I asked myself a question, “You have spent the better part of the last fourteen years trying to learn about money. What can you tell people that is important, really important?” I came up with two quick answers. I am certain that if I ask myself the same question tomorrow I will have a different answer, but just for today, here is my answer.
Debt is a Curse. Period. The End. No Arguments Allowed.
The longer I try to help people find their way to financial freedom, the more I want to scream at the top of my lungs, “God says debt is part of the curse and that the ability to lend money to others is a blessing! What is it that you don’t understand about that?”
The Bible, as well as all the evidence, teaches us that, “The borrower is slave to the lender.” What is it that you don’t understand about that?
I am so going against the flow on this one. Everything in our consumer culture is rigged to turn you into a willing debt slave. Our entire financial system is based on debt! Look at the dollar bill in your wallet. It doesn’t say anything about this piece of paper can be exchanged for an ounce of silver. It says in locked capital letters, “THIS NOTE IS LEGAL TENDER FOR ALL DEBTS, PUBLIC AND PRIVATE”
Yes, I understand that at times debt is the best available option. A mortgage is the only way most people could ever manage to buy a house, but please understand. When you sign that mortgage you are placing yourself under a curse. Even the safest debt is dangerous. If you don’t believe me, just ask the 7,000,000 plus homeowners stuck in underwater houses. They can’t sell and move to a better life, because they can’t come up with the difference (IN CASH!) between the value of their home and the amount they still owe the bank.
Ask the small business owners who took out “safe” Government subsidize loans using their homes for collateral. Too many found when they lost the dream of owning their own business they also lost their job and their home.
Student loans! Please don’t get me started.
“Great rivers, shady trees, medicinal plants, and virtuous people are not born for themselves, but for the good of mankind in general.”
Indian Proverb
The second part of my answer is totally counterintuitive. I have discovered that learning the art of giving is a key component to finding your way to financial freedom. I have also discovered that the key to giving is found in your heart, not in your hand.
Capital One may be asking, “What’s in your wallet?”
But God is asking, “What’s in your heart?”
I may be totally wrong on this one, but I believe that God is more pleased with a quarter stuck in an expiring parking meter that was given by a heart filled with compassion, a sense of abundance, and a desire to be a blessing than with a check for 10% of your gross monthly salary put into the offering plate with a heart filled with resentment and a legalistic sense of entitlement to God’s provision.
It has been my observation that giving with the wrong motives turns the heart into a hard, dead, little cinder of greed and bitterness.
Generosity isn’t an easy spiritual discipline to master, but you can become a more accomplished giver with practice. If you feel the desire to give something to someone or some organization, just do it. See how it works out. If you have given out a good heart, you will know it; perhaps not immediately, but you will know it. From time to time, check in with God. Ask his opinion on the sense of generosity that abides in your heart. Ask him, “Is there a little more I could be doing here?”
He will answer.
He might ask you to tip more than the customary 15% from time to time. He might impress upon your heart to take a depressing and depressed coworker out to lunch. He might even instruct you to give a special one time gift to a person in need. Of course, He might just ask you to stick an extra five dollar bill into the plate on a weekly basis.
We are told the queen of Sheba gave King Solomon an hundred and twenty talents of gold, of spices very great store, and precious stones. The narrator goes on to observe that there came no more such abundance of spices as these which the queen of Sheba gave to King Solomon. The king, by the way, returned the favor. This is what kings and queens do, even in this day. They give out of a sense of abundance, knowing that there will be plenty more where that came from. After all, basically they own an entire country.
If you are a Son or Daughter of the King of the Universe, generosity is your birthright.
