Retire Young or Die Trying

Did You Like the Harry Potter Ending?

2007-07-24T10:04:00.000-04:00

I finished the Harry Potter book on Saturday night, 10 hours after I got it (would have finished it faster if only I hadn't had to eat). Overall, I really enjoyed the book, but the epilogue was a little too cutesy for me, though it did nicely resolve all the "what will happen to them now?" questions.

What did you think?

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My Budget

2007-07-23T08:25:00.000-04:00

Saving/Debt Repayment
42.8%= If you want to retire young, you have to make sacrifices, I have sacrificed buying a new car, a larger house, driving in to work, and going out to lunch among other things.

Spending
25.5%= There are areas here I could definitely cut back on, but I don't want my wife to feel like she is living under siege, so for our happiness I spend more than I need to. Roughly 59% of my spending comes from mortgages and home ownership fees.

Taxes
31.6%- Despite the fact that my wife and I pretty much max out our 401K, the Government takes nearly 1/3 of my income (not including sales, gas, or other taxes). I wonder what the percentages would be if they didn't use my money on pointless wars, farm subsidies, bridges to nowhere, and a social security program I won't get to take advantage of. By my calculations, if I didn't have to pay taxes, I could retire in 5 years.

How Not to Invest in Stocks: Learn From My Stupidity

2007-07-20T09:09:00.000-04:00

So, on Wednesday, I sold my first ever stock, Novartis. In the process, I made at least one key mistake.

The stock had tanked after its Tuesday earnings call announced that for the next year it would be having slower than expected growth. This had been somewhat expected by analysts, but regardless, the stock still dropped almost 3% on the news.

On Wednesday, the stock dropped a further 2% based on several analysts dropping its rating. Importantly, the analysts did not have any information the market didn't have on Tuesday. Their downgrade was based on the Tuesday earnings call, which the market had already reacted to.

On Wednesday, after the stock had dropped more than 5%, I sold my stock. On Thursday, the stock rebounded 1.8%, mostly because some analysts held steady on their rating while others realized that that the Wednesday analysts didn't know anything the Tuesday market hadn't already known.

The end result is: I sold at the low. I still feel like it might be 8 months before the stock starts appreciating at a decent level. I should have either sold on Tuesday after the earnings report, or I should have held onto the stock until it came back from its Wednesday's loss.

Screw Moderation: In Praise of Immoderation

2007-07-19T09:54:00.000-04:00

So Blueprint for Financial Prosperity had a post about how the single greatest piece of financial advice he has is to achieve balance.

I believe that balance should be balanced by a healthy amount of lack of balance.

The dream of going through their life having 2.5 kids, a house, a wife, a middle management job and a white picket fence may be for some people, but it's not for me.

For me, it's vital I sculpt and follow through on my own unique vision of what my life should be, and not be beholden of what some established wisdom says my life should be. Part of who I am and hope to be is defined by comparison to this mold.

To define myself I have to do something truly unique and this requires that I sometimes be immoderate.

Here are some immoderate things I hope to accomplish:

Finish in the money at the World Series of Poker- impossible? how to know if I haven't tried?
Retire Early- How early? While I'm still young enough to appreciate not having to work.
Skydive- Hopefully my chute won't be full of silverware.
Visit the Galapagos Islands- not really all that immoderate, but definitely not the height of moderation.
Move to a Caribbean Island-or a similarly sunny island. Sunlight and warmth= happiness. Given a choice, I chose a place with a headstart on making me happy.

Why Owning is Almost Always Better Than Renting

2007-07-18T08:19:00.000-04:00

This excellent article does a good job of explaining why owning your own home is almost always better in the long term than renting.

It comes down to one thing: inflation. Mortgages can't adjust for inflation, while renting can. Thus while the renter faces steadily increasing rents, the owner eventually will be paying a fraction of the original real value of the mortgage. The owner starts by paying more, but eventually pays far less.

This effect takes place even without factoring in appreciation, but if you do factor in a moderate appreciation, the effect is much more pronounced. While your house's value goes up 4% a year (even though your mortgage does not), the renter's rent goes up 3%.

Combining that with the leverage of only having to own a portion of the total equity in the house and you have a near unbeatable victory for owning versus renting. If you plan on living in a place for 5 years or more, you should strongly consider owning,

Should I become a Poker Geek?

2007-07-17T09:21:00.000-04:00

One way I may be able to supplement my retirement income is by adding poker income. In my hayday (and at the peak of poker's popularity) I figured I could make around $40K a year from internet poker.

Since then my skills have declined considerably as I have been forced to actually work at a salaried job and the hobby has become illegalized by idiotic Congressmen.

However, if I figured I could make just $20K a year from poker while I was "retired" I could retire considerably earlier (probably 4 or 5 years earlier).

The rub: poker is incredibly boring when played nonstop every day in front of a computer without seeing live people. Online poker however is 1/10th the cost of casinos and you are able to play far more hands.

The other rub: the most important skill in poker is patience, working all-the-time has eroded my once easy-going personality and has caused me to lose my ability to be patient. With it has gone my poker skills, to be able to successfully supplement my income I will need to re-easyfy my personality to become the laid back kid I was in college.

I will most likely try to supplement my income with a few thousand a year from poker in retirement, but I definitely don't want to lock myself into a retirement stuck in front of a computer screen performing rote repetition.

Season Tickets: Incredible Waste of Money?

2007-07-16T12:08:00.000-04:00

Today, I bought season tickets for my college's basketball team. The cost is $320 a seat for 15 games, since I bought two tickets that will be $640, which obviously is a significant amount of money (more than an IPhone).

This may be an incredible waste of money, but I hope that I can recoup around $300- $400 back by reselling some of my tickets. In addition, a friend of mine runs a ticket website, so hopefully he will come in handy.

Unlike other wastes of money, this waste, at least, is guaranteed to make me happy, so it has that going for it. Given what I could have blown my money on (fancy car, fancy gadgets) this purchase is more about making me happy, and less about showing off to other people.

I strongly believe in moderated frugality, where you make small little treats to yourself (according to your means) and avoid large purchases which will add little to your overall level of happiness.

Still, this purchase may have exceeded moderation, what do you think?

Lessons Learned from Investing Thus Far

2007-07-16T09:05:00.000-04:00

So, I have only been in the investing game for a little while thus far, but, even though my stock has been tanking, I have already learned a lot of really good lessons.

The main thing I am starting to learn is to get a better picture of the investing world. Basically there are the institutional players (Wall Street) and then the rest of us (Main Street).

For any large cap stock, there is almost no way that Main Street can out-know or out-smart Wall Street, so there is usually never any type of sure thing among these stocks.

To outperform Wall Street, you have to take on a lot more risk by wading into smaller caps or options or other risky areas. However these seem like very risky waters, and I am going to be wading into them very cautiously.

The other lesson I have learned from investing is the basic mechanism of trading. Things such as never placing market orders (always place limit orders) and the other nitty gritty of how to trade.

