If You Want to Be Rich, Stop Listening to Broke People

The title for this post was shamelessly stolen from Dave Ramsey, but that doesn’t make it any less true.  In your quest to become financially independent, there will be all kinds of people offering their advice.  Before you take any of it, start asking yourself how the person giving the advice has done.  If he/she is living in a McMansion and driving an expensive leased sports car, run away as fast as you can.  If he has a modest house he paid  off in his thirties, drives a nice paid-for car, and never seems to worry about money, stick around.

Broke people – who make up the vast majority of the population – have all kinds of advice to give.  They’ll tell you to buy expensive clothes and shoes to “dress the part.”  They’ll tell you to get into a timeshare or take out a home equity loan to pay for a vacation.  They’ll tell you there is no way you can ever not have a car payment.  They’ll tell you to keep your home mortgage as long as possible to keep the tax write-off.  “Fake it until you make it,” they’ll say.

Here are some common “broke people” myths:

1.  You’ll always have a car payment.  If you buy an eight-year old car, it will cost about 1/4th as much as a new car.  This means you can get a $20,000 car for about $5,000.  Pay cash and drive it for four years, and you’ll be able to sell it can pay cash for a 4-year old car for $8,000-$10,000.  Keep paying cash and driving these for four years and you’ll be saving about $4000 per year in car payments.   That’s enough to fund an IRA account well.

2.  You should buy as big a house as you can make the payment for.  Those who took this advice in 2004-2007 are now sitting in homes that are $200,000 underwater and unable to move.  Real estate can go down from time to time and by taking out a huge mortgage you’re putting your freedom at stake.  Buy as small a house as will meet your needs.  Save up a 20% down payment and keep the payment to less than 25% of your take-home pay.

3.  It takes money to make money.  It is true it is far easier to make the second million than it is to make the first million.  You can make a fortune even with modest incomes if you are willing to put money away regularly.  The power of compound interest is amazing.  For example, if you start with 1 penny and double it each day for 30 days, you’ll have over a million dollars.  Put away $2000 per year and double it every seven years in the stock market, and you’ll retire a multi-millionaire.

4.  The little guy can’t get ahead anymore because the game is rigged.  Tell that to the immigrants from Iran, India, and eastern Europe who come with the shirts on their backs and become multi-millionaires within 20 years.  To make money requires hard work, sacrifice, and a dedication to meet the needs of others.  Stop making excuses and get to work.

Please contact me via vtsioriginal@yahoo.com or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Picture Credits: Maggie Molloy, Website http://www.maggiemolloy.com

Thankful for Capitalism and Crane

The other night I was in the restroom at a restaurant and I noticed the Crane logo on the urinal.  I had seen that one before, along with others for different companies.  I started wondering why someone would choose to make urinals.  And if you did get rich selling urinals, would you tell all your friends at the country club?

Then I started thinking about capitalism, and that without my needing to even ask for it, someone founded Crane and built this urinal to meet my needs.  The person who opened the restaurant then thought of ordering it and installing it.  They even did their best to make a comfortable restroom, with fancy accents like tile floors.  They even keep it clean for me.

They do this because they are hoping that I will eat at their restaurant.  Crane does this because they want to make money selling urinals.  They even work on making their product the best it can be – meeting many needs I don’t even think of in its design.  Would someone do this if I had to eat at their restaurant or the restaurant owner had to buy their urinals?  Probably not.

While there can sometimes be issues, and it certainly isn’t a great system for the guy who wants to be an artist and make pictures that only he likes, capitalism does an amazing job of encouraging people to meet the need of others.  All over the company, people are thinking about how they can provide what people will buy and how they can do it for less than their competitors.  They are thinking about our shopping experience and how we will feel about their products and services.  They want to do a great job because they want us to buy from them again.

There is no central planning doing this – it is all do to people at the local level figuring out what is needed and filling that need – even the need for urinals.  So the next time you’re standing at a urinal and see that Crane logo, think about what a great place you live where people are out there trying to fill your needs, and you can become wealthy yourself if you tend to the needs of others.  Also, if you are one of the 99%ers complaining about evil rich guys, realize that one of those 1%ers built the company that provided that urinal in that Starbucks whose restroom you are using during your campout.  Do you really feel like they are cheating you somehow?

