Small Business Loans (Comments and Contributions)

Dallas Pearce, owner of the Isochronic Beats website and a reader of this blog, has provided me with some additional information and insights on small business funding I would like to share with my readers.

For those of you interested in learning more about the use of Isochronic Beats for brainwave entrainment, here is the link to his website. This technology uses sound to generate measurable changes in the electrical activity in your brain, most commonly to produce the alpha waves (8-13Hz) associated with a light relaxed meditative state.

Isochronic Beats

Here are three communications from Dallas, lightly edited for readability.

Here's some stuff you might find interesting and help you understand us better. Only half of small business owners have a degree, a lot of them only because they felt they had to. The degree has no relation to what they're doing. Out of the other half, many of the ones I meet are people like me, who became disenfranchised with a rigid and inflexible education system and left. Contrary to public opinion, the ivory towers of academia are not the exclusive purveyors of knowledge.

The ways in which we are able to start businesses are as varied as we are. Crowdfunding is becoming popular these days. For us infopreneurs we can generally start with less than $100 and bootstrap our way into outsourcing labor within a couple of years so we can focus on that 20% of what we do that makes 80% of the profit.

Taking out a small business loan from the government is something I've never even considered. You're correct, it is indeed bad debt.

Well, the crowdfunding data is still coming in, since the idea is still in its infancy. So far it's actually surprising. I can't find where I put the link with the statistics right now, but businesses started with crowdfunding actually have a higher success rates than businesses started using traditional funding methods. From the investor point of view, it's a lot less risky, because I can contribute $10 to 10 businesses instead of $100 to one business, increasing the chance of receiving a return on the investment.

As far as the $100 start-up goes, I have posted on FB about starting a blog dedicated to exploring various ways of creating sustainable, even passive, income starting with just $100. I'm waiting until I have enough content to start the site, but there are literally dozens of ways I've come up with or found out about to use even amounts as low as $0 to build a business.

There are really only two ways that you can create value for a consumer, whether it is for an individual or a business. You can provide either a product or a service. When it comes to a product-based business, you have to think in terms of what's called an MVP, or minimum viable product. If you want to start a multi-million dollar microbrewery, for example, your MVP would be a single beer that you can market directly to a single local business. Once that cash flow is established, it can be used to expand that product to a larger market, and eventually to create more products.

More along the lines of what I do, the MVP for someone who wants to build a multi-million dollar training course would consist of a single piece of content, a video or text that solves a single problem of a specific demographic. Then you market that solution, that information product, to the people who have the problem. You create value for them. You get value back in the form of money. This can then be used to help create more solutions to related problems, eventually culminating in a very high-value training course which might include video, software, whatever you can think of, that addresses the needs of a broader market.

In the realm of providing services, by far the easiest and least costly is to become the intermediary in a transaction or process chain. This can be as simple as advertising something, say logo creation services, on Craigslist, or college campus bulletin boards, or wherever your target market is likely to see it. Then when you've found the consumer, you find the provider; in this case, someone who will create the logo for less than you are charging the consumer. I've had success in this exact example by advertising logo design on Craigslist for $20, then going to fiverr.com and paying someone $5 to create the logo. The total cost to me was nothing but my time.

There really are so many thousands of ways to make money while creating value in people's lives that it would be impossible to even go into a fraction of the specifics.

Here are two interesting links provided by Dallas. The first provides some general information on small businesses and small business funding. The second article discusses crowd funding.

Small Business in America

Crowdfunding Websites from Forbes

Small Business Loans

Capitalism needs good debt to survive. The money to create a new industry, like the automobile at the start of the Twentieth Century, simply does not exist. It must be created through some combination of bonds, common or preferred stock, or outright loans. However, as with mortgages, there is only one kind of debt, bad debt, especially for small startup businesses without any assets or even a credit rating.

Here is the key problem to consider before taking out a small business loan, copied directly from the Small Business Administration Website.

Collateral

“The SBA expects every 7(a) loan to be fully secured, but the SBA will not decline a request to guarantee a loan if the only unfavorable factor is insufficient collateral, provided all available collateral is offered. This means every SBA loan is to be secured by all available assets (both business and personal) until the recovery value equals the loan amount or until all assets have been pledged (to the extent that they are reasonably available). Personal guarantees are required from all owners of 20 percent or more of the equity of the business, and lenders can require personal guarantees of owners with less than 20 percent ownership. Liens on personal assets of the principals may be required.”

Something on the order of 50% of all small business will fail in the first four years. By year 10, more than 70% of all startups are gone. If you misjudge the amount of sales or cash flow required to stay afloat; if you or your family can’t stand the pressures of long hours and irregular income; if you fail to keep accurate and complete records or engage in some other common form of mismanagement; if you lack the knowledge or experience to properly deal with suppliers; if you are just plain unlucky enough to start the right business at the wrong time, odds are your company will go belly up.

If that happens, your creditors will come and take away your house.

On the other hand, I know of an instance where a young man turned a $30,000 loan to buy a used truck into more than a million dollar buyout and a full time job paying $100,000 a year. He lives in Western Pennsylvania where the oil exploration companies were paying $90 an hour for water trucks. Most of the time these trucks and their drivers would just sit; waiting at the well sites seven days a week 24 hours a day. A reliable truck owner could make a lot of money just waiting for something to happen. This young man actually did even better. He had an accountant shelter his truck in a corporation, making the expense of owning the vehicle a tax write off. Over time he bought additional equipment and hired some employees. Eventually a larger trucking firm began to buy out the independent operators. They made this young man an offer he couldn’t refuse that included a guaranteed contract paying him $100,000 a year for supervising their operations.

I don’t know how long the natural gas boom will last, but at least one young man is earning a very good living. More importantly, he has learned how to create and run a wealth producing tax paying business, lessons that will serve him well for the rest of his life.

In this case the collateral was the truck. That seems like an acceptable risk to me.

Having worked for the Government or large corporations most all of my adult life I really know very little about the small businessman other than what I have observed in my friends who have chosen to follow that path. However, I do believe teaching our children how to become entrepreneurs will become progressively more important as the number of “good jobs” has been declining for over three decades.

I remember one church dinner in particular. I was sitting at a large table with a number of other folks. I started up a conversation with a young man of early high school age sitting next to me. He was interested in all sorts of electronic contraptions, particularly microphones and sound equipment. As the conversation progressed, he expressed an interest in ultimately turning his hobby into a business. I tried to be very encouraging and supportive. I also tried to ask intelligent questions such as what kind of niche market would allow him to compete against the likes of Best Buys. I pointed out, Mapleshade as an example of a successful high end niche marketer. They make extremely high end stereo accessories, rebuild tube amps, and sell their own recordings of jazz and folk music. This conversation was obviously making his mother nervous. She started interjecting questions like, “Don’t you want to go to college?” I hope that someday he gets a college degree, runs a successful business, and lives a happy fulfilling life.

In How to Make Big Money in Your Own Small Business by Jeffery Fox, a couple of items were repeated so often they actually stuck with me.

First there are only three things any business can do for their customers.

