Sorry, Not a Winner!

Don’t fall victim to ‘Get-Rich-Quick Schemes’.

Back when I was in college, I used to work late nights and weekends at a convenience store. You know the type, a small retail business that stocks a range of everyday items such as groceries, snack foods, coffee, soft drinks, tobacco products, newspapers, and magazines. I’d start at 10 pm and would usually be ending my shifts around 7am. Like most c-stores, we also sold lottery tickets, both the ‘instant win’ scratch-off tickets and the computerized state and national mega-million number games.  Time and again, I would see the same people on their way to and from their places of employment. These regular customers would stop by daily to grab a cup of coffee, a pack of cigs, and usually lottery tickets. This was an everyday occurrence.  Often, they would scratch off the instant lottery tickets at side of the counter while sipping their coffee, and if they won a free ticket, they would redeem it for another chance to win.  I can’t tell you how many of the same people day in and day out spend upwards of $5.00 a day on lottery tickets. It was worse when the mega-million jackpots started growing and lotto-fever hit these would-be millionaires. I never once in all the years I worked there, sold someone a million-dollar winning ticket.        

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The one dollar trap.

Part of the allure of lottery tickets is how inexpensive they are. For only a buck you could be a winner! After all, what could you possibly do with that measly dollar? Because of this, it’s very easy to get caught up in the lottery trap.  My mother, and all of my aunts spent tens of thousands of dollars over their lifetimes chasing the elusive ‘big win’. Not only did they play the lottery, they also played bingo, went to casinos, and gambled. My late grandmother was a book-maker, taking in illegal spots bets. One of my cousins lost $600 at a casino in a single evening last month. My last surviving aunt, who lives in near poverty,  frequently wastes her precious few dollars on lottery tickets, and betting on horse races.  Not a single member of my family ever became wealthy by gambling, and all died penniless.

But the Apostles cast lots in the Bible, so gambling is ok, right?

“The lot is cast into the lap, but its every decision is from the LORD,” (Prov. 16:33)

In the Bible, the casting of lots is mentioned several times.

  • The eleven apostles cast lots to determine who would replace Judas (Acts 1:26).
  • The Roman soldiers casting lots for Jesus’ garments (Matthew 27:35).    
  • God instructed the Israelites to cast lots on several times in the book of Numbers (Numbers 26:55; 33:54; 34:13; 36:2)  
  • The practice of casting lots occurs most often in connection with the division of the land under Joshua (Joshua chapters 14-21)
  • The sailors on Jonah’s ship (Jonah 1:7) also cast lots to determine who had brought God’s wrath upon their ship.

This is NOT the same as gambling. The casting of lots was the ancient equivalent of flipping a coin to make an arbitrary decision.  Another thing you may notice in all of the above references, is that there was no initial up-front investment by the participants to be included.  When you gamble, you have to wager a personal stake of some sort which becomes forfeit if the outcome is not in your favor. I’ve also heard people try to justify gambling by saying that bingo is played in Catholic churches, so it’s okay.  Actually there have been several times over the past seventy years when bingo was banned in churches, and even today it’s rare to see bingo played  outside of a bingo hall or at a private club. It’s not illegal, but that doesn’t make it ‘good’.  Anything which becomes an addiction is bad, and as God has given us free will, we have to decide for ourselves through studying his Word if we are becoming addicted to a particular bad habit.  

All things are lawful unto me, but all things are not expedient: all things are lawful for me, but I will not be brought under the power of any.   1 Corinthians 6:12 King James Version (KJV)

For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows.  1 Timothy 6:10 King James Version (KJV)

The easy way

Buying a lottery ticket is not against the law. On very rare occasions even I have been caught up in ‘lotto fever’ when the mega-million jackpot hits record highs, and I feel compelled to contribute to the office lotto pool because I don’t want to be the one guy that got left behind should my co-workers win and split the jackpot.  It’s not wrong to want to have a better life. But if you feel that there only way to improve your lot in life is by gambling, then there is something seriously wrong with your way of thinking. Let’s go back to the guys I mentioned who brought daily lottery tickets on their way to work back when I worked at the c-store.  Let’s say they spent $5 a day, five days a week on lottery tickets on average.  I sold some of these guys tickets for years, and they never hit any big jackpot. So let’s assume that instead of wasting $25 a week on lottery tickets, they just put that money in a jar every week for a year. At the end of the year they would have $1300.00.  Now let’s assume they did this every year for twenty five years, never toughing the money, just putting it in the jar, $25 a week, every week for twenty five years. They would have stashed away $32,500! Now suppose instead of just hiding the money away in a jar, they had placed in a brokerage account and invested it in a index fund tracking the S&P 500, (assuming about a 12% interest rate APR ) that investment would have grown to over $100,000!   

The easy way to became rich is not by gambling. The easy way to achieve wealth is to do it slowly over time, cutting all unnecessary expenses, and by making wise investments.  As always, I wish you happiness and success!  

 

Time is money!

The importance of proper time management.

Every second is precious.

With the two exceptions of the day you are born and the day you die, you and every person who has ever lived has the same amount of time allotted to them daily, twenty four hours. No more, no less. Yet despite having the same amount of time, some people are wealthy while others are poor. In some situations circumstances beyond your control may rob you of your economic opportunities, but how you spend your time is largely up to  you.  All successful people share two traits with regards to proper time management. They have learned to maximize their daily schedule to the height of efficiency, and they have a sense of urgency, never delaying for tomorrow what they can do today.

