Jessica Simpson, Britney Spears Round Up and Uncommon Money News

By: Roshawn Watson

You may know Jessica Simpson for her funny antics, tabloid news, or perhaps her singing career. However, you may not realize how remarkably successful she is as a fashion brand. I first became aware of how well her brand was doing a few years ago, as revenues for her brand were exceeding $300 million annually. Then, I exclaimed to a fashion-savvy coworker "how could this be?," and her response was simply "Jessica's clothes and shoes look nice and are very comfortable. In fact, I have on a pair of her shoes right not." Well, the appeal of all things Jessica has paid off, as retail sales of her brand is now totaling $750 million this year. Perhaps the funny part is that Jessica doesn't typically present herself as a style icon, especially in the same way that other celebrities and pseudo-celebrities often market themselves. Instead, she uses her girl next door charm and drives her Rolls Royce straight to the bank. A few years ago, she was on The Apprentice, and she mentioned that the dumb blond routine is just an act and that she is really quite business savvy. Well, now that her fashion brand alone is on track to gross a billion, is the joke on all of her dissenters?

Obviously, Jessica does not occupy this space alone. I have previously reported that no other than Britney Spears is also an endorsement powerhouse. Yes, Brit is another southern bell who has manage to create a sizable fortune for herself outside of music. In fact, I found it so interesting that during the point when things were Toxic in her life a few years ago, she was still pulling in over $700,000 a month without working, partly due to strong sales of her fragrances and investments. The distributor of her fragrances said that sales did not diminished during this troubled time. Perhaps you wonder just how successful the pop princess has been in fashion. Well, Spears is the number one celebrity perfume endorser of all-time with global sales of 1 billion and gross revenue in the U.S. of $2 billion. In addition to Jessica Simpson, Brit's brand also beat out other major celebrity brands including Céline Dion, Mariah Carey, Usher Jennifer Lopez, P. Diddy, Paris Hilton, and Hilary Duff. According to the SEC filings of Elizabeth Arden, the company behind her fragrance, sales for her fragrances increased by $10.5 million for the last three months ending December 31, 2009. Although I was unable to find the revenue from her current high-profile Candies' campaign, let's assume Kohl's is bringing her back for altruism. With a personnel net worth exceeding $100 million and an income of at least $64 million, Britney doesn't show any sign of slowing down.

Perhaps Britney and Jessica's success is even more notable given the fate of another celebrity brand I follow. I'm speaking of no other than the original domestic diva, Martha Stewart. Martha Stewart is still plugging, cooking, knitting, and crafting along. Martha Stewart Omnimedia initially "meant your basic multimedia: television, books, a magazine, and retail deals with the likes of K-Mart. Now it's all that plus a website, satellite radio, an iPad app, a Twitter feed (2-million-plus followers), the MarthaBlog, and a host of merchandising deals that would make Disney jealous." Presently, the market capitalization of her company stands at about $255 million, but the problem is that it is down from about $1 billion four years ago. Yikes!!! She is still compensated nicely though. She (and a entity she controlled) received roughly about $12 million in 2009. Additionally, even at these depressed stock prices, the value of her shares (she owns about 50%) of her company is well over $100 million. However, it just shows that even powerhouse brands like Martha Stewart can falter.

Related Posts

How Much Money Does Kim Kardashian Make?

How Much Money do American Idols Make?

How Much Does DWTS Pay Celebrities

Tori Spelling - Unsung Financial Hero?

Thought Questions: What Do You Think About The Preponderance of Celebrity Brands?

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)
Christmas Experiences During The Great Depression at Money Reasons - Don challenges you to experience true gratitude and greater appreciation for history this season as he recounts stories from his grandmother

Sometimes Saving Money Isn’t Worth It – Items I Refuse To Buy Generic at Everyday Tips and Thoughts - Kris teeters on the brink of blasphemy with this irreverent post.

