Everybody Loves Your Money



If you haven’t been to http://www.fatwallet.com, I highly recommend it. I think that, as a substitute for throwing away my money on cars, I have turned to electronics as a decent substitute. You can spend pretty significantly on electronics and still not lose the kind of money that you can on a new car (think depreciation).

Now, I don’t spend a ton of money on electronics and the money that I do spend is part of our “left over” funds once all of our goals are met for the month. Because we don’t live with any debt, (other than our house payment), we end up with a decent chunk of change left over each month. (after all of our investments are funded for the month). As part of the balance we are continually seeking between saving every cent and spending every cent, we tend to be fairly liberal with some of the left over cash. (quality of life funds).

Okay, so now that I’ve spent the first two paragraphs on trying to qualify why it’s okay that i blow a little cash on electronics once in awhile, let me tell you how I blow that money. I LOVE FATWALLET.COM. I set up an account at fatwallet.com (just a login, not credit or anything). When I want to buy something, I go there and check out all the “store” specials and also search the forums for posts on things I want to buy. Lately I’ve been getting my DELL fix. I’ve been needing a new monitor for my PC in my office and I’ve been watching Fatwallet for a deal. My day finally came a couple weeks ago. They had a 35% off coupon for Dell 19″ LCD’s (1905fp) or a 20″ widescreen monitor. Because I’m not rich, I opted to look at the 19″. All the 19″ LCD’s that I’ve seen in stores etc are all running around $360-$400 and quite frankly, none of them have been as nice as the Dell 19″ LCD . Dell retails this monitor for $479. Once I applied the 35% coupon it dropped to $311. Not bad, but I wasn’t done there. I then found another coupon on fatwallet.com for $60 off any accessory purchase of $500 or higher. I added a $21.95 laptop mouse to my cart to get the total retail value just over $500 and then applied the $60 coupon which dropped the price for the monitor and mouse to $273. So, in a sense, I got the monitor for just over $250 instead of $479. I love it. I then ran over to Ebay and checked to see what they were selling for there. 1905FP’s are going for around $310-$320 there so I knew it was a good deal. Oh, and by the way, this monitor is AMAZING. If this deal comes along again, I would highly recommend it.

Now, that deal wasn’t too bad, but I followed it up with a purchase of a laptop for my Aunt (she paid) the next week. This time, they had a coupon for $750 off of a select number of Dell laptops over $1499. I built her a VERY nice laptop to get it over $1499 (to $1501) and then applied the $750 off coupon which brought the total price to $757 for a laptop that Costco is selling right now for $1400. That coupon was so popular that it was used 15000 times in 3 hours and then expired. If you ever consider buying a laptop, this is the way to do it. You just have to wait until the coupon shows up and then act fast.

So, there you have it. I’m spending a little, but only under the right conditions.

Well, according to this article, we have a record number of millionaires out there. That’s great news, unless you aren’t one of them. I’m on my way, but I haven’t made it yet, and the road looks long and bumpy.

Highlights:

• There are 7.5 million millionaires in the country now
• A 21% increase in millionaires year over year
• There were only 6 million millionaires in 2001
• Much of the wealth was due to stock market gains
• 86 percent of millionaires are married
• The mean age is 56

I’ll let you read the rest yourself. You can find the article here:
http://money.cnn.com/2005/05/25/pf/record_millionaires/index.htm

I think I’ll go drown my sorrows in cheap beer.

You have got to read this article in the Seattle PI. It looks at Payday loan companies and what kind of interest they charge. How about 391 percent? I just don’t know how people can offer this and sleep at night. It’s interesting (not surprising) that they saturate areas that have lower incomes and prey on the people that can least afford to use their services. (Frankly I don’t know anyone that can realistically afford to use their services). This has got to be one of the biggest ripoffs in the world.

Unfortunately our politicians are all sleeping together with these company’s lobbyists so nothing will happen there. Anyway, I would highly recommend reading this just to make yourself feel better about managing your money in a responsible way:

http://seattlepi.nwsource.com/local/225559_payday24.html

I have an opinion. Okay, well I have a lot of opinions and here is one of them. Everyone that is able to, should buy a home. I’ve read, on many blogs, and other articles, that home ownership isn’t necessarily for everyone. I won’t disagree with that but I think it’s only that rare person.

