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Thoughts on Escaping The Rat Race

2009-12-22T06:49:00.000-05:00

By: Roshawn Watson

Do you yearn to be free...really free? What would you do if money was not a limitation? Perhaps the primary reason for increasing your financial literacy is so you may indeed escape the rat race.

What Is The Rat Race?

The Rat Race refers to the trap that we often find ourselves in. It's where we work for someone's company, for the government by paying taxes, and for the bank by paying our mortgages, credit cards bills, and other numerous loans. Notice, I didn't say working for yourself or for your passion. It is easy to waste 30-40 years being miserable and never achieve financial independence. Unfortunately, this is a truism for most people. Careerbuilder.com hired Harris Interactive to conduct an online survey amongst US workers 18 and older to determine our financial solvency. The results reveal a disturbing trend: 61 percent of workers reported that they usually live paycheck to paycheck just to make ends meet. The Rat Race means you have left control of your family's financial destiny to someone or something else. One must expend no more effort than checking out the latest unemployment update to see why relinquishing this control is so dangerous, especially now.

The Sad State of American Finances
Even with the never-ceasing coverage of bad economic news, we still have poor fiscal management. According to the 2009 Consumer Financial Literacy Survey, less than half of adults keep close track of their spending, and several had no idea of food costs, housing costs, entertainment costs, and do not monitor their overall spending. I would argue that much fewer people rigorously budget than this study indicates. Additionally, one-third of adults put no part of their annual household income towards retirement. 57% of adults spend less than they did a year ago although 45% of those now spending less admit that if their financial situation were to improve, they would resume their previous spending habits. One-third of adults report having no savings, and only 23% save more than they did a year ago. 48% Generation Y adults have no savings. Also, many of us are well aware of our poor financial awareness. 41% of U.S. adults gave themselves a grade of C, D, or F on their knowledge of personal finance (I wonder what percentage of us are in denial).

To be Free, This Just Won't Do
If we truly desire to escape the rat race, we obviously must increase our financial literacy and execute better financial decisions, regardless of our income. Consider that even a household making a modest $40,000 per year income will bring in over $2 million during the typical working life-time. One of the biggest misconceptions about millionaires is that they all have huge incomes. While the median millionaire income is in excess of $100K, there are still plenty who make less than six figures who cross the mark through conscientious financial planning. If you want to retire early, some of the best ways to prepare are...

Eliminate your consumer debt. The reason this is so key is because as long as you are mired in debt, it will be difficult to build any real wealth unless you have an exceptional income.
Stash between 15 to 33% of your income away for retirement, regardless of your net worth. Consider that the majority of millionaires invest at least 15% of their incomes and live on less than 7% of their overall net worth.
Consider owning investment real estate. 46% of millionaire households own investment real estate. Yes, owning and managing property can be a hassle, especially if you have no business acumen and no people skills. Few people enjoy the stress of being a landlord, for example, but learning how to be a good one can be key to increasing your cash flow.
Make savings and investing automatic. If money is funneled directly from your paycheck into your investment account, you won't give it a chance to get spent.
Start as early as possible. Beginning at age 30, if you save $671 each month at an 8% return, you'll have $1 million by age 60. Begin at age 40, and you need to save $1,698 each month.
Cut your expenses. A recent article in the WSJ suggests most middle-class household budgets can be cut. The most common advice is to look at your current expenditures and see where you can pare back.

The Real Problem
These are all tried and proven tips, but unfortunately, the real problem lies not in an inability to grasp these concepts or even a lack of available information but rather a lack of desire. For most people, being financially inept reflects irresponsibility or disinterest, especially considering all the resources available. I have purchased books and audio books for several people, only to find them unread years later. If you never get fed up enough, you won't act. Get disgusted with your financial situation today. Don't leave your family's financial destiny to chance. Even if you don't plan to retire, you should still change. Just because you are financially able to leave your job doesn't mean you have to. Becoming a financial champion is about giving your family more choices, so choose freedom.

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.

Uncommon Money News (Vol. 80)

2009-12-17T05:29:00.004-05:00

By: Roshawn Watson

Brand New Post Coming Tuesday Dec 22.

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!

I have participated in the Carnival Twenty Something Finances hosted by My Beauty And Fashion Blog. I also participated in the Rich Life Carnival #37 hosted by Rich Life Carnival. Lastly, I participated in the carnival of road to financial independence #14 hosted by One Family's Blog. The included posts were: Becoming A Financial Champion and ls Recession-Induced Frugality Sustainable? Thanks for including my posts in your carnivals.

Business News

Friday, The Obama Administration Decides To Curtail Executive Pay At Businesses Receiving TARP Money. Monday, CITI Group Announces It Will Repay All Of $20 Billion In Tarp Funds To "Curtail Government Influence"

Madoff: Victim vs. victim

Wendy's fast food chain says 'sayonara' to Japan

AOL made over $2 billion from subscriptions last year? Who still pays for an AOL subscription?

Economy & Real Estate

Why The Recession Is Not Officially Over

Working Two Jobs and Still Underemployed

The Biggest Real Estate Flops of 2009

Entertainment Money News

Garth Brooks to Sue Oklahoma Hospital for $500,000

The Princess Frog Kisses off Matt Damon

Do you know who is the highest grossing actor of the decade?

Offbeat Money News
Man wins lottery and then leaves wife: who gets foreclosed

Teen runs up dad's cell bill to nearly $22,000

Why Men Don't Promote Women More

Housing Market Only Loss $500B in 2009

2009-12-14T07:58:00.000-05:00

By: Roshawn Watson

Home values have dropped $500 billion in 2009, which is not nearly as bad as it sounds considering the staggering $3.6 trillion home values declined in 2008.

Of course, there were some areas that were disproportionately affected. For example, Los Angeles suffered the single biggest decline in home values; properties there loss nearly $61 billion of their values (note that Los Angeles loss over $340 billion last year, so $61 billion is an improvement). Metro Chicago and New York were also hit badly, with each losing over $49 billion.

The Tide Is Turning

Encouragingly, about one-third of home markets surveyed had gains. Boston topped this list, gaining $23.3 billion, with a 1.5% gain in home values. Note last year, the Boston lost $53.4 billion. Other areas postings gains include nearby Providence, R.I., which gained $12.4 billion; and Denver increased $10.7 billion. Even Los Angeles has been doing better recently. For example, even though it will post an overall loss for the year, it has seen six consecutive months worth of gains, as of October.

"Home values stabilized significantly during the second half of 2009, with the total dollar value of U.S. homes increasing since June," said Zillow's chief economist, Stan Humphries, in a prepared statement. "Most housing markets across the country had a good summer, spurred largely by the government's tax credits for homebuyers combined with very low mortgage rates."

This welcomed stabilization in the housing market is very much needed and has some important implications.

Since the home represents most homeowners’ largest assets, gains in, a slowing of, or a cessation of declines in home values represents a stabilization of a significant chuck of homeowners’ investment portfolios. Thus, this is big news for many. Recall, Americans saw their net worth plummet by 18-23% in 2008, as the market erased 4 years worth of growth in stocks and real estate. Moreover, this stabilization could reflect progress towards overall economic recovery. Note that both the Dow and S&P have surged over 60% since March.

The Important Of Equity

Home equity is important because it allows homeowners to avoid foreclosure by making money available in the event of a job loss or during other financial challenges. Additionally, equity allows homeowners to sell their homes and make a profit or at least get some of their money back. Indeed, negative equity is the key predictor of mortgage default. Mortgage default typically occurs when a borrow experiences a rough financial stretch and has substantial negative equity.

Caution Advised

The major contributors to positive signs in the housing market are believed to be the government’s tax credits and low mortgage rates. The Fed will slow down its purchasing of mortgage-backed securities, which will likely spur a mortgage rate increase after the first quarter of next year. Additionally, the tax credits are scheduled to end next spring as well, so the immediate future of housing remains unclear. However, in the long-term there are several markets that are poised for a recovery.

It is always dangerous to speculate with your house. Your house is where you live, and unless you plan on selling it or really need to access the equity to avoid foreclosure or bankruptcy, the value of the house should have a marginal impact on your day to day life. However, as with any sound investment, if you have a long-term strategy, you can usually avoid getting your head taken off.

Uncommon Money News (Vol. 79)

2009-12-12T07:00:00.001-05:00

By: Roshawn Watson

Brand New Post Coming Monday Dec 14.

