Please excuse the clickety-clack of my keyboard while I type ferociously thus, breaking the eloquent silence of God and nature.
As I write this the U.S. is in the midst of a global health pandemic. The Coronavirus has caused worldwide panic the likes of which I have never seen.
What is being labeled as Black Monday 2020, March 9, the Dow’s worst single-day point drop in U.S. market history. A record $20.2 billion has been pulled from stocks on March 13, the largest daily outflow ever.
This is different from the financial crisis of 2008-09, as it was a mortgage crisis not a health crisis then, but this is now what will likely lead to a financial and housing crisis. The economy has gone into a recession.
There were 3.3 million unemployment applications submitted last week alone. They are estimating 3.5 million submissions next week.
Over 500,000 workers across the hospitality, retail, and restaurant sectors have been furloughed indefinitely.
Store shelves are bare and low on necessities. Milk, bread, and eggs are some of the first items to go. Toilet paper is now the currency of the realm.
Schools, churches, libraries and hair salons are closed. It is pretty certain that millions of small businesses will close and never open their doors again.
Many large retailers may become insolvent and close their doors permanently.
Rent strikes are popping up all over the country in response to stay-at-home and shelter-in-place orders from state governors. However, it is April 1st and the rent is due.
As all of this is going on around me, I have to make a judgment call.
My hand is hovering over the buy button in my 401(k) account. My inner voice is saying go for it. You did the math. You did like financial blogger FIREcracker said and I mathed shit up! I knew I could come out ahead when the markets rebound. Stocks are on sale. I’m going down to the mat with the bear market. I’ve been here before and come back up every time. I take a deep breath and hit submit.
I have now bought over a hundred shares of various stocks as of March 31. Before, the market started crashing I transferred over $84,000 out of multiple stock funds and placed my bet on one Vanguard 500 index fund over the last two years. Why you ask? I’m taking my cues from a historical data approach and a sprinkle of Buffet wisdom.
Back in 2013, in a letter to shareholders, Buffet gave a piece of advice to the trustee of his estate after he passes, “wife’s inheritance has been told to put 90% of her money into a stock index fund and 10% into short-term government bonds.”
A portfolio set for a 90/10 allocation over a period from 1900-2014 had a fail rate of 2.3%. That means a success rate of 97.7%! Therefore, I am not scared.
Others are panicking, but I choose to keep a cool head. My investing advice is sprinkle some Buffet on it. It’s the wild west out here. I could place a huge bet and get my wings clipped like Icarus for traveling too close to the fire of the market. After all, it is a fire sale on stocks going on right now.
However, I can’t let fear stop me. I have weighed the risks. And decided to take those calculated risks.
You see I have 100 years of stock market knowledge behind me. Past results do not guarantee future results, but whenever history turns it backs on the market, then during the rally the market turns it back on you.
Those who do not feed the beast are later consumed by it. Financial literacy has been my guiding light in these dark times we suddenly found ourselves in.
I have been thrown in a cave with the bear market, but like Yogi, I have learned to be smarter than the average bear.
Some of you may be surprised that I am using Yogi Bear as inspiration to invest, but let’s not forget he always seemed to outsmart Ranger Smith and get that coveted picnic basket.
Image from Wikipedia
Therefore, fear will not take me under for I have knowledge my friends. And knowledge is the slayer of fear. While Buffy slays vampires, I slay market gyrations.
I like to take Buffet’s advice to bet on America. He says, “From a standing start 240 years ago — a span of time less than triple my days on earth — Americans have combined human ingenuity, a market system, a tide of talented and ambitious immigrants, and the rule of law to deliver abundance beyond any dreams of our forefathers.”
Yes, indeed America has.
That is incredible growth for a country that was just started with 13 original colonies in 1607 to become the biggest economy in the world, as other civilizations are far older than America.
It must have felt the same way for Neal Armstrong when he took those first steps on the moon for mankind in 1968.
That is incredible growth to go from walking on the ground, to the rocket, to the moon considering less than 70 years ago man had just learned how to fly in a little place called Kitty Hawk.
And when I threw open my personal finance go-to book, it looks as if I am not the only one who calls on the sage advice of the finance world’s Obi-Wan.
I found that financial blogger J.D. Roth of Get Rich Slowly also listens to the man they call “The Oracle of Omaha” Warren Buffet.
Here is an excerpt from the 2009 New York Times best-selling book I Will Teach You to be Rich: No Guilt. No Excuses. No BS. Just a 6-Week Program That Works by Ramit Sethi. The blog post was titled: HOW TO WRESTLE WITH A BEAR—AND WIN Why I’m Not Worried About the Economy.
Wall Street is fear-stricken it will have banks and businesses go under and lose countless millions in the process.
Main Street is panicked that it can’t make rent to pay Wall Street.
When Wall Street head honcho and real estate billionaire Thomas Barrack Jr. speaks of commercial mortgages being on the brink of collapse, you spark panic all around you.
Mr. Barrack of Colony Capital predicts a “domino effect” of catastrophic economic consequences without prompt action to keep borrowers from defaulting.
I know that may keep some people on the bench, but I prefer to keep swinging for the fences.
You’ll never get a hit from the dugout.
Millionaires are made of Teflon. They keep betting when the house is cleaning up. They just keep on swinging. You miss 100% of every shot you don’t take.
I once remember reading that millionaire’s know they are made by saving ten bucks at a time.