I'm getting into the 0% Game

2007-07-13T12:31:00.000-04:00

I've heard a lot from bloggers about how the 0% credit card offers are drying up.

After finally getting a question answered the other day, I have been able to determine the two harms that are caused by the 0% game:

High Debt/Credit Limit Ratio- this will be fixed as soon as I pay off 0% balance.
A lot of inquiries (hard credit pulls) on my account- this is counted on my record for a year, though it only makes up 10% of my credit score.

Since I don't think I will need to take a loan out for the next year, it looks like the 0% game is beckoning me.

The other concern is never missing a payment, but that is what Outlook Calendar is for.

Have you or would you ever get into the 0% game?

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Lessons Learned From Tracking My Expenses

2007-07-13T10:15:00.000-04:00

I never thought that tracking my expenses would reveal anything, and it didn't enlighten me by itself.

It was only when I started categorizing my expenses did I realize where I was spending relatively large amounts.

One Surprise Large Category: Gifts

Weddings, My wife's nieces and nephews bdays, my bday, my wife's bdays, Father's Day, Mother's Day, Get Well flowers, My Parents Birthdays, my In-Laws Birthdays, Christmas, and Baby Showers.

We spend a ton of money on getting people gifts. I am going to have to figure out what I can do to curb this spending category.

Retire Young or Enjoy Your Work?

2007-07-12T14:19:00.000-04:00

I would rather work at a job with a high salary that allows me to retire as soon as possible than at a job I would really like working at, but that would force me to work into my late 60's.

I can see the arguments going both ways, but for me, all work, no matter how enjoyable, is going to be a lot suckier than the joy of not having to work at all.

Would you rather work someplace you enjoy working at for 40 years or work someplace you are indifferent about for 15 years?

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New Use for Zecco: Selling at a Loss

2007-07-12T09:45:00.000-04:00

My first stock has tanked since I bought it. I'm not really sure why, though there are a couple of possibilities. I still remain optimistic for the long run.

But it strikes me that it might make some sense to sell the stock at a loss right now, and then turn around and buy it again. This would cement my losses on my tax returns, but have no other effect on my bottom line.

Short term tax gains and losses are taxed at my marginal rate (33%), whereas long term gains are taxed at the capital gains rate (15%). Thus if I sell at a loss, I can deduct a higher percentage from my income, then if I waited and sold at a loss after a year.

With Zecco being so cheap to buy and sell, the transaction would cost me very little, yet result in favorable tax treatment.

Sacrificing Your Life For Your Wife

2007-07-11T13:04:00.001-04:00

So a new study shows that if women take their social security benefits at an earlier age and men at a later age, they will increase their combined couple net income, even though the man will die at an earlier age.

The widowed wife will enjoy the benefits of the higher survivorship Social Security benefit due to the husband's waiting to draw from Social Security.

But is this trade-off fair for the shorter living husband? He will get the increased peace of mind of knowing his wife is protected if something should happen to him, but he may have to endure a lot less comfortable retirement than he might otherwise have to. Maybe he will have to work longer in order to be able to retire. Working longer may mean he dies sooner as a result.

The fairest thing would be to plan ahead, and to save up enough to use retirement savings to offset the disparity. If I have to die 5 years before my wife, I intend to have a damn good time before I kick the bucket.

How to Avoid Lifestyle Creep

2007-07-11T09:22:00.000-04:00

Due to my insane dream of retiring young, I save roughly 40% of my pre-tax income. Sometime it can be hard justifying denying myself things I could clearly afford, especially when my friends and co-workers have them.

It is also tough with the peer pressure from family members. Everytime my mother (who hasn't earned an income in 35 years) comes to my house, she tries to convince my wife that she should get 1) a new couch, 2) all new furniture 3) a china cabinet, 4) dining room table and innumerable other things.

It can be really tough to avoid lifestyle inflation. Here's my thoughts on some tips.

Keep your Poorer Friends- The instinct to splurge money on all sorts of conspicuous consumption would definitely be higher if I hung around my co-workers more. The same effect would kick in if I lived in a really expensive house.
Get Everyone on the Same Page- My wife and I are on roughly the same page, we have the same goals though I think we have different priorities, we both want a family and to retire early.
Buy ourselves some nice things- It doesn't feel like we are denying ourselves too much when we both have a few expensive things to appease us. She has a house and an expensive engagement ring, and I have a Tivo. She apparently needs more expensive appeasement than I. :)
Don't feel the Need to Keep Up With the Jones-I don't need to waste my money in order to show how cool I am.

I know other people allocate a certain amount of their paycheck automatically to Vanguard or something, and that could definitely work, though its not for me. My investments are being spread around a number of places.

Should I Sell Out like Other PFBlogs? (Poll)

2007-07-10T11:47:00.001-04:00

So recently I was contacted by a payday loan company wishing to advertise on my site. This caused me a giant moral problem in that payday loans are in almost every case an awful idea which trap people into cycles of debt dependency and cause human misery.

On the other hand my blog barely makes any money (2 cents a day is a good day), and writing two posts a day for 1 cent a post can be disheartening.

Other sites, like The Simple Dollar and Lazy Man and Money, and a bunch of other sites do advertise payday loans. I think sites like The Simple Dollar and LMM really sacrifice a lot of moral high ground by doing it however.

What do you guys think?

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Alternate Income Streams: Betting Against Zealots

2007-07-10T09:11:00.000-04:00

I've been exploring whether to start investing money in the political futures market, sites like Iowa Electronic Market and Intrade offer people the opportunity to "invest" in a bet which functions like a stock on certain political candidates or parties winning elections or primaries.

The great thing about these markets is that they are populated by partisan hacks of both sides, who cause tremendous inefficiencies which can be exploited for profit.

For instance, based on fundraising totals it seems pretty clear to most people that the Democratic primary will be won by either Hillary or Obama. Sure you could make an argument for Gore or Edwards, but the former seems disillusioned with politics and the latter seems hopeless, despite his popularity with the Daily Kos.

If I bet on those two candidates to win the primary (placed bets on both of them), and one of them won, I would make a 25% return on my investment. If I wanted to temper my risk by also betting on Gore, I would make a 15% profit.

Unfortunately, the same inefficiencies don't seem to exist on the GOP side, as a bet on Fred Thompson, Giuliani, and Romney would only return 16%. A bet on John McCain (whose campaign is in freefall) would return a healthy 1,983%, which despite McCain's freefall seems a bit exaggerated.

Pointy Haired Bosses Beware! A Few Tips on Constructive Criticism

2007-07-09T11:41:00.000-04:00

So this weekend, after busting my butt drafting something for work over the last week, and after not having a day off (including weekends) since June 24th, my boss, in giving me comments on my draft, told me that I should write more like my co-worker.

Needless to say this bit of "constructive criticism" from my pointy-haired boss, really demoralized me, and caused me to work less hard and really become pissed off and depressed about my job.