 

Please contact me via vtsioriginal@yahoo.com or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Do You Need Two Incomes to Get Rich?

Often I’ve heard people saying that they would like to have one spouse stay home, but they just can’t afford it.  I’ve also heard others say that they have had to sacrifice because one spouse stayed at home.  The assumption is normally that two incomes is better financially than one income.

While at first it may seem that a household earning more money will grow wealth more quickly than a one-earner household, the truth is that unless both spouses have very high incomes (greater than $100,000 per year), most families will do better with one spouse at home than with both spouses working, particularly if there are children who need daycare.  The reason is that having both spouses working results in a lot of additional expenses that aren’t there if only one spouse works.  Some of these expenses are:

Childcare ($500-$2000/month):  The largest and most obvious cost incurred if both individuals are working  is childcare.  Infants are enormously expensive to put into daycare, and it is very difficult to make any money if you have to pay for childcare for a couple of children.  Even after they get older and are spending some of the day in school, there is still afterschool care and childcare for the time that school is out.  Also, there is a reason that most animals have one partner that stays and takes care of the nest (for penguins, it’s the male) – if both parents are out hunting, you need to find someone you trust to take care of the children.  Is this something you really want to trust to someone making minimum wage?

Clothing ($100-$300 per month):  Working means buying business clothing or uniforms.  Many of these threads are expensive, and while it may not seem like much each month, it adds up over the course of the year.

Gasoline ($100-$400 per month):  Depending on the length of your commute, rising gas prices can really put a strain on your wallet.  In addition, there is extra car maintenance and insurance and can be tolls and parking.  Add another $200-$400 per month for these items.

Meals Out ($300-$2000 per month):  Because no one has time to shop and no one has time to cook, a lot of two-worker families eat most meals out.  Even at $20 per meal at fast food, this can quickly add up for a family of four.  Don’t forget about those lunches out as well.

Taxes ($300-$2000 per month):  An additional paycheck will mean additional social security and medicare taxes will be taken out.  In addition, the additional income earned will be taxed in the higher tax bracket.  Remember that each dollar saved because an expense is avoided by a spouse not working is multiplied because it also results in tax savings.  You need to make $1.20 or so for each $1 in childcare you are paying.

Add everything together and for most families it will actually make more sense monetarily for one person to stay home, particularly while the children are very young and payment for childcare would be required.  And speaking of sacrifice, much of what is sacrificed is clothing and cars that will be destroyed through trips to the office and meals out that become mundane quickly.  By working time with the kids and home cooked meals are sacrificed.

So, while not everyone can take on the extremely challenging role of raising children, for those who wish they could but think that they both need to be working to make ends meet, perhaps you should reevaluate what you are really netting after all of the additional expenses.  Whether the mother or father stays home, there are also intangibles such as having a bigger influence on your children’s lives and morals.

Please contact me via vtsioriginal@yahoo.com or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Photo Credits: CELAL TEBER, Website www.celalteber.com

The “Tax Dodge” of which We Can All Take Advantage

 

There was somewhat of an odd article in Forbes Magazine this month entitled, “Social Media Tax Dodge.”  It is about the founder of Yelp, Facebook and others who own large amounts of their own company’s stock from pre-IPO days in Roth IRAs, and therefore will not need to pay taxes on their large gains.  The tagline for the story is: “If their IPO riches weren’t enough, insiders at Yelp and Facebook are skirting taxes with $100 million Roth IRA’s and $150 million tax-free gifts.”  The article then goes on to talk about the “future large revenue losses” that Congress has failed to address.

The article is not odd for Time or Newsweek, but it is odd for Forbes given that they normally are advocates of free enterprise and they often idolize billionaires.  Just look at their fawning list of the world’s richest people that comes out annually.

While it is true that taxes will not need to be paid on the gains unless the money is withdrawn before the owners of the IRAs reach 59 1/2, there is certainly nothing shady going on.  They are just following the rules of the Roth IRA, that require individuals to pay taxes on the money used for investing when originally earned and then lock it away in a Roth IRA until retirement.  To use terms like “tax dodge” and “skirting,” and to talk about “lost revenue” like the money belonged to Congress to begin with is extremely prejudicial.  Perhaps some of the writers for Forbes have jumped onto the class warfare bandwagon being sent on tour before the Presidential elections.

