Tag: 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!

The Three Big No-No’s

Explaining the Inter-connectivity of Politics, Economics, and Religion.

AN EPIC OPINION/RANT

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“Freedom is never more than one generation away from extinction. We didn’t pass it to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same.”   – Ronald Reagan

It’s often been said that you’re never supposed to discuss politics, religion, or money (economics).  The problem is that these are three topics are very important, and share a high degree of inter-connectivity when we are discussing the USA. InstantCoffeeWisdom.com is MAINLY a financial blog, but it does sometimes touch briefly upon matters of religion and politics because  of the shared nature of the three topics.  With the ability of the populace to access the sum total of human knowledge via their internet-enabled smart phones, we have the largest forum ever created in which to voice our opinions and concerns. It amazes me that my weekly blog has been read by people in over 25 nations around the globe. My late father was a newspaper editor and had a weekly column for years  which never circulated outside of New York City. It is amazing how fast the world has changed in less than fifty years.

There has been a dumbing down of America and we can’t keep ignoring it because it’s not going away, it’s only getting worse. Due to the vast information overload, people who lack critical thinking skills are having difficulty distinguishing between fact and fiction.  The signal-to-noise ratio is off the scale and people can chose to listen to whatever viewpoint aligns with their personal ideology.   These uninformed  and indoctrinated citizenry are unable to critically evaluate and analyze everything they hear, choosing    instead to believe whatever fake news supports their fantasy world.

I am a Christian and a Republican and  I FULLY support my God Jesus Christ, My President Donald J. Trump, and the United States of America.

That being said, I’m going to attempt to explain how the three big no-no’s which you’re not supposed to discuss for fear of offending someone are connected. This is a very complex topic which could fill volumes, but I’ll try to keep it as short as possible. This is meant to inform, not offend.

“At the core of liberalism is the spoiled child – miserable, as all spoiled children are, unsatisfied, demanding, ill-disciplined, despotic and useless. Liberalism is a philosophy of sniveling brats.” – P.J. O’Rourke

More and more, young people on college campuses are self-identifying as libertarians, communists, anarchists, or any other fringe group attempting to overthrow the government. They stage protests, destroy property, and burn flags while condemning made-up issues like corporate greed and conservative bigotry. They demand that the president be impeached, the constitution changed or eliminated altogether,  and that the government must provide them with all these free services and non-existent ‘rights’ they claim to be entitled to.

On top of this, I can’t go a single day without hearing some brainwashed fool  comparing President Donald J. Trump to Adolf Hither. 

I for one, am sick of hearing about it. I’m tired of being called names by ignorant twits who couldn’t pass a civics test if their lives depended upon it. This is the greatest county on the face of the Earth. If you don’t like the USA, LEAVE! There are 194 other countries  in the world, pick one you like and move there.  And don’t come back, EVER!

Nothing beats capitalism for generating wealth

Communism and socialism do not allow the same freedoms granted by capitalism. Under Capitalism, individuals own and control land, capital, and production of industry. You can buy what you want, live where you want, work where you want. You have the maximum amount of choices possible in life and the freedom to act upon them. This is the ‘pursuit of happiness’ from the Declaration of Independence. Life, liberty and the pursuit of happiness are unalienable rights granted by our creator, God.  When God is the final authority, your rights cannot be revoked. In communist  or socialist countries rights are granted by the state, and can be revoked if the state decrees it.  Capitalism and Christianity function together best out of all the economic systems.  This is why the Founding Fathers chose it.

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Often you hear cries that you ‘can’t mix religion and politics’, that there’s ‘separation of church and state’.

Almost all of the Founding Fathers of the USA were Christians with very few exceptions. As such, their world view was greatly influenced by their Biblical beliefs. Revisionist historians and leftist ‘liberal’ teachers have obscured this fact in the modern classroom, greatly influencing the impressionable minds of young children who believe everything they’ve been told. As a result the majority of the next generation has been corrupted by the very teachers entrusted with their education. By and large, they have been rendered as the useful idiots of the left. Unquestioning revolutionaries fed by lies at every level of their cognitive development. Having been empowered by a steady diet of YA dystopian fiction throughout their teens, these millennial snowflakes react violently at worst, and at the very least hurl insults at any authority figure that attempts to point out the fallacy in their way of thinking. They often accuse conservatives of bigotry and hate, but if you wish to see a true display of hatred, disagree with a liberal! They are totally brainwashed and think everything great about America is bad.  Unfortunately, once a person has been so thoroughly brainwashed, it’s impossible to break through to them. Any attempts to un-brainwash them will only result in you being frustrated, and them having a dish-pan brain.      

The Fourth Center of Learning

Prior to the Twentieth Century, there were only Three Centers of Leaning.

  • Family
  • Church
  • School

Your world view was shaped by these three segments of life. These are the same three that shaped the world view of the Founding Fathers. Church and scripture reading were a larger segment of their lives, and influenced their way of thinking.

In the Twentieth Century, this changed. We developed an new Forth Center of Learning.

  • Media

Movies, radio, television, computers and the internet drastically changed the way we viewed the world. Suddenly people were introduced to idea and topics that prior generations never thought about.  When Clark Gable said ” Frankly My Dear, I Don’t Give a Damn” in 1939 in Gone with the Wind, it was shocking. Now we have all sorts of foul language throughout media that children are exposed to.  In December 1953 Hugh M. Hefner published Playboy Magazine, and you could buy porn at the newsstand. Today, it’s everywhere accessible via the internet, and even new TV shows and movies contain scene of gratuitous nudity and simulated sex.  Now we get the majority of our information through media. Let’s not even get started on all the violent content found throughout our modern entertainment.

At the same time Media was gaining a bigger part of our attention, the three tradition centers of learning were being  attacked. In schools, students were being taught what to think, not how to think. Christianity was being labeled as outdated, and the Bible filled with ‘errors’. No-fault divorce was added to our legal system and has lead to more broken families than any generation prior.  Now we have a generation that is learning about life from what’s taught to them by the media. They have no firm moral center. Instead they rely on ethics. Morals and ethics are very different things. Morals come from a religious source and are concrete, whereas ethics are drawn from societal norms and are situational and fluid. Morals define things as either right or wrong 100% of the time.  There is no grey area. Ethics change with the circumstance and individuals. What’s right for you may be wrong for me. If something is legal, it is not unethical. If it were unethical it would be illegal. If something is immoral, it is ALWAYS immoral whether it is legal or not. God wants what is best for us and outlines it in his Word, the Bible. It not only covers laws and acceptable social behavior, it also provides encouragement and has over 2000 passages relating to financial matters that are time proven.  

