Or Go Read Man Vs. Debt Instead

You're going to need one of these

Why can’t you be like other sites?

It’s the one complaint about Control Your Cash that we receive most often: where are the first-person stories about your struggles with income and debt?

1) There are several thousand other blogs that already memorized that riff and can play it by heart. We wouldn’t be bringing anything original to the party. Besides, this isn’t a place for self-indulgence. We don’t give a damn about the details of your finances*, and don’t expect you to care about ours. Or anyone else’s but your own.

We used to think that other people’s Facebook photos were the Ultima Thule of human boredom. But they’re captivating compared to hearing a personal finance blogger yammer about how he’ll now pay off his student loans 3 nanoseconds faster thanks to this handy new money-saving method he discovered for making your own duct tape. Also, the Sunday paper is full of coupons for your next grocery shopping trip.

2) No struggles to speak of.

Oh, does that sound condescending? Then would you feel inadequate if Danica Patrick told you she has no trouble negotiating traffic at 160 mph? How about if the chick from Evanescence said she could easily hit notes in the whistle register?

We’ve spent our adulthoods doing the prudent, common sense thing and seeing where it leads. So far, it’s working. At least more so than buying pet clothing and paying for tax refund anticipation loans might have.

You want commiseration? Start drinking or become a sex addict. Meetings in the church basement, Tuesdays at noon. No crosstalk, please.

Good. Now that we’ve got the children out of the room, join us for something worthwhile. Two things we try to do here:

-explain financial concepts that people presumably want to know about, or should, but don’t.
-show how not being financially idiotic can pay tangible rewards. And occasionally, show instances where you might think you’re doing the smart thing but aren’t.

If this sounds dictatorial, it isn’t. No more than your 3rd grade teacher was when she explained how multiplication works. Look, there’s no secret to gaining wealth. The mantra, again:

Buy assets, sell liabilities. Do this often enough, measure the results, and if you do nothing else you’ll get rich in spite of yourself.

Financial self-sufficiency is nowhere near as simple as “spend less than you earn”, but it’s not as complex as you think, either. That wedding you’ve been fantasizing about since you were a little girl? Unless it involves only you, the groom, a justice of the peace and a visit to IHOP afterwards, it’s a liability. Sell (i.e. don’t buy) it. The matching funds your employer offers for your 401(k), which will give you more tax-free income when you retire in exchange for a few seconds of incremental effort today? That’s an asset. Buy it.

Almost everything in your financial life fits into one category or the other – if not individually, then cumulatively. The bachelor’s degree in women’s studies is a liability. The interest-bearing student loan to pay for it is a meta-liability, and an obscene waste of money. The used DSLR camera that you can pick up from a highly rated eBay seller and is indistinguishable from a new one that’s twice as expensive? That might not be an asset by our definition, but the difference in their prices is. Buy the camera, assuming you’ll use it.

If you want patently obvious advice and feel-good pabulum, Google “personal finance blog” and you’ll find it. If you want to be challenged and inspired, stay here. Read the archives. And let us teach you how as much as you’re willing to digest about how money works (and how it doesn’t.)

*Dang. That should have been the subtitle for the book.

**This post is featured in the Carnival of Wealth #5**

So just why should I buy your book, anyway?

That’s the one most common objection, from people who stumbled across one of our guest posts at Free From Broke, or Money Funk, or Len Penzo, or Credit Card Chaser, or 20sMoney, or Planting Dollars, or My Journey To Millions, or one of the other myriad places that’s been gracious enough to let us beat our chests with our unnuanced approach to building wealth. Yeah, sure, Greg McFarlane can turn a phrase and make me giggle, but why should I trust Betty Kincaid and him to advise me when Dave Ramsey is so earnest and reputable? And Suze Orman so brassy? And Clark Howard so breathtakingly sexy?

