Archive for the ‘Uncategorized’ Category

Want your rent or mortgage paid for a month?

Thursday, June 14th, 2012

I will teach you to be rich has a contest where you can get up to $2,001 to pay next month’s rent, click here to enter.  

I’ve followed Ramit’s blog for a long time back when he was blogging regularly, these days he is mainly making classes.  I haven’t taken any of them so I can’t speak to their quality, but his blog was very good.    You might wonder how he can afford to give away up to $2,001?

What he is doing is a brilliant internet marketing campaign for his financial classes.   He really wants a lot of people to view the page with a pitch for his course to sell more courses.  Here is how he is going to get a ton of views: He sent out an initial invitation to his mailing list.  I clicked on his link saw the post about one of his classes and got one entry to the contest.  He also notified me that I could get more entries by sharing a link with friends.  The more I shared the link the better my chances to win.

If a friend clicks on the link they get one entry and I get one too benefiting us both.   Again the friend is encouraged to increase their chances by sharing a link of their own with their friends.    The $2001 prize is almost certainly a small fraction of the cost to set up the software to create and tack all the links- but he can reuse that software again and again.  For Ramit’s $2001 he is going to get a lot of traffic by leveraging the power of twitter, Facebook, Linkedin and other bloggers as well.     This is a masterful implementation of the ideas from Seth Godin’s Idea virus.    Seth describes it this way: Instead, the future belongs to marketers who establish a foundation and process where interested people can market to each other. Ignite consumer networks and then get out of the way and let them talk.

Bad Title but Great Idea

Thursday, May 3rd, 2012

I recently read this blog post on How to Prepare for the Death of Your Spouse.  The title was misleading- it is really about organizing financial information so that the surviving spouse has an idea how to handle the financial obligations of the other spouse.    Preparing a good overview for your spouse is a very loving thing do to- and will make a difficult time much better for them.

Is it Harder in America Today?

Friday, April 20th, 2012

A frequent commenter on FMF Old Limey wrote a the following comment on a reader profile of a young engineer PD where he commented how it seemed life is harder for a young engineer today then in was in the 60es.   There was one paragraph that really struck me:

>It seems to me that my journey from being a young engineer, first to retirement, and now after 20 years of retirement has been a lot smoother and easier that comparable couples in current times.

>I thought that in America life kept getting better every year but lately that doesn’t seem to be holding true. What’s happened?

I think you are correct that the path isn’t as smooth today.  There are some concrete reasons- the cost of higher education has been growing at far beyond inflation for many years.  I found the following graph  that shows that the cost of college education grew at 2.5X the inflation rate.   I suspect PD would not have any student loans if his college costs were 50% lower.

Today he is competing with engineers from all over the world- both those that come to the US with a work visa and those companies may outsource to thus depressing his wages.   I haven’t been able to find statistics on engineering salries between the sixties and today but my impression is that it isn’t readically different once you account for inflation.

Additionally our expectations have risen- according to this NPR article  that “small” house PD is living in would have been considered normal size for a family with a few kids in the 60es as the average home size has more than doubled since the 1950s.

>I thought that in America life kept getting better every year but lately that doesn’t seem to be holding true. What’s happened?

I think things are getting better, but not for everyone.  If you own a company the relatively lower wages and increased more competition for jobs is a great benefit.  Companies don’t have to take the risk of provide a pension- they let the employee take the responsibility and risks with their 401K plan.    With the advances in technology companies don’t need as many employees to do the same amount of work and can be more profitable.   If these trends continue – it won’t make economic sense for people to be employees even for previously “good” jobs like engineers. 


  -Rick Francis

What Would I Do If my Home Was Underwater?

Thursday, April 19th, 2012

There are still millions of homeowners with underwater mortgages due to the housing bubble, I am thankfully not in this situation but I recently heard from a friend that is and I got to thinking about what would it mean for me and what could I do about it if my home was underwater?