In the twenty-first century, only about 2% of Christians have ever read the Bible cover to cover. This lack of biblical knowledge has resulted in much of the immorality and financial poverty that plagues our society and threatens our nation. The common knowledge and common sense of our forebears has been lost due to illiteracy and apathy.  As a constitutional republic, we elect our representatives to vote legislation on our behalf. How can you elect moral leadership if you have no standard by which to measure the man?  How do you vote laws if you have no measure of accepted morals or justice? So today, we have a very different world-view than The Founding Fathers.  If you don’t believe religion belongs  in politics, you are sadly mistaken. God has been involved in the United States since its inception because the Founding Fathers had a Biblical world view.

One Nation Under God

  • The United States is the longest existing constitutional republic in history.
  • It is a Christian nation.
  • It has a capitalist economy.

Attempting to change just one of these three factors will diminish or even outright destroy the other two.

The “wall of separation between church and State” is a metaphor based on bad history, a metaphor which has proved useless as a guide to judging. It should be frankly and explicitly abandoned. Wallace v. Jaffree, 472 U.S. 38 (1985) – Supreme Court Chief Justice William Rehnquist

The phrase ‘separation of church and state’ does not appear ANYWHERE in the Constitution. Don’t believe me? Read it for yourself. I did. The 1st amendment guarantees the right of freedom of religion, and bars any laws from being enacted to restrict or prohibit it. The constitution is ‘almost’ impossible to change. The founding fathers designed it this way to protect it. In the wake of the recent school shooting there has been sharp criticism from the left to change, or even to revoke  the 2nd Amendment. If the constitution could be changed at whim, they could easily revoke the 1st amendment as  well and eliminate religious freedom, and free speech.

Our political structure and election system comes straight from the Bible.

21 But select capable men from all the people—men who fear God, trustworthy men who hate dishonest gain—and appoint them as officials over thousands, hundreds, fifties and tens. 22 Have them serve as judges for the people at all times, but have them bring every difficult case to you; the simple cases they can decide themselves. That will make your load lighter, because they will share it with you. Exodus 18:21-22

As a republic, we elect representatives to act on our behalf and based on the will of the people. If immoral self-serving con-men are elected, there is nothing to stop them from passing laws according to their own desires against the will of the people. This is the rationale behind the  “drain the swamp” movement. (Washington D.C. was originally swampland.) Also, since the members of the Supreme Court are picked by the president, the wrong person in the White House could pack the High Court with justices that ‘legislate from the bench’, dramatically reshaping the USA into their own vision.

The three branches of Government –Judicial, Legislative, Executive– are derived from Isaiah 33:22

22 For the Lord is our judge, the Lord is our lawgiver, the Lord is our king; he will save us. Isaiah 33:22 King James Version (KJV)

The Supreme Court comes from the Bible too. The ancient Jewish court system was called the Sanhedrin. The Great Sanhedrin was the supreme religious body in the Land of Israel during the time of the Holy Temple.

Our First President was a devout Christian

1-2-291-25-Prayer at Valley Forge LC

George Washington, the first president of the United States was a devout Christian who spent two hours each day reading the Bible and in prayer on his knees , one hour in the morning, and one in the evening.

When he was inaugurated as the first president, he placed his hand upon the Bible, when he took the oath to God, he bent over and kissed the Bible and then lead the entire congress to Saint Paul’s Church  for  a two hour service of worship and thanksgiving.  

Shortly thereafter the Congress of the U.S. asked Washington to declare a National Day of Thanksgiving.

Does this sound like the actions of people who wanted their newly created nation to be devoid of religion? No! The government was designed to work hand-in-hand with biblical principles for the glory of God.  

[New York, 3 October 1789] By the President of the United States of America, a Proclamation.

Whereas it is the duty of all Nations to acknowledge the providence of Almighty God, to obey his will, to be grateful for his benefits, and humbly to implore his protection and favor — and whereas both Houses of Congress have by their joint Committee requested me “to recommend to the People of the United States a day of public thanksgiving and prayer to be observed by acknowledging with grateful hearts the many signal favors of Almighty God especially by affording them an opportunity peaceably to establish a form of government for their safety and happiness.”

Now therefore I do recommend and assign Thursday the 26th day of November next to be devoted by the People of these States to the service of that great and glorious Being, who is the beneficent Author of all the good that was, that is, or that will be — That we may then all unite in rendering unto him our sincere and humble thanks — for his kind care and protection of the People of this Country previous to their becoming a Nation — for the signal and manifold mercies, and the favorable interpositions of his Providence which we experienced in the course and conclusion of the late war — for the great degree of tranquility, union, and plenty, which we have since enjoyed — for the peaceable and rational manner, in which we have been enabled to establish constitutions of government for our safety and happiness, and particularly the national One now lately instituted — for the civil and religious liberty with which we are blessed; and the means we have of acquiring and diffusing useful knowledge; and in general for all the great and various favors which he hath been pleased to confer upon us.

And also that we may then unite in most humbly offering our prayers and supplications to the great Lord and Ruler of Nations and beseech him to pardon our national and other transgressions — to enable us all, whether in public or private stations, to perform our several and relative duties properly and punctually — to render our national government a blessing to all the people, by constantly being a Government of wise, just, and constitutional laws, discreetly and faithfully executed and obeyed — to protect and guide all Sovereigns and Nations (especially such as have shewn kindness onto us) and to bless them with good government, peace, and concord — To promote the knowledge and practice of true religion and virtue, and the encrease of science among them and us — and generally to grant unto all Mankind such a degree of temporal prosperity as he alone knows to be best.

Given under my hand at the City of New-York the third day of October in the year of our Lord 1789.

Also in 1789, the first act of the newly created Supreme Court of the US was to have a FOUR HOUR communion service.

Furthermore, without exception:

  • The Inaugural address of every U.S.  president mentions God.
  • The Constitutions of all 50 states mention God.
  • The majority of the monuments and federal buildings in Washington D.C. contain scores of inscriptions and references to God.
  • The National motto In God We Trust is on all our money.
  • God is mentioned in our National Anthem and in our Pledge of Allegiance.         

