## Thursday, March 31, 2011

### Re-examining the 4% Rule

The 4% Rule works well for retirement planning, but may be a bit conservative according to some sources.  Let's crank some numbers and see why.

This Pop Economics blog has an interesting analysis of the 4% Rule.   As they note, with a 4% withdrawal rate in retirement, the "success rate" for retirees is close to 100% - nearly everyone using such a scenario will not run out of money before they die.  But it is a very conservative scenario, if inflation is low and returns on the stock market are high.

In my previous musings on this idea, I postulated a 2% Cost-of-living adjustment (inflation) annually, and a rate of return starting at a stock-market like 10% (risky) and declining over 40 years to nothing (reducing volatility risk as we get older).  In that Scenario, assuming we start with \$1,000,000 and take out 4% per year (adjusted for inflation), we clearly are too conservative - not only do we not run out of money, we actually end up making money:

But assume we use the same rosy scenario with regard to interest rates, and postulate a 5% withdrawal rate (which some financial advisers, such as my Fidelity adviser, say is more realistic):

We still end up making money over time, although toward the end the amount starts to decrease.

But suppose we go to 6%?  Then we run out of money just as we die:

At 7% and above, you tend to go negative.  Now this assumes a pretty rosy scenario - getting very high rates of return for the first 10-15 years, at a time in your life when you should be putting your money into "safe" investments.

Suppose we put our money into a long-term government t-bills or other fairly staid investments earning "only" 4% rate of return (which is pretty good these days!).  Things are not so rosy, although it will be 36 years (!!) before you run out of dough:

The problem here, of course, is that we are trying to solve a fairly complicated equation with a number of variables not within our control.  First, there is inflation (our COL or Cost of Living adjustment) which I am optimistically assuming is 2% in these scenarios, based on today's numbers.  At various times in the recent history of our country, inflation has raged to double-digits (such as in the late 1970's).

Taking our "rosy scenario" from the first example, and cranking the inflation number up to 5% we see that eventually we run out of dough over time:

Rate of return is not something you have control over either, unless you opt to go into a low-rate-of-return investment such as a bond, but even then, rates of return can be variable.

Of course, you do have some control over spending - you can decide to consume less - up to a point - or to consume more - up to the point of spending all of your money.

And I think one temptation in retirement - which I saw people do in the 2000's - was to spend more when the market makes more.  So when some retirees I know were getting 15% to 20% rates of return on risky stocks (which is not a very bright thing to do in retirement) they spend it like drunken sailors.  Then 2009 hit, and their volatile stocks took a hit.  And they wished that (a) they invested in more safe harbors and (b) they hadn't spent like drunken sailors.

You see, this is the flip-side of the problems facing the 401(k) generation - trying to save, get out of debt, and deciding where to invest are the hard parts during your working years - and you can mess it up pretty badly.  But the other half is how to spend it once you retire - at which point you can really squander years of hard work in very short order.

And compounding this, is the problem of sudden emergency needs for cash.  You wreck the car, or need an operation, or some other big ticket bill, such as a new roof for your house - and suddenly, one year, you need to spend \$20,000 to \$40,000 in one chunk.   You could finance the car, of course, but that just means you are paying more for the car to stretch the payments out over time.

And this illustrates why old people would rather just patch a roof than fix it - what the heck, if it outlives them, that's all they care about.

I guess the conclusion I come to is that the 4% rule is a good "rule of thumb" to use, as there are so many variables over time that you have no control over.  And I think it is still a good idea to find "safe harbors" for money as you get older, as you cannot afford a 50% dip in your portfolio value in one year, as we had in early 2009.

And I think most of all, avoid the temptation to spend more, just because your investments "do really well" during one particular year.

UPDATE 2022:  For some reason Blogger has pixellated my tables above!  Sorry about that!  One factor to consider in addition to all of the above is early retirement.   If you retire early, then 4% may not be too little but too much.   We are presently drawing at a 2% rate, which is balanced by gains at this point.  When we reach real "retirement age" we will likely draw at 4% or more.  But so far, 2% has been very comfortable for us - we are doing everything we want to do, in comfort, for not a lot of money.

### The Coming Automotive Debacle

Chery motors (not to be confused with Chevy) is one of the Chinese up-and-comers in the car business.

The fastest-growing market for automobiles is China.  The Chinese, now making money and establishing a solid working class and middle class, are buying cars and chucking their famous bicycles and scooters.

At the present time, this is good news for GM, which is selling a lot of Buicks over there.  All the car manufacturers are opening plants in China and also doing joint ventures.  There is a lot of money to be made.

At the present time, Chinese cars are perhaps not up to par on a worldwide scale with European, Japanese, Korean, and even US automakers.  But they are learning, and learning fast.

And at the present time, the steep demand for cars in China is swallowing up all their production capacity, and exports of Chinese cars are not very high.

At the present time.

Query: What happens, however, when the demand for cars in China is eventually satiated?  What happens when the Chinese start to seriously export cars - like they export everything else - to the USA?

And what happens when India gets in on the act as well?

The Japanese followed the same route after WWII.  They built up their domestic auto capabilities, and using their draconian inspection procedures (which require you to scrap your car every three years) built up demand in Japan.  Once their industry was established, they were in a good position to export - starting small and methodically working their way up - to the point where they are well established today.

In 5-10 years, I predict you will see the first Chinese cars being sold in the USA.  And like the early Subarus (imported by Malcom Bricklin) or the first Honda 500 (a glorified motorcycle) or the first Hyundai (a warmed-over Mitsubishi) people will laugh at them and call them tinny junk.

But they will make waves by selling their cars, initially, for alarmingly low prices.  I think we will see an entry-level Chinese car in the sub-\$10,000 price range, perhaps far lower.  And the same is true of India.

And over time, this new wave of  imports will cause even more problems for domestic automakers - unless of course, they themselves are the ones importing the cars (an opportunity fumbled the last time around by the big-3).

Long term, I don't think GM's problems are over - by a long shot.  Or that of Ford or Chrysler/Fiat.

### IBM Speech

I learned to program FORTRAN on one of these.  Yes, I am that old....

You might be interested in reading this link, from a February speech given by the CEO of IBM at Johns Hopkins University:
"Of the top 25 industrial corporations in the United States in 1900… only two remained on that list by 1961 - one of those because it had absorbed six others from the original list. Two companies had disappeared, and the remaining 15 had slipped far behind.

Now, here we are, 50 years later... of the top 25 companies on the Fortune 500 [in 1961]… only four remained in 2010."
This is a fascinating statistic for those of you who want to be stock-pickers, particularly those who want to buy high-tech stocks that pay no dividends.  What this reminds us is that most companies, no matter how wildly successful, end up fading from view, over time, due to market changes.

IBM itself, was once viewed as a unstoppable juggernaut that only intervention by the Government - in the form of an anti-trust suit - could contain.  IBM used monopoly practice more than sheer technology to gain market share.  Often, this meant that second-rate or obsolete technology (punch cards, for example) were perpetuated long after they became obsolete.

Today, the juggernaut is Microsoft, and the Government has tried to rein them in with an anti-trust suit as well.  What does this say about the Future of Microsoft?

Of course, IBM soldiers on, but as a markedly different company than the punchcard-and-mainframe people they once were.  In fact, chances are, you don't really know what IBM does today to make a living.  Something having to do with computers - but they don't actually make them anymore.

It is an interesting speech for other reasons - for example, how he glosses over the fascinating and sometimes dark history of IBM, and its founder, who left National Cash Register ("the cash") to found a company that at times has been rather ruthless in terms of competition.  I would highly recommend IBM and the Holocaust if you are interested in the history of IBM - it is a good read.

## Wednesday, March 30, 2011

### How can a senior couple retire in Florida on \$1500 a month?

More viewer Mail...

"How can a senior couple retire in Florida on \$1500 a month?"

How, indeed!

\$1500 a month is not a lot of money.  We're talking an annual income of  \$18,000 a year, which is not far above what the Federal Government considers the "Poverty Line" for two people.

