Thanksgiving, Kardashian Kard, Lottery Round Up and Uncommon Money News

By: Roshawn Watson

For those who celebrated Thanksgiving last week, I hope that you had a wonderful holiday. I recently was listening to a charity organization discuss how in one of the areas they work, the family matriarchs walk several miles each morning to get fresh water. The story instantly increased my gratitude. It's amazing what we sometimes may take for granted. Anyone who can't find anything to be thankful for has simply loss perspective.

The No Lose Lottery

The lottery is called a tax on the poor and those who can't do math because of the high improbability of getting sizable winnings. In the vast majority of cases, the participants would be substantially better off by just placing their money in cookie jars. Still, the thrill of potentially winning overrides such conventional wisdom. Leave it to the Freakonomics authors to find an example of a lottery that doesn't feel predatory, and all participants win...somewhat! Here's how it works:  for all practical purposes the lottery is actually a savings account with a  large monthly raffle. Let's say that the market interest rate for savings is 2%. This account would pay you 1% instead and use the other 1% to go towards a monthly raffle, where one participant wins big. There would be no fees  to join this account, and at the very least, you get to keep your savings. It's a win-win! I know several of you may be asking "where do I sign up?" It is presently illegal for this type of lottery to operate  in most states due to exclusivity rules, but who knows whether the idea will catch on and inspire a change in legislation? (see link below under Business News)

Kardashian Kard No More

A new and developing story is that the Kardashian clan is tired of the the intense criticisms they are receiving for their new debit card, aptly named the Kardashian Kard. The card is riddled with hidden and possibly illegal fees. The card reportedly costs $9.95 to own and has 12 monthly fees of $7.95. It also costs the owner $1.50 each time one wants to add money to the Kard. The Attorney General of Connecticut opened an investigation to evaluate whether the Kard violates consumer protection laws. Accordingly, the family fired off a "Notice of Termination" yesterday to the companies behind the Kard, saying that the Kard "threatens everything for which [The Kardashians] have worked." (see link below under Entertainment Money News)

Thought Questions: What are you grateful for? How do you feel about the " no lose lottery" and/or the Kardashian Kard?

Now, it's time to do the weekly Uncommon Money News and Yakezie Round Up.

Uncommon Money News and Round Up
In preparing to write my posts, I often come across noteworthy and sometimes bizarre financial and business news. Below are links to some of these sites. Enjoy!

To my readers: I am so honored by your support. Together, we are telling thousands of the importance of financial literacy. I absolutely could not do it without you: you are vital! Thank you sincerely.

Personal Finance (Yakezie and other PF bloggers)

Being A Genius Does Not Equal Success In Life at Money Reasons - Don discusses his childhood friend earned a Ph.D. in chemistry and works as a stockboy in a local grocery store.

Doing What You Love Or Loving What You Are Doing at Everyday Tips and Thoughts - Kris discusses her thoughts on loving what you do. We end up having an interesting discussion in comments.


Please Tell Us Why The Flat Tax Is Not Fair at Financial Samurai - Sam discusses the fairness of using a flat tax instead of the present income tax system.

Holiday Gift Guide for Her: Gifts Under $100 at Fabulously Broke - FB gives guys some gift ideas for treating your lady friends without break the bank.

Why America Is Doomed To Debt at Personal Finance By the Book - Joe talks about the three reasons why America just doesn't shake the debt habit.

How mozRank is Filling in the Gaping Hole Left by the Departure of PageRank at Invest It Wisely - Kevin illuminates something a gap for webmasters; if you have a website that accepts advertising, this will be an interesting read.

Business News
The No Lose Lottery

GM Could Be Free of Taxes for Years: Its govt-financed restructuring meant a tax break that could be worth as much as $45 billion!

GM Now The World's Biggest IPO

Banker Gets Fired After She Celebrates Getting Laid Off



Million Dollar Businesses You've Never Heard Of

Economics
EU agrees to $89 Billion bailout to Ireland

Worker Shortage in the Energy Services Sector at Beating The Index - Mich illuminates the outlook of the oil field services job sector.


Entertainment Money News
Kardashian's Kiss Their Kard Goodbye

How Much Did Nic Cage's Bargain-Basement "Frat-House Bordello" Home Sell For?

Katherine Jackson's Secret Contract

Michael Douglas's Ex-Wife Won't Get His Wall Street 2 Money (For Now)

Yet Another Real Housewife Files for Bankruptcy

Broke! Eddie Murphy's wife Nicole Murphy rumored to have blown through her entire $15 million divorce settlement

Offbeat Money News
A Frugal Approach To College Education at Saving Money Today - This article makes the case for attending community colleges the first two years of a bachelor degree to decrease education costs.


