Archives for August 2011

Financial Retard of the Month

Time for a new feature on Control Your Cash, where we’ve taking to scouring the internets to find personal finance bloggers we can hold up as examples of what not to do with your money. We’re thinking of doing this weekly, although we could probably feature a different retard every hour.

Our heroine (artist's conception)

Today’s honoree is Sallie’s Niece, who lives in New York state and is busy creating an anti-nest egg. (NOTE: We’re not providing links. She doesn’t need the traffic from a popular blog like ours. But you really should witness this foolishness firsthand.)

Her disclaimer (everyone has a disclaimer, except us) starts off with the funny:

I am in NO way qualified to answer any financial questions

You’ll find out why shortly. The “Sallie” in question is Sallie Mae, the money-losing boondoggle that enables people ostensibly on the cusp of adulthood to defer productivity for years if not decades. To hear the niece in question describe it, 



I’m a 30 (gasp!) year old professional woman struggling to pay off my student loans, live on a budget, and plan for the future.

Here at Control Your Cash, we’re old enough to remember when “professional” meant something. It meant that you were a doctor or an engineer, not that you simply had a job.

Guess how many student loans this financial drain took out? Remember, she’s an individual, not sextuplets.
SIX. Six freaking student loans. Including a law school loan that she managed to pay off. We’ll let you know the parade route once it’s scheduled. Rounded to the nearest thousand, her remaining loans total $40,000, $33,000, $21,000, $19,000 and $6,000. For a total of $118,000, a debt which no 30 (gasp!) year-old should incur unless she’s buying a house.

Still got some food remaining in your gullet? Here’s an emetic we can all enjoy. This woman works in some level of government and is, well, we’ll quote the original source:

Assuming I make the same salary for the next 6 years I will have contributed about $14,000 to my pension. Then I stop contributing but keep working for at least 10 more years. How much do I get?
Using a final average salary of $49,312, when I am 57 years old I will have 30 years of service credit. I will thus be eligible for a Single Life Allowance of $29,587 a year. That’s 60% of my final average salary. All for contributing just $14,000! This is totally morbid but even if I only collect for one year I am getting 2x my money back!

Why are state and municipal governments (to say nothing of the big one in Washington) drowning in debt? No idea whatsoever. Can’t quite place our finger on it.

Where would your priorities be if you were carrying $118,000 in student loans, while financing a laptop; carrying a credit card (you’re not going to believe this, but there’s credit card debt, too); borrowing money from a friend, a fiance-cum-husband and your mom; and aren’t even organized enough to pay your water bill on time? Don’t know about you, but we’d spend $7000 on a wedding!

You know, that change in your legal status that any justice of the peace can handle if you spend $40 on a license. But what’s the fun in that, when you can spend $6,960 more? You’d have to be crazy to apply that money to your student loan balances instead.

It’s the brazenness that gets us more than anything else. One of this woman’s stated goals is to increase her net worth to -$100,000 this year. She hopes to one day achieve the rarefied financial air of her husband (she calls him “DH”, for “dear husband”, and isn’t that precious?), who last clocked in at a robust -$15,000.

She uses terminology such as “fun money”, which we can only assume goes for pedicures and other non-assets. Listen: if you’re $100,000 in the hole, you don’t get “fun money”. You get debt reduction money, and maybe a buck or two to feed and clothe yourself with.

People often ask the CYC principals how we’ve managed to lead lives of relative affluence. Two answers. One, read the book. Two, by not doing the same idiotic, self-destructive crap that other people do. This doesn’t require anything beyond a 1st-grade comprehension of math. At its absolute most basic, income > expenses. Replace the > with a = or a <, and you can’t build wealth. Even if you’re sucking at the public teat like our friend Sallie’s Niece.

Here’s our favorite line from her archives, from April:

(The husband and I) recently combined finances.

Oh, this is going to end spectacularly. If you’ve never heard Mark Steyn’s line about dog feces and ice cream (or in this case, dog feces and slightly less pungent dog feces), Google it.