Pundits are instilling fear when they should be telling long-term investors to stay the course. The wealthy know better. They keep investing because that’s what winners do.
Here is Suze Orman’s FIRE protection gear: $5 million dollars to retire early. Really? Do tell. Care to elaborate. Absolutely.
It was around late 2018 that I heard talk of Suze Orman’s thoughts on the FIRE movement.
The rumblings in the financial blogsphere was that when Suze was asked her opinion about the FIRE movement on the Paula Pant podcast Afford Anything and she says, “I hate it, I hate it, I hate it.”
Suze told Paula Pant that $2 million isn’t enough for early retirement. At a 4 percent withdrawal rate, that’s $80,000 per year, which she says isn’t enough to protect you “when the floods come.”
“If you only have a few hundred thousand, or a million, or two million dollars, I’m here to tell you … if a catastrophe happens, if something happens, what are you going to do? You are going to burn up alive.”
The “Suze Slapdown” of ’18 was coined. And I thought watching WWE Smackdown was tough. Whew! They ain’t got nothing on Suze when it comes to laying the smackdown on finances.
She made headlines for saying that people who buy a daily latte are “peeing $1 million down the drain as you are drinking that coffee.” On Suze’s watch, spending at Starbucks SBUX is a no-no.
Let’s not drop out of corporate America on a whim and stop working. Get back to work.
Check out the tweet below that 2020 Democratic Presidential candidate Bernie Sanders tweeted out last year to see what I mean.
Wealthy TV "experts" are shaming millennials for buying coffee and avocado toast. But young people are broke because they’re drowning in debt and low wages.
The ruling class wants to divide the young and old to distract us from an economy that’s rigged for the richest 1%. pic.twitter.com/v4LCNpoExU
Suze Orman’s the sky is falling attitude about retiring early is not so far-fetched now during the coronavirus.
For anyone who isn’t up to speed on the FIRE acronym, it stands for Financial Independence, Retire Early. I am all for Financial Independence (FI).
This is me. Financial Independence: count me in!
Retire Early: slow down tito!
The focus of FIRE is to retire early by stopping the corporate grind and ending the rat race in your 30s or 40s, and not 55 or 65.
However, I am not yet ready to be put out to pasture. Luckily, other leaders in the FIRE movement gave some clarification and said that FIRE is not about stopping work, but finding your passion and earning passive income streams that keeps the money flowing.
The goal is to live life On. Your. Terms. So, I thought to myself okay. I can live with that.
Saving 25 times your current income and then retiring before age 40 without continuing to make money is risky.
The notion is that you can then afford to live off of your savings by limiting your withdrawals to just 4% of your assets each year.
Meaning if you earn $75,000 a year, then you need to save about $1.9 million before walking away from work. Money that was supposed to last starting from age 65, now has to starting from age 35.
The millennial had caught the FIRE bug and she was looking to hang it up within two years.
“Well, how much money do you have?” Orman asked. “Two or three million?”
No.
“A million?”
No.
“$250,000?”
Yes, but with some debt.
“Really?” Orman could only shake her head.
“Don’t talk to me about it. If that’s what you want to do, go ahead. But 40 years from now, I hope you remember everything I’ve said.”— Suze Orman, on retiring in your 20s
According to Suze, “time is the most important ingredient in your financial recipe.”
As financial blogger Mr. Money Mustache put it bluntly: “In the interview, Suze Orman goes on and on about what might go wrong, and how you need an incredible amount of money saved to protect you, just in case. But this thinking is completely backwards – money will not cure your fear, as megamillionaire Suze proves so clearly. Most high-income people are still within just a few paychecks of insolvency, because it is possible to blow almost any paycheck, simply by adding or upgrading more cars, houses, and vacations. Physical health FIRST: Salads and barbells every day, no goddamned excuses.”
Real estate financial expert and FIRE member Coach Carson posted some great advice on Suze’s opinion: “As Paula said after the interview, we should all make a practice of listening deeply to others (especially if you disagree). If you can reserve judgment temporarily, you can always learn something.”
Coach Carson says time not money is the most precious thing we have. The biggest regret is time wasted when people are on their deathbed. People do not wish they worked more or spent more time in that cubicle or corner office.
Very true. Washington Post financial columnist, Michelle Singletary, also weighed in on the interview. She says “let’s also put this debate in perspective. Many people aren’t saving enough to retire at all – early or late.”
I remember when my portfolio hit $100,000. It took half the time to get the next $100,000 and zoom to $200,000. Next stop, $250,000. That’s right a quarter of a million.
Then I was looking to moving on up like The Jeffersons to the tune of $300,000, $400,000, $500,000 and beyond. I only move forwards. I never look backwards. I could still work for another 30 years if I want to. Without putting in another penny, if I let this money ride I could have between $1 million and $2.6 million dollars. And that is if I stop investing. There is no way I am doing that.
I live for today. I live in the moment. I stop and smell the roses. I enjoy the present, but save like I am going to live forever.
Stop worrying about the world ending today. It’s already tomorrow in Australia. – Charles M. Schulz, creator of the Peanuts
I like to plan in advance. I have a plan to create a plan.
“If plan A doesn’t work, the alphabet has 25 more letters – 204 if you’re in Japan.”― Claire Cook, Seven Year Switch
If I want something, then I go get if. I get off my duff and go make it happen. Don’t complain. Go do something about it. To quote Mindy Kaling, “We are all just a treadmill and six laser hair removal treatments from being Ryan Reynolds and Blake Lively.”
