I drive a 1994 Toyota Tercel.
I purchased this Caddilac of vehicles 4 years for the princely sum of $2,300 (in cash, naturally).
It has A/C, automatic, heat, power steering and a rear defroster. About the only thing it lacks that I "need" is cruise control, which would be helpful on my (rare) long drives.
I make a comfortable six-figure income, and no, I'm not a Voluntary Simplicity advocate (well, not yet anyway)...
...BUT, I don't understand paying more than necessary for a depreciating asset.
Had I bought a "normal" new Toyota for $18,000, I would have paid an extra $10,000+ over the past 4 years (see below). And that's being generous, since insurance, taxes, etc. are much higher on newer vehicles.
True, it would have been more comfortable. But how much comfort does one need? Is a Corolla really that inferior to a Camry, and a Camry to an Avalon, much less a Lexus or Mercedes?
When I hear folks who make $40K a year complaining about $300 a month car payments, I have to fight every urge I have to grab them and walk them out to my car, still worth about $1,800 after 4 years of depreciation and costing me about $350 to insure. A year.
Comparison
I paid a grand total of $1,500 last year for my Tercel, as follows:
Depreciation $150
Gasoline $450 (yes, I only drive about 5,000 miles a year)
Insurance $350
Maintenance $250
Repair $250
Taxes $ 50
Think about what you spend on your car: Depreciation + Insurance + Taxes + Maintenance + Repairs + Gasoline.
My calculation is that folks with a $300 per month car payment spend about $600 a month total for their car:
Payment $300
Gasoline $100
Insurance $ 70
Maintenance $ 25
Repair $ 25
Taxes $ 50
Total $570 per month or $6,840 per year
$6,840 "Normal" car cost
$2,400 Cost to drive a Tercel/Corolla for 12,000 miles per year
$4,440 Net savings every year
Your car may be eating you alive.
Tuesday, April 24, 2007
The Onion - Proving George Orwell Right
"If you tell someone the truth, you'd better make him laugh. Otherwise, he'll kill you." - Orwell
Radio Shack gets a good send up on The Onion, a great satire site. It devolves into potty humor at times... which is especially annoying, because those articles are neither funny nor insightful.
But with respect to the business world, it's spot on. Check out this little ditty about Starbucks... I swear this will happen some day.
Radio Shack gets a good send up on The Onion, a great satire site. It devolves into potty humor at times... which is especially annoying, because those articles are neither funny nor insightful.
But with respect to the business world, it's spot on. Check out this little ditty about Starbucks... I swear this will happen some day.
Friday, April 13, 2007
Good Geeky Compounding Fun: When a 14 Year Old Can Surpass a 45 Year Old
Let's ponder for a bit.
Many financial analysts use the 25 year old vs. 35 year old example to show that starting early trumps trying to play catch up. Fair enough. It's an impressive example.
But I wanted to go one further: What about starting really early? If I can install saving and investing in my boys when they are early teens, how will that impact their retirement (or other) savings?
Naturally, I whipped out Excel to help me out.
Let's take a 14 year old boy who is fairly lazy, but mows lawns for an entire summer due to the overwhelming mathematical brilliance of his sainted Father, then socks $3,000 away in a Roth IRA. He plans to start taking withdrawals at age 65.
When this boy turns 45, a friend of his decides it's time to start saving for retirement. He puts away $3,000 a year, every year, from age 45 until he retires at age 65.
To make this easy, let's assume they both earn 8% per year, every year, on all invested monies.
Who had more moolah when they turned 65? (You can see this coming a mile away, can't you Dear Reader?)
14 year old boy who invested 1 year @ $3,000: $103,422 (total invested: $3,000)
45 year old who invested for 21 years @ $3,000: $ 90,973 (total invested: $63,000)
Now imagine the delta if the boy invested $3,000 a year for 5 years (ages 14 - 18).
He would have $445,970. Amazing.
So if your kids want to be rich, show them this... then show them where you keep the lawn mower and the gas can.
Many financial analysts use the 25 year old vs. 35 year old example to show that starting early trumps trying to play catch up. Fair enough. It's an impressive example.
But I wanted to go one further: What about starting really early? If I can install saving and investing in my boys when they are early teens, how will that impact their retirement (or other) savings?
Naturally, I whipped out Excel to help me out.
Let's take a 14 year old boy who is fairly lazy, but mows lawns for an entire summer due to the overwhelming mathematical brilliance of his sainted Father, then socks $3,000 away in a Roth IRA. He plans to start taking withdrawals at age 65.
When this boy turns 45, a friend of his decides it's time to start saving for retirement. He puts away $3,000 a year, every year, from age 45 until he retires at age 65.
To make this easy, let's assume they both earn 8% per year, every year, on all invested monies.
