Why You Should Read Our Archives

November 2, 2011

"More money, more headaches." Go away.

 

Because most personal finance sites are garbage. One popular one is written by a 32-year old guy who admits to being 40 pounds overweight, yet gives diet and exercise advice.

Another of our favorites (damn, we wish we could link to these) is written by a guy who displays his negative net worth on his site. He lives in a rental house, is busy trying to have additional kids he can’t afford, and loves to tell people where they can cut corners in their own lives.

It’s like the blogs written by mothers who dispense advice on how to raise children, even though their own children are only 5 and 3 years old and the blogs themselves consist largely of pumpkin spice latte recipes and craft projects. (Okay, here’s a link.) If someone’s going to dispense “mom advice”, shouldn’t it be a mother who’s actually performed the fundamental task of motherhood: turning kids into productive and responsible adults?

These other sites have nothing to do with their ostensible topic of concern, be it personal finance or motherhood. They’re about sharing stories, baring souls, and finding love and acceptance among like-minded commenters who use exclamation points injudiciously. (Excellent post!! Great job short-selling your house!!!)

What makes Control Your Cash different is that we’re coming from a position of knowledge. Not necessarily intelligence, just knowledge. We know what works and what doesn’t, through plenty of real-world trial, error, and common sense, and we’re willing to share our findings with anyone who can read. We’ve lived hand-to-mouth, figured out that we didn’t like it, and learned how to build wealth instead. (Hint: it had nothing to do with reducing our energy consumption or renegotiating student loans that we shouldn’t have taken out in the first place.)

If you want to build wealth, buy assets and sell liabilities. Heck, our entire site could be reduced to those 4 words and you’d still learn more here than you would most other places.

If you don’t know what an asset is, it’s something that helps you build wealth. A liability, as we define it, does the opposite. That doesn’t mean to live under a bridge, eat at soup kitchens, and put every penny you earn into Apple stock. It means to live your life dynamically, acknowledging that certain expenditures can’t increase your wealth (although they might increase your non-monetary quality of life), while others can.

We live in a big, wonderful, abundant world, whose potential we as a species have barely tapped. Our planet consists of the same raw materials it had 4000 years ago, when we were living in mud huts, never traveling farther than we could walk, and having all our teeth fall out as a matter of course. Forced personal conservation is the very opposite of the mindset that got us to where we are today. You know, a place where we have exponentially more knowledge at our fingertips than even our parents did – essentially free of charge, no less. Where you can travel across the world for a few days’ wages. Where diarrhea is a mild inconvenience, rather than a childhood death sentence.

Sorry to go Anthony Robbins on you, but hear us out. Living for the express purpose of spending as little money as possible is barely living.

Stop preoccupying yourself with combining multiple errands into one trip and only shopping on double-coupon Wednesdays. Instead, examine what’s in your 401(k). Track its value over the course of a few months and figure out whether you can do better yourself. Take an hour to understand how the whole thing works. Read financial statements of publicly traded companies and buy undervalued stocks instead of complaining. Start your own business, and spend a few hundred now to save tens of thousands down the road. Implement 100% painless changes that will only positively impact your life, and save you real money in the process.

Instead of an emergency fund that isn’t intended to grow, take a calculated risk and put that money in an investment. Leverage it in real estate. Even the cheapest functionally sound home you can find can attract a tenant who’ll make your mortgage payments for you and let you enjoy tax benefits that non-landlords don’t even know about.

There are a million ways to reduce costs. Just ask the sages who think that it’s worth it to encourage you to waste time making your own detergent. Or inconveniencing yourself by turning off the air conditioning and fanning yourself instead. Or our favorite, improving your gas mileage via

pulling out (your) car’s seats (except the driver’s!), ash trays (sic), speakers, radio, sound deadening material, interior trim “and anything else not integral to the vehicle’s driving ability.”

(That can’t be true, right? That has to be a goof. Someone posited that, as ridiculous as it sounds, in the hopes that someone else would post it and a gullible tertiary party, we, would cite it.)

However, as many ways as there are to reduce costs, there are at least as many ways to increase revenue. To concern yourself with the left side of the ledger, rather than preoccupying yourself with the right side.

Are you playing to win, or to avoid defeat?

**This article is featured in the Baby Boomers Blog Carnival One Hundred-seventeenth Edition**

**This article is featured in the Carnival of Financial Camaraderie #7**

Filed Under: Capitalism, Economics, Education, Entrepreneurship, Estate Planning, Finance Tagged With: , , ,

Warren Buffett is a Hypocrite, Part I

September 23, 2011

Amass an 11-digit fortune, and you should probably forgo a name tag

We’ve never done a post on The Oracle of Omaha, which makes us unique among personal finance blogs. We also didn’t misspell his name as “Buffet”, which also makes us unique among personal finance blogs.

