Be American, Buy American!

Is there really a trade war?

When I was much younger, there was a period where I lived with my aunt Arleen and uncle John. This is a long story, but the short and simple version is that my mother couldn’t even take care of herself, let alone me. My uncle John was a retired union employee. A popular slogan used in advertising at the time was ‘Look for the Union Label’. This was meant to encourage consumers to buy not only domestic goods, but domestic goods produced in union shops which supposedly provided better conditions, benefits, and higher wages for employees.    

My uncle had a coffee mug which I really, really liked. The mug had pictured upon it The Great Seal of the United States (used to authenticate certain documents issued by the U.S. federal government), and the phrase ‘Be American, Buy American!’ But, in tiny print under the last word was printed ‘Made in Japan’.  It was a novelty mug meant as a gag, but I laughed so hard the first time I saw it, that it stuck with me all these years.

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Nowadays, cheaply made products come to the USA more from China than from Japan. We import goods nationally to provide alternatives to local varieties, or to give consumers an item not locally produced, for instance Australian  Vegemite  or its cousin British Marmite.  I like them both, but they are strictly foreign goods and sometimes hard to come by, as well as expensive.

Consumerism is driven by both supply and demand,  as well as wants and needs. I may want Vegemite, but I don’t need it. And if it’s in low supply and priced quite high, I’ll settle for the lower costing Marmite which is more readily available. In the case of similar products both in high supply, it comes down to preference. Bottom line, you can have anything you want in the world, as long as you are willing to pay the price.

Which brings us to such topics of importing, exporting, free-trade, and tariffs.

 Importing and exporting are easy enough to understand. We export or ship-out goods to foreign countries where there is demand for the good, and at the same time import exotic items like Vegemite and Marmite from overseas. It gets trickier when the items are ‘the same’ though.  I might be tempted to buy a foreign good over a domestic good if the foreign product is significantly cheaper.   If free trade exists between countries, a foreign country which can produce goods at a lower cost can flood the other country with its goods.   This is where tariffs or duties come into play. A tariff is a tax imposed on a foreign good. Tariffs are bad for consumers. They are mostly good for domestic companies, and the government.     Tariffs increase the cost of foreign goods and decreases consumption of the lower priced import. Let’s say the US decided to slap a $5 per jar import tax (tariff) on Marmite, raising the cost from $5.99 to $10.99. The one jar a year I currently buy would drop to ZERO. I REFUSE to pay that much for a mere 4.4 ounces of something I like, but don’t necessarily need.

Types of tariffs

There are five main types of tariffs, protective, prohibitive, specific, ad valorem, and revenue:

  • – Protective Tariff:  These push up the price of imported products as a protective measure against foreign competition.
  • – Prohibitive Tariff: the tax is so high that it makes an import far too (prohibitively) expensive.
  • – Ad Valorem – the tax applies to a percentage of the imported good’s value. For example, an ad valorem of 10% would mean that a product costing $100 would sell in the market of the importing country for $110.
  • – Specific Tariff: A tax is levied on the specific amount – which could be the good’s weight, number, or other measurement.
  • – Revenue Tariff:  Imposed solely to raise government income rather than to protect domestic producers.

In each of these cases, the consumer will pay more for the good, or discontinue its use all together and the only one really benefiting is ‘The Tax Man’. Taxation is theft! 

“Taxation is theft, purely and simply even though it is theft on a grand and colossal scale which no acknowledged criminals could hope to match. It is a compulsory seizure of the property of the State’s inhabitants, or subjects.” ― Murray N. Rothbard

 FREE TRADE

NAFTA, The North American Free Trade Agreement is the largest free trade agreement in the world. It was negotiated by three US presidents (Regan, Bush, and Clinton) before it was finalized and signed in  1993 by President Bill Clinton. NAFTA became law January 1, 1994.

This is great for consumers in North America because it keeps the costs of goods low. But with free trade, if a product can be produced cheaper in a foreign country, there is no need for local production.  This resulted in a loss of US jobs when companies like HERSHEY CHOCOLATE shifted production to Mexico where non-union labor was much cheaper.  (Unions, like tariffs can also kill local production, but that’s another topic altogether.)  If a company can import a product cheaper than they can produce it, and still turn a profit, they will shut down plants, slash jobs, and shift their business model from producing to simply shipping. Business is business. Here’s your pink-slip, nothing personal.  