Here's what he did wrong:

CC'ed people unnecessarily- If you are going to criticize one person by comparing them to another person, you should not cc other people, including the person whose writing I supposedly should try to emulate, and another co-worker. Being criticized in front of an audience was humiliating.
Not Value the Work I had done- I drafted almost the entire paper, I worked my butt off while PHB was on vacation, including working till 10:30 on Friday night and another 10 hours on Saturday.
Gave Generic Praise- Couching criticism by first saying something positive is a good strategy, but it can be obvious if you are going to say something phoney. This almost made things worse.
Not Leading By Example- He did almost nothing on this project, other than spend 2 hours looking it over, after I had spent 50 hours researching and drafting it while he was on vacation.
Criticizing By Email- Email is a whole lot less personal and email is really easy to misinterpret, especially with regards to tone. When you criticize someone, you need to be especially careful your tone isn't misinterpreted. Avoid email.

This whole incident has definitely caused me to give serious thought to moving up my timetable on when to quit my job.

I am a Daytrader (Apparently)

2007-07-09T09:08:00.000-04:00

Zecco is an unbelieveable thing. On Friday, I had $20 to spare, so off the basis of some stock blog's tip I invested $19.80 into one share of ARGN- which I have no idea who they are, or what they do. The stock soared, and I was able to promptly sell the stock at $20- a 1% profit in a day.

Yes the $.20 I made is definitely not worth the extra amount of effort I created for myself in reporting that $.20 to the IRS, but I view it as a valuable learning experience.

The more experience I build up with trading, the better I will understand how I should be executing my orders. Hopefully, that $.20 will pay off big time.

The Happiest Place on Earth

2007-07-07T08:54:00.001-04:00

http://cosmos.bcst.yahoo.com/up/player/popup/index.php?cl=3271475

Check out this video. This is the happiest place on earth, and they accomplish it with pig tusks as currency.

Actually, the video makes a valid point about the importance of community and family relations to happiness and the unimportance of money.

It's something I need to keep in mind, even as I go grubbing for as much money as I can. I'm accumulating money so that I don't have to worry or think about money, it's a means, not an end.

Gooooooals Update!

2007-07-06T11:11:00.000-04:00

I update later than most due to my 401K taking forever after my paycheck to invest my contributions.

Here's my status towards my goals:

Debt Repayment

I was able to pay off roughly $5000 worth of bad debt off this month, and am making major progress towards paying off all of my bad debt, with roughly 47% of it paid off.

Post Tax Investments

The amount of my post-tax investments stayed the same as I allocated most of my money towards debt repayment.

This month, however, I bought my first stock, which I funded through raiding my cash reserves. The stock has since dropped 1.4%. Doh! Oh well, I'm in this puppy for the long run.

Total Investments

I don't include home equity, or the value of personal possessions or my car. It's simply my stocks, bonds and cash holdings. This month, total investments went up $2200, mostly through 401K contributions. The market's instability hurt me some, but not crushingly so.

Baby Boomers Should Be Taxed Until They Cry . . .

2007-07-06T08:49:00.000-04:00

I'm 27, when I retire I will need more than a million dollars in order to be able to assure that I have enough. The failure of Social Security and Medicare to provide for me is absurd given how much in taxes I will be paying for these programs.

The system returns vastly worse than the market: If I pay $2500 (and my employer pays $2500) towards Social Security, but I instead invested that money in the market at an 8% return every year for 40 years, I would have an inflation adjusted $383,030, or enough for $30,000 a year in payount (i.e. about twice what Social Security would pay in this situation). Even if Social Security didnt go bankrupt, it would still be vastly inefficient and under-rewarding.

The Baby Boomers Will Bankrupt the System-the flood of baby boomers retiring will mean a lot more in withdrawals and a lot less in contributions. Young people will be stuck with the bill: either by paying more in Social Security taxes or by receiving far less in benefits.

The Baby Boomers Allowed the System to be Bankrupted-it was Baby Boomers who allowed politicians to not fix the problems and to systematically raid Social Security to pay for tax cuts, military spending, social spending and other expenditures which amounted to screw-the-next generation for an immediate reward policies. Now, that the Baby Boomers have become vastly more wealthy than the younger generations, its time for them to pay for their own problems.

Two Possible Solutions

Fix the Problem Now- Baby Boomers' Social Security benefits should be cut or the retirement age raised NOW. No more of this grandfathering into the previous generous benefits levels. Baby boomers should take an immediate and severe hit to their level of retirement payouts. They broke this, they shouldn't be footing younger generations with the bill.
Let Future Generations Chose- I should be given the choice about whether to invest the combined $10,0000 that's paid by my employer and I to Social Security in a government-run system that can't even beat 8% returns, or in the market by myself. If that causes older generations to have a funding problem, they have only themselves to blame.

One thing is clear, the fair solution is to adopt a "you broke it, you should fix it" solution. Baby Boomers and those who enabled the politicians to allow the system to go bankrupt, should now shoulder the burden of ensuring that future generations aren't vastly screwed over.

Will I be Bored in Early Retirement?

2007-07-05T12:00:00.000-04:00

I read all of these articles about people who having worked all their lives don't know what to do in retirement. Many of them go back into the work force because they just don't know what to do with their lives. So much of who they are as a person and what they occupy themselves is about their work.

The person that they were (independent of work) has become irreperably damaged, and they have become their work selves. My dad is still working in his seventies; not because he has to, but because he wants to. I want to avoid this fate at all cost.

This will not be me. Work is a means to an end, never an end in itself. Once I achieve financial freedom, my ends will have been achieved, and work will serve no more purpose for me.

One difficulty I face: how to enjoy the work that I do, while still remembering that my work self is not me? This seems like it may be very difficult to accomplish, but possibly can be accomplished by:

Developing my non-work life, making friends, developing hobbies and fun things to do to the extent that my non-work life outshines any enjoyment I derive from work.
Not over-obsess about money, so that when I finally have enough, I will recognize that fact, and let go my obsession.
Realize that I should do work that I enjoy, but that the most enjoyable thing is to not have to work at all.
Have a family that I can love and spend time with.

It is an awful prison that shackles you, even after you have left its confines.

8 Things You Didn't Know About Me

2007-07-05T08:40:00.000-04:00

Major thanks to One Frugal Girl for tagging me, I am a big time admirer of her great site. Here are 8 things you may not know about me:

Once I hit my goals on the invest-o-meter, I'm quitting my job and working for the Government. Every time I call anyone from the Government after 5 PM they've always left for the day. What a life!
I once won a trip to Disney World, but had to stay in my hotel room the whole time. Doh!
My wife is a saint for putting up with me. . . No, seriously, she is.
When I was 8, I fell asleep in the car, my parents woke me up to go to a Chinese restaurant for dinner. I walked in still asleep and sat down at the wrong table with the wrong family.
I once spent the night on a park bench in Queens.
I've lost two $500 poker pots in my life to people holding 2,4.
This blog makes aproximately $.02 a day. Gotta love Google Adsense.
I scored a near perfect SAT score, for whatever thats worth.