Who had more moolah when they turned 65? (You can see this coming a mile away, can't you Dear Reader?)
14 year old boy who invested 1 year @ $3,000: $103,422 (total invested: $3,000)
45 year old who invested for 21 years @ $3,000: $ 90,973 (total invested: $63,000)
Now imagine the delta if the boy invested $3,000 a year for 5 years (ages 14 - 18).
He would have $445,970. Amazing.
So if your kids want to be rich, show them this... then show them where you keep the lawn mower and the gas can.
Pay the Mortgage or Invest? Redux
In a previous post, I advanced the position that it is (almost) always advatangeous to pay down mortgage debt vs. putting the money in a higher-paying money market account.
This article focused on the word "almost".
My employer has what is called a Safe Harbor 401(k) Matching program. Long story short, it matches 4% on the first 5% of a person's 401(k) contribution. These company matches vest instantly, which is a critical distinction.
Thus, if you make $50,000 a year, a $2,500 annual contribution is matched with an additional $2,000 from the company.
In this scenario, I would unequivocably encourage contributing at least to the point of the maximum company match. The guaranteed rate of return on your investment is 80% ($2,000 / $2,500), so unless you are in a Payday Loan Trap, this is going to be far more beneficial to your net worth than paying down your mortgage.
This article focused on the word "almost".
My employer has what is called a Safe Harbor 401(k) Matching program. Long story short, it matches 4% on the first 5% of a person's 401(k) contribution. These company matches vest instantly, which is a critical distinction.
Thus, if you make $50,000 a year, a $2,500 annual contribution is matched with an additional $2,000 from the company.
In this scenario, I would unequivocably encourage contributing at least to the point of the maximum company match. The guaranteed rate of return on your investment is 80% ($2,000 / $2,500), so unless you are in a Payday Loan Trap, this is going to be far more beneficial to your net worth than paying down your mortgage.
Real Estate Roller Coaster
If a picture is worth 1,000 words, then a solidly done video says millions.
Exhibit A: Real estate prices (adjusted for inflation) presented as a roller coaster ride.
Yes, a roller coaster ride.
Those of you gamers will recognize Roller Coaster Tycoon as the artistic medium. This is an amazing journey, going from 1890 until today, and reflects why so many thoughtful folks believe that real estate is overvalued.
Take the 4 minute ride and see for yourself!
Exhibit A: Real estate prices (adjusted for inflation) presented as a roller coaster ride.
Yes, a roller coaster ride.
Those of you gamers will recognize Roller Coaster Tycoon as the artistic medium. This is an amazing journey, going from 1890 until today, and reflects why so many thoughtful folks believe that real estate is overvalued.
Take the 4 minute ride and see for yourself!
Saturday, April 7, 2007
Pay the Mortgage or Invest?
An interesting discussion has sprung up over at the Diehards in response to one reader's question: Should he take out a loan on his debt-free home to invest the assets?
My take on this is simple: Unless you have a very good risk/return opportunity combined with a high propensity for risk, 1) don't go back into debt and correspondingly 2) pay off your mortgage before investing in taxable assets.
# 1 is pretty straightforward.
Most folks just do better without the loadstone of debt hanging over their head. Just about anyone will agree that high-interest credit card debt makes more sense to pay off before a mortgage. Even at 10%, credit card debt isn't deductible, and so just about any other investment will pale against a 10% post-tax rate of return.
# 2 gets more tricky.
Folks who have adjustable rate mortgages now, by and large, realize that the days of cheap credit are coming to an end, and therefore their rates will (or are) much higher than historically.
For those with fixed debt, I still maintain that a 6-7% post-tax guaranteed rate of return is almost impossible to beat.
Livesoft over at the Diehards points dissents, pointing out that his 4.875% mortgage can be arbitraged with a 5.1% FDIC-insured money market account.
I still say: You are making 22.5 basis points (5.1% minus 4.875%)... assuming all of the following:
1) You fully itemize on your federal taxes (half of folks don't, the rest don't get the full value of their itemization)
2) You aren't dinged for state taxes (5.75% in my state)
3) You aren't hit by AMT
4) There are no inactivity, transfer or low-balance fees
5) There is no "lost interest" during transfers to and from your bank
6) You are guaranteed that rate for a set period of time... or at least can easily move the money out if the rate is lowered
There's probably more, but you get the point.
In this example, if you pay $1,000 a month in interest and have no fees or "waste", you can gain the princely sum of $27/year (calculated as follows):
$12,000 interest x (5.1% - 4.875%) = $27
The bottom line is this: Pay off your debts first, then invest.
And yes, I know I've neglected matching funds from employers. I'll hit that in my next post.
My take on this is simple: Unless you have a very good risk/return opportunity combined with a high propensity for risk, 1) don't go back into debt and correspondingly 2) pay off your mortgage before investing in taxable assets.