So it falls back to the consumer to ‘vote with their wallet’ if they want to protect American jobs and products. If you like a band and want to see it flourish, buy it. If nobody buys the products a company produces, they will either change their products or cease operations. Successful business rarely shut-down overnight without some long-standing cause.  Many times there is an American made item that is comparable to the foreign produced good. Often the cost is same, but occasionally even  a little cheaper. Sometimes not.  Many domestically produced goods will sport an American flag and proudly proclaim made in the USA.

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I buy Pepsodent toothpaste, Pennsylvania Dutchman Mushrooms and often check the country of origin. If it’s made in the USA, I’ll buy it over a foreign brand. Even if it’s just assembled in the USA, it still means American jobs. If there’s no readily available domestic equivalent, I will only then purchase the foreign import.  For me, it’s patriotism and I have the means to support my spending habits.  I do understand that there are many cash-poor people in my country for whom every penny counts, and they MUST buy whatever is cheaper, but if you live in the USA and you are in a financial position where you can support the US economy by purchasing goods made in the USA, I encourage you to do so. The job you save may be that of a friend or relative. There are many companies online that sell US made products like  http://madeinusaforever.com/ for one.  

As for the manufacturers of Marmite and Vegemite, no worries mates. 

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As always, I wish you success and happiness!

What if you died today?

The importance of planning your estate.

“Live life like you’re gonna die, because you’re gonna.” – William Shartner  (from his song You’ll Have Time)

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Last week, I posted a blog entry asking if you’d outlive your retirement savings, if any. Ironically, this week’s post deals with the opposite situation. What if you suddenly died before retirement age?  Honestly, I never thought I’d be writing on this topic, but a couple of days ago, ‘C.Z.’ a long term co-worker and friend suddenly died. This is not the first time this has happened to me at my job. 4 years ago the same thing happened to another friend and co-worker, Harvey. I work in a very high-stress career which is not ideal for anyone, and in the years I have been employed there, I have had 4 co-workers die from fatal heath-attacks, all under the age of 60, and one, ‘Joe’ who committed suicide.

My father was another person in my life who died six weeks shy of his 58th birthday, never living long enough to retire.  He left no will, a small bank account, and my mother had to handle financial matters as best she could, which is why she eventually died penniless, depending upon me to pick up the pieces.

Retirement is the cherry on the ice cream sundae. It’s the boon at the end of a long career where you get to enjoy your twilight years. Reaching retirement age dead broke with a meager government SSA check is horrible. Never living long enough to retire is tragic. Long ago, I vowed to never live in poverty, and to take care of my health so that I lived long enough to actually retire, physically and financially fit.

Those we leave behind

Discussing dying and death is very hard, but death is a part of life. No buts about it, we are all going to die someday, and we need to have our affairs in order. Funerals are expensive. How do you determine the last wishes of the departed? Who gets their possessions, if any? There are all important questions which need to be addressed and it’s not fair to dump them in the lap of someone else, be they spouse, child, relation, or friend. 

When a person dies:

  • You should immediately contact any surviving family or friends. No one wants to find out from an obituary in the newspaper, or discover long after the fact that their loved one has passed. These are ‘hard’ calls to make. Trust me, I’ve been on both sides as the caller, and the called. As the informed, and as the clueless  person who discovered a death months after the fact. It’s not fun. It’s best to find out ASAP, especially if you have a desire to attend a memorial service and make peace with the situation. Life is for the living, so be mindful of those who will be left behind.
  • Contact their place of employment if they are still employed.
  • Contact their union rep if they are part of a union.
  • Contact any life insurance companies they may have had.
  • Contact their personal lawyer (if known).
  • Contact  Social Security.  SSA can pay a one-time payment of $255 to the surviving spouse if they were living with the deceased. If living apart and eligible for certain Social Security benefits on the deceased’s record, the surviving spouse may still be able to get this one-time payment. If there’s no surviving spouse, a child who’s eligible for benefits on the deceased’s record in the month of death can get this payment.  Certain family members may be eligible to receive monthly benefits, including: — A widow or widower age 60 or older (age 50 or older if disabled); — A widow or widower any age caring for the deceased’s child who is under age 16 or disabled; — An unmarried child of the deceased who is: o Younger than age 18 (or up to age 19 if they’re a full-time student in an elementary or secondary school); or o Age 18 or older with a disability that began before age 22; — A stepchild, grandchild, stepgrandchild, or adopted child under certain circumstances; — Parents, age 62 or older, who were dependent on the deceased for at least half of their support; and — A surviving divorced spouse, under certain circumstances.

