As we walk this vale of tears, from time to time we are given the opportunity to experience beneficial state changes in our life. Some of them are quite natural, even expected. One day we are single, then as the result of energy we have dumped into that relationship we find that we are married. Years pass and husband and wife, quite naturally, become parents. Some of these state changes can be unexpected. As the result of energy dumped into a high school education a small town girl, dreaming small town dreams, is accepted to a major university. All of a sudden the small town girl becomes a sophisticated academic, a fully accepted member of her new community.
Phases of life like technological development seem to follow what is often called S curves. We start off slow. Then gather momentum. Things change very rapidly. When we reach the end of the project or the limit of the technology progress begins to slow, eventually flat lining.
Consider the top speed of piston engine propeller driven aircraft. Things started rather slowly with the Wright Flyer, top speed 30 mph. During World War I, top speed almost doubled from approximately 100 mph to 200 mph. During World War II top speed climbed from 300 mph to almost 450 mph. At that point top speed flat lined. The aircraft industry reached the technological limits of the piston engine propeller driven aircraft.
Then something happened. The Germans introduced the world’s first jet fighter plane. It was almost 100 mph faster than any other aircraft in the skies. Fueled by the desperate energy of war, aircraft top speed experienced a major state change. The curve started over again 100 mph higher. It took a while for jet aircraft to crack the sound barrier. Then top speeds accelerated very rapidly to Mach 2.5, over 1400 mph. This is pretty much the practical limit for jet aircraft. The SR-71 reached Mach 3.5 but the technology required to reach that speed is not practical for use in a normal fighter aircraft. Once again, we await a state change in technology to begin the process for a third time.
Check out your life. Where are you on the S curve; at the beginning, just learning a new role in life, are you rapidly improving, or have you reached the limits of your belief system? Are you flat lining? If you are stuck in a rut, if you are measuring very little beneficial change in your life, perhaps your beliefs about yourself and your abilities have reached the end of an S Curve. Perhaps it is time to look for an opportunity for a state change. Such state changes require a great deal of energy. They come at the end of serious effort or as the result of amazing good fortune. For the purposes of this blog, energy is measured in units of money. However, life is not limited to money.
Has the time come to change the way you think about yourself? Is it time to jump to a new life, experiencing a beneficial state change without your old limits?
Philippians 4:
[13] I can do all things through Christ which strengtheneth me.
Monday, May 30, 2011
Saturday, May 28, 2011
Dave Ramsey---That's Not Good Enough!--- (Class 8 of 13)
Dave Ramsey loves stuff. He loves cars, boats, tools, power equipment, and electronic gadgets. But even more than stuff, Dave Ramsey loves the great game. You hear it from time to time in many of the classes. Nothing pleases him more than a really big bargain. In this class, Dave teaches his way to buying the things you need or just want at the best possible price. Actually, it is easier to follow in outline form than in narrative, as he imbeds lists (which are the meat of the class) inside of keys which are little more than headers. The First Key consumed about two thirds of the class. Dave ripped through the Third Key in a matter of minutes.
1.0 The First Key; Every Price is Negotiable
Dave’s starting premise is every purchase is a negotiation. There is no such thing as retail. At some price, quantity, or delivery time everything is negotiable and boy does Dave like to negotiate.
1.1 The “Lucky Seven” Basic Rules of Negotiation
1.1.1 Always tell the truth.
Never lie in your negotiations. If you lie and are discovered, it is likely this will at least make the negotiation more difficult or completely destroy the relationship.
1.1.2 Use the power of cash.
Dave always uses cash (as in hundred dollar bills) when making even very major purchases. The sight of 10 or 50 one hundred dollar bills has a tremendous emotional impact. He recommends taking advantage of this fact. Consider in the TV show Pawn Stars, every purchase made by the employees at the pawn shop involves cash money. It is a factor in those negotiations. I will give you such and such an amount of cash—today.
1.1.3 Understand and use walk away power.
Do not become married to something you want to buy. The salesman will read it in your body language. If that happens you are cooked. Anything, except for perhaps an original Rembrandt, can be purchased at more than one store.
1.1.4 Know when to shut up.
Silence is one of Dave’s favorite negotiation techniques. Salesmen are not trained to deal with silence. Even if they ask a question sometimes it is best to just smile and nod your head. The salesmen will feel obliged to keep the conversation moving. He just might provide you with a key to a better deal.
1.1.5 That’s Not Good Enough!
This idea came from Henry Kissinger’s book on negotiations. When the salesman is going for the close say, “That’s not good enough.” Let him try and answer that one.
1.1.6 Good Cop Bad Cop
A variation on this theme is used constantly in the automotive business. The salesman is your friend, but he has to get the approval of the sales manager, a one eyed monster with bloody fangs they have to keep chained in a dudgeon. Husband and wife can turn this around. “Oh, my husband would never let me pay that much for this car.” In fact, because women are viewed as victims by some salesmen, it is often recommended they take along a man when buying a car. The man can point out all the car’s shortcomings, as she negotiates with the salesman.
1.1.7 The If I Take Away Technique
I could give you $100,000 for this house today, but at that price you would have to throw in that bass boat and trailer (probably worth $40,000). After the homeowner regains consciousness and states that offer is dead on arrival. The say, “Well if I take away the boat, then you are going to have to come down on that price.” Used frequently by real estate investors.
2.0 The Second Key; Patience
This is pretty much the same thing as understanding walk away power. In every negotiation time is somebody’s friend and somebody’s enemy. In the NFL players’ strike the owners’ tactics indicate they believe time is on their side. They have deep pockets and believe they can outlast the players who have an average three year window to make their name and fortune playing the game.
3.0 The Third Key; Know Where to Find Deals
3.1 Negotiations Are More Than Money.
Don’t be afraid to barter goods and services. Cash does not have to change hands to complete a successful negotiation.
3.2 Know Where to Look for Big Bargains
3.2.1 Individuals
Many times individuals just want to get rid of something for some reason. If that is the case, the price will be much lower than retail.
3.2.2 Estate Sales
3.2.3 Public Auctions
Watch out for auction buying fever.
3.2.4 Couponing
Only use coupons to buy what you would buy anyway.
3.2.5 Garage Sales
3.2.6 Repo Lots
Repo Lots and online auctions can be the source of great bargains and great disappointments.
