Blog – Page 75

NOTE: Last week we received the following post, unsolicited, from a physician and avid reader who asked to remain anonymous. We agreed that it was so far beyond fantastic, we weren’t sure how to react.

You need to understand: people submit multiple guest posts to us every week, almost all of them garbage. This one was beautifully written, concise, loaded with practical if uncomfortable advice, and he even annotated it. Finally, someone who took our guest post guidelines to heart. With no further introduction, here it is:

My father-in-law is a brilliant farmer with no post-secondary education. I always wondered why he didn’t blink when I told him 4 years ago how much medical school was going to cost. He finances $350,000 tractors and $500,000 combines with debt, and I never understood why. Now I do. $150,000 in student debt at 3% to finance an M.D. is a leveraged investment made to acquire an asset. As such, it’s not a liability.

Wait a second, guest poster/avid CYC reader/slow-learning doctor. I thought guest posts on CYC are rare, and I thought guest authors had to be adamant about avoiding student debt.

You’re right; they are rare. And no, you don’t have to shun student debt before you can author a guest post on CYC. You must, however, understand its role in creating wealth. The CYC principals do. So do most wealthy people who own educational assets. This makes CYC unique in a sea of debt-hating bloggers who incessantly try to convince you that life’s number one priority is to flog your debt into submission. Remain calm, ignore them, and read on.

If you’re thinking about borrowing money to attend an institution that charges (insert average in-state tuition here) to learn (insert pointless degree here), stop. Especially if you were planning on using a government hand-out under the guise of a loan to get drunk and attend your classes hung-over in the back row. Educational choices are an opportunity to apply CYC’s fundamentals: analyze your options and divide them into distinct categories – assets and liabilities. Buy one of the two, sell the other, and call me in the morning.

Sheeple all over America are being fed the same rotten advice by the graying shepherd: “Nothing is going to have as great an impact on your success in life as your education,” and “the best job qualification you can have is a college degree or advanced training.” This sounds like a government with a pathological urge to over-spend on non-assets. It gets better. Without commenting on what type of college graduates should be trained, Mr. Obama wants to “see America have the highest proportion of college graduates in the world” by the end of the decade. That most government student loans don’t incorporate criteria regarding your proposed field of study exposes the truth that Uncle Sam is in the business of giving away money to students, not lending it. As young Americans are herded towards this 2020 target, we need individuals in political office like this financial stud, who was scorned for his modest choice in vehicle by a journalistic coward. Vote for men (and women) like this. The political momentum behind a federal bailout for over-extended student debtors is gathering steam. You can already hear the shouts across the crowded collegiate bar: “I’ve got this round boys, Obama’s going to pay for it anyway.” It’s funny, because it’s true. And millions of Americans bleat a version of the same thing every day.

Take, for example, the college-educated car-scrubber-turned-paper-runner Landon Crider, or eager-beaver Megan Parker, both interviewed in a recent New York Times article narrating the tragic plight of the overeducated. Instead of reading CYC and heeding Kincaid’s and McFarlane’s pleas, Ms. Parker chose to borrow $100,000 to land a job as – wait for it – a receptionist, commanding an annual salary of $37,000. Working as a receptionist from 9-5 is a perfectly admirable way to put food on the table. However, going into 6-figure debt for the opportunity to answer phones for lawyers indicates that Ms. Parker savors the life of a wage-slave (commonly referred to as “employee” by most 21st-century masters). Her boss understands this, and uses it to his advantage (good for him). In the interview, he said “‘College graduates are just more career-oriented.’” Allow me to translate: “They’ll work for far less money than they should to pursue the noble goal of ‘getting ahead.’ Plus, all my employees have a massive student debt load so they can’t quit.’” Even a journalist picked up on the problem with a degree-only law firm, but she still wrote about her subjects’ poor choices with a tone that suggests the predicament is a human rights violation.¹ Guess who she voted for? Not this guy.

Contrary to what you’ve been told, education is not an asset as a stand-alone entity. Shares of a whale-oil company ceased to be assets when light-bulbs began illuminating streets and homes. For an education to be an asset (and thus an attractive investment), it must exist in a market that gives it tangible value. This guarantees a stream of cash flows related to the initial investment. All other measures of educational value are in terms of personal fulfillment. If you’re searching for answers to ultimate questions in a class called Big Questions² with 127 other budding debt-slaves, stop calling it an “investment” and don’t borrow money to do it. Besides, you’ll only find true fulfillment in other, more Messianic sources. In your undergraduate years, for example, major in Biochemistry and Biomedical Sciences³ or something else useful. You remain free to minor in Music Cognition, Communications Studies, or whatever else you want. Heck, pull out all the stops and take an elective in Personal Finance instead of Philosophies of War and Peace.

