Jessica Jinkens: August 2009

Tuesday, August 25, 2009

The Quiet Millionaire

Despite what you see in the media, financial success generally doesn’t come with a lot of glitz. The wealthiest people I know are the ones you’d least expect. They’ve built their wealth slowly — and quietly.

Certified financial planner Brett Wilder has observed the same thing, and has written about the phenomenon in his book, The Quiet Millionaire. Along the way, he shares real-life examples of quiet millionaires. These are the same sorts of people who were profiled in Stanley and Danko’s The Millionaire Next Door [my review]. They’re frugal, hard-working, and sensible.

From the introduction:

Being a millionaire is a realistic aspiration if you are knowledgeable and diligent about becoming one…

Financial miracles do happen, but the quiet millionaire does not wait for a miracle in order to become financially successful. Depending upon what and how much you want, you need to commit to taking action and to making some well-thought-out, informed choices regarding what is really important to you and your financial life. This may require you to throw in some willing sacrifices, steadfast perseverance, and rolled-up-sleeve hard work.

In other words: It is possible to get rich — slowly.

A textbook for financial independence
Wilder begins his book by asking readers to consider what is important to them about both life and money. He urges introspection. In many ways, Wilder’s approach reminds me of George Kinder’s three questions about life planning. Both men want us to look beyond money to find meaning.

Most of the book is about straight-up financial planning, though. Its content will be familiar to GRS readers. Wilder covers topics like:

How to have a positive cash flow
How to manage various types of debt (mortgage, credit card, etc.)
How to plan for taxes (a topic I don’t cover much at GRS)
How to choose the right insurance
How to make college affordable
How to deal with health insurance

The advantage of The Quiet Millionaire over a blog, however, is that all of the information is in one place. Plus it’s written by a trained professional.

Unlike most books of this sort, The Quiet Millionaire also features a chapter on entrepreneurship. “Most quiet millionaires are successful business owners,” Wilder writes. “While not all are, statistically, most of them used this path to become one.” You won’t learn how to run a business here, but you will be given a sort of rough guide to business ownership.

The book’s longest chapter explains “how to be an investment winner”, and stresses the importance of diversification, asset allocation, and risk tolerance. Wilder’s goal is to get his readers to take emotion out of their investment decisions.

The Quiet Millionaire is different from most of the other personal-finance books I review. Though Wilder includes behavioral finance and life planning concepts, this is a numbers book. If you’re put off by the psychological tomes I usually feature here, consider reading The Quiet Millionaire instead. As one Amazon reviewer noted, “It’s like a textbook for financial independence.”

All the same, I often felt like there wasn’t enough information about any one subject. It’s as if The Quiet Millionaire were the map of an entire country. By looking at it, you can see how major highways connect one city to another, but in order to get detailed directions, you need to pick up a street map. (In this case, the street maps would be other books on specific topics.)

Getting rich slowly — and quietly
The Quiet Millionaire isn’t really a book for beginners. It’s targeted at folks who, like me, have reached the third stage of personal finance — or beyond. It’s for readers who are out of debt and building wealth.

(I think the book is actually targeted at those with high incomes. For example, it touches on Roth IRAs only briefly because: “Unfortunately, the quiet millionaire typically cannot contribute to the Roth IRA because it has…earned income limitations.” In other words, Wilder’s target audience is those who earn over $176,000 per year!)

The Quiet Millionaire is a quiet book. Wilder isn’t bombastic, and he doesn’t tout any gimmicks. In many ways, this book is boring.

But you know what? Smart personal finance is boring, too. Smart personal finance isn’t about being flashy or gambling in the stock market. Smart personal finance is about making the right choices day after day, year after year. The Quiet Millionaire may not make any best-seller lists, but I’ll bet it makes some of its readers rich.

—
Related Articles at Get Rich Slowly:

Read more about The Quiet Millionaire…

What’s Important to You in Healthcare Reform?

It’s been a while since I’ve taken the pulse of our readers on a hot topic, so I figured it was time. I’ve been paying closer attention than usual to the various proposals in Congress dealing with healthcare and health insurance reform, and I’ve made a list of the different things they’re trying to tackle. (You’ll notice there’s nothing in the list about assisted suicide or bureaucrats deciding who lives and who dies… that’s because nobody is proposing anything of the sort.)

So, press “Yay” on the things you want to see change in America, and “Boo” for those that aren’t important to you. If you think the state of healthcare in America is just fine the way it is, and you’re happy with healthcare costs rising three times as fast as wages, then by all means press “Boo” for everything on the list.

