One of the smartest guys I have never actually met, recently posted a blog preaching the good word about the need to invest, to invest wisely, but most importantly, to start NOW. If I have learned anything as a pseudo-adult, I should have learned that a sword is not an effective writing instrument. What I discovered after I read again what I belched up into greybeard's comments area, is curiously instructive.
For anyone that remembers voting for Nixon, watching black and white television, benefiting from the Sunday senior special at Luby's or relying on your employer or your government to support you in your old age, greybeard's advice is spot on. He is so on the mark infact, that if you fall in that category, stop reading my assault on the English language, and go open a savings account, mutual fund account, and an account to fund my rock and roll career. For the Gen-X'ers out there, the problem is a little different; hence my late night campaign of hanging my bare arse out the window while running down the Information Highway.
[Blog note: I wasn't trying to pick a fight with greybeard. Many years ago, a silly little book unknowingly predicted one of the biggest problems with electronic publishing. The example in the book satirically made the point that the Bible was inherently inaccurate because it lacked the context of body language and facial expression; maybe Moses gave a little wink to the true believers when reading the part about not coveting your neighbor's Mustang/plasma screen TV/wife/etc. People often mistakenly believe I am picking a fight through email, when I really am not. I am an asshole by nature, and it comes through like the Ammityville ghosts in a seance. For that same reason, this is probably the closest I can come to an apology.]
For purposes of trying to spread a little common sense and make the world a little bit better place, greybeard gets my nomination for whatever equivalent of Blogger Peace Prize there might be. For anyone that might be more than 20 years out from retirement, or whatever equivalent my generation may have to retirement, the time has come to get your hands out of your pants and turn off your friggin' Ipod. This is important.
If you are still reading this far in, you won't mind two ground rules:
1) I don't play a lawyer on TV, but I pass (barely) as one in real life. This is my blog, not my law practice, and this is not intended to be, nor should it be construed as legal advice, either in this jurisdiction, any jurisdiction the reader may reside in, or in any other jurisdiction that some or all of this material may be transmitted through by the magical Internet fairies that keep this shit together. Moreover, your reading this blog does no
t create an attorney/client relationship. I maintain this blog for my personal edification and self-abuse. If you want me as your lawyer, call me. Good luck finding me.2) This advice is coming for free (to you at least. I have spent thousands of hours reading and learning this crap, and lost thousands more by living in an adult world without knowing this stuff myself). You get what you pay for.
The first step is the hardest, beat it back and you have done the hard work. The truly rich, the people with tangible wealth, know that wealth ain't what you make, it is what you keep. There are two sub parts to this that you have to adopt, love and protect as though they were your children: 1) can the existing debt 2) do not incur new debt. What does this mean in the real world?
Can the existing debt - This is what I did in 1995-1996 to ZERO out my debt so I could afford to go to law school. I figured out my monthly budget, and figured out how much extra, discretionary cash I had after buying groceries, gas and guns. I also made a list of all my credit card bills and other revolving debt, with the smallest balance at the top of the list. That extra cash each month went only to the bill on top of the list. When it was paid, I crossed it off, and all the discretionary cash went to the next one on the list. In just two years time, I paid off some $15000 in credit card debt, plus paid off my car. With the debt gone, it was not nearly so painful to lose my income for three years. The feeling living debt free, even if for a little while, was a high similar to what I imagine I would experience sitting on a beach in Mexico, smoking a Cuban (cigar), rolling a Dominican (??) in the sand, and drinking 100% Blue Agave from a golden chalice. The stuff I still had was mine, didn't belong to bank, the ferrier or the candlestick maker.
Don't care for freedom or Dominican virgins? Fine, consider this. Remember that Dell computer you put on your charge card last Christmas for your idiot sister's high schooler, and despite your good intentions, you are still making minimum payments on? Assuming you have average credit, and were late on one or two payments this year because your SUV hijacked your gas card, you should finish making payments on that computer in about 7 more years. By then, the technology powering that computer will be fit only for a museum display, and you could have bought two more computers with the interest payments that you just GAVE to a bunch of Wall Street buzzards (spelled b-a-n-k-e-r-s). Consumer interest rates are so high, and interest paid on typical consumer savings or money market accounts is still so low, that you actually lose money if you put money into savings each month instead of using the money to buy down your debt.
30 year mortgage? You can get it knocked out in 7, without eating beans and mf's. Most households these days are paying $300-$700 a month to service just their credit card debt. Pay off the damned credit cards, and roll that money into payments against principal on your mortgage. See how quickly you can own the home that the bank is letting you live in. If this doesn't impress you, you richly deserve the credit score of 484 you undoubtedly have.
Debt is a good measurement of financial health, which we will prove in a later installment regarding investment. The more debt you have, the sicker you are. Don't take my word for it, this guy figured out the same thing...
If you don't pay it off soon, you will die before your debt does.New debt, Just say NO! When the bankruptcy reform bill became effective October 17, the final piece of the perfect storm came into play. Fact is, if spouse gets sick, if you lose your job for a few months and get behind, it is going to be even harder to get caught up and back on track. Here is why:
1) The IRS is going to start contracting out it's collection functions to commercial debt collectors. Thats right kiddies, the same bottom feeders that call you at work and threaten to have you arrested, kick your grandmother or kill your dog because your credit card payment was 20 minutes late, they will now be holding hands with the Treasury Department.
2) A few months before bankruptcy reform kicked in, credit card companies raised their monthly minimum payments. If you ignore lesson #1 about scotching out the old debt, well then you are also the reason that I invest in the financial industry that I so detest.
3) Interest rates, if they haven't already in your state, are inevitably on the rise. Bitch about government being too involved in your life (I do daily), the banks aren't bitching. They are schmoozing your elected representatives and setting you up for even more voluntary servitude.
4) Your 30 year old child just signed a 30 year lease, also known as an interest only mortgage. This concept is so outrageously idiotic, I cannot even form the words.
5) Your 30 year old child just bought 3 times the house that he can afford. Over the last 3 years, I have seen a steady stream of clients tell me, with a straight face, that they had $100,000 equity, or more in their home. Whatever I had to do, whatever the cost, they wanted to hang in just long enough to sell the house and capture that equity. Really? I always had two questions to ask before delivering sobering news, and the answer was almost always the same. First, is the house on the market yet? If not, there is no time to put it on the market and close before the bank forecloses or you have to walk away. Second, are the other monster houses in your neighborhood for sale? Well, if they are all on sale, or have been foreclosed, you don't have any equity in your house. Equity in a home is only the dollars someone is willing to give you for your house, above the number of dollars you owe the bank for the house that the bank is letting you live in. If your entire neighborhood is for sale, you don't have equity, you have poor math skills.
Before you pour money into the greybeard bushel basket of stocks, make sure it is your money, not the bank's.
After I reload my poison pen, and you get all that debt paid down, we will talk about keeping what is yours, hers, and theirs...
As a side note, your nephew used that Dell computer to download internet porn and he failed math class because he and I played Texas Hold'em every night into the wee hours of the morning. He traded the computer in exchange for a bus ticket and three drink tokens so that he could go to Spring Break in Cancun. The computer eventually wound up overseas, along with your spouse's job, at a call center in India. The month that your credit card payment was late, that very computer pulled up your file, notified the $2.oo a day Customer Service Representative in New Delhi that you are a deadbeat, and even dialed your phone number. Two days later, the CSR took the computer home and sold your personal information, along with the personal information of 3.2 million of your closest friends, family, and neighbors, eventually selling the information to half a hundred different identity pirates.
Cash, credit or Formerly Living?
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