“Time is your most precious gift because you only have a set amount of it. You can make more money, but you can’t make more time. When you give someone your time, you are giving them a portion of your life that you’ll never get back. Your time is your life. That is why the greatest gift you can give someone is your time.” – Rick Warren

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The 40-40-40 Trap

Your greatest source of wealth comes from the income generated from your job.  When you retire, you usually have to depend on a combination of your savings (if any), a pension fund (rare or non-existent), your investments or contributions to a 401K plan (if any), and government social security (which may become insolvent by 2034 due to the National Debt crisis). For the average American, this is known as the 40-40-40 Trap. Because of procrastination or indifference during their youth, they never made the proper choices to ensure a worry-free retirement. As a result, they spend their entire working life employed at a job, working FORTY hours a week, for about FORTY years, then retire and discover they only have about FORTY percent of the cash they had while employed, to pay their monthly bills. You can always go back to work part-time to generate more income, but you can never replace the lost time. If a person fails to plan for their future, they have no future!

No time like the present!

If you have no 401k available at your job, it’s time to seek employment elsewhere. The longer you delay investing for the future, the less likely you actually will. Excuses do not pay the bills. Do not allow yourself to become trapped in a dead-end job. I have known many individuals who stay at a low-paying job for a couple of years, only to move on to another low-paying job. Every time I changed jobs with one, or two rare exceptions, I went on to a higher-paying job, with better benefits.  At my previous full-time job, I was about to become an assistant manager, when the opportunity opened up at my present career. My prior company really wanted me to stay, but they could not offer me a matching salary or benefits program. Leaving for greener pastures was in my best interest. Today, I earn far more than they pay their current managers.    

If you take a position that offers a set salary:

  • Do not work more than the hours required for that salaried position. Generally, there is little or no additional pay for the extra hours. You are wasting your time. Doing it once or twice in an emergency situation is one thing, but doing it all the time just makes you a fool.

If you take a job where you swipe or punch a time-clock:

  • Always work on the clock. If you aren’t logged in, you’re not getting paid. If you are scheduled to start and end at a pre-determined time, start and end at those times. Playing ‘The Time Clock Game’ where you clock in a wee bit early, and clock out a tad late each day to earn a few extra minutes of pay is not only a bad idea, it’s like stealing from the company and could cost you your job.
  • Always show up when you are scheduled to work.
  • If overtime is available at your job, it will generally be paid at your normal rate, plus half. Working overtime is an excellent way to generate extra income, while at the same time impressing your supervisor by your diligence. Diligent behavior is indicative of a work ethic and can open doors for advancement to a higher paying position.
  • Do not become dependent on the overtime income. Overtime is never a guarantee, and should always be considered extra money. Your base salary should be enough to cover your monthly spending needs and still allow you to save for your future.
  • Do not become obsessed by the overtime. The love of money is the root of all evil. I know many individuals who work sixty hours a week or more chasing every overtime-penny they can get.  I’m amazed at their end-of-the-year totals. When the work level reaches that point, it causes home and social problems. It’s one thing if you live alone, but if you have a family, family comes first! The time you spend with your loved ones can never be measured or replaced. It’s priceless. Don’t waste it. Nobody ever had an  epigraph on their tombstone expressing their desire to have spent more time at their job.

Take time to play!

A balanced schedule should always allow ‘breather room’, ‘personal time’ and still allow for work and play. If you over-schedule, you run the risk of causing a cascade of lateness and cancellations. It also causes stress as you race from one meeting or destination to your next scheduled appointment or location. Keeping a tight schedule can be done as long as everything goes according to plan, but if things start to unexpectedly go south, you may not have the wiggle-room needed to stick to the items on your list.

Always be productive

I try to get as much done on my day off as humanly possible. With my work schedule, I don’t have a lot of extra time during the work week. I find as many time saving tricks as I can to avoid wasting any down-time I may find myself with.  I’ve been working overtime this quarter, and I need all the sleep I can get to recover from the physical and mental stress of the added work load.  I always eat a PB&J sandwich for lunch. It’s filling without making me feel bloated or sluggish after lunch, and it satisfies my hunger. The beauty of the PB&J is that all of the ingredients freeze well. Now my peanut butter and jelly sandwiches are healthier because I use the best peanut butter, the best jelly, and use sprouted grain Ezekiel bread. So I Sundays I’ll make a half-dozen PB&J’s, bag each one in a ziploc bag and put them in the freezer.  In the morning packing my lunch takes seconds.   

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Another change I’ve made is having my dinners shipped to my home  from a meal-kit service. I use Hello Fresh. The meals are quick to cook, and it saves me time stopping for groceries or takeout food. Also, as the three meals they send are meant for two people, I only have to cook three nights a week, and just heat up the leftover portions the other three nights.

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When I run errands, I try to make a large circle of destinations to save travel time from point -to-point.

Keep life balanced!

When was the last time you spent time with your friends?  When was the last time you spoke to distant relations or acquaintances on the phone? No man is an island. We are all social beings interconnected by a network of friends and family. When a spider builds a web, it is building a net to catch food to keep itself alive. If one strand of the web brakes, it immediately repairs it. Neglecting to repair the broken strand can weaken the entire structure and cause it to collapse. As we get older and older, we need to strengthen our social network. No I’m not talking about Facebook or Twitter, I’m talking about real life. Go where the people are, out in the real world and spend time with the people you care about. As Always, I wish you happiness and success!

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!

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.

card savings

gas

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.

card savings3

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!