# 1 is pretty straightforward.
Most folks just do better without the loadstone of debt hanging over their head. Just about anyone will agree that high-interest credit card debt makes more sense to pay off before a mortgage. Even at 10%, credit card debt isn't deductible, and so just about any other investment will pale against a 10% post-tax rate of return.
# 2 gets more tricky.
Folks who have adjustable rate mortgages now, by and large, realize that the days of cheap credit are coming to an end, and therefore their rates will (or are) much higher than historically.
For those with fixed debt, I still maintain that a 6-7% post-tax guaranteed rate of return is almost impossible to beat.
Livesoft over at the Diehards points dissents, pointing out that his 4.875% mortgage can be arbitraged with a 5.1% FDIC-insured money market account.
I still say: You are making 22.5 basis points (5.1% minus 4.875%)... assuming all of the following:
1) You fully itemize on your federal taxes (half of folks don't, the rest don't get the full value of their itemization)
2) You aren't dinged for state taxes (5.75% in my state)
3) You aren't hit by AMT
4) There are no inactivity, transfer or low-balance fees
5) There is no "lost interest" during transfers to and from your bank
6) You are guaranteed that rate for a set period of time... or at least can easily move the money out if the rate is lowered
There's probably more, but you get the point.
In this example, if you pay $1,000 a month in interest and have no fees or "waste", you can gain the princely sum of $27/year (calculated as follows):
$12,000 interest x (5.1% - 4.875%) = $27
The bottom line is this: Pay off your debts first, then invest.
And yes, I know I've neglected matching funds from employers. I'll hit that in my next post.
Good Friday and Easter, Compressed Version
Compliments of John Donne:
Good Friday
Spit in my face you Jews, and pierce my side,
Buffet, and scoff, scourge, and crucify me,
For I have sinned, and sinned, and only he
Who could do no iniquity hath died:
But by my death can not be satisfied
My sins, which pass the Jews' impiety:
They killed once an inglorious man, but I
Crucify him daily, being now glorified.
Oh let me, then, his strange love still admire:
Kings pardon, but he bore our punishment.
And Jacob came clothed in vile harsh attire
But to supplant, and with gainful intent:
God clothed himself in vile man's flesh, that so
He might be weak enough to suffer woe.
Easter
Death be not proud, though some have called thee
Mighty and dreadful, for thou art not so,
For those whom thou think'st thou dost overthrow,
Die not, poor death, nor yet canst thou kill me.
From rest and sleep, which but thy pictures be,
Much pleasure, then from thee, much more must flow,
And soonest our best men with thee do go,
Rest of their bones, and soul's delivery.
Thou art slave to Fate, Chance, kings, and desperate men,
And dost with poison, war, and sickness dwell,
And poppy, or charms can make us sleep as well,
And better than thy stroke; why swell'st thou then?
One short sleep past, we wake eternally,
And death shall be no more; death, thou shalt die.
Good Friday
Spit in my face you Jews, and pierce my side,
Buffet, and scoff, scourge, and crucify me,
For I have sinned, and sinned, and only he
Who could do no iniquity hath died:
But by my death can not be satisfied
My sins, which pass the Jews' impiety:
They killed once an inglorious man, but I
Crucify him daily, being now glorified.
Oh let me, then, his strange love still admire:
Kings pardon, but he bore our punishment.
And Jacob came clothed in vile harsh attire
But to supplant, and with gainful intent:
God clothed himself in vile man's flesh, that so
He might be weak enough to suffer woe.
Easter
Death be not proud, though some have called thee
Mighty and dreadful, for thou art not so,
For those whom thou think'st thou dost overthrow,
Die not, poor death, nor yet canst thou kill me.
From rest and sleep, which but thy pictures be,
Much pleasure, then from thee, much more must flow,
And soonest our best men with thee do go,
Rest of their bones, and soul's delivery.
Thou art slave to Fate, Chance, kings, and desperate men,
And dost with poison, war, and sickness dwell,
And poppy, or charms can make us sleep as well,
And better than thy stroke; why swell'st thou then?
One short sleep past, we wake eternally,
And death shall be no more; death, thou shalt die.
Sunday, April 1, 2007
Quote of the Day
Compliments of Money magazine:
There’s a big cocktail party on Martha’s Vineyard. Someone comes up to this writer, I think it’s Joseph Heller[author of Catch-22], and says, “Joe, see that guy over there? He’s a hedge fund manager, and he made more money yesterday than you made on all the books you have ever published.” Heller looks over, pauses, and says, “Yeah, but I have something he’ll never have: enough.”
There’s a big cocktail party on Martha’s Vineyard. Someone comes up to this writer, I think it’s Joseph Heller[author of Catch-22], and says, “Joe, see that guy over there? He’s a hedge fund manager, and he made more money yesterday than you made on all the books you have ever published.” Heller looks over, pauses, and says, “Yeah, but I have something he’ll never have: enough.”
