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Hip Hopper Ice Cube a Smart Saver August 20, 2006

I was browsing Men’s Health Magazine and saw an interview with rapper Ice Cube. One question asked was about his earnings:

Keep what you earn
“People love you today, but it’s off with your head tomorrow. I just keep it in perspective and never, ever buy into the lifestyle. I didn’t buy a house until I started selling records. Now I put my money into my business. Get what you need and a couple of things that you like. Everything else after that is just stuff.”

With that answer, he gained my respect. It’s refreshing to hear a celebrity in the hip hop world, where the more flashiness the better, saves up money before buying a home. With that thinking, I’m sure Ice Cube is financially free and can do what he wants rather than relying on his next hit song or movie.

US College Ranking and NYC-sized Income August 16, 2006

Each year, various publications rank the universities in the US. High schoolers and college students use these rankings to decide on where to go or how far up the ladder their current school stands in relation to other schools. The only value for these rankings for post graduates, like myself, is purely for the resume and to say that you went to a top 10 school or a ‘top tier’ school.

Many students for graduate education focus on jobs and potential income for selection to universities, but in this day and age, a bachelor’s degree is the baseline for a ‘decent’ career. An article in today’s NY Times states:

Today the United States ranks ninth among industrialized nations in higher-education attainment, in large measure because only 53 percent of students who enter college emerge with a bachelor’s degree, according to census data. And those who don’t finish pay an enormous price. For every $1 earned by a college graduate, someone leaving before obtaining a four-year degree earns only 67 cents.

I found the last sentence interesting. I guess being a professional in NYC attracts other professionals and college educated people, so I don’t normally think about people’s educational background. I assume everyone went to college. I went to a top 10 university (according to recent rankings in US News & World Report), but I rarely think that I am smarter than anyone else. In fact, there are so many smart people around me that I feel that I’m normal in terms of educational background. And I certainly don’t make close to Investment Banking or Attorney dollars.

In fact, in the very same day, the NY Times featured an article titled “New York Area Is a Magnet For Graduates“. According to the article, in 2005, in Manhattan, more than 57 percent of all residents had at least a bachelor’s degree, up from 50 percent in 2000. Of course this brings up the issue of lack of affordable housing, lack of people who are willing to work hard labor jobs, and the decline of artistic or creative types in NYC. Considering that average apartment is over $1.2 million, that brings up my previous question, how do these people have so much money? If I didn’t budget my money and wasn’t aware of all the personal finance topics that the PF community brings to me, I would not be able to live anywhere near NYC. The income gap between the rich and poor makes me nervous that NYC will not be affordable for anyone but the top 1% of earners in the US.

Sources:

Re- Re- Refinancing Home Loans to Keep Payments The Same July 24, 2006

I think I’m partially crazy for taking on a 30% debt-to-income ratio by buying a home in New York City. But if you read the NY Times article yesterday about people refinancing their mortgages before their adjustable-rate mortgages reset just to to keep their payments the same, I think it’s time to say that a lot of people are just delaying their debt drowning.

Millions of Americans have turned to adjustable-rate mortgages to afford a home as prices soared. But when you don’t plan for the ARM interest rates reset when interest is rising, it’s time to start living below your means. The artificially low teaser rates are attractive when you think you might not stay in your home for more than 5 years, but you never know what your financial circumstances or housing market will be like when your interest rate resets. People who are refinancing and re- refinancing are just building up their mortgage with closing costs and delaying a possible financial meltdown. We all would like to assume that we’ll be making more money in a few years or that we can build up enough of an emergency fund, but anyone who doesn’t have a trust fund can loose their income. I try to make myself useful at work, but we all know that employment is an at-will term, which means the company can fire me or I can quit at anytime. Even if you have your own company, business can slow down. I know I’m not indispensible, so I’m trying to build up my cushion. Don’t you get nervous when you read articles like this one and the person they interview says:

Still, borrowers like Mr. Perry say the loans make sense because in a few years they plan to move to another home, earn more or refinance again, often using the same assumptions they made when they took out their earlier loans.
…“I am not going to be here for 30 years. Why is it important to have a fixed mortgage?”

If home prices keep rising, maybe this won’t matter in 5 years, but what are the chances they keep going up like they have been in the past 5 years? (Looks like there’s about 50% of all loans in major California cities in 2006 are negative amortization mortgages. What will happen in 2010? Scary thought. Check it out in the article).

