Monday, April 30, 2012

Merill Lynch Retirement Calculator



Merrill Lynch has this retirement calculator online, which is one of a number available.   It has an annoying talking voice, but you can mute it.   It is an interesting calculator, in that it may assure you that you are well on-track to a comfortable life, or it may panic you by illustrating how underfunded your retirement plan really is.

For me, it was reassuring.

Note:  I am not endorsing or recommending Merrill Lynch or Merrill Edge.  I do not use their investment services, personally. 

Every Day is a Struggle

Life is a struggle - and it never gets easy, either.   Many folks take the easy ways out and wonder why things don't work out well for them.   You have to struggle, daily, to get ahead.

OK, so we sold off all our stuff, and paid off all our debts.   Life on easy street, right?

Hardly.   In fact, it seems more of a struggle than ever before.

Why is this?   Well, as a spendthrift, you don't spend too much time thinking about your bank balances or how to pay your bills.   You make the minimum payments and roll over debts and hope it all works out, until one day, 5, 10, 15 or even 20 years later, the shit hits the fan and you realize that you should have been paying attention.

So, the life of the debtor is actually more carefree than that of the frugal.   The debtor merely accumulates more debt and buys more stuff and never thinks about the consequences - like our Mullet-headed friend.

But once you are forced to pay cash (or the equivalent - money you HAVE, not money you BORROW) then you have to make harder choices.

Suddenly, things seem more expensive than before.  And suddenly, even small amounts of money seem huge.  Not only are things not easier being debt-free (and staying that way) they are harder.

You realize that you are not as rich as you once thought you were, and you have to pinch pennies, clip coupons, buy things on sale - or not buy things at all.

It is tough.   But the alternative, while fun in the short run, it tougher in the long haul.   The misery of perpetual debt and the perpetual need to suckle on the credit teat is far worse than the struggle to live within one's means.

Yes, there is a bit of an ecstatic rush when you pay off debts, and realize that you are debt-free.  But staying that way is very hard to do - and requires constant vigilance.

For example, in 2005, we sold our home and were debt-free and had a pile of money in the bank.  Woo-Hoo!  It was great.   But not for long.   We decided, for some reason, that we had to have a "house" and went back into debt to get one.   Bad idea.  We could have lived with less and remained debt-free but chose not to.

We fell into the mentality that "everyone has debt" so it must be OK.  And we didn't realize that taking on a mortgage at age 50 ain't such a swell idea, when retirement is about a decade off.

So, now, in 2012, we are debt-free again, and this time intend to stay that way.

And it ain't easy to do!   It is a struggle.   Life is a struggle.   But it is a worthwhile struggle.

Pedal Confusion

Pedal Confusion Happens - to the best of us!  Women and the Elderly seem particularly prone.

The government released a report the other day, citing pedal confusion as the cause of the "unintended acceleration" crashes of many Toyotas.   It was an eerie echo of the Audi 5000 pedal confusion fiasco of thirty years past.

Then, as now, a popular car, known for its quality and durability, was suddenly being tagged as having a weird, unexplainable "unintended acceleration" problem.   Sales plummeted, and people blamed "mysterious electrical gremlins" or problems with the cruise control.  Studies were conducted, tests made, lawsuits filed.

The ultimate conclusion?  People were confusing the gas and the brake pedals.

Of course, this was shouted down by a host of people - who want to externalize their problems.  After all, they know the difference between the gas and brake, right?  It had to be someone else's fault!

But the reality tells another story.   On models offered also with manual transmissions, the incidence of "unintended acceleration" was negligible.  This alone tells the tale.

In most incidents, the person reporting describes the engine "revving more and more, the harder I pressed on the brake pedal!" - this should tell you all you need to know, too.  They are pressing on the gas, which causes the exact symptoms stated.

After the Audi 5000 fiasco, Volkswagen, the parent company of Audi, has installed software in their cars that returns the engine to idle when you step on the brakes.   This is a good idea - as it eliminates the practice of riding the brakes, which a surprising number of people do.

The only problem with this technique, is that it won't stop the unintended acceleration problem caused by pedal confusion (which is the overwhelming majority of situations).   All it does is insulate the company from litigation by proving that, if the person really was stepping on the brake as they claimed, the car would have slowed down.

Why are people subject to pedal confusion?   Shit happens at they say, and I can recall two times in my life when this happened - both in cars with manual transmissions, and the end result was stalling the car - but only after it leapt forward several feet - unintentionally.  But if it can happen to me, it can happen to anyone - and it need only happen once to have tragic consequences.

The effect is frightening.  You step on what you think is the brake, and the engine revs.  Without thinking, you step harder, and the engine revs more.  You panic and your brain freezes - danger signals are coming in from all over - your "fight or flight" instinct is raised.   And yes, the last thing you think about is what pedal you are pressing on.

Why does this happen?  It is an interesting psychological phenomenon - you do the same thing day in and day out, and one day, your brain just slips a gear and you drop a plate, instead of setting it down on the table.   We all make mistakes.  It is a predictable outcome, not some weird outlier behavior.

Older people often are subject to this problem.  My Grandfather once drove his Cadillac up over the curb, from a standstill, and through a shop window.  No one was hurt (thank God) but he handed in his license the next day.

Others are not so fortunate.  One elderly gentleman drove through a farmer's market after a pedal confusion incident, and killed a number of people.   This happens with regularity.

What is distressing about these incidents is that people don't want to blame themselves but rather want to blame the car maker.   This is what is wrong with America, of course.   It is not that pedal confusion could even be a possibility to them - it is not even possible!   And yet, every year, dozens, if not hundreds of such incidents occur.

So called experts were able to "replicate" the problem, but only after shorting out many safeties in the systems our outright faking the results.  These "experts" of course, are often hired by lawyers wanting to sue the car companies, so you have to consider the source.  Also, the tests fail to rationalize why, in most cars, the brakes can overpower the engine, particularly at low speeds:
60 Minutes aired a report titled "Out of Control" on November 23, 1986,[21] featuring interviews with six people who had sued Audi after reporting unintended acceleration, including footage of an Audi 5000 ostensibly displaying a surge of acceleration while the brake pedal was depressed.[22][23][24] Subsequent investigation revealed that 60 Minutes had not disclosed they had engineered the vehicle's behavior — fitting a canister of compressed air on the passenger-side floor, linked via a hose to a hole drilled into the transmission[21][22] — the arrangement executed by one of the experts who had testified on behalf of a plaintiff in a then pending lawsuit against Audi's parent company.[25]
And of course, once the media gets ahold of the story, what happens?  Everyone jumps on the bandwagon, reports an "unintended acceleration" problem, either hoping to cash in on a law suit, or wanting to blame the car-maker for what would ordinarily be their own malfeasance.

While some safety advocates have pointed to an increase in reports of unintended acceleration after Toyota switched to using electronic throttle control, NASA said in its report that it found no such correlation.  Reports of sudden acceleration in Toyota cars did spike whenever there was national publicity focused on the issue, however, NASA said.
Are some cars more prone to this?  Perhaps.  One report I recall reading noted that the Audi had pedals that were located more to the left, and thus one might press the wrong pedal by accident.  So it is possible that pedal location and design may play a part, but not necessarily "electrical gremlins".

High heeled shoes or poorly made shoes may be to blame, too.  Women wear the worst sort of shoes (as do old people) tending to concentrate on style more than comfort.  You cannot "feel" through a hard leather sole, and a high heel?  Forgetaboutit!

There are documented cases of cars slipping into gear, particularly some Fords and Chrysler's that pop out of "Park" and into "Reverse".  However, in recent years, pedal interlocks have been installed in most cars, requiring your foot to be on the brake before the car can be pulled out of Park.  This also eliminates problems when children try to pull on the shift lever (or pets, for that matter).

So what can you do to help prevent pedal confusion?  A few things:

1.  No "two foot driving" - the right foot is for the gas AND brakes.  The left foot is for the clutch.   If you have an automatic, your left foot does nothing.  Lazy drivers drive with both feet, and as a result, it is easier to jam the left foot onto the wrong pedal.   If you use ONE foot, you know you have to take it OFF the gas and put it ON the brake, which leads to less confusion.

2.  Use your parking brake.   You should set the parking brake on your car whenver you park it.  If you don't use it, the cables will rust in place and then it won't be there when you need it.   The parking brake might *help* hold the car in place if you run into such a problem.

3.  Shut your car off, if idling.   A car idling burns fuel, and if it running for more than 10 seconds, shut it down.   More important than that, a car idling is a very dangerous thing.  Some cars, if not securely put into PARK can pop back into REVERSE (new brake interlocks alleviate this problem in newer cars).  But regardless, an idling car is a dangerous thing.  Just shut it down.

4.  Don't walk in front or behind of an idling car, if you can help it.   Granted, this is hard to do in the city, when you have to walk across the street and feel the hot breath of a line of idling cars.  But when at home, avoid wedging yourself between a car and a garage wall.   Once slip of the driver's foot, and it is all over, for you.