Gamer makes a cool half-million by selling virtual property

Carnivals that I've participated in:

• Carnival of Financial Planning at KC Lau - Economists Blame ME for the Slow Recovery and Why Is Debt Really Decreasing?' and 7 Surprising Facts About Millionaires

Round ups that linked to posts from this site

• Kevin at Invest It Wisely- Weekend Reading Riding The Roller Coaster and Thanksgiving edition
• Don at Money Reasons- Pre-Thanksgiving Day Dinner and Thanksgiving Day Dinner
• Mich at Beating The Index- Weekend Edition: Chinese rates and Irish Debt
• Barb at Barbara Friedberg PF- Free Online Resources To Increase Your Personal Wealth
• Mike at Saving Money Today- Feels Like A Round Up Kind of Day
• Miranda at Financial Highway- Dollar Matters - What Are You Scared Of
• Weakonomics- Don't Worry About Leaving Your Kids With Anything
• Joe at Personal Finance By The Book- Thanksgiving Place Settings Corny Jokes Round Up
• Kris at Everyday Tips and Thoughts- Tired From Shopping, Well Then Sit Down And Read
• Jimmie at HotAir- When I Can Becomes You Must

The Rich Get Richer

By: Roshawn Watson

Just yesterday, I heard a prosperous (understatement) businessman say that he didn't believe that the rich got richer and the poor got poorer because everyone has the same opportunities to move between classes, so the poor can become rich and the rich can become poor. In his opinion, money is quite dynamic. While I acknowledge there is some truth in his statement about opportunities, for the most part I disagree and believe that the rich do get richer. There are patterns of behavior that set one's trajectory for poverty or great wealth. Generational poverty and wealth (despite the death estate taxes) exists, but how does one get on the right side of the wealth equation? Here are some thoughts.

Your Environment Matters

It was the late billionaire J. Paul Getty  who said that if he were down to his last five dollars, you would not find him in some cheap restaurant trying to eat all he could. He would rather be in a nice hotel lobby drinking coffee with visionaries and leaders. His rationale was that the people he wanted to be a part of his future were at the hotel not the restaurant. See his wisdom. This is a profound statement  (and not because you can no longer get a full meal for 5 dollars in most cases). He's suggesting that:

WHERE you are matters MORE than WHAT you are!

Your environment is just as important to your success as what you know. Our environments can encourage us to strive for excellence or comfort us in our mediocrity. It's tormenting to think how many dreams have been destroyed by toxic environments. Think about the movie Precious. What could Precious have done had she been in the right environment all along? Clearly, she was a survivor and a capable young woman, but suppose the only thing she had to survive was high school instead of financial, emotional, physical, and sexual abuse. Once she left that mess, she began to reclaim her life.

Wealthy Habits

Oh... THIS IS A BIG ONE! Habits mean that the thing you do twice becomes easier. Don't be mistaken, habits are not the same as discipline. Discipline is the conscious effort to birth a habit. Discipline is unnatural whereas habits are instinctive. Remember, we are creatures of habit not discipline. I'm convinced that when you have wealthy habits for a long enough period of time, you build wealth. This also works if you have a substantial income or sudden windfall.

In some respects, you don't really decide your future. You decide your habits, and they decide your future.

Habitual Frugality - Frugality can mean different things to different people. What's frugal for Oprah is remarkably different from what's frugal for us mere mortals :) (seriously that was not a dig at Oprah... just an exaggerated example). My point is not to promote coupon clipping per se. If that is not your thing, please don't feel condemned. Frugality is about maximizing output for your input. If Thomas Stanley work has taught us anything, it is that most millionaires are indeed frugal but they are not necessarily first-cost sensitive. How good is your deal if it ends up being crap or you have to waste a ton of time to obtain it? Moreover, even many of those millionaires who don't appear particularly frugal are tremendously more productive with their incomes than most people. For more on this subject, read Toyota Millionaires vs. Mercedes Millionaires

Habitual Investment - Do you habitually pay yourself first? How so? Are you using savings accounts and c.d.s? How effectively do you leverage your income? Portfolio assets are nice, as are investment properties or privately held businesses, but is anything really infallible?  Of course not! My point is I think we should all endeavor to become professional investors and educate ourselves accordingly. Regardless of which asset classes we decide to focus on, remember the wealthy often earn a great deal money through their assets. Not only does this make wealthy individuals financially free (independent), but this has important tax implications as well  (at least for now). For example, consider the tax consequence having $4 million in unrealized capital gains in 2011.