3.2.7 Flea Markets
3.2.8 Refunding
Those annoying $50.00 debit cards that come six months after completing numerous forms on the Internet.
3.2.9 Foreclosures
Dave recommends this for professionals only. In spite of what the infomercials may say, there are too many traps for the unwary in buying properties at foreclosures.
3.2.10 Pawn Shops
3.2.11 Online Auctions (EBAY)
3.2.12 Classified Ads
Really the same thing as buying from individuals
3.2.13 Consignment Shops
Many women are discovering that perfectly good and sometimes even clothing with the tags still attached can be purchased for a fraction of the original price at consignment shops.
3.2.14 Conventions
Never heard of this one before, but Dave has learned that exhibitors at conventions frequently do not want to pay to ship merchandise back home when the convention ends. Hang out on the last day of the convention and make them an offer they can’t refuse.
1.0 The First Key; Every Price is Negotiable
Dave’s starting premise is every purchase is a negotiation. There is no such thing as retail. At some price, quantity, or delivery time everything is negotiable and boy does Dave like to negotiate.
1.1 The “Lucky Seven” Basic Rules of Negotiation
1.1.1 Always tell the truth.
Never lie in your negotiations. If you lie and are discovered, it is likely this will at least make the negotiation more difficult or completely destroy the relationship.
1.1.2 Use the power of cash.
Dave always uses cash (as in hundred dollar bills) when making even very major purchases. The sight of 10 or 50 one hundred dollar bills has a tremendous emotional impact. He recommends taking advantage of this fact. Consider in the TV show Pawn Stars, every purchase made by the employees at the pawn shop involves cash money. It is a factor in those negotiations. I will give you such and such an amount of cash—today.
1.1.3 Understand and use walk away power.
Do not become married to something you want to buy. The salesman will read it in your body language. If that happens you are cooked. Anything, except for perhaps an original Rembrandt, can be purchased at more than one store.
1.1.4 Know when to shut up.
Silence is one of Dave’s favorite negotiation techniques. Salesmen are not trained to deal with silence. Even if they ask a question sometimes it is best to just smile and nod your head. The salesmen will feel obliged to keep the conversation moving. He just might provide you with a key to a better deal.
1.1.5 That’s Not Good Enough!
This idea came from Henry Kissinger’s book on negotiations. When the salesman is going for the close say, “That’s not good enough.” Let him try and answer that one.
1.1.6 Good Cop Bad Cop
A variation on this theme is used constantly in the automotive business. The salesman is your friend, but he has to get the approval of the sales manager, a one eyed monster with bloody fangs they have to keep chained in a dudgeon. Husband and wife can turn this around. “Oh, my husband would never let me pay that much for this car.” In fact, because women are viewed as victims by some salesmen, it is often recommended they take along a man when buying a car. The man can point out all the car’s shortcomings, as she negotiates with the salesman.
1.1.7 The If I Take Away Technique
I could give you $100,000 for this house today, but at that price you would have to throw in that bass boat and trailer (probably worth $40,000). After the homeowner regains consciousness and states that offer is dead on arrival. The say, “Well if I take away the boat, then you are going to have to come down on that price.” Used frequently by real estate investors.
2.0 The Second Key; Patience
This is pretty much the same thing as understanding walk away power. In every negotiation time is somebody’s friend and somebody’s enemy. In the NFL players’ strike the owners’ tactics indicate they believe time is on their side. They have deep pockets and believe they can outlast the players who have an average three year window to make their name and fortune playing the game.
3.0 The Third Key; Know Where to Find Deals
3.1 Negotiations Are More Than Money.
Don’t be afraid to barter goods and services. Cash does not have to change hands to complete a successful negotiation.
3.2 Know Where to Look for Big Bargains
3.2.1 Individuals
Many times individuals just want to get rid of something for some reason. If that is the case, the price will be much lower than retail.
3.2.2 Estate Sales
3.2.3 Public Auctions
Watch out for auction buying fever.
3.2.4 Couponing
Only use coupons to buy what you would buy anyway.
3.2.5 Garage Sales
3.2.6 Repo Lots
Repo Lots and online auctions can be the source of great bargains and great disappointments.
3.2.7 Flea Markets
3.2.8 Refunding
Those annoying $50.00 debit cards that come six months after completing numerous forms on the Internet.
3.2.9 Foreclosures
Dave recommends this for professionals only. In spite of what the infomercials may say, there are too many traps for the unwary in buying properties at foreclosures.
3.2.10 Pawn Shops
3.2.11 Online Auctions (EBAY)
3.2.12 Classified Ads
Really the same thing as buying from individuals
3.2.13 Consignment Shops
Many women are discovering that perfectly good and sometimes even clothing with the tags still attached can be purchased for a fraction of the original price at consignment shops.
3.2.14 Conventions
Never heard of this one before, but Dave has learned that exhibitors at conventions frequently do not want to pay to ship merchandise back home when the convention ends. Hang out on the last day of the convention and make them an offer they can’t refuse.
Sunday, May 22, 2011
Destroying the Enemy
Occasionally, I am reminded of why I am here and what is really important. This week, those of us who are Christians were embarrassed, once again, by another foolish attempt to predict the end of the world. The Revelations of Saint John the Divine contains all sorts of spectacular and frightening images of the Antichrist, the Beast, the mystery harlot, and the fate of the wicked who worship evil and persecute the Saints. Determining the exact timing and the details of the Apocalypse seems a source of never ending fascination for American Christians, even though our Savior specifically advices against such speculation. For those of us who walk the narrow way the judgments detailed in the book of Revelations are the ultimate opportunity to see our enemies get their comeuppance.
In researching for this blog I am constantly reminded the financial world is filled with enemies both real and imagined. Crooked bankers and corporate executives, predatory credit card companies, corrupt politicians who desire to tax my savings, the Central Bank that is destroying the value of our currency, and even the dishonest automobile mechanic populate my imagination. Of course I have real enemies, men who have caused me harm. Some of them I have never met, but have enriched themselves while doing great damage this nation’s economy. Others have looked me in the eye while stabbing me in the back.
In either case, we are instructed to, “Love your enemies, bless them that curse you, do good to them that hate you, and pray for them which despitefully use you, and persecute you.” I quote from Everywhere Present, a book written by an old friend who is now an Orthodox priest. “I remember being startled the first time I read the saying of St. Silouan the Athonite (twentieth century): “The criterion for the presence of the Holy Spirit, the criterion of the truth is the love for one’s enemies.” I have elsewhere seen the thought (or simplified it in my own mind) in this form: “You only know God to the extent that you love your enemies.”