Continuing the tag love, I'm tagging:

I would tag Blueprint to Financial Prosperity, but I doubt I'm a big enough fish to garner his attention.

Investment Newsletters- Are they Worth It?

2007-07-04T10:27:00.000-04:00

I keep reading Motley Fool's promotional material about how their Hidden Gems newsletter has returned ridiculous profits, and it appears very tempting. I would love to read some reasons why I should NOT buy a newsletter though.

Here's what I have been able to come up with:

Risks- This is not free money, with the possibility of great returns comes the possibility of great risk. Any investments in their small cap value stocks could easily tank by more than 50%.
Cost- At $175+ you are basically paying a tremedous cost on any type of small investments. However, given the risks involved, you would be ill-advised to put too many of your assets into their reccomendations.
First Mover Advantage- In order to maximize your returns, you probably need to invest as soon as the recommendation comes out to get in on the reccomendation bump, this might cause you to do less research and cause you to make more mistakes.
Newsletter Bait and Switch- I suspect that the Motley Fool, like other newsletter companies, has newsletters that tank. They then discontinue the tanking newsletters and make it look like they are brilliant geniuses for having so many newsletters that outperform the market.
It could be a short-term fluctuation-It could be the types of stocks they are reccomending are on a temporary high and are headed for a crash.

Thats what I have been able to come up with, I would love to hear people's thoughts on this.

My First Stock

2007-07-03T11:54:00.000-04:00

I wasn't planning on buying my first stock until I had paid off my student loans, my second mortgage, and also built up a stable of solid index funds to form the base of my investments, but plans change.

I stumbled across a stock that I really liked, Novartis (NVS), and the more I read, the more I liked, and I decided that all things considered it made sense to enter now. I bought 62 shares out of my Zecco account and it all went smoothly (though in retrospect I should have used a limit order, rather than a market order)

Here's my thoughts on the stock:

I like their business prospects- Its a global pharmaceutical company which stands poised to capitalize on the greying of the baby boomers in developed countries. While it suffers from the threats facing most pharmaceuticals (expired patents, increased competition from generics, increased lawsuits, increasingly regulatory climate) for various reasons it appears to be in a better or equal position vis-a-vis these risks than its competitors.

Analysts like it- It has a 5 star rating from Morningstar and S&P, and the talk on the Motley Fool's website has been pretty positive.

The stock doesn't seem to be overpriced- The PEG is like 1.25 and the P/E ratio and other measures don't seem to make it overpriced. Most analysts fair value of the stock is higher than the current stock price.

No looming problems- It seems to be dedicating a significant portion of its revenues to R&D, and doesn't seem to have a large debt problem.

Of course, this being my first stock purchase, it's very possible I don't know what I'm doing. Only time will tell.

My Identity Revealed.... Grrrr.....

2007-07-03T09:25:00.000-04:00

Over the weekend my NYC friend revealed my blog to another friend of mine (not one of his Einstein moments). I've found that generally, the more people know something, the bigger the chance that EVERYONE knows it.

So assuming a whole bunch of my friends know about my dreams to retire young, is that a bad thing?

I guess the one area of concern for me is having my friends know my net worth. Obviously one reason I do not want them knowing this is privacy. Privacy contains some utility all of its own. I would not like everyone to see nude pictures of me, even if I never met any of the people who had seen them.

But the bigger reason is jealousy. I have always been a big believer that human nature is both good and bad, and a big laugher at the people who think that they have somehow overcome the instinct to be bad, its usually those holier-than-thou fools who are the worst sort of humans.

Its human nature to resent people who you feel are comparatively better off, and exposing my numbers to all of my friends just leaves me wide open to that kind of feeling, even though I never sought my friends to know.

So, I probably won't talk about my net worth numbers anymore, except in general terms. Its not worth losing friends over.

Anyone Have $10,000 to Spare?

2007-06-30T11:01:00.000-04:00

Next week is the beginning of the World Series of Poker main event.

Its a dream of mine to someday play in this. Yes, I would probably be knoecked out in the first day or two and lose my entire $10K entry fee, but you only live once, and $10K seems cheap for the fulfillment of a life's dream.

Crazy?

The Non-Financial Costs of Weddings

2007-06-29T13:30:00.000-04:00

A lot has already been written about how extravangent and over-the top weddings have become cost-wise, but there are other, less obvious costs to weddings.

Because they have become such big, important affairs with a bevy of unwritten etiquette rules which many guests and family members are unfamiliar with, they can cause tremendous arguments and social rifts between family members and friends.

Family Strain

My parents and I had a lot of incredibly nasty fights over their attempts to insert things and people into the ceremonies who my wife and I did not want. One of my family members did something embarrassing and awful at the reception when they thought they were being sweet.

Lost Friends

From a friendship standpoint: One of my good friends promised he would come, but never showed up (which still cost us the $300+ with the caterer and others). I called him when I got back from my honeymoon and left a voicemail, but I never heard from him again.

So the final cost: strained relations with many family members, and one really close friend lost. The high expense of the wedding made the ceremony's perfection all the more important, and also aggrevated the harm caused by people's etiquette blunders.

Should You Be Fleeing the Country?

2007-06-29T10:25:00.000-04:00

If you are young, lazy and desperate to retire young, you are pretty much consigned to a life of hard financial sacrifice, number obsessing, soulless work drudgery, and mandatory mutton-chomping. Unless . . . .you flee the country.

Fleeing the country for your retirement has many advantages:

Taxes- A U.S. Citizen living abroad does not have to pay taxes on his first $84,000, assuming he meets the other criteria. If you plan on making more, you could voluntary give up your citizenship if you want to avoid double taxation.

Nicer Weather- Sunny, beautiful and lovely, sure beats cloudy, polluted, and depressing. Studies show that the levels of sunshine can have a positive effect on your level of happiness.

Cheaper Standard of Living- Depending on where and how you live you could live a lot cheaper. Housing, food, and other staples can be had for a lot cheaper.

Retire Earlier- With all of the money saved from taxes and cheaper housing and food, there is no reason you can't retire earlier. If you could comfortably retire on $40K a year you could easily retire once you'd saved $750K. You could write Fidelity to tell them to go bleep themselves for telling you you need $5 Million.

Comparable Services- Depending on where you retire you might be able to get comparable schools, hospitals, etc. Or you could use your extra money to pay for private services.

I'm not saying you definitely should flee the country, but given the advantages, I'm surprised more personal finance bloggers don't consider the option.

Time to Raid the Emergency Fund

2007-06-28T13:06:00.000-04:00

I have located my first ever stock that I would like to invest in (if you don't count the time my dad let me buy one share of General Mills when I was 10 because I liked their cereal). I read the Morningstar reports, the Standard & Poors reports, and the company's 20-F (the foreign equivalent of a 10K), and even logged into the motley fool forums to get a feeling of what people thought.