If you’re in your early 20s, have negative net worth, and have adopted the belief that debt is just an inevitable fact of life for your remaining decades, you need the book. If you’re adult enough to admit that you don’t know a blessed thing about money, you need the book. If you let someone else do your taxes every year, and isn’t because your finances are so ensconced in LLCs and S corporations that if takes a CPA to decipher your ability to maximize deductions and credits, you need the book. (You also need to start doing your own taxes, at least once.) If you work on Wall Street, dealing in conditional variance swaps and measuring third-order derivatives of the option value to volatility, you can probably skip the chapter on securities and head straight for the chapter on how to buy a car.

We wrote the book to eliminate guesswork for people who can’t be bothered to learn every nuance of someone else’s field of endeavor. Escrow, for instance. Say you’re about to close on a house. If you’re sitting across from an escrow officer who’s talking about proration schedules and title search indemnity, and you nod your head for fear of seeming clueless or unsophisticated, your pride will cost you money. Possibly lots of it.

If you reach that point, in that scenario, your only other option is to admit your ignorance and sit there as the escrow officer goes through every line from every one of the dozens of documents you have to sign. The proceedings will slow to the speed of evolution. It’ll take 5 or 6 hours to go through every contingency, and there’s no way you’ll be disciplined enough to sit through it all anyway.
Or, you can spend $10 or $14 (prices vary, usually downward) on the book. Then you’d know what to have asked the real estate agent and the mortgage lender weeks before you’d gotten to this point.

Tell us, right now: where do the deductions from your paycheck go? (Don’t say “the government”, that’s a D- answer.) How much goes to where? Does any of it ever get returned to you? And if so, then why did the government confiscate it from you in the first place?

Admit it: you probably don’t know. You don’t know what the acronyms stand for (FICA? COBRA?), nor do you know what percentage of your money you’re losing before you even get to touch it.

Are you the least bit interested in minimizing those deductions? In taking home a larger piece of what was yours to begin with? Then you need the book. Control Your Cash isn’t just a memorable and semi-mellifluous title. It’s, as the advertising drones say, a call-to-action. Put it this way: someone’s going to control your cash. If you’d rather it be someone other than you, you’re either a child or retarded.

We wrote the book because we couldn’t find all this stuff – bank accounts, credit scores, home buying, entrepreneurship – in one volume. In the words of Alan Schwarz, author of The Numbers Game and probably not the first author to articulate this thought, “This is the book I wanted to read, but no one had written it. So I did.”

And thus, a book that breaks down your 1040 form line-by-line without boring you into catatonia. A book that teaches you how to walk into a car dealership and treat that tobacco-stained salesman in the Men’s Wearhouse shirt and tie like the petty thief he is. A book that explains how, when and why to invest.

But not what and where to invest. Control Your Cash: Making Money Make Sense doesn’t recommend particular places to put your money. It just explains what those places are, because most people can’t begin to guess. The book teaches you how all the particular investment classes work, and what their potential pluses and minuses are. But what securities, real estate or bank instruments you choose to build your fortune with are your business.

We’ll teach you to drive. Whether you become Dario Franchitti or Chris Waffle is up to you and chance. But you don’t need to be the former to get where you want to go quickly and safely.

A fool and his money, something something

refund anticipation loan, tax refund, IRS

Apparently, keno players are not as dumb as it gets.

This week, Refund Anticipation Loans. This is almost the invention of the wheel in reverse. Human ingenuity has now developed an inefficient, costly, inelegant, labor-increasing device that if left unchecked will send the species back millennia.

The “refund” in an RAL refers to a tax refund. You file your taxes with a professional preparer such as H&R Block. (Because addition is hard, subtraction is extra hard, and multiplication and division should be left only to the professionals, or at least to people who know how to press buttons on a calculator.) Then, because you overpaid your taxes throughout the year by having as much as possible withheld from your paychecks, the IRS returns to you the interest-free loan you gave it. Which can take weeks beyond the time you’ve already granted the IRS.

But this is America. We don’t do delayed gratification.

It bears repeating to the next social engineer who decries the amorphous “gap between rich and poor” that plagues our society: the poor are poor largely because they choose to be.

For those who can’t wait (and wouldn’t have had to wait, had they had the minimum deducted from each paycheck throughout the year), some enterprising souls created the RAL. Say you go down to the Jackson Hewitt office with your W-2s in tow. The preparer calculates that the money you’ve been lending to the federal government, without interest, totals $1000. Are you going to wait until April, maybe May, for that money when there are PlayStations to buy and child support to pay? Hell no!