The Consumerism Commentary Podcast is in full swing with new episodes every Sunday. Listen and subscribe now!

What’s Important to You in Healthcare Reform?

Monday, August 24, 2009

Discover Card Overhauls Their Credit Card Terms

Now that regulations established by the Credit CARD Act and related rules by the Federal Reserve have begun to take effect, I’ve started receiving notices from card issuers regarding my accounts. My Discover Miles Card was opened in 2005 to attempt a 0% balance transfer, a way to earn interest on someone else’s money for free, but the move failed when MBNA denied the transfer and has gone almo! st completely unused since that event.

Nevertheless, Discover continues sending notifications of terms changes, balance transfer checks, and new cards requiring activation, all to encourage me to use their service. I received one from Discover today, even though I haven’t used my Discover Miles Card in several years.

Here is the summary of the changes.

Discover will no longer increase the interest rate on existing balances if I pay late or exceed my credit limit, but the interest rate on new purchases may increase to a Default Rate if I miss a payment.
The card is moving from a “fixed” interest rate to a higher variable rate for purchases: the Prime Rate + 9.74%.
The same is true for cash advances. The new variable rate for these transactions is Prime rate + 20.74%. (Yikes!)
The credit card company is using the grace period differently. They will not use new purchases to calculate the amount of interest due as long as I pay my credit card bills on time.

The notification included four pages on fine print, but none of these changes will affect me personally unless I need to use this credit card. I expect my other credit card issuers will send similar notifications soon, but even the new regulations for the cards I use will not affect me much because I charge only what I can pay off by the time the bill is due and pay off my entire balance at that point.

There is always a possibility that I experience a severe emergency for which I have insufficient cash. If for some reason I do need to carry a balance from one month to the next, I would prefer to fully understand the many ways in which I will be punished by the credit card industry.

The improvement of the grace period and the elimination of double-cycle billing are two aspects of the new credit card regulations that benefit consumers. Some of these changes, such as the elimination of double-cycle billing, won’t go into effect until February 2010.

The Consumerism Commentary Podcast is in full swing with new episodes every Sunday. Listen and subscribe now!

Discover Card Overhauls Their Credit Card Terms

Is Eddie Murphy dead? That's a matter of opinion

Perhaps people think Eddie Murphy is dead simply because they haven’t seen his face for a while. Eddie Murphy has been doing a lot of voice work lately. His gig as “Shrek” has been pretty lucrative and fans will be glad to know that there is a fourth “Shrek” movie coming out, “Shrek Forever After,” next year.
Glory days at the box office

Eddie Murphy’s first big film, for him, was “48 Hrs.” That was all the way back in 1982 when Eddie Murphy was barely old enough to legally drink alcohol. Everyone remembers his stint as “Beverly Hills Cop” in that trilogy. The very first “Beverly Hills Cop” basically broke even. The film cost $14 million to make and pulled in about $15 million at the box office.

People who didn’t get to know Eddie Murhpy through “Beverly Hills Cop” know him from classics like “The Golden Child,” which made $80 million at the box office and another $40 million from video rentals, which is no small feat. Personally, I enjoyed his performance in “Coming to America,” which was also a very long time ago. After “Daddy Day Care” and all of his other kiddie movies, perhaps people are just mourning the loss of the Eddie Murphy they once knew. Is that why someone started the rumor that Eddie Murphy is dead?

Lionel Tate

Lionel Tate is a person who holds a dubious honor, although there is little doubt at this point that he is every bit deserving. Lionel Tate holds the record in the U.S. for the youngest person ever sentenced to life imprisonment. At the age of 14, he battered and killed a 6 year old girl – he claimed he was showing her professional wrestling moves, like stomping on her head. The judge didn’t buy it, and gave him a life sentence. He was released a year later on probation, broke house arrest and found carrying a knife, then obtained a firearm and robbed a pizza deliveryman – which got him 10-30 years. He was defended by legendary Florida attorney Ellis Rubin, but now may need cash until payday for soap on a rope.

Friday, August 21, 2009

Freighter World Cruises For the Adventurer in You

Saving for a needed holiday

Everybody needs to get away sometime. We save our nickels and dimes throughout the year. We stockpile vacation time and cut corners where possible to ensure that we have that little bit extra to help us get away for a nice holiday. Now that we’re dealing with a serious recession, being able to save on travel costs is certainly welcome. We all want cash now, and sometimes we resort to a cash loan or two to get it, but the reality is that if we are to be able to enjoy things like ocean vacation, we have to keep our impulses in check. Only those expenses that are truly necessary will do if we are to make that vacation we’ve been dreaming about.