The problem is, just finding a place to live on that much money could be hard.  Even the lot rent on a Park Model home would be around \$450 in most places, leaving only about \$1000 a month to cover all food costs, utilities, transportation expenses, clothing, etc.

While such a bare-bones budget might be possible, it leaves little room for error - for example, a car repair or other unexpected expense.  And you have to hope that you have no medical needs that are not covered by Medicare.

Florida, of course, has no income tax, but makes up for this deficit in terms of property taxes (which are part of any rent payment cost structure) and sales taxes.  Since someone in such a low income bracket pays little or no Federal or State income taxes anyway, I am not sure that Florida is such a great choice, at least based on the Income tax issue alone.

I would investigate other, less popular States that are also attracting retirees with lower costs of living, before making a decision.
Retirement overseas might be one other option, although this is not for everyone, as I have noted.

This query reflects the poor planning on the part of a lot of Americans these days.  Many saved little or nothing in our 401(k) plans or IRAs, or mismanaged such savings (trying to time the market, panicking and selling out everything, or worse yet, buying Gold) so that they have little or nothing to fall back on.

Social Security benefits are pretty paltry, even if you were a high wage earner in your life.

I hope the folks who made that query end up doing OK, but frankly, it seems like a frightening scenario - to spend your "Senior Years" with barely enough money to get by - and not enough to do anything with your time other than watch TeeVee and play cards.

If nothing else, such queries should be a wake-up call to us all...

### Is Google Good or Evil?

Is Google a force for good or evil?

Glinda, the Good Witch of the North: Are you a good witch, or a bad witch?
Dorothy: I'm not a witch at all. I'm Dorothy Gale from Kansas.

A lot of people like to hate Google, simply because it is very big and successful.  When any company becomes big and successful, whether it be Microsoft or McDonald's, people like to hate it.  But Microsoft makes mediocre software and McDonald's makes mediocre hamburgers, so there is not a lot to like.

Google's corporate slogan was "Don't be Evil" which as seen as a dig against Microsoft and others, who try to monopolize a "space" in technology or the Internet - which of course usually backfires.  Google has become wildly popular, of course, mostly as a search engine.

But Google is so much more, of course.

To begin with, they have Gmail, which of the three major "free" e-mail services (Microsoft's Hotmail, Yahoo mail, and Gmail) is probably the best of the three, although they all have the same or similar "look and feel".

What sets Gmail apart is Google Docs.  When someone sends you an attachment in Gmail, you can "view" it in Google Docs, which will load a viewer that will display the document, and allow you to print and save it.  This is very handy when you are using a public computer or someone Else's computer and don't want to clutter their hard drive with your documents and attachments.  It is also handy in that you can display documents in various formats without having to have the corresponding program that created those documents, loaded on your computer.

Google Docs is like a virtual hard drive - your space in the "cloud" - and while a little primitive, it allows you to save files in directories and sub-directories (file folders) for later retrieval.

Google Docs also has a primitive word processor that allows you to create new documents as well.  So in theory, at least, you could work "in the cloud" today, using Google Docs - which is what Google is hoping you will do.

Picasa is Google's photo hosting site, and unlike many competitors, including Webshots and now, Facebook, you can post JPEGS to Picasa and they surprisingly remain as JPEGS and are not converted to some weird proprietary format.  And Picasa doesn't ask you to "tag" people in their photos.  Unlike Facebook, Google isn't trying to get you to con all your friends into "joining" some proprietary site like Facebook is - or tagging your friends without their permission.

Do no evil, right?  Facebook needs to learn that.

Moreover, Picasa can be used to host photos, so you can take a photo, upload it, and then paste the URL for the photo in to your eBay listing, web page, or whatever.

And of course, all of this is free.

But wait, there's more!

Yes, Google also runs Blogger, the site you are on now.  Blogger is a little clunky compared to some Blog sites, but it works well for me.  And again, it is free.  So what's not to like?

UPDATE October 2013:  Google also owns DROID, the largest smart phone operating system on the planet.   Google Chrome has not caught on as the most popular Internet Browser, but it is making inroads.  They also have Google Maps, self-driving cars, and well, a host of projects on the drawing board or in production.

So why do some folks hate Google?

Well, they are a business, and they do have to make money - all this commie crap about profits being bad aside (if you believe that, I can't help you).  So they sell ad space, and they do use your search queries and other data your submit to sell to marketers.

So, for example, I have posted several things about cruises.  Not surprisingly, a lot of ads that pop up on Google when I use it, are related to cruises.  When I mention Patents, patent ads appear, sometimes for odious Invention Broker companies.  They use your query data to tie into ads for related subject matter.

And of course, Google does take ad money from people who want their "hits" to be listed first for certain key word searches.  Invention brokers pay big money to be listed first for searched related to Patents.  But as I have noted before, one way to avoid trouble is to never click on any Internet ad, ever.  Look at Internet ads like you would police tape - as a means of marking off bad deals and outright rip-offs.

If you do see an ad that looks interesting, research the topic independently - usually searching on the keyword along with "ripoff" or "sucks" is instructive.  But 99 times out of 100, anything advertised on the Internet is a poor bargain.

So yes, Google takes ads and puts these paid hits at the top of the list.  BUT, you are free to ignore those hits, aren't you?  And without ads, Google wouldn't be able to pay the electricity bill for the servers.

Overall, I would have put down Google as "not evil" - in that they are providing an alternative to the O/S based concept of computing (Windows, Mac) and providing an alternative model (cloud computing) which I think, like everything else, will eventually catch on, after a lot of false starts and naysayers have their day.

UPDATE OCTOBER 2013:  I'd have to say my opinion of Google is morphing over time.   The company slogan "Don't be Evil" seems to have morphed over time.  Google seems to want to control the universe now - now that they have the power to do so.   Absolute power corrrupts, absolutely.

But like IBM, Microsoft, and others before them, Google will fail at this, simply because they are trying too hard.

The Google Search Engine - the jewel in the crown - is rapidly becoming tarnished, as it gets saturated with ads, and as more search "results" are filtered using data harvested from your e-mails.   For me, it is less and less useful as a search engine, as it gives me only results it thinks I want to see, rather than anything new and unusual.   As a result, the Internet - when viewed through Google - seems flat and two-dimensional, or perhaps three feet deep, at most.

The idea of capturing all of a user's life - cell phone, social networking, e-mail, internet browser, search engine, etc. into one massive company is likely to backfire.   Google today feels "creepy" as they want to get more and more "hooks" into you, and capture more and more data from you.   As a Google user, I feel I give more than I take.

Google is also starting to spend a lot of money on pie-in-the-sky ideas, like self-driving cars and such.   Yes, a self-driving car will be made - by General Motors or some other car company.   I say this because I have been writing Patents on this technology since the 1990's.   Google hasn't "invented" the self-driving car - they are just the next in a long line of players to get into the act.   Investing in such a technology that is diverse from their core competency is a risky bet.   Companies living high off the hog tend to do things like this - and end up getting hammered in the long run.

Google is trying to be too much all at once.   And their core competencies are suffering as a result.   The basic reason you went to Google in the first place - the search engine - is rapidly becoming their weakest link.

I wonder if perhaps in the future they will spin off these various divisions into separate companies.  Self-driving cars are fine and all, but they don't generate any synergy with Google or Droid, or Google Plus or whatever.   As a division, they are just a drag on Google finances.

Similarly, the Droid O/S could also go stand-alone.   And in fact, an anti-trust suit by the Justice department might force this down the road (although Google could point to Microsoft's ownership of BING as justification, I guess).

And Google has started doing weird things, like floating two mystery barges, which are likely little more than off-shore servers (which can operate with immunity outside the three-mile limit).   The tight security and weird secretiveness only adds to the aura of evil surrounding the company.   What's next?  An underground secret lair of evil?

