 12 things to do in the 9 remaining days of summer, which means you’d need to do 1.3 of his recommended activities every day from here on in to cross them all off the list. He claims that a day of crafts (“Most kids love crafts”) is something your family will remember for many years to come. And he’s right. That day my brother and I made papier–mâché death masks in 1975 is something we still talk about.

Tim Fraticelli at Faith & Finance lists 12 things you don’t want to skimp on. We would have added jackstands, bullets, pet medicine and water filters. (Aside: “skimp” and “scrimp” are pretty close to synonymous. Why would anyone add an extra letter if they didn’t have to? Seems like a waste.)

Apparently Janet at Credit Cards Canada read that old piece of homespun wisdom about not grocery shopping on an empty stomach, and decided to share it with us. To save money on groceries, she also suggests that you USE A LIST. Also, BUY IN BULK if you can. She also helpfully suggests that you bring trail mix along when you run errands. The number of people who didn’t bring trail mix with them on errands but now will because Janet recommended doing so? We’re guessing zero.

At the rate we’re going, by 2022 the entire internet will consist of nothing but porn and personal finance posts about how to be frugal. Unfortunately we can’t showcase the former here, but Miranda at Financial Highway is helping us choke to death on the latter. Her 45 favorite parsimony strategies include: clip coupons, drink water from the tap, brown bag it…you get the idea. Of course you do, you have a functioning cerebellum.

Time for a good one. FMF at Free Money Finance test-drove a home safe, and interviewed an industry expert (alright, it was a representative of the safe company) about the pros and cons of introducing a cuboid metallic member into your family.

A: Of course not.
Q: Teacher Man at My University Money asks “Is a liberal arts degree worth it?”

How about post about frugality? We told you they were few and far between. Shawanda Greene at You Have More Than You Think gives her take on the topic, arguing for more balance. In fact, she says she lives by the motto “Big or small, I sweat it all.”

The couple behind Sustainable Personal Finance live in Canada, and like most Canadians, are a short drive from the United States. Tired of paying outrageously high prices compared to their American counterparts, SPF did the sensible thing: jettisoned their own commitment to buying local, and crossed the border to save money.

Again with the Canadians. Boomer at Boomer and Echo talks about the cheery topic of long-term health care insurance for the old and/or decrepit. (You mean Canadian health care isn’t free for everyone? No, it’s more complex than that. Who knew?)

Fanny at Living Richly on a Budget read and reviewed a book by some guy on TV. It’s called The Wealth Cure: Putting Money in its Place, and you’ll never guess what its message is. True happiness starts inside. If you are not truly happy inside, then you won’t be happy no matter how much more money you have. Another secret of the universe, uncovered right here in the Carnival of Wealth. Swish!

You’d never guess it from his picture, but Roger Wohlner of Chicago Financial Planner is a certified financial planner. It’s great to have a professional come in to the CoW once in a while and give a little complimentary analysis. Roger might not be a live wire, but information always trumps personality. Last February he posted what his Fidelity Freedom fund invests in, and this week he updates it.

Another post on frugality? Are you detecting a pattern? timw (pronounced “timw”) at Escape the Hum Drum says you should live modestly. timw’s own scrimping includes skimping on commas, which he used only 19 of in an 1100-word post. That’s not easy to do. We don’t know much about timw, but we’re flattered that despite being from the UK, he wrote his post for a North American audience by incorporating dollar signs into the narrative (yet tipped himself off by talking about living in a flat and saying “whilst.”)

The world would be a better place if more people wrote like Neal Frankle at Wealth Pilgrim. If you’re looking for some extra retirement income, you might be intrigued by the idea of a reverse mortgage annuity. It’s a way for you to tap into the equity of your home. You’ll receive that money for as long as you’re able to live in your home, and you won’t have to repay the loan. Since many people aren’t able to find (or are interested in finding) jobs in retirement, this could be a way to go.

Paula at Afford Anything doesn’t seem to understand that $ means “dollars” (“$1 million dollars”), but she does grasp the arbitrary nature of the base-10 numerical system and its psychological effects. Read her findings in “Who Wants To Be A $402,854-aire?” (number converted by us to base-12.)

Did Hurricane Irene do a number on your house? Maybe you suffered some mental anguish and can never go out in the rain again. Back Taxes Help shows how you can minimize the damage to your tax bill.

Finally, she missed the deadline but this post was so good we had to make an exception. Sandy of Yes I Am Cheap has a radical idea: maybe, just maybe, you shouldn’t have kids if you can’t afford them.

Thanks for stopping by. See you in a fortnight.

The Wealthy Really Are Better Than You

September 9, 2011

Better than you. Better-looking, too, if you're Henry Waxman.

Sooner or later, every website with a passing interest in personal finance posts some version of “The X Habits of Wealthy People”. You know how these lists are going to end before they start. Yeah, rich folks spend less than they earn and don’t drive ostentatious cars. Great, what else you got?