Ask for credit when you don’t need it. Credit dries up like tears in a recession. That’s just my two cents. Back in the 2008-09 recession, they cut my credit lines in half. Overnight *poof* half my credit limits were gone. Like a puff of smoke.
The thing is that work gives us something to do. It lets humans be productive.
If you have $1.5 million at age 65, you have a much shorter retirement to spend on versus at 37.
What really makes the difference is that by age 55-60 many people are empty nesters, own a home, and already own most of their possessions.
You have a lot less things to buy because you have what you need already.
When you are 35, you may still have no kids, are just starting, or have a young family. You have costs that are still rising like inflation.
Empty nesters are not worried about paying for college. Its paid for. That’s in their rear-view. Juniors 529 is spent.
If you are still raising kids, it is likely you will need a decent income and a job. Kids cost…a lot. Most people are still buying homes, cars and having kids well into their 40s these days.
One of the biggest expenses that a job helps subsidize is healthcare.
Financial blogger Financial Samurai puts this into perspective: “Just know that once you get to your target number, you might find that your needs have changed. Life is unpredictable. A job helps you subsidize health care costs that are increasingly becoming a racket IMO, but it would help reduce our $2,380/month health care bill. However, I am grateful for every day.”
You want to retire early. Here is what Suze has to say.
Orman: “It would have to be in the millions . . . You need at least $5 million, $6 million.” (She later says $10 million to account for taxes.)
FIRE proponents fired back at Orman that she has it all wrong.
Really? When a government shutdown causes people to be in soup kitchen lines, then I beg to differ. Here were some of the things I read online during the 35-day government shutdown last year:
“I only have $1.06 in my bank account. I don’t know what I am going to do.”
“I can’t pay my bills.”
“I can’t afford groceries.”
“I’m scared I won’t be able to pay my rent or mortgage.”
“I can’t miss one paycheck.”
Not even one check? Even I try to keep a minimum of $10,000 in the bank at all times in savings. Just in case sh*t happens. I need that rainy day fund because when it rains it pours. Keeping a 3-6 month rainy day fund is what helps me sleep at night.
My 1-tweet financial plan government #shutdown edition. 😉
1. Save a 9-month emergency fund 2. Instead of maxing Roth IRA use extra funds for your rainy day fund 3. Do not get any student loans 4. Do not buy a new car, home, or go on vacation until rainy day acct 100% funded pic.twitter.com/Xmslbml3qC
Now to be fair, the FIRE movement is about saving and investing your money. The more, the better. If you are practicing FIRE, then, in theory, you should be able to weather any storm.
Meanwhile, Orman isn’t sweating her emergence as somewhat of a villain in the FIRE community.
Now that COVID-19 has swept across the globe, it looks as if Suze may have been on to something when she always says, “hope for the best, but always plan for the worst.”
On one of her most recent podcasts she stated that a lot of her advice on saving that eight-month emergency fund has come to roost. She now thinks you need a 3-year emergency fund.
I have always been more about FI than RE because no matter what happens in this world, I know one thing to be sure; you will always need money in the bank.
Now I’m going to sign off on this post the same way Suze Orman ended her show on CNBC every night, “now you stay safe.”
According to a study done by NYU economist Edward Wolff, 84% of stocks are owned by the richest 10% of American households.
Even more extreme than this is the fact that the top 1% hold 50% of all stocks in America. Meaning a teeny tiny amount of Americans own trillions of dollars, and a vast majority own nothing. That type of inequality is just sad.
So many Americans are locked out of a real wealth machine by not being invested in Mr. Market.
Who is Mr. Market?
The New York Stock Exchange (NYSE) is an American stock exchange on Wall Street in New York City. With a market cap of more than US$16 trillion, the NYSE is the world’s largest stock exchange, averaging US$169 billion in daily trading value in 2013.
That would mean the richest 1% own approximately $8 Trillion worth of stocks.
Sadly, only 52% of Americans were invested in stocks.
GALLUP
Let’s fast forward just five years.
According to Barron’s, the stock market is worth $30 Trillion as of 2018. You see that?! The stock market has almost doubled in size! This is tremendous.
In 2008, most portfolios lost half of their value. Now look at us today. The S&P has more than tripled since the Recession! A trillion here, a trillion there and boom we have almost double the assets we had in 2013, the same year LeBron won his second championship ring with the Miami Heat.
Therefore, as of last year the richest 1% now own $16 Trillion dollars of wealth in the stock market.
The richest 10% has a mind-boggling $25.2 Trillion in stock wealth! Each owing over $900,000 in stocks.
Keep in mind that the bottom 50% of the poorest households have virtually no wealth as many have $0 in savings and investments.
The U.S. stock market has been on fire as it returned 22% last year.
With a 220% increase over the last decade, that means the rich are getting richer.
You need to get a piece of that stock pie in the sky
Why is it so important that you invest in Mr. Market? It’s simple. Investing is how you beat inflation.
With inflation averaging 2-3% annually, you must find a way to out run it. Investing will help you do just that.
I do not want you to miss out on the next $8 Trillion the market may gain over the next decade or so. Don’t sit on the bench! Get out there and get in the game! Nothing ventured nothing gained.
Wealth building takes time.
It’s a long game. You may need a decade or more to build some significant assets.