Wednesday, July 29, 2015
Monday, July 27, 2015
Movement and Life
Wikipedia One of the measures of health in the economy is the velocity of money. When money is on the move, people are happy. The investor puts his money to work in the economy. The businessman is using that money to build factories and hire workers. The workers are getting their paychecks to buy products from businesses that then return their profits to the investor in the form of dividends or capital gains. Savers are adding to their bank accounts. The banks are making loans to people with jobs to buy houses, cars, and educations. When the loans are repaid, the savers get their interest. The banks get their profits. The investors get their dividends. The workers get a new home. Of course, the velocity of money like the movement of water can get out of control causing inflation or assets bubbles. If there isn’t enough movement the economy stagnates, causing the bifurcation of America that has been a source of a great deal of rather heated political rhetoric over the last few years. During my morning walk, I thought about the motion of water. From the swirling mists of heaven to the sound of ocean waves in the night, motion is the natural state of water, of money, and of life. In its journey from the sky and the mountains, water seeks to find its natural path until it becomes one with the sea. Man can harness the power of water, but can never ultimately control even this softest of nature’s elements. Thirty five years ago while I was attending engineering school, I heard civil engineering students discussing the eventual destruction of New Orleans by a hundred year flood on the Mississippi or a category 5 hurricane. Much of the city of New Orleans is located below sea level. There is simply not anything the Army Corp of Engineers can do to stop the flow of water into the city during events of exceptional proportions. Since New Orleans is built on mud, the higher and heavier the levee, the faster it will sink into the sediment. Individuals and Governments believe they can control the flow of money in every possible situation, although all the evidence is to the contrary. In spite of the best efforts of the Federal Reserve Bank and the Treasury, the business cycle still turns. With the introduction of new technologies, the economy goes through predictable seasons of growth and decay. Consider the effects of low cost steel, the railroads, skyscrapers, automobiles, radio, television, the personal computer and the Internet. Each revolution kicks off cycles of boom and bust. Consider your own life. In the natural scheme of things a stagnant pond will become a swamp, a place were earth and water are one. For a few centuries or more it will serve as a home for many creatures and plants, ultimately transforming into a piece of prime bottomland intersected by a creek. If your life is stagnant, you are on your way to becoming a home for worms, before you are made one with the earth. That will happen to all of us someday, but hopefully, not today. Look at your money and your life. Do you like what you see? Are you finding your natural path from the mountain to the sea? Like a great river, are you a source of blessing to those with whom you come in contact? Is your money in motion? Are you making investments in the economy that can benefit others? What percentage of your income are you donating to worthy charitable ventures? There is often a stench associated with a life that is not in motion, money that is not in motion, or water that is not in motion.
Thursday, July 23, 2015
Everybody is Kung Fu Fighting
Zen Saying All kung fu movies follow a pretty similar pattern. It starts when something evil befalls a nice young man. Often at the start of the movie the arch-villain sends four or five of his henchmen to extort some money from the hero’s family business. His father resists and is subsequently murdered in the first fight scene. Our hero was brave, but his kung fu was ineffective against four professional hoodlums. Cast out of his home our hero wanders aimlessly until he has the good fortune to meet a dirty, long haired tramp who turns out to be the last living master of some obscure but deadly form of kung fu. Impressed by the young man’s good character and potential the old master becomes his personal trainer putting the young man through a fitness regime that mixes slapstick comedy with apparent sadism. When the student is ready both student and master return to the student’s hometown. First they return to the family business, now run by the four hoodlums. After the young hero litters the floor with the shards of large broken ceramic pots and the broken bodies of the four bad guys, the master smiles at a job well done. Then the hero progresses up the chain of command, killing and beating ever larger numbers of more skilled fighters. Finally, they penetrate the personal estate of the arch-villain. In the halls of his enemy’s mansion the young hero first kills the big boss’s hatchet man, usually a freakish large and muscular Asian and then in the climactic fight to the death the hero kills the big boss himself. The master walks off into the sunset, his job finished. The young hero marries the hot young neighbor girl who worked at his family business while faithfully waiting for his return. I guess kung fu masters must outlive their wives. After a few years there will be new job openings for homeless kung fu masters on the look out for promising students. What does any of this have to do with personal finance or any other serious issue of your life? First, if you are getting your ass kicked by payday loan companies, credit card companies, and the banks, you need to find a teacher. If the teacher knows his stuff, he won’t force his wisdom down your throat, but when you are ready, he will be there. The training regime necessary to get out of debt seems sadistically unpleasant, but if you persist you will learn the basic art of financial freedom. As you progress, you will learn the darkest secrets to avoid debt while saving and investing your money. Once you have defeated the loan companies and your credit cards, you will move on fighting bigger and badder enemies like the thirty year mortgage, the 529 College Savings Plan, and the dreaded preparation for retirement. The day will come when you are ready to face Gordon Gekko himself in the halls of his mansion in South Hampton out on Long Island. At some point in this process you will no longer need a teacher. It is time to take responsibility for feeding yourself. Whether you are undertaking a spiritual discipline or just growing up and starting a family of your own, the day will come when you will need to take responsibility for improving your own life. It is called becoming an adult. At this point a wise teacher is still nearby, far enough away to stay out of your hair, but close enough to keep an eye on you. Finally it will be your turn to become a teacher to someone who is ready to learn. Ultimately our purpose is to care for, counsel, support and encourage those whom God places in our life, to become wise (particularly for me) in the area of finance, and to share that wisdom with others. I believe that as we realize our purpose, our lives will become more meaningful and we will find healing in our minds, bodies, and spirits.