I've opened up a Zecco account, but now I have to fund it.

I will probably raid the emergency fund assuming I can figure out a way to set up a Zecco to FNBO Direct transfer. Lets hope our beat-up old car holds out for a couple of months.

Should You Try to Time the Market?

2007-06-28T08:56:00.000-04:00

I recently found this post arguing against the Buffett style "buy and hold" investor. Citing to a book by Ben Stein, the post argues that the whole "no one can time the market" advice is an oversimplification, and that by working the numbers you can avoid predictable decreases and cash in on predictable upswings.

Specifically, buy whenever the following valuation ratios fall below their 15-year moving averages: price-earnings, dividend-yield, price-book, price-cash flow, and price-sales.

It strikes me that the two are not mutually exclusive. A value investor like Buffett takes the value of the stock at the time of purchase into account when he buys it, thus in a way he is timing the market.

When to Sell

The difference comes down to whether to sell or not when the stock becomes overvalued. Buffett's advice is usually reported as "sell rarely, if ever," but this does not seem like a prudent course for the ordinary investor.

Unlike Buffett, I can't run the companies I am buying into so as to ensure high returns on my investment. If my stocks become overvalued there is little I can do to maximize my return except sell and invest elsewhere. Of course, I might miss out if the company's long run growth remains stellar, but there is nothing preventing me from buying back into the company once it becomes less overvalued.

The buy and holders have a legitimate point, however, when they emphasize not overreacting to short term swings in the stock price and selling like a panicked feline. I am going to try not to panic at the first downswing.

Are Women Better Personal Finance Bloggers?

2007-06-27T11:50:00.000-04:00

Having read a lot of personal finance blogs lately, I've noticed that some blogs written by women are more interesting than the vast multitudes of pf blogs. What I find "interesting" are blogs which are entertaining, unique, and which address different scenarios not already addressed by every single blogger. I should also note that this post is obviously guilty of over-generalization.

Here's my reasons why I think women make more interesting bloggers:

Personal Narrative-They write in a more personal narrative, rather than as an omniscient drone capable of frugalling their life away.

They have interesting problems- Blogs like Make Love Not Debt and others blog about their experiences with debt, the need to spend money on things as well as family and job-related problems that you just don't see from the omniescent frugaloid drones. Make Love Not Debt had a discussion about an Asian mother's expectations to be supported which was truly unique and interesting.

They are more fearless- Women tend to post on topics men might not be able to get away with. I know there are a number of posts I have hesitated to make due to my wife's ability to smack me upside the head.

Men tend to focus on the objective "right" way to do things- Blogs like this are a dime-a-dozen full of the drone narrative about what the right thing to do in every situation is. This tends to cause an echo chamber of monotonous redundancy.

Women have more interesting blog layouts- Men, including this blog, tend to have unimaginative layouts (mea culpa).

Amongst the male bloggers, I tend to find bloggers who have "fatal flaws" like incredibly laziness, poor earning capacity, heavy debt-load to be more interesting reads than the omniscient frugaloid drones.

Of course the omniscient frugaloid drones are probably more helpful in providing insightful and intelligent saving and investing advice, but its hard to provide such advice if your readership is already asleep.

What do you guys think?

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I Need To Learn Faster

2007-06-27T08:44:00.000-04:00

The NY Times has an article reviewing the new Apple IPhone, and it's clear that it will be truly revolutionary: a combined cellphone, video IPod, web browser, email terminal, camera and status symbol. All of these functions will be performed at the highest echelons of quality and style.

Before the success of the I-Phone was as manifestly obvious as it is now, Apple's stock price appropriately quadrupled over the last year, meaning that much (if not all) of the new sales and market share represented by the IPhone is already reflected in the stock price.

Before I start investing I am going to need to find a way to learn about companies faster, before their successes become front page news.

It may not be possible to outsmart the market, but it certainly is possible to be outsmarted by it. To avoid that happening, I need to be able to get as much information and knowlege about companies before it becomes manifestly, front-page, obvious.

The most obvious place to do that, the internet, seems to be the most unreliable. In order to weed through the sea of BS, I will need to have a lot of general and background knowledge on stock investing and on the business of the companies I invest in.

Hopefully then I will be able to spot the next I-Phone before it becomes obvious to everyone.

Are 0% Transfers Dead?

2007-06-26T11:46:00.000-04:00

The Wall Street Journal had an article the other day on 0% credit card transfers, i.e. transferring money from credit cards offering 0% interest rates and profiting off of the interest (also called credit card arbitrage).

This practice was well known in the personal finance community, and several pf bloggers had great posts about how to exploit it.

The problem is that credit card arbitrage is becoming a victim of its own success; the Wall Street Journal articles and other publicity it is garnering is causing banks to take some protections, which if they become widespread might well kill the practice.

I'm pretty disappointed. I was hesitant to get involved with credit card arbitrage because of the risks to my credit score, but lately I've started to think that the damage wouldn't be permanent and it might be worth the thousand dollars of interest a year. It appears that I have waited too long.

Get Rich Slick's blog has announced that he will be abandoning credit card arbitrage and instead will be pursuing other arbitrage opportunities. I am not sure what that means, but if I figure it out, I'll be sure to share it!

Retire Young or Die?

2007-06-26T08:20:00.000-04:00

According to this internet site I found, the average person who works until age 65, dies 18 months after retiring, while the person retiring at age 50 lives to be 86 years old. For those contemplating working another few years before retiring, realize you are losing two years of your life for each year you work beyond age 55."

I am not sure if this unbelievable claim is true or not and in fact the website itself states that the data is old, but the principle might still be true, and it is all the more reason to retire as young as I possibly can.

I can't think of anything more depressing than the thought of working all of your life until you hit 65, never relaxing and enjoying your freedom, and then promptly dying 18 months later.

I intend to live a life of freedom.

Maximizing Every Cent

2007-06-25T13:02:00.000-04:00

Too many people have their money floundering around earning them no interest at all.

To maximize every cent I can, to try to break through the ceiling, I keep my cash holdings in the two best places I know.

1. Schwab Investor Checking Account
I no longer have a brick & mortar bank, instead all of my checking goes through my internet checking account with Charles Schwab. Here are the highlights:

4.25% interest on my money (highest I have seen- beats ING hands down)
ATM reimbursement- unlimited reimbursement of ATM fees, I can use any ATM I want, and it will reimburse me the fees.
No minimums, no requirements (they do force you to sign up for a brokerage account-but you don't even have to put any money in it)
Online bill pay and also appears to have a yodlee option.
Free paper checks- I write the slackers in my life checks for the money I owe them, they don't cash them, I earn 4.25% on their laziness.
Direct Deposit

Downsides: You have to mail checks in to them. This kind of sucks, but I rarely get a paper check anymore, so its not awful.

2. FNBO Direct

They have a 6% interest rate through September, which makes them a great place for my short-term emergency fund. I haven't see anything better than this rate (except in shady banks) After September, I will reevaluate to see if my emergency fund should be moved elsewhere.