Of course, the stock price continues to rocket - over \$1000, after a recent earnings report.   Ad sales are way up, and that is one reason Google the search engine, is so annoying to use.   They shade the "ads" in the search results so subtly that it is hard to tell anymore whether you are clicking on a genuine search result, or a paid advertisement.   This is annoying to users, and many, such as myself, will turn away from sites saturated with ads.   The Internet is littered with the tombstones of companies that tried to commercialize their product too heavily.  MySpace is a good example.

Google is a good example of the so-called "banality of Evil".   Google may not have set out to be evil, but as it has grown, it has lost sight of its Silicon-Valley startup mantra.   "Don't be Evil" has morphed into "Don't be so naive!"

So I think I will have to switch Google from the "Good" to "Evil" category at this point.

## Tuesday, March 29, 2011

Note: This is an update of a 2009 Article.

An Independent Insurance Agent can provide you with competitive quotes on homeowner's insurance and save you hundreds of dollars a year.

Many folks don't think twice about their homeowner's insurance. Yea, they've got it, but they don't pay attention too much to what it covers or costs. They picked the Insurance Agent their Real Estate Agent recommended and just assumed that what the Agent quoted was what insurance cost - and that was that.

And since most people pay their homeowner's insurance as part of their monthly mortgage payment, it doesn't seem like a lot of money - maybe \$100 a month or so.  But if you could save \$500 a year, wouldn't you do that, even if it was less than \$50 a month in savings?

The few that do think about their homeowner's policies are the one's that drive up costs for everybody else. They look at the policy like a Chinese take-out menu and think to themselves, "Oh, I'll have a glass claim, and a tree damage claim, and a wind and hail claim, and do I get eggroll with that?" Those are the types of folks who, whenever anything bad happens in their lives, wants someone else to pay for it. And their frivolous claims drive up costs for everyone else - and may constitute fraud as well.

When an accident, storm, fire, or other catastrophe happens, it should not be like a vacation in Jamaica, where not only are you made whole, but you come out ahead. Insurance companies sometimes do this (inexplicably) and it adds to the overall cost of insurance for the rest of us. Other companies take a hard line on payouts, which means lower premiums. But then policyholders (the second type mentioned above) whine about how the insurance "doesn't pay for anything".

Actually, the reason why insurance companies like to sell cradle-to-grave coverage is that it makes money. They use fear and the apparent low price of the coverage to get you to sign up for it, just as pushy salesmen try to get you to sign up for often worthless extended warranties. A few hundred a year for "peace of mind" seems trivial. But again, over the years, this adds up - and if you never have a claim, you've wasted a lot of money on peace of mind.

Frankly, I think you are better off having less insurance and paying less for it. Paying a lot for "cradle to grave" coverage over the years can add up to a lot of money. Paying \$500 extra a year for homeowners insurance (it can be done) over the period of your working life, can add up to \$15,000 in savings alone - with compound interest at 5% per annum, this could be as much as 34,880.39 invested. Wasting a "little" money on extra insurance can add up to a lot over time.

How can you cut your homeowner's insurance expenses? To begin with, stop thinking of insurance as something that should cover the minor tragedies in your life. Your son throws a softball through a window - you should be thinking of calling a glass company, not your insurance agent.

Yes, some whoop-de-do insurance polices provide glass coverage for not a lot of money per year - and insulated glass windows are expensive. But you know something funny? I've owned a home for over 25 years, plus had rental properties, and and office building. None of them has ever had a broken window. It is a fairly rare occurrence. So paying "only" \$25 a year extra for glass breakage protection is a lot of money if you think about it. You can buy a new insulated window at Lowes for \$99.

Raising your deductible is the main way to drastically cut costs, while still making sure you are protected for catastrophic coverage. That is what you should think of insurance as - a safety net, not a bank account. Insurance is there to help ameliorate losses, not make you better off than you were before. And it isn't there to pay for trivial things - or at least it shouldn't be.

First, check with your mortgage holder to see how high a deductible they will live with. Most will go to 3% to 5% of borrowed amount. Most insurance companies offer \$5,000 and even \$10,000 deductibles. Yes, that is a lot of money, but we are talking about paying off your loan if your house burns down. That is the main thing here (and probably the primary reason you have insurance). If you are willing to take a risk on that deducible amount, you will reap the rewards of lower premiums.

For one of my homeowner's policies, the amount saved was nearly \$500, by going from \$500 to \$10,000 deductible. The policy went from \$1300 a year to \$800 a year. How much a deductible you should use depends on your comfort level, financial situation, and risk factors, of course. But going to even a \$1000 deductible can cut costs dramatically, as it eliminates a lot of those frivolous claims that the company has to deal with (and spend money on).

Check also for "junk" coverage on your policy. One insurance company automatically added "Identity Theft Protection" insurance without my knowledge. As I have noted before, the concept of Identity Theft is hyped by financial institutions to keep you scared (see my article Fear, the Least Useful Emotion) and get you to bu these things. But let's assume I had an identity theft situation. If I never read my homeowner's policy, I never would have known I had it anyway, and never thought to file a claim on it. And guess how filing a claim on policies like that works out. Just guess.

Check also the coverage for your home. Some agents routinely over-insure homes. Larger policies mean larger premiums, which in turn mean larger commissions. So check to be sure the amount listed on the policy is not overkill. Granted, the opposite can also happen, if the policy is too small. Check the average cost of construction in your area (per square foot) and calculate accordingly. Bear in mind that even in a catastrophic fire, much structure of a house can be salvaged (such as the foundation) so rebuilding can be less expensive than building a new house from scratch.

Contents coverage is another area to check. It may be part of the policy and based on the value of the house. On some policies, it is not optional and you have to have it. For separate flood and wind policies, however, it may be optional, and you should weigh whether it is necessary. For example, for my vacation home, furnished entirely in wicker and rattan (at a cost of \$15,000) is it worth insuring the furniture? Yes, it would be nice to get a "payoff" if a storm hit, but again, that is taking the lottery mentality to insurance. A storm, flood, or fire is NOT a welcome event and you should not be planning your life around potential disasters.

Pricing insurance before you buy a home is also important. The costs vary from State to State, Company to Company, and area to area. Coastal areas may be much higher and also require separate flood and wind policies, as we do here in Coastal Georgia. Other areas with high fire risks may also be more expensive. If you have a choice of where to live, consider the insurance costs. If you end up retiring there, it will make a difference to you.

Also consider the size and type of home you have or want. Larger homes cost more to insure. So the giant mini-mansion is not only more costly to buy and more costly to maintain, heat, and cool, it is more costly to insure. It might impressing strangers with an appearance of wealth, while driving you to the poor house. Buying a house with extra bedrooms for "resale value" or "because the grandkids might visit" is not really cost-effective, in the long run.

It also pays to SHOP your policy around, every so often. You might spend an hour or two talking to agents, but once you've found the best deal, it pretty much runs on autopilot after that. You may get a good deal by insuring your home with the same company than insures your cars - or not. Oftentimes, agents offer these "discounts" merely to mask overpricing on auto policies. You think you are getting a "deal" when you are not. I have found that separate auto and home policies, properly shopped, beats the "combined discount" by over a thousand dollars a years.

Flood insurance is usually offered through FEMA and other government agencies. You usually have little choice here, but you should check to be sure you are rated on the proper flood zone, and also bear in mind that FEMA re-assigns flood zone ratings occasionally. You can get an elevation survey done for your home for about \$300 or so. If you are above a certain level, it can save a significant amount on flood insurance. Here in Georgia, I had a survey done, and I missed the golden mark by a mere six inches. If the house were 6 inches higher in elevation, my flood insurance would have dropped by at least \$100 to \$200 a year.

Again, the extra cost of over-insuring your home may seem trivial. But if you add up the savings over the years you will be living in your home, it comes out to a substantial amount of money. And as I noted in my entry Disposable Income and Cost Cutting, every dollar you save in reduced costs may be equivalent to a pay raise of ten times that amount, in terms of the increase to your disposable income.

At the very least, you should remember that a dollar saved is a dollar earned - tax-free. If you are in the 27.5% marginal bracket, you may be paying as much as 50% in taxes on that last dollar, in terms of Federal, State, Social Security and Medicare taxes. A dollar saved, thus equates directly to a \$1.50 earned.