Wednesday, July 22, 2015
Car Loan Numbers
Car Loan Numbers (Q1 data from Experian):
• Average loan term for new cars is now 67 months — a record.
• Average loan term for used cars is now 62 months — a record.
• Loans with terms from 74 to 84 months made up 30% of all new vehicle financing — a record.
• Loans with terms from 74 to 84 months made up 16% of all used vehicle financing — a record.
• The average amount financed for a new vehicle was $28,711 — a record.
• The average payment for new vehicles was $488 — a record.
• The percentage of all new vehicles financed accounted for by leases was 31.46% — a record. Zero Hedge is reporting the latest car loan numbers from Experian. The total outstanding car debt in this country has passed the $905 Billion mark. 84.9% of new cars carry a note and 55.6% of used car owners are making those monthly payments. About 72% of these loans are considered prime or better. That means 28% are considered something less than prime. What could possibly go wrong? I see great opportunities for the repo-man. By the way, Indeed.com lists the average salary for a repo-man at $82,000 a year. Not too shabby for a job that doesn’t require a degree. Unless you need a $3,000 car to drive to work, pay cash; even if you need a $3,000 car to drive to work, pay as much down as possible. The rule of thumb for car depreciation: A new car will lose approximately 20% of its value in the first year. Then it will lose 15% per year until it is worth about 10% of its original cost. Going into long term debt to buy something that is absolutely guaranteed to drop in value is—Insane! Don’t do it. Buy the best used car you can afford. Let’s say you buy that $3,000 clunker. I bought my first car in 1973 for $600 cash. That would be about $3,000 in 2015 money. I managed to squeeze roughly seven years and over 70,000 miles out of that rust bucket, before I sold it for $50. Let’s go back to the list of current factoids found at the top of the page. $488 (average monthly car payment) X 7 Years X 12 Months/Year = $40,992 Dear Lord have mercy! If you paid yourself that monthly car payment for seven years, you would be able to pay cash for a BMW 428i, base model $40,750 MSRP. The monthly car payment is a middle class curse. It is simply unnecessary. You need to get to work. You need to get to the doctor’s office and Walmart. You don’t need to become a debt slave to your automobile. Remember what Mr. Goodwrench told us, “It’s not just a car, it’s your freedom.”
• Average loan term for new cars is now 67 months — a record.
• Average loan term for used cars is now 62 months — a record.
• Loans with terms from 74 to 84 months made up 30% of all new vehicle financing — a record.
• Loans with terms from 74 to 84 months made up 16% of all used vehicle financing — a record.
• The average amount financed for a new vehicle was $28,711 — a record.
• The average payment for new vehicles was $488 — a record.