Here is my very unscientific opinion on the subject. It’s no secret that a lot of the wealth in our country has come from real estate. If you look at the average net worth of a person in the U.S. and then see what percentage of their net worth is made up of real estate, I think you’ll find it’s a large chunk. Never mind the fact that banks and finance companies have done a pretty good job of convincing the average consumer that they really shouldn’t let their equity build up in their house, rather, they should take out a home equity loan and spend the money on a bunch of useless junk. Even with all that home equity getting spent, people still hold a fair amount of their net worth in their homes. Now, I’m not going to cite a statistic or a percentage of their net worth here because we all know that 87.4 percent of all statistics are made up on the fly. My only point is that a significant amount of wealth is rolled up in real estate.

Sure, my home takes work and costs me money, but when it’s all said and done, I’m still seeing it rise in value, far more than it’s costing me in maintenance, interest and taxes. If the real estate market ever cools off, this could change a bit, but everyone needs somewhere to live. I’m still way farther ahead by making a mortgage payment, than I would be if I paid rent. With interest rates being so low, it isn’t unlikely that you’ll see a higher rate of appreciation than you are paying in interest on the home loan. If this is the case, you are looking at free money.

A couple days ago I was talking to a friend of mine. He has a VERY nice ski boat and was waxing it at the time. I think it’s about 10 years old and only has about 225 hours on it. He takes very good care of it, like he does all of his things but it still isn’t worth anywhere near what it was when it was new. All told I bet he has over $50K in it. So, after we got done talking, I decided to figure out what that works out to per hour of use. When I divide $50K by 225 hours, I get $222 per hour. WOW. That is some really expensive waterskiing. Even if I was off by HALF, (which I know I’m not), it would still be $111 per hour. Heck, really good looking prostitutes don’t even cost that. (I used to be a police officer and have busted more than a few).

Another very successful friend of mine just happened to point out a related point last week to me. We had met for lunch and were talking about finances, investment and real estate opportunities etc, and we started talking about succeeding at our personal finances so that we can retire early and spend all day on our yacht. When I said that, he was quick to point out that it really isn’t expensive to live like a rich person. His point was that, rather than own every asset (like a boat, or an expensive sports car), it would be far cheaper to treat yourself a few times per year by renting them. A really good yacht cruise for a week in the summer, with a crew would only set you back a few thousand. Compare that to what it costs to own an expensive yacht, both in depreciation, and ongoing costs, and it works out to be a steal to just rent it when you want to use it.

I’ve decided that’s the path I’m going to take. When it comes time to start enjoying things like that, I’m going to leverage off of someone else’s investment and just pay a tiny portion of the cost while I’m actually experiencing the FUN. The rest of the year, the owner of the yacht, or whatever it is, can pay for it while it sits there.

In one of my other posts, I mentioned that I like to talk to and watch people that are doing better than I am financially. I have a couple really good role models that are doing VERY well. (I’m not sure they know they are role models for me. I guess I should probably tell them. I bet they will be flattered that someone thinks that highly of them) Both of them have already surpassed the millionaire mark and with the levels of income they generate from their investments, now it’s starting to snowball for them. (It takes money to make money so once you have a bunch, it really starts to generate additional money).

They both made comments that have stuck with me like Anna Nicole Smith on a 90+ year old millionaire. I’ll tell you a bit about how we came to talk about it.

One night at about 11:00 pm I was sitting on the couch talking to my cousin, who, along with my other cousin and uncle, have built a VERY profitable development company where they live. That doesn’t mean that they sit around and watch their money grow, but they continue to use their profit to make more money. I was talking to my cousin about money making money and he said to me, “You want your money to make money for you while you are sleeping” I thought about it for a bit and then thought about all those people out there that have more money than I do and you know what? They all have a lot of their money making money for them while they are sleeping.

Another friend of mine is a VERY successful real estate broker. Along with being a very good broker, he is also very smart with the money that he makes. When I brought this up to him, he said, “The money that I work to make each day is what I call “Wake up Money”. In other words, he has to wake up to make it. The rest of his money is making money 24X7.