The Laws Affect Your Wealth But Who Sets The Laws

Have you every heard of the golden rule? He who has the gold makes the rules. The fact that many of us live in democracies doesn't negate the impact money has on our respective legal systems. Let's look at Congressional  wealth for a moment:

• nearly half of Congressional members - 261 - are millionaires
• 55 have an average calculated wealth in 2009 of $10 million or more, with eight in the $100 million-plus range.
• Members of Congress saw wealth jump by 16% between 2008 and 2009
• In 2009, the median wealth of a U.S. House member stood at $765,010, up from $645,503 in 2008. The median wealth of a U.S. senator was nearly $2.38 million, up from $2.27 million in 2008.

My point is just because someone is "for the people" doesn't mean that they are "of the people." Many argue that several of the tax laws were made in favor of business owners, investors, and landlords. The truth is there are so many loopholes. Just last month, Kris brought everyone's attention to how Google legally uses offshore tax havens to shelter billions in revenue thereby minimizing their effective tax rate to a mere 2.4%. They are not alone.

I say this not to incite populist anger. After all, one would have a reasonable argument against double taxation in the first place.

Business owners not only provide jobs but also take the risks to build the companies, so this isn't as much as a criticism as it is an acknowledgment that the tax code can work in favor of business owners and those who generate income through more passive or portfolio means.Given that taxes are most of our single largest lifetime expense (we're taxed when we earn, when we spend, when we save, and when we die), getting a handle on taxes is prudent, and according to Thomas Stanley, this is one of the most popular activities among the millionaires in his surveys. So ask yourself, what tax professionals are on your team?

High Income

If you have a high income, regardless of source, then you have the potential (in most cases) to bank more of your income than someone who makes the median income. Of course, this assumes that you have your expenses under control. After all,  regardless of whether you make $40,000 or $400,000 you can still be broke. In other words, that nice salary may not be enough to finance the life that you feel entitled to if that life style entails expensive private schools, exclusive neighborhoods, occasional shopping sprees, and extravagant vacations, etc.

For proof, please note that yet another Real Housewives castmate has filed for bankruptcy because she cannot meet her obligations on a mere $26,000 per month. Seriously, I personally feel for anyone going through financial hardships (regardless of fault). I bring this up not to deride her or pass judgment (I've made my mistakes too) as much as to show how $312,000 per year and some degree of celebrity cannot overcome jaw-dropping liabilities (debts equal to $19.8 million). Remember, it is infinitely more difficult to build sustainable wealth than it is to earn a high income. Still, it is easier to build wealth if your have a high income. The trick is making sure that you use at least a sizable portion of that high income to advance yourself and your family financially instead of just consuming it with lifestyle inflation.

Enjoy What You Do

It is so much easier to succeed financially if you actually enjoy what you do. Don't sell your soul to a soulless institution for a paycheck. This isn't to suggest being irresponsible by quitting your job and ignoring your financial obligations. I'm just saying don't lose decades of your life doing something you hate or staying at a place that you hate out of fear or some misplaced sense of loyalty. The institution does not love you back. You and you alone are charged with finding meaningful work... work that is an authentic utilization of your passions, personality, and skill sets. If you enjoy it and are competent, you will excel. Good people love recognizing excellent work. Anyone who doesn't is not worthy of your efforts anyway.

If you love what you do, you will never work another day in your life.

In aggregate, most millionaires are first-generation and did not get their money by accident. There are conditions, information, and laws that affect our financial positions, whether we acknowledge them or not. Don't allow yourself to aimlessly follow the path set in front of you. Embrace the habits of the wealthy, and improve your balance sheets today!

Lastly, if you like this article, please subscribe to my FREE email updates or RSS feed (reader), Retweet it, Tipd it, Fark it, Stumble it, and tag it on Delicious. Also, click here to receive my eBook for FREE.

Related Posts
Toyota Millionaires vs. Mercedes Millionaires

Good Old Middle Class or Wealthy - You Decide Redux

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What Are Your Financial Regrets?

Yakezie Personal Finance Carnival: Dream Edition

By: Roshawn Watson

Today I am honored to host the Yakezie Personal Finance Carnival. Thanks to all who sent  me your best stuff! For the uninitiated, Yakezie primarily consists of a network of personal finance bloggers with a deep commitment to helping each other reach traffic and other blog-related goals. Additionally, the Yakezie Scholarship is underway, which is done in the spirit of selflessly helping others.