Paying Back Family Loans

2007-06-25T08:50:00.000-04:00

My mom lent my wife and I $5K to help with the down payment for our home. She didn't draw up any kind of documents, discuss any interest, or even bring up when I should repay her.

She certainly isn't hard up for money. The disparity between me and my parents does a good job of showing the age-wealth gap in this country (more on this later) My parents have basically 20 times my net worth and even in their late 60's are making more than me in income.

Yet despite the ultra-foolhardiness of paying my mom back sooner rather than later, that is what I plan on doing.

Here's my reasons why:

She's my mom: I feel bad not paying her back her money.

I owe them a lot more than $5K- My parents raised me to be the person I am today, none of what I hope to achieve in my life would be possible without them. Additionally, they paid a lot of my college and grad school

Being your own man- Sometimes I think the reason why a generation of my friends in their late 20's have never really grown up is that they are still financially or otherwise tied to their parents (this has a lot to do with the Age-wealth gap and the high costs of college). Even after they turned 18 (the magical adulthood number) they were still financially and socially tethered to their parents for support. Its time for me to finally cut the cord.

It pays to engender good will- While I intend to set out on my own and do it without their help, in life it never pays to burn any bridges you might need later on (this is why I never do the "screw you boss, I'm leaving" speech when I quit a job). Who knows what the future will bring and what kind of help I might need?

Dogs or Cats? Vote for Your Favorite!

2007-06-24T08:58:00.000-04:00

Growing up, I've always had cats, but recently I'm starting to wish my wife and I could get a dog (no not the one in the pic)

What's your view?

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How Long Will The Housing Downturn Last?

2007-06-23T10:16:00.000-04:00

Americans are unrealistically overconfident about how long the housing downturn will last with most thinking that their homes will continue to rise in value.

There are a bunch of factors which weigh against the housing market rebounding.

Houses have appreciated to ridiculously high levels over the last couple of years, while real wages for the middle class have held stagnant, so that houses have become grossly unaffordable.
Mortgage rates, while not at historic highs, are much higher than they were during the housing run-up, which was partly fueled by the availability of cheap loans.
The collapse of the subprime mortgage market. It's become harder for people with poor credit to obtain financing.
Age-Wealth Gap- twenty somethings, already saddled with student loan debt, are having a tough time affording houses. There is a vast age-wealth gap in this country between boomers and twenty somethings. This means that twenty somethings don't have the financial resources to buy their boomer parents' houses.

Housing insiders predict that this current downturn will last two years. All housing is local, and certainly the US population is still rising, but we aren't going to see a national turn around until some of these factors start changing. Its very possible that prices will start to gradually rise at reasonable appreciation levels once mortgage rates fall some more.

That said: it could be an excellent time to own a rental property, as a generation of Americans who can't afford to own homes have to live somewhere.

Have You Ever Made It A Double Feature?

2007-06-22T15:34:00.001-04:00

So, every now and again, the wife and I sneak into another movie, and watch two movies in a row.

The last time we did it, we saw the god-awful movie The Ex, which I am supremely happy we did not pay money for.

I realize that it is completely immoral to "make it a double", but with the movie theatre charging me $8 for popcorn and a drink and $20 for 2 tickets, its very hard for me to shed a tear for the harm suffered to the movie industry's ability to gouge me out of another $20 for the privilege of seeing an awful Zack Braff movie.

Would you Ever Make it a Double?

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Are You Too Frugal?

2007-06-22T11:46:00.000-04:00

Sometimes I read these bloggers who reccomend things like preparing your own detergent or drinking nothing but tap water, and it just make me wonder: Is It Worth It?

Don't Punish Yourself

Here's how I figure it: Being frugal but still being happy requires that you don't sacrifice on enjoyment and desires.

You can still be happy, even while you are frugal, if you eliminate those desires which are unnecessary for your happiness. Do you really need the big screen tv, the expensive car, the huge house, all of these keeping-up-with-the-Jones' items to be happy?

Eliminate Unneccessary Desires

One thing that helps me eliminate these desires is thinking about why people want them.

On this note, the economist Thorstein Veblen, writing more than a hundred years ago, had some brilliant insight which really pierces the illusions upon which our consumerist society is built.

In his book, The Theory of the Leisure Class, he wrote that our modern consumerist viewpoint is really an attempt by people to try to seperate themselves into higher classes. The highest class is the so called Leisure Class, those people who are so rich and important that they can afford to do basically nothing productive for themselves or society.

The Leisure Class spends money in an attempt to show that they are so rich and powerful that they do not need to spend money on anything useful and can afford to simply waste their money. For instance, the rich spent gob-loads of money on silver utensils, even though steel utensils in fact work better. A modern day example would be the fashion industry: rich, important people spend tons of money buying clothes which are far less useful than regular clothes, and then proceed to wear them once.

Looking at my own desires: I identify a lot of them which are built upon the need for others to recognize me as a success (for instance a car that can park itself) and these desires seem silly, now that I realize they are just an attempt for me to demonstrate that I am so statusful that I can afford to waste my money on useless crap.

What's Left Is What Makes You Happy

So, I do my best to eliminate those desires which are based on some insecure need to validate myself to others by showing that I too can waste my money, and I'm left with those (usually cheaper) things which really do make me happy. My wife, my friends, my activities and hobbies, and of course my beloved Tivo. I don't intend to get rid of these things, no matter how expensive, because My Happiness is Worth It.

Should You Be Making Non-Deductible Contributions to an IRA?

2007-06-21T12:49:00.001-04:00

Crazy talk, you say? Maybe Not....

If you are above a certain income ($103K for joint income) you are not allowed to claim any tax deduction for contributions made to an IRA. Similarly, if you are above $166K for joint income, you can not make contributions into a Roth IRA.....

But, tax loophole time! Starting in 2010, you can convert your IRA into a Roth IRA, no matter what your income is! You would normally have to pay taxes on the amount of money in your IRA which you claimed a tax deduction for....

But not if you didn't receive a tax deduction for that money!

This means that if you are above the limits for a Roth IRA eligibility, you can sneak in, by making a bunch of crazy non-deductible IRA contributions from 2007-2010, and then converting your IRA balance into a Roth at no charge.

Risks: Congress could always change the laws. Disclaimer: Verify this w/ tax professional to make sure I am right.

How Much Money Till You Have FU Money?

2007-06-21T10:33:00.000-04:00

FU Money is basically the amount of money you need so that you wouldn't need assistance or employment from anyone, though the Urban Dictionary defines it slightly differently.

For me the number is currently $1.2 million. If someone slapped $1.2 million on my lap I would never need to work again, and could live rather well off of an inflation-adjusted 5.5% return ($66K). I might still work if there was something I wanted to do, but with $1.2 million, I chuck the alarm clock into the trash.

How much money do you guys need before you have FU Money?

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5 Problems With Prosper

2007-06-20T15:17:00.000-04:00

Would you loan to this listing?