5.  Know how to shut down your car in an emergency - and what to expect.  In one celebrated case, a cop in a loaner Lexus didn't realize that to shut off the motor, you have to push and hold the start button.  A floor mat jammed under the gas pedal while traveling down a long hill, and he stabbed at the start button in a panic.  Everyone in the car died in a high speed crash.   In a remote area (empty parking lot) practice this at low speed.    Be able to turn the key OFF without LOCKING the steering column (which would be a disaster).  Note how the steering gets hard - and the brakes will too, shortly.

6.  Be ready to shift into Neutral - again, most people don't think to do this, as they are in a panic.  It may over-rev your engine, but it is better than the alternative.

7.  Don't think you are immune - Pedal confusion can happen to anyone, not just the elderly.   It happened to me when I was in my 20's.  Fortunately, I was able to react in time.

8.  Drive a stick-shift:   In addition to eliminating the pedal confusion problem, you will likely get better gas mileage (on most cars, particularly depending on driving style) and have fewer mechanical problems.   In addition, a stick-shift is the best theft protector around  - most young punks can't drive them!

You feel bad for these folks who get into these pedal confusion accidents.   They don't want to think that an error they made caused them to run over their own kid or get into a horrible accident.   But it does happen, with regularity.

And one can understand why they want to externalize this horrible thing - after all, no one wants to blame themselves - the car was "possessed".   And an army of sleazy lawyers will help you sue the car companies, too.

Many modern cars are being equipped with adaptive cruise control - which adjusts your vehicle speed based on the car ahead of you.   You can lock onto someone else's car and just go.   You hope they are a good driver, of course.   This same technology is being used to activate the brakes when a crash is sensed - and perhaps this technology could be used to avoid pedal confusion, or at least minimize the results of it.

On-board "black boxes", while not preventing the problem, at least make it easier to diagnose it - by proving that the driver was pressing on the accelerator and not the brakes.

But what is interesting about this phenomenon - and it has been going on for decades - is the insistence by some people that the car is at fault, regardless of the fact that the incidence of these accidents is very small, spread across every make and model car (with the exception of those with stick-shifts).    In fact, you can expect to hear a comment from someone in  3...2...1.. Flame!

But that is just weak thinking - the knee-jerk reaction to blame someone else for your problems, or problems in general, and particularly when you can blame a faceless "big corporation" and claim they are "covering up" documents (Google the 'net, it is full of such nonsense).

Property Taxes and Wealth versus Income

You can own a home outright and still not be able to afford it.  Huh?

In the last 20 years something weird has happened in America, and most folks are not talking about it.  I am not talking about the housing bubble, the tech bubble (and it soon-to-recur reprise) or the coming retirement debacle.   What I am talking about is the staggering increases in property taxes and homeowner's insurance that has made the cost of owning a home, well, staggering.

Oddly enough, one cause of this problem was an attempt to fix it.   For example, in the 1980's in Florida, they passed a law, called the "Save Our Homes!" act, which capped property taxes for "homesteaded" owners at 2% increase per annum.  While this may have saved the homes of people living there, it meant that in order to raise revenues, the local governments had to raise other folk's taxes substantially.

So, if you lived in Florida since 1985, the property taxes on a $750,000 home might be $3500.   But if you bought that home today, your taxes would skyrocket to $12,000 to $15,000, depending on jurisdiction, and that is even if you are "homesteaded".   In fact, until recently, this law was so perverse that when people sold their "homesteaded" home and moved to a smaller home or condo, their taxes would go up as a result.   Today, they allow you to "transfer" your homestead exemption, which at least helps the homesteaded.

Of course, this means that out-of-State owners (who can't vote in Florida) pay a lot more in taxes, as do commercial owners.  But it also means that you can own a home outright and not be able to afford it.

Insurance is the other shoe to drop.  Granted, in coastal Florida, insurance is high - particularly when you have to have three policies - wind, flood, and fire - which can top $3000 to $5000 a year.   But even in other States, the cost of insurance has escalated as claims for things like toxic mold have crept up.  Suddenly, what was a trivial, almost incidental part of home ownership is a major headache.

Property taxes are an interesting beast, as they are not tied to income, but rather to something you already bought and paid for.  So it is possible, over time, to pay more for a home in taxes than you did for the home.   For the $750,000 home example illustrated above, at $15,000 a year, in 50 years you've paid more in taxes than the purchase price of the house.   And given that taxes go up every year, chances are, you are talking closer to 30 years.  Throw in the insurance, and maybe 20.

Buying a house, as I have noted before, is only buying the rights to rent it from the government.  The local taxing authority is the ultimate landlord, and recently has been raising the rents, significantly.

We recently returned from Florida, where Mark has a remainderman interest in his Parent's house.   His step-Mother has a Life Estate, and when she passes (or surrenders the property) the house will pass to the three children.   The problem is, the house, even in this recession, is worth a lot of money, even if it is still an original 1950's Florida house.   It is on the beach - and the land is worth more than the house.

As former Florida residents, we realize that the staggering taxes and insurance - which could be close to $20,000 a year - are out of our league.   Even if the house is given to us for free, we could not afford to retire there.   Well we could, but we'd rather spend the money on something other than property taxes.  Unfortunately, Mark's siblings haven't done the math on this and think they could keep the home as a "Vacation home" or "investment" and then rent it out to pay the taxes.

The problem with this approach is that it will be rented out almost all the time to pay the taxes (and the overhead of the rental agency) and as a result not be available for use by the three siblings.  Moreover, it won't be much of an investment, at least for another 5-10 years as housing prices remain flat in Florida.

The house is free.   But owning it isn't.  And we ran into this with our vacation home in New York, even though the taxes and insurance there were an "affordable" $8000 or so.   We realized, after five years, that the carrying cost of the home - paid for in cash - was more than we could afford.  We could afford to own it, just not to keep it.

All across America, we are seeing this same calculation playing out, on everything from a trailer home to an opulent mansion.  People may have money, but they don't have the income to pay property taxes, which recur regardless of your income and regardless of whether your income decreases - which it will, when you retire.

And as property taxes and homeowner's insurance go up, housing prices go down.   Housing prices are dictated by how much people can afford to pay.   Yes, buying something on monthly payment is dumb - but even if the overall transaction costs of owning a home are zero, you still have to make those monthly payments in the interim.   And if all you can afford is, say, $2000 a month, a $500 a month property tax and insurance bill pretty much dictates how much is left over for the mortgage.   Reverse Amortize this with the current interest rates and bingo - you've arrived at the price.

It is a teeter-totter.  As interest rates go up, housing prices go down.  As insurance costs and property taxes go up, housing prices go down.   And even in this era of low interest rates, what is strangling property price growth is higher taxes, insurance, and other fees (fire fees, trash fees, and other fees, once part of property taxes, are now being priced a la carte in many jurisdictions).

So it is ironic - I can afford to buy a million-dollar home, but I cannot afford to live in it.   And this is true for a lot of people - who are finding out now that the mini-mansion which looked so cool is also so utterly unaffordable, particularly on a retirement income.

Why have property taxes skyrocketed?  Why have insurance rates jumped?  In part because of a lot of weak thinking on the part of government.

In New York State, we were priced out by Albany - and the Federal Government.  The Feds dictate to the States that they have to provide a welfare "safety net" - but doesn't provide enough funding to pay for this "mandate".   The States then foist this off on the Counties, who in turn sock it to the taxpayers.   In many counties in Central New York, things like fire protection, police protection, and road maintenance are being slashed, so that the welfare "mandates" - which cannot be cut - can be funded.

It is an odd scenario - the very things that were once considered necessities, such as roads and Police and Fire protection, are now deemed luxuries.   And putting people on the dole is deemed a necessity.

The other half of that coin is the luxurious pay scales the teacher's unions have put through - as well as their very fat retirement plans.   No school teacher is worth $100,000 a year - sorry.  That is twice the median income in the USA.  And yet many make that much.

Many of the folks here on "retirement island" are retired New York State school teachers, and yes, they all drive brand-new cars.   While other folks suffer in a recession, State workers do pretty well, particularly when they are retired and cannot be laid-off.

The net result is a $7,000 tax bill on a $400,000 house - an amount I could not afford.  So we sold.

Insurance is another area where weak thinking by the government has interfered with the market.  I am not a big fan of State Farm, as I have expressed here before.  But after Hurricane Katrina, a well-meaning kindly Judge in Alabama decided that since so many people lost their homes, that State Farm should buy them a new one, even though they wrote policies which explicitly excluded flood and wind protection.

As a result, State Farm - and a lot of companies - stopped writing policies in coastal areas.   And the few remaining people writing policies had less competition, and rates escalated.   The thought of writing a fire policy and then having it bootstrapped into a hurricane policy no doubt scared them - and they had to factor-in that risk.   When a Judge can re-write an insurance policy to suit his whims - because he "feels sorry" for people who lost vacation homes on the beach - you cannot underwrite the risk.