If you think outside the box, and approach each expense as an exercise in creativity, you'd be surprised how much you can save - and how better you can live.

UPDATE:  March 2011

I recently shopped my homeowner's policy here on the Island and saved a whopping \$1500 a year in costs.  This is a staggering amount of money.  The local independent agent could write a single policy for both homeowner's coverage and wind coverage, eliminating one whole policy.  Flood insurance, of course, is in a pool, and thus there are no savings, unless I can jack the house up a foot.

Most people go with the recommendation of their Real Estate Agent as to which company to use, and oftentimes, this is the fellow (or gal) who takes the Real Estate Agent out to lunch - a lot.  Shop around, all it takes is a few phone calls.

Also, as one independent agent noted, and as my personal experience confirms, many of the "big" insurance companies are increasingly the worst to insure through.  As I noted, State Farm seems more interested in banking and finance these days and seems to view insurance as some sort of nuisance - they don't even write policies for whole sections of the country.  And other "big" nationwide companies are following suit.

And often, their rates are not very good, either.  I saved \$500 a year by switching from State Farm to a smaller company, in New York, and saved \$1500 by going from Nationwide to a smaller company here in Georgia.  These are serious amounts of money for anyone at any income level.

I am not sure how these major chains are going to survive.  State Farm has an office on every street corner, it seems, but their policies are very expensive - so who is going to buy them?  Perhaps like Amway, they make more money selling Agencies than they do insurance - and they seem to be minting an awful lot of new agents these days!  Just my hunch, but look for some fallout from this in about 1-2 years, as many of these newly minted agents in increasingly overcrowded markets find it harder to eke out a living.

Just my hunch - you can't defy the laws of economic gravity for long.  And when you sell an overpriced product and a billion outlets, eventually people will wise up and find cheaper alternatives.

Although, I suppose you could say that about Starbucks, and they seem to keep going.... An apt analogy - State Farm is the Starbucks of Insurance.  And the barista does give you attitude with every cup!

### Predictably Irrational

This book by Dan Ariely makes some interesting observations.

A reader suggested I read "Predictably Irrational" by Dan Ariely and it is a pretty good book which I recommend.  The book is fascinating in that it validates some of the financial ideas that I have been talking about here and also has a lot of other interesting concepts as well.

The first interesting thing about the book is the first interesting thing about Ariely, and he addresses this in the Introduction.  He was burned over 70% of his body in a magnesium flare accident when he was younger, and spent a lot of time in recovery and pain, which I have noted, tends to alter your world-view.

Pain focuses the mind to what is important, and when you are in pain, getting out of pain is what is important.  Suddenly, having a Jet-Ski doesn't seem so important, nor do things like consumerism and being seen in the right clothes or having granite counter tops.  It allows you to think differently than most people.  And not surprisingly, a lot of great people in this world, were also in great pain most of the time (Roosevelt and Kennedy, for example).

And of course, you wouldn't wish that kind of pain on anyone.

But Ariely mentions it prominently as a source for his observations and inspirations, and this makes a lot of sense to me.

I won't give away the whole book, but some concepts that resonate with me were his chapter on "Free" or "The Cost of Zero Cost" was interesting - and how making something "Free" (or apparently free) alters our perceptions.

He also points out how arbitrary pricing is, and how we use context to determine prices.  As I noted before, when you go to the Mall and see "70% off!" on a new dress, it seems like a bargain, until you realize that you are comparing the price with a specious "retail price" which is basically a made-up number.

Similarly, paying "below invoice" for a new car seems like a bargain, until you realize that this invoice number, too, is made up and does not represent the real cost of the car - and that the real value of the car, as determined by the marketplace, will be 10% less than whatever you paid, the moment you buy it.

In a way, Ariely is part of this new trend of economists (or financial gurus) who are eschewing or at least modifying the Adam Smith "market is always right" model of economics.   Whether it is the "Freakonomics" people (who have made quite a franchise from that gig) or the "Long Tail" guys, or Larry Summers, who once began a paper on finance by declaring "There are idiots, look around you".

People, it seems, behave in a model that is irrational - and predictably so (hence the name of the book) and what is so revolutionary about this concept is not that it is so non-intuitive, but that most of us realize this instinctively, but that economists failed to grasp this simple concept for over a Century.

I recall seeing on PBS a documentary about crowd control (there was an interesting piece on this in the New Yorker, recently, as I recall, as well).  In that documentary, they showed computer models used to determine how many exits and stairs would be needed to evacuate an Office Building.  In the models, the office buildings (or airplanes or whatever) were evacuated in very short periods of time.

But in reality, it always took longer to do, unless, as the aircraft manufacturers to, they spoof the data by using trained evacuees in the water tank to do the simulation.

The computer modelers went back to the drawing board and came up with a new model, that was adjustable.  And the new model fit the real-world data.  In the new model, they postulated that some folks would evacuate in an orderly fashion, while others would try push their way ahead.  Still others would do stupid things like try to go back for their briefcase while still others would just run around in circles, hysterically.  And the animation of this model was pretty funny, if the real-life consequences weren't so tragic.

There are idiots, look around you.

And whether it is modeling office building or airplane evacuations, or traffic flow on the Interstate, people will behave in non-intuitive manners.   Just now, I came back from Florida, and a hippie in a Westfalia VW bus was riding in the left lane, doing 50 mph in a 70 zone.  You can only imagine the major cluster-fuck that produced on the highway - which could have escalated into a fatal accident quickly.  According to Adam Smith, this hippie should have found the "correct" lane for his speed and optimized his experience, as well as that of everyone else.  But Adam Smith was only talking in a macro sense.  On an individual level, people do stupid things.

But again, this is good news for you, the consumer.  If you merely act rational in an irrational world, you can make out like a bandit.  If you can sell when everyone else is buying, or buy when everyone else is selling, many times you come out ahead, as you buy low and sell high, while the great masses do the opposite.

And when it comes to personal finances, if you can see through the smoke and haze and not just drift through life, then you really can get ahead in life - despite that the idiot media pounds into your head, day after day, about what a sorry-assed "victim" of circumstance you are.

### Freddie the Leaf and Belief Systems

Leaves don't talk of course, nor do they have conscious lives. But this story illustrates how faith can be based on silly stories that can be "disproved"  as untrue.  This doesn't mean the stories have no value, however.

As I noted in my Science v. Religion posting, there is no shortage of people who want to "disprove" some aspect of the Bible through the use of science, or try to disprove the existence of God through Science.  And such tasks are exercises in futility, as Science is not some alternative to Religion, nor does it set out to disprove Religion.

Belief, as I noted, is designed to help people - to comfort people - and help them come to grips with questions that cannot be answered in any other way.  And belief does not really provide an answer per se but rather provides a belief system, which you can believe to be true, even if you know parts of it are not true.  To try to disprove belief is to "miss the better story".

Leo Buscaglia was a motivational speaker, and he used to appear on PBS when I was a kid, giving his spiel about love and life.  As motivational speakers go, he was pretty harmless, as he wasn't trying to put his hand in your wallet, or trying to convince you that your company could increase productivity by merely believing it to be so.  No, at best, Buscaglia would give you a warm, fuzzy feeling, and at worst, might ding you a few bucks for one of his inspirational books.

And one of these books was "The Fall of Freddie the Leaf" which I read recently at a friend's house.  They had a family member die recently, and had bought the book (or it was given to them by a friend) to deal with that death.

The book is a glurge - a sappy sweet story that appeals to certain people who like sappy sweet stories, like Jonathan Livingston Seagull which inexplicably sold millions of copies.

In the story, Freddie is a leaf, living on a tree with other leaves, and as they go through the seasons of their lives, the leaves talk to one another about life and death.  Inexplicably, one of the other leaves seems to know all the answers to everything (inexplicably, as he is just as old as the other leaves, but that sort of logic just ruins a good story) and tells Freddie not to fear death.

And as you might expect, in the Fall, Freddie turns brown, falls off the tree, and rots on the forest floor.  Although Buscaglia tells it a little better than that, of course.