1)make them feel good
2) solve their problem
3) some combination of numbers 1 and 2

The author also believes his 60/30/10 rule is critical to the success of any small businessman. He believes this rule applies to 1 man companies or even companies with even 10 full time employees.

60% of your time should be spent marketing and selling your product
30% of your time should be spent producing your product
10% of your time should be spent on administrative and managerial tasks

Of the 60% of the time spent in sales and marketing:

60% of the 60% should be spent in contact (personal visits, telephone, email) with existing customers. The author considers this so important that he recommends hiring a part time driver to allow the small businessman to work on his computer and telephone when going to visit customers in order to make certain they are happy.

30% of the 60% should be spent developing new, short term customers.

10% of the 60% should be spent developing new, long term relationships with short term customers.

By the way, the author considers a 60 hour work week a minimum for the successful small businessman (no exploitation like self exploitation). Now you know why I was never tempted to be a small businessman.

I guess the real secret to running a successful small business is discovering something that you love and would do for free that makes people feel good, solves their problems, and can not be done by too many other people. Now all you need to do is find a way to keep your cash flow positive as you feed your family and build your business without taking on any debt. Whew! No wonder I consider the successful small businessman the unsung hero of American capitalism.

Your country needs your courage, your work ethic, and the jobs you create.

90 Days Is Not the Same as Cash

You see the ads in the newspaper circulars that come to your mailbox and on the television, especially around Christmas, 90 Days Same As Cash! Electronic stores, furniture stores, and jewelry stores are fond of offering this “benefit” as part of the Big Sale! No payments until (fill in the date) is a common variation on this theme. Lies! Don’t bite the hook. These people know what they are doing. They are not giving away free money.

You believe that you will pay off that loan with in 90 days, effectively avoiding any interest charges on an installment loan, but that is not what usually happens. People who are that desperate to find a psychological excuse to avoid paying cash at the time of purchase are likely not to up with the necessary funds in the allotted 90 days. In fact the stores expect to collect full interest on around 80% of these “interest free” loans.

Why should credit card companies and banks have all the fun? When these “interest free” loans convert to a regular installment loan after 90 days, the interest rates are frequently usurious. Interest rates from 20% to 38% are typical. Oh by the way, these rates do not just kick in on the unpaid balance. They are back charged on the entire amount! Wait, it gets worse! Depending on the contract, the full amount of interest can be back charged if you miss a payment or are even late on just one payment.

If you are really certain that you can pay off that new television in 90 days, just wait for 90 days and pay cash. You can live without a new TV for 90 days, really. The same can be said for engagement rings or sofas. If your washing machine goes belly up consider the Laundromat for 90 days or perhaps a used appliance. Thankfully, I have never needed to buy used appliances, but I have certainly owned some rusty old used cars back in the day. Dealerships offer no payments until (fill in the date) deals on cars.

Life happens. If you don’t have the cash today, you might not have the cash in 90 days or even 180 days. Perhaps the transmission in your car will choose that very moment to give up the ghost. If you really want to beat the system; pay cash. While having cash in hand is not likely to get you a better deal at a big box electronic store, cash in hand can certainly allow you to negotiate a better deal at a privately owned furniture store.

Only a Few Years Ago

Only a few years ago, Asian immigrants came to this country with no money. They couldn’t even speak the language. Now they own houses in upper middle class neighborhoods. Their children are "over represented" in the finest schools in our country. Already there are more Asian millionaires in this country than could be statistically predicted by their numbers. My broker, Schwab, offers a second language. It isn’t Spanish. It is Chinese. What do these new immigrants know that I need to learn?

Yes you’re right, there are not as many opportunities for upward mobility in this country as there were 60 years ago. Roughly 20 million industrial jobs are gone, perhaps forever. That makes it harder on the average American with only a high school diploma and no particularly valuable skills.

No doubt about it.

But let me tell you a story. I know a man who came to this country from somewhere south of the border. I don’t know how he got here, but I do know that today he is a citizen of this country; just like me. Not all that many years ago he had an insecure low paying job with a maintenance contractor at a large Government facility. The primary tool of his trade was a wide push broom. He used this tool with such skill that the Government employees who worked in at this laboratory would joke that there were two levels clean; clean and then there was (name of employee) clean. When this man finished his assigned tasks, he did not hang out in his supply closet with his buddies and gossip in their native tongue or go outside to smoke cigarettes. He started sweeping the entire length of the building. He worked in a test facility that was approximately 5/8 of a mile long! So far as I know, that had never been done in the 75 years of that building’s existence. The Government supervisor who was responsible for this building was so impressed with this man that he begged, pleaded, and twisted his supervisor’s arm until a special entry level job was created for this one man. Now he has a secure full time Government job with excellent benefits. Needless to say, he brings the same spirit of excellence to his new job as an assistant mechanic that he once put behind a push broom. When given the opportunity, he is now learning the basic skills required to become a machinist.

I have examined the keys to success and multigenerational wealth in a number of posts. For new readers here are some important traits that will greatly increase the probability of prosperity in your life and the life of your children. None of these factors alone are enough to provide a high probability of employment, but in combination these factors almost guarantee full employment over most of the years of a working lifetime.

1)The Confucian/Protestant Work Ethic, The most important single factor
2) IQ, There is a correlation between salary and IQ up to 120.
3) A Respect for and Love of Education, Education guarantees nothing but this factor is common in successful subcultures.
4) A Life Sustaining Social Network, This most often begins with a stable nuclear family.
5) The Ability to Take a Calculated Risk, leaving an impoverished country or area of this country to find better opportunity elsewhere comes to mind.

Keith Cameron Smith discovered one of the significant differences between the rich and the poor is their sense of time. We all plan, but our timescales are different. Smith makes the following observations concerning different socioeconomic groups.

The very poor think day to day.
Poor people think week to week.
The middle class thinks month to month.
The rich think year to year.
The very rich think decade to decade.

Finally, learn to see the opportunities that are all around you. If there isn’t anything happening in your valley, do like the bear in the song. Go over the mountain; cross the river; if only to see what you can see. You might just find a whole new wonderful world that is just waiting for your particular skills and gifts.

There Is No Answer Book

Back when we were in school we were taught that there was both a right way of doing things and a right answer. As many have observed, the public education system was optimized for providing workers for the industrial age. We were taught how to sit in rows; how to follow a set of instructions; and most importantly how to get the right answer. We were rewarded when we answered the question correctly and punished when we were wrong.

Although there are principles, such as avoiding consumer debt, that are an important part of personal finance, there are no right answers. Sorry folks, there is no teacher and there is no answer book. As I have said on many occasions, there is no one size fits all answer to the question of your financial life.

Recently I sold a house for about $50 K less than expected. What lessons did I learn, if any from this disappointment? The big take away is, don’t try to sell a house in an extremely depressed market.

But what were my options?

Listed in order of perceived desirability.

1) After five months, sell the house at a lower price. Now I am no longer paying insurance, taxes, and utilities on a second unoccupied house in another state.

