Holistic Personal Finance

I’ve been reading good posts today!

Jim at Blueprint for Financial Prosperity wrote a piece about the Opportunity Fund.  It’s a great idea and it made me think about living like a business.  Microsoft, Berkshire Hathaway, Google and Yahoo all have huge cash reserves.  Why?  Well they are all looking for the next big thing,  and when they see it, they want to jump on it, not borrow for it.

J.D. is talking about the changes that come over you as you shift from spender to saver.  I’ve noticed the same tendencies in myself (though D- would disagree) as we have paid off debt and worked closely on a budget.  There’s also a classic post about how to turn $500 in $7.

Lazy Man it talking about Peer to Peer lending.  I’m fascinated by the idea of borrowing and lending money circomventing banks.  I don’t know if it’s a great idea yet.  But it’s interesting to watch, and it may eventually become a viable industry.

Could good credit be a trap?  Yes it could.  Just because you have the credit to afford a house, doesn’t mean you can afford it.  Here’s a better explination Jonathon.

Completely unrelated to personal finance.

I went to give blood today.  They were doing a blood drive in my building and I thought I would do my part.

Sadly I couldn’t donate.   I was disqualified.  Not just once but for the rest of my life. I can never give blood in the USA.

Why you ask?

I spent more than a total of 3 months in Great Brittan between 1980 and 1996.   (which is true my family lived there for 5 months in 1987)

What is it about this time in England that makes it possible so that I can never ever donate blood?

Glad you asked.

Mad Cow Disease.

That’s right, I could be a mad cow.

There’s talk right now about a Gas Tax Holiday.  It seems that the current Presidential Candidates would like to cancel the $0.18 gas tax for the summer driving season giving a small break off the price of a gallon of gas for drivers.  Great idea, if it weren’t for that pesky thing called economics.

The reason gas prices are higher in the summer has to do with the fact that gas companies can’t raise supply while we all head out on vacation for the summer, so as demand rises so do the prices.  

If you were to create a gas tax free holiday, people would choose to drive as opposed to fly to grandma house, and demand would go up more than usual.  That would continue to put preasure on supply and prices would go up.  It wouldn’t take much of a swing to cover the 18 cents per gallon.  As a result:  We would be paying the same amount for gas, the federal government would loose $10 billion in revenue, and oil companies would make even more money off us.   Because of that, this get’s my nomination for Bad Idea of the year.

The organization that really has the power to drop gas prices might surprise you.   The Federal Reserve could trigger a change by not cutting interest rates anymore.   Or at least that’s what Fortune says.

Don’t break into your 401k.  

I wish that people would listen to that.  The number of people who are dipping into their nest egg for a loan, or to take out Cash is growing.  Do you know why?  Home equity is falling.  Banks are freezing or canceling HELOCs (Home Equity Line of Credit) because home loans are dropping.  So people, not smart people, are going the next accessible piece of money. 

Taking any more out of 401k is  IMHO Bad Idea #1.  Not only do you have to pay taxes on it as Ordinary Income (28%), you have to pay a 10% penalty.    So kiss 38% of your money good bye.    Even worse, there’s the opportunity cost.  While you lost 38%, you have to make back 61% just to break even.

There are some hardship exceptions where you can avoid the 10% penalty.   I’m not even going to talk about them because I don’t want anyone to be tempted.

Bad Idea #1, sub section a. Is to take a loan against your 401k.   You can only take the money out for a 5 year period, and if you leave your job, or loose your job, you have 90 days to repay it, or your forfeit the 401k, and then have to pay taxes and penalties.    It’s not as bad a financial decision as the above, but due to the risk, I would truly consider this the loan of last resort. 

You aren’t just giving up short term gains, you are sacrificing long term gains.  So before you crack your egg, think about your life living on Social Security only.  If that doesn’t scare you straight, I may not be able to help you. 

When I saw this, I couldn’t believe my eyes.

Three men I admire have turned around and done something that runs counter to all the advice that I have read in their books.