Yes, he’s the greatest investor of all time. No one disputes this. The problem is when he starts talking about topics he either knows nothing about, or is being deliberately obtuse about. Amassing wealth doesn’t make you an authority on every subject. Case in point, his recent lament about taxes.

Buffett wrote in The New York Times that the current progressive tax system in this country, in which rich people bankroll most everything, just isn’t progressive enough. He pointed out, yet again, the absurdity of his secretary paying a higher percentage of her salary in taxes than he does.

Summarizing, Buffett claims that at least one of his employees allegedly pays an effective tax rate of around 41% on income, while Buffett himself pays 17%.

First, the former claim is a lie. The highest marginal tax rate in this country isn’t even 41%, let alone the highest average tax rate. The highest marginal tax rate is 35%, and given the income level at which the IRS administers it, to pay an effective tax rate of 35% you’d have to make $6 million a year.

So Buffett’s not comparing himself to the woman who answers phones at Berkshire Hathaway. He’s comparing himself to a manager who makes a higher salary than almost everyone in America, even more than your average NBA or major league baseball player.

We’re giving Buffett the benefit of the doubt here, assuming that he meant 35% instead of 41% even though those numbers are easy to distinguish. No one knows where he got the 41% figure from.

Furthermore, that 35% maximum rate is on taxable income. Anyone who’s ever filled out a 1040, or had someone else do it, knows that taxable income is considerably less than total income. There are these things called deductions and credits, which Buffett is presumably familiar with (and which any manager who makes $6 million a year must be familiar with, too.)

It makes for a great class warfare talking point: every dollar that I fail to make is somehow some richer person’s doing. And who better to inspire envy among the poor salaried millions than a tycoon who’s finally seen the error of his ways?

Buffett – and we salute him for this – has spent a lifetime earning money via capital gains, rather than salary. Do we think this is a good idea? Hell, we wrote a book about it.

Capital gains are taxed at lower rates than salaries are. The people who write the tax code, and make it the most cumbersome and impenetrable thing on the planet, ensure this. Of course they do. Legislators write the code to accommodate and exploit this, because they derive most of their income through capital gains.

Let’s assume that Buffett indeed has employees who are paying twice the proportion of their income in taxes as he is. What’s the fairest way to make things fair? Again, multiple-choice.

  1. Further soak the rich.
  2. Get government’s foot off the throat of the poor.

Raise the rich people’s taxes to make things even, or lower the poor’s? Rich people seem to enjoy being rich. Why not reduce rates on the salaried masses to put them in line with whatever Buffett’s definition of “rich” is, instead of the other way around? Instead of creating prosthetic limbs for amputees, Buffett wants to break the right arms of the able-bodied.

The reactionary answer is “Because it’ll reduce much-needed tax revenue.” It wouldn’t. People respond to incentives, and will have incentive to work harder, longer hours if they get to keep more of what they make. When I can keep 84¢ of my next marginal dollar, there’s a better chance I’ll work for that dollar than if I only get to keep 67¢.

It’s the height of arrogance to complain about the tax system not because it hurts you, but because it benefits you. Especially when there are so many ways for Buffett to fix this perceived injustice. Sure, he could cut Washington a check for whatever amount he feels he should be paying. He could increase his employees’ pay enough to offset any tax advantage.

Or, and this is the least likely of the three, he could rework the dividends that flow through his corporations so that he could receive all his income as salary, rather than capital gains.  The chance of this happening is roughly equivalent to the likelihood of Buffett running a 4-minute mile.

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We’ve been pushing the concept of a diagonal tax since we were old enough to understand the concept. Everyone gets a basic personal deduction – say $20,000 – and pays some percentage – say 17 – on the rest.

The guy making $6 million would thus pay 16.94% of his income in taxes. The guy making $30,000 would pay 6% of his income in taxes. The guy whose net worth increases $10 billion in a year would pay 16.99997% of his income in taxes.

People who want to soak the rich should love this system. It treats the rich and the hyper-rich almost identically, biting them almost 3 times as hard as the working stiff, relative to what all three make. If that’s not enough, just manipulate the deduction and percentage numbers until it all makes sense.