Source:
Re-Refinancing, and Putting Off Mortgage Pain, NY Times
Published: July 23, 2006

I Used to Be Drowning in Debt July 21, 2006

I used to be drowning in debt and paid hundreds and hundres of dollars (who knows, maybe a thousand?) a year on credit card interest rates. Until one day, it just dawned on me that unless I changed my lifestyle, I would not only be treading in debt but the credit cards would slowly pull me under, until one day, I’ll drown and not be able to come up to gasp for air. I’m not sure what it was, it was just a sudden decision to not spend anymore, not worry about what other people thought of me, not worry about labels on clothing. When you’re young (16-25), what matters to most is what other people think of you and being accepted…and I’m a pretty self confident guy. Now that I’m in my early 30s, I don’t think about how other people look on the surface, but who they are. I hate the idea of “keeping up with the Joneses” because that’s essentially what I was doing when I was young. I tried to keep up with the rich kids who had trust funds and bought expensive meals, went on weekend trips to Vegas, and had supposed high profile jobs.

I spend every extra dollar on credit card payments and it didn’t seem like I was making much progress. When I realized that I was paying down a $1000 on cc payments but just treading, it was time to change. Paying down $1000 and not spending anything got me back and after years and years of almost drowning, I finally was on dry land.

For many Americans who are drowning in debt who are trying to keep up with everyone else around you, stop thinking about how other people judge you. Because the you’re the most important judge of yourself, not the dude who has a BMW 650i with the 18″ rims or the 16 year old whose parents throw their child a $100,000 sweet 16 party who thinks you’re lame because you don’t wear True Religions or own the latest Botkier Bag.

You’d Think This Person Could’ve Lived Off of His Royalties Forever May 19, 2006

Imagine this scenario:

Assets:
A) $15million per year revenue from royalty fees ($300 million total royalty fees (from a $47.5 million purchase of asset (nice return!))
B) $20million per year revenue from business ($400 million total revenue)

Liabilities:
1) $300 million bank loan (to pay off spending sprees that includes upkeep for a California home) - $4.5million monthly payments

Expenses:
- Spend $9000 per night at hotels in Dubai
- $20million lawsuit settlement
- $8million annually on plane charters, artwork, hotel, and travel expenses.
- $4million on home upkeep
- had to sell a 50% stake in asset A for $100 million to pay debt burden.

“If you want to take a trip to London, that’s one thing. If you want to continue that trip and have your entourage of 15 or 20 people go with you, it gets expensive.”

He “became fixated on obtaining expensive possessions and feeding his ego by listening to the advice of hucksters and imposters.” If he read any of our personal finance blogs (or pfblogs.org), he might not be in this situation. But then again, who’d think he would be on the brink of bankrupcy? Who am I talking about? It’s…Michael Jackson. I feel bad for him, but do you think he could cut down on the hotel and travel bills? Maybe he could sell some real estate? He can save on phone bills too if he signed up for Vonage like I did. He can even call Europe unlimited minutes! Or he can cut down on charter flights to Europe and use Kayak.com to compare flights. Ha, I’m being facetious, but I’m sure there’s a lot of cash flowing out where he can save. Live below your means and you won’t have these problems! What else do you think Michael Jackson could’ve done to prevent his financial situation?

Source:
What Happened to the Fortune Michael Jackson Made?
By TIMOTHY L. O’BRIEN, NY Times
Published: May 14, 2006

US Addictions: Gasoline and Spending May 2, 2006

The USA is addicted. Addicted to gas and addicted to spending (i.e. not saving), and we are not making any sacrifices to fix these addictions. Last week’s story from the NY times on gas prices going up raised an eyebrow for me for one reason. So far, the $3 per gallon price has not persuaded many commuters to change their behavior. According to the article, there has been no increase in registration for a program that arranges carpools and vanpools for the county that includes Seattle and Bellevue. What are people are waiting for? At what price does gas have to be in order for people to start changing their habits? For all the anger and talk about “rediculous” gas prices and the fall of consumer oriented businesses, Americans aren’t sacrificing their bad habits.

This reminds me of Americans not sacrificing to save money for emergency funds thinking that there are other ways to get money, either by taking out more loans or tapping home equity to pay for emergencies. There’s no need to wait for hybrid cars to be more mainstream, for fuel cells or a new government fuel economy mandate when we can drive less, trade down to a more fuel efficient car, or carpool. We have the means to reduce our gasoline consumption NOW without expensive technology. We also have the means to adjust our standard of living without much sacrifice. When we realize that the World’s oil is tapped or our home equity is tapped, we won’t have the luxury of making more. Can we kick our bad habits??