2) Winterize the house and wait. It costs a few hundred dollars to drain the pipes and put antifreeze in the toilets, but who knows, in the spring the real estate market could be worse. The stock market doesn’t look too healthy and job growth is nearly nonexistent. Although this option lowers the utility bill, insurance and taxes continue at full rate.

3) Turn the property into a rental. This might make sense if I still lived in the same area, but 500 miles away? This option provides income until the market turns, but I have seen what renters can do to houses they don’t own. Then there are the continuing maintenance costs associated with 40 year old home that is growing older by the day.

So, I took what I believed to be the best of three bad options. I feel better because I offered the buyers owner financing. I will receive 4.2% on a five year mortgage with a balloon payment. I didn’t want to invest more than $75,000 in what I perceive as an overheated stock market. Bonds and other fixed income investments don’t pay spit. 4.2% on a secured investment seems OK.

This morning I watched a nearly worthless youtube video. A group of award winning real estate agents were interviewed by a well know marketing billionaire about the keys to success. It seemed that most of them were trying to give the “right” answers to the billionaire’s questions. Needless to say, these stock answers were of little value.

One of them tried to dig a little deeper. It seemed he was motivated by fear. He came from a very impoverished background. I heard more than a little Scarlet O’Hara in his replies, “As God is my witness, as God is my witness they're not going to beat me. I'm going to live through this and when it's all over, I'll never be hungry again. No, nor any of my folk. If I have to lie, steal, cheat or kill. As God is my witness, I'll never be hungry again!”

All of these successful real estate moguls told stories of pretty impressive self reliance. If they didn’t like something that was going on in their lives, they changed it. They didn’t wait around for a Government handout or a teacher who would take them by the hand and give them the “right” answer. All of them were frighteningly competitive. I wouldn’t want to face any of these characters (even the women) in a mixed martial arts cage match. They would win or die in the effort. Like all of us, life gave them problems. They are solving these problems with a mixture of intense curiosity, independent judgment (they all had different answers to the same questions), hard work, and A LOVE OF THEIR CHOSEN GAME.

Maybe that is all I need to learn from my only attempt to sell a piece of real estate.

Dividends or Buybacks?

Ginger or Mary Ann? Dividends or Share Repurchase Programs? Just some of the great questions of life.

I am old school. I trust dividends. Stock price is not real until you sell your shares for a loss or a gain. Dividends are real. They are money you can hold in your hand. You can spend that money on something like a new car or choose to reinvest it more shares of dividend paying stocks. If a company is not willing to share its profits with the shareholders, I am usually not especially interested in owning shares in that company. I like to receive that quarterly dividend. I like to see the dividends increase proportionally to the increasing profitability of the company. There is only one problem with dividends, they are taxable income. I can’t spend or reinvest that money until after the taxman gets his cut.

I tend to be suspicious of share repurchase programs (sometimes called buybacks) because I don’t get anything real that I can hold in my hand. Company management sometimes for a variety of reasons buys back shares in their company. This can be a very good thing for the investor (or not). The company can also choose to dump these repurchased shares back into the market when management decides that is a prudent decision.

Buybacks are a pretty common way for management to give something back to the shareholders without losing control of that money. It can be a very good way to increase shareholders value without the specter of the taxman’s cold dead hand. If the share price is undervalued, buybacks will increase that price through several mechanisms. First of all when a buyer (in this case the company) is purchasing large blocks of stock, the price will increase through simple supply and demand. Even after the buyback is complete there are now fewer shares available to the general public. This should tend to hold the price at a higher level. Also the company (now the shareholder) is paying dividends to itself. This gives the company’s managers more money to invest in new projects or to increase dividends at some later date. In essence the company is doing dividend reinvestment for its shareholders without any income taxes. In this scenario, if the shareholder decides to sell then he will pay capital gain taxes. Most likely this will be at a lower rate than income taxes.

If a prudent investor believes that the share price of a company is too high, buybacks would not be in her interest, since she would not choose to reinvest her dividends back into overvalued shares.

It comes down to a question of control. Dividends give the shareholder more control. He controls what happens to that dividend check. In addition, while it is easy for a company to increase its dividend, it is very difficult for management to cut the dividend. This action frequently results in bloodshed along executive row. Through buybacks management maintains better control of expenses (like dividend payouts). Dividends can grow too large. If a dividend is not sustainable, it will ultimately bleed a company white. Sometimes, companies choose to bleed themselves to death on purpose. For example, if faced with the possibility of an enormous lawsuit management may choose to sell off their assets, pass the proceeds onto the shareholder, leaving the plaintive and their attorneys holding an empty bag. However, that is very unusual.

Generally speaking, both increasing dividends and share repurchase programs are a good thing for the investor. In either case it is wise to ask, “Why are they doing that?” Dig into the news story. If something smells fishy, you might want to sell before it is time to pay the piper. What I really like to see is a company that has both a steadily increasing dividend and steadily increasing profits. For example, Dividend Aristocrats are companies that have increased their payouts for 25 consecutive years! This list is a very good place for the novice investor to begin buying shares in individual companies, after building a solid foundation of low cost index funds.

But remember a Dividend Aristocrat is a Dividend Aristocrat until it isn’t. I could tell you a story about GE. I took a beat down on that former Dividend Aristocrat.

What You Can't Do Doesn't Matter!

Over the last few years, I have discovered one of the secrets that will help overcome any difficulty in your life. In trying to help people improve their financial situation, I discovered that they wanted to argue with me. They wanted to tell me all the reasons they could not improve their situation. They didn’t have the right education. They couldn’t find a job. They just had to keep spending money on cigarettes. Sometimes powers beyond our control seemed to be targeting them as individuals. It was the fault of evil rich people or the Government. Blaming everything on the banks is very popular. There is no more point in blaming the banks for being banks than there is in blaming a raccoon for making a mess of your yard because you left the lid loose on the garbage can. Bankers and raccoons will both act in consistency with their nature.

Sometimes I have wanted to grab people by their ears and shake their heads until their brains rattled. Then when I had their attention, I wanted to tell them, “What you can’t do doesn’t matter. Tell me what you can do.”

I’m no better. While, primarily as a result of my upbringing, I have been blessed with a reasonable measure of financial discipline my approach to diet and exercise has been pretty bad over the two decade period preceding my retirement. I told myself I couldn’t jog because I had bad knees. I told myself I couldn’t swim because I wasn’t anywhere near a pool. I couldn’t ride a bicycle because I had a bad back. I couldn’t change my diet because it would require time and skills I just didn’t possess. Besides that, I needed that beer when I came home from work.

A little over a year ago, I quit listening to my self talk. I told myself just what I am telling you, “What you can’t do doesn’t matter. Tell me what you can do.”

I told myself, “Well, I can walk?” I started with two turns around my block, a distance approximately 1.1 miles. I could have walked further than that, but I choose that distance because that was all I could do it on a regular basis. In approximately 14 months, I have worked that number up to 4.5 miles on most days. I have even done 5 miles a few times. Have there been problems and missteps? Of course. I attempted to take a yoga class, bad idea. My diet is still nothing to brag about although it is not as bad as it was a year ago. I have lost 30 pounds. You still don’t want to take diet and exercise advice from me, but most days I tell myself what I can do and then I do at least some part of it.