I’ll tell you that is probably the single biggest motivator for me. I want to quit having to wake up each morning to make “wake up money”. In order to do this, I need to keep amassing net worth and continually think of ways to bring in more money. This point is currently using up the majority of my brain space. How can I make more money? How can I make money without having to do additional tasks on a daily basis? It seems to me, I only have a couple choices, either find a better return on investment for the money that I do have, or use some of the money I have and move it in to real estate. There is only one problem with this. I can’t find an additional house that I can afford to buy as a rental. Real estate here, like many areas of the country, is just going crazy. A house that cost $250K last year, is worth $280K this year. At that rate, I either need to stick my neck out BIG TIME, and jump in with an offer on a house that would be out of my comfort range. (I’d end up having to pay a couple hundred dollars a month to supplement any rent that I could generate from it), or give up on real estate all together as an investment. I’ll let you know what I decide.

Anyway, I’m really working toward that point in my life that I can stop working on a daily basis, and just watch my money grow. Some people call it retirement, although I think people should strive to reach that wealth point prior to the traditional retirement age so that they can spend the rest of their life doing what they REALLY want to do. So, I’ll keep on minimizing my depreciating assets and will continually look to find things to own that appreciate over time. I guess every little bit helps.

There are so many choices in life that it sometimes seems overwhelming. Even if you want to make all the right decisions, inevitably you make a few mistakes. I’m probably a poster child for having good intentions, but failing to make the best decisions. I think that many of the traits we have are learned from family and friends. If you grew up in a house that struggled with money, undoubtedly, you behave differently than if you had grown up in a house that had lots of money to burn. People react in many different ways to these situations. One person might think, “Boy, I sure don’t want to have to worry about money when I get older so I’m going to make a few different choices”, while another person might not make any different decisions and face the same financial situations as their family has in the past.

Regardless of the upbringing you had, and regardless how much you may think you know, there are other people out there that know FAR more. This is probably an understatement. When it comes to comparing ourselves to others around us, I think we have two basic choices. We can look at people that aren’t doing as well as we are and be grateful, or we can look at people that are doing better than us and ask a few questions. Personally, I’ve chosen the latter as a general guideline for myself. Some of the questions I tend to ask myself about the people that are better off than I am:

• What actions do they take on a daily basis that have made them better off?
• Was everything handed to them in their life? (If so, I don’t bother watching these people because they are just lucky)
• How has this person gotten to where they are today?
• What does this person do for a living and what level of education do they have?
• Are there any books that they recommend to help me see the world through their eyes?
• If they were in my shoes, what would they do?
• What other advice can they give me?
• What drawbacks are there for being in their situation?

It probably goes without saying, but if you take this approach (comparing yourself to others that are better off than you are), you probably need to try to surround yourself with successful people. If you don’t, it tends to be slim pickings.

Now for the bad news. By continually comparing yourself to others that are better off than you are, you may find yourself getting a bit frustrated over time. You can’t do this 24 hours a day, seven days a week. If you do, no matter what you have in life, you will be a pretty unhappy person. It’s healthy to do this in moderation as a means to move forward with your goals, but it’s also healthy to take stock in what you have and be grateful. I personally find myself riding the emotional roller coaster of wanting more and not being happy that I can’t get there today, and, at the same time, find myself feeling grateful for my wife and daughter and the standard of living we are able to support.

Anyone who really knows me, knows that I’m a big fan of cars. I always have been, and probably always will be. Due to this fact, I’ve learned a few hard lessons about how much money you can burn up with this passion. Well, I’m done making mistakes on that front. I don’t plan to “overspend” on a new car any time soon.

Here is a great article about the length of car loans and the problems it can cause. I’ll admit, I read this on another blog and, because of my obsession with cars, had to provide the link as well, just to make sure people read it!

Here’s the link: http://money.cnn.com/2003/08/05/pf/autos/long_loans/index.htm

I mentioned in another post that I wasn’t going to talk about the details around my net worth. Well, I’m not. What I have been doing is reviewing my net worth on an ongoing basis to make sure that my wife and I are headed in the right direction. Here are a few observations about our net worth:

Our net worth is increasing at a rate of about 50% of our yearly salary each year. That doesn’t necessarily mean that we are saving 50% of our salary, it just means that, along with what we are saving from my job, we also are seeing increases in our net worth in investments, real estate (our house) and reduction of our home loan (which is the only debt we have). We are also able to see this level of increase by minimizing our depreciating assets, which leads me to the next observation.