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!

I have participated in the Carnival of Financial Planning 118 ed hosted by The Skilled Investor and Carnival of Financial Planning 119 ed hosted by Dinks Finance. The included posts was: Are Wealthy People Dishonest? and Should You Buy a House Outright? Thanks for including my posts in your carnivals.

Posts Of The Week

Why A Comcast/NBC Merger Is Bad News

Food Stamps Go to a Record 37.2 Million, USDA Says

Business News
Need A Job? Head To DC

The Coming Wave Of Debt Defaults

Why A Comcast/NBC Merger Is Bad News

Bank of America Out of TARP

Wal-Mart will pay $40m to workers

US Economy

Food Stamps Go to a Record 37.2 Million, USDA Says

The world's most expensive homes fall victim to the recession

Average Federal worker pay $30,000 over private sector

Entertainment Money News

John Stamos: I Was Targeted By Extortionists

Nicolas Cage's Ex Suing Him for $13 Million

Amazing Race' Winners Take Home $1 Million

'Blind Side' eclipses 'New Moon' with $20M weekend

Tiger Woods Reaches Seven-Figure Deal with Alleged Mistress

Is it Legal for Tiger to pay Hush Money to Mistress

Marketers Pull All Tiger Woods Ads From PrimeTime TV

LA Pulls $4 Million from Jackson Tribute Concert

Offbeat Money News
Best Bang-For-The-Buck Cities

7 Odd Jobs That Pay $100K Per Year

Becoming A Financial Champion

2009-12-04T08:03:00.007-05:00

By: Roshawn Watson

Last week, I was counseling a college student about building a firm financial foundation. As we spoke, I began to reflect on my own journey towards getting out of the rat race and the many financial lessons I have learned over the last few years. Here are three nuggets that profoundly changed my financial life.

Avoid and Eliminate Debt

Perhaps one of the biggest obstacles to becoming a financial champion is debt. Eliminating consumer debt removes one of the biggest constraints to your cash flow. Debt avoidance and elimination is one of the fastest ways to position yourself to build wealth because you are no longer robbing tomorrow's prosperity. In other words, $60,000 per year can go a lot further if you don't have to pay Sallie Mae, Visa, and Chase Auto every month. Don't take my word for it.

According to the 400 richest Americans (Forbes 400), 75% believe "the best way
to build wealth is to become and stay debt-free."

That’s because as long as you are paying payments to someone 1) you are likely paying too much and 2) your cash flow is constrained from building wealth. Last year, an interesting book came out by Dan Ariely called Predictably Irrational arguing that credit puts a buffer between the "ecstasy of consumption and the agony of payment."

In other words, the "pain of paying" cash serves as an effective deterrent against overspending.

Thus, as credit becomes more difficult to obtain, more people feel the pain of spending and therefore limit their purchases. In effect, there is a shift back to evaluating the true costs rather than the monthly payments. The data supports this. According to Dun and Bradstreet, consumers spend 12-18% more when making credit card purchases compared with those who pay in cash. Of course, cash is also a great negotiation tool in many instances.

Realize That Money Is Important

I personally believe that your view towards money can be a barrier to your becoming a financial champion. I had a friend over last month, and somehow we got on the topic of the place of money in our lives. She believes money is not that important, which always baffles me. After all, she is the one who constantly talks about going on vacation and retiring early. I explained to her that money will be required for many things she wants to do. She retorted "money isn't everything."

Look, I’m not saying to deify money but merely to respect it. The law of attraction has bearing here: what you respect, you attract. What you don’t respect moves away from you. Unfortunately, my friend is careless with her money, and I believe it stems from her lack of respect for money. The Millionaire Next Door by Thomas Stanley sheds light on this subject in contrasting high income earners who are prodigious accumulators of wealth versus those who were under accumulators of wealth. A hallmark of under accumulators of wealth is their lackadaisical attitude towards money: they are likely to say that “money is your most easily renewable resource,” and their behavior reflects this belief. As a result, they accumulate an average of 4 times less wealth than prodigious accumulators of wealth.

Reshape Your View of Millionaires

A warped view of the spending habits of “those with money” can also prevent you from becoming a financial champion. Hollywood and the media have so distorted our society’s view of millionaires. We are indoctrinated with the belief that “those who have money spend lavishly” and “if you don’t show it, you don’t have it.” Like many, I used to imagine Barbie and Ken with the big home, matching BMWs, vacation home(s), and luxurious yacht. I assumed that Barbie and Ken were the very portrait of success. However, a closer look revealed that my vision was distorted. That mortgage payment is over 50% of Barbie and Ken's gross income, and the BMW is leased. That boat was financed too. Once I realized that Barbie and Ken likely had plenty of credit cards and student loan payments too, I had a profound revelation. Barbie and Ken are broke!

Most millionaires don’t care much about conspicuous spending. In fact, many people who display a high-consumption lifestyle have little to no investments, appreciable assets, income-producing assets, common stocks, bonds, etc. Instead millionaires live on less than 7% of their wealth and still choose to invest at least 15% of their earned income. They typically have more than 6.5 times the level of wealth of their non-millionaire neighbors, who outnumber them by 3 to 1.

Becoming a financial champion will enable you to be a real blessing to others. Don’t sacrifice that destiny for the latest Prada bag. It’s just not worth it. Remember, you don’t have to keep up with the Joneses because they’ve been faking it anyway, and your family’s financial destiny is far too important to waste on frivolous spending. If you can truly afford it (i.e. pay cash), then it is okay to buy some stuff. However, you still need to act your wage, for that’s what most millionaires really do.

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

Image Credit: Rumanía mi país

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Uncommon Money News (Vol. 78)

2009-12-03T07:18:00.004-05:00

By: Roshawn Watson

Hopefully, you had a Happy Thanksgiving and didn't break your budgets on Black Friday :)

Brand New Post Coming Friday Dec 3.

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!

I have participated in the Carnival of Financial Planning 116 ed hosted My Personal Financier and Carnival of Financial Planning 117 ed hosted by the Skilled Investor. The included posts was: Are Wealthy People Dishonest? and Should You Buy a House Outright? Thanks for including my posts in your carnivals.

Posts Of The Week

How This Kid Made $170 Million in Two Years

Judge Angry at Bank Cancels Couple's $525G Mortgage

Business

Goldman Sachs's Tax Rate Drops to 1%, or $14 Million

Courts Raise Bar on Employers' Reading Employee Email

Comcast Buys NBC From GE

Bank of America Out of TARP

GM CEO Henderson Resigns

How the geniuses running Harvard pissed away $1.8B in cash

BBC: We won't charge for online news

How This Kid Made $170 Million in Two Years (POW)

Goldman Sachs bankers now arming themselves with guns to defend against angry peasants.

Monsanto's dominance draws antitrust inquiry

Does Gates Foundation Need $500 Million Complex?

Economy
1 In 4 U.S. Borrowers Have Negative Equity On Their Homes

Goodbye jobs, hello mom and dad

11 Things to Celebrate Money-Wise in 2009

Growing Gains - 6 Jobs With High-Rising Numbers

Judge Angry at Bank Cancels Couple's $525G Mortgage (POW)

Entertainment Money News

The Economics of Jay Leno

Martha Stewart's Prison Stay Cost Her $1 Billion

Michael Jackson's Moonwalk Glove Sells for 420K

New Moon Eclipses Dark Night

Is Bigger Better? Scaling Down The American Dream

2009-11-20T04:00:00.008-05:00

By: Roshawn Watson

Builders everywhere are scaling down home sizes, amenities, and prices. Today's post-crash buyers are not willing (nor able in some cases) to extend themselves like before, and the impact on the housing market is substantial.

New Home-Buyers Forego the McMansions
No longer are 5000 square feet homes the expected norm for your typical upwardly-mobile middle-class family. Builders are axing private-theaters rooms, and grand "impress the neighbors sized" foyers, and unnecessary fireplaces.

According to the Mortgage Bankers Association, applications for mortgages have hit a nine-year low, plunging a seasonally-adjusted 11.7% in the week ending Nov. 6. New home sales in the U.S. have fallen sharply as well, from 1.3 million in 2005 to 485,000 last year. The latest Census Bureau data suggest that this year's sales will be even lower: only 294,000 new homes were sold through the first nine months of this year.