Is Uncle Sam the New Bank of Mom and Dad? at First Generation American - Sandy reshapes the discussion to the role of government in our economy and welfare.
The Grouch's Billionaire Challenge at The Biz of Life - After reading about the proliferation of billionaires taking the plunge of giving away at least 50% of their wealth upon their death, The Grouch comes up with his own humorous challenge

Mainstream Financial Media vs. PF Bloggers: 401K loans at 101 Centavos - Who provides you with the best financial info? 101 Centavos uses 401K loans as a case study.

Importance of Financial Literacy Education at Invest It Wisely - Jesse gives you a chance to win the popular personal finance book I Will Teach You To Be Rich

Business
Facebook CEO Zuckerberg Agrees to Donate Fortune to Charities

Halliburton may pay $500 million to keep Cheney out of prison:

How Color Affects Our Purchasing Habits [Graphic]

PayPal admitted it suspended payments to WikiLeaks after an intervention from the US State Department

Economy
China sees inflation jump to 5.1%, a 28-month high

Entertainment Money News
Jessica Simpson $750 Million Fashion Empire

Is Martha Stewart’s Business Still a Good Thing?


Offbeat Money News
How Much Is a Tweet Worth? $500, Says Toyota

Carnivals that I've participated in:

• Carnival of Personal Finance at Mighty Bargain Hunter- Am I A Financial Hypocrite
• Festival of Frugality at Passive Family Income - Toyota Millionaires vs. Mercedes Millionaires

Round ups that linked to posts from this site

• Kevin at Invest It Wisely-Weekend Reading: Snow Edition
• Don at Money Reasons- Year End Holiday Traditions
• Kris at Everyday Tips and Thoughts- Get Coffee and A Pastry And Enjoy Some Great Posts

7 Reasons for (and Against) Tracking Net Worth

By: Roshawn Watson

The true estimate of your financial intelligence is not how much you make but how much you keep. One measure of how much you keep is your net worth. For the uninitiated, your net worth is simply your assets minus your expenses. Many people graduate from college with a negative net worth. In keeping with the school theme, think of your net worth as your financial report card after college. It is akin to a summary statistic of your progress. The median household net worth is $120,000 according to the Federal Reserve. While it is only one measure of your financial health, tracking your net worth can certainly have its benefits (and limitations). Unfortunately, tracking their net worth has become an obsession for some.

Benefits of tracking net worth

1) Better financial decisions. If only people thought about the long term impact to their net worth before making large purchases, decisions would often be different. Consider how attractive that new car would be if people considered its value would decline substantially after 3 short years. Considering that new cars lose 45% of their value after three short years, your net worth will take a hit for making the purchase. If you finance the vehicle because you couldn't afford to pay cash, the interest you pay will make you poorer each month and will hurt your cash flow. Less cash flow means you have less available funds to increase your net worth. Overall, the cost of having a car payment can be estimated in the millions when amortized over 3o years. I hope you really like that car! That's the benefit of factoring net worth into your decisions: it can highlight stupidity or at least naivete cloaked in conformism (everyone has a car payment).

2) Identify weaknesses. If your net worth is constantly going down, especially due to the diminished value of assets or rising debt, then consider your ways. Assessing individual components of your net worth can be tremendously useful in determining areas of financial weaknesses. If your portfolio value is constantly declining, you may have a dog in the bunch that needs to be sold. Similarly, if you financed a car that you cannot afford or purchased a home at peak prices, it is very possible that you may be upside down in the loan (owing more on it than the "asset" is worth). This negative equity would show up on your balance sheet as an increase in debt and decrease in value. Student loans, maxed out credit cards, college funds, retirement and other investments all help determine your net worth. The point is tracking your net worth can alert you to problems that threaten your financial well-being. If there is a problem, you will identify it more promptly because your net worth will be moving in the wrong direction or not increasing significantly.