Saturday, March 31, 2007
Culture, Work Hours & Finances
I've worked for several companies in my relatively-short career, but I've reached an interesting conclusion: The culture of a company is absolutely critical to your success and mental health.
The company of my current employment has seen a massive culture shift in the past few years... and alas, not for the better. Creative thought, flexibility and day-to-day Innovation are being replaced by an old-school, "cut-to-and-then-through-the-bone" mentality.
Many of the folks I've admired most have left for greener pastures (always a strong warning sign). And a results-oriented work environment has been replaced by a "face time" culture that prizes how much time you're willing to spend in the office & other corporate events.
So what does one do? Well, if you're a lower-level person, my advice is: leave. Unless you have some pretty hefty access to the upper echelons, you're not likely to change the culture, and so the easiest way to advance your career is to find a company whose style & expectations are more in-line with yours.
If you're an executive (like me) it gets a bit more murky. I joined this company when they were completely on the ropes, at an all-time stock low. I was a pivotal player in helping the company to recover, and now have a vested interest in trying to continue to company's growth.
That said, I'm debating just how much impact I can have. Culture is almost always top-down in a company, and in my case the entire executive team has turned over during my tenure (yes, every single person). Some of those folks were not strong performers, but some were exceptional.
Even more concerning, the turnover rate at the executive level has accelereated... rapidly. Many of the new folks brought have, themselves, left. One executive (C-level) office has had four people in the position in as many years! Troubling to say the least.
The bottom line is: if you're not an executive or someone with significant pull & the culture is going south, leave & find a place where you can grow and better influence the culture. If you have the pull to change things and a strong desire to do so, you may stay, but be prepared for strong resistance. Otherwise, you will (reluctantly, no doubt) come to the same conclusion & search for an environment more conducive to business success.
The company of my current employment has seen a massive culture shift in the past few years... and alas, not for the better. Creative thought, flexibility and day-to-day Innovation are being replaced by an old-school, "cut-to-and-then-through-the-bone" mentality.
Many of the folks I've admired most have left for greener pastures (always a strong warning sign). And a results-oriented work environment has been replaced by a "face time" culture that prizes how much time you're willing to spend in the office & other corporate events.
So what does one do? Well, if you're a lower-level person, my advice is: leave. Unless you have some pretty hefty access to the upper echelons, you're not likely to change the culture, and so the easiest way to advance your career is to find a company whose style & expectations are more in-line with yours.
If you're an executive (like me) it gets a bit more murky. I joined this company when they were completely on the ropes, at an all-time stock low. I was a pivotal player in helping the company to recover, and now have a vested interest in trying to continue to company's growth.
That said, I'm debating just how much impact I can have. Culture is almost always top-down in a company, and in my case the entire executive team has turned over during my tenure (yes, every single person). Some of those folks were not strong performers, but some were exceptional.
Even more concerning, the turnover rate at the executive level has accelereated... rapidly. Many of the new folks brought have, themselves, left. One executive (C-level) office has had four people in the position in as many years! Troubling to say the least.
The bottom line is: if you're not an executive or someone with significant pull & the culture is going south, leave & find a place where you can grow and better influence the culture. If you have the pull to change things and a strong desire to do so, you may stay, but be prepared for strong resistance. Otherwise, you will (reluctantly, no doubt) come to the same conclusion & search for an environment more conducive to business success.
Monday, March 26, 2007
Roll Call (aka: Is Anyone Actually Reading These Posts?!)
You don't have to say anything clever or profound, but if you're reading any of the posts, please respond so I know I'm not talking to myself. Other than when I'm actually talking to myself, I mean. Denke!
Sunday, March 25, 2007
Your Money or Your Life - Steps 6 - 7
After a long hiatus, I'm back with the next 2 steps outlined in the book Your Money or Your Life.
Step 6 is focused on finding ways to live frugally so as to minimize your expenses. I'll make this a recurring theme of this blog as I discover new and creative ways to save money. Or just old, solid ways.
For now, the focus on minimizing costs so you can live as richly as possible is central, and I'm in 100% agreement. Is money more than a means of exchange and/or personal security to you?
If so, this is the perfect stage to ponder on why you spend what you do. Use the budget/spending info from Step 3 to ask yourself whether you're truly getting the level of satisfaction from your spending when gauged by how much you need to work to afford it.
Step 7 is a radical one I haven't seen in most (sensible) self-help books. It asks you to consider your job... and whether you should quit. Yep, quit. The guideline for quitting? Whether your job matches your values.
On the surface, this sounds very pie-in-the-sky and not overly workable. "Hey, honey, my job doesn't 'match my values', so I guess we're going to have to do without electricity and water for a while!"