As I mentioned yesterday, I have been listening to Ramit Sethi, author of I Will Teach You to Be Rich, interviewing Tim Ferris, a best selling non-fiction author. In the course of their discussions, Ramit tells his sister’s weight loss story. After the birth of her child, she lost a lot of weigh with a changed diet. Now she weighs 20 pounds less than her pre-pregnancy weight. Ramit says she looks great. All her friends want to know the secret. She started by explaining her entire dietary program. Her friends would then latch on to one aspect of the plan saying, “Oh! I could never do that.” Then they would do nothing.

Her friends would say, “Just give me the recipe,” for whatever low fat Indian connection she was feeding them on that particular day. She would give them the recipe. Later she discovered that none of her friends ever actually tried out the recipes.

Finally she decided not to give them the recipe when asked. Instead she would give them some words of encouragement with a simple tip, like scramble your eggs in coconut oil instead of butter. They would actually implement these simple tips. Then when they discovered what they could do, they would return asking for more information.

So—If you are looking at any immovable mountain in your life tell yourself, “What you can’t do doesn’t matter. Tell me what you can do.”

Then, just do it.

Or at least some part of it.

The Tenth Leper

Over the last couple of days I have been listening to Ramit Sethi, author of I Will Teach You to Be Rich, interviewing Tim Ferris, a best selling non-fiction author. I strongly recommend I Will Teach You to Be Rich for the well educated, ambitious young person. During the course of the interview the discussion drifted to the subject of random contacts with celebrity types. What do they really want from someone who can’t offer them anything of value? Based on their own experience as successful authors, they concluded that what they really wanted from these chance conversations was some kind of feedback. If during the course of a brief exchange (say at a book signing) they recommended another book, they both absolutely loved getting an email back from the stranger telling them that they read the book, tried out what was in the book, and enumerated the results (or lack of results).

My mind immediately jumped to the story of the ten lepers from Luke 17. Jesus meets ten lepers out on the road. They ask for healing. Jesus tells them to, “Show yourself to the priests.” As the lepers went to the temple, they were healed. Only one came back to thank Jesus—and he was a Samaritan, a half breed heretic. Jesus was thoroughly impressed. That does not happen very often.

From my readings and observations, I have concluded that today more than ever, who you know is more important than what you know. Folks, Chelsea Clinton does not have a net worth of $15 Million at age 33, because of her skills as a manager and entrepreneur.

In some companies about 50% of their new hires come from personal recommendations made by their existing employees. If a high quality ambitious employee is willing to put their reputation on the line by recommending someone in their network, there is a very high probability this person will be a very good employee. Building a network of well connected “friends” is more important than it should be, but that is the way it is. There is no point in cursing the world. If you can’t change it, learn to live in it.

This principle is not limited to a job search in our post industrial economy. If you want to get better at anything or improve some aspect of your life, learn from those who about that subject. Seek them out. If someone who has knowledge or power helps you out, thank them. This may not get you a connection that will lead to an education at Stanford and Oxford, or a job with the Avenue Capital Company, but you never know.

I am trying to become a better writer. I have two old friends who have actually written and published books. What do they know that I do not know? I have also discovered that our new church has a writers group led by an English professor who teaches at a nearby university. In attending this group for the first time, I have learned that several of them are published authors. Some of them have published more than one book. Just think, these people are getting paid to write what they want to write. How cool is that? What can I learn from these people?

I would love to know the rest of the story. What happened to the tenth leper after his “chance” meeting with Jesus? If Jesus was impressed with this man, I doubt that was the end of his story.

Jesus Heals Ten Men with Leprosy

Luke 17: 11-19

11 Now on his way to Jerusalem, Jesus traveled along the border between Samaria and Galilee. 12 As he was going into a village, ten men who had leprosy met him. They stood at a distance 13 and called out in a loud voice, “Jesus, Master, have pity on us!”

14 When he saw them, he said, “Go, show yourselves to the priests.” And as they went, they were cleansed.

15 One of them, when he saw he was healed, came back, praising God in a loud voice. 16 He threw himself at Jesus’ feet and thanked him—and he was a Samaritan.

17 Jesus asked, “Were not all ten cleansed? Where are the other nine? 18 Has no one returned to give praise to God except this foreigner?” 19 Then he said to him, “Rise and go; your faith has made you well.”

Retirement Comes Before College

If you have children, it is very likely that you will assume that you must pay for their college education. This is a mistake. If you can pay for their college education, consider it a blessing from God. By all means pay off all your debts, live on less than you earn and model a love for education in your life. I believe that a love of education is one of the keys to generational wealth. However, the day will come when your job is no longer any fun. The day might come when you will be incapable of performing your job. Some day you will want to retire. This will require considerable resources. No one wants to become a burden on their children. No one wants to live in their children’s home until and unless it is unavoidable.

There are no “retirement grants.” There are no retirement scholarships. There aren’t even any retirement loans. On the other hand your children will have access to grants, scholarships, and if worse comes to worse, loans for their education. In addition there are work study programs and even the possibility of, “God Forbid,” a job. It will be a lot easier for your children to find a job to help pay for their education than it will be for you to continue working after a stroke. There is also more than one way to skin a cat. Many employers will cover tuition costs for any appropriate degree that will make your child a more valuable employee.

Once you are fully funding your retirement accounts. Once you are debt free with the exception of your mortgage. Then you can start saving for your children’s education. Grandparents, hear my plea. If you have sufficient resources, help your children and your grandchildren at critical junctures in their lives. My parent’s generation destroyed the extended family in the economic and geographic mobility that followed World War II. My generation did a pretty good job of destroying the nuclear family with divorce rates that approached 50%. Let’s try to reinvent the extended family. Your job as a parent does not end with your children. Make it your intention to be a blessing to your family as long God gives you breath.

Proverbs 13:22

A good man leaveth an inheritance to his children's children: and the wealth of the sinner is laid up for the just.

Estate Planning

If you are young and single, you really don’t need a will for your motorcycle and the three pieces of stereo equipment you own. Still if you are an adult, go ahead fill out one of those $30.00 Internet wills. They are certainly better than nothing. It is unlikely that you will die but it might help your parents and loved one if the unthinkable happens.

If you are married, keep everything you own as joint tenancy, including your cars and anything else that has to be registered with a government agency. If you have life insurance, make certain your spouse is named as the sole beneficiary. Then if one of you dies, your financial life goes on undisturbed. Again, one of those Internet wills is probably enough.

You absolutely must have a will if you have children. You want to decide who gets custody of your minor children, not the court system of your particular state. Naming a guardian and providing for their care is of paramount importance.

Let us hope that the day will come when you have substantial assets that require careful management to balance the claims of your heirs, your desire to bless others, and the ever present danger of the taxman. When that day comes, protecting your estate will require a little more work than filling out forms on the Internet.