• The percentage of all new vehicles financed accounted for by leases was 31.46% — a record. Zero Hedge is reporting the latest car loan numbers from Experian. The total outstanding car debt in this country has passed the $905 Billion mark. 84.9% of new cars carry a note and 55.6% of used car owners are making those monthly payments. About 72% of these loans are considered prime or better. That means 28% are considered something less than prime. What could possibly go wrong? I see great opportunities for the repo-man. By the way, Indeed.com lists the average salary for a repo-man at $82,000 a year. Not too shabby for a job that doesn’t require a degree. Unless you need a $3,000 car to drive to work, pay cash; even if you need a $3,000 car to drive to work, pay as much down as possible. The rule of thumb for car depreciation: A new car will lose approximately 20% of its value in the first year. Then it will lose 15% per year until it is worth about 10% of its original cost. Going into long term debt to buy something that is absolutely guaranteed to drop in value is—Insane! Don’t do it. Buy the best used car you can afford. Let’s say you buy that $3,000 clunker. I bought my first car in 1973 for $600 cash. That would be about $3,000 in 2015 money. I managed to squeeze roughly seven years and over 70,000 miles out of that rust bucket, before I sold it for $50. Let’s go back to the list of current factoids found at the top of the page. $488 (average monthly car payment) X 7 Years X 12 Months/Year = $40,992 Dear Lord have mercy! If you paid yourself that monthly car payment for seven years, you would be able to pay cash for a BMW 428i, base model $40,750 MSRP. The monthly car payment is a middle class curse. It is simply unnecessary. You need to get to work. You need to get to the doctor’s office and Walmart. You don’t need to become a debt slave to your automobile. Remember what Mr. Goodwrench told us, “It’s not just a car, it’s your freedom.”
Reform Yourself
“Reform yourself. That way there will be one less rascal in the world.”
Thomas Carlyle Is there something you don’t like about your life? No doubt you have a lot of problems. The world is not always a very friendly place. Other people don’t have your best interests in their hearts. Life is unfair. There are people who are born smarter, richer, and prettier than you. That’s just the way it is. So now what? Is it more productive to attempt to change the world financial system so it will give you what you want, or would it be more productive to change something a little closer to home? Look inside yourself. What do you believe about yourself and the world? What stories do you tell yourself? If you tell yourself you are a victim, that there is nothing you can do to make things any better, it is unlikely that you will try to do anything to make your life any better. If you try, you may fail. If you don’t try, you are already a failure. Have you ever heard of an unemployed heart surgeon? Why is that? Maybe because he offers the marketplace a rare exceedingly valuable skill set. How did he get to the place in life he can collect fine German automobiles the way an average person can collect Pez dispensers? We just see the results. What we don’t see is decades of hard work, thousands of hours spent memorizing, practicing, preparing for exams, then surviving an absurdly unhealthy internship that makes Marine Corp boot camp look like a cakewalk. Perhaps it is easier to understand that in athletics, talent is only the beginning. Great athletes are all notorious workaholics. No one ever beat Michael Jordan by practicing more or spending more time in preparation for a game. Muhammad Ali didn’t start to count sit ups until he was in pain from doing too many sit ups. It starts on the inside. After you have spent some time honestly listening to your stories about life, gently, ask yourself, “Even if this story is true, is it useful? Will it help me live a better life or make my world a better place?” You may feel frustrated because your boss is a jerk. OK? So now what? Does your frustration make him less of a jerk? Does it make you a better, more productive person? Stop. Examine yourself. Is there anything you can do better that would make your boss less of a jerk? If not, would it be more useful to look for a better job or curse a jerk? It won’t be easy. You have spent a lifetime listening to the stories of hopelessness you have been told by others as well as the useless stories you tell yourself. You believe them and in some way they must have proven of some use. After all, you are still above ground sucking air. No matter what you want to change about your life, my advice is the same, “Start small. Start today.” You want to retire before you die? Go down to your personnel office and sign up for your company’s 401(k). You want to lose some weight? Put down that can of beer, put on your tennis shoes, open the door, and go for a walk. Telling me what you can’t do or why you can’t do it won’t help you or your world. Tell me what you can do. Then, as the Nike commercials tell us, “Just do it!” When you have changed yourself, you will find that you have also changed the world.