So a friend of mine was very involved with Prosper, and has wanted me to get involved. Here are 5 reasons why I will not be.

1) Higher Default Rate Than Average - borrowers tend to come to Prosper when they can't get funded elsewhere. Additionally, there are other moral hazard problems, for instance some borrowers take the money lended to them as charity, with no intention of paying it back. The result is borrowers on Prosper have a higher default rate than the average person with a similar credit rating.

2) Taxes- Loan interest is not taxed at the long-term capital gains rate, and is instead taxed at your marginal rate. This can make a huge difference in your after-tax return. Additionally, Prosper delays in declaring loans in defaults, which hurts your ability to offset those losses on your income.

3) Poor Customer Service- Prosper has taken some steps to address problems, but if you read the message boards, their are certain problems, like group leaders who are gaming the system, which remain unresolved.

4) More Serious Lenders than Borrowers- A year or two ago, lenders would lend to anyone, based on their story. Having gotten burned on that approach, lenders are increasingly wising up and are pre-limiting their lending to borrowers meeting certain financial criteria. This creates a glut in lenders for the good listings with a resultant driving down of interest rates and returns.

5. State Credit Laws- Some states cap interest rates in an attempt to stop usury, but all they accomplish is that they make certain highly risky people, unloanable, since borrowers cannot charge an interest rate that properly reflects the risks involved.

How to Learn About Investing (For Free)

2007-06-20T10:20:00.000-04:00

A half year ago, I couldn't tell a P/E ratio from a PE class. I am not even close to being ready to start investing in individual stocks, but I think one of my strengths is my ability to realize this and start the process of teaching myself how to invest.

Here are the Steps I have taken thus far:
1) Books- I've read the Motley Fool's Investment Guide as well as another Fool book, which wasn't as good. Other books I have read: A Random Walk Down Wall Street, Kiplinger's Guide to Investing, some Cramer books as well as some others which I wouldn't reccomend to my worst enemy (Someone's Rich Dad apparently never taught his son how to write in clear English). I checked these all out from the library.

2. Warren Buffett's annual letters to Berkshire shareholders. Everyone reccomends these as a great way to learn how to invest. I've only read 2 thus far, I am going to try to read as many as I can.

3. Stock Investing Blogs & Websites: I try to read Marketwatch, the WSJ, Motley Fool Online. and a couple of blogs every day. One Million to My Name has a great blog for stock investing where he runs through his successes and failures on a regular basis and you get the benefit of his experience.

4. Morningstar Classroom: This is huge, Morningstar has an online free classroom, where you can teach yourself about every major investment topic, and afterwards you take tests to test your knowlege. If you get enough points from the tests you qualify for premium trial membership.

5. My local library's website: I can access Standard & Poors' stock reports as well as Morningstar's stock reports online through my library's website (with my library card number)

6. Fantasy Stock Portfolio: There is no subsitute for experience. I have several fantasy portfolios, where I am learning from my successes and failures. For instance, acting on a "hot tip" from a blog, I converted 10% of my fantasy portfolio into MEDX, a biotech I knew almost nothing about. It promptly dropped 10%. Lesson learned: there is no such thing as insider or pseudo insider information, and there is no subsitute for doing my own due diligence.

Investing: What Not To Do

2007-06-19T19:20:00.000-04:00

So, as I have mentioned, I am a definite newbie when it comes to investing, however, having spent a lot of time researching and learning over the last year, I've come to some definite conclusions as to what I should not do, when I begin investing in a couple of months.

1. Giving Up or Hiring Financial "Advisors": I have a friend at work who has $75K in his checking account and is too busy and/or clueless about what to do with that money so he just lets it sit there. Obviously for him, a financial advisor would be a step up from the status quo. For the rest of us, however, the high fees they charge (which is before any fees you also have to pay from mutual funds and investment products), make these "professionals" easily beaten by do-it-yourselvers with the patience, time, and willingness to learn about investment. I have no interest in paying someone 1% of my total assets every year to "manage my money," by failing to beat the S&P.

2. Fee-Heavy Investments: I similarly have no interest in investing in other fee-heavy investments: front or back loaded mutual funds, overly high expense ratioed mutual funds, insurance annuities, or overly expensive brokers to hold my hand while they overcharge me (cough cough Charles Schwab). The internet age means none of these products are needed.

3. Individual Bonds: I have no real time to learn about the complicated and subpar-performing bond market. Long-term Bonds are usually highly risky (though lesser returning than equities) while short-term bonds pay peanuts. To paraphrase Warren Buffett the only good day to invest in bonds is on a day that doesn't end in the letter "y." While I may invest in a few bond mutual funds (like an indexed fund) to hedge against a stock market downturn, I have no intention of overdoing it.

4. Investing Too Conservatively: The key to good investing is assessing risks and determining which paths present the best opportunity, given the risks, to achieve maximum rewards. Keeping a 12 month emergency fund or paying down your mortgage is not a reasonable assessment of the risks presented by investment. Passing up reasonably risky investments is a far too fearful strategy to achieve investment success, and is guaranteed only to lead to subpar returns and high opportunity costs.

5. Not Taking Advantage of Tax-Favored Investments- IRAs, 401Ks, etc.: These offer massive tax benefits, which work out to be free money (especially if you have an employer matched 401K), and turning them down is a huge mistake. My NYC friend, despite my advice that he do so, has failed to create & contribute to a Roth IRA. If he had done so for the last two years (contributed $8K) that $8K (assuming a 10% return) would have returned about $256K in 36 years (when he turned 62). If he is taxed at a 28% federal rate and a 6% state rate, then that Roth would have saved him around $87,040 in taxes.

Making My NYC Friend Cry

2007-06-19T13:01:00.001-04:00

So, one thing about me, I'm a sucker for online financial calculators, and CNN Money just unveiled a new one that helps track cost of living disparities.

One of my friends is currently living in Manhattan, and having gone through a similar grad school experience as me, will be working in NYC after he graduates. He basically will be doing the same thing as me, only he will be getting paid 15% more than me to do it.

I don't know how realistic this calculator is, but according to it, I am making 15% more than him when you factor in the ridiculous expenses that constitute Manhattan. This will no doubt be aggravated by the extreme conspicuous consumption that makes up the NYC outlook on life.

Calculators like this make me wonder whether I should just pack up and move to Morgantown, WV, or analagous areas.

When Good Debt Goes Bad...

2007-06-18T08:00:00.000-04:00

So right now, my wife and I are trying to pay off some "bad" debt, before we start rapidly accumulating post-tax investment capital. What's interesting is that the tax deductibility of the debt makes a HUGE difference in whether debt is good or bad....