We were fortunate. We were blessed with the services of a highly competent estate planner, a retired bank president works for the district office of the church we attended in Maryland. He provides this service at no charge. However, he hopes that you will leave something to the church. That is his ministry.

This process begins with questions. Unfortunately, it is unlikely that you know the right questions to ask. An attorney or an estate planner knows the right questions. Surprisingly, my wife and I were able to construct the basic outline of our plans with a minimum of difficulty. The details are complicated. Completing the process will take some time and effort, especially emotional effort. No one wants to imagine themselves in the Alzheimer’s ward of a nursing home or as a jar full of ashes scattered over a cliff into the Pacific Ocean.

Each spouse will have their own will. Keep it simple. If he dies, she gets everything. If she dies, he gets everything. If he dies, she is the executrix. If she dies, he is the executor. Special bequests at this point just complicate matters. Complications in the legal world are expensive and time consuming. If you want cousin Julie to get grandma’s ring. Just tell your husband. If he was trustworthy in life, chances are he will be trustworthy in death.

What if you both die at the same time? What happens when the surviving partner passes from this world? That is where things start to get a little complicated. Try to keep them as simple as possible. Depending on state laws, it will be possible to keep particular assets, such as brokerage accounts, Certificates of Deposit, life insurance policies, and annuities out of probate (a very good thing) by naming a sole beneficiary. Although these funds will pass to the named beneficiary without any strings attached, you might want to leave something to executor with instructions to use these funds to pay bills. It cost over $18,000 to bury my mother-in-law in the manner she desired. Until the executor receives their Letter Testamentary, no one has access to your funds. This can also be addressed by naming someone (most likely your executor) in joint tenancy on one of your cash accounts.

Sooner or later you are going to have to trust other people with some aspect of your finances. In my case that started with a CPA. My taxes became so complicated that I no longer had the desire or the time to be my own accountant. You will need to find an estate planner and/or an attorney you can trust. This is a very important decision. Take your time. Do your research. Correlate individual recommendations from people you trust with reviews on the web.

Before you die, you might need to give someone other than your spouse control of your affairs, even control of your life or death. If you are unable to manage paying your bills, you will need to grant someone, usually a child, durable power of attorney so they can pay your bills and buy whatever it is that you need using your accounts. You might also need to grant someone other than your spouse medical power of attorney. This individual will directed to make medical decisions on your behalf utilizing the advice of doctors, the instructions found in the advance directive section of your will, and her personal knowledge of you. Both these roles grant broad discretionary authority. The individual with durable power of attorney can spend your money foolishly or even steal some of it. The individual with medical power of attorney may have the power to pull the plug on life support whether that is what you wanted or not. Make sure you know and trust the person or persons who will have this authority. Decide in advance who will serve in these capacities.

Naming an executor to close out our affairs after we both die is a serious question and not a small job. Papers must be filed with the appropriate Probate Court and taxes will need to be paid. Debts, medical bills, ongoing utility bills all must be paid. Planning an estate sale is a very significant task as in this example it would involve preparing a house for market. Also, it is possible that someone might take exception to the terms of your wills. In such a case, the executor would need to act as a diplomat in your absence or deal with the possibility of a lawsuit contesting your wills. It might be necessary to name a primary executor from your generation and a secondary, younger, executor in case the primary executor dies or becomes incompetent before you pass. Although it varies from state to state, it is customary that the executor receives something on the order of 4% of the estate. Believe me; the executor will earn every penny of that money.

There are many tools for avoiding taxes at your disposal. Again, this requires expert help from your CPA and your attorney/estate planner. It is unlikely you have the skills to establish your own trusts. Here is an example from our particular case, a tool at our disposal that is termed a Charitable Remainder Unitrust. This is normally just called a Charitable Remainder Trust or CRT. If you have $250,000 or more in a 401-K or similar tax deferred accounts or own assets that have appreciated enormously but have not yet been hit with capital gain taxes check out the CRT. It isn’t just a good thing for evil rich people.

Consider my Government TSP account. It has never been taxed. Although I no longer contribute to this account, it continues to grow tax free. Not counting my house, my tax deferred holdings are my last line of defense. I don’t intend to use any of this money until it is absolutely necessary. What happens if I manage my money wisely over the remaining years that God gives me? There might be a significant lump of untaxed money left in that account. If it all comes out at one time my heirs would be hit with a terrible tax bill. It is better in my mind to continue to protect that money from the taxman rather than see it squandered by the Government.

When I die any remaining funds in my TSP account will pass untaxed into a CRT. These funds will be distributed at a rate of 5% of the remaining principal per year to my wife for as long as she should live. After my wife passes, the CRT will provide our heir with this same income for an additional 20 years. At the end of the 20 year period, any remaining funds—if the Christian and Missionary Alliance is half way competent that should be a significant number—will then be distributed according to the instructions found in our Ministry Fund (another legal document that is part of our estate package). The remainder will go to fund the charities named in the Ministry Fund without ever passing through the hands of the taxman. That is a very good thing.

For now, the management of my TSP account remains in my hands. If we need to spend the money in my TSP account it is there for us while I am still alive. Whatever is still there after my death will bless my wife for as long as she lives and will provide a guaranteed supplementary income to my heir (who knows maybe as she approaches retirement). When it is all over four of our favored charities will be blessed without benefiting the taxman. By the way we can change the charities and the percentages any time we want until my death.

If you have been blessed with substantial untaxed assets, consider them as candidate investments for a CRT. Work with your Church and your attorney to put together something that makes sense for you at this time in your life.

Although a will is a plan for your death, it is a living document as long as you are alive. Revisit your will from time to time (maybe every 5 years or so unless something dramatically changes). It doesn’t turn into stone until you are dead.

James Chapter 4 (NIV):

13 Now listen, you who say, “Today or tomorrow we will go to this or that city, spend a year there, carry on business and make money.”
14 Why, you do not even know what will happen tomorrow. What is your life? You are a mist that appears for a little while and then vanishes.
15 Instead, you ought to say, “If it is the Lord’s will, we will live and do this or that.”

Prenuptial Agreements (not that kind)

If you are a 43 year old multimillionaire contemplating a third marriage to a 23 year old Las Vegas showgirl, you might want to talk to your attorneys about a prenuptial agreement. If you are a normal young couple contemplating your first or even your second marriage, you might want to consider a different kind of prenuptial agreement.

First of all take an honest look at each other and at your prospective in-laws. Does your intended shop for her clothing at Le Cher Boutique in the mall with valet parking or does she do her shopping at Target? Guess where she will want to shop with “our” money after the marriage? Is he an impulse buyer? Did he just take out a 60 month loan on a new pickup truck? Guess who will be paying that note in a few months? If he paid cash for 87 Pontiac that makes funny noises so he could pay down his student loans before tying the knot that tells an entirely different story.

If there was one generally unknown truth I would like to share with young people, this is it. You are not just marrying one person, you are marrying a family. Even if your in-laws are not physically present, they are there writing checks and using your credit card. Parental and family expectations are powerful driving forces behind human behavior. I didn’t see one set of my cousins from childhood until we were around 40 years old. It was eerie. Our set of operational presuppositions was almost identical. When it came to career, financial, and family values it was easy to see we were formed by pretty similar tooling.