The poet Santideva asked the question, “How many enemies-boundless as the sky-might I destroy? I guess he had probably been reading too many political rants and financial blogs. Then he had an interesting insight, “Yet when the thought of hatred is abolished all enemies are destroyed.”
As is often the case, important things are simple and simple things are hard. May God help and bless us every one.
In researching for this blog I am constantly reminded the financial world is filled with enemies both real and imagined. Crooked bankers and corporate executives, predatory credit card companies, corrupt politicians who desire to tax my savings, the Central Bank that is destroying the value of our currency, and even the dishonest automobile mechanic populate my imagination. Of course I have real enemies, men who have caused me harm. Some of them I have never met, but have enriched themselves while doing great damage this nation’s economy. Others have looked me in the eye while stabbing me in the back.
In either case, we are instructed to, “Love your enemies, bless them that curse you, do good to them that hate you, and pray for them which despitefully use you, and persecute you.” I quote from Everywhere Present, a book written by an old friend who is now an Orthodox priest. “I remember being startled the first time I read the saying of St. Silouan the Athonite (twentieth century): “The criterion for the presence of the Holy Spirit, the criterion of the truth is the love for one’s enemies.” I have elsewhere seen the thought (or simplified it in my own mind) in this form: “You only know God to the extent that you love your enemies.”
The poet Santideva asked the question, “How many enemies-boundless as the sky-might I destroy? I guess he had probably been reading too many political rants and financial blogs. Then he had an interesting insight, “Yet when the thought of hatred is abolished all enemies are destroyed.”
As is often the case, important things are simple and simple things are hard. May God help and bless us every one.
Friday, May 20, 2011
Dave Ramsey Clause and Effect (Class 7 of 13)
Dave Ramsey begins the class on insurance with a lurid expose, interviews of evil salesmen who sold whole life insurance until they repented and sold term. As they say in the business, “Sell whole life? Don’t sleep. Sell term? Don’t eat.” After that brief episode of tabloid TV, Dave gets down to the serious business of explaining necessary insurance coverage for life in an uncertain world.
He defines insurance as money spent to transfer risk. How much to pay for how much coverage are, of course, the real problem. As Dave observes during his rant against whole life, the largest most expensive buildings in most cities are owned by banks and insurance companies. This should tell you something about their understanding of the real cost of risk.
Dave jams homeowner or renter’s insurance into the same pot with auto insurance. This is sensible, since these coverages are often sold by the same provider and are interlinked with umbrella liability coverage. Dave goes through some simple calculations to help you determine the amount of collision (if any) insurance you should carry and what deductible for your own automobile makes sense. Often, as Dave points out, a fully funded emergency fund can allow a higher deductible, but the cost savings might prove to be trivial. How much liability should you carry? That depends on where you live and who you are. Dave Ramsey carries a whole lot of liability insurance since the entire world knows he is rich. The city of Washington D.C. has more attorneys than the entire Empire of Japan (really!). Don’t visit this city without plenty of liability insurance. Rural Montana might not be as dangerous to your pocketbook.
Health insurance is a really scary problem for many Americans. If health insurance is not provided by your employer, buying your own coverage is expensive and often inadequate. Dave Ramsey recommends buying a policy with a very high (in the multiple thousands) deductible and to then cover that well defined portion of your expenses with your emergency fund. However, make certain there is no cap on total coverage. The logic is that your emergency fund can handle $6,000 or more over the course of a year but complex heart surgery or cancer treatment can quickly run into multiples of $100,000. This is what insurance is really for, transferring unlikely but possible risks that you cannot possibly handle by yourself. Dave also recommends the use of a tax deferred health savings account in combination with a high deductible if you are eligible for such coverage.
Dave Ramsey believes disability insurance is a must have, especially for young families. He recommends policies that cover you if you cannot perform in your own occupation, called own occ insurance. Look for coverage in the 65% range. This money is not subject to income tax. Therefore, 65% of your gross tax free will look a lot like your normal salary. Don’t buy any policy that covers less than 5 years of your income. The elimination period is the period of time between the start of disability and the beginning of the payments, the longer the elimination period, the lower the premium. Remember that six month emergency fund? This is an example of why it is so very important. When I was young, I worked in moderately dangerous factories. People really suffered from disabling accidents and physical conditions caused by sensitivity to dangerous chemicals. At that time, I investigated disability coverage. It was priced way out of my league. Since then it has become more common and affordable. Some companies even offer it as part of their benefit package.
Dave Ramsey recommends long term care insurance (LTCI), sometimes called nursing home insurance, for those of us over 60. Since I am 60, I am investigating the cost and benefits of LTCI. It is scary expensive. I am seeing recommended numbers like $300,000 indexed to inflation. I am pretty comfortable compared to many folks my age. I think I could carry $100,000 of coverage for my wife and myself into retirement, but that is probably not enough. I am considering self insurance by placing $100,000 in mutual funds behind a sign that reads, “In case of emergency, break glass.” If I have the discipline, I will most likely have a much larger amount of money when it is most likely to be needed in 25 years.
Dave recommends identity theft insurance that provides support services to help you repair the damage to reputation and credit rating, not the useless stuff sold by credit report services and credit card companies. This is really pretty inexpensive and can often be purchased as a rider to your homeowners insurance. Look into it, if you don’t have it.
Finally, Dave covers what is obviously one of his favorite subjects, life insurance. Evidently this topic generates tons of hate mail from offended insurance salesmen. Dave is instantly and correctly suspicious of any financial product that combines savings or an investment vehicle inside an insurance product. If someone tries to sell you any such garbage, run away and hide. What he does recommend for families with minor children is term insurance to the tune of 10X salary. The logic is that if the husband or working wife dies 10 times their salary can be invested in mutual funds that can realistically be expected to generate a 10% return, thereby replacing the lost income. Stay at home moms need to be insured. How much would it cost to hire Mary Poppins to replace your wife and the mother of your children? Multiply that number by 10 and buy a term life policy. It is cheap.