First, that’s not even true. Just because Warren Buffett inexplicably lives in a 53-year old house doesn’t mean that Larry Ellison or Paul Allen does. Despite what you’ve been told, frugality is only a tiny part of this. (But frugality is also the easiest personal finance subtopic to write about, which is why right now some idiot personal finance blogger is crafting a post on how you can save .1¢ per wipe if you buy toilet paper by the ton.)

A note on frugality: when I was 14, my best friend’s father was a successful eyeglass salesman. Regional sales manager, or something. Knowing I’d be entering the workforce soon, and wondering what I’d have to do to beat out the other applicants for that first coveted busboy position, I asked him what he looked for when hiring. His answer?

“Big spenders. I want a guy who orders the lobster and the most expensive bottle of wine, who wears Harry Rosen suits and drives a BMW.”

Why?

“Because he’ll be motivated. He’s got bills to pay and a lifestyle to maintain, so he has to make his quotas whether he wants to or not.”

There are plenty of people who spend less than they earn and who drive Ford Tauri. The vast majority of them aren’t rich.

If you’re not rich, and see no prospects of ever becoming rich, it’s not because you aren’t working hard enough. This should be obvious. Even if you cut out early every afternoon and only work 35 hours a week, how many hours a week do you think the world’s hardest-working rich person is putting in? 350? 35,000? No, clearly the relationship between hours put in and rewards achieved is not a direct one. Or at least not a linear one.
Here’s what rich people do that really does distinguish them from ordinary folk. These are easy to adopt, and don’t even require you to sacrifice that much in the short term, if at all. You just need to think differently.

1. They understand leverage. And its offspring, passive income. There’s an entire generation of financially responsible but unimaginative people who blame the Great Depression for their failure to lead dynamic lives, and who took the mantra “neither a borrower nor a lender be” as Scripture. (It’s actually Shakespeare. Hamlet.) Fortunately, those people are dying off.

Spend money to make money. And borrow it, too. You borrow money to leverage your existing assets. You don’t borrow money to finance a vacation. A 6% commercial bank loan to purchase an office building, whose offices you then lease out to tenants, who make rent payments to you that a) you use to cover your mortgage payments and b) write off your taxes, while you keep the difference, is money well borrowed. An unimaginative frugal person who doesn’t know any better sees that original bank loan as a sleeping tiger. A rich person sees it as the first step to a sustained cash flow.

2. Rich people aren’t “being lived”. As opposed to living. No wealthy person beseeches anyone for a raise. Or does the prep work, explaining his worth to the company and why he’s entitled to more. Being rich starts with the self-determination, as counterintuitive and pollyanaish as that sounds.

The thing is, you probably know this instinctively. Who’s more likely to get rich:

a) The college-educated junior account coordinator who stays late and delivers her sales reports to the boss a day early, hoping to get noticed to the point where she can become an account executive one day and do more of the same, or
b) The immigrant with a shaky command of English who borrows from his cousin to open a falafel stand?

The first couple of years, their incomes might not differ by much. The immigrant might even work longer hours. But his success is contingent on him, and no one else. So is his failure, if any. No one can promote him, but no one can fire him. The point isn’t that all immigrant food vendors get rich. The point is that by living self-determined lives, they’re in a better position to create wealth than the junior account coordinator who’s waiting for the person above her to transfer/get fired/have a baby.

If a rich person wants more money, he creates it. By soliciting another client. By creating and promoting another product. By using another passive income stream. Not by hoping to catch the boss during one of his rare generous moods.

3. They care about output, not input. See our prior post about this.

It doesn’t matter how many hours you worked, it matter how many widgets you created. In fact, it doesn’t even matter how many widgets you created, it matters how much revenue they brought in. And even that is less important than how much profit they generated. (And if you don’t understand the difference between revenue and profit, buy the freaking book already.)

Or take the office building example from above. Once you get enough good tenants in there to fill it, the money starts flowing in with marginal effort. If Tim Cook flies to Helsinki for a ski trip next week instead of going to work, a few thousand iPads are still going to be sold. But the employee who relies on income for sustenance has to apply himself for every dollar. Which brings us to:

4. Wealth ≠ income. Not even close. There’s a reason why the ultra-rich usually keep quiet when Congress discusses raising tax rates on high-income people. Because confiscating more and more of a hard-working person’s income has little bearing on a rich person’s ability to build wealth. Capital gains, IRA proceeds, investment appreciation…whatever its name, money that they don’t directly work for is what separates the rich from the never-will-be.

5. Dust yourself off. Even if you don’t pick up as many clients as you like, or go half a day without having to open the register, a wealthy-person-in-training has a permanent internal motivator; memories of how badly life sucked taking orders at the old job.

6. (Of course) Buy assets, sell liabilities. Put $150 a month in an IRA, or put it in cigarettes by the carton?

**Best Article of the Week in the 121st Edition of the Best of Money Carnival**

Carnival of Wealth, Fall into Fall Edition

The Wealthy Really Are Better Than You

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