Earn this freedom you have received through the sacrifice of others.
This past week we celebrated Memorial Day. From the Revolutionary War through the conflict in Afghanistan, more than 1,300,000 soldiers have given their lives so we can enjoy the freedoms we have today.
Around 1,400,000 soldiers currently serve in our military on active duty, and another more than 800,000 are in the reserves.
These soldiers make sacrifices for our country, and in turn, our individual freedoms. So how are we doing as a society to take advantage of the freedom we receive from their service around the world?
I would argue not very well. We live in a country with an amazing amount of freedom, but with the use of debt, many have trapped themselves in a life of slavery to repay their debts.
We have borrowed more than $1 trillion in student loan debts. This puts many recent college graduates in a tough spot where the job they choose is largely determined by how it will help pay off their student loan debt.
We have borrowed more than $800 billion in credit card debt. By purchasing now and paying later, many have had to pay double the price of products with interest.
We have borrowed more than $300 billion in auto loans. Even though we have nice cars to drive, the monthly payments put a strain on many budgets.
We have borrowed more than $10 trillion in mortgage debt. The total value of property of this debt is only around $9 trillion, meaning that as a group, we are more than $1 trillion under water. When homeowners find themselves under water on their mortgage, it may feel like a jail sentence.
We have continually elected federal officials from both parties who spend more than we have in revenue. In this current year, we have a budget shortfall of more than $1 trillion with a total national debt of more than $15.5 trillion.
We have let down those who have fought and been injured or died for our freedom. The bondage we have put on ourselves and our country by our overspending has removed the freedom that has so graciously been given to us.
All is not loss. We can turn this around and show the world and our neighbors this loss was not in vain.
We can choose to make wiser decisions about how we pay for our college education. A little more sacrifice and attending a little more affordable school can provide many with a debt-free education.
We can choose to wait to purchase a product until we have saved enough for it. We can pay in cash and not have to pay additional interest.
We can choose to drive our cars a little longer and get to the point where the monthly car payment isn’t breaking the family budget.
We can choose to not borrow as much as the bank will lend us. We can take out a fixed mortgage that has us spending less than 25 percent of our monthly income toward our housing.
We can choose to elect federal officials who will balance the budget and start to cut the national debt; people who don’t promise us programs and tax cuts we can’t afford. This probably will lead to sacrifices as important federal programs will be cut and taxes likely will increase. This will make life a little more difficult to us now, but will pay off later.
These are all difficult cuts we will have to make, but is nowhere near the sacrifice American soldiers have and continue to make for us.
We can honor our soldiers on Memorial Day, but the greater honor we can give them is to live our lives so as to not be in slavery to our individual or country’s debt.
Whatever you do, don’t lease.
Not so fast! Are you sure that is what you want?
A couple of weeks ago I wrote an article about cars and how you can save money by buying a used car and driving it for a long time.
Writing that article really reinforced to me how much we as a society love cars. It probably has been my most read column online, and I have heard more from people around town about that article than nearly all my other ones combined.
This article was about at buying cars, but you may be wondering if it would be wise to lease a car. The thought of driving a new car every three years and probably paying less per month than your current car payment is enticing. For example, right now Honda is offering a deal where you can lease a 2012 CR-V for only $239 a month.
Based on this, it might seem like leasing is a relatively good thing, but I need to warn you, not so fast!
There are many pitfalls to leasing a car. Don’t just listen to me; let’s look at what millionaires do. According to research from Thomas Stanley, around 80% of millionaires have never leased a car. Why?
First, when leasing a car, you have no equity. Even though cars go down in value, they still have some value. When you turn in a car after a lease, you don’t own it, and you may have to pay extra. If you don’t return the car in satisfactory shape, you will have to pay extra. If you driver more than your annual limit of mileage, which is usually around 10,000 to 12,000, you will have to pay extra.
Second, you may have to pay more than the monthly payment. With the 2012 CR-V example, you only have to pay $239 a month if you make a down payment of $2,799. Overall, you will pay a little more than $11,400 over three years for the use of that vehicle, which would probably be lower than if you bought it and were making payments.
The difference is you paid $11,400, and when you are done, you have nothing except the opportunity to make a new lease or buy a car, and you have $11,000 less to spend. You also could buy that CR-V you were driving for the past three years for an additional $15,000.