I know. He’s different. He will not make the mistakes his parents made. Don’t bet on it. Go into marriage with your eyes wide open. Do not expect that you can marry one person and turn him into a totally different person. It rarely happens that way. Don’t think your intended can totally erase 20 some years of psychological programming that started in his mother’s arms. You are marrying the person and his family. Pretty scary thought, isn’t it?

There is hope but it isn’t very romantic. When you say, “I do,” you are making a decision that has serious financial implications. If you study Consumer Reports total cost of ownership and frequency of maintenance data, if you read test reports from Road and Track magazine, if you research fair price numbers before buying a new car, why would you do any less before making the most important decision of your life?

Before you tie the knot, count the cost. I know that is not what your hormones are telling you, but take some time to discuss these issues before your wedding day. Learn to communicate about money before you get married. It has been recommended that both bride and groom order a credit report complete with their score, then sit down at the table and examine each other’s financial history. In this conversation, bride and groom should also list all their debts including car payments, credit card debt, and student loans. I hate to be the bearer of bad news, but in most states you are not only marrying each other, but you are marrying each other’s debt.

I believe this is more important today than it was when I got married over 35 years ago. I like to tell people my wife married me for my money. I owned a 67 Chevrolet. It might have been worth $450. I also had $900 in the bank. I did not have any debts, no credit history, and I did not even know that such a thing as a credit score existed. Today, the average age for a first marriage is pushing 28. That is long enough to develop a credit history. Six years for a college graduate or ten years for a high school graduate is sufficient time to develop some bad habits and rack up some significant debt.

In marriage, as in the beginning of any business venture, the partners need to determine their assets, liabilities, and goals. Discuss where you want to be in 10, 20, or even 40 years. Do you want to start a family? That will cost you about $250,000 per child if you wish to raise them as traditional middle class Americans. Do you want to retire sometime before you die? Better start soon. Laura Rowley even suggests discussing hypothetical questions, like what would you like to do with an unexpected $10,000 inheritance?

Make your own prenuptial agreement. It doesn’t need to be in writing but that might be even better. Write down the basic ground rules for the use of money in your marriage. I would strongly encourage newlyweds to live on a formal budget at least until you both have some confidence in each other’s abilities to manage money. Agree that neither of you will use a Credit Card unless you can pay it off every month. If you fail to pay it off, even one time, lock it up and don’t use it again until it is paid off in full.

Prioritize your goals.

I would suggest that you agree to pay off your debts as rapidly as possible. Pay off the debt with the highest interest rate first and the debt with the lowest interest rate last. Or if you prefer the psychologically sound debt snowball, pay off the smallest debt first.

Start a “rainy day” fund in a bank or a money market fund. The goal here is six months cash reserve (six months take home, both salaries). It will take some time to reach this goal. Don’t beat yourselves up about this but keep putting a little something aside every month.

Don’t forget to give something to God without expectation of return. It is good for your heart.

Once you have addressed the basics, consider your dreams. Dream together. Dream big.

Psalm 128

1 Blessed is every one that feareth the LORD; that walketh in his ways.
2 For thou shalt eat the labour of thine hands: happy shalt thou be, and it shall be well with thee.
3 Thy wife shall be as a fruitful vine by the sides of thine house: thy children like olive plants round about thy table.
4 Behold, that thus shall the man be blessed that feareth the LORD.
5 The LORD shall bless thee out of Zion: and thou shalt see the good of Jerusalem all the days of thy life.
6 Yea, thou shalt see thy children's children, and peace upon Israel.

No Secrets!

“No secrets. If you or your spouse spends more than the cost of a CD or a paperback book on something, decide on that expense together, as a couple. There are exceptions. My wife does not want to know about the power bill, tires on her car, or specialized tools she does not understand. Set your own rules and limits for your own marriage and stick to them.”

A number of years before I started this ministry, I put together a one page list of ten financial rules for young couples based on some emails I had written for a young lady contemplating marriage. “No Secrets” is number 6 from that list. Since then I have learned a lot. Although I have loosened up a little on some things and tightened up on one thing a lot, I still stand by this list.

Financial infidelity is a big problem in marriage. Husbands and wives hide expenses from one another or claim that some money is their money. That is a recipe for divorce. Before you swear those oaths before God and man, your money is your money; your debts are your debts. After the exchange of rings, there is no more my money or my debts. There is only our money and our debts. If you do not believe me, just ask your (2nd person plural) creditors.

It’s your marriage. You set your own rules, but once you have set those rules, live by them. Thirty nine years ago, my wife and I established the CD/paperback book limit with exceptions that were not perceived as an issue by either of us. This led to some interesting negotiations and saved us both from wasting a lot of money.

Husband: We really need a 45 ACP Magnum Masterpiece made by Combat Arms. It only costs $600. What a bargain.

Wife: Yes dear, I agree. You really need a new handgun and we also need an étagère to properly display our collection of sparkly little glass dust catchers. It only costs a mere $400.

Then I really had to ask myself, “Do you want to spend $1,000 on a handgun?” The answer was no. I still don’t have the handgun but my wife does have an étagère. Perhaps that can be corrected in retirement.

I believe this is the best way to start a marriage until husband and wife have proven to one another they are trustworthy money managers. Then I am willing to loosen things up a bit. You will waste some more money, but it will save you from a lot of marital bloodshed and strife. After we had been married more than 25 years my wife came into a small inheritance from a great aunt. She wanted to keep that money for her own use. After protracted and sometime intense negotiations, the pink checkbook was born. The money in the pink checkbook could be used for any foolishness without question. However, certain expenses such as Christmas presents for my wife’s distant relatives would always come from the pink checkbook. I still don’t have a blue checkbook to fund the purchase of my nonexistent handgun collection. Do we see a trend in the data?

If and only if you and your wife are living on some level of a budget, I would suggest his and her blow envelopes. At the beginning of each month, as you plan your expenses place a predetermined amount of money into your equivalent of a pink and blue checkbook. That money can be used at any time without questions, but all other funds remain under your “No Secrets” rule. Then the husband can go to the sports bar with his buddies to watch the big game without guilt or strife and the wife can buy her third pair of green high heels to match her new dress without hearing about it.

Do not hide purchases from your spouse. That is financial infidelity. Do not make major purchases without spousal consent. That is financial infidelity. You will not go wrong if you treat financial infidelity as seriously as you treat sexual infidelity. Money is the number one reason for divorce in this country, not adultery.

Don’t add your marriage to our national statistics of failure.

The Watched Pot Finally Boils

I hate to write this, but I have promised myself and my readers to share both the good and the not so good. Back in August we put our house in Maryland on the market. Finally, almost 5 months later it looks like it is going to sell. I already believed that real estate was not my game. Now I am convinced beyond a shadow of a doubt I am not Donald Trump.

For over 25 years, we lived in a 1,900 square foot, 3 bedroom, 2 ½ baths contemporary (for 1973) track home. Now it is 40 years old.