3) Communicate with family about financial health. Communication with your family is important to your financial plan because it can bring problems or progress towards goals out in the open. The net worth can be a tool to enhance such communication. Even if the financial news is bad, there is value in discussing your financial issues, so that you can come up with creative solutions to the problems. In some cases, actions such as getting an extra job, selling a car, moderating dining habits may be warranted to stop a financial hemorrhage. You may get less resistance if involved parties know why such sacrifices are being requested. An objective barometer, such as household net worth, can help you make your case. Note, while kids and in-laws certainly don't need to know your net worth, telling them that your portfolio lost half of its value last year may help them understand why you aren't taking that family vacation this year. In addition, it can be difficult to carry the weight of the financial well-being of your entire household on your own. Sharing your net worth can help you share that responsibility. It is our job to make sure that we make responsible decisions regarding our finances.

4) Motivation. Tracking your net worth can be tremendously motivating. If you are working towards a goal, such as paying off debt or saving for a down-payment, tracking your net worth can help you measure your progress. Believe me, every encouragement can help, especially when your are faced with a challenge that seems insurmountable. Your improved net worth can be a visual reminder as to why you are saving or investing. I remember when I loss forty pounds in ten weeks, the scale was my best friend. It kept me honest and focused. Similarly, performing a monthly financial check up can keep you focused and motivated towards your goals.

Overemphasis on Net Worth

1) Net worth is incomplete. While I do track my net worth, it is certainly not the only financial measure that I follow because it simply doesn't give me enough information. Looking only at your net worth will not help you identify problems such as lack of liquidity (unless you take a hard look at the individual components). For example, suppose all of your assets are relatively ill-liquid i.e. 401K, non-income producing property, and vehicles, then it is very difficult to come up with the cash necessary for a purchase or an emergency. Maintaining the appropriate level of liquidity is very important and can keep you out of debt. When you maintain adequate cash or near-cash reserves, a water heater breaking will be more of an inconvenience rather than an emergency and reason for you to go into debt. Additionally, the most important word in the world of money is cash flow, so I also monitor my cash flow. Your cash flow shows up on an income statement. By looking at your income statement, you can determine your monthly expenses, predict (and plan for) large annual expenses, and identify areas in your budget where there may be wiggle room or where you may need to cut back. Even if you have an okay net worth, having poor cash flow can still get you into financial trouble, especially if the bulk of your net worth is tied up mostly in ill-liquid assets.

2)Sloppiness. Looking only at net worth can cause you to get financially sloppy. Let's say you determine your net worth to be higher than the median net worth for your income level. That sometimes means you might have done something right, which is good. However, just because you are doing better than the median doesn't mean that you have earned the right to not pay attention to your finances. Consider that most of the people that you are comparing yourself to are broke, so being better than normal doesn't necessarily make you well-off, wealthy, or rich (far from it in most cases). Note, last year a Harris Interactive and Careerbuilder study revealed 61 percent of workers reported that they usually live paycheck to paycheck just to make ends meet. These are the people you are comparing yourself to. Thus, it is important to avoid getting sloppy with your finances just because your net worth is higher than the median or because you have made progress . While it is okay to be content, continue your efforts to build wealth at least until you become one of those who substantially skews the average net worth statistic upward. Then, perhaps you may qualify for being comfortably poor and a little sloppy :)

3) Just a snapshot. Your net worth is just a snapshot of your financial health. For example, you could be spending your way into oblivion, regardless of the numerical value of your net worth. Think of all the lottery winners, former athletes and entertainers who quickly spent their way back into the poor house. If you look at their net worth a year or two before going broke, it might have been in the seven figures (or higher). I submit to you that...

Fast money doesn't generally equate to long-term wealth. NBA stars are the perfect example. They make more money in a few years than most can hope to earn in a lifetime, yet over 60% of them go broke within 5 years after retiring.

It's the tortoise that wins the race every time. Making sure that you win the race is goal not seeing who can get there faster.