Before I share with you some great links, I wanted to revisit some comments I made about dreams because dreams are so important to your financial future. John Maxwell wrote that his dream allows him to give up at any moment all that he is in order to receive all that he can become.

In the past, what I have mistaken for a lack of discipline, I now interpret as sometimes a lack of hope. Hope deferred makes the heart sick. If you've had your dreams crushed, how can you be excited about the future? If you are not excited about your future, it will be an uphill battle to garner the discipline and birth the habits necessary to bring financial abundance into your life. At a conference a few years ago, the keynote speaker kept re-emphasizing that the dream is the fuel. It would do us all well to internalize that statement. We can decide the vehicle (stocks, bonds, ETFs, mutual funds, real estate, businesses, jobs, royalties, etc.), but the dream is what motivates you to stick with your plan when adversity strikes, when stock values plummet, when a business fails. For more, please read Through The Looking Glass.

Don't underestimate the power of your dream: remember, the dream is the fuel!

Thought question: please share with me what are your dreams?



Invest It Wisely analyzes the likelihood of a gold bubble as its value approaches $1500 in Gold Revisited: Is $1500 Near

BarbaraFriedbergPersonalFinance gives her negotiating tip, detailing how her cheap find at a NYC street fair turned into an elegant addition to my home.



The Millionaire Nurse explains What Quantitative Easing Part 2 Means To You

"Dreams are, by definition, cursed with short life spans." - Candice Bergen

KNS Financial asks what things what he pays for that he shouldn't in 4 Things You Shouldn’t Pay For

Everyday Tips shares experiences from being a working mom and a SAHM and the perspectives gained from both in Lessons Learned From Working And Staying At Home


Money Help For Christians provides this spreadsheet for people using a debt snowball to pay off debt

"Death is not the greatest loss in life. The greatest loss is what dies inside of us" - Norman Cousins

Money Reasons asks Do Movies and TV Shows Affect Your Purchasing Decisions?

Cheapskate Sandy shares her results after One Year On Prosper.

Squirrelers argues Frugality Can Be Expensive

Watson Inc (that's me) shares his Radical Thoughts About Our Culture of Debt at Frugal Dad

Note: my normal link round up and Uncommon  Money News will not be featured this week

What Are Your Financial Regrets?

By: Roshawn Watson

Reflection is mental concentration. Sometimes the insights one gains by reflecting can be the difference between obtaining your breakthrough and languishing in failure. It’s easy to continue repeating the same mistakes if you never learn from them. However, suppose you could turn back the years and were eighteen again. Would you leave everything the same or would you change things? Personally, I would correct some past mistakes. Here are four things that I would do differently.

Car Note
Fact: After my first car died on me for the Xth time, it was time to replace it.
Fiction: I needed a major upgrade right then.

Oh how I regret ever getting a car note! Although I paid it off very rapidly, I realize getting this debt in the first place was one of the dumbest things I ever did by far. Oh how I wish I would have had more backbone and stood up to the salesperson. I wish I would have gone with something that I could have afforded right then instead of arrogantly assuming that everything would work out. Fortunately, I only made this mistake once.

One reason I regret this is that cars are rapidly depreciating assets: the average car loses 45% of its value in the first three years. However, the primary reason car debt is a big one for me is because of opportunity costs. If you just invest the typical car payment in North America (approximately $480) from age 20-70 (assuming 10% annual return), you would have a sweet $5 million. Even if I’m half wrong, you’re still in a great situation. Once I realized what I was giving up, I could no longer enjoy my car. Thus, I almost sold it but in the end I resolved to pay it off and count it as stupid tax…never to be repeated.

Student Loan Debt
I received plenty of scholarships, but the truth is I didn’t do everything to minimize my debt. For example, I could have worked more while in school, applied to more scholarships, or agreed to work for companies after graduation in exchange for tuition. I could have also chosen a less expensive school (although I love my alma mater greatly). There were some phenomenal other schools (very strong academics) that I was accepted to that would have cost a fraction of what I paid. Thus, I not only consider my student loan debt self-inflicted but also preventable.

While I am happy that this worked out too, I got the degrees and paid off those debts, I certainly wouldn’t call my decisions financially wise. Student loan debt has now surpassed credit card debt by $3 billion, and 43% of students don’t graduate. It’s bad enough to have the student loans, but to be indebted without earning your degree is akin to digging a hole without a shovel. I know it won’t be you or anyone that you know who doesn’t graduate, but I would suspect that close to 100% thought that they would graduate too, yet 43% didn’t. With student loan default rates now exceeding subprime mortgages, car loans, and credit cards, and the near impossibility of bankrupting them, student loans are far from innocuous. I’m sure we all know an educated indentured servant or two.

