Financial Retard of the Month: The Simple Dollar Does It Again

July 27, 2012

This picture will make perfect sense in our next expose

 

He’s making it too easy for us. That self-important oracle, Trent Hamm of The Simple Dollar, created another fictitious mailbag out of the myriad emails he receives. Or as he puts it on his main page:

I do receive hundreds of questions per week,

Or as he put it a few weeks ago,

I’ll go very quickly through the thousands (yes, I do mean thousands) of emails built up during the week 

In this feature we’re not just going to make fun of the dull or pointless things he says, because if we did there’d be no room for anything else. Instead, we’re going to focus strictly on the dumb and the false. Here’s an email Trent recently concocted received:

I’ve read that you shouldn’t pay more than 25% of your monthly take-home pay for housing costs.

Background info: I have an emergency fund of $7,000, I have no debt, I am 26, female, and I currently rent (living alone), paying $860/month for a one-bedroom apartment.

We’re not sure why “her” sex is relevant, or why “she” mentioned it at all, especially since “she” signed off with a woman’s name. Anyhow, “she” also gives some other information about her finances, and as women and Trent do, takes 4 paragraphs to get to the point: wanting to know if she should rent or buy a place to live.

Trent’s sage advice includes:

From my perspective, if you’re putting much more than 25% of your income toward your housing, you’re starting to put yourself in a risky situation.

No way! “Lauren” repeated a piece of folkloric homespun wisdom, and Trent seconded it exactly! Kind of like the time Control Your Cash ran a question from the woman who’d heard that male personal finance bloggers are extremely well-endowed, and wanted confirmation.

Anyhow, Trent recommends that “Lauren”

get a mortgage quote, then run some calculations on it. 

Really? So if a person wants to choose between items A and B, and knows how much A costs, you believe she should determine how much B costs before she proceeds?

We can’t argue as to whether Trent or “Lauren” is the bigger imbecile, since they’re the same person. However, we can have a legitimate debate as to whether Trent/”Lauren” or Trent’s average reader is stupider. Anyone who finds any of the advice in Trent’s mailbag to be actionable is clearly forgetting to exhale once in a while.

He’s not done. Here’s the next (and final) line, with nothing omitted:

The housing market is depressed enough right now that I would not look at a home as an investment in the short term.

YES, BECAUSE WHY WOULD ANYONE WANT TO BUY WHEN PRICES ARE LOW? Does his helper monkey even proofread this stuff for logical coherence before pressing “Publish”?

How about loosening another belt notch on your husky Today’s Man slacks and writing something that makes sense? Don’t worry, we’ll do it for you:

The housing market is depressed enough right now, and mortgage rates similarly low, that there will never be a better time to buy a house. Or houses. A passive income stream will do more for your bottom line than all of my penny-shaving recommendations combined.

In any other blogger’s mailbag, that’d be the most laughable response of the week. But this is Trent Hamm, proprietor of The Simple Dollar. He probes depths that the bathyscaphe Trieste wouldn’t plunge to:

My 75 year old mother is in mediocre health. She’s losing the place she’s living in and needs to move in the new year.
…
I will be earning a big chunk of money in the first part of the new year and would like to buy a home for her to live in…

Pretty straightforward, right? Well, it’s straightforward if you edit out all the irrelevant details that Trent puts in to make the “reader” sound more human. This one’s another female, by the way. Why any woman would seek his advice after he told the entire distaff half of the species to swim in their underwear, we have no idea. Anyhow, he tells “Sheila” not to worry because time is on her side:

I would rent an apartment for her. If her health is slipping, it’s likely that the period of time you would rent would be limited.

We’ll get to the obvious objection in a second, but is Trent’s reading comprehension so awful that he can’t remember what his own blog said just a few lines earlier? “Mediocre” means average. It’s static, and doesn’t imply a direction. Trent took it to mean “slipping”, which makes us wonder exactly where he graduated among the cab drivers and slaughterhouse workers in his ESL class.

And oh yeah, he just told a reader that a great way to save on housing expenses is to wait for your mother’s imminent death.