We are minimizing the number of depreciating assets we own. This is the single hardest item that I have personally dealt with. I love cars. Not just a little, but A LOT. Unfortunately, cars are a pretty big drain on a monthly budget and lose their value over time. It’s not practical to walk everywhere, so we have to have them. What we have done, is pay cash for our cars and not let the total value of our cars exceed 10% of our net worth. Some people could do far better than this, but because of my love for cars, this is how we’ve chosen to do it. That being said, we won’t be buying any new cars if we can help it so that we can manage the depreciation in as most efficient way possible.

We pay additional on our house principal every month. Not a ton, but we roughly double the amount towards the principle every month. We expect we’ll shave somewhere around 8 years off the loan period and shave 10’s of thousands of dollars in interest. We also plan not to ever borrow against our house. We would really like to get it paid off. Some financial advisors will tell you that it isn’t always smart to pay off the house but if you pay cash for everything else and this is your only debt, you might as well chip away at it. The only exception that we will make to this rule is if we want to purchase another appreciating asset such as a rental house or vacation home.

As part of our management of our net worth, we have created a “look ahead”. The purpose of this is to estimate what milestones we should strive for each year. We took a very simple approach to this and simply increased our networth by the same amount year over year. We fully expect to beat this look ahead by doing better in our investments and using a conservative number for our home equity increase.

We also track our expenses as a percentage of our “after tax” income. This way we can see where all of our money is going each month and it’s a quick and easy way to see what percentage of our income we are saving “after tax” on top of all that we are saving “pretax”. Programs like Quicken or MS Money will do this for you as well, but I’ve never had the patience to continually keep everything updated in those programs. That’s why I have created my own Excel spreadsheets along with graphs so that I can easily see where we are at any given time.

Another thing that we do is label all of our expenses as either “firm“, “can eliminate“, or “can lower“. This way, we always know which expenses we can get rid of easily if our income levels change, or we want to meet any stretch financial goals etc.

Well, that’s it for now.

You hear people talk a lot about retiring. Most of them will tell you that they are “saving for retirement”. It’s funny to me that more people don’t talk about net worth in the same sentences that they are talking about saving for retirement. It’s impossible for someone to know that they are headed in the right direction for retirement if they don’t know where they are at TODAY. All the decisions that you make in life that relate to money should consider how it will affect your net worth today, and in the future.

Okay, okay. Let me briefly go in to what “net worth” is. The nutshell explanation of “net worth” is all of your assets minus all of your liabilities. What do we mean by this? Here’s an example:

Bob lives in a house worth $300000 that he owes $250000 on and drives a car that is worth $10000 if he was to sell it today, and he owes $5000 on it. He has $10000 in credit card debt and has $25000 in a retirement account. Other than those items, he pretty much doesn’t have anything else, other than a few trinkets that I wouldn’t count towards his net worth. Let’s figure out what Bob is worth:

Assets:

House worth $300000

Car worth $10000 (selling for this amount in the paper)

Retirement Account with $25000

Total Assets equals: $335000

Liabilities:

Owes $250000 on the house

Owes $5000 on the car

Has $10000 in credit card debt

Total Liabilities equals: $265000

Total Assets $335000

Minus

Total Liabilities $265000

Equals

Net worth of $70000

It seems like Bob is doing pretty well. If Bob is only 21, he’s doing great, but if Bob is 55, he’s screwed. He can roll the dice on social security and hope that it will take care of him, but I wouldn’t recommend that!

So this is the oversimplified version of how to calculate your net worth.

Want to try figuring out yours with a little help from MSNBC? Click here:

http://www.msnbc.com/modules/commerce/personalfinance/networth_wb3.asp?cp1=1

Want to see how you are doing relative to everyone else? (But you should really be more concerned with how you are doing relative to your own financial goals, but it’s still fun to see)

http://www.hughchou.org/calc/wealth2.cgi

More to come…..