To really go against the grain, try the seemingly foreign concepts of working and saving for things. If Steve Boedefeld and Zack Tolmie did it, you can too. According to the author of the article, not borrowing money to acquire liabilities is enough of an accomplishment to be distinguished as a “rare species.” Congratulations, you two. Be like Steve and Zack. Buck the trend and complete your undergraduate studies debt-free.

That sounds like a lot of work.

Right. Most things worth having are.

Every course offering in your college’s academic calendar is not a ticket to prosperity. Search for a program that satisfies this basic investment criterion before you borrow to pay for it: it must result in a positive return on investment for the useful life of the asset. In other words, find out if there are jobs in your field of interest that will pay off your debt before you retire (or default). Such analysis is mandatory before leveraging debt. Make time to read and understand the difference between an intelligent choice in higher education and a wasteful one by digesting what CYC thinks about my fellow Canadian or about this money pit.

Based on data collected by the American Association of Medical Colleges, U.S. medical school graduates carry an average of $166,750 in student debt. Following 4 years of medical school, Graduate Medical Education prepares residents for independent practice and lasts 3-7 years, depending on specialty choice. The GME training salaries are far less than most people think: resident physicians earn a median salary of $49,651 in their first year of residency. For the customary (and recently-capped) 80-hour work week, it works out to approximately $12.67 per hour ($49,651 per year/[80 hours per week × 49 weeks per work year]). Remember that, the next time you decide to spit on, swear at, and berate us for being part of the 1%.⁴ After residency, most physicians typically earn well over $150,000 per year for the remainder of their careers doing what they went to school to do. Plus, it’s a rewarding job that contributes to humanity and advances civilization.

You’re just fortunate that you’ve found a job you like that pays well.

You’re right, I am extremely fortunate. But I don’t like my job; I love my job. You’re indignant, I understand. That’s because you’re currently pursuing a Women’s Studies major to work beside Ms. Parker. It’s not too late to identify a different field with an attractive return, and switch. Don’t drown in sunk costs. If you’re weighing your options, your job before borrowing to finance an education is to discern an asset from a liability. Don’t avoid debt as a matter of principle.

If this sounds like the same advice CYC gives on regarding all prospective investments, it is. Why should your education be any different?

Keep reading this blog. Buy the book.

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¹ The author of the article even challenges her readers to “consider” in the second paragraph. For long-time CYC readers, you know why this is a no-no. For new CYC readers, don’t consider reading about this weak word, read all about this weak word here.

² The courses of study referenced in this post are actually current undergraduate courses listed by my college in the academic calendar.

³ Your guest author’s course of undergraduate study. This serves as an example, not as a template. Market conditions change and vary regionally. Please decipher the basic premise.

⁴ Common on the floors of academic teaching hospitals. We usually respond with “Thank you.” Less often, we respond with an order to switch from orally to rectally administered medication, because, well, the pen is mightier than the sword.

Hey y’all! Welcome back to everyone’s favorite personal finance site, Control Your Cash. These indignant gals (they’re usually gals) have their proverbial panties in a bunch over this. Also, see Linda for chicken health update. Misguided commenters courtesy of 101 Centavos, which will doubtless make an appearance later in today’s Carnival of Wealth. Shall we? We shall:

Let’s give the ladies what they came for. Out of the gate, the intrepid and relentless Peter J. Buscemi at FourQuadrant brings more of his insufferable business-school verbiage written with functional contempt for his, and by extension our, readers. If you think that’s harsh, give us a better description of this plodding and toneless excerpt:

The unique selling proposition is a promise of value to be delivered, and a belief from the customer that that value will be experienced. In order to develop an effective value proposition, it’s important to review and analyze the benefits, costs and value that an organization can deliver to its customers and prospective customers both within and outside of the organization.
A pragmatic approach is to make a list of differentiators to be ranked and prioritized. Next, the task is to list competitors and then score the company and its competitors. While it is important to score high, it’s important to understand how much of a difference there is between the company and its competitors, and whether those differences are important to prospects or customers. Once this differentiation has been established and the key differentiators identified, the team can begin to develop language to talk about them.