We’ll ask this now, before the inanity of The Simple Dollar becomes a weekly feature: is this all an intricate joke, and we’re the patsies? If you were a resourceful online comedian who wanted to create a parody of an everyman dispensing financial advice, wouldn’t you give him a forgettable work history, a green golf shirt, 2.3 kids and a home in Nowhere, Iowa? No real person can be this earnest, this humorless, this insipid, this cheap, and this consistent about it.  Here, read an entertaining mailbag instead.

Filed Under: Bad Examples, Financial Retard of the Month Tagged With: , ,

Control Your Cash’s 6 Axioms For Building Wealth And Thus Saving You The Trouble Of Buying Our Book.

June 22, 2012

 

Why is he smiling? No debt. You should be so diligent.

 

We’re going to go an entire week without writing about what a waste a college education (almost always) is. Don’t worry, we’ll beat that drum again soon enough, probably next Wednesday.

It’s time for us to embrace that old standby of the uninspired blogger – the list post! 5 Ways to Save At The Grocery Store. 8 Financial Mistakes First-Time Parents Make. 17 Cheap Graduation Gifts. 432 Tired Ways To Write A Blog Post.

We’ll call this one Control Your Cash’s 6 Axioms For Building Wealth And Thus Saving You The Trouble Of Buying Our Book.

1. Don’t Have A Budget, Have A Ledger.

Creating a household budget is a waste of time. If you earmark $423 for groceries in a given month, and you’re at $454 with 2 days to go, are you going to starve yourself just to prove a point?

Or, if you happen to be under budget as the month is ending, then what? Do you replace the tilapia in your cart with Chinook salmon just because your numbers allow you to? Even if you’d rather eat tilapia?

We hear this constantly: “I can’t believe how big my VISA bill is. What happened? There must be some sort of mistake.” But VISA didn’t make a mistake. You did. You bought too much and you didn’t think about how you were going to pay for it.

Have a ledger means be conscious of every dollar you’re spending. Track them. There are smartphone apps for this, Mint has a good one. Don’t have a smartphone? Buy a pocketbook, they’re like 49¢ or something. Doing this eliminates the possibility of seemingly insurmountable expenses “creeping up on you”. They can’t, not if you know that they’re coming. Even if you’re not so meticulous that you enter every expense in said app, that monthly credit card statement should never, ever make your jaw drop.

2. Stop rationalizing.

You really wanted that Croatian vacation and/or theme wedding? You feel like you’re entitled because you hate your job and your mom’s being a bitch? Wow. It’s like you and we are different species.

Your finances should be the least emotional facet of your existence. Save the emotion for the non-financial parts of your life.

It’s fine to want (and even to buy) extravagant stuff. An otherwise prudent friend of ours dropped $2,462.35 for a couple of nosebleed seats to Game 4 of the Stanley Cup Final. A lifelong L.A. Kings fan (a legitimate one, not a bandwagoner), it was perhaps his only-ever chance to see his team clinch the Stanley Cup at home.

They lost. No big deal, they ended up winning the Cup anyway, but our friend didn’t get to watch the clinching moment live. (Had he wanted to, he could have spent a similar amount, probably a little more, for tickets to Game 6. And flown across the country for Game 5, just to cover every base.)

Was that a waste of $2,462.35? Maybe to us, but not to him. This story isn’t an argument for spending extravagant amounts on ephemeral things. Our friend is a smart guy with a big cushion who could withstand the loss. He weighed the risk of the New Jersey Devils winning, paid cash, and still enjoyed 3 hours’ worth of Stanley Cup Final action. He’s not going to be spending the next 7 years financing his tickets at 19.9% interest, which would be unequivocally dumb.

3. Unless you’re going to major in the hardest of hard sciences, pure or applied, or possibly in corporate finance, don’t go to college.

Sorry, we had to mention it. We’ve broken it down in greater detail before, but not only is college a colossal financial expenditure, it’s an enormous time commitment. 4 years of your life and tens of thousands of your (or your parents’, or the taxpayers’) dollars? So you can spend decades paying off the loans? Which brings us to our next point:

4. Only incur debt if you have a plan behind it. A plan that pencils out.

Borrowing $200,000 might sound like a bad idea in and of itself, but what are you borrowing it for? To have a stable place to live for a fixed period (and simultaneously avoid paying rent)? Going into debt to buy a house makes sense, most of the time. Look at the alternatives. Borrowing money might set off a frugality switch in your head, but would you rather spend 30 years renting and knowing that you won’t recoup a penny of your housing costs? While enriching the person who does own the place where you live?