“In this present crisis, government is not the solution to our problem, government IS the problem.”  — Ronald Reagan 

Purpose of U.S. Government

According to the Constitution’s preamble, the specific functions of the United States government are:

  1. ‘To form a more perfect Union’
  2. ‘To establish Justice’
  3. ‘To insure domestic Tranquility’
  4. ‘To provide for the common defense’
  5. ‘To promote the general Welfare’
  6. ‘To secure the Blessings of Liberty’

It is vitally important that Christians have a role and a voice in civil Government. We need to elect moral leaders who have a deep understanding of what the Bible says, and are willing to defend the Constitution.. In addition, they must have a firm understanding of business and the economy. Passing laws that hurt business and punish the wealthy are bad for the economy. Laissez–faire economics are a key part of free market capitalism. The government has no business interfering in the day-to-day operations of any business. The less the government is involved in the economy, the better off business will be – and by extension, society as a whole. 

Since Donald J. Trump was elected, he has been pushing through sweeping tax cuts and cutting bureaucratic red tape which is helping fix the economy.  I trust President Trump more than anyone else in Washington. Just because you don’t see everything going on behind the scenes, doesn’t mean it’s not happening. He is a capable leader that is slowly checking off items on the list of campaign promises he made which got him elected.  I am confident that he is going to do everything in his power to defend the Constitution and that he will Make America Great Again. A Christian man leading a Christian nation is definitely good for the county. When America blesses God, God will bless America. 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!

 

LA-LA-LA! I Can’t Hear You!

The real reason it’s lonely at the top.

I have never swindled a man. At most I kept quiet and let him swindle himself. This does no harm, as a fool cannot be protected from his folly. If you attempt to do so, you will not only arouse his animosity but also you will be attempting to deprive him of whatever benefit he is capable of deriving from experience. Never attempt to teach a pig to sing; it wastes your time and annoys the pig. – Robert Heinlein  (from his 1973 novel  “Time Enough for Love”)

As I’ve stated previously, I’ve been broke in the past, and grew up poor. The reason I have risen to the level I now find myself on is because I made a conscious  decision to change my circumstances and become rich. There’s one problem with success. You can pursue it for yourself, and you can try to encourage others to follow your example, but you can’t force them to do the right thing. Just as you yourself have arrived  at the decision to make a positive change in your life, they must make their own decisions.

If you go to any large bookstore, you’ll notice that there are thousands of self-help books on the shelves. I’ve read my fair share in my personal quest to become a better man. Many of these contain simple common sense solutions. The problem is that what used to be considered common sense has been discounted as outdated or erroneous. Common sense is not as common as it once was. One thing I have also noticed is that the most successful self-improvement books all reference the greatest self-help book ever written: The Bible. That’s because timeless wisdom is timeless. I make no secret of the fact that I am a Christian first, and a Republican second. I could not be the man I man today without Jesus Christ. 

For the time will come when people will not put up with sound doctrine. Instead, to suit their own desires, they will gather around them a great number of teachers to say what their itching ears want to hear.

2 Timothy 4:3 NIV Bible

The reason I started writing InstantCoffeeWisdom sprang from a growing concern that the knowledge I’ve accumulated which has so helped me, and which I’ve tried to impart on others was being largely ignored. The more successful you become, the fewer close personal friends you will end up with. Your social circles will change drastically. Some of the people you once considered indispensable members of your clique will suddenly start to drop away. Part of this is because they are not strong enough to continue the journey with you and leave to pursue their own interests. Some will leave due to disagreements, jealousy or resentment. It’s painful to lose friends, but it’s important to let the ones who wish to leave go. You can’t force people to love you, or respect you.  Either they will want to be with you, or they won’t. This is why it is of the utmost importance to always express  your views with respect and civility towards those who disagree. Never engaged in vituperation or name-calling.  Just as it takes time to become successful, it also takes time to build a reputation.

WorldWideBlog

Always give credit where credit is due.

No man is an island, entire of itself; every man is a piece of the continent, a part of the main. – John Donne

The knowledge I pass along  thought this weekly online blog is not my own. It has been distilled over time from reading countless others, many of whom also reference one another. Over the years I’ve read and studied many wise men, and I am where I am today because I stand on the shoulders of the giants who have come before me.  I encourage you to seek out and read books by:

  • Dave Ramsey
  • Napoleon Hill
  • Brian Tracy
  • Tony Robbins
  • John C. Maxwell
  • Richard Carlson

just to name a few.

Lastly before I wrap up this week’s edition of InstantCoffeeWisdom, I want to say that I am humbled that my blog has been read by people in over 20 countries around the world. My articles are mostly financial, but sometimes include a smaller political and religious component. This is because the three hot-button topics of Politics, Economics, and Religion are all interwoven and part of the same ‘island’. I hope that you have found my mostly financial blog to be helpful, informative, and entertaining.  If you have found it to be so, please consider sharing it with your friends on social media so that they too may benefit. As Always, I wish you happiness and success.

Millions and Billions and Trillions, oh my!

The economy and tax cuts simplified!

 

crushing_burden_debt

The media often decries that tax cuts for the rich are unfair, and that the wealthy are greedy individuals who don’t care about poor people and don’t pay their fair share in taxes. We saw a lot of this in recent years from the Occupy Wall Street group as they tried to demonize the top 1%. The sad fact is that the majority of individuals in the USA do not understand the economy, personal finance, taxes, investments, or the stock market in general.

These are three undeniable facts:

  • Wealthy people create the most jobs and pay the most taxes.  
  • Poor people are poor because they don’t yet understand how to become rich.
  • Investing in the stock market has resulted in the largest creation of wealth in human history.