On another level, though, it makes tons of sense, especially since this is something that I've never encountered as a serious question throughout my schooling and mentoring experiences. The focus is always on career growth, whether a job or position will help you to grow professionally, make more money, etc. Only in rare cases (Philip Morris, for example) does the values issue even arise, and for the majority of folks the bottom line is... well, the bottom line.
As for me, I'm not sure that my current job is aligned or not aligned with my values. It's fairly values neutral... which actually is a pretty high standard, since I can think of many, many companies whose products and services are immoral or unethical to the point where it should bother me if I were to work there.
So, step 7 for me comes down to this: It could be better, but it could be much, much worse.
Sidebar: This step also has me wondering if the target audience for this book is primarily people without children. It's a lot easier to stand completely on prinicple when you can just pick up and move and not worry about those short folks who like to scribble on the walls.
If you have 2 or more young children, unless your job is directly immoral, are you really going to be self-centered and quit just so you can look for "fulfillment"? I hope not, but I'm not sure the authors would agree.
Step 6 is focused on finding ways to live frugally so as to minimize your expenses. I'll make this a recurring theme of this blog as I discover new and creative ways to save money. Or just old, solid ways.
For now, the focus on minimizing costs so you can live as richly as possible is central, and I'm in 100% agreement. Is money more than a means of exchange and/or personal security to you?
If so, this is the perfect stage to ponder on why you spend what you do. Use the budget/spending info from Step 3 to ask yourself whether you're truly getting the level of satisfaction from your spending when gauged by how much you need to work to afford it.
Step 7 is a radical one I haven't seen in most (sensible) self-help books. It asks you to consider your job... and whether you should quit. Yep, quit. The guideline for quitting? Whether your job matches your values.
On the surface, this sounds very pie-in-the-sky and not overly workable. "Hey, honey, my job doesn't 'match my values', so I guess we're going to have to do without electricity and water for a while!"
On another level, though, it makes tons of sense, especially since this is something that I've never encountered as a serious question throughout my schooling and mentoring experiences. The focus is always on career growth, whether a job or position will help you to grow professionally, make more money, etc. Only in rare cases (Philip Morris, for example) does the values issue even arise, and for the majority of folks the bottom line is... well, the bottom line.
As for me, I'm not sure that my current job is aligned or not aligned with my values. It's fairly values neutral... which actually is a pretty high standard, since I can think of many, many companies whose products and services are immoral or unethical to the point where it should bother me if I were to work there.
So, step 7 for me comes down to this: It could be better, but it could be much, much worse.
Sidebar: This step also has me wondering if the target audience for this book is primarily people without children. It's a lot easier to stand completely on prinicple when you can just pick up and move and not worry about those short folks who like to scribble on the walls.
If you have 2 or more young children, unless your job is directly immoral, are you really going to be self-centered and quit just so you can look for "fulfillment"? I hope not, but I'm not sure the authors would agree.
Fund-Raising vs. Faith-Raising
Taken from the Presentation Ministries web site.
"Did you ever notice that most churches are constantly raising funds instead of raising faith?
Churches usually trivialize or even prostitute themselves. They get into hard-core compulsive behavior, such as promoting gambling and drinking alcohol. They also try "Mickey Mouse" fund-raising such as car washes, bake sales, magazine sales, penny raffles, etc.
Can you imagine Jesus raffling off a ham at the beer booth to cover the cost of the disciples' next trip to Jerusalem? [emphasis mine, because this made me giggle]
Is our heavenly Father a real provider or just a myth? (see Gn 22:14) Is Jesus King of kings, and are we a royal priesthood? Or is that just religious jargon?
Since we're not doing God's will, we raise these funds for a bag with holes in them (Hag 1:6). We keep raising funds, but there's never an end to it. Fund-raising gradually escalates each year while the real issue, faith, deteriorates.
Eventually we serve such things as church buildings and finances rather than serving God and His people. Caught in our own trap, we lose our way and conceal rather than reveal the gospel."
I've always believed that giving should be from the heart, and have glanced askance at (most) fundraisers, especially those selling overpriced junk ($10 tins of popcorn, anyone?!), and especially those pushed under the banner of faith-based organizations.
"Did you ever notice that most churches are constantly raising funds instead of raising faith?
Churches usually trivialize or even prostitute themselves. They get into hard-core compulsive behavior, such as promoting gambling and drinking alcohol. They also try "Mickey Mouse" fund-raising such as car washes, bake sales, magazine sales, penny raffles, etc.
Can you imagine Jesus raffling off a ham at the beer booth to cover the cost of the disciples' next trip to Jerusalem? [emphasis mine, because this made me giggle]
Is our heavenly Father a real provider or just a myth? (see Gn 22:14) Is Jesus King of kings, and are we a royal priesthood? Or is that just religious jargon?