So today, homeowner's insurance is no small thing - it can dominate your monthly mortgage payment nearly as much as property taxes.  And combined, these can mean that even though you own a home free-and-clear, you still have to pay hundreds of dollars a month - perhaps thousands - just for the privilege of living there.

In the example of the Florida house, with the property taxes, hurricane insurance, utilities and maintenance (pool service, lawn care, cleaning), we are talking about $2000 to $2500 a month.  In order to pay this, the house would have to be rented from December to May.  So much for a vacation home - well not for our vacation, but maybe someone else's.

So how do you get out from under this conundrum?   By not owning an expensive home or a big home, or more home than you need.   While it may be swell to have a mini-mansion and granite counter-tops, you do pay for this, every month, every year, in the form of taxes and insurance, not to mention utilities and maintenance.

And because of this, we see today, so many people being "house poor" even as they drag in $100,000 a year or more.   They spend every penny on living expenses, particularly mortgage payments, and under-fund their retirement.  They have income - but no wealth.   I have wealth, but no income - which is an interesting conundrum.   The income person can "afford" the fancy house, but cannot afford to accumulate wealth.   I have the wealth, but don't have the income to afford the fancy house.

Frankly, I am happier with the latter.   Why?  Because the less I have, the smaller a footprint I am for the tax man.    Working more and owning more, to me, means only paying more taxes.   So I work less, own less, and do more.

Sunday, April 29, 2012

Every Possible Thing You Can Do Wrong!

If you look up "Schmuck" in the Dictionary, you will see this photo.


A reader tipped me off to this article in the New York Times (consider the source) about how 401(k) plans are a "failure".   They are not a failure, but will fail when people - even so-called smart people - make horrendous mistakes.

This fellow did about every possible thing wrong you can do, when investing:

"The bull market ended with the bursting of that bubble in 2000. My tech-laden portfolio was cut in half.  A half-dozen years later, I got divorced, cutting my 401(k) in half again.  A few years after that, I bought a house that needed some costly renovations.  Since my retirement account was now hopelessly inadequate for actual retirement, I reasoned that I might as well get some use out of the money while I could.  So I threw another chunk of my 401(k) at the renovation.  That’s where I stand today."
So what did he do wrong?  Just about every possible thing you can do.  All at once.
 
1.  Greed:  Investing in the tech stock sector was a plain play at greed - hoping to make huge returns on investments, rather than saving to invest.  Guess how that played out?  Note that as a Patent Attorney who represents or represented may of these "high tech" companies, I do not have much of my portfolio invested in tech stocks.  That alone should speak volumes to you.

2.  Investing in all of one thing:  If your portfolio is well-balanced, you cannot be "taken out" by a collapse in one sector.  Yea, bonds are not sexy.  Neither is life insurance.  Neither is a paid-for home.   But if you spread out risk, you are more immune from market dips.

3.  Divorce:  I wrote about this before - a stupid waste of money.   People get divorced in this country because they think they can afford it.  But it is a very expensive proposition and usually wipes out both parties.  Unless one party is abusing the other, consider marriage counseling.

4.  Home Renovations:  I wrote about this before as well.   Improving a house, at most, will increase its value by 50 cents for every dollar you invest.   What other investment is worth less than half what you put into it?  Well, other than a new car.

5.  Weak Thinking:  The reason he tapped into his 401(k) for home improvements was the worst of weak thinking, "Well, I can't retire on it anyway, so I might as well spend it!"  DUMB.

6.  Cashing In a 401(k):  In addition to losing your retirement savings, you pay a 10% penalty.  DUMBER.

7.  Saying "I'll never Retire":  Oh yea?  Well, maybe the "Grey Lady" has other ideas, and perhaps wants a columnist on money matters who isn't a complete and utter fool.   Retirement isn't something you plan, in many cases, but something that is thrust upon you, often years before you are "ready"

The list goes on and on.  The only good thing I can say about this fool is that at least he is man enough to own up to it.  However, then he goes and ruins it by saying the problem is in the 401(k) system itself, and implying that the government needs to bail us all out - now.

He will have to learn to live on Social Security.  And a lot of "high fliers" end up this way - read your history books.   They live fabulous lives in their 30's and 40's and end up dying destitute.  And I suspect this fellow will, unless he wins a Pulitzer price for idiocy, soon.

How can you avoid the trap this fellow willingly stepped into?  Several ways:

1.  NEVER tap into your 401(k) or IRA, for ANYTHING.   Bankruptcy is the best approach if you have pressing bills.   Your retirement plan SURVIVES Bankruptcy!

2.  Learn to live on less:  Fancy houses and remodeling jobs are great for the ego, shitty for the bank account.   Learn to live like a poor person, because chances are, you really are one - or poorer than you think!  Just because all your neighbors have fancy houses and cars and iPhones doesn't mean you have to have them, too!

3.  DIVERSIFY your portfolio - never invest in all one thing.

4.  Pay off debts!  Be debt-free by age 50, if possible.  Have your house paid for, your cars paid for, your student loans paid for, and NO CREDIT CARD DEBT!

5.  Live below your income:  It is temping to spend more and more, particularly as you think you are a "success in life" as measured by the car you drive.   But that excess income is what you should be using to accumulate wealth, not squander it.


I am sorry that this fellow has put himself in such a shitty position.   Be he alone is to blame for his woes, not the "tech sector meltdown" or his divorce (which he had nothing to do with, right?) or the inherent unfairness of the 401(k) system.

And by the way, the IRA and 401(k) ain't going away anytime soon, friends, so just deal with it.

This fellow lived high off the hog and is now paying for it.   Too bad for him, but he ran up the tab at the bar, he has to pay it, not Uncle Sam, and by extension, us taxpayers.

The only uplifting thing about this article is that it made me feel better about myself.  I may be a broken-down old Patent Attorney, but at age 52 I am in much better shape than this schmuck is at age 60.

But then again, I bet he has an iPhone 4.

Lawyer Scams!

Lawyers have a well-deserved reputation for sleaziness.  But like all good scams, most of them prey upon the greed of the Mark.   If you get ripped-off by a sleazy lawyer, chances are, it was because you engaged him.

There are a lot of Lawyer scams out there these days.  Lawyers promise to make you rich beyond your wildest dreams - or get you out of a sticky legal problem.   And most folks fall for this - thinking that a lawyer can defy gravity and bend the law in their favor - or get them a lawsuit judgment that will make them a millionaire.   It is greed - on the part of the client - that usually gets the client in trouble.

What sort of scams are out there?  There are many:


Immigration Attorneys:  A friend of mine who used to be an immigration attorney turned me on to this one.   During the Reagan years, he had a booming business with the "amnesty" provisions they passed (yes that Regan, although the GOP today would dispute that Ronald Regan ever granted immigrants amnesty).   In more recent years, however, if you are here illegally, you have to return to your home country and then apply for a Visa.   As a result, his business tanked, and he closed his shop.

Other Immigration Attorneys were not so easily dissuaded.   As my friend tells it, a Mexican family comes to him, distraught that their friend will be deported.   He tells them kindly that there is nothing he can do - there will be a hearing and shortly thereafter, their friend will be on a bus back to Mexico.

A hour later, the client calls him.  "You are not a very good Attorney!" they say, "We found another Abogado (attorney) to take our case, and he says he can represent our friend at the hearing and stop him from being deported!"

My friend tries to warn them, but they are taken in by a slick Attorney who tells them what they want to hear - that they can win a case that is a slam-dunk for the prosecution.    And only for the low, low fee of $5000.   Where they get the money, I do not know.

So what happens?  The Lawyer keeps the $5000, the client is deported to Mexico, and life goes on.  Pretty slick racket - as your clients can't complain to the State Bar - they have been deported.


Social Security Disability Attorneys:  These folks advertise a lot these days, promising to "cut the red tape" and help you get full Social Security Disability!  They will "fight for you" to get what is right!

What is the catch?  They take 30% of "past owed" disability payments, and then rack up the bill by delaying recognition of your disability.  Rather than "cut through the red tape" they create as much as possible.

If they can delay your qualification for Social Security Disability by several years, then they can collect tens of thousands of dollars in legal fees.   And doing this is not hard - they submit applications that are intentionally incomplete or flawed, and then when they are rejected, they tell the client that "Those bastards at the Social Security Administration are being hard-asses" but of course, they will re-submit the application, with new evidence!

One client confided to me that he finally went to his local Social Security Office and talked with a case manager.  She said, "Let's just toss all this crap your attorney sent into the garbage and fill out a new form, and you will have your benefits within two weeks."

And of course, in two weeks, he got his first Social Security check, which included three years of back-payments, which the law firm wanted 30% of - for doing nothing.


Personal Injury Attorneys:   Personal Injury and Med/Mal Attorneys advertise heavily on billboards, particularly in Florida.  "We will FIGHT for you!" they say, often with their sleeves rolled up and their pathetic Lawyer biceps showing.   But who they fight for is themselves, of course.