Thomas Carlyle Is there something you don’t like about your life? No doubt you have a lot of problems. The world is not always a very friendly place. Other people don’t have your best interests in their hearts. Life is unfair. There are people who are born smarter, richer, and prettier than you. That’s just the way it is. So now what? Is it more productive to attempt to change the world financial system so it will give you what you want, or would it be more productive to change something a little closer to home? Look inside yourself. What do you believe about yourself and the world? What stories do you tell yourself? If you tell yourself you are a victim, that there is nothing you can do to make things any better, it is unlikely that you will try to do anything to make your life any better. If you try, you may fail. If you don’t try, you are already a failure. Have you ever heard of an unemployed heart surgeon? Why is that? Maybe because he offers the marketplace a rare exceedingly valuable skill set. How did he get to the place in life he can collect fine German automobiles the way an average person can collect Pez dispensers? We just see the results. What we don’t see is decades of hard work, thousands of hours spent memorizing, practicing, preparing for exams, then surviving an absurdly unhealthy internship that makes Marine Corp boot camp look like a cakewalk. Perhaps it is easier to understand that in athletics, talent is only the beginning. Great athletes are all notorious workaholics. No one ever beat Michael Jordan by practicing more or spending more time in preparation for a game. Muhammad Ali didn’t start to count sit ups until he was in pain from doing too many sit ups. It starts on the inside. After you have spent some time honestly listening to your stories about life, gently, ask yourself, “Even if this story is true, is it useful? Will it help me live a better life or make my world a better place?” You may feel frustrated because your boss is a jerk. OK? So now what? Does your frustration make him less of a jerk? Does it make you a better, more productive person? Stop. Examine yourself. Is there anything you can do better that would make your boss less of a jerk? If not, would it be more useful to look for a better job or curse a jerk? It won’t be easy. You have spent a lifetime listening to the stories of hopelessness you have been told by others as well as the useless stories you tell yourself. You believe them and in some way they must have proven of some use. After all, you are still above ground sucking air. No matter what you want to change about your life, my advice is the same, “Start small. Start today.” You want to retire before you die? Go down to your personnel office and sign up for your company’s 401(k). You want to lose some weight? Put down that can of beer, put on your tennis shoes, open the door, and go for a walk. Telling me what you can’t do or why you can’t do it won’t help you or your world. Tell me what you can do. Then, as the Nike commercials tell us, “Just do it!” When you have changed yourself, you will find that you have also changed the world.
Thursday, July 16, 2015
The Ruminations of a Grumpy Old Man
It’s not my job.
But we’ve always done it like that. Three lame excuses given by sorry employees working for subpar organizations; how I hate to hear any of those words when I am in need of help or direction. Unfortunately, I heard them all too often during my career as a Government employee. While attempting to unravel financial and legal issues during our recent family emergency, I was convinced beyond a shadow of a doubt that Government bureaucrats do not hold a monopoly on sloth or intransigence. Bad behavior can be found in banks, insurance companies, transfer account management, and the billing offices of hospitals. Thank heavens I had access to a good attorney and good accountants. The words, “I don’t know,” are fine if they are followed with the words, “But I will try to get you answer by (fill in the date).” In fact, I wish ministers of the gospel would use those words on a more frequent basis. The world would be a better place. It may really not be your job, but that is not an excuse. It is a reason to find out who in your organization is empowered to take care of this problem. If you know the answer the correct response might be, “You need to talk with our patent attorney, Joe Smith. Hang on a second and I will give you his contact information.” Or if you really don’t know, tell the customer, “I’m not sure, but I think I know who handles this sort of question. I will make a few calls. When I find the right person, I will give them your contact information. Then I will get back to you.” “But we’ve always done it that way,” Is a death sentence. There is nowhere to go once those words are spoken by a low level, disempowered slug. It is time to hang up the phone and try another approach. I have found the more impersonal the contact the more likely you are to hear these words spoken over your problem. 800 number service centers are often worthless, especially if there is no way to get back to the same employee with follow up phone calls. My experience with the IRS back when we first bought a house sent me running to our neighborhood CPA. I asked the same question to two different IRS agents and received totally different answers that didn’t match up with my understanding of the pertinent publication. But really? What can you expect from people stuffed into a cubicle farm (often in a country where English is a second language) earning low wages? Even if you have a business card in hand while sitting across the desk from a particular individual, there is no guarantee you won’t hear those hated words. During our family emergency I had to deal with numerous different banks. In some instances I had to interact with employees at multiple branches in different states as well as their central offices. I think I only lost it once. I was rude. I apologized. The person at the other end of my bad behavior told me that she was a wonderful employee who had gone far beyond the extra mile on my behalf. In fact on that particular day, she had managed to hit the trifecta. She used all three forbidden phrases during a single interaction. I don’t know.