“(It’s) the economy, stupid” – James Carville

Let’s start off by differentiating between the economy and the stock market. They are NOT the same thing.  February 5th 2018 saw the largest single drop in the history of the Dow Jones, 1175 points.  And the two week period from the end of January to mid February amounted to a market correction, which is to say, a 10 percent drop. You did not see 10% of the business in America hang a ‘closed forever’ sign on their doors, nor did you see them fire 10% of their employees, or find the shelves stocked with 10% less goods.  This is because the economy is just as strong today as it was before the market dropped. The economy involves the sum of all the goods and services produced in this country every day. The stock market is something very different and doesn’t have anything to do with the economy at all.  The market reflects speculations by investors on the potential values of various companies based on imagined future profits. Nothing is produced on Wall Street except wealth. When you buy a stock, you are actually really just loaning that company money in the hopes of a future return on your investment. The stock exchange just facilitates and records that transfer of funds. The influx of currency gives the company capital which it can use to expand and grow the goods and services it produces. Hopefully.  As the famous investing disclaimer goes “past performance does  not guarantee future earnings”. This is why tax cuts for business and the wealthy can cause the market to fluctuate.  The perceptions of investors change, and the market reflects that change.  

408chart

A median is the exact mid-point. In 2016 the real median household income was $59,039. That said, half of the households in the USA earned more, and half earned less.  The same can be said of tax payers. About 50% of the people in the country pay ZERO in federal taxes, while the wealthiest 1%  in the country account for a staggering  35% of all taxes collected. When you expand this group to the top 10% of wage earners, the taxes collected grows to 68%. Is it fair when a millionaire gets a larger tax cut? Absolutely! If taxes were ‘fair’ we’d all pay the exact same percentage regardless of our level of income.  

There’s no such thing as a free lunch!

On October 30th 2017, White House press secretary Sarah Huckabee Sanders kicked off a press briefing by reading an anecdote about reporters and a bar tab to try to explain who would benefit from the proposed Republican tax reform framework.  It was adapted from a piece that had been floating around the internet since the early 2000’s, Here is the original:

Suppose that every day, ten men go out for lunch and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.

The fifth would pay $1.

The sixth would pay $3.

The seventh would pay $7.

The eighth would pay $12.

The ninth would pay $18.

The tenth man (the richest) would pay $59.

So, that’s what they decided to do.

The ten men ate lunch in the restaurant every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball.

“Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily lunch by $20.00.”  So lunch for the ten men would now cost just $80.

The group still wanted to pay their bill the way we pay our taxes.  So the first four men were unaffected.  They would still eat for free.  But what about the other six men?  How could they divide the $20 windfall so that everyone would get his fair share?

They realized that $20 divided by six is $3.33.  But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to eat his lunch.

So the bar owner suggested that it would be fair to reduce each man’s bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

And so the fifth man, like the first four, now paid nothing (100% off).

The sixth now paid $2 instead of $3 (33% off).

The seventh now paid $5 instead of $7 (28% off).

The eighth now paid $9 instead of $12 (25% off).

The ninth now paid $14 instead of $18 (22% off).

The tenth now paid $49 instead of $59 (16% off).

Each of the six was better off than before.  And the first four continued to eat lunch for free.  But, once outside the bar, the men began to compare the amount they got off.

The sixth man said, “I only got $1 off out of the $20 while the tenth man got $10 off!”

“Yeah, that’s right,” exclaimed the fifth man.  “I only got $1 off, too.  It’s unfair that he got ten times more benefit than me!”

“That’s true!” shouted the seventh man.  “Why should he get $10 off, when I got only $2?  The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all.  This new tax system exploits the poor!”

The nine men surrounded the tenth and told him they were angry that he got so much off while they each got very little.

The next day the tenth man didn’t show up for lunch, so the nine sat down and had their lunches without him.  But when it came time to pay the bill, they discovered something important.  They didn’t have enough money amongst all of them for even half of the bill!

And that is how our tax system works. The people who already pay the highest taxes will naturally get the largest benefit from a tax reduction.  Also, all of the taxes collected annually do not cover all of the spending by the Government the short fall of which is covered by borrowing money from foreign countries. Each year this deficit and the interest on the foreign loans adds to the growing national debt.  You can see this debt growing in real time at usdebtclock.org .  Currently we have a national debt of $20,633,000,000,000. This amounts to $63,000 per citizen OR $170,000 per tax payer ! The government needs to shrink the national debt and the only way to do that is by the elimination of all non-essential spending. We need to have everyone pulling their own weight. We can’t have half the country working and paying taxes for the other half of the country to sit home and not work. Government welfare programs must end. We simply cannot keep spending more money than we take in. You can spend your way into the poor house, but you’ll never spend your way into prosperity.    

TheNumbersDontLie

Now when you’re earning less than $60,000 a year, a million dollars is a lot of money.  Even if you earned $250,000 a year, a million dollars is still a lot of money. But when we talk about the US economy, the budget, and tax cuts, were are discussing billions (a thousand-million) and trillions (a million-million) and these numbers are larger than the average person can comprehend.  Let’s ignore the smaller numbers and shoot for the moon by explaining  the size of a trillion.

A single one dollar bill measures 6.14 inches. If you laid a trillion of them end to end, it measures 96,906,656 miles. This would exceed the distance from the earth to the sun. Even if you just stacked them one on top of the other, the distance would be 67,866 miles. This would reach more than one fourth the way from the earth to the moon. Mind blowing huh?

One of my favorite examples of explaining the US budget, taxes, and those ‘HUGE’ multi-billion dollar budget cuts is to shrink the example down to a household budget. You remove the 8 zeroes. I’m using numbers from the recent 2018 US budget and the current national debt .  

  • United States Tax revenue : $3,654,000,000,000
  • Fed budget $4,094,000,000,000
  • New debt $440,000,000,000
  • National debt  $20,633,000,000,000
  • Recent budget cuts which some politicians are proud about  $ 54,000,000,000

Now, remove 8 zeroes and pretend it’s a household budget.

  • Annual income $36,540
  • Annual spending $40,940
  • New debt on the credit card $4,400
  • Outstanding credit card debt  $206,330
  • Recent budget cut $ 540

Now look at those ‘household budget’ figures.  Knowing that you were in debt about 564% of your annual income, would you continue to spend 112% of what you earn? Would you decrease that by less than 1.5% and call that an accomplishment? You’d have to be way beyond crazy to think that was a good idea. Hopefully you now understand why we need to end the welfare state and stop demonizing the rich. As always I wish you happiness and success! 

Are we BEAR yet?

Keeping your cool while others lose their minds over their investment losses.