It doesn’t matter if you are single or married, you need to prepare as much as possible for the executor of your estate including:

  • A designated executor for your estate.
  • A contact list containing phone numbers and address of people to be informed of your passing.
  •  A written will designating how your effects should be dispersed.
  • A list of insurance policies.
  •  Desires for funeral arrangements.  
  • Lists of assets such as bank accounts, stock accounts, IRAs, 401(k)s, deposit boxes, real estate, vehicles, businesses,  etc.
  • Computer social media platforms and relevant  passwords.* (Passwords and pin numbers should always be hidden, and secured when you are alive. You don’t want identity theft to occur and ruin your life.   Designate one person, but not more than two to know where these secured and hidden codes are in your home. This MUST be someone you trust with your life. )  

A company called Intentional Retirement sells an “If Something Happens to Me Kit”. It’s about $50, but contains everything you’d need to help you  set up your estate.

http://intentionalretirement.com/ishtm-kit

Also, consider pre-planning your own funeral. You can pre-fund and set up all the arrangements years in advance with most reputable funeral homes, sparing your loved ones the pressure, duress, and expense of making your final arrangements. Think about them, you’ll be in a better place, but do you want to cause them undue suffering while they are morning your loss?   When my mother died, I had literately hours to arrange her burial and needed to pay 1/3 of the bill in advance. It cost me over $10,000 for her funeral and took years to pay off the balance.  

Twenty years from now you will be more disappointed by the things you didn’t do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover.–

H. Jackson Brown, Jr

GOOD NEWS! If you’re reading this blog, you’re still alive! As I said discussing death and dying is not fun, but living is! So while you are still able, go out and enjoy life! Prepare for the inevitable to make your passing easier for those you leave behind, but above all remember that your life is YOUR LIFE. Only you can live it. You can be frugal with your finances while still enjoying all that life has to offer. The best things in life are free, and God is good, always! Celebrate your life by living it! As always I wish you happiness and success!

Will You Outlive Your Money?

Exactly how much money will you really need by retirement? The Million Dollar Answer!

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There are two inescapable facts of life: death, and taxes.

When I was a young boy, it seemed like the number of people who lived to the century mark was so small, the average person only heard about someone achieving about it in the news. If you were lucky you might reach the 80’s but living past that was extremely rare.  In most cases, you were going to die sometime in your late 60’s to mid 70’s, and that was that. No one lives forever. We may not like it, but we do have to accept it. None of us are making it out of this world alive.

No one in my family has ever reached 80 , although my aunt has outlived everyone in the family thus far, and will be 77 in November 2018. That’s eleven years longer than my mother, her oldest sister who died at 66, and two decades longer than my father who died at 57, less than 2 months shy of his 58th birthday.   

I’m no fool, no siree I want to live to be 103

Unlike my late father who never lived long enough to retire, I do NOT plan to work until the day I die. Accidents do happen, but failing that I’m in far better health than my late parents due to changes in diet and medical advances that keep extending life expectancy in the USA.

Growing up, one of the things I remember is Jiminy Cricket singing the song  I’m No Fool for a series of educational safety cartoons on the Mickey Mouse Club TV show. He sings the chorus four times, staring with “I’m no fool, no siree I want to live to be 23, I play safe for you and me ’cause I’m no fool!” The age changes as the song goes on, changing to 33, then 53, and ultimately, 103! I always remember thinking to myself that no one lives THAT long.   Now, I’m encountering many people in my day job who are well into their 80’s and 90’s and more and more people are closing in on that mythical 103 from that song. With advances in health science, medicine, and technology progressing at its current rate, I could possibly even live to be 123! Who knows?