Let’s say you were willing to buy a four-year-old CR-V with around 50,000 miles. Kelly Blue Book estimates you could buy this car from a dealer for around $18,000. If you drive 12,000 miles a year, which is the most you could drive on a lease without paying extra, the car likely will last another 13 years.
This would make your cost per year at around $1,380. For the lease, if you continue to renew at the same cost — which, with inflation, you probably wouldn’t be able to do— it is going to cost you around $3,800 a year.
One of the major secrets to building longterm wealth is to invest in assets that appreciate in value. Over long periods of time, this usually involves stocks and real estate.
Let’s say you continue to drive your older CR-V and take the extra $2,400 you’re saving a year and invest that in an S&P 500 index fund. If it can continue its 80-year average of 10% a year, after 13 years, your $2,400 a year becomes $64,000, plus you have a CR-V that still might be worth $1,000.
Saving money on purchases that decrease in value and increasing your purchases in areas that increase in value are good ways to build your net worth.
Cars decrease in value. If you want to save money on cars, remember a couple of things. First, there is a lot of depreciation the first couple of years you own a car. You can save yourself thousands of dollars by buying a used car. Second, even though a low monthly payment is attractive, you usually are going to end up on the short end of the stick with a car lease.
I know there are some who believe a car lease is a great way to go, and I’d like to hear from you. Check out my blog athttp://greatwonder.wordpress.com and share why you think a lease is a good way to go. Or, share your lease horror story.
The best post on my blog will receive a copy of the book “The Last Lecture” by Randy Pautsch. Why, you ask, am I giving this book away? First, it is a great book. Second, I have two copies, and even if I read it again, I still only need one.
Not the most scientific chart, but it still proves a point.
Just as I was leaving The Gallup Organization to come work at Northeastern Junior College, Gallup was starting one of its newest, largest polls ever. Every single day of the year, Gallup was going to poll 1,000 random individuals throughout the country to ask them a wide variety of questions.
This poll, known internally at G1K, was going to measure how we as a society change over time. It also was going to measure health and wellness in the country. These were new parts to the classic political polls for which Gallup has been known.
We now are starting to see some of the results of this poll, and there is some surprising information. One of the first pieces this polling has done is to show that money can buy happiness.
This goes in the face of the classic line that money can’t buy happiness. But, using the information from the daily poll, Nobel Prize winner Daniel Kahneman was able to show that money actually can buy happiness.
After reviewing more than 450,000 surveys from 2008 through 2009, the data showed Kahneman that people’s happiness increased as people made more money — up to $75,000 a year.
This can show us a couple of things. First, it is worthwhile to find a career that can provide for you and your family. It appeared in the polling when people did not have to worry about the essentials such as food and shelter, it made them more satisfied.
But it didn’t stop there: People also had to have a level of income where they felt safe and could provide some protection to their family if disaster would befall them such as a major medical expense.
All this being said, any money made more than $75,000 did not increase happiness. There was no statistical data showing someone who made more than $2 million a year was more happy than someone who made $75,000 annually. So, money apparently does buy happiness, at least to a point.
Other economists chose to look at some of this information a little more in depth. One of the most notable was Michael Norton, an associate professor at Harvard Business School. Norton used the same Gallup surveys and discovered that it wasn’t just the amount of money people made that brought about satisfaction, but also what they did with the money.
In almost every country in the world, Norton found that people who gave to charity were happier than those who didn’t. It is easy to conclude this the old adage “it is better to give than to receive” is true.
How can we use this information? First, it is important to look at your career. If you are in a career that will allow you to reach a level of income that eliminates the stress of paying your monthly bills, then you are on the right track.
If you are on a career path that will not allow you to get to that point, then you need to consider some options. Can you beat the statistics and find happiness at a lower income level, or should you consider starting a new career?
Second, if you are to the point where you make more than enough to meet your needs, are you spending your money wisely? If you are using your money to accumulate more stuff, then it probably isn’t going to bring you happiness. The ones who do receive happiness are the ones who give to others.
Are you finding a way to bless others with your wealth? If not, look at what really matters to you and make a difference with your money. Find a cause you believe in and can be active in and start giving your time, talents and treasure to this cause. Not only will it bring about higher satisfaction in your own life, but it can also bring happiness to many others.
New Car? Not yet for the Long family.
I found this picture on Wikipedia. Who puts a picture of a 2004 Ford Focus on Wikipedia?
A few weeks ago, Kerri, our two children and I took a road trip to Phoenix in our 2004 Ford Focus. While the Suburban would have offered us more comfort, we opted for the Focus to save on gas.