Since 2009,  US investors have been enjoying the second longest running Bull market since WWII. But after closing once again at record highs on January 26th, 2018, the market started slipping into a correction. The two week period ending Friday February 9th 2018 saw a river of red on Wall Street. Historic losses occurred almost every other day, and the Dow closed down 1175.12 on Monday Feb 5th.  Less than a week later there was a second four-digit drop. In spite of all the excitement we are still ‘technically’ riding the Bull, despite the specter of the Bear periodically swiping at the markets and making the red ink spatter everywhere. So far it’s only a correction, and not yet a crash.  If you’re not sure of the difference:

  • A stock market correction is when the market falls 10 percent from its 52-week high.
  • A bear market occurs when the market falls 20 percent.
  • If the market falls 40 percent it’s considered a crash.  

So what makes the markets suddenly drop? The reasons are many, but usually it starts when large numbers of investors decide to ‘cash in their chips’ so to speak and lock in their gains. Perhaps companies didn’t make their earnings projections,  or investors are afraid that changes in legislation will affect profits. It does not matter but once enough people are selling instead of buying, stock prices start dropping. This spooks the second group of investors who now sell because the price is dropping, and they want to stop losses. This leads to a panic. Once a cascade sell-off effect begins, the only way to stop it is if enough potential investors decided to buy the dips, thus raising the price of stocks and ending the sell-off. Or possibly not. Prices of the shares may recover enough that a third group of investors decide that now they should sell and lock in the partial recovery of lost potential gains, starting a brand new sell-off. That’s why you start seeing these roller-coaster swings of market volatility.

 The key take away from all of this is that middle group of investors who sold out as the stocks plunged ended up losing their money.  It is impossible to time the market.  They were not in the market once it rebounded, which time has shown it will. The group who locked in at the market peak made money, and if they returned to buy the dips, they made even move money. When investing in stocks, you need to keep your head and make informed, intellectual trades. Emotional, panic sell-offs will hurt you financially.

Overtime, the stock market will continue to grow at an average return at about 12%. Crashes, corrections and Bear markets always lead to new Bull runs.  These market fluctuations are a normal part of the way the stock market grows and are not to be feared.  In September of 2017, stock guru Warren Buffet was widely quoted for stating that he believed that in one hundred years, the Dow would hit  one million points. When one of the eight richest men in the world tells you stock tips, you listen! Buffet didn’t get rich by luck. He recommends buying stocks when everyone else is liquidating their assets because you pick up bargains that given time, will more than likely rebound. He also recommends staying in the market and investing in passive, low fee index mutual funds and ETFs that track the markets. In many cases these index funds outperform the majority of actively managed mutual funds and offer a low-cost way for investors to track popular stock and bond market indexes while providing a diversified portfolio at the same time.

I’m getting too old for this excitement.

Although index funds and ETFs offer diversification they are still tied to the market. This is great news if you are young, because you can weather any storm clouds that the market may encounter. On the other hand, if you are nearing retirement and counting on your retirement nest egg being a certain amount, you don’t want to find yourself in a situation where you’re weeks away from punching the time clock for the final time only to have a sudden market crash wipe out 40% of your investments.  This is where a higher level of asset diversification towards less volatile investments will protect you.  Bond funds, precious metals and even real estate can provide a much more stable investment, just with comparably lower returns on investment. Only you can determine your individual retirement needs.

Two general rules of thumb based on age.

1) Take the number 100, and subtract your age. The remaining number is how much money you should invest in stocks.

2) Take the number 125, and subtract your age.  This number is the percentage of your investments which should be in higher risk stocks.

Some stocks are more volatile than others. This is reflected in a stocks beta number. The lower the number the more stable the stock. A beta number of 2.0 would fall twice as fast as the market, while a share with a beta of 0.5 would drop half as fast. Also you should research the 52 week highs and lows, as well as the P/E ratio and if the stock pays a dividend, how often it’s paid, and the what the ex-dividend date is. Bottom line, DO YOUR RESEARCH!  Financial matters are nothing to joke about. The wrong decisions early on will greatly impact you in your retirement years. 

Now I’m still south of 50, I’m unmarried,  I have no children, plus I’m debt free. In my individual circumstance, knowing what I know and being willing to accept the risks, I  tend to have ALL of my investments in higher risk assets. Thus far, it’s made me the richest man in my family, although it does get unnerving at times when you watch your portfolio take a big hit during a correction. In the past two weeks, my net worth decreased by more money than some people earn working a full time job for an entire year. It will come back given time, but a  financial loss like that would have killed my mother.

TheCrash

True story

My father, George Henry Lawrence Oetting Jr. was an intelligent business man. He went to St. John’s University, was a CPA, and was the editor of a local Queens newspaper. He understood how money and finances worked. That’s him in the photo above. I used to think that the screaming woman in the picture was my very melodramatic mother, but I’ve since learned it was a just a family friend. But I do remember that look. Everything was a tragedy for my mother when things didn’t go her way.  Now my father was a newspaper editor, so he was always on top of trends in business and investing opportunities.  He owned 50 shares of stock in a growing company called McDonald’s.  I’m sure that this is why my mother grew obsessed with the cheap burger brand. My father was great with finances. My mother? Not so much. That woman couldn’t handle money to save her life. If you gave her a dollar, she’d spend two! Anyway my father died suddenly when I was young, so he never saw the grand openings of the first NYC McDonald’s in Manhattan. My mother got re-married to her boss a year after my father died. About that time, the first McDonald’s in Queens opened at  13832 Jamaica Avenue, Jamaica, NY 11435. My mother still owned the stocks at the time, and she was there with my stepfather acting like she owned the place because she was a share-holder! I remember there was a guy dressed like Ronald McDonald and he was signing these stuffed Ronald dolls and my mother was buying them for all my cousins. She probably blew $100 that day on food and memorabilia which says a lot considering at the time the burgers were ONLY 30¢ each. Anyhow, a year after that, my step father also died. A year later, my mother was dead broke.  Between 1971 and 1975 she’d lost 2 husbands, 2 houses, the lifetime savings of two men, and those 50 shares of McDonald’s stock, which if I still had them today would be valued at three-to-five million dollars. A fool and their money are soon parted. My mother may have cost me a fortune because of her foolish spending habits, but at least I managed to inherit my father’s good looks and intelligence, and those pay their own unique dividends.  I’d like to believe he’d be impressed and proud of the man I grew up to be. As always I wish you  happiness and success!