On and on and on it goes. Yo, Peter J.: The above is not a worthwhile blog post, nor a portion of same. It’s a soulless, withering agglomeration of words posing as (useless) business advice. Also, in your other life, when you cut-and-paste verbal gruel like this and place it on a PowerPoint slide, no one is paying attention. Yes, their eyes are technically open, but that’s because they don’t want to get fired. They just want the meeting to end, as if their vapid expressions and constant fidgeting didn’t tip you off.

Peter J. has now submitted 5 weeks in a row, receives an email from us every Monday informing him that the CoW just went live, never acknowledges the email (which means he never reads the CoW), yet still comes back for more and worse abuse every week. You half-expect to hear a cop say, “We can’t do anything if you’re not willing to press charges. But if it were me, I’d leave.” If Peter J. were smart he would take his kids, run to the nearest safe house and file a protective order against us, but what can we say? Some people are masochists.

We’re also generous with the compliments here at CYC, but no one ever mentions that. The brilliant PKamp3 at DQYDJ.net tells you why you shouldn’t pay off your mortgage. To quote PKamp3, “I stole this article from Finance Fox. He argued convincingly about opportunity costs, liquidity concerns, and transaction fees, so I ripped it verbatim.” (If you’ve ever read Finance Fox’s hard-to-find original stuff, you know why PKamp3’s estimation of Finance Fox’s subject matter is funny.)

Unemployment is high. The national deficit passed joke status several orders of magnitude ago. Is the record bull market, or the recent record zenith, legit? Darwin’s Money says yes, and explains why.

The always comprehensive Dividend Growth Investor is frank and objective enough to admit that there are certain dividend-paying stocks that he wishes he owned, but doesn’t. You’ve never heard of some of the underlying companies, and we aren’t the first people to point out that bargains often lie among the obscure.

CYC Woman of the Year (Again with the compliments. It’s almost like we’re trying to make up for some shortcoming) Paula Pant at Afford Anything exposes a truth that most of her contemporaries would never dare acknowledge: budgeting is tedium.

You don’t need to line-item your sunglasses, moisturizing cream, and that time you ran to the grocery store to pick up some broccoli. Let’s face it, you were never going to line-item those purchases, anyway. And you read financial blogs! If you’re not going to do it, who will?

She’s freaking awesome.

Kristen at My Dollar Plan is also unlike the majority of her personal finance blogging sistren* in that she dispenses actionable, pointed advice. Do you want to know how to claim health expenses on your taxes? Kristen shows you how. You have barely a month to get on this, so get on this. Unless you’re self-employed, but we already know how that goes. Bonus: Kristen points out that you can claim drug and alcohol abuse treatments! And to think that there are people who say addiction is a bad thing.

The early days of the CoW were fun. Tons of lousy submitters to make fun of. Then Jason at Hull Financial Planning and his ilk had to ruin things by bringing us intelligent, relevant content every week. A few more like him, and our alleged “snark” will die of starvation. This week Jason discusses the notion of an “apocalypse fund”, and whether you should cash out at your first opportunity. (Answer: It depends. But probably.)

We’re hesitant to welcome any site that has the word “debt” in the title, just because it probably means more first-person lamentations about what it’s like to be overeducated and undercompensated, but Edgar at Degrees & Debt seems like an amiable fellow.

Sigh. We did some digging on his site. He’s a quarter million in the hole, barely half of which is his mortgage. 5 student loans. Saddest of all, on his main page he asks you for a job:

Hire me for:
Writing/Contributing/Blogging/Commenting
Social Media Marketing/Management (Facebook, Twitter, LinkedIn, Pinterest, etc.)
Review/Editing
Virtual Assistant Tasks (ex: Blog Carnival Submission, research, data entry, etc.)
Career Coaching/Resume Building/Online Image Consulting/Interview Prep

Career coaching? It’s true what George Bernard Shaw said – those that can’t do, teach. Or in this case, attempt to coach your career. Take advice from someone who not only doesn’t have his own stuff together, but who uses that as his selling point. But yeah, hire him to manage your Pinterest account. Don’t ladies play on Pinterest for fun anyway? Isn’t that like hiring someone to golf for you? (Also, Ed? Don’t offer to edit people’s work when…well, let’s just say our own editing services are not for sale. You couldn’t afford us.)

That must be what those skirts commenting on 101 Centavos were talking about. Speaking of which, that site’s ever-erudite Andrew introduces us to business development companies. These pass-through entities are to small-to-medium businesses what REITs are to real estate. Of course, in this case the underlying investment is riskier…which means payouts are correspondingly higher. And tax-friendly. (Well, tax-unfriendly. Unfriendly to taxes. Friendly to the avoidance of taxes.)