How does it work?  Well, they might actually get a bigger check from the insurance company, but after they take out their 50-60% commission plus another 20% in "expenses" you are lucky to get anything at all - and what you do get is often less than the insurance company offered in the first place (or what you could have gotten from then directly, with a little negotiation).

For example, a friend of mine was run over on his bicycle.  It seemed like a pretty open-and-shut case, and the insurance company offered to pay his medical bills plus $100,000 for pain and suffering.

He hired a lawyer, figuring his months in the hospital were worth more than that.   They weren't.   After three years of pre-trial discovery and maneuvering, the insurance company offered to settle for $50,000 on the eve of trial.  The attorneys recommended this settlement and took most of the money.  My friend got nothing.

The pattern used by many of these sleaze-artists is the same.  They convince the client that a lawsuit will be like winning the lottery - turning the legal system into a Casino and playing on the Casino Mentality that pervades in our society.   And there are just enough obscene jury verdicts to convince a patsy - I mean client - that they will "win big" for their skinned knee, that they agree to go along with this.

But most people don't win millions at trial (which is usually reduced severely on appeal).  In fact, most of these cases never go to trial, but are settled, as my friend's was, usually long before trial.  The insurance company pays out a little more, to be sure, but most of that is taken by the Lawyer.  The client ends up with less than the insurance company's initial offer.

But like with the Casinos, the PI and Med/Mal Attorneys make sure that there are lots of headlines for big payouts - so the suckers, er, clients, believe that they too, someday, will win it big at litigation lottery.  They won't.  The Lawyers will.


Tax Attorneys:  Again, you've seen the ads - "We'll stop the IRS from slapping a lien on your business!" they claim.  So you send them $10,000 or $20,000 and...... they do nothing.

The IRS continues with its legal process, but instead of getting legal representation, you get bubkis.  Like with the Immigration Attorney, there is little you can do if you run afoul of the IRS.  There is no magic "get out of jail free" card, if you don't pay your taxes.

So you pay a lot to this lawyer and you still have accounts attached, tax liens filed, and wages garnished.   And if the attorney is clever enough, he tells the client, "Well, it would be a whole lot worse, if you didn't have me around!"

And the client gives him his blubbering thanks.

The reality is, of course, if you just engage the IRS and figure out what you owe, you can work out a payment plan.   But if you have not been paying taxes for several years because your business is failing (and you should have closed it ages ago) there is nothing a lawyer can really do for you, other than to recommend a Bankruptcy Attorney.


Bankruptcy Attorneys:  Again, this kind advertises heavily.   They promise to do great things, and may even have claimed to filed papers for you.   But many of them do nothing, but let your financial situation get worse and worse.

The worst of the lot are quasi-legal law firms, either claiming to be lawyers or having one lawyer on staff.  They tell you to send your debt payments to them to be placed in "escrow" while they "negotiate the debt".   They do nothing other than take your money and your creditors go through the usual legal channels to foreclose or repossess.

You end up broke and destitute, the Attorney ends up rich.   Nice deal, eh?


* * * 

The list goes on and on, of course.  In every area and practice of law, there are Attorneys and Lawyers interested more in lining their own pockets than in working to the advantage of their clients.   And in part, this is an inherent problem with the Attorney-Client relationship.  As one wag once put it to me, "The Attorney-Client relationship is, in and of itself, a conflict of interest!"

Simply stated, it is to the Attorney's advantage to drag out every legal proceeding for as long as possible, to insure the highest possible rate of return - in terms of billings.  What is in the client's best interest is often not in the Attorney's.   Professionalism, in a nutshell, is in the ability to see the difference between these two interests, and advising the client what is in their best interests, regardless of what is in the Attorney's best interest.

There are good lawyers out there  - and bad ones.   And the same could be said of Dentists.  Some recommend costly procedures that make a lot of money for the Dentist and do little to help the patient.  It is incumbent on the patient to find a good Dentist and think critically about proffered services.

The same is true of the legal profession.   When a lawyer promises astounding legal outcomes, a client should be skeptical.   And staying away from such attorneys is not hard to do.

Attorneys are now allowed to advertise on billboards.   And like anything else heavily advertised, it usually is a raw deal.   The best Attorneys - the ones who really give a damn - don't advertise much.   They get their referrals from word-of-mouth alone.  Their phone never stops ringing, even though they are not on the television or on a billboard.

The ones who advertise on the billboards?  They need a steady stream of business, because none of their clients will refer business to them.   And the more they advertise, the chances are, the sleazier they are.

Again, the best deals in life sell themselves.   And anything hyped or promoted should make you wary.   Think of it as Police tape marking off a crime scene, with the warning "bad deal ahead!"

The other way to stay out of these traps is to stop thinking that life is all about something-for-nothing - that you are going to get wads of unearned cash just because someone hit your car in an intersection.   Because chances are, it ain't gonna happen.  Sure, they will take your money, and you can be the friend with the perpetual problem, as you regale your friends about "your case" and what an injustice it is that you ran a red light and that cheap insurance company won't pay off!

Like with anything else in life, a lot of the control of these situations is in your hands, and far from being a passive victim, you do have choices you can make.   If you believe in something-for-nothing, chances are, you will make bad choices and end up bitter, angry, depressed, and poor.

This is not to say there are not valid cases out there - and good Lawyers.   But insurance companies recognize a good case, and in most cases, it doesn't take much to get a claims limit settlement.  And there are a few cases where a good lawyer gets a good settlement for a client.   But even then, the lawyer takes a lion's share of the dough.   There aren't in this for social justice, no matter what John Edwards tries to tell you.

Avoiding lawyer scams isn't hard to do.   Don't be greedy.  And never, ever buy anything advertised on a billboard or on the television (or radio), period.

What Time Is It? What Day?

One of the most subtle normative cues in your life is the calendar - and the clock.   Most folks just take the date and time for granted, not realizing that this very simple thing affects how you think and act - and is also a symbol of power.

People - not very smart people - are whining about the end of the world because it was foretold, supposedly, by the Mayan Calendar.   This is, of course, a lot of hogwash.  But it points out how calendars and how the days, months, and years are tallied, are a huge normative cue that you may not even appreciate.

For example, here in the West, we generally use a Calendar devised in part by the Romans, but demarcating the years based on the life of Christ.   Right there is a powerful statement as to what is, and is not important in Western Culture.   Christianity is embedded, right into how we demarcate time.

Of course, not everyone follows our calendar.   The Japanese use the "Year of the Emperor" which gets confusing, as Emperors only live so long, and you have to predicate each year based on which Emperor you are talking about.   But again, the message is clear - the very time we demarcate on this planet is based on who is in power - who is in control.

Israelis use a Hebrew Calendar.  Islamic countries use an Islamic Calendar.  But due to the dominance of our culture and technology worldwide, you can bet that when it comes to technology, telecommunications, finance and banking, we count the years from the date of birth of you-know-who.  So, while other cultures may have their own calendars, the commonly accepted international calendar is, well, the Christian Calendar - just as English is the standard International Language and the Dollar the standard currency (too bad about that Euro, we all thought it was a comer, too).

For Americans, this all seems very normal.  But to someone in another part of the world, having this Christian calendar shoved down your throat must seem, well, an obvious normative cue.

The planets, however, have their own agendas, and spin and rotate based on their own inherent characteristics.  Our feeble attempts to demarcate this into an orderly system have largely failed.  Today we have modified the Julian calendar to accommodate the planet's insistence on not rotating an exact 365 days every year, adding leap days and even leap minutes and seconds.

And with the change of seasons, we enact something called Daylight Savings Time.   And that is where you tend to notice these normative cues.   When people start messing with the clocks, it messes you up, regardless of whether it is being jet-lagged between time zones or when the set the clocks back or forward every year.   Your brain realizes that time is an organic thing, and these numbers on the clock are rather arbitrary - and a cognitive dissonance sets in.

The interesting thing about this whole deal is how subtle it is.   Learning to tell time and the days of the week, and the months of the year, are things that are first taught to children.   And we accept this - under the radar - without ever thinking about the fact that a Tuesday and a Saturday are the same thing, only given different names by mankind.

The days of the week are a particular case in point.   Our entire culture is shaped around them, with many folks going from cradle-to-grave thinking that a Saturday and a Sunday are somehow "different" than a Wednesday, and that you have to work or go to school five days a week, and then goof off or go to church on the other two.

It is a normative cue that is not even up for discussion.   And you may feel that a Tuesday "feels different" than a Thursday.    But they are arbitrary labels.   And what position of the stars we chose as the beginning of each year is arbitrary as well.  But you start talking that way and, well, people freak out.  They need time to be harnessed to the yoke and put to their own uses - lest it all spin out of control.

Time-Shifting, as I have written about before, is one way to make better use of time.  Work on the weekends, take Wednesday and Thursday off (or whatever).   There is less traffic, less hassle, more space, more availability.