It gets even better. She donates to the Corporation for Public Broadcasting, completely unaware that she’s the charity case. What’s the best way to help poor people? Not adding to their ranks. This isn’t a case of there always being someone less fortunate than you. This is a case of needing to get your own house in order before vacuuming the neighbors’ carpets.

(NOTE: We’d originally used American Cancer Society as our example in the preceding paragraph, but a couple of clicks later we found she’s also donating to the starving unfortunates who run taxpayer-sponsored television that nobody watches. In her words, “I can’t imagine a world without PBS.”)

$200 concert tickets. Trips to Mexico. A “fabulously unfrugal (sic) Hawaiian honeymoon.” She used boldface 24-point type with exclamation points to announce when her consumer debt got down to $122,000. And there’s also:

The base price of my (wedding) dress is $1100, plus planned alterations of $150 and taxes of $104, the total comes out to be $1354.

It never stops. You know what? Forget about the two-pronged advice we just gave about how to build wealth. Instead, simply do the exact opposite of everything Sallie’s Niece does and you’ll be swimming in it.

Make sure you read the congratulatory comments, too. If there’s one thing we Americans do better than anyone else, it’s celebrate non-achievement. Like the morbidly obese woman who shrinks from 800 pounds down to 780, and whose case worker commemorates the meaninglessness by passing out hugs and Pixy Stix. Instead of celebrating the woman who’s always weighed 120 pounds and who goes to the gym every day and eats healthily to maintain that weight.

Oh, and sure enough, Sallie’s Niece is fat. It stands to reason: if you’re grossly undisciplined in one aspect of your life, you’ll be grossly undisciplined in most of them. We couldn’t locate any pictures of her, but people who aren’t fat don’t join Weight Watchers. (Nor do they join a gym as a New Year’s resolution, the surest sign that those pounds are not only staying on but inviting some friends to join them.)

Also, it’s a cleft palate, not a “cleft palette”. (Worst art supply ever.) Look, it’s one thing to make worse financial decisions than a Holstein cow would make. What we don’t understand is why she considers her stunning lack of acumen to be something worth sharing with the world.

And she smokes. Of course. And she “could use a Halloween costume.” (Again, 30 [gasp!] years old.)

Damn. The Chinese can’t invade our shores us fast enough.

**This article is featured in the Carnival of Personal Finance #324: The Universe Edition**

Control Everything But Your Cash

We're running out of metaphors

There’s an argument for being contrarian, and a solid one. A true contrarian would have emerged from the recent housing crisis not only unscathed, but rich. In its simplest incarnation, contrarianism means exactly what it sounds like: buy when everyone else is selling, and vice versa.

The reason this doesn’t work when you follow it to the letter is that it means you would have sold Google stock when the rest of the world was pushing it up from $100 to $579; and you would have bought GM stock when everyone else was jumping off, anywhere from $72 down to its eventual delisting. Over the course of the stock market’s history, you would have lost money.

A popular hypothesis is that of the “permanent bull market”, which states that any downturn in the market, however long, is but temporary. Accounting for inflation, the Dow is well ahead of where it was when it started and it always will be over any given period if you just wait long enough. Therefore, just wait long enough.

The problem is that humans have life expectancies on the order of only a few boom-and-bust cycles. Generalities don’t really help when formulating an investment strategy. Yes, you can figure out which stocks to buy by analyzing fundamentals – in fact, we recommend it because we can get you started for a mere $3.50 – but even that implies that there’s a future worth investing in.

Not to go completely nihilistic on you, but ask yourself the following questions. Seriously. Don’t just read them, think about the answers.

  1. Is there a particular number the Dow could rise to that would give you confidence in the American economy?
  2. If so, what’s that number?
  3. When do you realistically think we’ll get there?
  4. (And did you factor in inflation?)