A Wall Street Fairy Tale

Is the sky really falling?

chicken

Chicken Little lived in Storybook Land. He had a nice government job working for the King, Mr. T. Chicken Little wasn’t born rich, but he was smart and read a lot. He wanted to be rich someday like his cousin Goose Golden-Eggs. Money just seemed to drop out of Goose. She left a pile of wealth everywhere she sat. It didn’t seem fair that some people were  born rich and had more money than brains, but no one ever said life was fair. Chicken had feathered his nest with Index Funds from the Stock Market. He hoped to have a very nice nest egg when he retired. He always paid attention to what was happening with The Stock Market.

The Stock Market was co-owned  by Mr. Bull and Mr. Bear. No one had seen Mr. Bear in years, not since 2009. No one liked it when Mr. Bear ran the market, but thankfully he only did so about once every seven years, and he never ran it for very long. Mr. Bull did a much better job running the Stock Market and always managed to clean up the mess left by Mr. Bear. He even had a new friend keeping him company on Wall Street,  Fearless Girl who just showed up one day and has hung around with Mr. Bull ever since.

Now Chicken Little was always running home from work each day, because he always wanted to see what the Talking Heads on TV had to say. Everyone in Storybook land watched different Talking Heads. There were many of them and you could always find one you liked. The problem was that they all said something different, so you had to be really careful which ones you listened to. Some of them said some very bad and dumb things, and if you listened to them too much, you grew very sad and jaded, like The Old Witch.

The Old Witch liked to tell everyone how  smart she was because she was very old, and she watched the Talking Heads all day long, so she knew everything. As Chicken Little was passing her home, she waved him over.

“Hi Chicken, did  you hear what my favorite Talking Heads said today?”

“No Witch, I was busy working all day so I could have more money to feather my nest.”

“They said Mr. T the King is an idiot, his son is retarded, and he’s going to destroy the world.”

Chicken Little was aghast! He couldn’t believe anyone would say such terrible things, much less listen to them, so he decided to quickly change the subject.

“Say Witch, you’re old and know everything. What’s the best thing to do with your money? I leave ten percent of  my money in  The Stock Market with Mr. Bull and he takes great care of it.”

“The Stock Market?!” she yelled. “You’d have to be crazy to leave money in the Stock Market. Do you remember the big crash of 1929? Humpty Dumpty lost everything  in the Market and leapt to his death because he was so depressed. Only idiots put their money in the Stock Market. I hide all my extra cash in my mattress,  it’s safer than a bank, and I own a nice house, it’s made of Candy and Chocolate.”

Chicken Little didn’t own a house, he rented a nice apartment with a great view. He eyed her home skeptically. “Isn’t candy bad for you? I heard it makes you fat and gives you diabetes.”

 The Old Witch scowled and gave him an angry look.

“What do you know? You’re not as old as I am, and you’re not as smart. I watch the Talking Heads all day. Chocolate comes from cocoa, which is a bean.  Candy is made with sugar which come from sugarcane. So both come from plants and therefore they are both vegetables and vegetables are good for you. Now scat! I’m busy, my favorite TV show is about to start.”

Chicken Little walked away shaking his head. Next he came to the house of the Pigs.

Practical Pig owned a house made of Gold Bricks. He and his brother Fifer were in the yard gardening as Chicken walked past. He called to them.

“Hey Pigs! I was talking with the Old Witch about money, what do you do with yours?”

“All my money is invested in real estate and precious metals.” replied Practical Pig pointing at his house made of gold bricks. Fifer said nothing, he just smiled. 

Practical was older and smarter than his brother Fifer. Fifer lived with his brother and slept on his couch. Fifer  used to own a house made of sticks. It was built on a foundation of sand, and financed with a ‘Ninja’ loan. It was a variable rate mortgage which inflated quickly. Fifer eventually lost his house of sticks when the housing bubble bust, so now he had to live with his brother.

“Isn’t gold and real estate expensive?” asked Chicken.

“It can be, but everyone has to live somewhere, and gold had never been worthless so both are great investments.”  Practical replied.

Chicken alternated looks between Practical Pig and his homeless brother Fifer.

“Say Practical, do you ever hear from your other brother Fiddler?”

“Oh yeah. I spoke to him on the phone this morning. He just moved into a huge expensive mansion financed by BitCoin and Ethereum. It’s totally built out of Ones and Zeros. I worry about him, some day he’ll be sleeping on my couch too.”

Chicken waved goodbye at the brothers and hurried home to his maintenance-free apartment.

The first thing he did when he got home was to turn on the News to listen to what the Talking Heads were saying about the day’s business news. They were all screaming that the sky was falling because the market plunged nearly 666 points and that it was probably the end of the world.

Chicken Little was so shocked by the news that he passed out!

After he recovered from the shock, he reviewed the various news clips to see why the market fell.

Some of the Talking Heads blamed Mr. T the King  for constantly letting his pet blue birds The Tweets fly free,  and said that he didn’t play well with others. Some of the Talking Heads said the Market Fell because The Wicked Witch of the West was the rightful ruler of Storybook Land and the throne had been stolen from her. A few others blamed it on The Man in the Moon and yelled at the sky. A few blamed the Russians. A few said they had ‘no idea why, it was a mystery.’ A few said it fell because the market fluctuates and it’ll bounce back. Uncle Warren the Wise Wizard of Wall Street said he was going to buy lots of cheap stocks first thing in the morning.  Little Jack Horner  sat in the corner eating his pie. The Cheshire Cat smiled until he faded away,  leaving only his grin. Everyone seemed to react to the news differently.

In the end, Chicken Little checked that his nest was still intact, saw that his index stocks were still up for the year, and discovered that despite what some of the Talking Heads claimed, everything was going to be just fine. He decided to listen to Uncle Warren and pick up a few bargains at the Stock Market, and knew that one day, he too would grow up to be a Wizard of Wall Street.

The End

Fairy Tales were a traditional way to entertain young impressionable minds while at the same time conveying a moral lesson. Even Jesus Christ occasionally turned to parables when trying to covey complex ideas to the crowd. There are lots of individuals who have difficulty understanding  how the economy, the stock market, and even personal finances work.  Throw in politics and religion and people get real confused quite fast.