Is it an inspirational, heartwarming story?  Yes.  Would it be a comfort to someone dealing with a loved one's death or their own death?  Yes.  Would it be useful in helping explain death to a child?  Yes.  It is a good book?  Well, yes.  I always had a soft spot for Buscaglia and his particular brand of crazy.

It is factual?  Of course not.  Can Science "disprove" certain aspects of "Fall of Freddie the Leaf?"  Of course  it can.  Leaves do not talk, have consciousness, or memory.  They do turn brown, fall off the tree, and die, of course, so parts of the story are "true" scientifically.  But most of the rest is not.

But the point is, trying to "disprove" Religion using Science is just as silly as trying to "disprove" Buscaglia's heartwarming story.

And that is all religions are - silly stories designed to comfort people.  Taking them at face value as "Science" as some far-right Christians are trying to do with creationism, is about as silly as taking "Freddie the Leaf" as a guide to Botany.  Stories are stories, and are designed to build a faith system around, not create a foundation for scientific research.

So let Science be Science, and let Religion be Religion - silly stories if you will.  Trying to pit one against the other is pointless.  Trying to disprove religion makes no sense at all.  Trying to take religion literally makes even less sense.

It's just silly stories that make you feel better.  That's all.

### Drifting Through Life

Some folks just drift through life without thinking much about it at all.  I just can't do that, I guess.  I like to think about things and what they mean.

If you've read this blog (brave reader!) you may come away with the impression that I am, as one friend called me, a "pompous know-it-all".

Guilty, as charged!

It is not that I know-it-all, but rather realize how little I know.  And I realize this because I think a lot. And I like to think about things, how they work, interact, and what makes them tick - whether they be machines, systems, electronics, computers, financial concepts, people, or even (and especially) myself.

And what I am learning is that a lot of things that we take for granted (or at least I took for granted) as simple, transparent, systems, are, in fact, very complex and non-intuitive.  And without devolving into dark conspiracy theories, you can see that a lot of things presented to you in daily life are not as they first appear to be.

And most importantly, making your way in the world is a simple matter of cutting through the noise and clutter and seeing clearly through  to reality. And reality does exist, despite what existentialists (obscurists if there every was one) may say.  In fact, people who try to argue that reality is perception-based, are in fact, bullshitting you. You can't make a lease deal into a good financial decision just by perceiving it to be so.  And you can't fly by jumping off a tall building just by believing you can.  Well, you can, for about 30 seconds, until mean old reality plays its nasty hand.

Some people never think much about things, I guess.  They just drift though life, wondering what new consumer purchase they will make to distract themselves, occasionally watching the news to be outraged, and deciding which new trend to latch onto in clothing, music, or hairstyle.  They follow the herd and listen to the TeeVee and then parrot, word-for-word, what the TeeVee says.

And so, people sign on to the idea that having the latest electrical gadget is a "norm" and that not watching Cable TeeVee for hours a day makes you "weird."  And they sign on to the idea that having perpetual debt is a normal condition in life, and that only a crackpot would ever pay off their mortgage or not have an endless string of car payments.

They buy into a norm that says money is cash-flow - you get a monthly income and you spend it in monthly chunks, and your "wealth" is measured by the size of your income, not by the balance in your bank account.

These are the norms, the normative cues that people who live passive lives buy into.  And one problem with these norms, is that they eventually crash head-on into reality, just as the person who thought they could fly crashes into the sidewalk.

There are many people today trying to sound the alarm about our deficit spending - so called tea partiers who hold up signs of Obama as the Joker - or Hitler - and chanting slogans.  They believe that their future is in peril due to the actions of Wall Street Fat Cats or because of Government spending.  And while they are not totally wrong, of course, they are missing the larger picture.

The real alarm that should be sounded is the one about how we all are living our lives as debtors - the conspiracy of 330 million people.  Our government is a debtor government, yes, but we as individuals are debtors as well.  So it should come as no surprise our government is in debt.

In fact, our government encourages debt, along with the debt industry.  Tax incentives are used to encourage people to take out mortgages for the most amount they can - and never pay them off.  And the money they could use to pay off their home goes into a tax-deferred investment account, which again, is directed there by government policy.  We encourage people to save and go into debt at the same time, with the net effect that they don't end up owning anything at all.

And yea, I think about these things and think to myself, "Am I the only one who sees this?  Am I the only one who sees what is on TeeVee as an endless stream of bad normative cues to spend and consume and behave in a manner which is against my own self-interest?"

And I realize that I am not, when I see a "Kill Your Television" bumper sticker or meet a kindred spirit who has found their way out of the debt morass.

But for the most part, it seems, most folks are happy to go drifting through life, following whatever everyone else is doing, parroting what was said on the TeeVee this morning, and never really thinking hard about what their life ultimately means.

### Is American Ready for Gay Marriage? Probably Not.

While many are pushing to legalize Gay Marriage in this country, most Americans are not in favor of it.  Even among Gays, support is fairly weak.  So why are people pushing for this?

In today's mailbag, this query from a viewer:
"My Girlfriend and I have been a Lesbian couple for over a decade now.  We share a house that we bought (Tenancy in Common) and every month, split the utility bills, insurance, and other costs.  We maintain separate checking accounts and even own our cars separately.

The reason we do this, is that my Girlfriend has a compulsive gambling habit, and I am concerned that if had joint checking and savings accounts, she would spend all our money in short order.

The problem is this:  In our State, they have legalized Gay marriage, and my Girlfriend wants us to get married.  How can I do this without giving her access to my money?"
For better or worse, sickness and health, richer or poorer, from this day forward, until death do us part.  That is the vows one usually takes in a marriage.  But few people today take them seriously, of course.

But this question illustrates one problem with the whole concept of Gay marriage.  People on the Left make the financial argument that Gay marriage is needed, to level the playing field, while people on the Right make the political argument that Gay marriage should not be legalized.

And as the questioners question illustrates, there are many who want to be "Gay married" to make a political statement, but don't really want all those pesky legal and financial issues of married life.  In short, they are hardly ready for marriage, and the whole thing is just a piece of political theater.

A marriage is indeed a financial arrangement, and the arguments advanced by the Left are all financially-based - that Gays are being "discriminated against" financially by not being allowed to marry.  But when pressed for details on this claim, they become remarkably vague.

So let's look at the details - and how you can protect your rights and the rights of your spouse, whether you are Gay or Straight, but are not legally married.  As it turns out, you can have most of the legal rights of a married couple without being married.  But it does require you to take some simple steps - and it requires you to want to take those simple steps.

Most Gays are not taking advantage of the existing laws to protect their rights.  Why this is so is an interesting question.  Most people are not aware of how to protect their rights, to be sure.  Others subscribe to the "this is mine, that is yours" mentality of a relationship, and thus don't want to really "share" with their partner.  For many folks, relationships are short-lived, and the idea of putting everything in a communal pot is scary, as if the relationship breaks up, it all has to be unwound.

But to some extend, such co-mingling of funds is a good way to cement a relationship.  On more than one occasion, after having a silly pointless argument, we've realized that untangling our finances would be very difficult, and moreover that living apart would suck, financially, compared to living together.  This is often the "glue" needed to keep a relationship together for that 12-24 hour period after a marital argument.  Once you are over the hump, you realize that the argument was silly and it all goes away.

In contrast, if your "relationship" consists of a toothbrush in your lover's bathroom, it is all too easy to cut-and-run on a moment's notice, and not surprisingly, such relationships don't last long.

And please note, I am not picking on Gays here - this is very true for most "Straight" couples these days - even the legally married ones.

In the 1970's and 1980's,  when the AIDS epidemic hit, there were many horror stories about Gay couples, where one partner died, and it turned out all their finances were separate.  The estranged family of the deceased (who threw him out of the house when he was 16 for being Gay) would swoop in and take everything - tossing the partner out on the street.  It would turn out that while their religious convictions prohibited them from loving their Gay son, it didn't prohibit them from loving his money.  And since many Gays back then didn't think to structure their finances otherwise, a lot of small tragedies were acted out across the country.  And it was totally unnecessary, too.  But it illustrated the mindset of many Gays at the time - that relationships were short-lived and you didn't put "your" money in jointly with your "tricks".