But the great unwashed masses of humanity head out every Friday to go to the beach, or to the mountains, or whatever, all in the same herd they traveled in when commuting to work (and in the same cars).   And being crowded together - by time - seems normal to them.

In any argument, the key is to challenge the underlying assumption.  Usually that is where the weak point of the opponent's argument lies.    How we delineate time - in terms of hours, days, weeks, months, and years, is an unspoken assumption that is tied into our power structure - and our religious structure as well (often the same thing).   Challenge that, and well, you are basically an anarchist.

Breakfast of Champions


I just got back from a camping trip.   This morning, I watched a severely overweight man consume a two-liter bottle of Mountain Dew as breakfast.

What is wrong with people today?   Doesn't he realize that is a horrible diet that has already lead to severe obesity (we are talking 100 lbs overweight) and will, inevitably, lead to diabetes, heart disease, and death?

Or is that "telling people what to do"?

I just don't get it.

Monday, April 23, 2012

Dream Home, or Haunted House?

 A dream house can turn into a nightmare.  Possessions are less important than people and ideas.

When I was about 8 years old, my parents had to move.   My Dad lost his job (again) and after some searching, found a job as a manager of a failing car parts factory in Syracuse, New York.  The business was small, and faced a lot of competition from larger US competitors.  Overseas competition was just on the horizon.  They were locked in with stultifying union contracts, obsolete WW-II era equipment, and a cost basis that was staggering.

It was a classic case of a business that was a zombie - the walking dead.   It would take another 25 years for the company to finally fold.  It was bulldozed to the ground and is now an "Art Park" - which was cheaper than making it a HazMat cleanup site.

But in 1968, that was all many years in the future.  And the prospect of moving was, to a kid, exciting, even though you would miss all your friends.

Originally, my parents looked at an old farmhouse, built in the Italianate style of the late 1800's.  It came with a huge barn and 100 acres of land.  It was an antique house, that even had an organ built-in to the parlor.  It was all set to be a done deal, and the idea of being a country farm kid seemed kind of interesting.

But when we finally moved there, my parents had changed their mind.  They decided to buy a Japanese-modern style house on a lake, that sort of looked like the house shown above.  Pretty far-out!   It looked like something Frank Lloyd Wright might have designed, and more importantly, it was across the lake from my Dad's boss's summer home.  The location was far better for networking and socializing with the proper set for that area.

It was a beautiful home, and the previous owners, who built it, spent a lot of money designing it.  It was unique, to say the least, and was in a very private location overlooking a pristine lake.  What a great place to be a kid - at least in theory.

Why the folks who built it ended up selling it, is an interesting story.  I can only speculate that the cost of building it and owning it was too much for them - as well as the cost of maintaining two homes, as they owned a large estate nearby.  For whatever reason, they decided to sell it.  Perhaps that should have been a warning right there.

It was the nicest house my parents owned - ever or since.  And it probably was a stretch for them, even on an executive's salary.  I recall it cost $100,000, which back in 1968, was a staggering sum of money - about five times the national average.  It would be like owning a million-dollar home today.  So perhaps it was a bit of financial stress for my parents to buy.

Still, though, to have such a home - and on a lake!  What a way to live!  It would surely make anyone happy, right?

You would think that, and you would be wrong.  Having things is nice and all, but hardly an end in and of themselves.  To someone without "things" it would seem that having money, cars, houses, and "stuff" would make you happy, happy, happy.  But in reality, it does not.

This is not to say that owning things makes you miserable.  Not at all.   You can be miserable in a mansion or in a hovel.  You can be miserable with a Billion dollars, or just one dollar.  Happiness is really independent of money.  Happiness is more dependent on other things.  And if you are unhappy, having a lot of money and being unhappy is really not an answer, and often can lead to greater unhappiness.

After all, with all that money, you should be happy!  At least, if you are poor, you can blame your unhappiness on poverty.  If you are rich and unhappy, it seems you have no excuse.

And in America, of course, we are all rich, by global standards.  But we refuse to believe it or conceive it.  A person living on welfare in the US, below the poverty line, is in the top 90% of income for the planet.  People in other parts of the world would kill to live as a "poor" person in the US.  And I suspect, if they could make it over here, they would not be "poor" for long.

And of course, when they do, they aren't.  Which is why "Americans" hate immigrants.  Immigrants are constantly showing us up to be the lazy, self-pitying, no-good slackers that we are.  So we make up stories about how they are getting some kind of special deal, paid for with our tax dollars, of course, when in fact, they are just succeeding by trying, and we are too depressed to even try.

That illustrates the cooking-a-frog concept of life, though.  You get into hot water and  it feels hot and you'd jump out.  But if you raise the water temperature slowly, you get used to it.   And humans can get used to all sorts of realities, over time.  What seems shocking in the abstract, seems the norm, over time.

So the "dream house" we moved into filled us with awe.  Until about a month later, at which point, we took it for granted.  It was only when friends came to visit that I would realize I lived in an unusual home.  Most people in the area lived in homes that looked like a child's drawing of a home - peaked roof, four windows, and a chimney.  Few folks had walk-in fireplaces dominating their living rooms.

But the dream home turned to haunted mansion in short order.  Why?  Because we were not happy as a family in the house, and I think in part this was due to the financial stress on my Dad of owning the place.  I think, too, that when you live in a spectacular place, you think, "I should be happy all the time" and when your life doesn't live up to the expectations set by the house, well, a cognative dissonance sets in,

I often wonder how my life would have been different if my parents had bought that farmhouse instead of the dream house.   Would my parents have spent so much time trying to get in with the cocktail circuit and the upper crust?   Would my friends have been country farm boys instead of depressed drug-abusing preppies?

It is hard to say.  But I can say that my memories of that beautiful house are not beautiful memories.  It was, after all, just a place to live, like any other house.  And how happy you are in any house is not a function of how nice the house is - but how nice the people are inside.

Liveaboards Welcome

Marinas are like RV Parks.  And when people turn boats and RVs into full-time or vacation homes, they are no longer boats or RVs.

We went back to the Marina the other day - where we used to keep our boat.  What was interesting was how depressing it was, which maybe was one reason why we sold the boat.  In theory, a Marina is a place to store your boat or keep it at a dock, ready for use.  And some Marinas are like this - in whole or in part.

But other Marinas - or parts of them - become "liveaboard" Marinas, where people live on their boats either full-time, or use them as vacation homes.   In either case, the boat rarely, if ever, leaves the marina, and devolves quickly into a floating condo - albeit one with a damp basement and a perpetual mildew problem.

Is this a smart move?  For the individual or the Marina (or RV park) owner?  I think not, and again, that old bugaboo, monthly cash flow is behind the whole deal.   People fail to take into account the overall transaction costs of using a boat as a vacation condo or house.

For example, say you buy a boat to use as a condo at the Marina.  You decide you like to vacation at that particular destination, so you buy a secondhand yacht for $75,000.  It has been in the water a long time, and while in theory, you could take it out on the ocean, in reality this would be a bad idea.  The engines, not having been run in months, may crap out on you.  And the navigation electronics are old and out of date.   No, it is best to leave such a boat at the dock.  Machinery unused becomes unreliable in short order.

The monthly docking fee is $450, which includes electric and water.  You have to pay to pump out the waste tank, so you end up using the shower and bath ashore, which are public facilities and, well, a little messy. 

And of course, since your boat never leaves the dock, it becomes "ensconced" at the dock, with some rusty bicycles parked next to it, as well as some potted plants.   The canvas has started to fade, and the boat has not had a good wash and wax in years.  So yes, you have your floating condo, but one that looks rather ratty and uses a public bath.

OK, so you say, this is still a good deal, even if it looks a little shabby.   After all, $450 a month is cheaper than owning a house, right?  Well, yes and no.

The monthly cost of owning my HOUSE, without any mortgage payment, including taxes, insurance, utilities, and the various fees here on the island, is about $850.  And that is pretty high, since we have high insurance rates and have to pay a $500 fire fee and the like.  So yes, in terms of monthly cash-flow, the boat is cheaper.

But, that $75,000 boat will be worth about $35,000 in five years or so.  So you have to factor in another $583 a month in depreciation.  A house, even in a crappy market, will hold its value, provided you were not idiotic enough to buy it during a bubble time.

Once you throw in the depreciation, the monthly costs are about the same.    And, over time, the home may actually appreciate in value, which makes the cost even less.

But we are comparing apples to oranges here - a three bedroom house on 1/4 acre of land to an old 40-foot cabin cruiser that "sleeps 6" in tiny berths.  Perhaps a better bet would be a duplex, or a condo, or hotel condo.  Here on our island you can buy a hotel condo for $75,000 to $150,000 that would sleep two to four people comfortably.   And as an added bonus, they can rent it out for you when you are not using it, providing you with additional income as well as a depreciation deduction on your taxes.

In terms of overall cost, monthly cash-flow, or whatever, the boat is starting to look pretty shabby.