It’s not my job.
But we’ve always done it like that. I note (not without some malicious satisfaction) that particular branch of that particular organization has since ceased operations. I wonder why? If you find yourself using any of these sentences, repent. If you are dealing with an organization that frequently resorts to any of these ploys, take your money and your business elsewhere. If you can’t avoid dealing with the organization in question, keep trying until you find someone who knows what they are doing, then praise her and thank her at every opportunity. Who knows, maybe she will give you the number to her direct extension.
Wednesday, July 15, 2015
The World Ends Every Twelve Years
One of my readers sent me a link to an article and a video that predicted the end of the financial world as we know it. Although this particular prognosticator has a dubious track record, many of the facts he presented were accurate. Then his speculations moved on to a perfect storm that would result in a 50% drop in the stock market, a 40% drop in the value of American real estate, and hyperinflation that would peel off 30% of the dollar’s value—ALL IN A SINGLE YEAR! Then it would get worse. Of course the reader’s only chance at salvation could be found in the pages of his subscription newsletter.
I have stated that our economy is ultimately a castle of debt built on a foundation of thin air.
Historically, paper money reverts to its intrinsic value, zero.
In my darker moments I have even speculated that a once in a millennium world wide financial crash would be a perfect setup for the appearance of the Antichrist.
It is unlikely but possible that the end is near. What is more likely is another major correction such as occurred in 2008. These come along every 12 years or so. I have been expecting this to happen for about two years now. The market is juiced with funny money from the Federal Reserve. The Shiller PE index is dangerously high. By lowering interest rates to unnatural levels, the Fed has essentially recapitalized the banks at the expense of the small saver. The money that should be in insured Certificates of Deposit has gone off chasing returns in risky stock market speculations.
The market may continue to go up for a few more years or this bull market might end tomorrow.
If you choose to invest in the stock market, you must decide in advance, that you are willing to loose half of what you put at risk in any given year. The American investor lost about 40% in 2008-2009. That is why no sane person is ever, “all in.” When the prices crash that is the time to buy more shares. The stock market has always recovered from these crashes and then gone on to higher levels in terms of real dollars.
This is why relatively safe dividends are so important. If your shares are producing a steady stream of income, their instantaneous value at any point in time becomes much less important.
How I choose to diversify between cash, fixed income instruments, equities, and real estate is a decision I can control. I try to plan, knowing I can not predict the future.
As Solomon observed:
“Ship your grain across the sea;
after many days you may receive a return.
Invest in seven ventures, yes, in eight;
You do not know what disaster may come upon the land." I can't control what politicians choose to do to our economy. Ultimately, if they want to destroy me, I am destroyed. I try to do my best, the rest I must leave in the Lord's hands. Anytime anyone is selling anything by appealing to fear or greed I am suspicious. There are reasons to be concerned. If you want a better understanding of why you should be worried and a bit cautious, I would suggest the writings of John Hussman, an extremely erudite fund manager, responsible for the well being of several billion dollars entrusted to his care. He isn’t peddling snake oil. Here is a link to his weekly market column:
“Ship your grain across the sea;
after many days you may receive a return.
Invest in seven ventures, yes, in eight;
You do not know what disaster may come upon the land." I can't control what politicians choose to do to our economy. Ultimately, if they want to destroy me, I am destroyed. I try to do my best, the rest I must leave in the Lord's hands. Anytime anyone is selling anything by appealing to fear or greed I am suspicious. There are reasons to be concerned. If you want a better understanding of why you should be worried and a bit cautious, I would suggest the writings of John Hussman, an extremely erudite fund manager, responsible for the well being of several billion dollars entrusted to his care. He isn’t peddling snake oil. Here is a link to his weekly market column:
Hussman Funds Weekly Market Comment
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