Investing Earlier
I wished I would have started investing earlier too. Although I started a few months after I began working full-time, there was no good reason I couldn’t have started while I was a teenager. I wish I would have learned about brokerage accounts instead of just savings accounts and c.d.s, even if the only obvious benefit I received was getting over my initial trepidation with respect to investing process.

I experienced some “growing pains” with respect to investing too. For example, I initially followed the asset allocation suggestions for my age group, but that didn’t fit my risk tolerance. Consequently, I was anxious and with good reason. Had I continued with that initial strategy, I would be very unsatisfied with investing today. From this experience I learned that one-size fits all advice makes great sound bites but can be misapplied due to the specifics of your situation. Just because your investment plan is unconventional doesn’t make it ineffective.

If you purpose to learn more about investing, consider subscribing to investing magazines and listen to investing greats, such as Warren Buffet. An insightful read is The Intelligent Investor by Benjamin Graham. Although I didn’t start investing at six, like my colleague Money Reasons, I am happy that I grabbed a hold of this lesson sooner rather than later and intend to be a life-long investor.

Delayed Grad School or At Least Been More Innovative
I also wish I would have trusted myself more with respect to going back to school. I was concerned that if I stopped, I might not return. In my situation, it would have been financially more prudent to have delayed grad school, even if it was for only six months. However, instead of working something out to minimize the financial implications of going to grad school, I blissfully ignored my mess initially. Although my decision was more palatable that way, I almost got burned…badly.

At the very least, I wish I had been more innovative. A few years ago, I read Campus CEO by Dr. Randall Pinkett (winner of The Apprentice Season 4). He wrote that he and his partners built a multimillion dollar business by compensating for their limited financial capital by using other resources that were readily available at their university. Unfortunately, this was not my experience, and to this day I fault myself for not applying myself more in this area. Let me paint an illustration of how being more innovative might have helped me. Depending on your sophistication, the same 10 lbs of iron can be used to create several different levels of income. For example, you could use it to make: (1) horse shoes (worth $30), (2) needles (worth $300), (3) watch springs (worth $3000). Too many times in life, we try to solve our financial problems with “horse shoe” level answers. I count my blessing that it worked out, that all is not lost, and that there is still time. (I did do some creative things to leverage my income, which I describe in an upcoming post).
 
Well, those are my missteps; do you want to share some of yours?

Lastly, if you like this article, please subscribe to my FREE email updates or RSS feed (reader), Retweet it, Tipd it, Fark it, Stumble it, and tag it on Delicious. Also, click here to receive my eBook for FREE.

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The Educated Indentured Servant

7 Step Guide to Financial Peace and Flashin' Money Round Up

By: Roshawn Watson

I recently saw the rapper 50 cent (well pictures of him at least) playing around with $500,000 without a care in the world (link below in Entertainment Money News). Some may feel I should have been angry like many of the commenters on the site, but to be honest I'm rather ambivalent. It's his money, so he can do with it as he wants. Also, I figure he sent the pictures out as a joke (even if some find it insensitive). A couple of days later Verne Troyer (Mini Me from Austin Powers) posted a response pic with a witty caption that I just found hilarious (link below). In both cases, I doubt either one of them is presently struggling with money, but what about you?

I don't believe we're suppose to struggle with money. The byproduct of living within your means and consistent investing over the long term is phenomenal wealth. There are plenty of great articles and books that teach that you to be comfortable with less. If you are like me though, you would rather learn practical steps to be comfortable with more and to decrease your financial risks. Since money impacts so many areas of our lives (education, health, safety, giving etc.), how do we structure our lives to gain peace regarding money? I'm glad you've asked. I'm aware of no secret formulas and no quick fixes. Do not dismiss the Law of Process that states: you cannot always be what you are not, but you can become what you are not. It is unpopular to suggest that change is not always effected immediately, yet it is true. Meaningful change often necessitates a significant time-investment. Accordingly, don’t try to “be wealthy;” instead, “become wealthy.”It will involve work and commitment, but I sincerely believe that you are destined for financial peace and wealth!

If you would like to better harness the power of your money, then please check out my The 7 Step Guide to Increasing Your Financial Peace. It is not as much about building wealth as it is setting the necessary foundation to build wealth. Financial peace is important because it is easy for our souls to be corroded with anxiety and discontent regarding money. Please feel free to share it and comment on it if you find it valuable.


Thought Questions: Tell me what steps have you employed to gain financial peace? Why do you feel that 50 cent and Mini Me are right or wrong in showing pictures of them playing with money?