Since we're not doing God's will, we raise these funds for a bag with holes in them (Hag 1:6). We keep raising funds, but there's never an end to it. Fund-raising gradually escalates each year while the real issue, faith, deteriorates.
Eventually we serve such things as church buildings and finances rather than serving God and His people. Caught in our own trap, we lose our way and conceal rather than reveal the gospel."
I've always believed that giving should be from the heart, and have glanced askance at (most) fundraisers, especially those selling overpriced junk ($10 tins of popcorn, anyone?!), and especially those pushed under the banner of faith-based organizations.
Saturday, March 24, 2007
MLS Listings for Free?!
My Money Blog introduced me to Iggy's House, the online site that (currently, at least) offers free MLS listings. That's right, free.
Well, as long as you're in one of the 20 states they cover.
Looking at their interactive map, it appears that all 50 states will be covered by the end of 2007. Good news for those readers in West Virginia.
Well, as long as you're in one of the 20 states they cover.
Looking at their interactive map, it appears that all 50 states will be covered by the end of 2007. Good news for those readers in West Virginia.
Financial Tip o' the Week: Try Craigslist
Yes, Craigslist.
Just today, I found a fantastic dresser for $35. It's not one of those cheap veneer jobs either; it's old school solid wood and will probably out last me. =D
There actually are diamonds among the junk on Craigslist. I also found: a piano with bench for $50, a free piece of vinyl fencing (worth about $60), dirt cheap firewood & a Sega Genesis with a dozen games for $35 (nostalgia thrown in free).
If you need anything that you can pick up yourself, check it out.
Just today, I found a fantastic dresser for $35. It's not one of those cheap veneer jobs either; it's old school solid wood and will probably out last me. =D
There actually are diamonds among the junk on Craigslist. I also found: a piano with bench for $50, a free piece of vinyl fencing (worth about $60), dirt cheap firewood & a Sega Genesis with a dozen games for $35 (nostalgia thrown in free).
If you need anything that you can pick up yourself, check it out.
Generics: Even Cheaper than I Thought
I knew generics were cheap. In fact, I used to price generics and calculate profit margins in my past working lives.
That said, Free Money Finance has shown just how cheap cheap can be.
For the incredibly lazy, it's at least 50% and may be more like 60%. Check out the article for the interesting (well, to a math nerd like me anyway) details.
That said, Free Money Finance has shown just how cheap cheap can be.
For the incredibly lazy, it's at least 50% and may be more like 60%. Check out the article for the interesting (well, to a math nerd like me anyway) details.
Monday, March 12, 2007
Index Fund Advisors (IFA): AA for Hopeless (Actively Investing) Drunks
You can find the general site and just wander around at IFA.
However, they also have a great online e-book on a 12 step recovery program for active investors. It's a great read; if you're not convinced by the end of their book, nothing will change your mind.
Of course, they try to sell you their consulting services (but it's indirect and low key).
Before you pull the trigger, just note that what they are offering can be 80-90% performed by Vanguard funds, with no 0.80% advisory fee, commissions or 0.20% higher expense ratios.
If you really must use an advisor, Cardiff Park Advisors is excellent and has flat annual pricing. Total cost per year is around $1,500, which includes everything but the commissions.
On a $500,000 portfolio, this would save you about $2,500 per year vs. IFA's offering.
And no, I don't get a commission, rate cut, Ohio State basketball tickets or anything else for this. I just happened to have researched half a dozen DFA advisors, and CPA came out on top.
However, they also have a great online e-book on a 12 step recovery program for active investors. It's a great read; if you're not convinced by the end of their book, nothing will change your mind.
Of course, they try to sell you their consulting services (but it's indirect and low key).
Before you pull the trigger, just note that what they are offering can be 80-90% performed by Vanguard funds, with no 0.80% advisory fee, commissions or 0.20% higher expense ratios.
If you really must use an advisor, Cardiff Park Advisors is excellent and has flat annual pricing. Total cost per year is around $1,500, which includes everything but the commissions.
On a $500,000 portfolio, this would save you about $2,500 per year vs. IFA's offering.
And no, I don't get a commission, rate cut, Ohio State basketball tickets or anything else for this. I just happened to have researched half a dozen DFA advisors, and CPA came out on top.
Yes, I'm Still Alive
So after a flurry of posts started about a week and a half ago, this blog went silent for almost a full week.
The reason? It's budget season at work, and all I want to do when I get home at 9 (or 10 or 11 or midnight) is to kiss my wife and the kids, then crash in bed.
Hopefully, the worst is past (crossing fingers).
And I know I have at least one reader, since The Finance Buff actually dropped me a line to make sure I was still in there. Thanks compadre!
Go check out his blog, as there's lots of great stuff over there!