February 2nd, 2018 marked one of the largest drops of the Dow Jones Industrial Average  since 2009. The thousand point plunge from the prior week’s high probably scared the novice investor to death. It’s not as bad as some of the ‘experts’ are claiming. Investing in stocks still results in far greater returns on investment than real estate, precious metals, or even the dangerous new gimmick, crypto-currencies like BitCoin. I’d stay far away from that last one, when that bubble pops, it’s going to burst loud and hard!

The bottom line is that there are many factors which impact our day to day lives, and just as many pundits, cynics, and fools with opinions. Everyone has an opinion.  It can become quite the task to filter out the many voices and distill all the information to refine a pure source.  What do singers , athletes, and movie stars really know when they speak on a topic? For every one celebrity with an actual college degree, there are at least a hundred who barely even graduated  high school.  Check your sources, check your information, and review your facts before making a decision which could potentially ruin your future happiness. Just because everyone around you is telling you what you want to hear doesn’t mean it’s the truth. You just might be in an echo chamber surrounded by sycophants.   Tread carefully.  As always, I wish you happiness and success!    

WTF? (What’s the FICO?)

Understanding the 3 digit number that rules your finances.

The acronym  FICO stands for Fair Isaac Corporation.  FICO is a data analytics company which was founded in 1956 by Bill Fair and Earl Isaac.  Using data gleaned from your credit history, FICO generates a score between 300 and 850 which aids creditors in assessing your credit worthiness.  The higher your  score, the better the credit offers and terms you receive. Any number under 629 is a poor score. Fair to average ranges from 630 to 689. Good is between 690 and 719. Anything above a 720 is considered excellent. The scores reflect credit payment patterns over time with more emphasis on recent information. Scores automatically improve, as one’s overall credit picture gets better. That means showing a historical pattern of paying your bills on time and using credit conservatively.

In order to calculate a score, your credit report must contain recent enough info on which to base the number. The minimum amount of information needed is at least one account opened for at least six months or longer, and which has been reported to the credit bureau in the last six months. Adding to the confusion, there are three credit bureaus, Equifax, TransUnion, and Experian. The credit history reports from each of these companies may contain different information, and thus could result in three different FICO scores depending on the information contained within.   

Never assume each credit bureau has your identical credit history. They receive only the information supplied them by lenders, collection agencies, and court records. One bureau may have more up-to-date information than another because some lenders report credit information to the credit bureaus at different times,  resulting in discrepancies. The credit bureaus may record, display or store the same information in different ways. You should review your credit history at least once a year, and you are entitled to ONE free annual report from EACH of the three agencies. You can request a copy from AnnualCreditReport.com this is the ONLY real site to check, don’t be fooled by look-a-likes or fake phishing sites that want to steal your identity.  

Keep in mind the following:

Not all credit scores are “FICO” scores. Some credit agencies may use an internal scoring system of their own creation. FICO scores are ONLY generated by the FICO corporation. Over 90% of major creditors use FICO scores to determine your credit-worthiness.

Your FICO score will change over time.  Just because you had an 810 three months ago doesn’t mean it’s that today. This is caused by changes in your credit history report. Each time your  debt ratio on  your credit cards change, your score can change. A major purchase that brings your card close to its limit will drop your score until the balances snap back to somewhere near $0.00  and the new lower balance is reported.

Some creditors report your credit info very frequently to the credit bureau while others may only do so on a quarterly basis, and this can change your numbers as well.

ficocomposit

How is the FICO number determined?

You FICO score is based on the following:

35%- Payment History

30%- Outstanding Debt

15%- Total Credit History

10%- New Credit Requests

10%- Credit Type Diversity

If you want to raise your score, you need to pay your bills on time, every time, keep your balances low, and apply for new credit only when necessary. NO EXCEPTIONS, NO EXCUSES.  Late payments are reported to the credit agencies, as well as your total balances, and new credit requests. Adding negative information to your credit history will cause your FICO score to drop  like a rock! Any negative information will stay on your history for up to seven years. It is imperative that you do everything possible to avoid anything which will compromise your good credit.

Here are some suggested tips to follow:

DO:

  • Pay your bills on time! I can’t stress this enough .
  • IF you mess up and miss a payment, get current and stay current! The longer you pay your bills on time, the better your score. Every time you mess up, you sabotage everything you’ve accomplished to that point. SO DON’T MESS UP!  
  • If you are so deep in debt that you can’t make ends meet, contact your creditors and seek help from a legitimate credit counseling service. You need to get your debt under control before you can fix it. You can’t run or hide from your creditors. It will make things worse. Trust me. I speak from experience. Re-establish your credit history if you have had problems. It will take time, but it can be done. I did it, you can too!
  • Keep balances low on credit cards, (under 10%), and avoid carrying a balance.
  • Pay off debt rather than move it around.
  • Open new accounts only when needed.
  • Check your credit history once a year.

DON’T:

  • Close unused credit cards, it will lower your score.
  • Open new credit cards that you do not need. This could lower your score.

I know all of the above information can seem a bit daunting. If you’re overextended in your financial circumstances because ‘life happened’, I get it. It’s no fun having collection companies calling your home and harassing you because THEY want THEIR money.  I’ve had poor credit.  Now I have excellent credit.  I can tell you from experience that life is great when you have all your bills paid on time, are debt free, have cash in your wallet, money in the bank, and a FICO score over 750. It took time and persistence for me to accomplish this. It didn’t get fixed overnight, but it did get fixed because I stuck to the plan. I tell you this not to brag about my wealth and success, but to encourage you to follow my lead. I did it, and you can too. I believe in you. As always I wish you  happiness and success!

Will you be left out in the cold?

Security in your golden years is up to you!

” Go to the ant, you sluggard; consider its ways and be wise! It has no commander, no overseer or ruler,  yet it stores its provisions in summer and gathers its food at harvest..” Proverbs 6:6-8 NIV

Grasshopper

The Grasshopper and the Ant  is one of Aesop’s Fables and draws its origin from Proverbs 6:6-8 in the Bible. Aesop is thought to have been a Greek slave who lived about 600 B.C.  The fable describes how a hungry grasshopper begs for food from an ant when winter comes and is refused. The situation sums up moral lessons about the virtues of hard work and planning for the future.