Listed below are the types of coverages recommended by Dave. Anything that is not found on this list, such as credit life insurance, he considers a fraud and waste of money. One question came to my mind, “Is their any correlation between the baby steps and when to purchase recommended insurance?” For example, in Maryland it is illegal to drive a car without insurance even if you haven’t $1,000 in an emergency fund. Living without health insurance seems a very scary proposition. Would that come before baby step 2? I expect home owners insurance would generally be required by the terms of the mortgage. Disability seems more like a nice to have, something for step 7. Is there any guidance? My contact at Dave Ramsey’s organization replied, “Dave actually recommends getting your insurance lined-up as quickly as possible (while you’re working through Baby Step 1).”
1. Homeowner’s or Renter’s Insurance
2. Auto Insurance
3. Health Insurance
4. Disability Insurance
5. Long-Term Care Insurance
6. Identity Theft Protection
7. Life Insurance
He defines insurance as money spent to transfer risk. How much to pay for how much coverage are, of course, the real problem. As Dave observes during his rant against whole life, the largest most expensive buildings in most cities are owned by banks and insurance companies. This should tell you something about their understanding of the real cost of risk.
Dave jams homeowner or renter’s insurance into the same pot with auto insurance. This is sensible, since these coverages are often sold by the same provider and are interlinked with umbrella liability coverage. Dave goes through some simple calculations to help you determine the amount of collision (if any) insurance you should carry and what deductible for your own automobile makes sense. Often, as Dave points out, a fully funded emergency fund can allow a higher deductible, but the cost savings might prove to be trivial. How much liability should you carry? That depends on where you live and who you are. Dave Ramsey carries a whole lot of liability insurance since the entire world knows he is rich. The city of Washington D.C. has more attorneys than the entire Empire of Japan (really!). Don’t visit this city without plenty of liability insurance. Rural Montana might not be as dangerous to your pocketbook.
Health insurance is a really scary problem for many Americans. If health insurance is not provided by your employer, buying your own coverage is expensive and often inadequate. Dave Ramsey recommends buying a policy with a very high (in the multiple thousands) deductible and to then cover that well defined portion of your expenses with your emergency fund. However, make certain there is no cap on total coverage. The logic is that your emergency fund can handle $6,000 or more over the course of a year but complex heart surgery or cancer treatment can quickly run into multiples of $100,000. This is what insurance is really for, transferring unlikely but possible risks that you cannot possibly handle by yourself. Dave also recommends the use of a tax deferred health savings account in combination with a high deductible if you are eligible for such coverage.
Dave Ramsey believes disability insurance is a must have, especially for young families. He recommends policies that cover you if you cannot perform in your own occupation, called own occ insurance. Look for coverage in the 65% range. This money is not subject to income tax. Therefore, 65% of your gross tax free will look a lot like your normal salary. Don’t buy any policy that covers less than 5 years of your income. The elimination period is the period of time between the start of disability and the beginning of the payments, the longer the elimination period, the lower the premium. Remember that six month emergency fund? This is an example of why it is so very important. When I was young, I worked in moderately dangerous factories. People really suffered from disabling accidents and physical conditions caused by sensitivity to dangerous chemicals. At that time, I investigated disability coverage. It was priced way out of my league. Since then it has become more common and affordable. Some companies even offer it as part of their benefit package.
Dave Ramsey recommends long term care insurance (LTCI), sometimes called nursing home insurance, for those of us over 60. Since I am 60, I am investigating the cost and benefits of LTCI. It is scary expensive. I am seeing recommended numbers like $300,000 indexed to inflation. I am pretty comfortable compared to many folks my age. I think I could carry $100,000 of coverage for my wife and myself into retirement, but that is probably not enough. I am considering self insurance by placing $100,000 in mutual funds behind a sign that reads, “In case of emergency, break glass.” If I have the discipline, I will most likely have a much larger amount of money when it is most likely to be needed in 25 years.
Dave recommends identity theft insurance that provides support services to help you repair the damage to reputation and credit rating, not the useless stuff sold by credit report services and credit card companies. This is really pretty inexpensive and can often be purchased as a rider to your homeowners insurance. Look into it, if you don’t have it.
Finally, Dave covers what is obviously one of his favorite subjects, life insurance. Evidently this topic generates tons of hate mail from offended insurance salesmen. Dave is instantly and correctly suspicious of any financial product that combines savings or an investment vehicle inside an insurance product. If someone tries to sell you any such garbage, run away and hide. What he does recommend for families with minor children is term insurance to the tune of 10X salary. The logic is that if the husband or working wife dies 10 times their salary can be invested in mutual funds that can realistically be expected to generate a 10% return, thereby replacing the lost income. Stay at home moms need to be insured. How much would it cost to hire Mary Poppins to replace your wife and the mother of your children? Multiply that number by 10 and buy a term life policy. It is cheap.
Listed below are the types of coverages recommended by Dave. Anything that is not found on this list, such as credit life insurance, he considers a fraud and waste of money. One question came to my mind, “Is their any correlation between the baby steps and when to purchase recommended insurance?” For example, in Maryland it is illegal to drive a car without insurance even if you haven’t $1,000 in an emergency fund. Living without health insurance seems a very scary proposition. Would that come before baby step 2? I expect home owners insurance would generally be required by the terms of the mortgage. Disability seems more like a nice to have, something for step 7. Is there any guidance? My contact at Dave Ramsey’s organization replied, “Dave actually recommends getting your insurance lined-up as quickly as possible (while you’re working through Baby Step 1).”
1. Homeowner’s or Renter’s Insurance
2. Auto Insurance
3. Health Insurance
4. Disability Insurance
5. Long-Term Care Insurance
6. Identity Theft Protection
7. Life Insurance
Sunday, May 15, 2011
Turn out the lights. The Party's over.
In 2009 Americans began to wake up. Historically high levels of unemployment and the housing crash, that stripped $6.5 trillion from the last major store of individual wealth in this country, began to cause some changes in consumer behavior. A few years ago Americans had a negative savings rate. Today that rate is approaching 5%. The Governments of the world, especially through the agency of their central banks, injected several trillions of dollars in funny money into the world’s banking system, borrowed money that has mortgaged the world’s future. These funds have done little to lower the true rate of unemployment or raise the standard of living in the advanced nations of the world. The problem at both the international level and the individual level is too much debt. It is a problem that cannot be solved by more debt.