That being said, will you have enough money saved for retirement to cover you and your spouse and bridge the span from your last day at the job to your last day on Earth? For most people in the USA, the answer seems to be no. A deafeningly loud, resounding, emphatic NO! According to a report from the Economic Policy Institute (EPI), the  average retirement savings of all working-age families, which the EPI defines as those between 32 and 61 years old, is $95,776. So that’s about less than 2 years salary for the average American worker.

A fool and his money are soon parted.

If you’re not saving for retirement in a combination of 401k type plans or IRAs, you’re a fool who’s depending on a government ‘safety  net’ which will not allow you enough money to live on comfortably, and probably won’t even exist several decades from now. This past Friday April 6th 2018, I got into an argument at work with a social justice warrior who basically said moving away from Social Security into the stock market was ‘madness’ because the Dow closed down almost 600 points and he was citing everything from the 1929 Stock Market Crash to a total economic hypothetical meltdown where the market hit ZERO and starving people are wandering the countryside to find blades of grass to eat.  There was no reaching the poor fool. Every explanation I offered was met with another wacko hypothetical theory. He even brought up concentration camps!  It is NOT my job to give history, economic, or civics lessons to people who have the sum total of human knowledge at their fingertips, yet prefer the mindless indoctrination that they have willingly subscribed too. All I can do is worry about myself and watch the tragedy unfold around me by all those fools living in a Utopian dream world.  

 I am the RICHEST man in my family. I attained my WEALTH not by theft, or deception. I EARNED MY MONEY. I did not inherit it, win it in a lottery, or receive it through a fictitious privilege. I worked for DECADES and invested 10% of my income from DAY ONE! No one held a gun to my head and forced me to do this, I did it. ME, MYSELF, I! Just as I took responsibility for MY choices, you must be accountable for your own decisions. Sitting around waiting for someday and spouting what-if scenarios are what fools do.

Social security is NOT the answer. Everyone in my family who depended on social security, (or still does as is the case of my last living aunt) has lived and ultimately died in poverty.  According to Social security, based on my current contributions at my full retirement age (67 years), my payment would be about $ 2,342 a month. If I wait until 70 I’ll get about $ 2,906 a month, but if I jump the gun and snag early retirement at age 62, it would ONLY be $ 1,641 a month. But here’s the real kicker: My estimated benefits are based on current law. Congress has made changes to the law in the past and can do so at any time. The law governing benefit amounts may change because, by 2034, the payroll taxes collected will be enough to pay only about 79 percent of scheduled benefits.  79% of $1,641 is about $1300 rounded up.  I’m certain my rent will be more than that in 2034. If I rely on social security I’ll be the starving man roaming the countryside eating grass.

The Millionaire at large.

The Millionaire Next Door is a 1996 book by Thomas J. Stanley and William D. Danko. It details the financial habits of wealth Americans. These are people who did their ‘homework’ and don’t have money troubles. Although it is over two decades old at this point, the basic wisdom has not changed. Live within your means, don’t spend all your income, don’t waste your money, and invest! Fascinating as the Millionaire next door may be, he or she does not interest me. I’m concerned with the Millionaire under my roof. The Millionaire at large, A.K.A.  Michael James Oetting. At current projections, my 401k type retirement account balance should exceed a million dollars by the time I retire. I plan to retire LONG BEFORE 62, so I’m not even considering Social Security. I’m also probably going to retire before 59½ the minimum age you can make withdrawals from a 401k or regular IRA without incurring a 10% early withdrawal penalty. Now with a million dollars, if I maintain an average annual interest rate of 5% or greater, while making withdrawals of 4% annually, that would come to $40,000 per year without diminishing the million dollar balance which would still be increasing at 1%. This could continue up until the year I turn 70½ at which point I would be required by law to take the RMD or face the 50% penalty imposed by the IRS  on what I fail to take. That’s because, upon reaching this age, the IRS requires you to withdraw at least a minimum amount each year from all your IRAs and retirement plans—except Roth IRAs—and pay ordinary income taxes on the taxable portion of your withdrawal. If you don’t take withdrawals, or you take less than you should, you’ll owe a 50% federal penalty tax on the difference between the amount you withdrew and the amount you should have withdrawn. And you’ll still have to withdraw the required amount and pay any income tax due on the taxable amount. IF you ‘forget’ to do this, you can extend it to the following April 1 of the year after your turn 70½ as a ONE TIME late disbursement, but you’ll have to take out double that year, and pay double taxes should you do that because you would have to account for both the prior (late) year and the current year RMD. Failing that if you STILL missed your RMD, the IRS can waive the 50% penalty for good cause. To have the 50% penalty waived by the IRS you must correct your error. You must take the RMD amount that was not taken and file the IRS Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. When you file this form, you do not have to prepay the penalty, but if the form is filed without payment of the 50% penalty and IRS determines that the penalty is owed, you could owe interest on the penalty payment. Form 5329 must be filed to start the statute of limitations clock. Attach a letter of explanation to Form 5329. The letter should include why the RMD was missed, the fact that it has now been taken, and that you have taken steps to be sure that future RMDs will be taken as required. This is also a onetime thing.  Do not make a habit of accidentally ‘forgetting’ either on purpose or by accident, because the IRS does not play games, and you will get financially burnt if you play with fire.