An ocean vacation?

Yes, there are many of us who enjoy the occasional cruise on the ocean blue. However, even with a good rate on a cabin aboard a reputable tourist cruise line’s freighter, the costs can mount. Every smiling face aboard that vessel is looking to serve you, and tipping is customary. You can see how that can add up, as will the expense for alcoholic beverages if there’s a limit to what your food allowance will cover. At least square meals tend to come standard with your cabin fee.

If an ocean cruise is definitely for you but the cost has you a deep shade of blue, consider freighter world cruises. By that, I mean travel aboard a cargo ship instead of a luxurious ocean liner. Yes, I’m talking about freighter world cruises. According to numerous travel outlets, it isn’t as bad as it sounds… not bad at all, in fact.

You are cargo, but you won’t be treated that way

A recent L.A. Times travel story indicates that there are cargo ship companies that make space available (not cargo hold, but actual rooms) for a “limited number” of guests. Think 10 people or less in most cases. Amenities generally include three square meals with the crew, a comfy room with TV and movies available, a reading room, an exercise room and sometimes even a pool. Plus, you can usually get a tour of your freighter, which is something most people never have the chance to see. So long as you book months ahead of time, you can find space and save money over conventional cruise lines. … click here to read the rest of the article titled “Freighter World Cruises For the Adventurer in You“

Roth IRA Conversion

The option to convert a Traditional IRA to a Roth IRA has been around for a while. As long as your modified adjusted gross income (MAGI) is under $100,000 you have qualified for this conversion. Contributions to the Traditional IRA is tax-deductible, which means that your tax bill is calculated after ignoring the amount you deposit into the IRA. You will pay those taxes after you retire and begin withdrawing these funds. If you have a higher tax rate now than you will in retirement, the Traditional IRA is a good choice.

On the other hand, the Roth IRA is not tax-deductible, so the deposits into this type of IRA are not exempted from your total income calculation for tax purposes. In effect, you use “after-tax money” to invest in a Roth IRA. This is a great choice for people who believe their tax rate now will be lower than it will be in retirement once they begin taking distributions.

There are two other benefits to the Roth IRA that often go unnoticed. The Roth IRA does not require distributions after age 70 1/2 like the Traditional IRA, offering more flexibility in retirement. The Roth IRA is better for estate planning; choosing a Roth IRA rather than a Traditional IRA for funds passed onto your heirs will allow them to avoid tax bills.

These benefits come with a drawback: if your MAGI is above $105,000 ($166,000 for those who are married filing jointly) your maximum allowed contribution begins to reduce and will completely phase out at $120,000 ($176,000 for married filing jointly). But there is now a law that will help you get around this for a short time.

In 2010, the $100,000 maximum for Roth IRA conversions will temporarily disappear. If you believe the Roth IRA is a better option for you but you have been prevented from investing in this type of account due to income limitations, now is your chance to make the change. Here is why this will be allowed: When you convert from a Traditional IRA you owe taxes on the amount of the conversion, and the government would really like that income.

If you must pay those taxes using funds from your IRA, the conversion might not be a good idea, but if you have cash saved for the tax bill you will be better off.

You can also convert accounts known as SEP IRAs and SIMPLE IRAs.

Here are some quality resources regarding Roth IRA conversions.

The Consumerism Commentary Podcast is in full swing with new episodes every Sunday. Listen and subscribe now!

Roth IRA Conversion

Thursday, August 20, 2009

10 Credit Score Commandments

Photo: wallyg

Painting: The Story of the Recorded Word, Edward Laning

Forget making changes to your credit card usage – it's what you don't do that can increase your credit score (or at least keep it from going south).

Just as you can't buy happiness, you can't buy a high credit score – the only way to get one is to demonstrate financial responsibility. "Creditors don't care about how many millions you may have in your investment account, it's how you use your credit," says Maxine Sweet, vice president, public education for Experian.

Steer clear of these 10 things experts say can mangle your score.

1. Thou Shalt Not Avoid Using Credit. If you don't use credit, you won't have much of a credit score. "A credit score is an important tool companies use to protect themselves," Sweet says. The lower the score, the higher the risk, and this can affect whether or not a loan is approved.

2. Thou Shalt Not Miss Payments. Paying a bill late will hurt your credit, but missing a payment will damage it even more. "If you do so, you can't make it up," Sweet says. In other words, making two payments in the next billing cycle will not remove the blemish from your credit history. Whether or not you pay your bills on time determines 33% of your score.