I am not smart enough to know how or when it will end. Debt that cannot be repaid, will not be repaid is an oft repeated truism. I fear it will end badly, perhaps in my lifetime. Most assets held by the American consumer are depreciating in value. The $40,000 SUV found in a suburban driveway is headed towards zero. The median home value of $160,000 is still in decline. As readers of this blog have heard on more than one occasion, very serious, well informed men are projecting average stock market returns of about 3% per year for the next decade. That number is before taxes and inflation. For a decade, wages have been flat. During that time, the actual buying power of the American consumer has been in decline. Jobs are not being created because wealth is not being created. It is a vicious cycle that cannot be cured by borrowing 40 cents of every dollar we spend, as individuals or as a nation.
Five percent isn’t good enough but it is a start. In a letter published in a recent blog article by Charles Smith a Chinese exchange student states, “Americans try to save 5% and spend 95% of their income, where Chinese try to spend 5% and save 95%.” Should we be surprised that in less than a generation some of these (legal) immigrants own their own homes and businesses?
Capital accumulation, what our nation really needs to create new jobs, begins with an individual decision to opt out of the consumer mentality that uses borrowed money to buy the latest greatest techno-gadget that will be obsolete in six months. I was told by an employee of Kyocera that after a new model cell phone has been on the market for six months they consider it obsolete.
Studies indicate that net worth is only somewhat correlated to income levels. The accumulation of wealth begins when a household decides to spend less than its income. Over time that money is invested in wealth creating enterprises that generate new jobs. The vicious cycle becomes a virtuous cycle. Deferred gratification is a key component to what has been called the Protestant Work Ethic. Quoting the article by Charles Smith, “The key feature of Capitalism is not greed--that existed long before capitalism and flourishes in non-Capitalist societies. The key feature of Capitalism is capital accumulation, i.e. what's left after expenses are subtracted from income, i.e. savings that can then be invested in productive assets.”
The time has come for you to choose, whether you are going to be part of the problem or part of the solution. Are you going to continue to buy things you don’t need with money you don’t have or are you going to try in find contentment in what you do have, giving you the opportunity to invest in your future and the future of your country? If you answer, if our politicians answer, with a continuation of conspicuous consumption far beyond our national means, then we can turn out the lights. The party will be over.
I am not smart enough to know how or when it will end. Debt that cannot be repaid, will not be repaid is an oft repeated truism. I fear it will end badly, perhaps in my lifetime. Most assets held by the American consumer are depreciating in value. The $40,000 SUV found in a suburban driveway is headed towards zero. The median home value of $160,000 is still in decline. As readers of this blog have heard on more than one occasion, very serious, well informed men are projecting average stock market returns of about 3% per year for the next decade. That number is before taxes and inflation. For a decade, wages have been flat. During that time, the actual buying power of the American consumer has been in decline. Jobs are not being created because wealth is not being created. It is a vicious cycle that cannot be cured by borrowing 40 cents of every dollar we spend, as individuals or as a nation.
Five percent isn’t good enough but it is a start. In a letter published in a recent blog article by Charles Smith a Chinese exchange student states, “Americans try to save 5% and spend 95% of their income, where Chinese try to spend 5% and save 95%.” Should we be surprised that in less than a generation some of these (legal) immigrants own their own homes and businesses?
Capital accumulation, what our nation really needs to create new jobs, begins with an individual decision to opt out of the consumer mentality that uses borrowed money to buy the latest greatest techno-gadget that will be obsolete in six months. I was told by an employee of Kyocera that after a new model cell phone has been on the market for six months they consider it obsolete.
Studies indicate that net worth is only somewhat correlated to income levels. The accumulation of wealth begins when a household decides to spend less than its income. Over time that money is invested in wealth creating enterprises that generate new jobs. The vicious cycle becomes a virtuous cycle. Deferred gratification is a key component to what has been called the Protestant Work Ethic. Quoting the article by Charles Smith, “The key feature of Capitalism is not greed--that existed long before capitalism and flourishes in non-Capitalist societies. The key feature of Capitalism is capital accumulation, i.e. what's left after expenses are subtracted from income, i.e. savings that can then be invested in productive assets.”
The time has come for you to choose, whether you are going to be part of the problem or part of the solution. Are you going to continue to buy things you don’t need with money you don’t have or are you going to try in find contentment in what you do have, giving you the opportunity to invest in your future and the future of your country? If you answer, if our politicians answer, with a continuation of conspicuous consumption far beyond our national means, then we can turn out the lights. The party will be over.
Saturday, May 14, 2011
Dave Ramsey Buyer Beware (Class 6 of 13)
In this class Dave explores the psychology of buying and not buying. Corporations spend enormous sums of money to get your business. They employee marketing experts, physiologists, and advertising agencies who study and understand how to separate you from your money. They do this for one reason. It works. Dave explores the 4 basic techniques used in marketing and provides the student with a 5 step process designed to take the emotion out of purchases, minimizing the manipulative effects of sales and marketing techniques.
The classic technique is relationship selling. The salesman is at least as old as human history. In direct sales, particularly the sales of high ticket items such as cars, corporations spend thousands of dollars and expend hundreds of man hours training their sales force how to relate to their customers, build trust into the sales relationship, and excitement into the buying experience. Always keep in mind that these men and women are highly skilled professionals and you are on their turf.
Needless to say Dave Ramsey is particularly offended by the use of finance as a marketing tool. As a culture, we have been conditioned not to ask how much something costs but rather to ask how much money down and what are the monthly payments. This is the losers’ game. The borrower is slave to the lender. Dave exposes the about the most egregious examples of this ploy, including 90 days same as cash and 0% financing. Studies have determined that 88% of 90 days same as cash sales roll over into monthly payments with an average 24% interest rate. This is not at all the same thing as cash. Zero percent promotions are a tease. Less than 1/3 of all customers qualify for a zero percent loan, but by the time the victim reaches the finance desk, the hook is deeply set. He buys anyway.
Yes, advertising in all media really works. That is why corporations spend all that money. Dave goes through an exercise in which he starts an advertising slogan or jingle then asks the audience to finish.
Example: You deserve a…Break today…at…McDonalds.
The audience knew every single one of these ads. They were extremely successful campaigns developed by the most skilled marketing corporations in the world. In the future expect technology to become more sophisticated in targeting your dollars. I recently heard about new electronic billboards that utilize a small camera and facial recognition software to determine your age, race, and gender. The computer then selects an appropriate ad for display. And you though cookies were intrusive—ha.