So the preparer asks “Will you take $970 now?” And apparently, every year 12 million people say yes. If it’s any encouragement, a goodly ratio of them are probably too dumb to fill out a voter registration form.

If someone’s holding your daughter for $970 ransom with a 12-hour deadline before he mails you her scalp, only then is an RAL an outstanding investment.

That’s a 3% commission, for saving the taxpayer the trouble of waiting maybe a month for his refund. Which is an annualized rate of 43%, not that anyone ever waits an entire year. Still, that annualized number looks so enormous that it got the attention of some elected officials. Who decided that when two parties sign an agreement that showcases the stupidity of one party, the other party must be to blame. California’s attorney general sued H&R Block for offering RALs, an Illinois judge decided a $360 million settlement wasn’t enough, and the FDIC, America’s bank regulator, asked Republic Bank of Louisville to “consider ending (the) line of business” that represents most of its profit.

65% of people who receive Refund Anticipation Loans are already receiving the federal Earned Income Tax Credit. They’re so poor that they’re not making enough to be net taxpayers in the first place.

Someone found a racial component to this, too. In 2006, 7% of Illinoisans used RALs, but 23% of black Illinoisans did. If you’re black and use an RAL, then no, you’re not being exploited. But you are a moron. You’re equally stupid if you’re white, Oriental, or Melanesian and use an RAL.

Let’s hear from a loquacious consumer advocate on the issue:

“Almost one in four taxpayers living in African-American communities pays hundreds of dollars to receive his own money a few days early,” said Katie Buitrago, Policy and Communications Associate at Woodstock Institute. “Millions of dollars that could be used to pay down debt or provide a safety net for emergency expenses are being lost.”

No, that’s millions of dollars that could be used to buy crack, drink malt liquor, and spend on custom LeBron Air Max VIIs. Does Ms. Buitrago really think that RAL users are going to buy corporate bonds and index fund shares with their refunds? If they’re the kind of people who are farsighted enough to invest their money, they would have done it by now. Does she think refund anticipation lenders should just let taxpayers enjoy early money interest-free? Why should a tax preparation service that sells RALs be held to a higher standard than the IRS, which these taxpayers are giving their money to in the first place? (Then again, from the perspective of a taxpayer who’s let the IRS enjoy his money interest-free, it does make sense.)

Despite the extraneity of the second half of the quote, Ms. Buitrago is technically right. And practically disingenuous. Or just dense – it’s hard to tell with academics sometimes.

Again this has nothing to do with money, but assume that anyone who’s using the passive voice is hiding something. The quote should read “(People who are getting these RALs) choose to forgo millions of dollars that could…etc.”

Exploitation is an easy thing to prove. If you’re being taken advantage of without understanding the circumstances, you’re being exploited. When someone picks your pocket, literally picks it, that’s exploitation. When you sign an agreement granting someone the exclusive right to remove your wallet from your pants and take whatever they deem fair, you’re not being exploited.

Paying extra to get what was yours in the first place is called extortion, but even that isn’t accurate because most extortionists don’t operate with the explicit permission of the people they’re extorting money from. Furthermore, this subject matter is so outrageous that it’s reduced the author to overuse of italics.

Do we have to do this again? Here it is, in handy list form:

  1. Get as little as possible withheld from your paychecks. This will involve redoing your W-4, with the help of whoever handles this at your workplace. It should take less than a minute.
  2. You’ll now have more take-home pay in each check. Take the difference and invest it somewhere (NB: exacta boxes at the dog track are not an investment. Toyota stock is.)
  3. Write the United States Treasury a check at 11:59 p.m. on April 15.

It’s your money until the last possible second. You don’t pay upfront for most other things, why do so with your taxes?

If you’ve ever received a RAL, get the person who’s reading this to you to stop and smack you, but hard. The Marlboro reds, lottery tickets and 24-packs of Pabst Blue Ribbon will still be there when your refund check comes. So will the UFC clothing and Shadows Fall albums.