What are the implications of being underwater:

#1 My housing costs would be higher because of when I bought the house.  If I had bought more home than I could afford I would be in danger of losing the home.  The extra cost would make it harder to achieve other financial goals like retirement savings or college savings.   

#2 Moving would be difficult because I would have to bring a lot of cash to closing, get the mortgage company accept a short sale, or rent out the property instead of selling.

#3 I couldn’t do a regular refinance because no lender will touch an underwater home.  If I had a variable rate mortgage I would be facing the risk that a significant rate increase could make the mortgage payments unaffordable eventually leading to foreclosure.  I would also lose the opportunity to lower costs by refinancing.    Today yahoo lists 3.87% 30 year fixed and 3.11% 15 year fixed- that really is insanely low.   In fact rates have fallen enough that it might be worthwhile to do another refinance.

The big question is to keep the house or not?  The critical factor is how affordable is the mortgage payment?    If I couldn’t make the payments without drawing from savings or incurring credit card debt then I couldn’t really afford that house and it would be lost without a major change like a new higher paying job.  If I could make the payments but had nothing else left I might sell the house too.  While I would hate to be forced to sell my house, I think it would be worse to keep the house by sacrificing retirement savings.  I wouldn’t want to live in a nice house but have so little cash left over that I couldn’t enjoy life while I was living there.   If I could afford to keep the house keep my financial goals and have a reasonable life I would keep the house and accept the fact I didn’t get the best price on it.   It’s almost impossible to time buying a house perfectly so virtually everyone overpaid to some extent that isn’t a good reason to sell.  

If I were going to keep the home I would make efforts to stabilize and lower costs.   I would review all of the government programs to help underwater home owners- but I won’t expect to get the best rates either.  This article on HARP states banks are not giving great rates.  It might be worth the peace of mind to get out of a variable rate mortgage, especially if there is not cap on the variable rate as I doubt today’s low rates will be here forever.

I would simultaneously try to build up a large emergency fund but I wouldn’t make any extra payments toward the mortgage until I accumulated enough bring the mortgage above water.   If I did have to resort to a short sale all the extra repayments would be lost.   Having some extra liquidity could be the difference between keeping the home or losing it in the future. 

If I was going to try to get rid of my home I would look into doing a short sale and I would work to get the best sale price I could. 

A short sale would hurt my credit but a foreclosure would pretty much ruin my credit score for seven years.  That would be it very hard to get another mortgage in that time frame without paying a much higher rate.    In some states lenders could get a legal judgement against me for the difference between the sale price and the mortgage balance.   Normally the IRS treats forgiven debt as taxable income, causing a huge tax bill but the government changed the rules for 2007-2012  I would research the legal and tax implications for my state to find out all of the details before I did anything else.   I would also have a place to move to before I did the sale as a bad credit score will make it harder to get another rental or mortgage.   It should go without saying that I would need to move to a lower cost home/apartment, something that I really could afford.                     

What do you Really Want?

Wednesday, April 18th, 2012

Last month I was having trouble coming up with a list of what I wanted for my birthday, much to my wife’s dismay.   When I was a kid I had a list five miles long of things I wanted, but now it’s not as easy.  That got me to thinking about what is it that I really want?   All of my needs are covered and enough of my wants are covered that there are relatively few things I really want that I don’t already have.  

I already have so much of many categories of things that there just isn’t time to enjoy more.  For example I already have more books that I would like to read but not enough time to read them.   I also have more video games then I have time to play.  I could get newer/better versions of things I already have- but I don’t think it would make that big of a difference in my life.   

I have a lot of 2nd hand wants from my kids or my wife but they aren’t really things I want.  After a fair amount of thought I did come up with a big one- time.  I would like to have more time.   The most practical way to get that would be to accumulate enough wealth that I can stop working.   Of course that would be an insane birthday gift…  I’m going to have to work for myself and it will take a number of years more.  However, I’m slowly getting there.  If I can just keep going I know I will get there. 

In the mean time I asked for some more video games and books- I just hope that I can finish them before next year so that I can come up another list.