I am glad we chose to cram ourselves in the clown car, as we were able to get more than 30 miles to the gallon on that trip. Unfortunately, it was a little too much for the little Focus that could, which was shaking pretty badly by the time we pulled into Sterling.
We had run our back tires down a little more than we should have. About $200 later, the car rides well again. With about 115,000 miles, we need to spend a little extra money on it these days, but it is not that big of a deal for one major reason — we have not made a car payment on it in more than five years.
We bought the used Focus with about 30,000 miles on it seven years ago. We initially took out a car loan, but we worked to pay it off quickly.
The idea of not having a car payment is pretty unusual in our country. The average monthly payment on a car loan is around $400 these days, and 45 percent of new car loans are for more than six years. Americans have around $313 billion in auto loans altogether, and the average amount financed is around $26,000.
This being the case, it is easy to assume we always will have this debt. Once we get one car loan paid off, it is time to get a new car. If we still have a car debt and it is time to get a new car, just roll over the loan into a new car loan. Auto dealers are so generous to be willing to do this for us.
This is the mindset that has gotten people in this country into more than $300 billion in auto debt. To avoid car loans that can weigh you down, consider the following tips:
First, unless you are independently wealthy, buy a used car. The average amount of depreciation in the first three years of owning a car is 45 percent. That basically means the car you buy new is worth about half of what you paid for it in only three years. If you’re willing to let someone else take care of that first 45 percent depreciation and buy a car later, you can expect only an additional 25 percent depreciation during the next three years.
Eventually, if you drive it, your car will be worth only what you can get out of the spare parts. But, the longer you can drive a paid for car, the more you can save for your next car.
How much is it worth to drive a car for up to 225,000 miles? “Consumer Reports” did the math. If you are willing to drive a car 15 years, you will save around $31,000 as opposed to buying a new car every five years. If you are willing to buy a used car after the first three years, which takes out most of the depreciation, you will save even more.
I’ll be honest. I’m kind of tired of our Focus. I look at some of the new cars on the road, and I’m a little jealous. I look at some of the fancy features on the newer cars and I’m pretty impressed.
It is tough, but I keep reminding myself why I continue to drive it. My yearly maintenance costs are a lot less than what my car payments would be, and I know that we can save a little every month so we can pay cash for our next car purchase, or at least make a good down payment on it. Our next car won’t be fancy, but it will be enough to safely get us where we need to go.
Even though I don’t necessarily like the Focus, I can’t let my 4 ½-year-old daughter Quincy know. It may be a stretch, but I hope that when Quincy is ready to start driving, she will learn from her dad behind the wheel of the Focus.
Sometimes, I change my mind
I thank you, my readers, for giving me feedback on my columns. Some have said they enjoy them, some have said they agree with what I have written, and others have challenged something I have written.
To tell the truth, I don’t always agree with myself, either — I sometimes change my mind about my viewpoint after I write a column. While thinking about what to write this week, I thought about some of my past columns, notably topics about which I have changed my mind.
For the longest time, I believed we needed to switch from paper dollar bills to dollar coins. It is very clear that coins last longer than bills, and even when figuring the cost of production to the average length of use, dollar coins still are cheaper than our current bill system.
Unfortunately, when the Government Accounting Office (GAO) did a report on this, it found that the government would have to mint 50 percent more coins, as many dollar coins would end up in people’s change jars.
In the end, this would make dollar coins more expensive than dollar bills. Also, most Americans prefer the dollar bill to a dollar coin. The GAO did say the government would save more money by switching to coins, as people would store them as opposed to spending them. To learn more about this, do a web search for “Seigniorage.”
I also regret the column I wrote about Meredith Whitney, who incorrectly predicted hundreds of municipal bond defaults that did not occur this past year. Looking into this a little more, it appears her analysis was spot on.
There are numerous towns, cities, and counties across the country that are in dire financial shape. Whitney may have been off on her timing, but it would be pretty reasonable to expect more municipal defaults in the next couple of years.
The lesson to learn from this is that even when the expert analyses have the right information and a strong analysis, they are sometimes wrong. This is why you can’t predict how individual stocks will do. There are times when the experts get it wrong, so it is foolish to think you can hop on the internet a couple of hours a week and time the market or an individual stock.
After not having a credit card for a couple of years, Kerri and I signed up for a rewards credit card this past year. Our logic was that we might as well get a little back for the money we spend.