And that’s shelter: as high as #2 on the hit parade of necessities behind food, maybe #3 behind clothing unless you live in the tropics.

Incurring debt for other reasons is – we’re running out of synonyms for “idiotic”. All your life, you dreamed of having a storybook wedding. Great. Do you want to spend the next 10 years paying off one memorable afternoon?

Some people are going to take that literally. Of course no one wants to spend an extended period paying for something fleeting (and that has a 50% chance of ending in failure), but if you incur the expense, you have to pay it. We come out of the womb understanding this inherently, but the sophisticated and rationalizing brain knows better.

5. Look at each transaction from the other party’s perspective.

Your humble blogger had a (dumb) high school finance teacher who believed that for someone to make money, someone else had to lose money. Were that true, it would mean that all of human civilization has been one big zero-sum game. And that the accumulation of wealth in the world today – all the ocean freighters, skyscrapers, communications satellites, power plants etc. – is no greater than it was when the only items of value in existence were Smilodon pelts.

Not to turn this into an Economics 101 lecture, but exchanges benefit everyone. However, they don’t necessarily benefit everyone uniformly. Sometimes you run into a seller who’s desperate to do a deal, or a buyer with the same problem. In that case, enjoy your bargain. Other times, the one who needs to make a deal and has time or other circumstances working against him is…you. Don’t be that person.

6, the big one. Buy assets, sell liabilities.

Do this consistently and you’ll build wealth no matter how stupid or lazy you are.

401(k) contributions are assets, defining them as we do as something that will help your wealth grow. Extravagant dinners are liabilities.

We should elaborate. You can’t sell extravagant dinners unless you own the restaurant, but from a consumer’s perspective you can avoid buying them.

That doesn’t mean you shouldn’t cut loose and enjoy what life has to offer, every once in a while. It just means that if you do so, you’ll be forgoing future wealth and investment potential. You need to weigh this stuff, assess it intelligently. Don’t buy what you can’t afford, which is so fundamental it barely counts as advice. Mark Zuckerberg gets to spend more than you do. No offense, but at least at this point he’s entitled to more Caribbean cruises and country club memberships than you are.

But don’t fret. In turn, you get to spend more than that hobo who stands on the street corner every morning.

Unless you’re in debt. Then the hobo (assuming his net worth is 0) gets to spend more than you.

STOP.

If you read that last couple of paragraphs and your internal monologue is:

“Who are they to tell me what to do? I deserve it. Life’s too short”,

send us a request and we’ll fix it so that your IP can’t access our site anymore.

There are a million analogies we could make here, but people hate to face reality. If you want to spend profligately, and then complain about your financial situation, you’re no different than a chain-smoker who considers it a random tear in the cosmos that he’s the unlucky stiff who ended up with lung cancer.

One more time: build assets. Sell liabilities. Get in the other person’s head. Attack debt like the household pest it is. Don’t take on expenses with only an unformed (and uninformed) idea of how you’ll profit from them. And buy our book.

Filed Under: Consumer Debt, Economics, Making Smart Choices, Net Worth Tagged With: , , , , ,

How To Stay Poor In However Many Easy Steps

June 15, 2012

My mom's doing tequila shots at Coyote Ugly right now. Thank God I can spell.

Take a vacation. You earned it!

You need to get away. You also need to spend less than you earn and invest the difference, but Carnival Cruise Lines doesn’t stop at the Port of Personal Responsibility. Nor are there daiquiris.

Yes, everyone needs to get away once in a while. Or spend on something beyond the basics. Money is meant to be enjoyed, at least some of it. But what a lot of people forget is that there’s still a window you have to operate in, contingent on your net worth and cash flow. This is not opinion. Concentrating on the result (your senses experiencing something pleasant) without paying attention to the effort rendered to achieve it (a commitment of your money) is insane. Rich people pay attention. It’s not why they’re rich, but it’s a leading indicator.