Getting hung up on a static, incomplete, and sometimes misleading financial statistic doesn't make sense and can be toxic. While net worth is certainly an objective measure of your financial health that is worth tracking, don't let this tool become an obsession. Like any other tool, it certainly has its benefits AND limitations. Your self-worth is not limited to your net worth. After all, your net worth is just a number.

Lastly, if you like this post, please subscribe (see upper right-hand corner), Mixx it, Propel it, Stumble it, and tag it on Delicious. Also, click here to get my eBook FREE.

Related Posts
Rich But Financially Inept
Four Ways to Stay Encouraged While Paying Debt
Questions
What do you think are the biggest advantages of your tracking your net worth?
What do you think are the biggest disadvantages of your tracking your net worth?
Would you or do you track your net worth?
Would you post your net worth on a public forum (i.e. Net Worth IQ)?

Tax Cuts, Unemployment Extended Round Up and Uncommon Money News

By: Roshawn Watson

Well, an agreement has been reached (Obama and GOP) for tax cuts for all income levels and the unemployment benefits to be extended. I assume regardless of where you political allegiance stand, you probably didn't get exactly what you wanted out of the deal. A common question that I have been receiving is "what to do about unemployment?" For many, the biggest problem isn't people abusing the system (staying on unemployment instead of working out of laziness) that's the concern. The problem is once someone has been out of work for a very prolonged period of time, it may be even more difficult to get a job. I recall reading in absolute horror about how out of work applicants were being told by recruiters don't even bother applying. We only have jobs for those who are presently employed. 

This could highlight a fundamental problem in how we are addressing this economic problem. Unemployment has increased again (see Economics subheading below), yet U.S. companies are sitting on nearly $1 trillion in reserves.  How do you get companies to feel more comfortable spending their reserves in this economy? One way could be to offer substantial tax incentives for companies hiring full-time employees. Talk about a stimulus! I  personally believe this measure would stir so much economic activity (hiring and subsequent spending) that we wouldn't be in this same predicament a year from now. This plan would allow companies to grow their businesses without taking as much risk by bringing on new employees. Although I doubt this will be done mostly for political reasons that are well-beyond the scope of this blog, I hope someone quickly comes up with a workable plan that really solves the unemployment problem. After all, a band aid masking the problem until "better times" may not be enough, and a lot of affected families are tremendously and understandably frustrated in the interim.

Thought Questions: If you could make the executive and legislative branches agree, how would you fix the unemployment problem? What are your thoughts on the aforementioned strategy? (Note, it's okay with me if you disagree or even go on a diatribe...just no rudeness; FYI I'm not married to my proposal)

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)
Getting Rich: Levels of Wealth at Money Reasons - Don explores one of the most interesting topics in the wealth community.


Living Debt-Free In a Modest Home or Having a Large Home and Large Mortgage at Everyday Tips and Things - Kris discusses some of the pitfalls of a couple Don introduced us too. On a scale of dumb, they could have done a lot worst.


How the Banks Are Fleecing You With A Smile at  Beating The Index - Mich feels sorry for all the hard working men and women out there who are paying those fees because they failed to spot this “error”.

3 Unconventional Investment Moves to Make in 2011 at Invest It Wisely - Kevin challenges assumptions by presenting these three interesting investment plays.

How to Guarantee Long-Term Investment Success at Biz of Life - The Grouch gives you the 4 steps to guarantee long-term investment success

Babci’s Rules of Personal Finance at First Generation American - Sandy outlines her dear Babci's personal finance wisdom. For some reason, this type of post reminds me of Rich Dad, Poor Dad


Simon Says: Financial Wisdom From a 10 Year Old at Personal Finance By The Book - Do you remember playing Simon says as a child? Joe's post blends the popular childhood game with personal finances... how fun!

Why Gold Might Remain Expensive at 101 Centavos -  Several articles about investing in gold compiled in one place.