Cradle to grave– A Ponzi Scheme

Charles Ponzi was an Italian swindler who ran a fraudulent investment  con operation where returns for older investors were funded through revenue paid by new investors. This is by and large how Social Security works.

 The Social Security Act was signed into law by President Roosevelt on August 14, 1935. In addition to several provisions for general welfare, the new Act created a social insurance program designed to pay retired workers age 65 or older a continuing income after retirement. The Social Security Administration will deny that it is a Ponzi scheme, even going into detail as to why it’s not a Ponzi scheme in one of its publications and again on its website. Social Security is part of a government attempt to provide ‘cradle to grave’ social welfare programs to provide for citizens of the USA. Relying on Social Security to support you in your old age is a terrible idea. It exists solely to provide funds for people too lazy to set aside funds for their retirement, and it will barely be able to cover basic needs. I have personally witnessed my mother and her sisters struggle and fail to make ends meet with Social Security. My mother would have been homeless without me bridging the shortfall left by her $450 a month SSA check the last five years of her life. My last living aunt is 76 and gets a meager $1060 per month.  She is constantly falling behind on the rent. She HAS been homeless, and will probably be again in the near future after alienating most of the family.   

“In this present crisis, government is not the solution to our problem; government is the problem.” – President Ronald Reagan

Your retirement is your business, not the governments!

The 401(k) provision was created in the 1978 Tax Revenue Act,  but went largely unnoticed for two years until Ted Benna, noticed that the tax clause in section 401, subsection (k), did not preclude pre-tax salary reduction when it stipulated that cash or deferred-bonus plans qualified for tax deferral.  It was a creative loophole that eventually led to rise of the 401(k) Plan as a major wealth-generating retirement tool.  Ronald Reagan had made personal saving through tax-deferred individual retirement accounts, or IRAs, a component of his campaign and presidency. (He went on to sign this new interpretation into tax law after he won the 1980 election. ) Payroll deductions for IRAs were allowed in 1981.

In February of 2005 Republican President George W. Bush outlined a major initiative to reform Social Security which included partial privatization of the system, personal Social Security accounts, and options to permit Americans to divert a portion of their Social Security tax (FICA) into secured investments.  In essence, he wanted to wean the populace off the teat of Social Security and move them into more financially lucrative personal IRAs. Democrats opposed the proposal and after gaining control of both houses following the 2006 Midterm elections, effectively killed the plan for the remainder of Bush’s term in office.  The Democrats created the failure that is Social Security, and they will fight to keep us under its yoke. The path to fiscal independence is paved with the gold bricks of IRAs and 401(k) plans. Countless fortunes have been made by investing in the stock market. No one have ever become wealthy by collecting monthly SSA checks.

IRA vs. 401(k): What’s the difference?  

Both 401(K) plans and IRAs (Individual Retirement Accounts) allow you to save money in the stock market through tax deferred contributions. Anyone with a job can contribute money to an IRA. You can only contribute money to a 401(k) or similar retirement plan if one is offered by your place of employment. In many cases employers will offer matching contributions. In other words: FREE MONEY. You should commit to contributing 10% of your salary to these plans as soon as you are eligible to enroll, and you should always be sure to contribute enough to  max out the employer match. Again, it’s FREE MONEY! There is no funding match for IRAs. As of January 2018, the maximum employee contribution for 401(k) and similar plans is $18,500. The max for an IRA is $5,500, but if you’re 50 or older you can add another $1000 to that as a catch-up fund.

 Retirement plans offered by employers include:

  • 401(k) plan – a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren’t paid until the money is withdrawn from the account.
  • 403(b) plan – also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers. The basic difference is that a 403b is used by nonprofit companies, religious groups, school districts, and governmental organizations. The law allows these organizations to be exempt from certain administrative processes that apply to 401k plans. In other words, administrative costs for a 403b are lower.
  • 457 plan –  a kind of defined contribution retirement plan available to state and local public employees, but can also be offered by certain nonprofit organizations. They work much the same way as 401(k) plans.
  • TSP Plan – Federal employees and members of the uniformed services participate in the Thrift Savings Plan (TSP), a retirement savings plan similar to 401(k) plans offered to private sector employees

Both IRAs and 401(k) plans may be available as ROTHs. Roth IRAs and now the new Roth 401(k)s are named for Delaware Senator William Roth and were established by the Taxpayer Relief Act of 1997. There is no pre-tax savings on these, they are funded by after- taxed income, but they grow tax free.  

IRAs give you the largest number of personal investment choices, they are quite similar to a brokerage fund. 401(k)s tend to limit your investment choices to up to as many as twenty different funds, which may be passive index funds, or actively managed funds which will have periodic fund maintenance fees associated with them which will eat away at your returns.   

EXAMPLE: My company TSP Plan offers 6 funds:

G Fund: Government Securities Investment Fund (no risk bonds)

F Fund: Fixed Income Index Investment Fund – is invested in a separate account that is managed to track the Bloomberg Barclays U.S. Aggregate Bond Index

C Fund: Common Stock Index Investment Fund – tracks the Standard &Poor’s 500 (S&P 500) Stock Index

S Fund: Small Cap Stock Index Investment Fund – a stock index fund that tracks the Dow Jones U.S. Completion Total Stock Market (TSM) Index.

I Fund: International Stock Index Investment Fund – a stock index fund that tracks the MSCI EAFE (Europe, Australasia, Far East) Index.

L Fund: Lifestyle Fund – diversifies participant accounts among the G, F, C, S, and I Funds using professionally determined investment mixes (allocations)that are tailored to different time horizons. The L Funds are rebalanced to their target allocations each business day. The investment mix of each fund adjusts quarterly to more conservative investments as the fund’s time horizon shortens.

The Bottom Line

I have been paying into Social Security since I got my first paycheck at my first job. It’s mandatory. You can’t opt out. I have been actively and intentionally contributing to my company TSP plan since I became eligible. It’s MY option to do so. No one is forcing me to do this. I can check the balances of both programs online. Needless to say, the mandatory government SSA plan which I am forced to pay into has far less in it than my personal TSP plan which I have been overseeing myself.  You will come out far ahead of the rest when you take a hands on approach to your money, and your retirement. A fool and his money are soon parted. Do you want to be wise, or is it your intention to be a fool? It’s your life, it’s your money, it’s your choice. As always I wish you  happiness and success!