So far, this appears to be a winner. We pay off the credit card on a weekly basis and enjoyed four free hotel nights at a beautiful resort in Phoenix about a month ago. There is no way we could have stayed there if we had to pay the daily rate, which was close to our monthly mortgage payment.
This being said, I do think we spend a little more than we used to when we used cash and debit cards. We will give this system a little more time and will report what we decide in the end.
Getting rid of cable television is a definite slam-dunk winner. At the time, I wondered if I would miss watching TV. I had a few favorite shows I watched regularly such as “The Office.” Now, a year later, I can honestly say I haven’t missed it at all, except occasionally during football season when I have to check out scores on the internet or watch on the one network channel I can catch on my bedroom television with rabbit ears.
Even though we have Netflix, I’ve probably only watched about 30 minutes of TV at home in the past month. Also, the shows that I used to have to watch on a weekly basis aren’t that important any more. We have saved about $50 a month and I’ve spent my time doing things that are a little more constructive.
As I wrote in my initial column, this may not be a good option for everyone, but if you are considering it, give it a try. After we switched, our cable company has called and sent a plethora of letters trying to get us back. The company has offered us a rate I asked for while we still were customers, but we definitely are not going back to cable. You can buy quite a few groceries for $50.
While I’ve changed my mind some, I’m even more convinced on a few principles. So, what changes my mind or solidifies my convictions?
Even though I have my ideas on personal finance, I continue to learn by reading a lot about this topic and analyze the information. I try to not let my feelings get the best of me, but base my opinion on logic and what previous solid research tells us.
These practices don’t only work in personal finance, but in a wide range of areas from education to government to workplace success. Be willing to look at both sides of an issue critically, and then make the decision that is right for you.
Don’t believe something just because someone on TV or the radio or this newspaper says it is so. Take the time to research, analyze, and decide for yourself.
Survey says: Do your financial homework
Before I joined NJC, I worked at The Gallup Organization training survey researchers — those folks who call you at night to ask which presidential candidate you will vote for.Since working at Gallup I have been interested whenever I hear results of a new Gallup poll. A recent poll about investing really caught my attention.
You may have heard of it: Gallup asked Americans where they should put their investments. The No. 1 answer, with 28% of respondents’ answers, was gold. Secondly was real estate with 20%, and stocks and savings accounts each received 19% of the votes.
An even smaller percentage of those under 30 who answered said stocks are the best place to invest. The percentage of people investing in the stock market through individual stocks and mutual funds has decreased as well: In 2002, 67% of respondents said they had money in the market; today, it is only 53%.
Based on historical averages, these responses are wrong in so many ways. Over the past 75 years, the stock market has averaged around 10% growth each year, while stocks of smaller companies have averaged around 12% a year. During that same time, bonds returned just more than 6% a year, and gold returned just less than 6% a year.
No one knows if these trends will continue, but most major personal financial planners believe you should put long-term investments in the stock market.
Today, through an S&P 500 mutual fund, I can own an investment that will track 500 of the largest companies in the U.S. These are companies that are making products and providing services all around the world. As technology increases and billions are lifted out of poverty over the next couple of decades, I believe this is a good bet.
If I invest in gold right now, in 20 years, I have gold. I didn’t buy something that produced any product or service, or sold anything.
Some believe that if the world economy completely falls apart, then gold will be good to have. But this hasn’t been the case in the past. When economies fell apart, people weren’t accepting gold; they were bartering for important items such as clean water, food and other essentials.
If I thought the world’s economy was going to completely explode, I would be in the market for guns, canned foods, gasoline and water.
Besides having gold lead the pack, it also is concerning that just as many people would put money in a savings account or a CD for an investment as would place the money in stocks.
If you are saving for something in the short term or building an emergency fund, savings accounts, money market banking accounts and CDs are the best place for your money. With FDIC protection, up to $250,000 will be insured, and you will not lose money.
However, if you are saving for the long term, these investments are terrible. With almost all savings accounts currently paying less than 1%, your investment won’t even stay up with inflation. As prices continue, and will continue, to rise over the years, you need a long-term investment that increases your purchasing power.
Don’t be afraid of not following the pack. In 2009, only 15% of Americans said stocks were the best place to grow their wealth. Since the end of 2008 to the beginning of 2012, the S&P 500 rose close to 40%. Gold has been a hot investment in the past five years, just like it was in the late 1970s and early 1980s, before it lost almost half its value and took nearly 20 years to recover.