I recently asked the president of a publicly traded foreign company this very set of questions. Conducted orally, so he couldn’t see which one was coming next. Here were his answers:

  1. Yes
  2. 13,000
  3. (hesitating) 2013? Maybe 2014.
  4. (more hesitation)

Crossing your fingers and trying to convince yourself that things can only get better is better than being pessimistic, it would seem, but eventually you have to start quantifying things and weighing your situation against inflexible time horizons. Us each getting a year older every 12 months is the only constant. What the economy does is, of course, variable.

The following are not opinions:

America’s credit rating now at its lowest level ever, on par with Belgium’s.

If the Greek or Irish economy tanks, the damage can be somewhat contained. Not so for the country with by far the world’s largest GDP.

With a few notable exceptions, no member of either party in the United States government’s legislative or executive branches is remotely serious about reducing its size (and therefore reducing the size of its current and future obligations.)

Those same government functionaries have all but stated that their goal is to eliminate risk, which is a functional impossibility. Of course, the buzzwords they use are far more benign (“keep Americans in their homes”, “make the rich pay their fair share”, “put America back to work” et al.)

People are at least finally learning how to save.
(Ha! Just kidding. It’s true that that’s not an opinion, but it is a falsehood. People are borrowing more than they have in years.)

——–

The consensus opinion among the populace seems to be to wait and see. But an enterprising contrarian can’t decide to simply do the opposite of nothing.

At Control Your Cash we try to keep away from giving specific investment advice. Not because we’re not professionals, but because our M.O. has always been to teach people to fish. That being said, it’s time to champion hard assets.

Real estate is finite. With a growing population, it would seem that real estate’s value will always increase in the broadest of terms. (People need to live and conduct business somewhere.) Gold and other precious metals are finite, at least until alchemy makes a comeback.

“But technically, everything is finite”, you argue. Which would be true if we’re restricting our discussion to the tangible. But there is literally no limit to the money a worrisome government can create. If you don’t believe that, or think it’s an overreaction, go ask a Zimbabwean. Or a Weimar-era German, if there are any left.

Inflation isn’t just a devaluing of the currency. It’s a way to punish the poor at the expense of the rich (because rich people, almost by definition, keep a smaller ratio of their wealth in cash than poor people do. Rich folks can buy assets and hold onto them. Those whose wealth consists primarily of cash aren’t just too tempted to spend it, they’re too subject to the machinations of a market that conducts business in weakening dollars.)

Sooner or later, a government with overwhelming obligations and too many creditors will have no choice but to employ the nuclear option: if you owe lots of dollars, it makes sense to make each dollar you owe worth less. If you can do it, that is. You can’t. Governments can. And shortly, will.

**This article is featured in the Yakezie Carnival-September 11th, 10th Anniversary Edition**

Carnival of Wealth #Who’s Counting?

Outtake from the Carnival of Electric Daisies. Which we hopefully have NO overlap with

Where do 168 hours go, anyway? Presenting yet another version of the Carnival of Wealth, the weekly extravaganza of personal finance articles culled and prepared for broadcast by your hosts here at Control Your Cash. If you want to submit your own brainchildren, do so here. There’s a list of guidelines on that page, but we’re adding one more here: be entertaining or informative. Or go in the other direction and be abysmally horrible, in which case we’ll run your post as a warning to others. Either way, get it in by midnight Saturday. You ready? Let’s get started:

(One more thing: this is the last week we’re going to pretend not to notice when people send multiple entries. From now on, when we see a second submission from the same blog we’re deleting it and the first.)

Still putting your money in a savings account because you’re intimidated by that curious new development called a money market account? Don’t be. John Kiernan at Wallet Blog explains the difference and how if you’re invested in the former, you’re leaving cash on the table.

Despite its government’s best efforts to get businesses to flee, California remains the nation’s most populous state. For our Californian readers who enjoy paying confiscatory taxes and being told what light bulbs they can use (and that soon, their votes won’t even count), here’s a post from Manny Davis at Back Taxes Help about the Golden State’s tax amnesty program. Just move to Nevada already. Easy incorporation and no state income tax.

Emily Guy Birken writes about Lending Club at Deliver Away Debt, showing how borrowers and lenders can eliminate the intermediary and conduct business with each other directly.