If you don’t want people to be putting money into IRAs and Roth IRAs to lower their tax bills, ditch the whole income tax system and go to a Fair Tax.  Don’t write laws to encourage people to put money away for their retirements and then complain when they are successful at doing so.  For every Facebook, there are thousands of other companies that disappear into dust.  Those individuals who hold shares of those stocks in their Roth IRAs don’t receive any sort of credit for their losses.  They can’t even write the losses off against gains in their regular accounts, not that they should be able to do so.

The article concludes by suggesting that everyone should put assets with a potential for large gains in tax sheltered accounts such as Roth IRAs.  While this makes sense if you do happen to start a company and have shares long before the IPO, this does not make sense for the majority of us who are buying post-IPO shares on the markets.  While you will hopefully get a big winner like a Microsoft or a Home Depot if you buy stocks while they are fairly young and hold them while they grow, there is tax deferment built into long-term holding of common stocks just by their nature.  So long as you hold the shares and don’t sell them, the gains can compound and grow.  Also, the tax rates when you do sell are fairly low (15% capital gains rate currently).  It makes more sense for many people to put things that pay regular dividends and distributions, such as active mutual funds, utilities, and REITs into IRAs to avoid or delay paying taxes on those recognized gains,

Realize, however, that you really aren’t getting off tax-free, even if you have money in a Roth IRA or hold your shares and never sell.  Each year the companies you hold are paying corporate taxes.  Because you are a part owner in these companies, this is money out of your pocket that the government would not have if not for your investment.  With corporate tax rates up to 35%, and many corporations paying taxes in the low 20% range, stock holders, large and small, are paying a greater percentage on their corporate earnings each year than most income earners.

Please contact me via vtsioriginal@yahoo.com or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Photo credits: T. Al Nakib, Website www.MyPhotography.net , downloaded from Stock.xchng.

The Tools for the Job – Kitchen Tools and Gadgets you Really Need

A few posts back I gave some time-saving tips for cooking.  The connection between this investing blog and cooking is that you can save a lot of money and thereby have money to invest if you make a lot fo your meals yourself.  Today I’ll finish this series by discussing what tools and gadgets you really need to cook. Note that this assumes you are starting with a bare kitchen – maybe moving into your first apartment after the dorms in college.

There are always a lot of things out there you could buy.  A lot of gadgets advertise that they will make cooking a lot easier, but the truth is that most of those gadgets only add value if you are cooking in bulk.  For example, if you are making gallons of salsa, it makes sense to pull out the Cuisinart.  If you are just cutting up an onion, however, you’ll spend ten times as much time dragging the thing out and then washing it and putting it away than you will actually spend cutting the onion.  You’ll find that most of the time it is just easier to pull out a knife.

Here are the items that a well-stocked kitchen should have:

• 1 set of mixing bowls (small, medium, and large)
• 2 glass measuring cups – 1 cup and 2 cup
• 1 set of plastic dry measuring cups (1/4 cup, 1/3 cup, 1/2 cup, 1 cup)
• 1 set of measuring spoons (1/4 tsp. 1/2 tsp. 1 tsp. 1 tbsp)
• 2 spatulas, two large spoons (one solid, one slotted), a whisk, 2 rubber spatulas, 1 two-pronged fork, 1 set of tongs
• 2 frying pans (cast iron is best), 4 sauce pans (small, medium, large, and extra-large) with lids
• 2 baking sheets
• 1 collander
• 1 set of knives (1 chef knife and 1 paring knife, perhaps a bread knife)
• 1 set of wooden spoons
• 1 grater
• 1 set of pot holders
• 2 cutting boards (one for meat, one for everything else)
• 1 set of cake pans (round)
• 1 9×13 pan
• 1 9×9 pan
• 1 muffin pan

These are nice to have, but are used less often:

• A blender, a salad spinner, a waffle maker, a toaster over, a crock pot.
• A pastry cutter
• An extra spatula (never have enough)
• An extra small sauce pat
• A ladle
• A bread pan
• Apple corer (metal)
• Egg slicer
• Food processor
• Hand mixer

 

Please contact me via vtsioriginal@yahoo.com or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Photo credits:  Jim O’Connor, downloaded from stock.xchng.