Back in the spring, Zillow had our home at $370K. Of course this number is only an estimate based on square footage and neighborhood. By the time August rolled around our agent believed that she could reasonably expect to get $330K after the usual upgrades, paint and carpet. All together, starting over a year ago, I put about $11,000 into upgrades, landscaping, and needed repairs. The house was looking good.

Unfortunately, it would have been difficult to choose a worse time to put it on the market. The Government shutdown was looming. People were afraid. Nobody seemed interested in buying. Then the shutdown hit. Our agent held open house after open house. Nobody came. The asking price declined to $300K.

Finally, in December somebody signed a contract for $290K. His inspector found another $5,000 in repairs. For example, the 40 year old circuit breaker box had been recalled in a class action lawsuit. Seemed this box burned down too many houses. Even my electrician said that thing had to go. Cost? $2,100. Some of the requests seemed a little outlandish, like $600 to repair a few shingles and replace the flashing which was showing its age, but wasn’t causing any leaks. I’m an adult. I am not going to walk away from a $290K deal over $600.

The young man who wanted to buy our house was just the kind of person who would buy a “starter” home such as our house. During the negotiations he got married. Then just before Christmas he lost his job. Naturally, the financing fell through.

At this point we had a choice. We could leave the house on the market and hope for the best. We could winterize the house and wait for better days. We could rent the house.

I did not want the worries of a rental property in another state. My wife was adamantly opposed to this idea. I was contemplating the winterize and wait strategy, but I didn’t want to let the house sit empty for more than six months, especially over the winter. By this time our agent had tried everything short of burying a statue of Saint Joseph upside down in the front yard. I have read this works in difficult situations. They even sell Saint Joseph house selling kits with appropriate prayers on the Internet. (Really) I had racked my brains for ways to sweeten the deal without giving my house away. These included, $4,500 towards closing costs, owner financing, and bumping the agents’ fee by 1% a piece.

Our agent really did not want to keep that house on her plate, so we decided to plunge ahead at $290K even though there were 14 foreclosure auctions listed on Zillow for our little town. Almost immediately we received another offer from an investment syndicate consisting of four family members. One of these people is a contractor. They were interested in the offer of owner financing. This allowed them to avoid a 20% down payment required by conventional financing. I made the mistake of taking this offer personally. Fortunately, only my realtor heard my angry rant. After several offers and counter offers, we arrived at a $280K deal everyone could live with.

Our real estate agent deserves the credit for making this happen. She gave up a sizable part of her commission, paid for some of the repairs, and threw in a home warranty.

One more story at this point. Since the first buyer’s inspector found some cracks in the foundation he wanted the structural integrity of the home guaranteed by a P.E. (professional engineer). The buyer wanted ME to pay the $750 fee. This was something I wasn’t likely to do. If he wants the inspection let him pay for it! Our realtor ate $700 of this expense. Of course our home passed this inspection. It is a 40 year old house for heaven’s sake. You don’t expect a few settling cracks?

While this family group plans on letting one of their daughters live in this house, it is obvious they plan to make a few more upgrades (at wholesale cost since one of them is a contractor) then flip the home as soon as the market turns. If they hold it for the full five years, I will receive over $54,000 in interest income. A 4.2% return on a secured investment is pretty decent in our current financial environment. While I certainly would have preferred a straight up sale, finding comparably safe investments that would return 4.2% in an overheated stock market and a zero interest bond market would have been difficult. If everything goes right I will still get $246K in principal at then end of the five year term of the loan. If they flip the house in the spring, I lose.

I know that selling your asset at a time when the market is dominated by investors buying at “wholesale” prices is not a good idea, but that is what I just did (providing nothing goes wrong between now and Tuesday afternoon).

It is time to take a deep breath and remind myself that just as debt is part of the Curse, the ability to lend is part of God’s Blessing. If you don’t believe me, check out Deuteronomy 28. I have been blessed. I am not as thankful as I should be, but I am working on it.

The world is full of surprises. Now I am an author, a teacher, and a banker. Who would of thunk it?

Social Security (Not an Easy Question)

When and how should you take Social Security? This question will be even more important for the Baby Boomers than previous generations since ours will be the first generation that will lose money on Social Security. Making this calculation requires one huge assumption, your age at death, as well as a through and rational analysis of your particular situation.

Too many people are forced by unemployment to take early Social Security at age 62.

If you love your job, why retire? If you are no longer having any fun at your job and you can afford to retire, it is time to retire. 62 is the earliest age at which you can collect Social Security benefits. Although it is against my religion not to take free money whenever it is offered, your full retirement (age 66) benefits are cut by about 25% if you elect to collect at age 62. That number would drop to 20% at age 63. Waiting to collect between the ages of 66 until the latest age possible, 70, adds about 8% per year. It is easy to see how estimating your age at death will drive the results of your analysis.

If it were only that simple; unfortunately, Social Security calculations also involve spousal benefits, divorcee benefits, survivor benefits, as well as the dreaded pension offset that affects Government employees who had a job that did not withhold Social Security taxes. Understanding the explanation for this last question provided by the Social Security Administration proved to be beyond the abilities of two research engineers (I was one of them). Fortunately there are Social Security calculators available on the web that will answer all of these questions for a fee.

Here are three well know examples. Before you pay for any of them, make certain they have the features you will need to make your individual calculation.

Maximize My Social Security

Social Security Solutions

Social Security Income Planner

In my case, my wife and I decided start drawing her Social Security at age 62 to supplement my pension. Given that we will be able to continue living on our current renewable income, I will delay collecting my benefits until I reach full retirement age at 66. Then my wife will increase her benefit by collecting a spousal benefit off of my much higher Social Security income rather than her current benefit. Since the laws covering these strategies change on a pretty regular basis, you need to use the latest, up to date information before you pull the trigger.

There are several ways to flip between benefits and spousal benefits that are permitted and some that are not permitted. For example the lower earning spouse can collect Social Security starting age 62. Then the higher earner can collect a spousal income off the lower earning spouse’s benefit at age 66. Finally, the higher earner can then flip to his maximum possible benefit at age 70. Making the correct decision can increase this couple’s lifetime Social Security by as much as $400,000!

The correct decision on what strategy to follow is not easy to make. It totally depends on your age, your spouse’s age, your lifetime earnings, your spouse’s lifetime earnings, your current and projected needs, and your estimated age at death.

Good luck and, “Let’s be careful out there.”

The Mailbox Vandals

Sometime last night the mailbox vandals visited my home. This is not the first time, but it is the first time at our new home. I will bet money that the perpetrators were two to four unmarried white males between the ages of 16-22 riding in a single vehicle. If the artist didn’t create an accurate rendering of these vandals, he certainly captured their essence. Fortunately, a hammer, a pair of vicegrips, a screwdriver, and a half hour of muttered curses in the cold early morning twilight solved the problem. Ah, just one of the joys of life in the suburbs. Although in Maryland, like baseball, mailbox vandalism was a summer pastime.

My poor neighbor lived with three teenaged daughters at the same time! The depravations suffered by his poor mailboxes over that ten year period are too numerous and horrifying to recount.