Source:
As Gas Prices Go Up, Impact Trickles Down
By THE NEW YORK TIMES
Published: April 30, 2006

My Definition of the 10% Rule April 20, 2006

Books, financial advisers, personal finance blogs often suggests that earners save 10% of what they earn. Since the US national savings rate is in the negative territory now, in the consumerism society of the USA, how is it that everyone expects America to save 10%? I’ve always wondered about that 10% number. None of the publications I’ve read were that clear on whether that 10% is pre-tax or after-tax or is it 10% of your disposable income. I know it doesn’t really matter, because either way, saving something is better than spending more than you earn. But it can make a difference. For example, the difference between my pre-tax savings of 10% and after-tax savings of 10% is approximately $5000.

Does saving on your 401k retirement count towards your savings? I’ve always trained my mind that anything put into my 401k is just money never seen. I don’t count it towards savings, net worth, etc. So when I do get to see it someday, it’ll be found money. So in my book, when people say we should save at least 10% of our salary, I see it as 10% of my after-tax, discretionary money. I’ve been able to do that without any major lifestyle changes by changing small habits, and reducing my fixed costs. From a MSN Money article, the savings picture in the US is pretty bleak:

In 1981, families saved an average of 11% and owed 4% of their income on credit cards. By 2000, the average savings rate had already fallen below zero, and credit-card debt had gone up to 12% of income. Today, she says, “boomers have a bigger problem with debt than anyone else. Half of them do not have a retirement account.”

In the same article, I agree with the quote by Jeff Seely, CEO of ShareBuilder.com, “Do not let people borrow against their 401(k). This is your retirement money. Don’t touch it.” That’s partly why I don’t even count that as my savings, because I don’t intend to touch it until I retire.

Do you count your 10% savings after-tax? Does retirement count? Inquiring minds want to know.

Source:
Why can’t Americans save a dime?
MSN Money

Teens Have a Low Personal Finance IQ April 6, 2006

According to a nationwide survey released Wednesday, high school seniors answered correctly only 52.4 percent of questions about personal finance and economics.

  • Just 22.7 percent knew that income tax may be charged on the interest earned from a savings account at a bank if a person’s income is high enough. Nearly 51 percent said that earnings from savings account interest may not be taxed. In the last survey, 23.9 percent chose the correct answer.
  • Nearly 38 percent correctly said that retirement income paid by a company is called a pension. That’s up from 34.2 percent who answered right in the last survey. Still, close to 59 percent in the current survey thought it was called Social Security or a 401(k).
  • Only 28.6 percent knew that a bond issued by one of the 50 states is not protected by the federal government against loss. In the previous survey, 35.3 percent chose the right answer - that such bonds are not federally protected against loss.

There’s a clear gap between what students know about personal finance literacy and what they are taught in schools or at home. Personally, I think education starts at home and parent’s kids learn from the parent’s everyday living. Oprah mentioneds in her debt diet show that people need to live more consciously and know the reason for debt and the spirit of money rather than treading just above water to keep up with the Joneses. If parents aren’t keeping up with financial literacy, their kids certainly will not learn from them.
Source:
Survey: Teens Lack Financial Literacy
AP Story

List: 21 Ideas to Save Money March 19, 2006

  1. Pay yourself first.
  2. Save as much as you can when you are young.
  3. It’s okay to have money in the bank.
  4. Don’t borrow your own money and pay someone else the interest.
  5. The people that are impressed with what you have today, won’t be impressed when you live on the street during retirement.
  6. Don’t buy brand new cars.
  7. Coupons are a good thing.
  8. Saving $5.00 on a $100 item is exactly the same as saving $5 on a $6 item. It’s $5.
  9. Compound interest only works if you actually save money.
  10. Making money while you sleep is far better than making money while you are awake.
  11. We create the situations we are in.
  12. Set yourself up for success. No one will do it for you.
  13. Buy things that appreciate.
  14. Everyone can join a credit union.
  15. There are a ton of things in life that are FREE.
  16. Don’t wait until tomorrow to start saving. Tomorrow is always tomorrow.
  17. Never pay retail. NEVER.
  18. Where there’s a deal, there’s a better deal.
  19. Own your money, don’t let your money own you.
  20. Most of the people that you think have money, have debt.
  21. If you don’t ask, the guaranteed answer is no.

Nine Trillion Dollars? March 16, 2006

The Senate voted Thursday to allow the national debt to swell to nearly $9 trillion, preventing a first-ever default on U.S. Treasury notes.

How did the national debt become so large? Someone has to be taxed on that eventually. What will our future generation do?? Want to know how much $1,000,000,000,000 is? “To burn through $1 trillion in the average American life span of 77 years, you’d have to part with about $35,580,857 and change every day from birth.” Wonder how much tax they’d have to pay?

Source:
CNN - What would you do with a trillion?

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