Just because you have to take the RMD doesn’t mean you have to spend it, you just can’t keep it in your retirement account. You can buy investment properties, put it in bonds or stocks in a brokerage account, donate it to charity for a tax-write-off, etc. Just don’t let the IRS take half of it away because you ‘forgot’. You can set up most plans to automatically issue the RMD and I would encourage you to also have them withhold the taxes on each disbursement so you don’t  end up owing the government taxes you don’t have the cash to cover. If you follow all these suggestions, your money should last as long as you do!    As always, I wish you happiness and success!

The yolk is on ewe!

More than colored eggs and chocolate bunnies, the economics of Easter.

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I find it very appropriate that in 2018, Easter falls on April 1st, which is National Atheists Day. The last time this occurred was 1956, and it won’t happen again until 2029. If you’re wondering why April 1st is National Atheists Day, The Bible makes this clear. “The fool hath said in his heart, There is no God. They are corrupt, they have done abominable works, there is none that doeth good” (Psalm 14:1). The Bible says that anyone who denies God is a fool! So Happy Easter and April Fool’s Day!

Easter is the third-largest celebration right after Christmas and Thanksgiving, especially in Christian countries – like the US. Although the origins of Easter are religious, and are supposed to celebrate the resurrection of Jesus Christ, it has become more commercialized and now seems to concentrate on the candy aspect. Although candy is dandy, and not to mention  a very big business, God is awesome! ALL THE TIME.

Easter: Good For Business

Easter spending is expected to total $18.2 billion this year, the second-highest level on record, according to the annual survey conducted for the National Retail Federation by Prosper Insights & Analytics. A total of 81 percent of Americans will celebrate the holiday and spend an average of $150 per person. Last year was slightly higher $18.4 billion in 2017, which is approximately $152 dollar a person. The NRF survey has been tracking consumer spending since 2003.

This money will be spent mainly on food and candy, but other categories include clothes, gifts, flowers, decorations, greeting cards, and travel.

In the USA popular candies include my three favorites: Reese’s Peanut Butter Eggs, Cadbury Creme Eggs, and the ubiquitous chocolate bunnies in various sizes and shapes. (I prefer a solid white chocolate bunny.) Jelly beans are still around but not as popular with the current generation. Marshmallow Peeps are another very popular candy, but I can’t eat them because they contain gelatin.  Plus all this sugar is really bad for my diet.

One Cadbury Creme Egg packs about 20 grams of sugar, and four pieces of the mini version has around 21 grams.

Sugar-coated marshmallows like Peeps, however, have 34 grams of sugar in the suggested serving size of five traditional chick-shaped candies. So perhaps it’s best that the aforementioned gelatin prevents me from eating Peeps.   

What candies or Easter foods are popular in your country? I’d love to read about them in the comments.

Easter Themed Seasonal Treats

As you may recall, I have been in the process of trying to start a coffee shop for some time now, with little success and a lot of lost funds. I haven’t given up, it’s still on the back burner while I regroup and try to rebuild my cafe investment egg. Seasonal holidays can present exciting opportunities for small business specializing in food and drink . Tailoring special menu items can generate new sales. Peanut Butter Mocha! Coconut Cream French Soda. Maybe a bunny shaped cookie, or one frosted like a Easter egg.  Maybe make a special chocolate peanut butter sandwich cookie. Be creative!