 **This article is featured in the Yakezie Carnival-October 2, 2011 Welcome Fall Edition**

Filed Under: Bad Examples, Economy, Education, Estate Planning Tagged With: , , , ,

GUEST POST: Lose Control of Your Cash? Avoid a Lawsuit by Controlling Your Debt Situation

September 14, 2011

Almost daily, we get solicited by people wanting to write guest posts for us. Testament to our importance, we guess. 99% of those solicitations don’t make it past the “show-this-email-to-each-other-and-laugh” stage. But occasionally a competent one makes it through the obstacle course. This one is from the magnificently christened Odysseas Papadimitriou, CEO of Card Hub, a major site for credit card offers and personal finance education. Mr. Papadimitriou has written for Forbes.com, TheStreet.com, The Huffington Post, CNBC, and U.S. News & World Report, so we’re honored to have him on board.

This post is on how to minimize the damage if you incurred debt. Yes, we at Control Your Cash will forever maintain that not getting crushed by debt in the first place is the result of simple choices you made years earlier. But still, a pound of cure is better than a ton of wage garnishment and harassing phone calls.

Credit card companies and debt collectors can be awfully intimidating, especially when you owe them money. However, no matter how much you owe or how delinquent you are in paying it back you still have rights. Certain debt collection techniques are, in fact, illegal. And, depending on your situation, there are a number of resources and options available to you. So, what should you do when encumbered by significant debt? Let’s find out.

Establish a Dialogue
While your instinct may be to lie low and hide from your creditors, starting a dialogue with your credit card company can make all the difference. So, if you start missing payments or have already charged-off on your credit card debt, pick up the phone. And remember, a person is on the other end of the phone, a person who likely gets yelled at for a good portion of the day. Explain your situation calmly and work at finding a mutually beneficial solution to the problem. After all, credit card companies would rather avoid the hassle of debt collections, and you most certainly don’t want to get sued. Just make sure not to agree to anything—and I mean anything—that is not part of a long-term plan you can realistically afford.

Eliminate the Possibility of a Lawsuit
In general, there are two types of agreements indebted and delinquent consumers can reach with their creditors directly (i.e. not through a court) that will not only eliminate the possibility of a lawsuit, but also get them on the road to being debt free. They are:

• Debt Management – This involves your creditor lowering your monthly payments by giving you a break on finance charges and fees in return for you agreeing to a long-term payment plan.
• Debt Settlement – Creditors often agree to forgive some debt in return for a customer paying down the rest of the amount owed in one lump sum. If you are having trouble making minimum payments, however, paying down a significant portion of what you owe at one time likely isn’t feasible.

Consult an Attorney
Though bankruptcy carries with it a weighty social stigma, it can actually be the best move in certain situations. Many bankruptcy attorneys offer free consultations as well, so why not listen to what one has to say? In general, the bankruptcy options available to you are as follows:

• Chapter 7: Provides for the court-supervised liquidation of your assets, the value of which is used to pay off your debt obligations. Information about this type of bankruptcy will remain on your major credit reports for 10 years from the date you file.
• Chapter 13: Involves establishing a three-to-five year payment plan, which is based on expected future earnings. Discharged (completed) Chapter 13 bankruptcies stay on your credit reports for seven years from the date you filed for bankruptcy. Non-discharged Chapter 13 bankruptcies (i.e. payment plans that you fail to abide by) will remain for 10 years.

Statute of Limitations
If all else fails it’s time to wait and hope not to get sued. Each state has its own statute of limitations for written contracts, which applies to things like credit card and loan agreements, and any failure to abide by such an agreement is therefore only relevant for 3-15 years from the date of your last payment. In other words, you can’t get sued for money owed after a certain point. Actually pardon me, a suit can still be brought, but it will be thrown out as long as your debt is time-barred (i.e. older than your state’s statute) and you make this clear to the court.

If you are unable to reach an agreement with your creditor and bankruptcy isn’t a good fit, still trying to pay down what you owe might therefore be inadvisable, since it will only extend the window for a lawsuit and your creditor ultimately won’t be satisfied.

Still, this doesn’t mean creditors won’t try to trick you into paying. The following is a list of things to keep in mind while you wait so as not to fall victim to shady debt collection practices and/or open yourself up to a lawsuit:

• Depending on your state, signing any statements promising to pay your debt or even acknowledging that you owe money will also reset the statute of limitations clock
• Debt collectors are legally barred from threatening a lawsuit unless one is actually under consideration
• Debt collectors may not contact you after a written request that they not do so or if you’ve made it clear that you have an attorney
• Debt collectors are not allowed to misrepresent your debt to credit reporting agencies

Given the risk involved, waiting out the statute of limitations should only be done as a last resort, and hopefully things will not even get to this point in your case.

**This article is featured in the Carnival of Personal Finance: Where does the Money Go? Edition**

Filed Under: Consumer Debt, Credit Cards, Education Tagged With: , , , , , ,
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