Anyway, here is a short list of the things you can do to protect your legal rights, short of "marriage" - and things you should do before you think about getting married.  But of course, if you do these things, you will be legally "married" in a very financial sense.  For a more complete list, see this earlier posting of mine, on the Obama website (which for some reason is archived, but my account has been "disabled" - someone from the Hillary campaign is running it now, no doubt).
1.  Joint Tenancy With Right of Survivorship (JTWROS):  When you buy a house, car, investment, or whatever, have it titled in Joint Tenancy with Right of Survivorship.  What this means, legally, is that if one of you dies, the other automatically owns the house, car, stock, fund, or whatever, without having to probate a Will.  And it is a very robust form of legal protection.  Even a homophobic judge would be hard-pressed to pierce this centuries-old form of law.

All you need to do, when someone dies, is present a copy of the death certificate to the authority involved, and the property can be re-titled in your name alone.  So instead of being tossed out of your house, you own the house.  Instead of having to sell your partner's car as his executor, you own it.  And instead of having to probate his will to get at his stock funds, they automatically convey to you.

This is a simple legal step and one you can take when you acquire a property, a car, open a bank account, buy a stock, or whatever.  All it takes is for your to fill out the forms properly.

And it is funny, too.  Back in 1987, when we bought our first piece of Real Estate together (oh, that was 10 houses ago, wasn't it?) the Lawyers automatically wrote up the deed as Tenancy in Common.  "That way, when you die, your half will go to your family!" they cheerfully noted.  People were pretty clueless back then.  Since those dark days, most closing companies and Real Estate Lawyers have wised up, and will write up the documents for JTWROS.  But be sure to check, particularly if you see a Jesus Fish on the Lawyer's office sign.  Some people just don't get it.

2.  Beneficiary Designation:  In life insurance policies as well as your 401(k) and IRA accounts, you can designed a beneficiary who will receive the proceeds when you die.  This seems like a pretty simple no-brainer, but you'd be surprised how many Gays have their nieces and nephews listed as beneficiaries on their accounts, rather than their partners.

3.  Write a Will:  This seems pretty self-explanatory.  As I noted above, if most, if not all, of your properties are JTWROS, then a Will may be redundant.  However, you may have one or two accounts, such as business accounts, that may be in your name alone.  And of course, your personal possessions are another matter.  One of the heartbreaks of the 1980's was stories of lovers not only being tossed out of the house, but precious personal possessions and mementos being taken by greedy hateful relatives (are there any other kind?) and tossed in the trash, burned, or otherwise disposed of.

A Will protects you another way - by helping prevent some sort of challenge by those same hateful relatives.  And yes, when there is money on the table, they will show their true colors, in short order.  You need to make it clear that your partner is your executor, and that he/she gets all the goodies.  But you also need to mention those hateful relatives, by name, in the will, and give them some token amount (\$100).  In some jurisdictions, failing to mention those relatives will give them grounds to challenge the Will on the grounds that you "forgot" to mention them.

Talk to an Estate Attorney for more details.  But a Will is a good idea, to prevent Aunt Hattie from coming and taking your partner's Hummel Collection after he dies.  Because, under the law, she has more legal rights than you do, to personal property like that.

4.  Write a Power of Attorney:  A written general Power of Attorney grants your partner the right to take any legal action on your behalf or manage any of your finances on your behalf.  You can write a more narrow Power of Attorney, of course, for example, one that kicks in only when you are incapacitated.

Such a document comes in handy, for example, if you or your partner end up in a coma.  In that situation, you may not be deemed "next of kin" and as a result, his/her financial matters may be in the hands of the aforesaid hateful relatives.  The POA protects both of you in this situation, as does a...

5.  Medical Power of Attorney:  A written medical Power of Attorney allows you to make life decisions (e.g., pull the plug, operate, whatever) for your partner if something bad should happen.  In years gone by, these were hard to come by.  Today, in many States, your doctor or local hospital may ask you to designate someone in this regard, and they will keep this information on file.  In both New York and Georgia, my doctor had such forms, and at our local hospital here in Georgia, they requested that I complete such a form and they keep it on file in their computer (and every time I go there for a blood test, they confirm my election during the admittance process).

Again, this is an important step to take, as otherwise, the hateful relatives ("next of kin" which always has a Hillbilly air to it) are in the driver's seat with regard to making medical decisions regarding your unconscious spouse.  Again, during the height of the AIDS epidemic in the 1980's, there were many tragic stories of partners not being even allowed to visit their spouses in the hospital, as they had no legal right to do so.

Today, you have this legal right - but you have to take positive steps to enforce it.

6.  Medical Instructions: and in this regard, it is a good idea to put down on paper what you want done if you are hit by a bus and end up brain dead, lest you end up the poster child for some "right to life" campaign, like Karen Ann Quinlan.  This will make it a lot easier for your partner should something bad happen.
Of course, these sort of actions do require careful contemplation, and thinking about these sort of possible outcomes is a bit scary - but does put into perspective your life and how finite it is.  If you are legally married, in general, most of these protections are bundled into your marriage rights (except perhaps item #6).  So while there is an "injustice" in that you don't have these rights as an unmarried couple (Gay or Straight) there are legal steps you can take - that are not hard to take - to end up with the same or similar rights.

So does that make everything even-Steven?  No, not exactly.  There are, from a financial point of view, a couple of things that are not equivalent and might not be fixable by contract or other means.
1.  Pensions and Social Security:  If you have a defined-benefit pension plan, generally a spouse has survivor's benefits.  And the same is true for Social Security, generally.  If you are not legally married, you might not have rights to such benefits, under the law.

However, there are two things that cut against the "unfairness" of this situation.  To begin with, most of us have 401(k) or IRA type retirement accounts which CAN be designated to go to anyone we want, by designating a beneficiary.  Very few people today have defined-benefit pensions.  But of course, if you designate a non-spouse as beneficiary, they may have to pay taxes on the IRA or 401(k) - consult your accountant for more information.

The other thing, of course, is that most Gays have incomes far and above straight people, and thus are in no danger of being poor, provided they choose to save money (alas, few do, but prefer to live for the moment).

So is this a great injustice?  An injustice, perhaps, but maybe a minor one, and one than can be planned for.  This the United States of America, not the United States of Even-Steven.  Expecting everything to be "fair" strikes me as the posture of a petulant child.

2.  Health Insurance:  Many companies, particularly progressive ones, are allowing "domestic partners" of either gender to be listed on health insurance accounts.  So this unfairness is vanishing, to some extent.  But it does mean that you have to plan your health insurance, if you are unmarried, and one of you does not have health insurance through your employer.

Of course, again, most Gay couples are dual-income households (and most Straight couples, these days) so often this means you both have health coverage.

As a self-employed person who has to pay for his own coverage, I understand all-too-well how the health insurance issue works.  However, a high-deductible plan (\$10,000) does work well and is not too costly.

3.  Children:  Having children out-of-wedlock creates all sorts of issues, regardless of whether you are Gay or Straight.  For Gay couples, however, it usually means that one of you is not considered a "parent" in legal terms.  And this can cause a number of problems, from who is allowed to attend the PTA meetings, to who is allowed to make medical decisions, to who has custody of the kids should one of you die, etc.

You should see a family law specialist, if you plan on taking this very very serious step in your life.

While many folks think the idea of Gay adoption is great, I am not so sure, personally, that it a swell idea, at least for me.  Maybe in 20 years or 100 years, the idea of two Gay parents will seem usual.  But to me, it seems like a grand societal experiment on a large scale, with the outcome affecting the lives of real people.

Perhaps kids these days in High School are all very accepting and wouldn't traumatize a child with Gay parents.  Oh, wait, what am I thinking, we're talking High School here, where kids are jerks - its in their hormones.  It would be hard, even today, to grow up with Gay parents.