As for me, as soon as my brain recovers (hopefully soon), I'll be back to posting. Stay tuned!
The reason? It's budget season at work, and all I want to do when I get home at 9 (or 10 or 11 or midnight) is to kiss my wife and the kids, then crash in bed.
Hopefully, the worst is past (crossing fingers).
And I know I have at least one reader, since The Finance Buff actually dropped me a line to make sure I was still in there. Thanks compadre!
Go check out his blog, as there's lots of great stuff over there!
As for me, as soon as my brain recovers (hopefully soon), I'll be back to posting. Stay tuned!
Sunday, March 4, 2007
The Millionaire Next Door - are you a PAW?
The Millionaire Next Door is a financial classic. In it, Thomas Stanley describes how the typical millionaire is not a Porsche-driving, yacht-owning conspicuous consumer, but rather lives a dull-normal life in a modest but pleasant setting.
To this end, Dr. Stanley proposes a simple formula for determining how well (or poorly) you accumulate wealth (the Stanley Index), which is calculated as follows:
1) Calculate your net worth (Assets minus Liabilities)
2) Divide your net worth by this equation: (Your age x Your salary) / 10
For example, if you are 35 years old, make $110,000 a year and have a net worth of $500,000, then your score is $500,000 / (35 x $110,000 / 10) = 1.3
3) Find out where your score fits in the following chart
An Average Accumulator of Wealth scores between 0.5 & 2.0
A Prodigious Accumulator of Wealth (PAW) scores above 2.0
An Underaccumulator of Wealth (UAW) scores below 0.5
I have been fascinated by this formula; while it penalizes youth fairly strictly (can you imagine a 25 year old, making $40,000 a year, feeling like a failure because his net worth is "only" $45,000 and thus he's a UAW?!), it's a great temperature gauge to see where you stand as well as a strong motivator.
The first time I calculated my Stanley Index, it was a miserable 0.3. A year later, I was still at 0.3. Something needed to be done, so I got serious about my personal finances.
The next 3 years saw my scores rise to 0.6, 0.7 & 0.9 respectively. Today, I hover at around the 1.5 mark, and hope to crack the 2.0 barrier by the time I'm 40.
It's just an equation, I admit, but it's a great, quick way to determine how you're doing in the great Net Worth game.
So.... what's your score?
To this end, Dr. Stanley proposes a simple formula for determining how well (or poorly) you accumulate wealth (the Stanley Index), which is calculated as follows:
1) Calculate your net worth (Assets minus Liabilities)
2) Divide your net worth by this equation: (Your age x Your salary) / 10
For example, if you are 35 years old, make $110,000 a year and have a net worth of $500,000, then your score is $500,000 / (35 x $110,000 / 10) = 1.3
3) Find out where your score fits in the following chart
An Average Accumulator of Wealth scores between 0.5 & 2.0
A Prodigious Accumulator of Wealth (PAW) scores above 2.0
An Underaccumulator of Wealth (UAW) scores below 0.5
I have been fascinated by this formula; while it penalizes youth fairly strictly (can you imagine a 25 year old, making $40,000 a year, feeling like a failure because his net worth is "only" $45,000 and thus he's a UAW?!), it's a great temperature gauge to see where you stand as well as a strong motivator.
The first time I calculated my Stanley Index, it was a miserable 0.3. A year later, I was still at 0.3. Something needed to be done, so I got serious about my personal finances.
The next 3 years saw my scores rise to 0.6, 0.7 & 0.9 respectively. Today, I hover at around the 1.5 mark, and hope to crack the 2.0 barrier by the time I'm 40.
It's just an equation, I admit, but it's a great, quick way to determine how you're doing in the great Net Worth game.
So.... what's your score?
2006 Expenses - A Telling Story
I've always been frustrated at how money is our society's final taboo. It keeps us in the dark about how others spend, which would be helpful (to me at least) in determining where I fit in the grand scheme of things. Is a $700 a month grocery bill reasonable, frugal or extravagant? How about spending a total, including gasoline, of $3,000 a year on my cars?
To this end, I've decided to post what I spent, by category, in 2006. Yes, I'm one of those semi-anal folks who keeps track of all my spending. Hey, at least I round to the nearest dollar instead of writing down every penny.....
So here goes. 2006 was a very good year for me. I'll be making about 50-60% of this in 2007.
Savings.............$67,000.....48%
Retirement......$22,000.....16%
Mortgage.........$15,400......11%
Groceries.........$ 8,000........5%
Health Care.....$ 6,000........4%
College..............$ 4,000.......3%
Utilities.............$ 4,000.......3%
1-2% for each of the following: Home & Religious Education, Home Maintenance, Child Care, Entertainment, Gasoline, Car Expenses (non-gasoline), Eating Out & Clothes
<1% for each of the following: Gym, Books & Magazines, Babysitting, Gifts & Dry Cleaning
Expenses (excluding savings & charitable contributions) totaled $4,200 per month or $50,000 a year.