So why am I wasting your time with a meditation on young men and mailboxes? It has to do with giving and receiving. We live in a cause and effect universe. As Jesus observed, “As ye sow, so shall ye reap.”

Here are a few more about sowing and reaping.

Galatians 6:7 - Be not deceived; God is not mocked: for whatsoever a man soweth, that shall he also reap.

2 Corinthians 9:6 - But this [I say], He which soweth sparingly shall reap also sparingly; and he which soweth bountifully shall reap also bountifully.

Job 4:8 - Even as I have seen, they that plow iniquity, and sow wickedness, reap the same.

As you walk this lonesome valley, try to be a blessing. As the bumper sticker exhorts the reader, “Practice random acts of kindness and senseless acts of beauty.” There is enough mourning and weeping in this vail of tears without adding any sorrows or aggravations to that total.

There is a darker side to all this than the somewhat understandable foolishness of young men. When my mother in law was dying, we believe that at least one of her home health aides stole some of her clothing and perhaps some other items. We caught one of her home health aides using my mother in law’s credit card for her own shopping. That is felony theft. If she hadn’t got greedy with the approach of Christmas we probably never would have detected her crimes. Once my wife and I analyzed my mother in law’s credit card record in detail it was apparent that the aide had stolen over $600. The home health care agency matched the questionable purchases against their employees’ schedules. It was a perfect match, although the company estimated the amount of the thefts in excess of $800. They promptly refunded that amount of money. They fired the woman in question, promising to prosecute her to the full extend of the law.

God does provide some specific warnings about messing with widows in addition to the general principles enumerated earlier in this article.

Psalms 68:5 - A father of the fatherless, and a judge of the widows, God in his holy habitation.

Deuteronomy 27:19 - Cursed [be] he that perverteth the judgment of the stranger, fatherless, and widow. And all the people shall say, Amen.

Malachi 3:5 - And I will come near to you to judgment; and I will be a swift witness against the sorcerers, and against the adulterers, and against false swearers, and against those that oppress the hireling in [his] wages, the widow, and the fatherless, and that turn aside the stranger [from his right], and fear not me, saith the LORD of hosts.

Jeremiah 49:11 - Leave thy fatherless children, I will preserve [them] alive; and let thy widows trust in me.

Why would that woman do something that was going to put her square in God’s gun sights? Even if she did not go to jail, a lousy $600-$900 worth of merchandise stolen from a helpless old widow ruined her life.

There are many such warnings found in Scripture. They are put there for my benefit. Perhaps as I interact with others I would do well to remember that there is a God in heaven. Fortunately there is hope.

2 Peter 3:9

9 The Lord is not slow in keeping his promise, as some understand slowness. Instead he is patient with you, not wanting anyone to perish, but everyone to come to repentance.

Fugu and Finance

"Only a fool eats fugu, and he that doesn't eat fugu is a fool."
Japanese Proverb

Fugu is a type of Sashimi prepared from a type of pufferfish that contains a poison that can produce a rapid and violent death. Yet it is beloved by Japanese gourmets. It is usually served in the shape of a chrysanthemum, the traditional funeral flower of Japan. If you choose to eat fugu from a reputable restaurant in Japan, you are probably going to be OK. Fugu chefs serve a rigorous three year apprenticeship under the supervision of a master. Then they must pass a “multitude” of tests before they can obtain a license to prepare and serve this delicacy to the public. If you buy fugu prepared by an amateur, you are risking your life. Every year people die of fugu poisoning in Japan, yet they say that he who doesn’t eat fugu is a fool.

I often say that failing to start an investment program is the greatest mistake an investor can make. Yet the very concept of investment, especially in the stock market is haunted by the spectre of risk.

Consider the power of compound interest. Say you receive a refund check for $1,000 from the IRS this year. If you invest that $1,000 and every year thereafter another $1,000, in 25 years you would have $50,000 with only a very realistic 5% return on your money. If your stock pays a 2.5% dividend you are already halfway home. If you get lucky, a 10% return will give you $108,000.

If you start saving just $4,682 a year at age 25 you will reach $1,000,000 by age 65 given the 7% return predicted by Jeremy Siegel.

Is there any risk? Of course there is risk. However, if you seek to build a balanced portfolio of well managed, low cost, funds from a provider such as Vanguard or Fidelity, that risk is minimal.

Listen to the latest hot tip from your buddy at work?

Well, “Only a fool eats fugu.”

Remembering 2013 (Learning About Retirement)

Our culture believes New Year’s Day is a good time to reflect on the past and look to the future. So, once you have calculated and compared your current net worth to that number for November 1, 2013 and January 1, 2013, spend a little time reflecting on what you have learned in the last year.

2013 was my first year of retirement. I learned replaceable income is the key to a comfortable retirement. I proposed a two tier method of budgeting in retirement that seems reasonable. As far as possible, pay for reoccurring expenses such as food, clothing, utilities, and car operational costs with money from pensions, annuities, and Social Security. Pay for unusual expenses such as annual property taxes, new cars, and Mediterranean cruises out of taxable accounts.

Avoid using money from tax deferred accounts such as a 401 (k), unless it is necessary to annuitize that account to provide a guaranteed stream of income. Be careful how you do it. Some companies offer good options to annuitize a retirement account. Some will gouge you pretty bad to guarantee anything.

Consider the equity in your home, the last line of defense. Since I am hopelessly old school, I believe you don’t have a retirement plan until the mortgage on your house is paid off. For life in the 21st century, let me add you do not have a retirement plan unless you have health insurance or are old enough to enroll in Medicare.

In your retirement you still need cash (checking accounts, savings accounts, and money market funds). A lot more cash than you think you will need. Moving to your retirement destination ain’t cheap. Selling your existing home gobbles up cash at a frightening rate. We put $11,000 into repairs and upgrades before we put our house on the market. Once the house was under contract it cost another $5,000 for surprise repairs such as $2,100 for a new electrical panel. Our 40 year old box had been recalled in 2005 as the result of a class action lawsuit. It started too many house fires. The buyer’s financing fell through. Now we start all over again. Did I mention I am paying property taxes in two states?

Your savings are now asked to balance three concerns, produce a stream of income (dividends from stocks, income from rental properties, and interest from CDs and bonds), protect against inflation (capital gains from stocks or real estate), and safety from known unknowns (such a market crashes). No matter what you might be told by a salesman, there is no investment that can provide for all three concerns. Diversification is more important in retirement than in the years when an increasing income can overcome your mistakes.

I still haven’t been able to out give God. Don’t get crazy on me, but no matter how much you are giving to charity, after prayerful consideration, give a little more. See what happens. Look for opportunities to be a blessing in this unhappy world. These could be small, like a generous tip to a good waitress, or larger like helping someone caught in one of life’s binds. You are only limited by your imagination or your faith. Just be careful not to enable another’s bad behavior with your generosity. Sometimes helping does hurt.

Happy New Year! May the Lord bless and keep you; may he make his face shine upon you; May the Lord lift up His countenance upon you, and give you peace.

Both in 2014 and forever.