So why do people do this?  Why do people live in old Motorhomes or old Boats, convinced they are "saving money?"

Well, once again, our old friend poverty-think comes into play.   The poor tend to think in terms of monthly cash-flow, not overall costs.  Many times they end up with boats and motorhomes or trailers because of low, low monthly payments (or so they think) and then they keep these things because they "aren't worth much" once the payments have expired, and then turn them into full-time or part-time homes, on the premise that the monthly fees to store or dock them are low as well.

But what they are not doing is the math on the overall ownership cost experience - how this plays out over five years, or ten years.   At the end of that time, all they have is a fist-full of receipts for lot rent or dock rent, and a boat or RV that is worth 1/2 to 1/4 of its previous value.  They are poorer than they were before.

But a home may appreciate in value slightly over time, and thus wipe out the monthly operating costs.   As I noted in an earlier posting, you don't really "make money" on a house, but over time, in a normal market, you can get back every penny you put into it.   You break even, which sounds like a bad deal, until you consider the alternative.

So, in effect, a home can cost you nothing, if you don't factor inflation into the mix.  But an RV, boat, or apartment, are just expenses.   So living aboard a boat or in an RV does not really "save you money" over time, but results in your spending more.

And you are paying a lot more for a lot less.   Boats and RVs that are lived in, tend to degrade over time.  And public showers, laundry, and bathrooms do get old, over time.   And let's face it, they look pretty ugly as well.

By focusing on monthly cash flow the person who uses an ensconced RV or boat as a vacation home - or full-time home - is missing the larger picture.  They are spending a lot more and getting a lot less.

For the Marina operator or RV park owner, full-timers are a double-edged sword.  Many managers like to have the "liveaboards" around, as they provide a steady stream of income, particularly in the off-season.   In addition, these folks can be hired to do various chores around the park - often in return for lot rent or slip space (which negates the income argument).  Unfortunately, the person cleaning the restroom in exchange for a free place to stay is not likely to do a good job - if they do it at all.  So the restrooms look even worse.

And then evicting such folks becomes problematic.  In one incident, when a boater did a crappy job of cleaning the restrooms, the marina owner told them they could no longer "work off" their slip rent, but would have to pay cash.  The boat owner didn't have the cash, so he was evicted.  The boat owner then called the Department of Environmental Conservation and informed them the marina owner was illegally allowing "liveaboards" in the marina, and then called the Labor Department to inform them they were hiring people in exchange for free slip space, which was basically paying under the table and not reporting income, as well as violating labor laws.

As you can see, it can be a bad move for a marina owner or RV park owner to let people live in run-down trailers or boats, and work off their rent.

But worse yet is how these run-down boats and RVs make the place look like hell, and scare off the tourists.   While a "full-time" RVer or Boater might pay $450 a month for slip or lot rent, a nightly tenant might pay $30 to $60 a night.   In terms of profitability, the transient boater or camper is a far better deal.

But if you are turning away customers "in season" because you have some old stoner living on a ratted-out boat or in a ratted-out trailer, that is lost income to you.   Worse yet, if your park or marina has enough of these derelict boats (and the scary derelicts who live in them) it will scare off your better customers.  The fellow in the brand-new motorcoach or the fancy yacht, is not going to park next to some half-sunken trawler covered with dirt and blaring Jimmy Buffet songs.

But again, the cash-flow mentality sets in - with marina and RV park owners.  "I'm getting $450 a month for those slips/spaces" they say, neglecting to think of the overall costs - in terms of business turned away, of people repulsed (and your reputation damaged) as well as wear and tear in the facilities.

Full-timers, simply stated, are a lot more wear on the facilities that transients are.  A marina, RV park, motel or hotel, can make more money by being slightly more than half-full all the time, than they could by being full.  How does this work? Well, in order to sell every last room, slip, or space, you have to discount prices - in most markets - and when your operation is running at capacity, your costs are the highest.  Your utility bills go up, your maintenance costs go up, your cleaning staff costs go up.

So when you chase after marginal deals - selling that discounted motel room or full-time RV space or boat slip, you are not "making more money" but making an incrementally less amount, until you reach a point that you may actually be losing money.

But again, people don't get this - they assume that higher occupancy and more income equals more profits.  So they chase after these marginal deals and wonder why they are making less and less money.  Cash flow is a bad way to run a business.  Overall cost is a better way.

And living on a boat - or in an RV - is not an inexpensive lifestyle.

Friday, April 20, 2012

Act your Income!


When your income increases, it is tempting to increase your spending.  Living within your income is hard to do.   Living below your income range, even harder.  But if you want to accumulate wealth, rather than squander it, you have to avoid lifestyle creep.

We've been debt-free for about a year now.   It ain't easy.   Why is this?  Well, the temptation to spend is always there, and only now, when we are forced to (or are forcing ourselves to) pay cash for everything, is this readily apparent.

And like everything else, it is the little things that add up.   We used to laugh at our older friends for buying cheap booze or wine.   We figured, "Hey, it's only a buck or two more for the 'good stuff' - why be cheap?"

And so on, down the line.   We were young and "had money" - why not spend it?  And I rarely looked at the prices of things - of anything - unless I couldn't qualify for the loan to borrow it.

And so, credit card debt gets rung up, a little bit at a time.  A trip to Lowe's here - some plants and stuff for the house, $100.  What's the harm?    But little purchases like that add up - over time - and you end up in debt.

When forced to pay cash for everything, you realize how poor you really are - and how expensive things are, and how you've let your lifestyle get expensive.   Over the last two years, I have been cutting expenses to the bone, and I realize how my lifestyle inflated since age 20, when I was making maybe $15,000 a year, to age 45 when I was making ten times that amount.

With each increase in pay, came an increase in spending - and this is a very dangerous thing.   Big checks seem like a lot of money.  But you have to realize that you have to pay your bills - including the IRS - first, and pay yourself by building up an Estate.

If you are married, this problem is compounded by two, particularly if both of you are spendthrifts.   Trying to control spending becomes a "race to the bottom" and if you try to rein in your spouse's spending, well, it will get ugly in a real hurry.   Suddenly, every purchase you've ever made will be called into question, just because you asked whether they really needed that 99th pair of shoes.

But on the other hand, if this is something you can work on together, it can strengthen a relationship significantly.  Working out a budget, planning on goals for saving - and for spending - can be a lot of fun.   Each purchase is not just something bought casually and forgotten almost immediately.  You sit down together and decide what it is you really want to do with your money, instead of just spending it wantonly.

For example, we had planned on installing some plants in our front yard to act as a screen from the road.  Some palm trees and decorative grasses which would require little water, seemed like a good idea.   But the more we thought about it, the less sense it made.  Why plant plants for other people to look at?   The front lawn is fine - let it be.   If you are going to plant something, put it in the back where YOU can enjoy it, right?

You can bankrupt yourself doing "home improvement" projects like that - and add little or nothing to the value of your home.  Just walking away from it turned out to be the best idea.  And thinking about this and discussing it, for weeks, even months, turned out to be the key.   In the past, we would have impulse-bought it all, over a weekend, using a credit card.   Bad idea.

Or take those 99 pairs of shoes.  In the past, when we bought shoes, we would just go to the store and buy whatever was on sale, without thinking.  If something looked attractively priced, we'd buy it.  As a result, we have probably 20 pairs of shoes apiece, most of which are never worn, or worn just often enough to justify not throwing them out or sending them to Goodwill.

And that is the problem with the "hey, let's just buy shit" lifestyle - when you are older, you will be stuck with a lot of merchandise that was bought indifferently at an earlier age.  For all I know, my Dad is still wearing that Yellow Parka.

We finally broke down and bought new sneakers the other day.   Good, comfortable shoes are important, if you don't want back problems when you get older.   And the pairs we had were great, but wearing out - after nearly seven years.   We tried on other shoes at the Sporting goods store, but again, it was a matter of buying "what they had on sale" - not what we wanted.   We resisted the impulse to impulse-purchase junk that we didn't want (if you buy crap, even "on sale" there is no savings - particularly if they are uncomfortable shoes that end up languishing in your closet).

So after literally months of deliberation, I bought the same pairs online, aggressively shopping on price.  The me of five years ago would never dream of spending so much effort on such a trivial purchase.   But good shoes last years, so there is no point in buying "on sale" junk and hoping you get lucky.

And so on down the road.   We would like to take a river cruise on the Rhine some time.   If you book these well in advance (a year or so) the prices are steeply discounted.   At first, I thought about taking a "deluxe" trip of two weeks, with a balcony cabin, etc.   But then the costs started escalating over $10,000, and suddenly, it seemed far out of reach.

In the past, I would have called up and put that on a credit card.  Being forced to pay cash, we had to re-think it.   So we will book early, pay a down payment, and then pay the rest over time.  And we will get the standard cabin, thank you.   And a week is more than enough for us.   The cost will be far less and it will be paid for, not put on a card and paid for, over time, with tons of interest.