Feds Warrantlessly Track Americans' Credit Cards in Real Time

US cable TV bleeds subscribers as online grows

Business

Party like it's 1999: Valuations like $5 billion for Zynga (FarmVille) and $6 billion for an online coupon website can only mean one thing - the dot-com bubble is back.

Survey dripping with obviousness: 80% of companies still throw holiday parties, but 93% of employees would ditch the brouhaha for more money

Economy
Why Did 8 Million Americans Quit Using Credit Cards?

Where are the jobs? Are America's corporations the source of its economic troubles? How the enterprises trashed the economy

Unemployment rate climbs to 9.8% in November

Offbeat Money News
Top 10: Highest-Paying Jobs In The U.S.

Highest Paying Jobs Allowing You To Work From Home
Entertainment Money News

Hairy vs. Harry: 'Tangled' wins weekend box office (AP)

'Dead' Celebs Back on Facebook & Twitter After Raising $1 Million

Dane Cook's Half Brother Ordered to Pay Him $12 Million
Carnivals that I've participated in:

• Carnival of Personal Finance at Prairie Ecothrifter - The Rich Get Richer
• Carnival of Financial Planning at Coupon Shoebox- 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: Freedom Edition
• Don at Money Reasons- December Hustle And Memories
• Mich at Beating The Index- Weekend Edition: A Hypocrite Boycotts the Oil Sands
• Joe at Personal Finance By The Book- Body Parts, Winter Wonderland and Gratitude Roundup
• Kris at Everyday Tips and Thoughts- A Lesson About Adsense And Some Favorite Reads

Editor note. A previous version of this post said that the tax cuts had been extended when instead a deal has been reached between Obama and GOP. I apologize for any confusion.

Am I A Financial Hypocrite?

By: Roshawn Watson

There are many types of income, but most income can be classified into three broad classes. While the distinction may be trivial to some, especially if they are personally struggling, the type of income can have tremendous implications to your bottom line and your quality of life. Understanding some basic caveats between the types of income can help you focus on obtaining more tax-advantaged income. Additionally, some recent recommendations by the White House-appointed deficit-reduction commission threaten a well-known tax haven used by both the wealthy and non-wealthy alike, which makes me ask "am I a hypocrite?" Find out why.

Types of Income

The three broad types of income are "earned" income, portfolio income, and passive income.

Earned Income

The income that most are probably familiar with is earned income. This is the money we receive from jobs or our businesses in the form of a paycheck. We have to work for it, typically there is no residual value for it, and it is often the highest taxed. Since we're taxed when we earn, spend, invest, save, and die, taxes are a big deal financially. I do take issue with this being called "earned income" because it indirectly suggests that other types of income, such as income from assets, is not earned.

Portfolio Income

This income includes money received from paper assets, such as stocks, mutual funds, ETFs, bonds, etc. This income is most commonly received in the form of capital gains and dividends. Presently, this is taxed lower rates than earned income, provided that you meet certain requirements. For example, in the US, income from  dividend-producing equities in non-retirement accounts held long-term is taxed at the same rate as long-term capital gains presently (according to the Jobs and Growth Tax Relief Reconciliation Act of 2003). Otherwise, dividend income is taxed at the ordinary income level, which is higher than the capital gains tax rate. Most of us have been forced to become investors because of the shift from Defined Benefit pension plans to Defined Contribution pension plans. Consequently, many of us intend to retire on portfolio income since we are now individually financially responsible for ourselves. Thus, understanding this  income distinction is important, so that we won't be ill-equipped. 

Passive income

Passive income can take the form of royalties from patents or use of intellectual property, rental income, etc. It is also more tax-advantaged and in my opinion is the most leveraged of these three types of income.