Builders believe most of today's buyers of new homes want smaller and simpler. Note that the average new single-family house peaked at 2,507 square feet in 2007 and has since slipped to 2,392 square feet (per Census Bureau data). Average new home prices are sliding, too, by 16% -- to $269,200 -- between the first quarter of 2007 and the third quarter of this year, the Census Bureau reports.

The Driving Forces Behind the Shift
Although it is true that Americans have been embracing a new-found frugality in the recession, there is more to this change in consumer preference than meets the eye. In the past, many Americans were clearly overextending themselves financially to purchase homes they couldn't afford, and mortgage lenders were all to happy to facilitate their indebtedness with a variety of "creative" financing products. As reported previously, 40% of homeowners were overextended. Some of us were completely ignorant while others were speculating on increased property values. The rationalization was if homes are assets, we should borrow to get as much home as possible, so that we can capitalize from the increasing values of our investments. However, the crash has awakened our awareness of the precarious state that all that debt placed us in.

Additionally, credit worthiness criteria has been tightened, so some buyers of new homes no longer qualify for the larger mortgages. Unemployment is also a factor, as some Americans struggle to put food on the their tables, there are simply fewer people in the market for new homes.

What all of this means is a need for more economized home models to fit the changing preferences of the American consumer. For example, many have undoubtedly questioned the financial wisdom of paying $15,000 annually in property taxes and exorbitant heating and cooling bills for a family of two with relatively low net worth. Being house poor for appearance sake seem silly, yet 73% of homes worth $1 million or more are occupied by non-millionaires. Perhaps, the market downshift may reflect a fundamental change in the way people want to live. Real estate is cyclic, so time will surely tell.

Lastly, if you like this post, please subscribe (upper left-hand corner), click here to get my eBook FREE, and Propel it, Stumble it, and tag it on Delicious.
Image Credit: Atelier Teee

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Uncommon Money News (Vol. 77)

2009-11-18T12:48:00.009-05:00

By: Roshawn Watson

Brand New Post Coming Friday Nov 20:

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!

I have participated in the Carnival of Financial Planning 115 ed hosted My Trader's Journal . The included posts was: Should You Buy a House Outright? and Save For Retirement or Avoid Student Loans. Thanks for including my posts in your carnivals.

Thanks for all of the support for Are The Wealthy Dishonest? The back links and other promotion for this post have been great. This post was linked to last week on Mademan, a men's lifestyle website. Thanks so much for the links.

Posts Of Week

Who is Paying Taxes? (INFOGRAPHIC)!

T-Mobile admits its staff illegally sold personal records of thousands of customers to competitors.

Business

GM to start repaying debt to U.S.

Fed Reserve bans most bank overdraft fees

FedEx to Break Records: 13 Million Packages Shipped in 1 Day

T-Mobile admits its staff illegally sold personal records of thousands of customers to competitors. (POW)

"We don't know how to build a sub-$500 computer that is not a piece of junk." -Steve Jobs

U.S. Postal Service posts $3.8 billion loss - Nov. 16, 2009

Economy

Median home prices fall in 8 out of 10 U.S. cities

Entertainment Money News
Aaron Carter's Manager Responds to Pop Star's Back Tax Lien

Nicolas Cage: Movie star, foreclosure victim

Gosselin sues TLC for $5 million

Cindy Crawford, Husband Targeted in Extortion Plot

Eddie Cibrian's Ex Wants Him to Pay $49,000/month

Paranormal Activity Scares Up $100 Million

Offbeat Money News
Who is Paying Taxes? (INFOGRAPHIC)! (POW)

Five Painless Ways to Cut Expenses

How the middle class are shoplifting to keep up appearances

The professor offers to sell the class a $20 bill. Bidding starts at $1 and goes up in $1 increments. The winner pays the professor whatever the high bid was, and gets the $20. Here’s the catch: the second-highest bidder also has to pay, but gets nothing in return.

Stop Investing To Get Out of Debt

2009-11-13T07:38:00.007-05:00

By: Roshawn Watson

Savings rates have increased dramatically over the course of this last year, and so has investing. At least 26% of consumers believe their more frugal ways will be permanent. We have gone through the financial grinder and emerged more frugal. Unfortunately, many of us are also in debt. It is difficult enough to encourage people to save anything, so the thouoght of stopping investments in order to get out of debt seems like a bad idea, especially given the turmultuous economic environment. However, it is still the right choice for many individuals. When is it advisable to suspend retirement investing to get out of debt?

Do You Want To Be In Debt Forever?

Do you want to be in debt forever? It is a legitimate question. Since our incomes are not infinite, we will undoubtedly have to make some decisions regarding spending. It would be nice if we could pay our bills, fund our retirements, pay off our debts, contribute to college education funds for our children, and have a ton of fun with our money simultaneously, but it is not feasible for most people. We accordingly need to financially prioritize our spending, and one of the first priorities is getting rid of consumer debt. Otherwise, the debt will linger on. When I look at my old student loans records, Sallie Mae was all too happy to extend my repayment period to 300 months! With a term that long, I would not make much financial traction and would have paid them tens of thousands in interest. I'm glad to have that monkey off my back. By eliminating your consumer debt, you are removing one of the biggest constraints to your cash flow. It is one of the fastest ways to finally to build wealth because your dollars will go farther. Don't take my word for it. According to the 400 richest Americans (Forbes 400), 75% believe "the best way to build wealth is to become and stay debt-free."

Do the Math

Additionally, the math often works out better for those who pay off their consumer debts. In most cases, the interest rates on your debts are likely higher than the return on your retirement. Historically, the stock market averages around 12% per year. If your the interest rates on your credit card is 17%, you save yourself 5% per year by paying off the credit card first. Also consider the price of all of the debt. If you have an average car payment of $480 (per Edmunds.com) and a second car payment of $200, an average student loan payment of $250, a credit card payment of $200, and miscellaneous (furniture, stereos, or personal loans) debt of $120, you are paying over $1000 monthly towards consumer debts. If you were to invest this instead, you would have over $1.3 million in 25 years, assuming a conservative 10% average return. Thus, the sooner you get out of debt so that you can do some real investing, the sooner you build some real wealth.

Debt Equals Risk

Most people are mired in credit card debt, have student loans, and car notes. In fact, 61% of Americans live paycheck to paycheck just to make ends meet. Most people are just one or two paychecks away from financial ruin. All it takes is one misstep, and your low interest credit cards can go sky-high thanks to universal default clauses. I have unfortunately heard of credit cards charging as high as 79.9% interest. By keeping debt in your life longer for the sake of investing, people are risking repos, late fees, high interest, and worse. Consider how vulnerable to a job loss if you have a lot of payments. I have heard 100% of the cars that were repoed had a car note on them. If you mathematically adjust for risk, the answer is clearly to get rid of the debt in most cases.

The Caveat

Perhaps, one of the few times that I personally would continue investing while paying off consumer debt is if I knew that I wouldn't be able to clear the debt in a reasonable time. For example, if it would take me over 2.5 years to pay the debt off. Otherwise, I would just get the snakes out of my life and move on to bigger and more prosperous endeavors.

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

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Uncommon Money News (Vol. 76)

2009-11-10T22:10:00.009-05:00

By: Roshawn Watson

Brand New Post Coming Friday Nov 13:

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!

I have participated in the Carnival of Financial Planning 113 ed hosted at Simple Trading System and 114 ed hosted by the Skilled Investor The included post was: Should You Buy a House Outright? I also participated in the Carnival of Twenty Something Finances hosted by Foreigners Finances. Thanks for including my posts in your carnivals.

Thanks for all of the support for Are The Wealthy Dishonest? The back links and other promotion for this post have been great. Kudos to you.

Post Of Week

Home Tax Credit Extended

Business

Wall Street bonuses to rise 40%

Walmart Defends Sick Leave Policy Despite H1N1 Fears

15 Podcasts That Will Make You Richer

Senator Al Franken (D-Minn.) introduced a bill proposing that drugmakers no longer be allowed to deduct marketing expenses from their taxes, as companies generally can.

Chrysler drops three electric vehicles despite having touted them to get billions in government bailout cash

BofA quietly decides not to charge overdraft fees when accounts are overdrawn by $10 or less.

Capital One: Waive Your Rights, Get $10 Off Your Next Overlimit Fee!

Economy

Home Tax Credit Extended

Could Weak Housing Tank The Economy Again?

10% unemployment and $10M bonuses. Business as usual.