Now, it's time to do the weekly Uncommon Money News and Yakezie Round Up.

Uncommon Money News and Round Up
In preparing to write my posts, I often come across noteworthy and sometimes bizarre financial and business news. Below are links to some of these sites. Enjoy!

To my readers: I am so honored by your support. Together, we are telling thousands of the importance of financial literacy. I absolutely could not do it without you: you are vital! Thank you sincerely.

Personal Finance (Yakezie and other PF bloggers)
How We Bought Our Car at Get Rich Slowly - Nicole from Grumpy and Untenured provides very helpful tips on how to smartly purchase a car with minimal hassle and a fair price.

The Comfortable Lifestyle Business or The Big Payout? at Financial Samurai - Sam asks: would you rather make $15,000-$30,000 a month and “work” only 2-4 hours a day or make minimum wage working 12-18 hours a day for two years with a 25% chance of selling your business for $100 million dollars and netting yourself a cool $25 million?

Is All That Education Worth It at Fabulously Broke - FB discusses the disproportionate number of educated individuals that hold jobs that require less than a college degree per BLS and the financial implications of higher education.

How to Have A Frugal Wedding at Everyday Tips and Thoughts - Kris offers some helpful tips on how to have a frugal wedding

Why I Chose To Pay Down The Mortgage Faster Instead Of Investing at Beat The Index - Mich provides some great points of why he is paying down his mortgage quickly complete with comparative tables and calculations

Defending Your Financial Fortress Against Spending Temptations at Money Reasons - Don discusses the fortitude necessary to stick to your financial plan despite continuous financial temptations

Happy Meals Banned as a Part of Food Justice Agenda at Biz Of Life - The Grouch provides an interesting video on how San Francisco's food cops have banned toys in happy meals; the far-reaching implications of such policies are daunting.

Business News
Debt collection company in Pennsylvania busted for sending out fake sheriff's deputies summoning people to appear in fake courtroom with fake judge.

Investing
One day after the GOP seized the House upon sharp criticism of the stimulus, the Federal Reserve announced a $600 billion plan to stimulate the economy. The market is up.

U.S. home prices expected to slide another 8% - "another 8% drop in home prices through the third quarter of 2011, which will put the total peak-to-trough decline at 34%."

Entertainment Money News
Did James Franco Beat Brad Pitt and Will Farrell at the Box Office?

Emma Watson Shocked That She's Worth $32 Million


50 cent so bored, he's just playing around with $500,000 (pics) and Verne Troyer's response

Offbeat Money News
Would You Give Away $11.3 Million (Penny Frugalista)

The Skinny on Credit Cards (Invest It Wisely)

Plan for Black Friday Shopping (Bucksome Boomer)

Giveaway
Squirrelers gives you a chance to win his Thanksgiving Giveaway ($300 in prizes)

Carnivals that I've participated in:

• Carnival of Personal Finance at PT Money- Do You Save Instead of Paying Off Debt?
• Festival of Frugality at Generation X Finance- Good Old Middle Class or Wealthy - You Decide Redux
• Carnival of Financial Planning at ABC of Investing- Economists Blame ME for the Slow Recovery and Why Is Debt Really Decreasing?' and 7 Surprising Facts About Millionaires

Round ups that linked to posts from this site

• Kevin at Invest it Wisely - Weekend Reading- Frosty Edition
• Kris at Everyday Tips and Thoughts - Time To Read
• Don at Money Reasons - Will The Dow Rally?
• Nicole and Maggie at Grumpy and Untenured - Weekly Round Up New Blog Picks
• Kay Lynn at Bucksome Boomer - Week in Review - Time Change Edition
• Penny at Penny Frugalista - Posts That Piqued My Interest - Fall Leaves Edition
• Sam at Financial Samurai - Samurai Fund Update and Highlight Posts
• Free Score at Free Score - Weekly Round Up New Blog Picks

Do You Save Instead of Paying Debt?

By: Roshawn Watson

If you earn the median income in the U.S., you will earn in excess of $2 million during your working lifetime. Will you have any wealth to show for it? One way to ensure that you don't waste your lifetime income is by paying yourself first.¹Employing this simple principle can revolutionize your finances because it forces you to make wealth-building your priority. Additionally, there is a real  psychological boost to having money in the bank and increasing your liquid assets can decrease your financial risks. However, should you pay yourself first in lieu of paying off your debt?