• Larry Winget-author of You’re Broke Because You Want to Be
• Ray Lucia - author of Buckets of Money
• Adam Smith - author of The Money Game

Let me be straight:  I have no problem with Hyundai’s cars. They may be great values.  They may be great deals.  This isn’t a car blog so frankly I don’t know.  And the ad campaign is a way to sell cars.  I’m fine with that.  Seeing through bogus advertising is what separates us from the animals.

But to have 3 pillars of the Personal Finance community helping buyers rationalize the purchase of a new car by saying they can invest the $2000 cash back in a Roth IRA…  It breaks my heart.  Take on $25,000 of debt so you can put $2000 in a savings account.  Sorry, you don’t have to be a CFP to realize that’s just stupid.

Buying a car is never, ever, an investment.  It depreciates rapidly and creates other expenses (gas, insurance).  It may be a necessity.  It may be a pleasure to drive. It may even be a reward to yourself.  There is nothing wrong with that.  We drive an Audi.  D- bought it after she had a great year at work,  good enough to pay cash.  But it’s never an investment.  At least be honest with yourself why you are buying a car.

These three sell outs financial writers just told you to buy an Item for $28,000.  One year later it will be worth $22,000.  All to get $2000 cash back.  What if a stock broker told you to buy a stock that pays 7% up front, then loses 20% in the first year, and 5% each year after that?  You would punch him in the mouth.  Or at least you should.

So Mr. Smith, Mr. Lucia, and Mr. Winget:  I hope the check was big.   Integrity shouldn’t come cheap.  Heck, maybe you even got a free car out of it.

Sincerely,

mr hubbard

What’s the big deal?  You can decide for yourself.

http://www.hyundaiusa.com/dollarsandsense/

The best way to get out of Debt is to never get into debt, but who are we kidding?  This is America, and 99% of us live beyond our means.  Just admit it.  If you have credit card debt, you are living beyond your means.

I’ve heard all the excuses: 0% interest… I needed… It was only available now… This way I get miles… The fact is carrying a balance on credit card at it’s best is bad. Don’t get me wrong I use my credit card all the time. I use it more than cash. I also have a careful budget, and we pay it off every month.

I can also confess: I have been a credit card abuser. I had calls from creditors, I had a card charged off. and I ruined my credit. It’s a period of my life I call my 20s. Thank god that’s over. Now I can look at you and say, I have been there, and being here is better.

No Nonsense credit card relief

There are 7 trillion ways to get rid of credit card debt.  The scary part, is most people can’t get past step 2.  All plans share a few key things, and the good plans are free.  I borrowed, and on occasion outright stole the idea from other.  Here’s my collection of the best ideas to get through the forest as taken from Rich Dad Poor Dad, Smart Money, etc.

Know thy self. Gather up every bill. And on a sheet of paper, or an excel spreadsheet, write down the balance, monthly payment, date due, 800 number and interest rate.

Purge. First cancel every automated payment on every credit card. Move them to your debit card. Then cut up all your cards. You heard me. Every last one. Wait! Get back here, don’t skip ahead! This is important! Possibly the most important thing.  Any charge on a card before you are all paid off constitutes failure.  Seriously.  If you could handle credit, you would be here.  I’m not trying to be mean, I’m trying to set you up for success.  This is your line in the sand. This is your “I’m mad as hell, and I’m not going to take it anymore!” moment. To dated? How about a “This is Sparta!” moment. And you need symbol of commitment to you debt free life, and yes symbols matter.

Then again, it may be to hard. You can quit now. It’s okay.  Just try to do it again in a year when you are another $20k in debt, it’s up to you.

Work the phone. Call every card. Ask them to drop the interest rate. Write down the new rate on the paper. Be persistent, make threats, make jokes. Tell them you are going to transfer thousands of dollars to the card with the lowest rate. Tell them all others will be closed. Don’t accept no for an answer, ask for a supervisor. Ask for a manager. Heck, ask for a CEO. This should be fun. This time you get to push around them. Revel in it! For more ideas click here. Now call back the lowest rates and ask them to increase you limit. Use the same tactics.