Did you that know with an interest rate of 10% your money doubles every 7.2 years? It’s true. It is because of the rule of 72, which states that a certain amount of compound interest will dictate how much you can earn over time.
I feel like that scene in Oliver Twist when he asks for more. But instead of food, I want dividends! My advice t to you is to invest!!!
Yes, give me some of that compound interest. It’s raining dividends and capital gains.
The first $100,000 is the hardest!
No matter how much you earn, it will take time to grow your wealth to something much grander over time.
Even with a nice return, the majority of your first $100,000 will come from your savings. The higher amount you save, the faster you achieve this goal.
I cut back on everything to get to through this first hurtle on the wealth accumulation phase.
I skipped the movies, $7 lattes, fancy vacations, new cars, clothes, subscriptions services, and nights out on the town. Put that money to work. Don’t act rich, get rich!
I know some guys that want to be rich, but spend like the world is flat like Columbus said; so they think we are going to fall off the edge and it is all going to end tomorrow, so you gotta treat yourself!
These poor souls decided to buy bottle service for a friends 45th birthday. The cost: $4,000! They split it between like four or five people.
Here is a little background on one of the fellas, let’s call him Scotty.
Scotty is still renting after being unable to afford to buy a home. Instead of banking his money for a down payment, he’s tossing around G’s more than Floyd Mayweather after signing a $100 million-dollar deal.
Sorry my man, hate to break it to you, but you ain’t “Money” Mayweather and don’t have his bank account.
Forget that! I would rather be financially independent than act rich for a couple of hours.
And the ladies loved that he spent that $1,000 on that bottle service. But then you know what happened at the end of the night, when the lights came on? All the ladies left!
I guess it was all about the bottle service. That’s just money down the drain right there. Bad money decisions happen everyday.
Maybe it really is like Jamie Foxx said, “blame it on the alcohol.”
Regardless, I want you to put that money in Mr. Market and let it grow.
If you are worried about downturns, then hedge your bets by putting money into savings as well.
Since it usually takes about 10-16 months for the stock market to recover from a crash, keep that amount of money in your savings. This will let you ride out the storm.
The goals is to not have $0 in your bank account. Something is always better than nothing.
Now save up that first $3,000, go open up a Roth IRA with a discount brokerage firm and go get started.
Don’t have $3,000 just lying around? No problem. If you can spare $100 bucks?
If so, then you can use the Automatic Asset Builder that lets you invest for just $100 a month with places like T. Rowe Price or Charles Schwab.
Now let’s go get this money. No excuses! I just gave you all the information you needed to get started.
Happy investing! And may the odds be ever in your favor.
Just one huge monthly payment could be killing your ability to build wealth. He hit the nail on the head with that statement.
I have first-hand experience with this one. I shared my experience on how I put like $200,000 in my retirement accounts just from paying off my $448.65 monthly car payment.
Cars are a financial suck for sure.
The average car payment in US is now $499. That is straight up stupid. That much invested would be over $5M at retirement.
The FT is basically doing the math that consumers need to do before making any major purchases like a new car. It was noted that, “The quality of the car park has gone up.” Meaning if you walk down many British streets you are more likely to see expensive cars.
That came straight from a report from the Federal Reserve Bank of New York stating Americans are unable to pay their bills.
Considering that the jobs report that recently came out stating job growth has surged by 266,000; it is missing key metrics in regards to whether or not families are staying above the poverty line.
If you are working multiple jobs and in line at the soup kitchen because you can not make ends meet, then something is seriously wrong.
For families that are employed, they have to get back and forth to work. Meaning a car is almost a necessity these days.
California Dreamin’ is better in a Mercedes-Benz than a Hyundai
The West Coast is infamous for its pricey luxury cars. Especially in places like California. Think Fast and the Furious.
Did you see Vin Diesel rolling around in a Prius?!!! Of course not.
Lift up the hood of any of those cars and you could find $100,000 worth of product.
As the F&F series progressed, the cars got more expensive not less!
Movies are prone to production inflation just as individuals are to lifestyle inflation.
For example, the 2014 Audi R8 featured in Furious 7 has a 4.2 coupe with manual transmission starts around $119,150 while the V10 model starts at $155,450, each including destination fees and a $3,000 gas-guzzler tax. Say what??!!!
And my favorite on the Fast & Furious list, the Lykan Hypersport, which was been unveiled at the 2013 Qatar Motor Show. W Motors will limit numbers of the car, which it heralds as “the first Arabian hypercar,” to just seven, each priced from US$3.4 million. What the heck will an oil change cost on this beast?!
Lycan Hypersport
Did the cast of The O.C. drive down to Tijuana (TJ as they called it) in a Kia? Absolutely not! Those young high rollers were riding around in high-quality luxury vehicles!
Places like San Diego and Silicon Valley do not have a mass public transit system the likes of the ones on the East Coast in New York or Washington DC metro. No sir. Those folks have to drive.
And if you have to drive everywhere from the In-And-Out Burger to CVS, then who wants to sit all day in traffic rolling around in a tiny Chevy Malibu.
You want the creature comforts you have at home on the road.
You are willing to buy all you can afford if you have to drive around every day in a car.
I understand why people are shelling out BIG BUCKS on the West Coast to drive Cadillac Escalade’s and BMW’s. Not only are they impressive driving machines, but comfortable too!