Rich people don’t want to commit a lot of their money, either – relative to what they have. No one in the top quintile of net worth is going to spend 3% of that net worth on an extravagance. People in the lower quintiles do it all the freaking time. That’s why they’re there, and the rich are where they are.

Here’s another way to cloud reality: justify an indefensible expense as being “for your kids”. For instance, “We’re taking our kids to Disneyland.” Congratulations, you painted yourself into a virtuous corner. Now, if you don’t take your kids to The Happiest Place On Earth, failing to do so would make you a parent who doesn’t love her (you’re probably a woman) child enough. Other people do it, why not you?

Number 1, screw other people. Number 2, what are you working for? If you have to choose between a smile on Junior’s face today and not having to move in with him 45 years from now, what are you going to pick? If you refuse to answer that question, or say “the smile”, you should find a less demanding blog. Here are four of them.

Here’s another handy phrase you can use to explain away your inability (REFUSAL) to build wealth:

“(Name of your indulgence) (present tense of positive verb) me.”

For instance, “My BMW 7-Series excites me. It makes me feel good.” The rest of my life sucks, my job is torture, but these 544 horses know how to snap me out of my funk.

Good for you. They’re probably also impoverishing you, if that’s the kind of thing that concerns you. Maybe it doesn’t, and if so then why are you reading this site?

Every time we say something heretical like that we have to spend undue time explaining it, because some readers aren’t that bright. Maybe reading the explanation will make them smarter. Here goes:

We’re not saying you shouldn’t buy a luxury car. Or a trip to Disneyland. Or whatever it is you want to buy. The only thing you should do is know your place. Michael Jordan gets to squander $300,000 in one night in the high-roller salon at Caesars Palace. You don’t. Why? Because he’s Michael freaking Jordan, that’s why. Alright, maybe that’s still not clear. Because he has a net worth somewhere in the 9-digit range. There, is that better? Gambling is still stupid, and indeed Jordan was dumb enough to lose half his fortune in what was simultaneously one of the most sadistic and masochistic divorce settlements in human history, but he can still withstand the losses. You can’t.

Your neighbor bought a boat, you say? Good for him! Did you see the bill of sale? How about the financing agreement?

Doesn’t matter. I want a boat I want a boat I want a boat.

Well, you’re also getting knowledge, whether you want it or not. You can pay $30,000 for a standard deck boat. Most people don’t have that kind of cash lying around. But if they do, and are also the kind of people who fancy themselves mariners, they’re probably not going to buy a $30,000 Tahoe. They’re going to buy a $140,000 boat and spend the next however many years paying interest on it.

“However many” doesn’t mean 3 or 4, either. It means 5, 8, 10, “or even 12 is not unusual.”

Not to focus on boats, that’s just one example. Swimming pools, jewelry, even (relatively inexpensive) expensive clothes. If you can find a merchant who’ll sell it to you on credit, and it’s not a necessity (and thus, by definition, a luxury), it’s not that you can’t afford it. You can’t, that’s not the point. The point is that you’re committing tens, hundreds, thousands, or tens of thousands of future dollars to whatever item it is you just can’t say no to, beyond its listed price. This is so simple that observing it hardly counts as conscious thought, but you know that credit card bill that you pay the minimum balance on every month? The one that’s going to take you 17 years to pay off at your current pace? It’s not just a uniform morass of cash. It’s that 99¢ iTunes download, now $1.78 with interest. It’s that $5 Quizno’s sub you didn’t think anything of at the time because, you know, $5. Even though it’s ultimately costing you $8.69. Some people justify the big purchases (see above), but no one even bothers to justify the everyday ones that make up the bulk of your total spending.

We’re not going to say that building wealth is the easiest thing in the world, but it’s far less complicated than many people make it out to be. If you can’t get ahead, look within first. Not to quote ourselves, but are you buying liabilities? Selling assets? Assuming that your opposite number in any transaction has your best interests at heart? Not putting the math you learned in the 4th grade to use?

If you’re struggling, you can get out. Easier and with less pain than you think. But you’ve got to want it. If you don’t, that’s fine, but you’re probably going to hate it here. In the meantime, buy our book and get started. Don’t say we never do anything for you.

Filed Under: Bad Examples, Consumer Debt, Credit Cards, Estate Planning, Finance Tagged With: , , , ,
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