Yes, this is hard.  And you realize you are not as wealthy as you thought you were.   And oddly enough, you realize that other people are spending like they are wealthier than they think they are, which gets uncomfortable.   A friend recently revealed that he has very little money saved in his 401(k) - about $4000 or so.  He lamented that it was not "making money for him" and of course it never will.   You have to save money to make money, and $4000 isn't going to magically transform into a million bucks, overnight.  (Although, if you put that away at age 20, it would be worth $84,009.81 at retirement, at a 7% annual rate of return).

The funny thing was, he goes out to lunch every day and pays about $10 to eat, which he puts on a credit card.  We make sandwiches and bag our lunches.  We are "wealthier" than he is, in terms of assets and income, yet we act poorer.  Actually, we just act our income - rather than how we wealthy we believe we should be, or think we are.


Acting your income is very hard to do, particularly when there are so many "cheap" consumer goods to buy these days, and plastic credit cards are to tempting to use.  But if you don't, over time, you will accumulate debt, and wake up one day and wonder "how did I get here?"

Would it Really Change Things?

People are all up in arms about income disparity.   Assuming we solved this "problem" tomorrow, would it really affect your personal finances?  No, it would not.

A young college graduate carries a sign while "Occupying" Wall Street.  The sign reads, "I have $25,000 in student loans, and I will never be able to pay it off!"

Taking aside what a laughably small amount of money that is (about the price of a new car) and how long they have to pay it back (the rest of their lives), how does income disparity affect this person's life in real terms?

Suppose we let the Bush Era Tax Cuts (which affect the rates of top earners only) expire in 2013?  Or we enacted a "Buffet Tax"?  Or cut the exemption for the Gifts and Estates Tax from $5 Million to, say, $2 Million.   How would this affect your bottom line?

Well, first, as an aside, while these steps would cut taxes on large income earners, they might not put a real dent in the really wealthy, who can afford to shield assets through a variety of schemes - all of which are legitimate.   But it would ding the guy making, say, $500,000 a year.   The fellow making $5,000,000 a year - he has less to worry about.  But it would be a boon to accountants and lawyers everywhere.

But let's just say we did this - tomorrow - and that in fact it even worked and income disparity levels magically dropped to, say, 1960's levels.

  • How would this affect the balance in your 401(k) plan?   If  you have under-funded your plan, it would not change that fact, at all.
  • How would this affect our student loan fellow?   It would not pay off the balance of his loans. 
  • How would this affect your credit card debt?   You would still owe the money. 
  • How would this affect the debt/equity ratio on your home?   If you are "underwater" on your home, you still will be.
  • How will this help you find a job, particularly if you have no job skills that are in demand?

How, in short, will this affect you at all?  While it might cut the Federal Deficit somewhat (don't bet on it, Congress might just spend more as a result) and it might make you feel all warm and fuzzy that the 1%'ers are only making 180 times as much as you are, instead of 260, in reality it really won't affect your life much.

And yet, people argue that this is the pressing issue of the day.   I'm not saying it isn't important, only that watching what is on your own plate is far more important to your personal financial well-being than getting involved in greater political causes.

You see, your own personal actions - and inaction, and mis-steps - are more to blame for your personal situation than anything else.   If you exhibited poor financial judgement and got over your head in debt, be it credit cards, student loans, mortgage debt - or a combination of all three - taxing the rich isn't really going to change that much.  In fact, not at all.

And similarly, if you made poor choices in your major in school, and now cannot find a job, protesting the income of the very wealthy isn't going to change your job prospects much.

But, hey, it feels better to externalize your problems than to look inwardly.   The clueless guy with the sign protesting his student loans doesn't want to think that, Gee, maybe he might have made better life choices than studying "how to party" at Bong-Hit University.

And please, don't tell me that doesn't happen.  I spend 14 years in college.  I was in a fraternity, too.  I delivered pizzas to every dorm, frat house, and apartment flop-house.  I know first-hand how much college kids goof off and how much money they squander on crap, while ostensibly studying for a degree.

The Bush Era tax cuts will likely expire in 2013, if President Obama is re-elected.   Of course, the Republicans will try to throw a wrench in the works to stop that from happening.   But if you want to enact "social change" you might want to think about voting and maybe getting a job, so you can contribute money to a political campaign.   Because being a dirty, stinking hippie and then rioting and smashing things only serves to let the other side say, "See, I told you so, this is what happens if you let these folks run loose!"

And yes, that is the platform Nixon used to get elected in 1968, thank you very much Jerry Rubin.

Political activism is a fine and wonderful thing.   But don't let it serve as a substitute for taking care of your own business.   I have met far too many of these "political types" on both the Left and Right, who will bore you for hours about how they will "set things right!" if only they were in charge.   But ironically, they cannot even manage their own personal lives, which are a train-wreck of substance abuse, shattered personal finances, and underemployment.

And if asked about this, they say, "Well, there are greater issues at stake, here!"

But the reality is, these "issues" are just a sideshow distraction.

Thursday, April 19, 2012

Free Gas for Two Years?

People will salivate like Pavlov's Dogs for Free Gas!

On the way to the grocery store today, I pass a sign for the local Ford/Kia dealer.  This dealer advertises cars for ridiculously low monthly payments, which of course is a good reason not to trust them.  There is always a catch when they say you can get a new SUV for $160 a month - and the catch is that it is a lease, there is a huge down payment, and there are back-end charges.

But now, they are onto a "free gas" gambit.  The plebes are all up in arms about the price of gas, so if you say you are giving it away for free, they bite on whatever odious deal you want to sell them.

The sign just says, "Free Gas for Two Years!" and the name of the dealership.   No details on what this means or why.

What was funny about the sign - laugh out loud funny - was the side banner that said "No Gimmicks!"

OK, here's the deal, no one is "giving away" free gas.  It is a gimmick.  And putting a little note on it saying "No Gimmicks!" doesn't change that basic fact.

What are they "giving away"?  Well, money actually - in the form of a debit card - and you pay for it with the price of the car.   Say you buy a Ford Focus, that gets 30 mpg.   The average person drives 15,000 miles a year, which works out to about 500 gallons of gas, which at $3.75 a gallon, works out to $1875 a year.   Two years, well that would be $3750.  But of course, they might not give you that much.

That's a lot of money on a very inexpensive car.  So how do they finagle it?  Well, for starters, they play with the numbers - not using the 15,000 mile a year mark, for starters.  Chrysler did this back in 2005 to move some iron, and their debit card was $2500, not $3750.  And the rebates offered were higher than the gas card.  So if you took "free gas" you didn't  get the rebate.   So free isn't free, you pay for it.

So why isn't this a good deal?  After all, they are giving you at least a grand or two off on the price of the car, right?  Yes and No.  Again, to get the "free gas" you forgo any other incentives AND you pay full sticker.   It reduces your options, in terms of negotiation.

Free cash would beat free gas, any day.

And if you are financing the car, what you are doing is financing the "free gas" - which means a higher loan balance and more interest paid.  Good news for the finance company, and no doubt the dealer gets a "taste" of this as well.

But to a poor person - a person impoverished in their spirit and mind - this seems like a "good deal" as they are dangling out the words "free" and "gas" and they figure they can plan their auto expenses, at least for two years, based on the monthly payment.

But since they are paying more for the car than they have to, and buying a brand new car (and financing it) they are actually getting a very raw deal - and paying far more, in terms of overall ownership costs, as well as cost-per-mile, than I pay to drive my BMW.   It makes no sense.

So where was this billboard?   That is the tipoff right there.  Just down the road from Wal-Mart, near a corner famous for its Title Loan shops, Pawn Shops, and Check-Cashing stores.  Oh, and the Dog who Rents Furniture.  I forgot about him.   In other words, it is odious deal corner, right down the street from the projects (which they call the "homes" to make them sound more homey).

In other words, they put this billboard where all the poor folks can see it - and bite on the hook and swallow the lure.  And gasoline is a powerful lure.

The more complicated you can make any financial transaction, the easier it is to rip-off the consumer.  Buying a car should be a simple transaction - car on one side, money on the other.   Adding gasoline, toasters - or in one celebrated case, automatic weapons - only serves to distract the buyer from the underlying deal.

New car dealers are just a bad deal, period.  And new car dealers in small towns (which this one was) are the worst of the lot.   They will do or say anything to get their country cousins to sign those loan docs on whatever load they have on the lot.

Just walk away from that nonsense!

Wednesday, April 18, 2012

Small Town or Big City? Big City.

Small towns may have a lot of charm, but they have very limited economic opportunities, particularly for young people.

Many folks claim that there is nothin' better than country livin'.  And apparently the letter "g" is missing from their keyboards.  But living in the country ain't all it's cracked up to be.  More people live in poverty in rural areas than in urban ones, and there are many good reasons for this.