Idle Rich Are Idle No More

Many of the wealthiest individuals have strong streams of passive and portfolio income. Think Carlos Slim and Warren Buffett. However, don't think of the golf course or sailing necessarily. There's been a recent shift in  the type of income received by the wealthy during the most recent wealth boom. Wealth has interestingly been fueled more by the working wealthy–entrepreneurs and executives–than by passive capitalists who earn a living off their investment. Berkeley researcher Emmanuel Saez found that wages from paychecks accounted for 56% of the income for the top 1% of earners in 2008 compared to only 40% in 1960. Again, there are tax consequences of getting one's income from wages instead of assets, so it is important to understand how to transform that income into more tax-advantaged income.

Tax-advantaged Income

Moreover, you certainly don't have to be rich to acquire tax-advantaged investments. For example, you could become a landlord or increase your portfolio income. Also, there are risks inherent with each type of investment. There is principal risk, market risk, inflation risk, etc. Putting all of your money in fixed-rate CDs seems safe until you factor in you may not earn enough to keep up with inflation and meet your future financial needs. Investing in bonds is risky because the company or government entity could default on the payments. Investing in stocks is risky because the value of the shares could drop or the company could even close up and leave you with worthless stock. There is no such thing as a risk-free investment, but the key is to minimize risk to an acceptable level for you.

For those who like tax-free income and have a moderate risk-tolerance, many own municipal bonds.¹ Typically, you  are loaning a state or local government entity money in exchange for a reasonable and tax-free rate of return. The larger your portfolio, the more pronounced this benefit is, but this is also huge for income investors with modest portfolios. Municipal bonds represent a nice reprieve from taxes and penalties for tapping earnings from IRAs, Roth IRAs, 401Ks, Roth 401Ks, etc., taxes on capital gains, and taxes on dividend income.  I don't mean to represent them as being safe. Despite their historic relatively low default rates, defaults on municipal bonds are certainly possible. Struggling local and state economies are  a reality (i.e. look no further than California and New Jersey), so caveat emptor. 

Anyway, this is relevant because a recent proposal threatens their existence.

Am I Being Hypocritical?

I try to be reasonable, and sometimes you just have to own your biases. For example, I am a huge fan of deficit reduction. Like many others, I think that the recently announced two-year pay freeze for federal workers represents a necessary evil. I am aware that I have readers who work for the Federal government, and please know that this isn't an attack against you but rather the lesser of four evils.When surveyed, if faced between a choice of rising costs that choke the entire system, losing a job, taking a salary decrease, or taking a temporary salary freeze, repeatedly most people opt for the latter. While there are typically not mass-layoffs with the federal government, it is certainly not implausible. Consider the post office layoffs. Anyway, while the pay freeze is largely symbolic (small dent in the national deficit), it is a step towards fiscal restraint, which is important given the economy.

However, there is another proposal to reduce our national debt that I was not in favor of: the White House-appointed deficit-reduction commission's recent proposal to eliminate the tax-free status of municipal bonds.

The rates of returns on municipal bonds aren't exorbitant, so eliminating their tax-free status will only shift money elsewhere (in my opinion). The problem is I'm biased on this one, so my opinion is far from objective. It seems a little bit hypocritical for me to be a fan of deficit reduction except when it impacts my bottom line. Is this a case of trying to have my cake and eat it too or is this proposal an attempt to increase taxes on wealthy individuals (i.e. those with a net worth of over $20 million and get sizable chunks of "unearned" income), and individual income investors are just getting caught in the cross-fire? As indicated, now over half of the rich get their income from wages, but suppose the deficit-reduction commission didn't get the memo.

Read my mail and let me know your thoughts, am I a hypocrite for not supporting this austerity measure  or a consumer advocate for individual income investors? 

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 

Do The Rich Pay Their Fair Share Of Taxes?

7 Surprising Facts About Millionaires 

Will the Economy Collapse In 2011? 

¹Please note I am not giving tax or investing advice, nor am I a tax or investing professional. While the information given is intended to be authoritative, please consult with your local tax and investment advisers for your own unique situation.