Finally Dave explores the use of product positioning in retail merchandising. Color selection, brand and trademark recognition, packaging, color, and shelf position all increase the probability of a sale. Nothing, including the Muzak in background, is there by accident. It is the result of careful scientific studies. Companies pay stores for prime positions for their products just as they pay psychologists to select the color of the packaging.
Starting with the premise there is a two year old spoiled brat inside of each of us who wants what he or she wants right when they want it, Dave proposes a five step process to gain control over the buying process. Psychologists have determined that “major” purchases, those over $300, actually cause measurable changes in our bodies and in brain activity. A quick poll of the class seemed to indicate that threshold has increased in the past few years as the value of the dollar has declined, but that number does exist for each of us.
When buying a major purchase:
1)Go home and wait overnight before making the purchase. This will give your body a chance to recover from the chemical effects of buying fever.
2)Carefully consider your motives. You can never buy happiness. That commodity is found inside not outside your being.
3)Never, ever buy anything you don’t understand. That includes but is certainly not limited to cell phone contracts, financing contracts, investment schemes, and insurance policies. If you don’t know what you are buying or how much it is going to cost, cool it, until you understand.
4)Consider the opportunity cost of the proposed purchase or investment. Money used for one purpose will not be available for another purpose. This is not always a new bass boat Vs an emergency fund. Money invested in the stock market is not available to purchase a rental property.
5)Seek the counsel of your spouse. Dave emphasizes the spiritual aspect of the marriage relationship in making decisions. He believes that as a result of divine purpose each partner brings particular gifts and insights to the decision making process. I also believe that buying a bass boat without your wife’s consent will result in extremely unpleasant unintended second order effects.
Now let’s be careful out there.
The classic technique is relationship selling. The salesman is at least as old as human history. In direct sales, particularly the sales of high ticket items such as cars, corporations spend thousands of dollars and expend hundreds of man hours training their sales force how to relate to their customers, build trust into the sales relationship, and excitement into the buying experience. Always keep in mind that these men and women are highly skilled professionals and you are on their turf.
Needless to say Dave Ramsey is particularly offended by the use of finance as a marketing tool. As a culture, we have been conditioned not to ask how much something costs but rather to ask how much money down and what are the monthly payments. This is the losers’ game. The borrower is slave to the lender. Dave exposes the about the most egregious examples of this ploy, including 90 days same as cash and 0% financing. Studies have determined that 88% of 90 days same as cash sales roll over into monthly payments with an average 24% interest rate. This is not at all the same thing as cash. Zero percent promotions are a tease. Less than 1/3 of all customers qualify for a zero percent loan, but by the time the victim reaches the finance desk, the hook is deeply set. He buys anyway.
Yes, advertising in all media really works. That is why corporations spend all that money. Dave goes through an exercise in which he starts an advertising slogan or jingle then asks the audience to finish.
Example: You deserve a…Break today…at…McDonalds.
The audience knew every single one of these ads. They were extremely successful campaigns developed by the most skilled marketing corporations in the world. In the future expect technology to become more sophisticated in targeting your dollars. I recently heard about new electronic billboards that utilize a small camera and facial recognition software to determine your age, race, and gender. The computer then selects an appropriate ad for display. And you though cookies were intrusive—ha.
Finally Dave explores the use of product positioning in retail merchandising. Color selection, brand and trademark recognition, packaging, color, and shelf position all increase the probability of a sale. Nothing, including the Muzak in background, is there by accident. It is the result of careful scientific studies. Companies pay stores for prime positions for their products just as they pay psychologists to select the color of the packaging.
Starting with the premise there is a two year old spoiled brat inside of each of us who wants what he or she wants right when they want it, Dave proposes a five step process to gain control over the buying process. Psychologists have determined that “major” purchases, those over $300, actually cause measurable changes in our bodies and in brain activity. A quick poll of the class seemed to indicate that threshold has increased in the past few years as the value of the dollar has declined, but that number does exist for each of us.
When buying a major purchase:
1)Go home and wait overnight before making the purchase. This will give your body a chance to recover from the chemical effects of buying fever.
2)Carefully consider your motives. You can never buy happiness. That commodity is found inside not outside your being.
3)Never, ever buy anything you don’t understand. That includes but is certainly not limited to cell phone contracts, financing contracts, investment schemes, and insurance policies. If you don’t know what you are buying or how much it is going to cost, cool it, until you understand.
4)Consider the opportunity cost of the proposed purchase or investment. Money used for one purpose will not be available for another purpose. This is not always a new bass boat Vs an emergency fund. Money invested in the stock market is not available to purchase a rental property.
5)Seek the counsel of your spouse. Dave emphasizes the spiritual aspect of the marriage relationship in making decisions. He believes that as a result of divine purpose each partner brings particular gifts and insights to the decision making process. I also believe that buying a bass boat without your wife’s consent will result in extremely unpleasant unintended second order effects.
Now let’s be careful out there.
Sunday, May 8, 2011
A Modest Proposal
$300 Billion Dollars! That is the estimated cost of tax evasion, per year. Per Year! According to a recent article by Morgan Housel, that is about half the national debt. In 10 years that would total up to $3 Trillion Dollars! The author points out that is an amount of money equal to, “The Bush tax cuts, the Obama stimulus, and the wars in Iraq and Afghanistan combined.” Without increasing taxes or cutting expenditures we cut projected deficits in half by just telling the truth and obeying the law. From the waiter who under reports cash tips to the billionaire with an illegal offshore account in the Turk and Caicos Islands, couldn’t we just do a little better?
Our law makers are not helping the problem. Many officials in the current administration and various current and former congressmen are tax cheats. Major corporations have manipulated the election process to buy loopholes that they then legally exploit. General Electric pays no taxes, nada, zip, nothing, and it is all legal. They view their tax department as a profit center. Besides hiring the best tax attorneys and accountants money can buy, they hire senior experts right out of the IRS. From a Pro Publica article by Gerth and Sloan "An important rule to live by," a senior GE tax lawyer, Rick D'Avino, told a conference in 2007, "is to ensure that the tax team has as many former government tax experts as possible" to "help see both sides of an issue more effectively." D'Avino, a GE vice president, mentioned the IRS, Capitol Hill and Treasury as places to look when building a team and talked about how a former IRS lawyer working for GE helped the company build a "cooperative relationship" with the service.”
