Leave Them Behind

10th Circle, People Who Have “Emergency Funds”


Today, financial triage. Adopted mostly as a way to maintain the collective sanity of you people who get value out of this site.

If you’re sentient, you’ve noticed that few very humans even want to know how to control their finances. Most of us would rather ring up credit card debt, earn (and finance) useless college degrees, work for money instead of the other way around, and generally do what our intellectual superiors in Washington are doing, writ small.

What’s worse is that most of these fools are convinced they’re right. That link leads to a story about a positive if deluded woman who’s $61,000 in debt, yet uses the obfuscating phrase “32% debt-free” to describe her financial situation. Why? Because she used to be $90,000 in debt. Hey, the glass is one-third full, right? This is like a murderer who’s 16 years into a 50-year sentence bragging that he’s “32% released”, leaving open the question of whether it might have been better just to not have slashed that guy’s throat in the 1st place.

Surround yourself with enough people like this, whether in real life or online, and you’ll start to question basic assumptions that you know to be true. Maybe we’re supposed to spend our lives owing money, then die. Maybe incurring debt, then spending years attempting to pay it off, builds character that the people who didn’t incur any debt in the first place will never have the opportunity to develop.

See? That last sentence almost makes sense, doesn’t it? Even though it’s absurd. Here’s an acid test for CYC readers: if you can rationalize a lunatic statement about your finances (“I’m thousands in debt, but that didn’t stop me from getting a credit card with a $700 annual fee. YOLO!”), we’ll slow down the bus and let you jump out the window. Roll yourself into a ball before you hit the pavement, it’ll protect your organs and maybe your skull.

It’s not the stupidity that irks us, it’s the stupid people’s insistence that either a) they’re right, b) screw you, you can’t tell me how to live my life or c) both of the above.

Maybe there are credit cardholders who actually enjoy making monthly outlays to VISA, and by extension paying for things twice and 3 times over. Oh, who are we kidding by qualifying that with the word “maybe”? Of course they enjoy doing it, or they wouldn’t do it. Just like terminal lung cancer patients love hoisting their emaciated frames out of the hospice bed to look out the window. If they don’t enjoy being in that position, why are they in it?

Wait, you’re saying it’s because they spent a lifetime making dumb choices?

Thank you.

Control Your Cash exists for one reason – to teach otherwise smart people how to build legitimate and lasting wealth. “Otherwise smart” means that long before you discovered our little site, you were intelligent enough to have known that you don’t borrow money to buy garbage. Or play the lottery. Or clip coupons at an effective rate of 19¢ an hour.

To us, your authors, knowing all of the above seems about as fundamental as knowing that you don’t put your hand on a hot stove element. (Or, continuing the analogy, a stove element whose temperature you’re unsure of.)

But then what? We like to think that you folks are smart enough to understand the basics, and beyond that, inquisitive and discerning. You made it this far without destroying your financial life? Congratulations, and we’re sincere about that. It’s knowing what to do after that that’s the hard part.

Because staying at your job and getting annual 2½% raises may sound good, or at least low-maintenance, but it isn’t. Same goes for some other endeavors, too:

  • Trading in your car to a dealer? Bad idea. You can save yourself thousands if you don’t.
  • Putting your money in a certificate of deposit, because your bank advertised what sounds like a high rate? Also a bad idea, but not as bad as the previous one. There are plenty of similarly low-risk investments that offer bigger rewards.
  • Feeling trepidation over the idea of investing in the stock market yourself, instead of just letting the Ameriprise representative show up at your office and buy everyone lunch, after which you let her pick a mutual fund for your 401(k) to invest in? At best, that’s a neutral idea. You can do so much more.

If you’re curious, want to learn, have even a little ambition regarding this subject matter, and already know not to make the obvious mistakes listed above, then we can help you build wealth.

If you’re convinced that there’s a perfectly legitimate reason for incurring consumer debt, transferring credit card balances, and/or declaring bankruptcy, then we don’t need you. You’re not going to pay attention to what we have to say anyway, and besides we don’t have time to dumb it down for you.

Good. Now it’s just the smart folks in the room.

This stuff isn’t hard, but it isn’t intuitive, either. We figured it out, largely through trial and error, saving you the trouble if you’re willing to just read us. Oh, and buy our book if you’re so inclined. (Link to the right. Dividends paid almost immediately.)

A Message To Financial Professionals

“Yeah, yeah. Keep talking. I’m listening.”


Specifically, ones who submit to the Carnival of Wealth.