This seems like a lot; the median household income is $46,000, and I probably need to make $75,000 just to cover the post-tax $50,000 in spending.
Now, I know that if you're from the East or West Coast, these expenses seem insanely low. Realize that I live in an average cost city in above-average but not exactly crazy housing: My 4 bed, 2 bath cul-de-sac, great school district house cost ~$200,000 when I bought it 4 years ago & is still worth less than $300,000.
On the other hand, I'm saving more than half of my Net Spendable Income (which I define as money left over after taxes & charity). Perhaps I should live it up a little more... but money for me really = financial security, so the more I can save & invest, the better.
To this end, I've decided to post what I spent, by category, in 2006. Yes, I'm one of those semi-anal folks who keeps track of all my spending. Hey, at least I round to the nearest dollar instead of writing down every penny.....
So here goes. 2006 was a very good year for me. I'll be making about 50-60% of this in 2007.
Savings.............$67,000.....48%
Retirement......$22,000.....16%
Mortgage.........$15,400......11%
Groceries.........$ 8,000........5%
Health Care.....$ 6,000........4%
College..............$ 4,000.......3%
Utilities.............$ 4,000.......3%
1-2% for each of the following: Home & Religious Education, Home Maintenance, Child Care, Entertainment, Gasoline, Car Expenses (non-gasoline), Eating Out & Clothes
<1% for each of the following: Gym, Books & Magazines, Babysitting, Gifts & Dry Cleaning
Expenses (excluding savings & charitable contributions) totaled $4,200 per month or $50,000 a year.
This seems like a lot; the median household income is $46,000, and I probably need to make $75,000 just to cover the post-tax $50,000 in spending.
Now, I know that if you're from the East or West Coast, these expenses seem insanely low. Realize that I live in an average cost city in above-average but not exactly crazy housing: My 4 bed, 2 bath cul-de-sac, great school district house cost ~$200,000 when I bought it 4 years ago & is still worth less than $300,000.
On the other hand, I'm saving more than half of my Net Spendable Income (which I define as money left over after taxes & charity). Perhaps I should live it up a little more... but money for me really = financial security, so the more I can save & invest, the better.
Cash Reserves - How Much is Enough?
I've been thinking about this a lot these days, especially since we're expecting another boy in a few months & I'm trying to decide how that will impact our budget.
How much cash do you need to weather a downturn?
More is better, natch. We'd all love to have 6 figures sitting there on top of a 7 (or 8) digit investment portfolio, but what truly is the right amount?
Currently, our monthly expenses run about $3,200 a month. This is particularly light because we paid off our mortgage a few months ago; without that, the amount would be more like $4,500 a month.
Given that I currently have $30,000 stashed away for rainy days of all sorts, I have $30,000 / $3,200 = about 9 months worth of cash.
Each person will have a different number due to different circumstances. I am married, the sole breadwinner, with 4 children, in an area where I do not have close family near by. I've lived independently since I was 18, and don't have any one else to fall back upon financially if things go South.
Given this, I wonder if I have too little saved up. There's a part of me that is seriously considering an 18 month target of savings, not the least of which due to the fact that I'm not considered an "executive" (low level, to be sure) and it's harder to switch jobs and/or find work if I were to be displaced.
This doesn't even consider the fact that the A/C or one of the cars might conk out, thereby cutting into the $30,000 kitty.
What do you have saved up? Do you feel like it's the right amount, too much or (probably) too little? How do you decide what the right amount is?
How much cash do you need to weather a downturn?
More is better, natch. We'd all love to have 6 figures sitting there on top of a 7 (or 8) digit investment portfolio, but what truly is the right amount?
Currently, our monthly expenses run about $3,200 a month. This is particularly light because we paid off our mortgage a few months ago; without that, the amount would be more like $4,500 a month.
Given that I currently have $30,000 stashed away for rainy days of all sorts, I have $30,000 / $3,200 = about 9 months worth of cash.
Each person will have a different number due to different circumstances. I am married, the sole breadwinner, with 4 children, in an area where I do not have close family near by. I've lived independently since I was 18, and don't have any one else to fall back upon financially if things go South.
Given this, I wonder if I have too little saved up. There's a part of me that is seriously considering an 18 month target of savings, not the least of which due to the fact that I'm not considered an "executive" (low level, to be sure) and it's harder to switch jobs and/or find work if I were to be displaced.
This doesn't even consider the fact that the A/C or one of the cars might conk out, thereby cutting into the $30,000 kitty.
What do you have saved up? Do you feel like it's the right amount, too much or (probably) too little? How do you decide what the right amount is?
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