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Placement of impulse items on counter tops near the register can bring increased revenue. Chocolate covered coffee beans anyone?  Use your imagination! One cleaver local cafe owner had a basket filled with plastic eggs on the counter in an Easter Basket. Patrons were encouraged to ‘try their luck’ and choose a plastic egg which contained a coupon for either a free item or a discount. A wonderful idea! If you have a cafe or food business, I’d love to hear some of your Easter-themed seasonal items and suggestions! Happy Easter, and as always, I wish you happiness and success!    

Very Interesting…

Earn interest while keeping your emergency fund fluid.

As you work your way towards financial freedom, it is imperative to have liquid assets. The most liquid of all assets of course is always cash. Having stocks in a brokerage account is dandy, but the turnaround time to sell them can be days until the funds are transferred into your bank account.  This is no good if you have a situation arise which requires immediate funds.

Because life happens, having an emergency cash supply is essential.  The ideal emergency fund is to have two years worth  of living expenses stashed away. It sounds like an excessive amount, but believe me it is achievable. It just takes time to reach that level.

Two years worth of living expenses for most people is measured in tens of thousands of dollars. So for argument’s sake, let’s assume the amount we are discussing is between $25,000 and $50,000. Keeping that amount of money liquid can be a tricky matter, but you should not sacrifice the chance to earn interest on as much of your emergency fund as possible. There are ways of earning varying amounts of interest while still keeping your assets accessible.    

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The first and most important thing I recommend is always having $1000 physically on hand in your home. Keep it hidden of course, but have it! You’ll never earn interest on this smallest part of your emergency fund, but it is worth the small sacrifice to be able to reach out and touch your money if you need it in seconds.  It is better to have a $1000 in cash on hand you don’t need, than to need $1000 you don’t have.  Again, this is EMERGENCY MONEY, not fun money.  If it’s not a matter of life and death, DON’T TOUCH IT! DON’T EVEN LOOK AT IT!

Next, keep between $2000 and $5000 in your savings account. There are still some banks that will offer a minimal amount of interest with no fees. Often times credit unions will offer better interest than banks. Usually keeping $5000 in either a saving or money market account will earn you a higher interest rate for your cash. You can shop for the best interest rates offered at www.bankrate.com

Laddering CDs

Certificates of Deposit or CDs offer better interest rates but they tie up your funds until the maturity date. The longer the term, the higher the interest rate. Typically the terms run from as little as 3 months to as long as 5 years. To take advantage of the best interest rates while still keeping the cash fluid, I would recommend using a CD laddering strategy. Distribute your next $5000 to $10000  into a varying number of CDs each having different terms and end dates. You can create a ladder of CDs as long as you like with each CD being a rung. As each rung matures you can access it without penalty, or roll it over and wait for the next rung in the ladder to mature.

EX: Using $10,000, divvy it up into:  

  • 5 year CD $5000
  • 2 year CD $2000
  • 1 year CD $1000
  • 6 month CD $1000
  • 3 month $1000

With the CD ladder in this example, you will have a minimum of $1000 available to you every 3 months, and a minimum of $2000 every 6 months which you can cash in without penalty should you need it. Or let it roll over and continue to accrue interest.

Brokerage Account

Any part of your remaining cash assets beyond the above suggested $16,000 of allocated funds should be kept in a brokerage account such as MerrillEdge or TD Ameritrade to be used for the purchase of dividend stocks.  By investing in a diversified portfolio of various dividend paying stocks, you will be able to hedge your bets while maintaining a return on your investments. You’ll have to do your own homework on which stocks to buy, as past performance does not guarantee future earnings.

Experimental Investing

When you have two years worth of living expenses under your belt, you can afford to use any additional ‘mad money’ you may have for more risky financial ventures.  Some suggestions could include:

  • Collectibles / art
  • Real estate
  • Starting a business
  • Financing peer-to-peer loans through Prosper.com

 

Again, these are just suggestions and not recommendations. Ultimately you have to decide your financial future, but if you fail to plan for your future, you won’t have one.  As always I wish you happiness and success.  