Entertainment Money News

Michael Jackson's $1 million burial

Celebs selling their homes at rock bottom prices

Offbeat Money News

237 Millionaires in Congress

Are Wealthy People Dishonest?

2009-11-05T09:00:00.003-05:00

By: Roshawn Watson

Are the wealthy dishonest? While it is certainly a fair question, it is also a polarizing one. The typical dichotomy is that there are some who feel like there is absolutely no way for honest people to get ahead financially while the wealthy often feel maligned for their prosperity.
Image credit: spock

What is Dishonesty?

It is important to clarify what is dishonesty. Some believe taking advantage of people and situations is dishonest. With this definition, many of us who do business efficiently are thereby dishonest, but the potential problem with this definition is that profiting from such opportunities forms the basis of capitalism. For example, if one buys a product at a discount and sells it at a premium price, they are capitalizing 1) on their own willingness to hunt down deals to make profit and 2) on someone's unwillingness or inability to put forth the same effort. Surely reaping the rewards of this relationship doesn't make someone dishonest in itself. In fact, both parties can benefit.

Another relevant distinction is between honesty and morality. They are not always the same thing. Some are completely truthful in business and but operate businesses that many consider immoral. The classic example is the senior executives in tobacco companies. Many believe that it is immoral to prey on others addiction to tobacco for profit; however, that belief does not make it illegal nor dishonest to sell cigarettes in itself. Although honesty and morality typically go hand and hand, it is not always the case. You can be an honest bad person. A reasonable (albeit not perfect) example is Mel Gibson in the movie Payback. He plays a character named Porter, who was completely honest as an assassin. You better believe when he says you're dead if you don't give him back his money, he meant it wholeheartedly. Obviously, he wasn't a moral person but just because he was a low-life doesn't negate the fact that he honestly got his money back.

The Trust Factor

Honesty and trustworthiness are important for any brand because we want to work for and do business with honest people. People typically do not do business with someone they can't trust (the one big exception that comes to mind is doing business with car salesman). Our inclination to want to trust the businesses we patronize suggests that in order to succeed in many businesses, you have to have some degree of trustworthiness. Indeed, if people believe you to be dishonest, they will simply not do business with you. This does not suggest that everyone who succeeds in business is honest and trustworthy but rather that it is a sweeping generalization to assume all successful wealthy people are dishonest. Sure there are some unscrupulous businesspeople who have become successful, but they are likely the exception not the norm.

There are plenty of people who have become wealthy and are honest. Consider all of the hard-working and honest actors, athletes, musicians and other entertainers who have become wealthy. The presumption that they are somehow dishonest just because they are wealthy is unfair. Also, consider the typical millionaire. The typical millionaire is incognito. He probably doesn't drive a luxury car. She doesn't live in a mega mansion. Only 27 percent of homes worth over 1 million are occupied by millionaires according to Thomas Stanley. The typical millionaire lives in a middle-class neighborhood where his net worth dwarfs that of his neighbors. The point is the wealthy are among us, and they are downright common. Most acquire their wealth over a long time through systematic investing. It is unsubstantiated that they're dishonest just because they have been responsible with their money and caught some breaks in life.

Why Do We Distrust the Wealthy?
I am aware of two main reasons why we do not trust the wealthy. First, I do believe that sometimes the sensational media gravitates towards scandal. You will hear about Enron a thousand times more than you will read about the thousands of business owners who are operating honestly and ethically. Another reason is that it is sometimes difficult to stomach that others are just better than us at accumulating wealth. Attributing their wealth to dishonesty rather than a good business model, hard or smart work, and good fiscal management is a defense mechanism of sorts.

Of course, none of this suggests that the wealthy cannot be dishonest. Wealthy individuals have the potential to be dishonest just as anyone else. However, the automatic assumption that just because someone is wealthy they must be dishonest is wrong.

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Related Posts

Creating Phenomenal Wealth Over Time

Uncommon Money News (Vol. 75)

2009-11-03T06:00:00.001-05:00

By: Roshawn Watson

Brand New Post Coming Thursday Nov 5:

Are Wealthy People Dishonest?

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!

I have participated in the Carnival of Financial Planning 112 ed hosted at Zach Stocks and 110 ed hosted by Intelligent Speculator. Two posts were included: The Rich Get Poorer and Should You Buy a House Outright? Thanks for including my posts in your carnivals.

To my readers: I am so honored by your support. Thank you for reading, subscribing, and for voting for articles from this site on social bookmarketing sites such as stumbleupon, reddit, delicious, digg, propeller, twitter, and yahoo buzz. Together, we are telling thousands of the importance of financial literacy. I absolutely could not do it without you. You are vital this this site, and I appreciate your help so much! Thanks.

Business News

Home prices continue rebound

The Biggest Mistakes of Some of Today's Business Stars

PepsiCo misplaces letter, faces $1.26 billion judgment

CIT files for Chapter 11 bankruptcy protection

55.5% of Consumers "Very Unlikely" to Pay for Online Content

Economy

Weak dollar driving up gas prices

U.S. Consumer Confidence Up for First Time Since 2007

U.S. Healthcare System Wastes Up to $800 Billion a Year

Entertainment Money News

Michael Jackson's This Is It Has $101 Million Reasons to Live On

Nicolas Cage Blames Advisor for Financial Ruin

Bob Barker Donates $1M to University to Fund Animal Rights Program

Levi Johnston's Playgirl Shoot Will Show All for Six Figures

Offbeat Money News

Stressful jobs that pay badly

The 3 Biggest Money Mistakes You Can Make

2009-10-26T06:00:00.001-04:00

By: Roshawn Watson

Not all money decisions are equal. It is certainly possible to recover from some small money missteps without too much difficulty; however, there are some money mistakes that you will regret for years to come. Here are three of the biggest money mistakes you can make.

Borrowing on Your Home Equity

Perhaps this is a mute point for most due to the mortgage crunch; however, real estate is showing signs of recovery. The $8,000 tax credit is prompting many to take the plunge into home ownership for the first time. Additionally, home prices are returning, which is great news. However, in the midst of the celebration, the old admonishment still holds true: leave that equity in your home alone. By far, one of the most common reason to tap home equity is to “pay off” consumer debt through a debt consolidation loan. For the vast majority of those with consumer debt, the debt is not the problem but rather a symptom of poor financial management (or an emergency that wasn’t prepared for). Sure that’s a hard stance, but it is also true. What’s important is that we realize that one generally cannot borrow his way out of financially trouble. The debt only makes the problem worse. That’s exactly what happens with home equity lines of credit (HELOCs).

Lenders tout HELOCs as a way to pay off credit cards, student loan debt, and other consumer debt. Even some personal finance journalists promote these loans stating that you can get these loans at a lower interest rate than other loans, plus the interest you pay is tax-deductible. Americans have bought the goods too. According to SMR Research and Freddie Mac, we have cashed out more than a whopping $2 trillion between 2002-2005. It is always surprising how many people will borrow on their homes to pay Visa, Mastercard, and American “Excess.”

Unfortunately, there is a catch. Brittain associates reports that nearly two-thirds of people who borrowed against their homes to pay for credit card debts had run up more debt in two years. Instead of solving the problem, the HELOC consolidation only served to move the debt from an unsecured loan (i.e. credit card) to a loan secured by your home.

I wouldn’t even set up a HELOC for “emergencies.” Instead, I would use an emergency fund: three to six months worth of expenses in a money market or savings account. It wouldn’t be horrible to go up to eight months. Sure this is boring, but it is also responsible. Additionally, many people don’t realize that many lenders will close your HELOC at the first sign of financial trouble (i.e. missed payment), so it’s not a good financial buffer anyway since it can be closed precisely when you need the cash.

Borrowing on your 401K

Another big mistake is borrowing on your 401K. At some point, we all need to retire. If you tap your account, not only will your money not grow, but you can be subject to severe penalties and taxes. Over eighty percent of American workers with 401K accounts have the option of borrowing on their retirement account, and twenty percent of participants do just that according to the Investment Company Institute.

Many of those who do borrow on their 401K accounts consider themselves pretty savvy. After all, the interest paid back to the account is their money, so they are effectively paying interest to themselves. The problem arises if they cannot pay the money back, for example if they get fired or lose their job. Often one will have to repay the money within weeks or the loan is counted as a “premature distribution.” In this case, one would have to pay taxes on the money withdrawn from the 401K at their present tax bracket, which for many is about 25% plus get a pretty hefty penalty. For many people, they end up losing 40% of the money. That’s obviously a bad deal. Also, by borrowing, they’re putting their retirement at risk. It just not worth it unless you are facing bankruptcy or foreclosure.