Luxury cars have a price beyond just the pricetag
Prestige vehicle sales are driving borrowers bankrupt. If you have to put $500, $600, $700 or even $900 into one household bill on top of a mortgage, then you can drive yourself right into the poorhouse quite literally!
Let’s do a little math. If you save $500.00 per month, your savings may grow to $2,797,302.30 after 40 years. This includes a starting balance of $0.00 and a 10% annual rate of return.
Starting amount
$0.00
Years
40 years.
Additional contributions
$500.00 per month
Rate of return
10% compounded annually
Total amount you will have contributed
$240,000.00
Total interest
$2,557,302.30
Total at end of investment
$2,797,302.30
That is a high price to pay just to have the BMW emblem on your steering wheel.
A lifetime of luxury car ownership and payments can leave your savings tank on $0.
Don’t do it.
With more American retirement savings on life support or at $0, you can make sure this doesn’t become your fate.
Forget buying expensive fast cars. I’d rather you drive a paid off Honda and get rich slow.
You ever drive by a neighborhood that ends in Estates or Hills and look in the driveway?
There are usually enough European cars around for these folks to start a dealership down the street and give Audi a run for their money.
You figure places like Beverly Hills, Miami Beach, and New York are places that can afford these types of cars, but what about places you would think those people may not make the type of money it requires to have those vehicles?
Unfortunately, in my few decades on this earth, I have seen things that you would not believe.
Since, many of you out there know my absolute fiscal pet peeve is new car ownership, you understand my ire as I write this.
I can teach you to get rich without having to sign a car loan document or sell your soul. I’m not Ursula. I will give you back your voice.
I rejected that notion that I must own a luxury car to feel good about myself and feel important. I paid off over $50,000 worth of debt so I could start investing more money in Mr. Market.
The goal was to try to always be increasing my investment portfolio by $20,000-$25,000 or more per year. It took me a decade, but I hit that goal. It’s raining dividends right now. All from just rejecting new car ownership.
I am going to share with you a few car buying horror stories that may very well give you nightmares. So hide the wife. Hide the kids. This is the part in the movie theater where you turn your heads, close you eyes and take a deep breath.
I am about to lift up the hood on the numbers behind what buying new cars will be in opportunity costs in this series of posts on rejecting new car ownership. So buckle up, sit back, and enjoy the ride.
Drip so hard or broke so much
First let me explain what drip is.
It is a slang term many rappers use and there are more or less elaborate definitions of “drip.” Offset and Cardi B use the term to refer to their diamonds and wealth, while Atlanta rapper Gunna told Billboard that “drip” refers to fashion: Drip is your attire, the clothes you wear.
For instance, he doesn’t own like 50 Rolex watches or chains, but only rotated the same like three on Instagram because on the world of gram it’s all about appearances.
He also has stated he had $8 million in Bitcoin, but really he owns $0. He just made up $8 million out of thin air! Why put on this show? For likes of course, what else?
This is nothing new. People inflate their salaries, income, accomplishments, and credentials all the time. What makes this case so sad is that he is telling the world, not just a few friends having a round of drinks while playing a poker game down at the local watering hole.
I have noticed that once you actually stop looking and start listening to what people have to say about their finances, that is when you uncover the truth. Behind all the expensive cars, clothes, and homes most people are stressed and broke.
What is wealth
I gave my definition of wealth in a previous post. Really it means you can meet all your basic needs and have some left over to last you several decades without you sweating whether or not the bills get paid.
For regular folks, a good week looks like this – there’s milk in the fridge, none of the kids got into a car accident or ran over any mailboxes this week, and all the bills got paid on time.
For the wealthy, a good week looks like this – enough food in the cupboards to feed an army, you taking the Rolls to work this week cause the Jag is in the shop being detailed, and you earned more in dividends than you spent last month.
Wealth is every bit as good as it sounds. Let us see the other side of the coin and how the lack of having enough coins can cause despair.
Dream cars are only for those with money in the bank
Here is where the horror stories are about to begin folks.
Brace yourselves.
I knew a guy who loved his dream car so much that it was keeping his bank account in the red. Let’s call him Edgar. Edgar grew up without a father. At one point, he was living in a shelter. After years of toiling in the salt mines, he was able to get an apartment and get on better financial footing.
At the ripe old age of 28, he decided to “treat himself” because he “deserved it” to a $30,000 BMW convertible and eventually he got a girlfriend to ride in that car beside him.
He felt that he had paid his dues so he should have a nice car.
I don’t know about all of you out there, but I look at paid dues as 10, 20, 30, or 40 years of busting your hump to build a security and a solid foundation for your future self and family. Buying a luxury car that costs $500 a month is not the way to having a life of abundance.
How else could he have spent that money?
Let’s say he saved up the $30,000 ($6,000 a year over five years) by taking public transportation to work and invested that money instead of trying t impress people with his wealth…er uh I mean debt that is masquerading as wealth in the form of a nice financed luxury vehicle. He could have also saved up a few tax returns and got a beater to get back and forth to work.
If you save $100.00 per month your savings may grow to $731,411.74 after 30 years. This includes a starting balance of $30,000.00 and a 10% annual rate of return.
Starting amount
$30,000.00
Years
30 years.