Dude, look at you in your Paul Fredrick shirt and snappy tie. Nothing personal, but writing isn’t your forte. Either farm that out, or learn to communicate.

We received a post from Scott Skyles at Mortgage 1a for Monday’s CoW. It’s got a valid and helpful point or two, but expecting readers to mine them out of the dross that surrounds them was too much work. Plus Mr. Skyles finds some industry terms necessary to define, but not others, with no apparent consistency.

Instead of being just another entrant in the CoW, this warranted its own, follow-up post. Here’s our CYC version of Scott’s explanation of the difference between FHA vs. conventional mortgages, followed by the impenetrable original, followed by our comments.

Should you get a mortgage backed by the Federal Housing Association, or a conventional one not insured by the federal government?

With the latter, you’ll have to put up 1/5 of the purchase price. You can put up less, but you’ll have to pay something called private mortgage insurance every month until you’ve paid off 1/5 of the principal.

With an FHA loan, you can put down as little as 3½%. The tradeoff is that you still have to pay the FHA’s version of private mortgage insurance, either for 5 years or until you’ve paid off 22% of the appraised value – whichever comes later.

And now, Mr. Skyles’s original:

While conventional and FHA (Federal Housing Association) mortgages have some similarities, there are distinct differences between the two and it is important for anyone who is considering taking out a mortgage to understand the differences in order to borrow in a way that best suits their specific financial and home buying needs.

Conventional Mortgages

A conventional mortgage is defined as any type of mortgage that is not insured by the Federal Government. Conventional mortgages are offered by credit unions, banks, and mortgage companies and brokers. The largest secondary market organizations that offer conventional mortgages are Freddie Mac and Fannie May. Conventional mortgages will usually require a down payment of around 20 %, but in today’s real estate and mortgage market, there are programs that may allow for a lower down payment if the borrower meets certain qualifying criteria.

With conventional mortgages, borrowers that are allowed a lower down payment are required to pay private mortgage insurance, also known as PMI. Once their loan-to-value amount is under 80%, they are no longer required to pay PMI insurance. It sounds complicated, but it is actually quite simple, as the LTV can decrease as the mortgage is paid down, as well as if the value of the home increases during the length of the loan. Conventional mortgages also take a borrower’s credit very seriously. In today’s market, if a credit score has blemishes or considered a possible risk, their application could be turned down.

FHA Mortgages

The FHA is not a direct lender, so their terms and conditions differ as far as credit and insurance. They insure FHA- approved lenders, and they are very specific about their terms. They take a classic approach to lending and they do not offer boutique loans. FHA-approved lenders are restricted to offering fixed rate loans, and the adjustable rate mortgages that they do offer are very conservative, which allows home buyers to easily understand their mortgage terms and manage their payments and insurance accordingly. For the first five years of an FHA loan, the borrower is charged an insurance premium that is added to their monthly payment. This payment is required until the borrower’s LTV decreases by at least 78%.

The down payment required for an FHA mortgage can be as low as 3.5 %, and the lenders also make their final lending decision using the “old fashioned” standards. Credit is still a consideration, but an FHA lender will also consider employment and rental payment history as part of the borrower’s profile. They will also give the borrower a chance to explain why their credit score may be less than satisfactory. FHA lenders consider the whole package, and this can be very helpful for first time home buyers, as well as anyone who may have experienced a run of bad luck due to the troubled economy.

Making an Informed Decision

While conventional and FHA loans both offer reasonable terms, it is ultimately up to the borrower to decide on the best type of mortgage to suit their specific needs. Buying a home is a big step, and it is important for borrowers to be educated on their options before signing on the dotted line. First time home buyers may benefit by consulting with a financial expert who can advise them on the various specifics of the two mortgage programs, and it may also be helpful to consult with a knowledgeable real estate agent or broker. By taking the time to weigh out the differences, home buyers can make an informed decision on their borrowing options.

You still awake? Of course you aren’t.

We shrank that to 1/6 of its original size and didn’t lose anything. This is why most people find personal finance and related topics so freaking boring. Most of the people who fancy themselves experts in the field couldn’t convey a thought to save their lives.

Which is why you should buy our book. 326 easy-to-read and informative pages that start with the assumption that you’re smart and value your time, but that you know nothing about money. We start with your standard checking account, and by the time you get to the end you’ll know

  • How to do your taxes
  • How to do your taxes without getting screwed, which is something quite different
  • How to invest, buy stocks, buy mutual funds, buy a car, buy a house, finance house, and more
  • How to start your own business so that you’re not at the mercy of some soulless boss who will shove you out the door the moment you become less profitable than a replacement might be.