I am sure there are Gay parents out there who are doing a great job, and children raised in such homes who are well-adjusted and "normal" - whatever that means.  And let's face it - heterosexual married couples aren't always the best parents in this world (I can cite my own childhood as evidence of that!).

But I think, at the present time, the number of Gays who really would make good parents is very limited, and a lot of others are adopting children (or having them through medical/legal means) as a political statement or in the same manner as acquiring a pet.  And it is a very serious thing to be doing and should be approached with careful thought.

But I am sure others will point out, that most heterosexual couples have children all the time, without giving any thought to it, other than five minutes in the back seat of a car, on Prom night.  And the results of such marriages and child-rearing are well-known.  And they do have a point there.

As noted above, many Gays are not comfortable sharing a checking account much less sharing child-rearing duties.  I am not sure that legalizing Gay Marriage will cure that.

But yes, there is an "unfairness" in this category as well.
But getting back to our Lesbian couple, what should they do to protect their finances in their sham political show marriage?  Well, if she wants to keep her checking account separate, she can do that, of course.  But I think a better course is to take this "for better or worse" thing dead seriously, and instead of ignoring your spouse's compulsive gambling habit, attack the problem head on - with gambler's anonymous, for example.

Tell your spouse that you are not comfortable getting married if it doesn't mean that you will be really married.  Because, let's face it, there is no law against having a Gay wedding if you want to play dress-up and march down the aisle together (and make all your straight friends very uncomfortable).  But legal marriage is a whole other deal.

Tell her that you want to address this gambling issue before you march down the aisle.  Because if you don't trust your spouse financially, what sort of marriage is that?  (Answer:  The one most straight people have).

Marriage is a big step, I think, and one that should not be entered into to make a political show or some sort of statement.  And of course, a legal document and a tacky, awkward ceremony do not a relationship make.  You don't need these sort of trappings to have a good relationship - a real "marriage" that has a bedrock stronger than a legal one.

So why are organizations pushing for Gay Marriage?  I think on the Left, many of these Gay Rights organizations need a raison d'etre and thus have taken up this banner as "the next thing" to do.  And on the Right, politicians love to raise the specter of Gay Marriage as a means of getting out the fundamentalist vote.  And right there illustrates why pushing for Gay Marriage might backfire in a big way.  There are more important political issues in the world today that demand more careful consideration.  If candidates are going to be voted out of office or not elected because of this issue, then we may lose out on more important, fundamental issues - financial issues - because of this Gay Marriage sideshow.  I, for one, am not convinced that the entire "issue" is not in fact being kept alive by the far Right for this very purpose.

We've been together now for 24 years, and frankly, I don't see the need to put on some sort of awkward ceremony that would really creep out most of our friends.  And aping the characteristics of Straight people doesn't seem like the "answer" to some "unfairness" in life.  I don't want to be like them, frankly, and the idea of creating some parallel universe, some bizarro world version of straight life, doesn't seem like the answer to me.

Because, frankly, one of the best aspects of being different is being different - seeing society from the outside not from the inside, and thus being able to avoid the pitfalls of the great mass of humanity, and live your own unique life and not follow the herd.

To normalize this, seems somewhat akin to taking a gourmet restaurant and turning it into a Denny's.  Yes, that might make us all "equal" and be "egalitarian" - but it also would be boring as all hell.

Sorry, but I don't want to be just like you.

## Monday, March 28, 2011

### Viewer Mail - Husband gives money to Brother?

Let's see what came in the mail today!

A Viewer writes:
My husband has been sending money to his Brother for many years - \$500 a month or more.  Recently, he came into a small inheritance, and he says he wants to give it entirely to his Brother, because the Brother "needs it".

His Brother has a good job with a pension and health care, an apartment, and a car, but spends more than he makes, and as a result has racked up a lot of credit card debt.  My Husband says we need to "help him out" because we are "luckier" than he is.

However, I am concerned that we need to set aside enough money for OUR retirement, and we are sacrificing and doing without things (such as cable TV, which his Brother has) in order to pay off his Brother's credit card bills.

When I confronted my husband on this, he said, "Well, it's MY money, and I can do with it as I please!"

Who's right here?
Well, the quick answer is, you're right, he's totally wrong, end of story.  But good luck convincing him of that.  I see you've already tried, and failed.  Can I recommend a good divorce lawyer?  Let him marry his Brother, if he loves him more than you.

There is so much going on here, it is difficult to parse.  However, I see a number of main issues that you could address with your husband, not that it would do any good in situations like this.

1.  When you leave home and marry, your primary responsibility in life is to you and your spouse, not to what I call your "childhood family."  You have a societal obligation to take care of your own needs first, and the needs of your spouse and your immediate family (i.e., your wife and kids), before trying to help other relatives.  It makes no sense to bail out relatives while failing to fund your own retirement.  And you have to fund your retirement - that is a given, not being "selfish".

Putting his Brother ahead of you in the hierarchy is totally wrong.  Unless the Brother is truly destitute and homeless, your husband should be putting your needs above his wants.  Paying off a credit card bill is not a "need" but a sign of living beyond your means.

Many folks get married to a spouse, but put their childhood family (Father, Mother, Brothers, Sisters, Grandparents, even Uncles and Nieces/Nephews) ahead of their spouse, in terms of hierarchy.   What the wife says is trumped by what Mom says, and the needs of Sisters and Brothers come first.  If you find your wife or husband defending their family and taking "their side" against you in every argument, then you need to think about where this is going.

And if discussing this ends up in an argument with your spouse saying you are "against his family" or whatnot, you are in for a world of woe.

A marriage should be a dyad, not a triad.  A dyad is a two-person relationship - a mating of equals - and is the most stable possible relationship.  When a Mother-In-Law or other childhood family member inserts themselves into your marriage, all hell breaks loose, as the third person acts as a tie-breaking "vote" in any decision or discussion - or argument.  Suddenly, it is two-against-one, and guess what?  YOU ALWAYS LOSE.

So, never marry a Momma's boy, or a wife who was "Daddy's Little Girl" and refuses to grow up and live as an adult.  A husband who would rather "hang out" with his Brother and relive the "good old days" (that is to say, the time before you came along and ruined everything) is never going to make a good spouse.

Just forget it and move on.

And if this sort of situation describes you, then grow up, for chrissakes, and toss away this whole "family is everything" nonsense and realize that your spouse is everything, that the family you create is now your primary responsibility.  Stop being a perpetual child in your childhood family and move on.

And if you don't, well, then divorce your wife and marry your Mom, or whatever, and stop torturing your spouse.

(Of course, most of these Momma's boys ended up marrying to please their Moms, and of course, Mom was never entirely pleased with the choice).

2.  Giving money to people who don't really need it, except to pay for a better lifestyle, is idiotic.  I frankly fail to see how people convince themselves to do this at all.  People hand over cash (\$500 is always the round number requested) to a "family member in need".  But what the "family member in need" actually "needs" in their mind, is a brand-new car, cable-TV, take out food, and running up credit card bills at the mall - oh, and a new cell phone.

Why is this?  Because these sort of "needy" family members are convinced that "everyone else" has these things and that they are entitled to them, too.  So their wants become needs, and they "need" things that you cannot even afford for yourself.

And if you refuse to pay them their ransom money, they do as the Brother did in this example, and run up credit card debt, or otherwise put themselves in financial peril, and then ask you to bail them out.  "Help me!" they cry, "or I'll face bankruptcy!".

Bankruptcy is harsh medicine, but medicine makes you get better.  Not taking medicine makes you sicker.  And when someone pays off your debts and "rescues" you, you learn only to depend upon them for bailouts.

It never, never pays to "rescue" people from themselves.  They never learn from their mistakes, if you don't let them (a) make mistakes, and (b) learn the harsh lessons from their mistakes.

Ask yourself this - who is bailing YOUR ass out of trouble all the time?   No one - that's right.  So why are you doing this for someone else?  The answer, as we shall see, may disturb you.