Before you decide to "ditch the rat race" and head out to the sticks, think about it carefully.   There are a lot of advantages to city life:
1.  Job Opportunities are Better:   It doesn't matter if you are an unskilled worker or a highly trained surgeon, your opportunities in the big city are just greater.   If you are a cook, in a small town, the only place to work is Edwina's Korner Kafe.  In the city, there are hundreds, if not thousands of such jobs.   This means not only are you more likely to get hired, but that if you don't like your job, you can go work somewhere else.

2.  Commutes are Shorter:  Even though the traffic in DC is bad, I was never more than 5-10 miles from where I wanted to go.   At my country house, everything was 20 miles away - or more.  Often far more.

3.  Better Bargains:  If you want to buy a car, there are hundreds of dealers near a big city - you can cross-shop.   But in the Country, there is one car dealer, and he has three cars in stock, all brown.  If you want to buy a used car, there are plenty of people selling their old rides in the big city - for low prices.  In the country, old Clem has his clapped out car for sale for months, if not years, before he will "get his price".

4.  Better Selection:  You want ethnic foods or esoteric parts or unusual kitchen gadgets?  Whatever it is you want, the selection in the big city is better and cheaper than in the country - and you don't have to drive an hour to get it.   Of course, shopping online levels this playing field, somewhat, today.  But you can't mail-order a meal in a Thai restaurant to the middle of nowhere.

5.  Medical Care:  In the big city you can go to a state-of-the-art oncology clinic.  In the country, they have the Bumfooque County Veterinary Clinic and Oncology Center.  Which would you rather go to?  When my Sister was dying of cancer, we went to visit the five-bed hospital that cared for her.   The boasted of having seven hearing specialists on staff - and one oncologist.  She died.

6.  Housing Holds Value More, Easier to Sell:  In major cities (and places like Detroit and Syracuse don't count as major cities, thank you) the value of Real Estate hardly budged during the downturn.   Property values in the greater DC area, Los Angeles, New York, etc. may have dipped slightly, but nothing like the drops in speculative places like Las Vegas or Miami.  And in the country, it can take years, literally, to sell a house, as the number of potential buyers is very, very small.

7.  Cultural Opportunities Are Greater:  In the Country, you might have a local dinner theater or amateur theatrical troupe, or a Broadway show might come to the local theater, with the traveling company.  But it ain't like the big city, where you get shows, concerts, and all sorts of cultural activities.  Libraries are bigger and better stocked.  There are also small theater groups, small bookstores, cafes, and night life that you just don't see in a small town.

8.  Everybody Doesn't Know Your Business:  In the country, my neighbor came by the other day and said, "I see you had company yesterday".  I was a bit taken aback.   "What do you mean?" I said.  "Well," she replied, "I saw a white, 2002 Ford Taurus parked in your driveway from 9:45 AM until 1:15 PM, with a Caucasian couple in their mid-40s getting out, he as was about 6' 1" brown hair...."  You get the idea - you actually have LESS privacy out in the sticks, as there are so few people.   In the big city, you can be more anonymous.


9.  Better Schools, educational opportunities:  While many "inner city" schools are troubled, the suburbs usually have excellent, well-funded schools.  In the boondocks, the small students and small number of classes mean that your kids won't be able to take a lot of more esoteric courses like AP calculus or AP English.  And the teen pregnancy rates in rural schools rival those of inner-city schools.  For adults, educational opportunities are greater as well.   There are six night law schools in the DC area - George Washington, George Mason, Georgetown, UMD-College Park, American, and Catholic University.  I could go to night school in DC much more easily than in a small town or rural area.

10. It's Quieter and Cleaner in the City:  No, really.  We found the country to be noisy, dirty, and dusty.   Since there is less background noise, you tend to notice noises more - chainsaws, hunting rifles, dirt bikes, agricultural equipment, etc.  And there is a lot of these noisy machines, too!   My neighbor decided to buy a "dirt track" race car and test it out in his corn field - a half-mile away.  With no exhaust system other than straight headers, the sound was deafening.  And the dust he raised covered the neighborhood for hours.  Local farmers spread liquid manure on the crops - only after letting it get funky in these nasty ponds.  And this is when they are not spraying herbicides, pesticides, and chemical fertilizers on the fields - all of which soak into groundwater, which means your well.   You drink this shit.   And keeping your car clean?  On dirt and gravel country roads?  I could go for weeks without washing my car in the DC area, and since it was garaged, it looked like new.  In the country, the car was soiled the moment I finished washing it.  Clean quiet, country livin' - is just isn't!

Now, this is not to say that country living is never a good thing.  The air can be better (compared to a code red day in L.A.), the views can be great (or not, there IS a lot of farm smells, chemicals, and outright squalor).  But for the most part, living out in the country can be a big disadvantage to you, personally.

But what about the cost of big-city life?  Yes, it can be more expensive to live in a city than in the sticks.   Here in Brunswick, Georgia, you can rent a house for about $700 a month.  In the sticks, even less.   In the DC area, even a modest apartment might set you back more than $1200 a month or more - in a decent neighborhood that is close to things.  But if you don't have to waste 2 hours a day driving all over the place, it might actually be a cost-saver.

And, of course, wages and salaries in the big city are higher - and opportunities are greater.   When I moved from Syracuse in 1987 to Washington, DC, I was shocked that the sales price on my house in Syracuse would barely make a down payment on a place in DC.   It was depressing, at first.   But I worked hard and made more money and, well, did well for myself.

If I had stayed in Syracuse, none of that would have happened.  I would have been laid off from my manufacturing job and struggled to find work - probably looking for months and months for the few jobs that were available, and having to "settle" for what I could get, rather than pick from among multiple offers (as I did in DC).  And starting my own business in the hinterlands would have been much, much harder.

And small, depressed cities like Syracuse (or worse, Utica) are arguably even worse than living in the boondocks - there is little cultural exposure, few jobs, not much in the way of bargains, and a high crime rate to boot.   And unlike the boondocks, no deer hunting.

So why to people live in places like Syracuse?   Or the middle of nowhere?  A lot of folks feel attached to a certain area - it is comfort food to live within a mile or two of your parents, your high school, and all the places you grew up with.  And many folks do this and drive 100 miles to a big city to work, too - thus having the worst of both worlds and a nightmare commute to boot.

I suppose also that it is possible to be a bigger fish in a smaller pond, as well.   But for many, this often means being beholden to one employer, client, or the like.   The small-town lawyer who works mainly for the local manufacturer will surely have a one-client practice.   And if the town has one employer, chances are, you work for them, directly or indirectly, and can't afford to piss them off.

If you are young, and starting out, look for job offers in the big city.  When I graduated from college, I had offers from air conditioning and appliance companies with factories out in very rural areas (a new trend in manufacturing in the last 30 years).  While they were not bad jobs, the pay was not great and the areas were very economically and socially depressed.  And if the job didn't work out, well, there was no competing employer in town to go to work for.   You'd have to sell your home at a loss and leave.   And if the factory closes, well, good luck!

And of course, many companies like to locate factories in small towns for this very reason - land is cheap, and people are desperate for work.  And since you are the only game in town, you don't have to worry as much about people quitting.  Good for them, perhaps not as good for you.

We were driving through rural Georgia the other day and saw lots of clapped-out economy cars, with window paint on the back reading "Woo-Hoo!  Class of 2011!".    And I thought about how many of these kids would never leave their impoverished Counties, get some girl (or get) pregnant (if they hadn't already) and settle down to a lifetime of low expectations and limited opportunities.  And this sort of thing is endemic to most rural areas.

We enjoyed our time in Central New York, but opportunities there were limited.  I did not get any business up there at all, of course (there is none) but I did bring a lot of disposable income into the impoverished County I lived in.  Of course, the locals in small towns don't appreciate "outsiders" - even if they are bringing in cash from out of State and hiring people.  When it came time to sell our home, the average time-on-market of 1.5 years scared us to death.  We sold out quickly, by pricing the home attractively, and lost a lot of money.

In Georgia, we are somewhat in the same situation, although we have far better health care here - a major hospital only 10 minutes away and the Mayo Clinic only an hour away, in Florida, of course.  But it still is small-town living, with limited cultural opportunities and no real bargains to be had.   We have to drive to Florida or Hilton head to look at a car or to get a good dish of Indian food.

And job opportunities are scarce, to say the least.  Some manufacturing jobs, some service sector jobs, and that's about it.   For lawyers, it is the usual mix of Personal Injury cases and DUI arrests.  Not a real great place to hang out your shingle.  And yea, the locals don't appreciate outsiders, although again, I am bringing in money from out-of-State and hiring locals.

Down the road, we will probably sell this place and move back to a more major metropolitan area - an area with more job opportunities and more cultural diversions - a place where one can walk to a cafe or grocery store, or drive a short distance to get whatever it is you need.

Country living is fun and all, but it is no place to be young - or old!  And it certainly is no cost-saving alternative.   In reality, it kind of sucks.

(Originally Posted, July 26, 2011.  Edited April 18, 2012)