Additional contributions
$100.00 per month
Rate of return
10% compounded annually
Total amount you will have contributed
$66,000.00
Total interest
$665,411.74
Total at end of investment
$731,411.74
Year
Additions
Interest
Balance
Start
$30,000.00
$30,000.00
1
$1,200.00
$3,064.06
$34,264.06
2
$1,200.00
$3,490.46
$38,954.52
3
$1,200.00
$3,959.52
$44,114.04
4
$1,200.00
$4,475.46
$49,789.50
5
$1,200.00
$5,043.01
$56,032.51
6
$1,200.00
$5,667.32
$62,899.83
7
$1,200.00
$6,354.01
$70,453.84
8
$1,200.00
$7,109.45
$78,763.29
9
$1,200.00
$7,940.38
$87,903.67
10
$1,200.00
$8,854.41
$97,958.08
11
$1,200.00
$9,859.87
$109,017.95
12
$1,200.00
$10,965.86
$121,183.81
13
$1,200.00
$12,182.43
$134,566.24
14
$1,200.00
$13,520.67
$149,286.91
15
$1,200.00
$14,992.74
$165,479.65
16
$1,200.00
$16,612.02
$183,291.67
17
$1,200.00
$18,393.24
$202,884.91
18
$1,200.00
$20,352.54
$224,437.45
19
$1,200.00
$22,507.80
$248,145.25
20
$1,200.00
$24,878.59
$274,223.84
21
$1,200.00
$27,486.45
$302,910.29
22
$1,200.00
$30,355.08
$334,465.37
23
$1,200.00
$33,510.59
$369,175.96
24
$1,200.00
$36,981.65
$407,357.61
25
$1,200.00
$40,799.79
$449,357.40
26
$1,200.00
$44,999.79
$495,557.19
27
$1,200.00
$49,619.76
$546,376.95
28
$1,200.00
$54,701.76
$602,278.71
29
$1,200.00
$60,291.92
$663,770.63
30
$1,200.00
$66,441.11
$731,411.74
Back to Edgar’s story.
One night while going to see his soon-to-be ex-girlfriend, he was so tired (he would get tired doing like two sit-ups) that he fell asleep at the wheel. He got into a major accident, the car was in the repair shop for months, BMW lent him a loaner, him and the girlfriend broke up (she may have been with him for the car) and he got to drive that DREAM car for all of like 8 months!
He did eventually get it back, but I noticed that every couple of months or so the car would have an issue and need to go in the shop.
He bragged how he was so smart to get an extended warranty or the repair bills would be like $2,000 or more. However, what he is failing to realize is that when that warranty runs out, you will be the one paying those expensive repair bills because luxury comes at a price. A very expensive one.
Last time I laid eyes on him; he still had that car, was still single, and had moved into a more expensive apartment. Instead of investing money, he spent every dime and his bank account stayed on empty.
If he would have been willing to give up the car, he could have saved a small fortune. I tried to run the numbers with him, but he wasn’t really interested. Little did he know that his dream car was turning his life into a nightmare.
After he lost his job, he couldn’t afford to make the payments. His mother had to step in and help him. Maybe if he put the money he spent on those expensive Xbox video games in the bank instead, he might have had the money to pay his bills himself. He needs to keep that devil-may-care attitude in the video games where it belongs.
Dante in Devil May Cry for Xbox
And his motto was “live for the day.”
If living for the day means being broke for a lifetime, I’ll pass. He may have had a great car that made him feel like he had arrived and look like he had money, but he was really BROKE.
Do cars really equal freedom or are they a debtor’s prison on four wheels
I have owned only two cars in my entire life.
They are expensive money-pits with all-wheel drive.
I have seen people spend so much money on car repairs that it makes me want to cry. I have also seen people own three, five, or even seven cars by the age of 25!
Many people never even go on to pay the car off. They just roll over negative equity onto the latest new car purchase. Putting them in a never ending spiral of debt payments.
And do not even think about not purchasing gap insurance.
Gap insurance is an optional, add-on car insurance coverage that can help certain drivers cover the “gap” between the amount they owe on their car and the car’s actual cash value (ACV) in the event of an accident.
Even this can be something only the well-heeled can afford.
Gap can cost hundreds or thousands of dollars additional on top of what you are paying to purchase your vehicle. It must be paid for up front at the time of vehicle purchase. If you cannot pay out of pocket, they will add it to your loan. You are now paying interest on this insurance coverage.
Why do you need gap? I have a friend. Let’s call her Pam. Pam likes nice cars. However, Pam is in-between jobs right now, is several months behind on mortgage payments, and has been in two car accidents in two years.
At one time, she owed an Audi. When a maintenance issue arrived and the repair bill came in at $3,000, she couldn’t afford it so she sold it.
Speaking of repair bills, I have heard stories of people leaving the Jiffy Lube or car dealership after getting the repair quote, which they cannot afford, then go on to say, “I know someone that will do it for cheaper” or “I’ll fix it later” or “I’ll take it to my mechanic.” All just mean the same thing: Broke.
When you cannot pay the repair bills on your car, then how can you possibly afford to save for retirement?
Getting back to Pam, she ended up with gap insurance from a third party. Therefore, she was going back and forth trying to get the money for the car for over four months!
I don’t know many folks that can go without a car for this long. Her quality of life immediately went down. You could feel it with every passing month when you were around her.
One word. I will give you one guess. You give up? It rhymes with repair. Of course I mean despair.
She also has no cash savings and no retirement.
She was very young at the time. Maybe 22. This is what she could have done if she saved up that money and invested it instead.