Here's a run-down of our debt:
1. Mortgage debt, 30 year fixed rate at 5.75%, this works out to an after-tax return of around 4%. Bloggers and "financial gurus" who tell you to pay down your mortgage at these interest rates are fools. We could earn a better rate of return on a treasury bond (almost), plus the mortgage allows us to enjoy a great return on the leveraged appreciation of the house.
2. Ultra-low interest federal student loans- Always be suspicious if someone tells you they need to borrow money to pay down federal student loans, as these are usually ultra-low interest rates, but are one of the few loans which survive bankruptcy.
3. Second Mortgage at 8%- While this is pretty high, it is tax deductible, so it is lower than the long-run return on the market, though many would jump at the chance to earn a guaranteed 8%. I will probably split my money between the market and paying this loan down.
4. Private Student Loans at 7.035%. The thing to note here is that because of taxes these student loans are actually higher than the second mortgage. The non-deductible 7.035% is equivalent to a market return of 11.5%. A guaranteed no-brainer.

Bonds? What are they good for?

2007-06-17T10:34:00.000-04:00

So I was reading this great Ben Stein article, and he mentioned that he has no bond holdings in his portfolio. Instead he has 20% of his money in cash, i.e. money market funds, CDs, etc.

I read somewhere that there has never been a 10 year period where the average return on bonds has been better than the average return on stocks. This seems to imply that if you are investing for 10 years down the line or more (as I am), you should not own bonds.

Right now I have no bonds in my portfolio, but as I start investing outside of my 401K, I am torn between the feeling that I need to diversify in case stocks tank, and by my concern that I would be sinking my long term rate of return. I am not sure what investment vehicles out there are better positioned as a hedge against a falling stock market.

My plan right now is to invest around 10% of my portfolio in tax-free municipal bonds, which make sense given my temporary high income tax bracket. The question I have is:
Is this small risk hedge worth the drag on my total rate of return?

Wealth First . . . then Emergency Fund

2007-06-16T01:16:00.000-04:00

So the accepted conventional wisdom is that you should have a 3-6 month emergency fund readily available, either in cash equivalents like a high-interest internet savings account, money market account, or in a rolling CD ladder. In fact, Trent, the world's most prolific personal finance blogger, reccomends you have a 12 month emergency fund.

I have a 1 1/2 month emergency fund. which I only have because 1) my beat up 15 year old car is on its last legs and 2) I may have some big medical bills coming up to pay for.

If you want to retire early, you need to focus on building wealth first, and having an emergency fund second.

Investing in a 5% money market account would cause you to double your money in 14.21 years, but investing that money in the market at the historic 10.5% return will double your money in less than 7 years or half as much time. Every little bit of money you can put into equities and higher returning investments makes a big difference (especially if you factored in the fact that emergency funds are taxed at the short term rate, while stocks are taxed at the long-term capital gains rate).

But what about having enough money to avoid using bad credit sources?

No question if it is a choice between incurring high interest credit card debt and having an emergency fund, you should go with the emergency fund, but I don't think the choice is that simple.

With less cash on hand, you are less tempted to spend extravagently, because you are literally working without a net. Additionally, there are other sources you could draw upon in the event of an actual emergency: you could sell your stocks (no reason I couldnt do this while using my 1 month emergency fund), or you could take out a HELOC (tax deductible) or a 0% credit card transfer, or borrow money from a relative.

The point is to get as much money, earning as much as possible, as soon as possible, so you can break through the ceiling.

Will the Internet Kill the Real Estate Agent? Let's Hope So

2007-06-15T11:08:00.001-04:00

I bought a house a couple of months ago, and as part of that process I used a buyer's agent. My buyer's agent basically drove me around to various houses which I had selected, helped me draw up an offer and supervised the contract process. For all of this, she got 3% of the sales price of the home (around $12K for probably around 40 hours work or $300/hour).

Considering the main thing she did was taxi me around to homes and open them with her little key, this seems like an exorbitant waste of money, especially since my wife and I found the house that we bought at an open house, without our real estate agent even being there.

In addition to these jobs, she also 1) showed me a couple of houses which were completely outside of what my wife and I told her we were interested in - but, surprise! they were her listings (so she would have gotten a 6% commission if they sold) and 2) pressured myself and my wife into raising our offer price, preying on our fears that we would lose the house we really liked and 3) pressured my wife and I into using her mortgage officer and home inspector.

My experience does a good job of showing some of the problem with buyer's side real estate agents:
1) Their incentives are completely misaligned with the buyers interests. They make less money from getting a good deal for their clients on the price of the house. They make more money from trying to get their client's to accept one of their listings. They build up relationships with settlement companies, bank officers, home inspectors- who all tow their line and toss them business/commissions in return.
2) They make a ton of money for doing very little. There is nothing that a buyer's side real estate agent does that can't be replicated by more legwork from the buyers and by more legwork from the closing company and associated real estate lawyers. I basically paid $300 an hour for use of the real estate agent's key.
3) They have a racket set up in commissions to protect their ability to profit exorbitantly- If I didn't use a buyer's agent, I would still have to pay 6% of the house commissions- only it would wholly go to the seller's agent. This is ridiculous, and was the reason I used a real estate agent: there wasn't an easy way for me to recoup that 3% commission.

Fortunately for the consumer, the competition of the internet is beginning to offer alternatives which should break down this racket. Internet sites like hungryagents.com now compete to offer you the lowest commissions through recouping some of their 3% commissions back to the price of the house sale.

Once again the internet will revolutionize a business where a bunch of fatcats are getting paid a whole lot to do very little. Viva La Revolucion!

Breaking Through The Ceiling

2007-06-14T15:49:00.000-04:00

In examining my retirement goals, and running the numbers, one thing strikes me as really interesting.

The larger the amount of your money invested in the market, the easier it is to rapidly accumulate wealth through compounding and interest rates.

If you invested $6K a year into your 401K, and earned an average of 10% on it, it would take you 15.4 years to earn your first $200K, yet it would take you only another 6 years after that to earn your next $200K.

The lesson from this is striking: If you can find a way to break through the difficulty of accumulating that first $200K, you can set yourself up to the point where your ability to rapidly accumulate wealth benefits exponentially.

This is what I am trying to do: I am trying to find every possible way I can to accumulate "investing fodder" to break through that ceiling. From saving money to bouncing my money around internet savings accounts. Right now, my wife and I have $57K in the market (entirely in 401Ks), my goal is to try to increase that to $200K in the next couple of years.

About Me

2007-06-14T10:02:00.000-04:00

I am a 27 year old man, who is pretty much defined by my incredible laziness. I hope to rack up a ton of money, in any way I can, as fast as I can, with the purpose being to retire as young as possible and to stop having to work.

My parents raised me to think that working would be great if I could find a job I really loved. So, I worked really hard, I got into good schools, I opened up a world of possibilities for myself. I didn't pay attention to money.

I have discovered this is complete BS: As long as I have to continue to get up in the morning and be obligated to go somewhere and do something, I am not free.

The purpose of my journey is Freedom.

That said, however, I am extremely cautious by nature, and am hesitant to take unreasonable risks to achieve financial freedom. I am not willing to "bet it all on black." I plan on taking aggressive, but risk-assesed steps to achieve my goals.