Stretching to Buy A Home

Perhaps this is the most difficult not to partake in because purchasing a home is such an emotional purchase for so many people.

It is almost as if the lender and real estate broker conspire against you, so that you will purchase a home that costs more than you can afford. Of course, when you purchase a more expensive house, the real estate agent gets a bigger commission and the lender racks up more interest and fees. Indeed, 40% of homebuyers are overextended. This means that the sum of the principal, interest, taxes, and insurance exceed 28% of your gross income. This is particularly troublesome because this means that there is less money for investing for retirement, college funds, vacations, eating out, giving, maintenance on the house, etc.

Don’t mortgage your future by becoming house poor. That dream home will become a nightmare once Murphy comes to visit you.

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Falling Off The Cliff

Image Credit: Gravestone

Uncommon Money News (Vol 74)

2009-10-24T05:29:00.002-04:00

By: Roshawn Watson

Brand New Post Coming Monday Oct 26:

The 3 Biggest Money Mistakes You Can Make

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!

Posts Of the Week

Latest bank fee is for paying off credit card on time every month

79.9 percent rate targets credit-challenged

Business

Latest bank fee is for paying off credit card on time every month

BofA to charge annual fees on some credit cards

Burdened by Defaults, Bank of America Misses Forecast

Where The Monetizable Clicks Are: Digg's New Ads

79.9 percent rate targets credit-challenged

Wall Street Bonuses Likely To Remain Bigger Than Ever

Economy

China's Super rich bounce back with a vengeance

U.S. Stocks Rally as Dow Hits 10,000 for First Time in Year

Initial jobless claims in surprise drop

Entertainment Money News

Wild Things is King with $32.5 Million

Madoff's Montauk mansion sells for $9.4 million

Rehab for the rich and famous

Jon Gosselin Ordered to Give Back $180,000

Offbeat Money News

Woman flashes $27,000 at Mass. bar, gets robbed

Top-paying jobs

Money Down the Toilet for Security

2009-10-16T12:30:00.002-04:00

By: Roshawn Watson

Most extended warranties are a waste of money for the purchaser and a profit center for the issuer, yet consumers still flock to them. Unfortunately, the extra security provided by the warranty comes with a hefty price tag.

Extended Warranties are Abundant

Sometimes it seems that you can obtain an extended warranty for just about anything. They’re certainly widely available for most cars (new and used), appliances, cell phones, computers and other electronics. They are big business too. Consider that in 2006, consumers spent an estimated $1.6 billion on extended warranties. Functionally, getting an extended warranty is purchasing insurance for a product.

The problem is that these extended warranties are just a waste of consumers’ money for the vast majority of items. The companies issuing the extended warranties are banking on the fact that consumers probably won’t even use the extended warranty, and they’re right. The Consumer Reports National Research Center documents the ownership experiences of millions of consumers for thousands of products. This is how Consumer Reports knows which brands are more repair-prone than others. Anyway, their research shows that most products seldom break within the Extended Warranty window -- typically three years -- and that when electronics and appliances do break, the repair often costs about the same as the cost of the warranty. Additionally, the warranty departments are huge profit centers for the issuing companies. Extended warranties can reap a whopping 50% margin or higher, which is often well more than the profit on the product being sold. That profit is made off of consumer’s desire for security, but it is just not worth it.

Just Say No
It’s their bottom lines that companies are thinking about when they are pushing those extended warranties not your happiness with their product. I was upgrading my phone six months ago, and the overall experience was low pressure except for when my salesperson got aggressive because she wanted me to purchase an extended warranty. In the end, I held firm and informed her that I would simply self-insure for the phone. She told me I would live to regret it, which I found comical. The truth is that my repeated refusal to purchase these extended warranties for my cell phones alone has more than paid for the price of several phones. In other words, I’m already ahead of the “warranty game” financially.

There was a time two years ago when I thought that I broke my palm, so I went to Circuit City to replace it. They queried me about fixing my existing one. Interestingly, they told me that even if I had purchased an extended warranty, it would have expired a few months earlier. Recall the expiration of warranties before they can be used is often the case for many consumers, which is why extended warranties are a bad product. Of course, getting that warranty from the presently defunct Circuit City would have given me indigestion too. Fortunately, it all worked out.

I have many other examples, but my point is I cannot think of a single case where I wished I would have purchased an extended warranty. I would have lost money with no added value each time.

A Note About Extended Car Warranties
Interestingly, extended appear to be on the rise. Consider that in 1999 23.5% of car buyers purchased extended warranties, and in 2009, that number has soared to 34.4%. According to the National Automobile Dealers Association, these warranties are an important source of profits for the dealerships and are typically more profitable than selling the new cars themselves. Perhaps even more vexing is that sixty-five percent of the respondents Consumer Reports surveyed said “they spent significantly more for the new-car warranty than they got back in repair savings” (WSJ, 2009)

Consider that the next time you’re tempted to waste money on an extended service contract. The better strategy is to 1) purchase quality products and 2) put the money that you were going to spend on the extended warranty into your repair savings. That way, when it is time to repair or replace the product, you will already have money set aside to do it. If you don’t need to repair it, then you’re still ahead.

In short, don’t waste any more of your money on extended warranty. Purchasing one would be the real decision that you would live to regret.

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Uncommon Money News (Vol. 73)

2009-10-10T06:00:00.003-04:00

By: Roshawn Watson

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!

This week, I participated in the Carnival of Financial Planning - Edition #109 hosted by: Military Finance Network. We have the following posts included in this carnival: Should You Buy A House Outright? and The Rich Get Poorer.

Business News

Another U.S. Bank--One of the "Good Ones"--Ready to Blow?

What Professionals Make (image)

Rupert Murdoch to Internet: It’s War!

Bye Bye Shamu - SeaWorld & Busch Gardens Sold For $2.3 Bill

Studios struggle to rein in movie marketing costs

Goldman Sachs Scandal

This company with $8B in debt and thousands of jobs and hundreds of millions in revenue lost in 2008, is set to pay its highest bonuses in its history, on the rationale that its managers will find other work otherwise. Is this a bank? No, it's a newspaper company.

Comcast may become a partner in Hulu.

Economy

47% will pay no federal income tax?

Detroit: Too broke to bury their dead

Clearly you did not represent the will of the people

Gold sets record high above $1,040 per ounce

Personal bankruptcies hits a 4-year high

Entertainment Money News
Michael Jordan's $7.5 Million pad

Nicolas Cage Owes $6.3 Million in Back Taxes

Other

21 ways to get something for nothing

Image Credit: Kirk W

A Warning to All TightWads

2009-10-09T06:56:00.002-04:00

By: Roshawn Watson

Frugality is supposed to be good; however, when taken to an extreme, it can be disastrous. Some have destroyed relationships, become selfish, and lived relatively miserable lives all in the name of saving a buck.

Frugality Is Not the Only Characteristic That’s Important
Frugality is an important proponent of almost any financial plan. As you know, there are only two sides of the money equation: income and expenses. If you have done due diligence to increase your income, then appropriately managing your expenses is a critical factor in your ability to build wealth. Nonetheless, there are other desirable character attributes that one should consider as well, such as generosity and unselfishness. Sometimes a tightwad completely ruins the spirit behind a kind gesture. For example, if the office agrees to go in on a gift together, but when it comes time to collect the funds for the present, the tightwad conveniently “forgets” to bring his money. I definitely know cases where the “money collector” for the gift tires of dealing with excuses and just uses more of her own money to make up for the lack of participation by coworkers who initially agreed to contribute. What’s more unfortunately is that cheap people are often not poor but middle-class instead. Incidently, it's their obsession with pinching pennies that strains their relationships not their lack of funds.

Just recently, I received a gift that looks like it’s been in the bottom of someone’s closet for a few years. Yes it was tacky, and no I don’t feel bad commenting on it. I would never give someone that mess.