From John Kiernan at Card Hub,

Roughly 12 of the 20 million people who attend college each year borrow money to do so

If only. Imagine a world in which 11,999,988 students saved for their educations instead of indebting themselves. John interviewed 4 extremely subjective “experts” whose titles indicate that they each happen to have an incentive to ensure as many students as possible take out loans. They concluded that you should be able to discharge your student loans when you inevitably declare bankruptcy, there should be straight-up forgiveness (to avoid lawsuits), that lenders market loans too “aggressively” (you recall how borrowers are incapable of being diligent and saying “no”), and that the federal government (i.e., us) should just cut every student borrower a big fat check covering everything. Given who submitted this, consider this the most disappointing post the CoW has ever run.

Few people live life on their own terms quite like Pauline Paquin at Reach Financial Independence does. Sure, everyone claims to, but Pauline actually does so. She has a staff at her disposal, and a gorgeous house of her own design, right on the ocean, in a place with a perfect climate. Sounds out of reach for ordinary people, right?

Nonsense. The French native is ordinary people, in that she didn’t come from money. She just traded off to get the things she wants. She has to deal with scorpions. She’s 9 hours away from the nearest comprehensive care hospital. She lives in Guatemala, one of the most violent and corrupt nations on Earth. (Although, Pauline stresses, her home is far from the pit of iniquity that is Guatemala City.) Pauline graduated college in the black, which already distinguishes her.

I made some concessions on the distance to Europe, the critters, etc. because otherwise I would still be miserable in an office

(Boldface, italics, and underlining ours, and we share the sentiment, too.) The next post we read from Pauline in which she complains about her lot in life and how external forces are plotting against her will be the first. Attitude really is everything, or at least a lot of it.

Despite what some opportunistic politicians will tell you, nobody, or virtually nobody, tries to feed a family on minimum wage. Michael at Financial Ramblings runs the easily obtainable numbers and demonstrates that fact.

Katrina Lamb of Jemstep is a Chartered Financial Analyst, yet still has time to contribute to a blog. This week she shows you how to tell if you’re holding the right equity funds. Katrina believes you should look at price-earnings ratio, then divide it by projected growth and look at that. Future performance is a predictor of future results, or so one would think.

Tongue lodged comfortably in her cheek, Lynn B. Johnson at Wallet Blog explains how to survive the spartan sequester – the .3% reduction in the projected growth in the federal budget. Those heartless Republicans, starving the poor and pushing the old out onto ice floes to get eaten by musk oxen.

Oh wait, she’s serious.

If you belong to a gym, consider letting your membership lapse (or pay a small fee to keep it alive without being an active member), and run laps around your local school’s track, instead.
sell your excess stuff on eBay
Move your social activities to your home. For example, having a beer at home is a lot less expensive than hitting the bars.

Also, it’s a surer indication that you’re a loser who drinks at home. Lynn doesn’t suggest quitting drinking, which would save a hell of a lot more money than “consider(ing) letting your (gym membership) lapse” would, but that’s another post in itself.

join Freecycle

The CYC principals attempted this recently. Freecycle is crap. We had a 2005 Sanyo TV, in excellent condition, that we couldn’t sell for $45 on eBay or Craig’s List and that even the Salvation Army turned down. (“Sorry, no pre-2007 TVs.”) So we tried Freecycle. We found a single item posted for giveaway in the previous 2 months: some guy would let you have some trees on his property if you dug them up and hauled them away yourself. In other words, he wanted free landscaping. Someone else wanted a Kindle Fire, retail price $159.

Harry Campbell at Your PF Pro admits that he usually ends up losing money when he buys individual stocks rather than mutual funds. He’s hesitant to spend more than a single percentage point of his wealth on individual stocks, because

[T]he stock market is a zero sum game so for every winner there is also a loser.

Harry’s an aerospace engineer, and knows far better than to say that. (If stocks were a zero-sum game, the price levels would never fluctuate, let alone rise over time. Also, there’d be no point in buying mutual funds either.) He also knows better than to act on a tip he heard in a bar. (Come on? Really? Your latest investment came as the result of a cliché?) Yet he did and doubled his money. So you should play roulette then, too. (Little-known fact: Black wins 70% of the time**.)

See you tomorrow. Oh, check us out in Nevada Magazine, too. And Investopedia.

*Female equivalent of “brethren”, at least according to OxfordDictionaries.com.

**Of course not. Don’t be stupid.

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