It takes an awfully optimistic parent to think that college costs are going to decrease over the next 18 years. For the rest of you, PT Money gives an expository Q&A on the benefits of 529 plans.

Miranda Marquit guest blogs at Free From Broke this week in her best post yet. If you think the IRS is going to take “I didn’t know my husband was laundering money” as an excuse…well, they might. But here’s what you need to know before using that defense.

Eric Nisall at DollarVersity (I think we know him well enough not to use the identifying middle initial anymore, just like Yngwie J. Malmsteen) thinks if you’re paying any cash, you’re paying too much. Not when you can barter your way to prosperity. I’ll take 4 cow hides for your spear and fire-sticks, thank you very much.

If you offered us a credit card with a $395 annual fee, we’d assume it came with a butler and a massage therapist. But Tim Chen at Nerd Wallet is satisfied with getting baggage fees waived and being allowed to check out of hotels late. Check out what he has to say about the new Ritz-Carlton VISA card.

You work hard to earn, save and invest in order to grow a retirement nest egg. That being the case, you’ll likely agree that it makes a lot of sense to do everything you can to protect your assets. Neal Frankle at Wealth Pilgrim lists the top 5 ways to to do just that.

Kevin at Invest It Wisely thinks you should save half your net income, and offers this groundbreaking analysis of a John Maynard Keynes quote:

A famous economist once said “In the long run, we are all dead.” This is undoubtedly true.

Here’s a great example of how not to handle a 500-point drop in the Dow. WORRY IF YOU HAVE ENOUGH FOOD AND WATER TO SURVIVE. That’s how the lady mind of the somewhat excitable Marie at Prairie Eco-Thrifter prioritizes things after the market loses 4% of its value (most of which, of course, it regained the following day.)

Every submission we receive comes with a one-line summary written by the submitter. We usually discard it and come up with our own, but it’s hard to reword the one we got from Briana Myricks at 20 and Engaged this week: “My husband may be getting laid off. If so, we’ll both be unemployed.” Good times!

What’s the difference between a 401(k) and an IRA? Read page 117 of Control Your Cash: Making Money Make Sense. Or this post from The Family Wallet.

It’s amazing that our parents’ generation managed to raise any kids at all, what with the dearth of blogging mommies dispensing advice back then. Fortunately, today’s parents have Money Spending Mommy and her ilk to set them straight. Today’s topic: teaching kids how to invest. Did you know that kids have a tough time conceiving of delayed gratification? Because apparently they do.

Can you stand another post on the USA’s recent credit rating downgrade? Well, you’re getting one. Everything Finance buys into the belief that Standard & Poor’s pegging the nation at AA+ is based on politics. Funny how Tim Geithner et al. didn’t say a word about that before the downgrade.

Darwin’s Money is beating our very own drum. This week Darwin discusses how crazy it is to follow conventional wisdom and eschew home ownership when prices and mortgage rates are historically low in tandem. (As landlords, however, we think he’s crazy. You should rent, rent, rent!)

We’re tight on space this week – lots of rejections, and submitters who can’t figure out the deadline – so we’re running this piece from Ricky at Qwoter on how to buy, ahem, penny stocks. We’ll let you figure out whether we included it as legitimate advice or as a warning.

There are companies increasing their dividends? Believe it. D4L at Dividend Growth Stocks lists several of his favorites.

Anything that makes the established major brick-and-mortar banks weaker is OK in our book. Daniel at Sweating the Big Stuff shows how you can tell Bank of America to take a walk while embracing ING. (Of course, if Bank of America loses enough market share, they’ll demand another bailout, and the federal government will doubtless give it to them, out of our pockets, so maybe you should stay with Bank of America anyway. Great, this is what personal finance advice has some to in 2011. Fatalism.)

Think post-secondary education is prohibitively expensive? Not if the aptly named My University Money has anything to say about it. Their scholarship contest will take a $100 bite out of one lucky applicant’s tuition. Or beer money.

Thanks again for coming. See all y’all next week.