If only what one blogger terms, “middle class tax donkeys,” follow the rules, what is the future of our nation? Housel believes we just need to take a look at Greece, a country that is nearly bankrupt. Its creditors, mainly German and France are tightening the noose to the point that the Greek government is on the verge of collapse. Greece has a major problem, “an endemic culture of tax cheating.” A recent article in Vanity Fair estimates that between 30% and 40% of all economic activity in Greece is unreported and untaxed. The article goes on to state, “The scale of Greek tax cheating was at least as incredible as its scope: an estimated two-thirds of Greek doctors reported incomes under 12,000 euros a year -- which meant, because incomes below that amount weren't taxable, that even plastic surgeons making millions a year paid no tax at all.” It is estimated that about 98% of the Greek population cheat on their taxes. Is it any wonder their nation is on the verge of economic collapse?
Housel recommends increasing the IRS budget. An average IRS agent leverages his $60,000 annual income by a factor of six in collections, interest, and penalties. The author goes on to note that an agent who cracks one big case can pay for his entire 30 year career. I have a better idea. Why don’t we just pay our taxes?
Matthew 22
[15] Then went the Pharisees, and took counsel how they might entangle him in his talk.
[16] And they sent out unto him their disciples with the Herodians, saying, Master, we know that thou art true, and teachest the way of God in truth, neither carest thou for any man: for thou regardest not the person of men.
[17] Tell us therefore, What thinkest thou? Is it lawful to give tribute unto Caesar, or not?
[18] But Jesus perceived their wickedness, and said, Why tempt ye me, ye hypocrites?
[19] Shew me the tribute money. And they brought unto him a penny.
[20] And he saith unto them, Whose is this image and superscription?
[21] They say unto him, Caesar's. Then saith he unto them, Render therefore unto Caesar the things which are Caesar's; and unto God the things that are God's.
[22] When they had heard these words, they marvelled, and left him, and went their way.
Our law makers are not helping the problem. Many officials in the current administration and various current and former congressmen are tax cheats. Major corporations have manipulated the election process to buy loopholes that they then legally exploit. General Electric pays no taxes, nada, zip, nothing, and it is all legal. They view their tax department as a profit center. Besides hiring the best tax attorneys and accountants money can buy, they hire senior experts right out of the IRS. From a Pro Publica article by Gerth and Sloan "An important rule to live by," a senior GE tax lawyer, Rick D'Avino, told a conference in 2007, "is to ensure that the tax team has as many former government tax experts as possible" to "help see both sides of an issue more effectively." D'Avino, a GE vice president, mentioned the IRS, Capitol Hill and Treasury as places to look when building a team and talked about how a former IRS lawyer working for GE helped the company build a "cooperative relationship" with the service.”
If only what one blogger terms, “middle class tax donkeys,” follow the rules, what is the future of our nation? Housel believes we just need to take a look at Greece, a country that is nearly bankrupt. Its creditors, mainly German and France are tightening the noose to the point that the Greek government is on the verge of collapse. Greece has a major problem, “an endemic culture of tax cheating.” A recent article in Vanity Fair estimates that between 30% and 40% of all economic activity in Greece is unreported and untaxed. The article goes on to state, “The scale of Greek tax cheating was at least as incredible as its scope: an estimated two-thirds of Greek doctors reported incomes under 12,000 euros a year -- which meant, because incomes below that amount weren't taxable, that even plastic surgeons making millions a year paid no tax at all.” It is estimated that about 98% of the Greek population cheat on their taxes. Is it any wonder their nation is on the verge of economic collapse?
Housel recommends increasing the IRS budget. An average IRS agent leverages his $60,000 annual income by a factor of six in collections, interest, and penalties. The author goes on to note that an agent who cracks one big case can pay for his entire 30 year career. I have a better idea. Why don’t we just pay our taxes?
Matthew 22
[15] Then went the Pharisees, and took counsel how they might entangle him in his talk.
[16] And they sent out unto him their disciples with the Herodians, saying, Master, we know that thou art true, and teachest the way of God in truth, neither carest thou for any man: for thou regardest not the person of men.
[17] Tell us therefore, What thinkest thou? Is it lawful to give tribute unto Caesar, or not?
[18] But Jesus perceived their wickedness, and said, Why tempt ye me, ye hypocrites?
[19] Shew me the tribute money. And they brought unto him a penny.
[20] And he saith unto them, Whose is this image and superscription?
[21] They say unto him, Caesar's. Then saith he unto them, Render therefore unto Caesar the things which are Caesar's; and unto God the things that are God's.
[22] When they had heard these words, they marvelled, and left him, and went their way.
Saturday, May 7, 2011
Dave Ramsey Credit Sharks in Suits (Class 5 of 13)
This class deals with identity theft, dealing with collection agencies, strategies for avoiding bankruptcy, and dealing with credit related lawsuits. The Financial Peace University workbook provides a large number of legally correct sample letters for use in these situations.
He begins by debunking the importance of a FICO score. In fact, it has been so long since Dave Ramsey has borrowed any money or even used a credit card, he doesn’t have a FICO score. A FICO score is a measure of how much debt you carry and how diligent you are at paying it off. Too much debt, the FICO score goes down. Too little debt, the FICO score goes down. Dave points out that you can even buy a house without a credit history. If you have 20% down, a history of paying your rent on time, and the same job for two or more years you are golden.
Everyone seems to recommend checking your credit reports at least once a year for any inaccuracies. A recent study indicates that about 70% of individual credit reports contained at least one error. About 25% of these reports contained a serious error that could result in a denial of credit. Dave warns the viewer that true information can not be removed from a credit report. Companies that promise they will “clean up” your credit report for a fee are scams. Stay away.
Identity theft has become a major problem. If this happens to you, report it immediately to all financial institutions with whom you do business and the credit bureaus. Also file a police report. Since a high percentage of identity theft is committed by friends or family members, this may prove emotionally difficult. Dave Ramsey points out that if your mother forges your name on a check, turn her in. She is a criminal. Undoing the damage will take time. All correspondence of a legal nature in any of these scenarios should be handled by certified mail with return receipt requested. Sample letters are provided to have information of fraudulent activity removed from your credit report in 30 days. Dave also recommends identity theft insurance, which will be discussed in depth in a later class.
Dave Ramsey considers collection agencies to be near criminal enterprises. They constantly violate the terms of the Federal Fair Debt Collection Practices Act. Throughout this lesson, Dave repeats a warning, “You can tell when these people are lying. If their mouth is moving, they are lying.” Dave does expend some effort to separate bill collectors into categories.