3.  Money in a marriage is community property, or should be, so the idea that he has a separate share of money to spend from yours is idiotic.  Spending, in a marriage, should be a joint decision, regardless of how much each spouse makes or starts with, whether one spouse works and the other doesn't, or whatever.  You should work together to make all spending decisions.  Otherwise, the marriage devolves into a "race to the bottom" as each spouse tries to out-spend the other in retaliatory spending.

Or worse, the marriage is a dictatorship by one spouse controlling the purse strings, with the other reduced to begging for pittances.

A marriage should be a mating of equals, and both spouses should work together to make all financial decisions jointly.

And it is a system that works well, too.  If one spouse says "no" to a spending item, it should be a veto to spending - this way, less is spent, unless both can agree on it.  So his idea that he has "separate" money to spend is bogus, and moreover, is a sure sign you don't have a real marriage.  In a real marriage, there is no "his" and "hers" but rather just "ours".  And if it is otherwise, you are living in a dream world.

And yet I know a lot of spouses that have separate checkbooks and even split the utility bills.  They are not so much married to one another as they are roommates, splitting the cost of an apartment.  This is sad.

The problem is, in a marriage, there is no "my money" and "your money".   It all, in effect, comes out of the same pocket.  Labeling individual dollars with tags such as "his", "hers", and "mine" doesn't make any difference - you are taking the dough from the same pocket and making both of you a little poorer.

4.  Altruism is totally evil.  The motivations people have for doing things like this are varied, and often hidden - but always bad.

Your Husband perhaps wants to feel like a "big shot" and lord over his Brother this way, by being the Knight in Shining armor, saving the day.  And he may expect (but never receive) the eternal gratitude of his Brother.

You see, that is part of this sick dance - the person receiving the booty rarely says "Thank You" and in fact, resents the person helping them out.  I've met over a dozen people, over the years, who live this way, on the handouts of relatives, and in every case, they say the nastiest things about the relative or friend giving them assistance - usually along the lines about how the relative is "so cheap" for not giving them more.  After all, they're "rich", right?

Or perhaps your husband dropped his Brother on his head when he was a baby, and has felt guilty ever since.  Who knows?  Old family baggage can cause all sorts of problems, which is one reason you should leave it on the train station platform, when you leave home at 18.

Whatever the motivation, the outcome is never as desired.  I've heard over and over again from people who give handouts as to how "ungrateful" the recipients are.  But think about this for a moment, if you really are being altruistic (and no one purely is) then you should not expect a thank-you or eternal gratitude.

But then again, this just gives the donor something to bitch about - the perpetual problem by which they can amuse their friends and give meaning to their empty lives.

Think about altruism carefully.  In most cases, the motivations people have for giving money away are anything but pure - but rather are pure evil.

5.  \$500 a month is a lot of money.   \$500 a month is a number I've heard before - in fact, I've heard this same exact story about 10-20 times, involving children, nephews or nieces, elderly aunts, parents, grandparents, sisters, brothers, friends - you-name-it.  In every case, the person requesting the money is not even close to being destitute, and in every case, they ask for the magical \$500 amount - as if they all subscribed to the "lets con our relatives out of cash" club which came up with this number.

\$500 is a nice round amount, as people who live by the "cash flow" mentality tend to think it is not a lot of money - after all, it is less than a car payment, for some.  But over time, this amounts to a LOT of money, not a trivial amount.

Invested in your 401(k) or IRA, \$500 a month would be over \$6000 in one year, \$80,000 in 10 years, \$210,000 in 20 years, and \$420,000 in 30 years - assuming a paltry 5% rate of return.  To the "monthly cash flow" mindset, sending off \$500 a month to a "needy" relative seems like a trivial amount - but in reality it can add up to nearly a half-million dollars at retirement.  Would you send a half-million bucks to that relative?  Didn't think so!

Looking at it another way, in terms of disposable income, even for someone making \$100,000 a year, \$6000 could amount to half your disposable income - as nearly 90% of your regular income is spoken for by taxes, rent or mortgage payments, living expenses, and the like.

So no, this is no "small deal" unless you have a net worth of 5 million or more and an annual income of over \$500,000 a year.  Middle-class people simply cannot afford to fork over \$500 a month to someone else - it is just too much damn money!

And no, your making \$100,000 a year isn't being "rich" - despite what your deadbeat relatives may say.

Note also that while that \$500 a month cost you \$750 or more in terms of pre-tax income, for the Brother, it is all tax-free.  When you hand out \$500 a month to a relative, you are, in effect, giving them a \$10,000 a year raise - and yourself a similar pay cut.  Very few middle class people can really "  afford"   to do this!

So don't do it.

6.  Lump Sum Payouts, like an Inheritance, are nothing to trifle with.  The inheritance is an interesting separate issue.  Tossing away an inheritance like that is pretty irresponsible.  You only get one of these in life, generally, and you only have one chance to get it right.  While it might seem like a "nice thing to do" to give away your share of an inheritance, first determine whether you might need the money yourself later in life.

In this situation, the Brother has a PENSION with defined benefits, and the reader asking the question does not.  A pension pays out until you DIE. Retirement savings pay out only until they peter out.  While weak thinkers might say "Well, you've got a lot of money, you've got a million dollars!", in reality, in retirement, this may amount to only \$40,000 in income for 25 years, using the 4% rule for retirement.

So again, ask yourself, can you really afford to throw away ANY of your retirement funds to someone whose retirement is fully funded?  If you run out of money before you die, will they send you money?  (the answer is generally NO).  It is not "selfish" to take care of yourself and your spouse - it is your duty and responsibility to society.  Paying your Brother's cable bill is not.

* * *

But all that being said, you have to convince your spouse of this, and that is the ultimate conundrum I cannot help you with.  If this has been going on for a long time and has been a long source of martial tension and arguments, chances are, it won't change anytime soon.

I suppose you could try mapping out your retirement (a good move in any event) and show how the money sent off to the Brother is affecting your retirement savings and income negatively.  And you could also show how the Brother could spend less and live within his means without the need for handouts.

(And frankly, this latter exercise is really the best "handout" you could give a financially needy relative - some sound financial advice.  But the folks who hit you up for money rarely want this - they want cash.  Because to them, the idea of scrimping and saving is something that you should be doing, so that they can live the life of Riley.)

But let me guess, you tried that, and were accused of "meddling" in "HIS family".

Yea, I thought so.

So that leaves you two other choices.

You could just grin and bear it, and continue living this sham of a marriage, with separate bank accounts, his and hers money, and separate lives intersected by sharing of sleeping quarters.  And you could just let your spouse spend all "his" money on whatever, and when you both retire, he will have to be poor and not accompany you on any trips or go out to dinner with your friends, as he cannot "pay his way".

Sounds like a pretty sad-ass solution.  Sounds like a pretty sad-ass marriage.

So, that leaves the Divorce lawyer.  Maybe you have to drop the D-bomb to get his attention.  And maybe, if he doesn't react to it - and defends his actions, then you know that he loves his childhood family more than you.  And that's pretty sad.

I wish I had better advice.  But a spouse that puts their childhood family members' needs above that of their own spouse and family is not a real spouse - nor is it a real marriage.

And sadly, many people in America today can never grow up and get out from under what happened to them as a child - and thus remain perpetual children.  They continually relive their childhood, trying to "get it right" while ignoring the fact that their own lives are running out, and that their own spouse and children are being neglected.

Like I said, it is pretty sad.

UPDATE:  If you think that giving money to your parents or siblings is "being Christian" then think again.  The Bible says quite the opposite:

Genesis 2:24
That is why a man leaves his father and mother and is united to his wife, and they become one flesh.

Matthew 19:5
and said, 'For this reason a man will leave his father and mother and be united to his wife, and the two will become one flesh'?

Mark 10:7
For this reason a man will leave his father and mother and be united to his wife,

Mark 10:8
and the two will become one flesh.' So they are no longer two, but one flesh.

Ephesians 5:31
"For this reason a man will leave his father and mother and be united to his wife, and the two will become one flesh."