The Problem Is Not Frugality

My intention is not to criticize frugality because I think it is inherently a good character trait. I consider myself to be frugal, and there are often misunderstandings as to what frugality really means. Frugality is concerned with trying to obtain added value. A notable distinction of frugality from cheapness is that cheap individuals are focus on saving a buck at the price of quality, relationships, or time. A frugal person may not always buy the cheapest version pair of jeans because the quality may be poor. Instead, the frugal person would look for deals on a pair with the best value and make sure his budget can accommodate the purchase. Similarly, most frugal people I know would not drive across town to save a buck because they value their time (and gas) too much. The stigma of frugality comes when some equate frugality to saving dollars at almost any cost. However, being a miser, stingy, hoarder, and cheap is not the same as being frugal.

Let’s be clear, there is no conflict between generosity and frugality. Some of the most generous people I know are also frugal, and that’s one of the many reasons they have money to give. I know people who will search for deals on quality food and will buy food for both their families and their local food pantry. Contrast that to the person who is so tight with their money that they resort to taking from others. Using the aforementioned office example, the coworkers who didn’t contribute to purchasing a present are taking credit without giving their fair share. Some people will even steal to save a buck. It’s quite unfortunate.

"Frugal" People: Examine Yourself

Somewhere we may have lost our ways under the guise of frugality. We should be concerned if we will barely go out to eat or have fun with others because we’re too cheap. The warning bells should go off if we stock up on napkins and utensils that we stole from the condiment bar at McDonalds. We are not right if we’re “regifting” crappy stuff that we don't want ourselves. Of course, it is incredibly important to be responsible by budgeting for purchases and investing for the future, and eliminating debt if you have it. Indeed, if you have consumer debt, your financial primary concern should be getting rid of it. Nonetheless, it is also important to be a giver, to not steal, and honor your word when you say you’re going to do something. Somewhere in the quest to save a buck, the miserly have lost sight of moral integrity, honor, family, and friendship. Avoiding unnecessary expenditures is admirable; however, when this behavior becomes an obsession, you’re not frugal, you're miserly and may need help.

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Have We Stopped Saving Already?

ls Recession-Induced Frugality Sustainable?

Dangers of Living Paycheck To Paycheck

2009-10-02T03:00:00.001-04:00

By: Roshawn Watson

Is there not enough check at the end of your month? Apparently, you're not alone.

Careerbuilder.com hired Harris Interactive to conduct an online survey amongst US workers 18 and older to determine our financial solvency. The results reveal a disturbing trend: 61 percent of workers reported that they usually live paycheck to paycheck just to make ends meet. This marks what appears to be a significant rise over last year's 49% and 2007's 43%. Notably, the trends held true for those with incomes higher than $100,000 as well. Thirty percent of workers with salaries of $100,000 or more report that they live paycheck to paycheck, up from 21% in 2008.

Savings and Investments Suffer Too
The effects of the recession can be felt in the households' bottom lines, and many have resorted to dipping into savings as a means of coping with dwindling incomes, often precipitated by job losses and salary declines. Although the survey did not ask what percentage of respondents dipped into existing savings and investments, the survey did reveal that twenty one percent of workers say that they have reduced their 401 (k) investing or personal savings just to make it. Twenty three percent of respondents with salaries at least $100,000 annually also reported to have decreased 401 (k) contributions, which likely indicates that those with higher salaries (i.e. salary over $100K) were not financially insulated from the troubled economy or that they feared investing in such a volatile market. Additionally, many reported difficulty saving anything at all. Thirty-six percent of respondents said that they were not contributing to any retirement accounts at all, which is up from 31% in 2008. One-third (33%) of respondents don't save anything from month to month, up from 25% in 2008. Thirty percent of respondents save between $51-$100 monthly while 16% save $50 or less monthly, meaning that nearly half of those who do manage to save are not putting away much.

Some Thoughts on "Dipping" into savings

Although the survey suggests going into savings and investments may be relatively common practice, it is typically ill-advisable. If this occurs habitually, one can end up with little to no money in the end.

The practice of dipping into savings is essentially robbing Peter to save Paul, and when it's your savings, you are Peter!

Although the function of the emergency fund is to place a buffer between you and Murphy, it is not there to avoid dealing with financial problems. What's quite unfortunate is that dipping into savings often masks a real financial problem thereby allowing one to stay in denial while his finances are depleted. For example, if you have a career crisis (i.e. underemployment), supplementing your income with savings may keep the woofs at bay temporarily, but you will still need to address your income problem. Otherwise, what are you going to do when the savings are gone. To be fair, when facing serious financial hardship tapping an emergency fund and even cashing in some liquid investments may be the only saving grace.

Suspending or Decreasing Savings and Investments

Another issue that the survey dealt with decreasing savings or investments. A general rule of thumb is to invest 15% of your gross income after becoming debt-free. Although such consistent investing, over the long-term, is one of the best ways to build wealth, there are definitely situations where you simply cannot continue at the same rate. Examples are if you have a job loss, a large emergency expense, or if you have a reasonable expectation of an emergency in the future (i.e. the birth of a child or job loss). One question that the survey doesn't appear to address was what percentage of respondents actually decreased savings and investments due to actual financial hardship precipitated by the recession? With sensationalistic emphasis on negative economic news by the media, it is certainly likely that some decreased investments out of fear of losing money rather than out of necessity.

Although it is reasonable to be scared, the knee-jerk reaction to suspend (or
diminish) investments while the Dow is plummeting is the very reason why some
investors missed the whopping 45.7% upswing we have experienced since March.

In fact, in the third quarter alone, both the Dow and the S&P 500 index returned 15 percent. It was the Dow's best quarter in nearly 11 years. The point is if you must suspend investments or savings to prevent financial havoc, that's fine, but to do so out primarily out of fear-based speculation can cause investors to end up on the losing side.

Overall, the survey results suggests that the majority (61%) of us are living on the edge financially. This supports previous data stating that most Americans are just one paycheck or two away from ruin. Interestingly, a sizable percentage of those with incomes of at least $100,000 annually were also in the same predicament. As expected, respondents tapped their savings and suspended investments to account for economic hardships. These results surely highlight the need for budgeting. Of course, that's little comfort to those who are presently out of work or who make very little; however, for the rest of us, we must make sure that during times of plenty that we are acting responsibly with our money.

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.

Uncommon Money News (Vol. 72)

2009-09-27T09:00:00.002-04:00

By: Roshawn Watson

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!

This week, I participated in the Carnival of Financial Planning - Edition #108 hosted by: The Skilled Investor. We have the following posts included in this carnival: Should You Buy A House Outright? and The Rich Get Poorer. Additionally, Should You Buy A House Outright? was also included in the Carnival of Twenty Something Finances hosted at How I Save Money. Last week, I participated in the Carnival of Financial Planning # 107 hosted by Intelligent Speculator and the Carnival of Financial Planning # 106 hosted by My Wealth Builder. The following posts were included in last week's edition The Rich Get Poorer and Should You Buy A House Outright?

Business

Isn't that special: 30,000 employees of Goldman Sachs to earn on average $700K. Thanks taxpayers!

Top Five Highest-Paid, Worst-Performing CEOs

Ten Big Companies That Are Veering Toward Bankruptcy

Colleges Find Creative Ways to Cut Back

Retailers Ready For Fight On Credit Card Fee

The World's 10 Most Valuable Brands (Updated) view!

Cash4Gold Threatened Jail For Not Removing Negative Comments

2 banks change rules on overdraft fees (in a good way)

US Economy and Real Estate Money News

Bernie Madoffs Penthouse Hits the Market Steal at $9,900,000

Bernanke says recession is "very likely" over

Seniors racking up credit card debt

60% of Americans living paycheck to paycheck

Entertainment Money News
Netflix awards $1M prize to improve movie picks

Salary Declines For Generation Y

2009-09-23T09:00:00.001-04:00

By: Roshawn Watson

The employment outlook for recent college grads has not been great this year. Unemployment, underemployment, and now salary declines have made this job season quite challenging. Generation Y have unfortunately found themselves as expendable shock troops in a campaign of corporate “downsizing.”