Risk Tolerance

Eliminating your debt is the same as eliminating financial risk in your life. For example, a typical American family can easily pay well over $1000 monthly in debt payments (car note(s), student loans, credit cards). Consequently, their quality of life is much worst than someone making the same income without the debt. For example, if two families take home $4000 monthly, the indebted family would typically have at least 25% less cash flow ($4000-$1000) than the debt-free family making the same income because their expenses would likely be substantially less.

Nonetheless, I can appreciate the psychological benefits of having money saved, even before becoming debt-free. There's comfort in knowing that money is in the bank, and it feels less risky. However, I think people discount the benefits of being debt-free. It is best for for most people in consumer debt (credit cards, student loans, and car payments) to halt saving and investing beyond a modest emergency fund, provided that they possess the ability to become debt-free relatively quickly. Here's why: if you are debt free and have reasonable income and expenses, the struggle to build wealth lessens substantially.

Can you imagine the psychological benefit of being debt free: knowing that there's not a cotton-pickin' creditor who can lay claim to your money? Imagine how it feels to have years worth of expenses banked in non-retirement accounts and not a single debt in the world.

Note the average millionaire has at least 10 years expenses banked, and many could survive for much longer. This is where you are going my friend.

Are You Really Getting Ahead?

Another popular argument is that you can get ahead by playing the leverage/interest rate game. Some people believe it's always best to get rich using OPM (other people's money).  For example, if you can get money at  0%, why wouldn't it make sense to save or invest money, instead of paying off debts, to maximize your return.

The problem is "(d)ebt brings on enough risk to offset any advantage that could be gained through leverage of debt. Given time,... the risk will destroy the perceived returns." (Dave Ramsey)

Additionally, most people do not pay off the debt within the specified time. For example, 88% of ninety day same as cash contracts convert to debt (typically at 24 to38% interest). Also, the interest that most of us would earn on saved money is not going to be life-changing anyway. Let's say your bill is $2600, and you want to leave it in the bank for 2 years instead of paying off the bill because you have borrowed the $2600 at 0%. Well if you get a generous 2% interest rate, you earn a jaw-dropping $104. Instead you could just be done with the bill. Lastly, if we are the mathematical geniuses we think we are, why would any of us sign up for the debt trip in the first place? Debt builds the wealth of creditors not the debtors, so being good at math obviously had nothing to do with it.

Paying Debt is a Guaranteed Return

If a trustworthy banker (I know... an oxymoron for many) told you about a guaranteed, low-risk return, would you be interested at least? Well, such a return does exist. For example, paying debt that's at an interest rate of 7.5% APR is the same as saving or investing that money and getting a 7.5% annual return. Consequently, in the present environment where it's somewhat uncommon to get even a 2.5% return for savings accounts, you can certainly see the financial appeal of paying off your debt. Paying off debt can make a sizable difference to your bottom line. Don't take my word for it though. Seventy-five percent of the Forbes 400, the 400 richest Americans, said that the best way to build wealth is to become and remain debt-free.

Net Worth

One way I conquered my natural inclination to save while I was eliminating consumer debt was to start determining my net worth. Regardless or whether you save or pay off debt, your net worth still goes up.  After I began tracking my progress, my whole outlook on the process began to change. I could began to see the impact of every payment on my wealth. My lightening-fast mind began to wonder why would I want to build less wealth by holding on to debt and saving versus paying off the debt quickly and then aggressively saving and investing. It was this rationale that helped me choose the latter option.

If you are struggling between paying off your debt and saving, I encourage you to take the plunge and quickly become debt-free. If you are used to paying a lot in debt each month, you will be amazed at what happens once your cash flow is freed up. Your most powerful wealth-building tool is your income. Don't slow down your financial independence for the sake of  keeping a few extra dollars in the bank or trying to earn some more interest. There is a reason American companies are sitting on more than $1 trillion dollars in cash right now; companies, such as Ford (no bailout) deleveraged (eliminated debt) two to three years ago to decrease their financial exposure during this uncertain economic climate. If these companies were wise enough to deleverage and then increase their cash reserves, then why don't you do so as well?

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¹ popularized by George Classen's The Richest Man In Babylon

Financial Backbone Round Up and Uncommon Money News

By: Roshawn Watson

Although it may not be intuitively obvious, a financial backbone is important to your wealth. It is typically challenging to prosper or stay prosperous while everyone has their hands in your wallet. We are constantly under siege with every conceivable opportunity to spend money. Additionally, just because you have something doesn't obligate you to heed to every one's requests. It's okay to say NO! No is not a bad word, is a complete sentence, and often requires no additional explanation. Otherwise, your friends, in-laws, marketers, store clerks, and grown children may all expect you to freely dole out economic support without respect for your feelings, budgets, or values. 