Other People’s Money

Making reward cards, introductory rates and points work for you.

“A penny saved is a penny earned.” – attributed to Benjamin Franklin

I walk a lot outside during the day. It’s rare that a day goes by where I don’t find at least a penny on the ground. On average, I find about a dollar in coins a week, and I still stop to pick them up.  When I was younger, there used to be a joke circulating about Bill Gates, (who is still one of the three richest men in the world). It ran along the lines of this: “If you average out all the money Bill Gates makes in a single year, he  earns over $500 a second. If he was walking down the street and found a $100 bill lying on the ground, it would cost him money to stop and pick it up.”  The most amount of money I’ve ever found lying on the ground at one time was a loose $50 bill half-buried in the snow on Liberty Ave. That was a long time ago, and I was amazed and shocked at my good fortune, but also I felt a little bad for whomever had carelessly lost that much money.  

At a certain point, picking up discarded coins in the street becomes more trouble than it’s worth to some people, but I’m still of the mind-set that every penny saved adds up. To that end, I still use coupons and reward cards when I shop. These are great ways to save a few cents or even a few dollars each time you used them, and over the course of a year that can add up to hundreds of dollars.

The Store Loyalty Reward Card

Using a store loyalty reward card is easy enough, you just have to swipe or scan the card each time you shop. My local grocery store also sells gasoline (petro). At least 3 to 4 times a year, I accumulate enough points to earn a 100% discount on fuel. Gas in the USA isn’t as expensive as it is in other countries, but it’s still a fantastic savings in my book.  Just always make sure when collecting point to check if and when they expire, or you may lose them with noting to show.

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Reward Credit Cards

Some credit cards have a point reward system as well. These can be as simple as 1% cash back on all purchases, to a range of categories which each  have a special point rating. Reward credit cards ONLY work for people with perfect credit and who pay their entire balance in full each month.  The reason for this is twofold.

  • You usually only receive these special offers if you have good credit. The better your FICO score, the better the offers you receive from credit card companies.
  • Failing to pay the balance in full each month will cost you interest fees which will negate any savings earned by rewards.

I once read a post online where a woman was complaining about how her reward credit card was worthless because she was being charged all these fees each month for interest, exceeding her limit, and late fees. Usually the problem is not with the card, it’s user error indicative of a much greater personal problem. Never give a loaded gun to a baby, or a credit card to a fool.

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Special Rates or Introductory Offers

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Another offer reserved for those with stellar credit are cards that offer 0% interest, fees, and balance transfers. There are great during the introductory period, BUT you must exercise extreme caution with these cards. In essence, you are playing with other people’s money. The issuing bank is allowing you to ‘play with their money’ with no fees, in the hopes that you will ring up a huge balance and not be able to pay the balance in full at the end of the promotional offer. People who lack self-control fall victim to this all the time. Interest is calculated from the time of the purchase. If at the end of the promotional period, a balance is remaining, you will incur the full interest charge of the purchase, even if you have a relatively small portion remaining. For instance: Every October, I take my car in for its annual  maintenance inspection. I get all the little issues resolved, buy new tires, replace worn parts etc. Till it’s all said and done, the bill for keeping my car running another year can range from $500 to $2000. I usually pay with my Firestone Store Credit Card. It has a six months same-as-cash special promotion rate for all purchases over $299. Although the minimum monthly payment is about $20, you’ll never be able to pay the balance off in time if you only pay the minimum. The key to these cards is to divide the balance into five equal amounts, and pay that amount each month for 5 months. This allows you ONE extra month in case you need it.  In the image shown below, the six-month promotion ends April 5th. Even though I’ve paid almost the full balance except for a measly $200, if I fail to send the full balance in by the due date, I will incur $54.46 in retro-active interest fees! No thanks! I (almost) never pay interest.

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If you are able to take advantage of special offers like the ones I covered, enjoy yourself but always remember:

  • Pay your balances in full each month.
  • Pay your bill early.
  • Never skip a payment, or pay the bill late.
  • Never spend more money than you can afford to pay back.

As always, I wish you happiness and success!

A Snowball’s Chance!

Eliminating debt is just that simple!