Is Your Home an Investment? Who Cares?

Thursday, November 24th, 2011

I read a few articles questioning if your home is an investment or not- but who really cares what you call it?  If you lose a ton of money when you sell your home did it really matter if you called it an investment or not?  Are people really looking for a justification for spending more money on a home?   If a home is an investment then I can spend more on it without any guilt.

My thought is that you should put as little money into your house as you can while still having a place you will be happy to live in because there are better investments out there.   Here are my reasons to invest in something other than your house:

#1 Your primary residence is more than just an investment it is also a place to live and the two uses are sometimes at odds with each other.   For example you may want to live somewhere close to where you work, but the most likely properties to appreciate in value may be far away.

#2  If you buy a more expensive house you will be more tempted to spend more to keep up with the Jones.

#3 Your living expenses may increase if you invest in a larger house- property taxes, utilities, etc.  Buying more stocks or bonds won’t affect your monthly expenses.

#3 Your home is not diversified- it is one home in one location.    It’s putting all your eggs in one basket- a basket that could get flooded, or burn down, or infested with termites.  Instead you could buy a share in a REIT (Real estate investment trust – which is a company that owns many investment properties) or a fund of REITs like VNQ giving you instant diversification.

#4 Your home equity is not very liquid – if you need to tap your home’s value you need to sell or take out a loan.  There are many investment classes that are much more liquid, allowing you to sell as much of your investment as you like within one business day.

#5 The costs to buy or sell a home (and get financing for it) are huge.  Most other investments have far lower costs, and many have no costs.

#6 You can’t easily buy $50 or $100 of a house… but you can do this with other investment types.  Want a REIT index fund then VNQ is currently $52, how about virtually all of the stock market? VTI is about $60, or Total Bond Market ETF BND is about $84.

Do you have any other reasons for or against investing in your home?   If so leave a comment.

An Educational Mystery

Thursday, February 18th, 2010

Imagine you were able to get lectures on virtually any topic from world class professors from all of the top universities.  What if the classes were scheduled just for you?  You get to choose when and where the lectures were given and you control the pace of the course too.  Having a hectic week? Don’t worry you can move that physics lecture to next week.  Also, there is never any problem getting into a class you want you can pick any class.   If you don’t like a particular professor you have many others to choose from.  Oh and there is no tuition cost either!   Sounds like a student’s pipe dream doesn’t it?  The amazing thing is that it is a reality today!  Lectures from top professors are available for free- check out open culture.  You can get podcasts or video casts from a very impressive list of universities- Brown, Cambridge, Dartmouth, Harvard, MIT, Oxford, Penn, Stanford, UC Berkeley, Yale, and many others.   If you know how to get music from iTunes you already know how to get most of these lectures.  There is an amazing variety, and some very indepth topics- for example I downloaded a series of lectures from Yale on genetic engineering.   I can only imagine how the variety will grow in the future.   Here is something to ponder- with such a wealth of education available for free, why is college tuition so expensive, and growing even more expensive? 

A Divorce is Worse Than The Great Recession for Your Wealth

Friday, February 5th, 2010

From Oct 2007 to Mar 2009 the stock market declined a brutal 46%, a horrific blow to any investor but that is nothing compared to a divorce!  First and foremost a divorce has huge emotional costs- I am not going to even try to put a price on that.  Just consider the huge financial costs:

  • A 50% loss across ALL  of your assets- your home, cars, investments, savings, everything!
  • Tens of thousands in legal fees.
  • Thousands for one spouse to move out.

A divorce will not only decimate your current wealth- but it also saps your future:

  •  Significantly Lower Income
    • Loss spouse’s income or spousal and child support payments.
  • Increased Living Expenses
    • Two residences
    • No shared items
  • Additional Child Care Expenses
    • No one else to help watch kids

All of these factors make divorce horrifically costly.  Maybe the best financial move you can make today is to do something nice for your spouse!