Generation Y Particularly Vulnerable in Recession

With the stock and real estate crashes, plummeting consumer confidence, and mass layoffs, Gen Y has been significantly impacted by this recession. Perhaps this comes as no surprise since recent college grads are typically hit harder during recessions, as they are amongst the first to be laid off and may have difficulty competing against laid-off workers with years of experience. The Bureau of Labor Statistics recently reported that more than one million college graduates over the age of 25 lost their jobs in FY09, pushing the unemployment rate for their cohort to 4.8% in June, precisely double the rate of June, 2008. Note that the unemployment rate for those new graduates currently seeking jobs is already at 10.8%. Additionally, the National Association of Colleges and Employers said Tuesday that those who graduated with bachelor's degrees in 2009 received a $48,633 average starting salary offer, down 1.2% from last year, according to a survey of 140 college and university career-services offices. This represents a stark change from 2008, when the average starting salary was 7.6% higher than those offered to the class of 2007 (WSJ).

Of course, estimates of unemployment are subject to some errors. For example, the unemployment data have a number of problems that lead to an understatement of unemployment. For example, the data count as employed all people who are working part time but who would like to work full time. Since these people represent unused labor effort that is available, the unemployment rate understates the extent of unemployed resources in the economy. Another problem that causes the unemployment rate to understate the extent of unemployed resources is the "discouraged-worker" effect. If someone wants to work but becomes so convinced that there are no jobs available that he makes no effort to find work, he will be counted as "not in the labor force." Since there will be more discouraged workers the more severe the recession, this factor will tend to dampen the fluctuations in the unemployment rate. No statistic is perfect, but it is important to keep these factors in mind when evaluating unemployment data.

Another consideration is that the salary data is based on surveying by university of recent graduates, which may be subject to all sorts of biases. A look at the actual survey question(s) and some demographics of the respondents would be helpful in interpreting this data. For example, it would be helpful to know whether there any differences in salary based on race, gender, geographical region, major in school, previous job experience and a variety of other factors that may potentially confound the interpretation of the data. It may be that they have corrected for these factors; however, it is not stated. It would also be helpful to see other summary statistics such as the median salary, as the average salary can be skewed by some of the higher earning students.

The psychological and financial impact of being a new graduate in the present job market can be staggering. Often, we forget that Generation Y may be particularly unprepared in this challenging job market. Although there are definitely signs of economic recovery, preliminary 2010 statistics show that employers still intend to cut hiring of new graduates by 7%. Although you definitely have to use your available resources (intellectual, social and economical) to find the right employment in today's economy, the old mantra of work hard and everything will work out fine does not always immediately materialize in the present.

Save For Retirement or Avoid Student Loans

2009-09-15T01:06:00.004-04:00

By: Roshawn Watson

Student loans are just terrible. As the costs of colleges continue to rise disproportionately to incomes, many graduates keep loans around now almost as long as mortgages. According to Kiplinger's Personal Finance, the price of tuition and fees at some four-year public institutions have increased by 35% since 2001; CNN reports that the costs of college has soared 439% since 1982. Many students work to help ease the burden of paying for school. If a student is working and has acquired some cash, should he or she use that money to avoid future student loans or invest the money for retirement?

Image Credit: SBA73

Surprising Wisdom From an 18-year old

Recently, WSJ published an article asking this very question. The son of the chief of the Wall Street Journal's San Francisco bureau wants to use the money he earns for writing a column to avoid student loans. At eighteen, he already has a Roth IRA. His parents want him to take a federally-guaranteed student loan of $5,500 for the first year and invest his money in his Roth IRA. With his parents' plan, Isaac would end up with close to $30,000 in debt upon graduation. He lamented in the column...

I can see it all like a bad dream: I finish up college and, after the flurry of graduation celebrations are over, I'm left out in the real world with my education, aspirations and a massive pile of debt.

For years, it would hang over me, taking a large chunk of my paychecks hostage and forcing me, while job hunting, to always consider first how well a job pays before thinking of how much I would learn from, or enjoy, the work. Working for a nonprofit, traveling the world or going to graduate school would all be mostly out of the picture.

But this is avoidable for me. I've received a large windfall from writing this column, in addition to the money left over from my high-school job. In total, it's enough to significantly reduce the debt I'll need to take on, or to avoid it altogether. That is, only if I don't do something else with the money, like putting it aside for retirement. By deciding to go to college, I piled a heaping mound of financial obligation on my plate. Dealing with this should be my first priority. I don't quite understand my dad's obsession with saving for retirement...

Although the dad admits that he is obsessive about saving for retirement, he still sticks to his stance on his son taking out a student loan to invest for retirement because "our youth can't count on Social Security or old-style pensions, so they need to start thinking about retirement earlier than we did." To be fair, depending on Social Insecurity is not a great idea for any of us, and 401Ks and IRAs have replaced "old-style" pensions for most. However, that still doesn't mean that it's in his son's best financial interest to invest his money rather than avoiding student loans.

I know that the dad is trying to teach a lesson here, but I'm not sure if I
agree with the lesson: invest for the long-term even when it's to your
short-term financial detriment.

Perhaps a better lesson is invest for the long-term after you have built a good financial foundation (not based on debt).

An Expense The Son Cannot Afford
This scenario is pretty interesting since many traditional students do not have the luxury of being able to invest anything for retirement while in school because the money just isn't there. I would suggest that neither does this young man. By investing the money and taking out a loan instead of paying the school bills directly, he is functionally borrowing to invest. The problem is, as he pointed out, debt equals risks.

Unfortunately, we generally leave out risk in our financial calcuations.

Although we all hope that everything will go perfectly in school, suppose he doesn't graduate or doesn't get a good job after school for some unfortunate reason or because he wants to attend graduate school. He would then have student loan debt and possibly little or limited means to pay it back. Unlike many other debts, you cannot bankrupt student loans, so they really can stay with you forever. This is one of the many reasons why you should build a firm foundation prior to investing, which means avoiding and eliminating debt first. Note that this strategy only works if you plan to get out of debt quickly. Additionally, part of the whole college experience centers on nurturing independence. By encouraging him to graduate with a overwhelming amount of debt, the parents may be prolonging his financial dependence on them.

Agree With The Son With An Caveat
Surprisingly, I almost unequivocally side with the young man with the exception that he needs to reevaluate his timetable for investing. While he definitely should NOT plan on waiting "one of two decades," as he mentioned, to start investing, waiting until he is done with school and done with student loans is definitely reasonable, especially if it means that he avoids or minimizes student loan debt. This assumes that he quickly pays off his student loan debt though. For example, if he invested the typical student loan payment from age 22 to age 65, he would still be a multimillionaire. Fortunately, the father and son seem to have come to some resolution: the parents will increase their contribution to the school and the son will be able to invest. That works too, but for the rest of us I agree with his grandmother: get your education, then invest aggressively.

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.

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Creating Phenomenal Wealth Over Time

Selecting A Debt Consolidation Company

2009-09-09T23:29:00.004-04:00

I have been away but wanted to share this guest post by Robin Williams. It is about how to select a debt consolidation company. Remember, debt consolidation is not the answer to debt. Getting a handle on the psychological problems (out of control spending) and life circumstances (i.e. job loss) is the real answer. There are many situations where one may consider consolidating his debts. For this reason, it is important that you have the necessary tools to make a wise decision in choosing a company. Read this informative post, and feel free to leave comments, visit their site, and write questions for the author.

Author: Robin Williams

There are thousands of debt consolidation companies that are competing for your business, but selecting a dependable non profit debt consolidation company can truly become an intimidating task. While exploring non profit debt consolidation companies, you must take some important factors into consideration.

A lot of debt consolidation companies claim they are non profit, but in reality they earn in millions. These companies apply the “non profit” tag simply to attract consumers. Consumers believe that these debt consolidation companies are working for their best interests. Other debt consolidation companies apply the “non profit” tag to infringe telemarketing regulations from which charitable institutions are granted relief. Request for evidence of non-profit 501(c)(3) status prior to doing business with any such company.

Some debt consolidation companies mention religious connections in their names or on their official websites. Some agencies indisputably have connections with a religion, however, some agencies are simply making use of the name in order to make you rely on them. You must not allow a religious connection or membership to affect your choice – select the agency that is appropriate for you.

Fees
Not every non profit debt consolidation company comes to you free of cost and the genuine non profit agencies must have minimum monthly fees and establishment fees. Some of them make publicity for voluntary fees but subsequently compel you for paying the total fee even though it’s quite costly for you. If an agency has exorbitant fees, is ambiguous regarding their fees, or compels you to pay a voluntary charge, which is not within your means, you should go for another agency. Be careful about the fact that with numerous agencies, the payment for the first month would probably be directed to the debt consolidation agency and not to your creditors.