When looking at your retirement investments, do your own homework. Look at historic trends as well as how the world has changed. Talk to a wide variety of financial experts in a variety of areas.
Don’t trust the wisdom of the masses, because when it comes to investing, they are frequently wrong. Study what has worked over decades, not years, and then come up with your own plan. You don’t need a Gallup poll to tell you the best way to provide for your future.
If not now, when?
Reagan was a little more practical than many in republican leadership today.
Here’s a quick history quiz for you. According to former Republican Senator Alan Simpson of Wyoming, what president raised taxes 11 times while in the office?
You may be surprised to learn the correct answer is Ronald Reagan.
Reagan has become a hero of the Republican Party for his successful presidency. To be fair, he did enact massive tax cuts at the start of his presidency, but when federal revenue failed to increase as much as his administration thought it would, taxes were raised to keep the federal deficit from going completely out of control.
In the 1988 presidential election, George Bush was famous for the quote, “Read my lips: no new taxes.” In 1990, the first president Bush reached a compromise with Congress to raise taxes to help with the federal deficit. Doing this ended up hurting his chances for reelection in 1992 against Bill Clinton.
President Clinton raised taxes during his presidency as well, and along with a Republican-controlled Congress, the former president compromised to limit federal spending. Although each party argues they were the ones who made it happen, this combination helped give us our last federal budget surplus in the 1990s.
With our massive federal deficit now, it is difficult to even bring the idea of a tax increase to the table. Most non-partisan groups that analyze the issue point out there will need to be a combination of major cuts and tax increases.
Could we balance the budget without tax increases? Grover Norquist, who is in charge of the organization Americans for Tax Reforms, believes so. He has gotten most of the Republicans in Congress to sign a no-new taxes pledge. Norquist said his ultimate goal is to trim the size of the federal government in half.
True, this would balance our federal budget. But that means every federal government program would be cut in half — every Social Security check, Medicaid and Medicare benefits, and our military, to name a few.
Most bi-partisan and non-partisan groups believe in a combination of tax increases and spending reductions. The Simpson-Bowles bi-partisan budget commission recommended increasing tax revenue by about $100 billion with a new gasoline tax and the elimination of many tax deductions.
The Peter G. Peterson Foundation believes we need to look at a variety of options. Among them are to allow some of the Bush tax cuts to expire, eliminate some tax credits and deductions, create new consumption taxes, simplify the individual and corporate tax system, and encourage better compliance with the current tax laws.
I can see how raising taxes on the wealthy a little would benefit our country greatly. My family and I attended a weekend of pre- and post-wedding celebrations that, along with the big event itself, likely cost close to six figures in all.
My wife, Kerri, and I were blown away when we arrived at the Sunday brunch at the bride’s parents’ home and learned valet service was provided. We would have been just as happy parking our 2004 Ford Focus and making the short jaunt to the sprawling estate.
As I sat eating my gourmet catered brunch, listening to live music, looking at the multimillion dollar home with not one, but two, Bentleys parked out front, I thought, “I think this family could afford to pay $0.39 on every dollar they earned more than $250,000 instead of the $0.35 they currently do.” Not that I want to punish them or anyone else in this country for being successful, but we are all going to be punished even more — including those who can barely afford to make ends meet — if we don’t start to reign in our national deficit.
With all these options, I would think we could at least debate the idea of increasing revenue, but that appears to not be the case.
Last week, the House of Representatives approved a budget that would lower income tax rates. First, it would cut spending by the federal government drastically. Second, it would lower income tax brackets to two rates, 10 percent and 25 percent. Currently, there are six income tax rates for 10 to 35 percent.
At first glance, it appears this budget would help reduce the federal deficit, but the details are lacking. Most bi-partisan or non-partisan groups believe the new budget would mean no difference in taxes for those who earn $20,000 to $30,000 a year, but would reduce the income tax for those who earn a million dollars a year by around $250,000. I guess we could make room in the front drive for another Bentley.
Meanwhile, a bi-partisan budget based on a lot of the recommendations from the Simpson-Bowles commission gained a total of 38 votes in the House of Representatives … out of 435 voters. Democrats were afraid of cuts to entitlement programs, while many Republicans couldn’t support any new taxes.
Representative Steve LaTourette (R-Ohio) was one of the sponsors and he asked his colleagues a question I’m afraid many of us will soon be asking: “If not now, when?”
The longer we wait for common sense reform, the more difficult it will be.