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It never ceases to amaze me how people seem to just amass mountains of debt, and the ‘creative reasons’ they list for having done so. From the instant gratification of “gotta have it now!”, to keeping up with the Joneses,  or just the insidious swipe of the credit card to pay for our morning coffee on the way to work. Americans seem to have every excuse in the book for why they are in debt, and it’s always ‘not their fault’.  Now don’t get me wrong, emergencies do happen, and tragedies do occur, always at the worst possible time and in the most expensive manner.   Grabbing breakfast and a coffee on the way to work is NOT an emergency. A new bigger HDTV is NOT an emergency. A new outfit when you have a wardrobe bursting with unworn clothes is NOT an emergency. These are bad habits that you’ve fallen into and the credit card which has allowed you to charge up this mountain of debt was your responsibility.

NO NEW DEBT!  

When I found myself in $50,000 worth of debt in 2001, I thought I’d never crawl out of the hole I had dug myself into. It took years of hard work and discipline to become debt free, and I was ridiculed by several know-it-alls who could not comprehend why I just didn’t file for bankruptcy and make it ‘easy’ on myself. Often times, the ‘easy way’ is the wrong way. Bankruptcy is FOREVER.  And if you refuse to change your behavior, you’ll find yourself back in the same situation as before. I’ve witnessed friends making the same mistakes after filing bankruptcy. Because THEY refused to alter their behavior, their chances of ever becoming debt free are the same as a snowball’s chance in a blast furnace. The first step towards recovery is NO NEW DEBT!  You can’t spend one cent on ANYTHING that isn’t essential. Don’t even charge a stick of gum. NOTHING! If you lack the willpower to stop using your credit cards, you MUST cut them up. I remember as a boy watching an old TV show from the late 70’s called WHAT’S HAPPENING!! A character named ReRun (played by Fred Berry) gets his first credit card, and quickly gets into trouble. One credit card quickly turns to a dozen, and soon he needs to finance his credit cards with a loan. In quick order, everything he owns including the Monopoly game and even his red beret  gets repossessed.  In the penultimate scene of the episode, ReRun and friends sell EVERYTHING in the apartment except his food processor, which he fills with his credit cards to make ‘credit card coleslaw’.  

 

The Debt Snowball

The level of intelligence which created a problem is never sufficient to solve the problem, and that’s why there are walls of self-help books in bookstores. It’s so that you have the ability to consult someone wiser than yourself and find a solution to your problem.  For me, that wise counsel came from reading books by Dave Ramsey.  While in a discount remainder store, I found a thin book titled Pricele$$ marked down to $2.99. What drew me to the book was the cover depicting credit cards in a blender which reminded me of the What’s Happening!! episode.

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While reading his book Pricele$$, I first learned about his debt-destroying weapon, The Debt Snowball. It is the opposite of the more convention debt stacking, or debt avalanche payment method.   In the traditional debt stacking method, you pay the bill with the highest interest rate off first. You dump all your extra cash into this bill while maintaining the minimum payments on all other bills. Like an avalanche of money just wiping that debt off the face of the Earth. Dave Ramsey instead advocates the opposite approach, which he dubs ‘The Debt Snowball’. Picture a small snowball rolling downhill increasing in size and speed as it gains momentum.  With this method, you list all of your debts in order from smallest to largest regardless of interest rate, and their minimum monthly payment.  You then use every extra penny you have to pay off that smallest of your bills first. As soon as you wipe it out, you apply its minimum payment and add it to the minimum payment of the next bill on the list. You repeat this process until all debts are paid. This method worked for me, and it will work for anyone as long as you follow three simple rules.

  • No new debt. You can’t charge anything.
  • All ‘extra’ money from cutting non-essentials must be used for paying down the smallest debt.
  • You MUST keep making the minimum payments on all your bills.

The last one is a real no-brainer. You can’t stop paying one existing bill to finance another. I tell myself that no one could be this stupid, but just this week, a friend-of-a-friend had her car repossessed for non-payment because she needed the car money to save for a down payment on a new apartment. I can’t fathom how she convinced herself that this was a great idea.  Like I wrote last week, few (if any) of my friends take my financial advice seriously, often choosing their own disastrous schemes over wise council. Like the old saying goes, “a fool and his money are soon parted.” As always, I wish you happiness and success!