If you save $100.00 per month your savings may grow to $1,464,646.73 after 40 years. This includes a starting balance of $20,000.00 and a 10% annual rate of return.
Starting amount
$20,000.00
Years
40 years.
Additional contributions
$100.00 per month
Rate of return
10% compounded annually
Total amount you will have contributed
$68,000.00
Total interest
$1,396,646.73
Total at end of investment
$1,464,646.73
Year
Additions
Interest
Balance
Start
$20,000.00
$20,000.00
1
$1,200.00
$2,064.06
$23,264.06
2
$1,200.00
$2,390.46
$26,854.52
3
$1,200.00
$2,749.50
$30,804.02
4
$1,200.00
$3,144.46
$35,148.48
5
$1,200.00
$3,578.92
$39,927.40
6
$1,200.00
$4,056.80
$45,184.20
7
$1,200.00
$4,582.47
$50,966.67
8
$1,200.00
$5,160.72
$57,327.39
9
$1,200.00
$5,796.80
$64,324.19
10
$1,200.00
$6,496.47
$72,020.66
11
$1,200.00
$7,266.12
$80,486.78
12
$1,200.00
$8,112.74
$89,799.52
13
$1,200.00
$9,044.00
$100,043.52
14
$1,200.00
$10,068.42
$111,311.94
15
$1,200.00
$11,195.25
$123,707.19
16
$1,200.00
$12,434.76
$137,341.95
17
$1,200.00
$13,798.25
$152,340.20
18
$1,200.00
$15,298.06
$168,838.26
19
$1,200.00
$16,947.87
$186,986.13
20
$1,200.00
$18,762.67
$206,948.80
21
$1,200.00
$20,758.93
$228,907.73
22
$1,200.00
$22,954.83
$253,062.56
23
$1,200.00
$25,370.31
$279,632.87
24
$1,200.00
$28,027.34
$308,860.21
25
$1,200.00
$30,950.07
$341,010.28
26
$1,200.00
$34,165.09
$376,375.37
27
$1,200.00
$37,701.60
$415,276.97
28
$1,200.00
$41,591.74
$458,068.71
29
$1,200.00
$45,870.92
$505,139.63
30
$1,200.00
$50,578.02
$556,917.65
31
$1,200.00
$55,755.83
$613,873.48
32
$1,200.00
$61,451.41
$676,524.89
33
$1,200.00
$67,716.54
$745,441.43
34
$1,200.00
$74,608.19
$821,249.62
35
$1,200.00
$82,189.02
$904,638.64
36
$1,200.00
$90,527.91
$996,366.55
37
$1,200.00
$99,700.71
$1,097,267.26
38
$1,200.00
$109,790.79
$1,208,258.05
39
$1,200.00
$120,889.85
$1,330,347.90
40
$1,200.00
$133,098.83
$1,464,646.73
I have actually seen people own multiple cars even though they can only drive one at a time. However, you have to maintain and insure all of them. Just give up the ones you are not using and fund your retirement with that money.
Instead of that money going into a 401k, the lender and insurance company was getting rich off these never ending payments they receive. Put that money to work for yourself by investing it.
Tow truck companies are winning
Have you ever seen that show on A&E called Parking Wars? Some of the saddest things I have ever seen to do with cars was on that show.
The struggle is real in the city of brotherly love. So many people in Philadelphia were getting their cars towed and booted for failure to pay parking tickets it was crazy.
Those meter maids were making like $20,000-$30,000 a year and they were on a mission! Giving out those tickets like gumdrops! And making revenue for the city in the process.
I have seen and heard some stories so heartbreaking it made my eyes start watering. I have seen or heard people lose their jobs, then their homes, and finally get their car repossessed with all their belongings in it.
One guy came out running to his car while they were lifting it on the tow truck. He had almost every valuable possession he owed in that car including the photo albums of his deceased family members.
All he asked is if he could go in the trunk and get his stuff (clothing, personal hygiene, photos, credentials). The tow driver said no.
Unfortunately, once the car is on the lift, it can’t be stopped unless you pay or have already paid and can PROVE IT!
And that guy went from being homeless and living in his car, to being homeless on the street.
I have seen people give up their cars due to debt, gambling, substance abuse, you name it.
I know someone who saved up $8,000 and sink every penny into a new car just to have a $100 lower monthly payment. Never mind that she was still living with her parents at the age of 42.
I have also seen people have to choose between paying the gas, electric, or phone bill on-time or pay the car note.
I even had an ex-coworker get her car repossessed twice! She just had to have an SUV. She was making like $12 bucks an hour at time and was only 20. She destroyed her credit and the possibility of home ownership for at least a few years just for the sake of looking rich instead of actually saving towards becoming rich.
She was broke. She had no wealth whatsoever! The little she had, she mailed in monthly installments to Chevrolet.
Society would like you to believe that owning a nice brand new luxury car will make you look like you have achieved success.
It really only means someone has allowed you to borrow money from them and pay them back with interest for the privilege of loaning you their money.
Real wealth cannot just been seen by the naked eye in the form of fancy condos, clothes, jewelry, furs and luxury cars. It is usually shielded from prying eyes in the form of investments and inside bank accounts.
For most folks, a luxury car does not mean you have wealth; it means you have debt. Reject new cars like I have and I promise you will actually start to build wealth.