1)First Mortgages—Collection agents who deal with first mortgages tend to be professional. They do not violate the law or make idle threats. If they tell you something it is likely to be the truth.
2)Local Collection Agencies—These small companies are located in your community and work for local merchants and businesses. They are pretty responsible and tend not to engage in unfair or illegal practices.
3)Store Front Finance Companies—Bad news. These people not only engage in illegal harassment but have been know to make physical threats.
4)Credit Card Collection Agencies—The worst of the worst. They lie, cheat, and violate the law on a constant basis.
In dealing with these people, Dave recommends recording all telephone conversations after identifying yourself and telling the agent the conversation is going to be recorded. If they are abusive or threatening, hang up. He recommends setting a time; say every two weeks, to talk to these people. If they call more often than that, hang up.
Dave has found that in situations where you can not meet minimum payment on all your bills, sending a copy of your budget detailing necessary expenses and remaining disposable income. Feed your family, put a roof over their head, keep the heat and the lights on, and keep your car on the road, before worrying about credit card companies. He provides a separate form to list all creditors and the amount owed. Then divide the remaining disposable income to all the creditors on the basis of a percent of the total. This is called a pro rata plan. For example if you have 5 credit cards with $2,000 outstanding and one of these credit cards has a $200 balance. This card gets 200/2,000 or 10% of your disposable income. Send a copy of this form to the credit card company along with the copy of your monthly budget. If this amount is less than the minimum the credit card company will not be happy but they will cash your check. Credit card companies do not shoot lame horses, if you continue to pay and correspond (on your terms) with these companies it is unlikely they will take you to court.
On the subject of checks, never give any of these people permission to electronically debit your account. They will clean you out even if they promised to only take a certain amount. Any settlement agreements for less than the entire debt should be in writing. All correspondence should be sent by certified mail. Payment should be made by money order or certified check. All records should be retained. In a couple of years, it is quite like that these closed debts will resurface. If you do not have proof of the agreement, you will have to pay the balance.
Finally, getting sued and going to court is not the end of the world. Quite often a reasonable accommodation can be reached with the attorney before or after the proceedings. If you owe the money, you will always lose, but you can file a slow pay motion (sometimes called a pauper’s oath) after the judgment. Again, a written budget and a pro rata plan is a powerful tool to keep your creditors from seizing your personal property.
He begins by debunking the importance of a FICO score. In fact, it has been so long since Dave Ramsey has borrowed any money or even used a credit card, he doesn’t have a FICO score. A FICO score is a measure of how much debt you carry and how diligent you are at paying it off. Too much debt, the FICO score goes down. Too little debt, the FICO score goes down. Dave points out that you can even buy a house without a credit history. If you have 20% down, a history of paying your rent on time, and the same job for two or more years you are golden.
Everyone seems to recommend checking your credit reports at least once a year for any inaccuracies. A recent study indicates that about 70% of individual credit reports contained at least one error. About 25% of these reports contained a serious error that could result in a denial of credit. Dave warns the viewer that true information can not be removed from a credit report. Companies that promise they will “clean up” your credit report for a fee are scams. Stay away.
Identity theft has become a major problem. If this happens to you, report it immediately to all financial institutions with whom you do business and the credit bureaus. Also file a police report. Since a high percentage of identity theft is committed by friends or family members, this may prove emotionally difficult. Dave Ramsey points out that if your mother forges your name on a check, turn her in. She is a criminal. Undoing the damage will take time. All correspondence of a legal nature in any of these scenarios should be handled by certified mail with return receipt requested. Sample letters are provided to have information of fraudulent activity removed from your credit report in 30 days. Dave also recommends identity theft insurance, which will be discussed in depth in a later class.
Dave Ramsey considers collection agencies to be near criminal enterprises. They constantly violate the terms of the Federal Fair Debt Collection Practices Act. Throughout this lesson, Dave repeats a warning, “You can tell when these people are lying. If their mouth is moving, they are lying.” Dave does expend some effort to separate bill collectors into categories.
1)First Mortgages—Collection agents who deal with first mortgages tend to be professional. They do not violate the law or make idle threats. If they tell you something it is likely to be the truth.
2)Local Collection Agencies—These small companies are located in your community and work for local merchants and businesses. They are pretty responsible and tend not to engage in unfair or illegal practices.
3)Store Front Finance Companies—Bad news. These people not only engage in illegal harassment but have been know to make physical threats.
4)Credit Card Collection Agencies—The worst of the worst. They lie, cheat, and violate the law on a constant basis.
In dealing with these people, Dave recommends recording all telephone conversations after identifying yourself and telling the agent the conversation is going to be recorded. If they are abusive or threatening, hang up. He recommends setting a time; say every two weeks, to talk to these people. If they call more often than that, hang up.
Dave has found that in situations where you can not meet minimum payment on all your bills, sending a copy of your budget detailing necessary expenses and remaining disposable income. Feed your family, put a roof over their head, keep the heat and the lights on, and keep your car on the road, before worrying about credit card companies. He provides a separate form to list all creditors and the amount owed. Then divide the remaining disposable income to all the creditors on the basis of a percent of the total. This is called a pro rata plan. For example if you have 5 credit cards with $2,000 outstanding and one of these credit cards has a $200 balance. This card gets 200/2,000 or 10% of your disposable income. Send a copy of this form to the credit card company along with the copy of your monthly budget. If this amount is less than the minimum the credit card company will not be happy but they will cash your check. Credit card companies do not shoot lame horses, if you continue to pay and correspond (on your terms) with these companies it is unlikely they will take you to court.
On the subject of checks, never give any of these people permission to electronically debit your account. They will clean you out even if they promised to only take a certain amount. Any settlement agreements for less than the entire debt should be in writing. All correspondence should be sent by certified mail. Payment should be made by money order or certified check. All records should be retained. In a couple of years, it is quite like that these closed debts will resurface. If you do not have proof of the agreement, you will have to pay the balance.
Finally, getting sued and going to court is not the end of the world. Quite often a reasonable accommodation can be reached with the attorney before or after the proceedings. If you owe the money, you will always lose, but you can file a slow pay motion (sometimes called a pauper’s oath) after the judgment. Again, a written budget and a pro rata plan is a powerful tool to keep your creditors from seizing your personal property.
Subscribe to:
Posts (Atom)