Last week, I read an article by Kris from Everyday Tips and Thoughts (link below in Personal Finance) that I found quite disturbing. A prosperous couple were being asked to finance an extravagant wedding for their daughter and her fiance. The problem is such an elaborate event ran contrary to their values. They decided to write into Kiplinger for advice, and the Kiplinger authors suggested that they "offer to give the couple a one-time significant financial gift to start them off in their lives together" and let the children choose where they allocate the funds.

While I know this advice may seem innocuous, I personally found it very troubling for many reasons. First, it is money they have accumulated, and they have every right to refuse to underwrite something that they find objectionable or irresponsible. Second, it sends the wrong message to the grown children (the engaged couple) and the family. It says that financial boundaries do not matter. As long as we put enough pressure on them, they will bend. Personally, I think this is exactly the opposite of what they should be communicating. Clear boundaries prevent a lot of confusion later. At least, Knight Kiplinger and I agreed on this point: do not become their bank in the future. Third, I think a "forced" gift is not much of a gift at all and leads to regret and resentment. For example, it's hard to maintain your respect when your "broke" child and her fiance are making decisions you find unwise. Trying to finance a platinum wedding when you don't even have a permanent place to live, an emergency fund, paid for vehicles, etc. just makes you look stupid. Lastly, I feel if both these parents aren't careful, they may rob their grown children of independence.This is a big deal for the young couple because it is probably the quickest and most likely way they can be in the same financial position as their parents. Not only is inheritance not guaranteed (i.e. multiple children, charities, taxes can all affect the size of an estate), but wealthy parents prefer providing financial support to their grandchildren more than to their wealth-oriented child and spouse (Dr. Stanley). Thus, unless they can come to an agreement with their family, I think that the best decision for them is to do something that they feel comfortable with, even if it makes them unpopular. 

For more, see The Problem With Being Budget Minded Is Other People 

Thought Questions: Why would (or wouldn't) you support this extravagant wedding?

Now, it's time to do the weekly Uncommon Money News and Yakezie Round Up.

Uncommon Money News and Yakezie Round Up

In preparing to write my posts, I often come across noteworthy and sometimes bizarre financial and business news. Below are links to some of these sites. Enjoy!

To my readers: I am so honored by your support. Together, we are telling thousands of the importance of financial literacy. I absolutely could not do it without you: you are vital! Thank you sincerely.

Personal Finance (Yakezie and other PF bloggers)
Would You Pay For An Extravagant Wedding? at Everyday Tips and Thoughts- Kris weighs in of the difficult money dilemma: do you violate your frugal values to appease a family.


Diversity Leads to Innovation at First Generation American - Sandy discusses the advantage of bring diversity into projects and the workplace.

Make More Money By Working Two Jobs at Money Reasons - Money Reasons discusses the advantages of having additional income sources. Diverse income is typically a very good thing.


What's Wrong with This Picture at DIY Investing - Robert discusses how misleading advertising for investments can dupe most readers. In this example, he discusses the differences between total return and yield.

Business News
Six Monopolies That You Didn't Know Ruled The World

Nokia Outsells Apple iPhone 2 to 1

Ford Rebounds with Record Profit - Auto giant adding 1,200 Michigan jobs

Economy
More are living off tax revenues, and fewer are providing them

US GDP: economists predict faster growth

Economics In One Lesson at Invest It Wisely - Kevin reviews Henry Hazlitt's insightful book from 1946, which eerily attempts to forewarn  us of so many financial mistakes that we have recently made.  Get free PDF here.

Entertainment Money News

Tiger's $50 Million Bachelor Pad -- Par for the Course

Vujacic proposed to Sharapova with quarter-million dollar ring

Carnivals

• Carnival of Personal Finance at Consumerism Commentary - Toyota Millionaires vs Mercedes Millionaires
• Festival of Frugality at Magical Penny- The Problem With Being Budget Minded Is Other People (Editor's #1 Pick)
• Carnival of Financial Planning at The Skilled Investor- Economists Blame ME for the Slow Recovery and Why Is Debt Really Decreasing?' and 7 Surprising Facts About Millionaires

Round ups that linked to posts from this site

• Kevin at Invest it Wisely - Weekend Reading- Halloween Edition
• Mich at Beating The Index - Weekend Edition: Orange, Black, & Green Halloween
• Kris at Everyday Tips and Thoughts - Trick or Treat and Reading...
• Money Reasons - A Look Back

Side Note: Make Your Vote Count Today!