If you remember this fun, quirky, and often brutally honest show on ABC called Don’t Trust The B- in Apt 23, then you know exactly where this post gets its title.
The show aired from April 11, 2012 to May 11, 2013. It only lasted for a short two seasons, but it packed a lot into that one year.
For those unfamiliar with the show let me bring you up to speed.
June’s (Dreama Walker) plans of moving to Manhattan for her dream job and perfect apartment are ruined when the company that hired her goes bust. Broke and homeless, her luck turns around when she finds a job at a coffee shop and a roommate, Chloe (Krysten Ritter). The show also starred James Van Der Beek (from Dawson’s Creek fame) as himself.
In one of the funniest pilot episodes I have ever seen of a television show, it really gives you a sense of how quickly one life can change within less than 24 hours.
https://www.dailymotion.com/video/x6kqr75
June loses her job and apartment within a few hours once the company she was hired to work for goes down in an FBI raid due to the head of the company embezzling billions from clients in an Enron type take down, which reminds you of the glory days of yesteryear of Wall Street darlings such as the likes of Bear Stearns and Lehman Brothers; the latter of which was in business for 150 years having started operations in 1850.
Some media outlets such as CNBC did an article on what happened to former Lehman Brothers employees after the collapse and some still had not recovered from the company shutting down in 2008 some 10 years later including those not being able to find full-time employment.
This show and the acquisitions or closures of places like Merrill Lynch, Bearn Stearns, which opened in 1923, and Lehman Brothers are reasons why you should be your own financial advisor.
Unlike how JP Morgan bailed out Bear Stearns in March 2008 or Bank of America did Merrill Lynch, you are on your own like Lehman’s when they filed for bankruptcy as no one came to save them because if you fail to manage your money, then no one is coming to bail you out.
Let’s go back to 2008. Banks were failing. Many were found to be a part of the subprime mortgage crisis, but like the scandal at Wells Fargo nobody went to jail. You think your money is locked up tight like Fort Knox until you realize it isn’t. That is why Roosevelt created the FDIC insurance for banks as without the $250,000 deposit insurance after the 1929 crash many no longer believed in the banking institution.
Just because someone is wearing a suit does not mean they know what they are doing. Many of the analysts and associates that start work for their prestigious firms such as Goldman Sachs are straight out of college and still wet behind the ears. Even though I once read that the average salary of a Goldman employee was around $622,000, that does not equate to financial smarts or riches. Many of these employees still blow money like you wouldn’t believe. Instead of saving stacks they are blowing them.
Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway. – Warren Buffett
I have read enough accounts of high paying professionals and tons of the employees would blow off steam in a place called Scores in New York or buying million dollar homes, private school educations for the kiddies and exotic vacations costing $5,000 a pop.
Look, to each their own. Just understand that you are your best line of defense when it comes to your money. Read every book you can on the subject. Save as much as you can.
I even overheard a 2nd year law associate say that you can make a lot of money in New York, but it costs too much for too little. You have to be a millionaire to afford an apartment or buy a home.
Part of the reason so many people are bad with money is because they do not learn about how money works. Please do not be one of those people. You must learn how money works. Learn the rules of the money game. Here are a few things you can do to save yourself the commission fee and invest those dollars instead.
Use a three-part investing strategy.
Part I. Automate your savings and investments. Decide on a number you can live with, set it, and forget it.
Part II. Determine where to invest. Go with anyplace that offer fees that are less than one percent such as Trowe Price, Vanguard, Schwab or Fidelity.
Part III. Invest your money. I prefer to go with several index funds so I can be diversified in case one sector goes crashing down then others are usually going up. You could do a mix of 20 percent real estate or REIT’s, 15 percent in International Funds, 10 percent cash liquid savings in a high yield savings account, 10 percent in a bond fund and the remaining 45 percent in a stock equity fund like the VTSAX at Vanguard. This is similar to the Yale’s investment manager David Swensen’s model. He has been able to get a return on investment of billions into Yale’s coffers making them one of the larhgest college endowments on earth with $29.4 billion USD. Only Harvard has a bigger endowment war chest with $38 billion USD.
Who is David Swensen?
According to the Yale Daily News, “David Swensen of the Yale University endowment is the doyen of endowment investing. Imitation, of course, is the sincerest form of flattery. Today, the Stanford, MIT and the Princeton endowments all boast former Swensen deputies at their helm. Each also has adopted the “Yale model” of investing pioneered by Swensen in the 1980s.”
So what is Yale’s “secret sauce”?
“Until 1985, Yale had invested in mainstream U.S. stocks and bonds with a smidgen of foreign stocks and real estate.”
“Swensen was the first to apply modern portfolio theory to sizeable multi-billion-dollar endowments. He understood that “asset allocation” explains over 90% of a portfolio’s investment returns.”
“The decision whether to invest in specific asset classes matters much more than picking the right stocks. Over the past 30 years, Yale has shifted the bulk of its investments into “alternative assets” like natural resources, venture capital, real estate and foreign stocks.”
When the market goes down, buy more. That is where the bargains are. That is how Sir Templeton made his millions. Sir John Marks Templeton was an American-born British investor, banker, fund manager, and philanthropist. In 1954, he entered the mutual fund market and created the Templeton Growth Fund. In 1999, Money magazine named him “arguably the greatest global stock picker of the century.” He purchased tons of stocks during the stock market crash when everyone else was getting out.
So do not let fear take over how you manage and invest your money.