How I Would Choose a Financial Advisor

Thursday, January 28th, 2010

Finding a good financial advisor is hard because you need someone that is both trustworthy and doesn’t have biases that will cost you a fortune.   You certainly don’t want a crook that will steal your money, but you also don’t want a salesman claiming to be an advisor that will mislead you.  Finally, you don’t want someone that believes they are the next Peter Lynch because chances are they aren’t!

Can You Afford a Financial Advisor?

For financial planning there are some cases where you just have to do it yourself.   If you are a new investor starting with $0 and investing $1000 each year you need to be self sufficient.  Any Planner that takes a % of assets under management will not talk to you- there just isn’t enough to cover their cost of doing business.  You could consult with a fee only advisor, but that could easily cost you a year of investing and a better plan doesn’t beat investing earlier.  At $1000/year even buying a $10 investing book will cost you 1% of your investment!  Your best option is to make your own investment plan initially then seek professional help later.  Your plan could be very simple like a low fee target retirement fund in an IRA.  After you have $200,000 or more a professional becomes a lot more cost effective.  At that point the optimization of the portfolio could potentially cover the cost of the advisor.How to StartAsk people you know for recommendations- who they trust to manage their money.  If you can’t get a personal recommendation I would try searching the NAPFA website.  I would plan to interview a few people.  Here is a list of questions to ask from the SEC,  I think how the advisor is paid is the most important question they list.  I would steer clear of advisors that earn commissions from what investments you purchase.  There is just too large a conflict of interest for such an advisor to give you the best advice.   I would prefer an hourly fee over a % of assets under management as advising how to invest $1,000,000 should not take significantly more time and effort than advising how to invest $500,000.

My Questions

In addition to those from the SEC I would also add the following questions:

  1. How did you advise clients similar to me during 2007 and 2008?  Why?  Did they make good decisions- for good reasons?  I think the best answer would be “Stick to our plan but save more/withdraw less.”  Their plan was solid but they are adjusting to the possibility of a harsher reality.  Other good changes include- rebalancing, increasing % bonds as you age, or switching to a lower cost equivalent fund.  If their reaction to 2008 was to scrap the old plan and try some totally new plan seek someone else.
  2. How do you pick the investments you recommend? I would be wary of someone that looks at past performance, remember all the warnings that it isn’t a predictor for future performance? I would also be wary if they claim some special knowledge- it is really hard to beat the market, what is the chance you found the next Peter Lynch? If they could really beat the market consistently then they are wasting their time planning for you as they should be running their own fund and making billions. I would like to hear minimal fees or covering different asset classes, which would naturally lead into choosing index funds.
  3. Describe a time when you convinced a client not to make a stupid mistake? A good advisor should be able to prevent you from making mistakes. If they haven’t done that with other clients a lot they are unlikely to be good advisors.

Retaining Control

Finally, I would want an advisor that would allow me to keep control over my investment accounts.  There are two good reasons to keep control:

  1. That insures you are informed of any changes since you have to make them.
  2. It prevents the possibility of fraud.  Bernie Madoff could never have run his ponzi scheme without controlling the investment accounts and forging the reports and transactions.

There are some disadvantages- you don’t get to delegate the transactions and you may miss out on lower cost funds only available to very large investors.  I bet Bernie’s clients are regretting giving him control.

Want a free $40?

Monday, January 11th, 2010

Have you ever wanted to be the bank and make a lot of interest lending people money?  If so peer to peer lending may be for you.  Peer to peer lending is when you lend money to others through a site like lending club or   They have many people fund each loan to minimize the risk of default,  I’ve been experimenting with the lending club and I’ve gotten over 10% on a pretty conservative loan.  I like their web intereface and it seems a viable way to invest.A great way to try it out is using a promotional offer so you don’t risk your own money.  Right now lending club has a promotional offer- you can send invitations to friends and they get $40 to start investing.  Leave a comment and I’ll send you an invite.  Note as far as I can tell I won’t get a referral bonus myself.