Move Mountains Now take a look at your paper. Start with the highest interest rate card. Move all or as much as possible to the lowest rate card, then go to the next highest, then the next, etc. Ideally you would have one card that’s got it all. If not, that’s okay. You may have two to four cards with balances.

Pay the Piper Now look at your spread sheet. Make the minimum payment on the lowest interest cards, on the due date each month, and pay as much as you can on the highest interest account twice a month. Let me show you why. You have a card at 15% interest with a $10,000 balance. At $500 once a month it would take you 23 months. If you paid $250 twice a month it would take 21 months. It may not seem like much but you just saved $1000 in interest.

When the highest interest rate is paid off, move to the next card, etc, etc. Till your debt free.

Say that again with me: DEBT FREE.

Final Step: Get your credit report. You will be amazed how many accounts you have on it. Cancel all but one of your cards. You only need one. Not one per store; One card. They will tell you it will hurt your credit.  They will tell you they can give you free stuff.  They will tell you anything to keep you from closing account and they are all lies.  Which card should you keep?  History matters, so it’s a good idea to keep the oldest card with the highest limits.  Points, miles, cash back?  That’s all up to you.

Roth IRA that is.

I’m very fond of the Roth IRA. With tax time upon us, I’m going to take a moment to sing it’s praises!

First the facts:  You can put $5000 ($6000 if you are over 50 years old) in a Roth IRA for 2007 before April 15th, if you AGI (Adjusted Gross Income) is less than $101k Filing Single, or $159k Married Filing Joint.

There is a phase out up to $116k Single, and $169k MFJ, so if you are within that range contact your accountant to find out how much you can pay.  It’s important to stay at or under the limit, because there’s a 6% penalty if you go over.  You can open a Roth at almost any financial institution.

But you have to hurry.  It must be put in by April 15, 2008 to be considered for 2007.

Super Charged Savings!

You get to put it into a mutual fund (I like a nice stable index fund like the Vanguard S&P 500: VFINK) so the interest rate will be far better than that 2% you get from your regular savings account. (VFINK 5 year average is 11.5%) And here’s the best part: Because you pay into your Roth with after tax money, you can withdraw your principal at any time without penalty.   Not the gain of course.  That is locked up till your 59 1/2.   DISCLAIMER: I do not encourage taking out this money because once it’s out you can’t put it back in, then you loose the benefits of compounding interest.  However, in an emergency, (like an auto accident, not a Bahama vacation) having access to this money could be very helpful.

So you get some liquidity, a better rate of return, and one more thing.

The Devil you Know

After tax money is from your net income.  For example the money you put into your 401k is Pre-tax money.  So, because you already payed tax on the money before it goes into the Roth IRA, when you take your money out (after age 59 1/2) it’s tax free.  Let me say that again  TAX FREE.

Compare that to your 401k. It’s tax deferred.  With tax deferred, you’re betting that your income will be less when you retire than when you are working, then you will be in a lower tax bracket, therefore you saved money on all the growth in the account.  It’s a great strategy,  and one I sing the praises of very highly.  But no one knows what taxes will be in the future, and if the deficit continues to grow,  you may be paying higher taxes on that money then what we pay right now.

That’s why my first child’s name will be Roth.

$5000 per year for 20 years @ 11.5%  = $389,152.75  Not to shabby.

But when you consider that I only paid taxes on $100,000.  And I get $289,152.75 tax free. . .

I think you get the picture.

I like things that make me feel smarter.

I’m not talking about things that make me look smarter, but things that push my beliefs, challenge my thoughts and make me think on a higher level.

It’s the reason I liked The West Wing so much. I felt smarter, I felt wittier, and it just put me in a good mood all day.  I miss you Aaron Sorkin!