No interminable paragraphs, we promise. Order it on our site (link up and to the right) and we’ll throw in one of our killer ebooks, too.

Think locally. Act locally.


Nothing meaningful happens in Davos. (Except, it seems, the kick-ass Friday night costume party.)

(No, this isn’t a call to eschew big corporations for mom-and-pop shops. You don’t know us very well, do you?)

“If you spend 15 minutes a year studying the economy, that’s 10 minutes too much.”

-Peter Lynch


Three above-the-fold headlines from this week’s financial news:


Spain might default on its debt, requiring yet another bailout from the European Union, which would threaten the stability of the euro and perhaps result in the reinstatement of the peseta.


New Jersey’s ex-governor Jon Corzine can’t explain why someone transferred money out of customer accounts in the final days of MF Global, the firm he ran for a year and a half before it fell into a bankruptcy of historic proportions and he quit.


Retail sales increased .8% in March. So for every dollar you spent in February, you spent a dollar and 4/5 of a penny in March. (Of course the population also increased over that month, while inflation increased too, meaning that your spending is close to unchanged in real dollars.)


What does any of that mean to you? Nothing.


Just like most of the non-financial headlines (“Amanda Bynes Gets DUI”, “Scientists Find Connection Between Diet, Weight”, “Some Chick Casts Aspersions on Ann Romney”), the financial headlines are there largely to take up space. Legitimately important financial items – this county to increase its sales tax rate, this state to float bonds it won’t be able to cover – get buried because they’re even more mundane than the stuff that makes it to the headlines.


Look at those above examples. The first one’s crucial only if you’re Spanish, Andorran, or Gibraltarian. The second one is intriguing because it involves a semi-famous politician who first derived fame for being rich. The third one is obligatory, like the weather. The Department of Commerce releases the data, the financial media feels obligated to report them. It doesn’t matter if the data are meaningful or mundane. That .8 could have been almost anything – .7, -.2, 0 – and the toner-stained wretches who write the copy would have reported it with the same austerity and import.


The point of all this is that you first need to take care of your own business. Granted, that’s harder to do when the government confiscates more of your money and spends future generations’ inheritances to buy shiny new toys, but look at what you can control:


  • What you spend your money on
  • What you finance
  • Where you invest
  • What seemingly obligatory roadblocks you throw in your own path, just because society recommends them and you’re a sheep
  • Where you choose to live, to the extent that each jurisdiction has different tax policies and different costs of living.


Say it again. Take care of your own business. The corollary to that is to let other people do the same thing. If everyone followed this easy directive, the world would be something approaching perfect.


Complaining about financial events beyond your control is worse than pointless, it’s counterproductive. At least some economically meaningless activities have a non-economic benefit. For instance, this NBA game we’re watching right now has little impact on us. It features two unremarkable teams counting down the days to an early summer vacation (Detroit and Minnesota). We don’t know any of the 24 players personally. We’re not breaking down the game film because we have to play one team or the other next week. No, we’re just enjoying the artistry and the competition, and wondering if Greg Monroe should have spent another year in college.


So yeah, watching a basketball game has some purpose. Reading (and by extension, fretting over) the financial headlines has no purpose. It’s just a way to cause yourself irrational hope, or possible pain and discomfort.


Which isn’t to say that you should never read the financial news. Especially if you’re new to this. If anything, just being immersed in the environment will give you greater proficiency in the jargon. It’s like learning Italian by moving to Naples and listening to other people talk. The content of the dialogue is less important than the form. By reading the financial news you’ll be exposed to some concepts and phrasing that you wouldn’t otherwise have. Once you get good at this, you can separate the worthwhile news from the worthless.


(Note: it’s almost all worthless, which means it’s just like any other compendium of information. Google’s stated purpose is to organize and make available the world’s information, which is laudable, but how much of it do you actually use? Significantly less than 1%, of course.)


In conclusion: The micro > the macro. The greatest determinant of your financial health, present and future, isn’t the Spanish Public Treasury. Nor is it an odd-looking man who flushed hundreds of millions of customers’ deposits down a toilet. Nor is it the miniscule increase in the money your neighbors spent last month. Your financial health is dictated by you more than it is anyone else.


(And if that’s not a commercial for The Greatest Personal Finance Book Ever Written, nothing is.)

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**The Carnival of Financial Camaraderie #31-Lend a Helping Hand**