You fell into debt in no time, but it would require a lot of time to come out of debt. Don’t rely on an agency that assures that you would become debt free within one or two months. Similarly, you must ensure that the non profit debt consolidation agency is giving time for you. The National Foundation for Credit Counseling (NFCC), which is a non-profit community organization, gives at least one hour on the telephone or personally on a discussion to determine whether you require consolidation. If an agency offers you a strategy within a short time period, then it has not given sufficient time analyzing your expenditures. Utilize a debt consolidation agency that gives a lot of time to investigate your finances.

Better Business Bureau
The Better Business Bureau (BBB) utilizes a Reliability Report to maintain documents on businesses in order to ensure that consumers can select the most reliable agencies. The BBB keeps details about products and services together with a history of grievances and accolades. Companies get an acceptable or unacceptable record on the basis of how they manage customer-related matters. Prior to making a decision on a company, check it with the BBB and only pick an agency with an acceptable rating.

The Better Business Bureau is one of the smartest means to check the trustworthiness of a debt consolidation company over the Internet. Nevertheless, be cautious when you’re typing. Just missing one letter such as “a” in “bureau” can take you to fraudulent sites. Take the help of their official website – BBB.org.

It might be difficult to select a non profit debt consolidation company when there is a plethora of choices. However, with some perseverance and plenty of research, you can select an agency that is suitable for you. You can have a lasting smile since you’re one of those debt-free people.

Uncommon Money News (Vol. 71)

2009-09-04T20:27:00.006-04:00

By: Roshawn Watson

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!

This week, I participated in the Carnival of Financial Planning #105 hosted by: The Skilled Investor. We have the following posts included in this carnival: Have We Stopped Saving Already? and The Rich Get Poorer. Additionally, Have We Stopped Saving Already? was also included in the Economy and Your Finances Carnival hosted at One Mint. Last week, I participated in the Carnival of Financial Planning # 104 hosted by Four Pillars. The following posts were included in last week's edition The Rich Get Poorer and Outrageous Law Transfers Parents’ Debt To YOU.

New post Should You Buy A House Outright? was included in the Festival of Frugality hosted at Canadian Finance Blog, the Money Hacks Carnival hosted at Automatic Finances, and the Carnival of Everything About Personal Finance hosted at Nil 2 Million. Thank you, thank you, thank you. Please look through the carnivals if you would like to read plenty of other interesting posts in the blogosphere!

Also, I wanted to send a special thanks to Marshall Brain of How Stuff Works (I subscribe to this site) for linking to Should You Buy A House Outright? under their interesting reads section. This is so appreciated, and they do a wonderful job on this site.

With your help this week, we made the front page of multiple social media with the post Should You Buy A House Outright? !!! Thanks for your OVERWHELMING SUPPORT and also thanks for all the comments!!!!

Posts Of The Week

The Article Cash4Gold Doesn't Want You To Read

The Four-Day Workweek Is Winning Fans

Audi President: GM's Volt a car for idiots

American pharmaceutical giant Pfizer Inc. agrees to pay $2.3 billion for illegal promotion of products, the largest health care fraud settlement in U.S. history

Vanity Fair's The Establishment List 2009

Business

The Article Cash4Gold Doesn't Want You To Read (POW)

The Four-Day Workweek Is Winning Fans (POW)

Audi President: GM's Volt a car for idiots (POW)

How Craigslist still rules with 90's web design (Wired)

American pharmaceutical giant Pfizer Inc. agrees to pay $2.3 billion for illegal promotion of products, the largest health care fraud settlement in U.S. history (POW)

Economy

What Underwear Says About the Economy

Entertainment Money News

Final Destination claimed the No. 1 Spot, but which high profile movie came in second

Could Susan Boyle Already be Bigger Than Whitney Houston, New Moon & the Beatles?

Vanity Fair's The Establishment List 2009

Offbeat & Other
Why the Rich Clip More Coupons Than the Poor

Image credit: Bert Kommerji

Congrats to Kevin from No Debt Plan for reaching a net worth of six figures

Being A Landlord By Default

2009-09-03T04:36:00.011-04:00

By: Roshawn Watson

With decimated real estate markets across the country, many homeowners are facing some very difficult financial decisions. Although choosing to become a landlord can be financially rewarding, many homeowners are finding that this option is not all that it is cracked up to be.

Why the Increase in Reluctant Landlords

Homeowners who have relocated due to new jobs but can't sell their homes or those who want their home values to return before they sell are becoming landlords to offset their mortgages and other expenses. Allstate, the U.S. second largest home insurer, reported that there is a 27% increase in homeowners who converted their homeowners insurance to landlord policies compared to the same quarter last year. In many cases, these homeowners are just looking for some relief from their mortgages and related expenses.

However, many homeowners are unprepared for the additional burdens of finding and retaining quality tenants, the stress of maintaining the property professionally, and the increased responsibility for bookkeeping. Renting out a property is functionally similar to running a small business, yet reluctant landlords are often lacking and unwilling to learn the necessary tools required to do it effectively. After all, being a landlord is just a "temporary fix" for many. One way to make sure that the property is managed correctly is to hire professional property managers, which typically costs 3 to 12% of rental income. Unfortunately, this often erodes any potential profits, but for these default landlords making profits is not their primary motive anyway.

Leasing the Property to Tenants May Not Solve Problem

Becoming a landlord by default is definitely not a panaceas. Even with rental income, these new landlords may still find themselves in negative cash flow positions after you factor in the mortgage, insurance, taxes, and other related expenses. In some U.S. markets, the demand for rental units isn't that strong. Note that the vacancy rate for rental units is the highest in two decades and rents are falling, which is good news for good tenants and bad news for landlords. Additionally, renting out the house may only be delaying the inevitable loss of a property. This is particularly true in cases where the owners owe substantially more on their homes than they are worth. These buyers would benefit from a short sale with no recourse (meaning the lenders agree not to pursue the balance between the value of the mortgage and the actual selling price). Although you definitely take a credit hit for these, you can legally and ethically wash your hands of the property and get out of the financial trap. That's why it is important to be honest with yourself in these situations. The prices for many properties, especially those in areas hit hard by the real estate crunch, may not climb back to mid-2000s levels anytime soon. Thus, holding on to a property by renting where you are operating at a loss each month is not a particularly good strategy in such circumstances.

Being a reluctant landlord is a option that many of us may face at one point of our lives. I have read numerous times that many landlords are indeed reluctant. After all, who wants the call to fix the toilet in the middle of the night or to deal with late payments and ungrateful tenants. Sure there are rewarding aspects, such as providing housing to families and income for yourself, but that doesn't change the fact that there is unpleasantness associated with being a landlord. Perhaps the important lesson is that if you are going to do it, then immersing yourself into the business of being a landlord may turn an unfortunate situation, such as being financially-tied in a house you're trying to unload, into a blessing in disguise.

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.

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Is Home Ownership A Good Investment?
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Free Yourself From Babylon
Falling off the Cliff

Uncommon Money News (Vol. 70)

2009-08-30T06:22:00.001-04:00

By: Roshawn Watson

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!

Last week, I participated in the Carnival of Financial Planning #103 hosted by: real estate 43. We have the following posts included in this carnival: Have We Stopped Saving Already,The Rich Get Poorer, and Outrageous Law Transfers Parents' Debt To YOU. Additionally, Have We Stopped Saving Already was also included in the Carnival of Twenty Something Finances hosted at How I Save Money. Please look through the carnivals if you would like to read plenty of other interesting posts in the blogosphere!

With your help this week, we made the front page of multiple social media with the post Should You Buy A House Outright? !!! Thanks for your help and also thanks for all the comments!!!!

Business

UBS to Give 4,450 Names to U.S.

Banks 'Too Big to Fail' Have Grown Even Bigger

Innovation In Motivation or How We In Business Can Change To Survive The Downturn (Thanks for this post Jerry)

Ephren Taylor, the youngest African-American CEO of a publicly traded company (Thanks for this post Financial Dream).

Two brothers, no fears and $1 billion empire (Thanks for this post Financial Dream)

Economy

Federal Reserve loses suit demanding transparency

The Top 10 Things We're Glad the Recession Killed

Warren Buffet: America Has Hit The Panic Button (Thanks Robin)

U.S. deficit estimate to be trimmed to $1.58 trillion

U.S. government actually making a healthy profit from TARP related investments.

Entertainment Money News

"Inglourious Basterds" aims for more box office glory