I think it’s a concept like priming the pump. Our mind reacts to our environment so we find the things in our environment and push us into a higher level.

My current favorite show is Iconoclast.

I haven’t seen this one yet. But boy, I can’t wait.

Things I don’t understand:

1. Real estate agents who take photos of a house at night.

2. No matter how many times you use the word large, 1005 square feet isn’t.  Then to my utter surprise I find a house that proves it is.  We will call this house the Tardis.

3. Why would you put the sink in the island, and then put stools around it?  Is this so I can invite friends over to watch me wash dishes?

Islands should look like this:

Not like this:

4. Stressing the burglar alarm, and security doors doesn’t describe the neighborhood I would like to live in.

5.  The HGTV effect:  Thinking you can fix up and design a house with no training, knowledge, or taste.

Back to the home shopping!

“…is not worth living.” Socrates

I’m writing this with a sore throat and stuffed sinuses. Music is playing on my computer and it sounds like I’m in the bottom of an aquarium. I don’t feel positive. I don’t feel active. I don’t feel like taking charge of my life today. That makes it the perfect time to talk about the power of positive thinking.

This idea has been around for thousands of years. It’s not new. It’s not a secret. But it is possibly the most powerful thing you can do in your life to improve the direction of your life. All you have to do is think positively.

Wow, that’s easy.

Wrong: It’s a bitch.

And I’m not just saying that because of my post nasal drip. It’s very hard to life self aware. And it’s dangerous too. Once you become self aware you suddenly have to take responsibility for what happens in your life. That’s scary. It’s so much easier to have someone to blame.

In Budgeting we talked about removing illusions. Knowing the facts is always better than illusions: When we know the facts we can make changes and those changes matter. The same principal applies to the rest of our life. We must decide if we are the painter or the canvas; the sculptor or the stone.

“Take it like a man”

I got some great advice working as a line cook back in high school. I was in training, and when I didn’t get something right, I would tell the trainer why I made the mistake. She told me this, “Don’t give me an excuse for why it’s not right; just make it right.” I could have had the best reason/excuse in the world why something happened, but the customer didn’t care. They were hungry. It was better to just get the burger out.

When I look back at my life, my greatest successes have come because I took full responsibility for my failures. I fully believe people love people who take responsibly for their actions. Bosses, spouses, children, everyone. And it will get you that rarest commodity in this world: respect.

Play it forward

If you own the results of your life, don’t you also own the causes too?  We know that we have control of our actions, we can also project that forward and control of what we do with our day. We can become proactive with the world, and not reactive. Just think what that is like: You are the cause of all things in your life, you control your happiness and your success.

Here’s how quantum mechanics back you up:

I enjoy playing poker. And I have played a myriad of hands over the years. I’m far from a professional player, nor would I ever want to be one. But I have learned one thing: A bad player will tell you how the fates conspired against them, and the dumb play of their opponent was rewarded with good luck. The best players will tell you what they should have done differently in a hand they lost.

Being proactive in your life isn’t easy. There’s no one to blame for what happens in the end. But then at least it’s your life: you are not forced to simply endure what the world throws at you.

My head feel better. I’ve been drinking fluids. I’m eating an apple. I ate yogurt and granola this morning even though I wasn’t hungry. I can tell I’m getting better. Or maybe I’m making myself better. Then again, maybe there was a chicken, or maybe there was an egg.

On average, women live longer than men.  Some say it’s because they have two X chromosomes.  The theory goes they work as copy protects against the minor mutations.  That small protection adds up over generations.   And maybe that’s the best you can hope for:  On average, your life improves.  You’ll still get sick,  you’ll still pay stupid tax, you’ll still get cut off in traffic.  But at least you will have a good song on the radio, and you can sing along.

“Give me lucky Generals!” Napoleon once said.   People will call you lucky, people will call you blessed.  They can’t believe anyone could be that magical.  But we know we create our own luck.  And, on average, our life will be golden.

Full 30 minute show.