3. Thou Shalt Not Limit Loan Types. Despite what your bank account may think, a car payment and a mortgage may not be enough. Also managing an installment debt, such as a credit card, is a good indicator of credit savviness. There are five elements to the credit score model and revolving credit, which allows consumers to charge and owe different amounts each month, is one of them. "It's 10% of the score," says Gail Cunningham, vice president of public relations for National Foundation for Credit Counseling.

4. Thou Shalt Not Close Unused Credit Card Accounts. Actually, just use caution, says Sweet. A factor in credit score models is your utilization, which is your debt vs. how much is available. For instance, if you owe $4,800 on a card with a $5,000 limit, you're using most of your available credit and this "utilization" will have a negative impact on your score. Counting toward 30 percent, your utilization is the second highest factor in your credit score. You should charge no more than 30% of your available credit, recommends Cunningham.

5. Thou Shalt Not Be A Credit Tease. Don't run up charges all over town or apply for several cards at once while looking for the best rewards program. Recent inquiries means that you have accessed your credit and this can affect your score negatively. "This signals that you're desperate for credit and don't have enough cash available for your purchases," says Cunningham. She adds that if you are shopping for a major purchase, such as a mortgage or car loan, the inquiries will usually roll together into one.

6. Thou Shalt Not Rob Peter To Pay Paul. Don't charge anything unless you know how and when you are going to pay it back. One of the benefits of credit is the ability to spread out payments on a big purchase, not to delay paying with hopes that the money will come in – from somewhere. If you need to use a credit card for convenience, use a prepaid card or a secured card that enables you to make payments to your own line of credit.

7. Thou Shalt Not Get On The Call List. When a debt turns into a collection account, it's an indication that you got yourself in hot water. Once a collection agency jumps into the arena, it becomes the owner of the debt, which will show on your credit history. Trying to make payments to the original debtor will not make the collection agency or the negative mark on your credit go away.

8. Thou Shalt Not Forget The Little Things. That library fine you didn't pay or the health club contract you signed but didn't honor can show up on your credit report. Any debtor has the right to report unpaid bills to the credit bureaus, and many of them exercise that right.

9. Thou Shalt Not Negotiate. On paying less than what you owe, that is. If you cannot repay a debt in full and a creditor agrees to settle for less than you owe, you haven't won the battle. The transaction will be reported as a settled account and this will hurt your credit score. Instead of negotiating to lower the overall amount of the debt, ask to have your interest rate or monthly payment lowered so that you can continue to pay the debt off in full.

10. Thou Shalt Not Give Up. If you have late payments, missed payments, defaulted loans, and similar credit mess-ups in-between, don't give up and think that your credit history is ruined. Although offenses like these generally stay on your credit history for seven years, the recovery clock doesn't start ticking until you have one full month of paying all of your debts on time, says Sweet.

Provided by FreeCreditReport.com -
See your credit report and score today

Now Is a Good Time to Buy (Especially in Indianapolis)

Homes are affordable at last!

Even if you're one of the many people who are scrambling to find cash until payday, now may be a good time to buy a house. Plunging house prices and rock-bottom interest rates on secured loans have made housing across the nation more affordable in the second quarter of 2009 than it has been in the last 18 years, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI) released on August 19.

“The increase in affordability — along with the $8,000 federal tax credit for home buyers — is stimulating demand, particularly among young, first-time buyers,” said NAHB Chairman Joe Robson, a homebuilder from Tulsa, Oklahoma, in a prepared statement.

According to the press release:

The HOI showed that 72.3 percent of all new and existing homes sold in the second quarter of 2009 were affordable to families earning the national median income of $64,000, down only slightly from the record-high 72.5 percent during the previous quarter and up from 55.0 percent during the second quarter of 2008.

The NAHB/Wells Fargo HOI is a measure of the percentage of homes sold in a given area that are affordable to families earning that area's median income during a specific quarter. The NAHB considers a home affordable if a family making the area’s median income would devote no more than 28% of its take-home pay to housing costs.

The winners are . . .

The older, industrial, Midwest cities generally offer the best housing prices. Indianapolis, Indiana, has led the HOI for 16 straight quarters. At the end of July, 2009, nearly 95% of all homes sold there were affordable to families earning the area’s median income of $68,100. Other leaders were Youngstown and Dayton Ohio; and Detroit and Grand Rapids, Mich. … click here to read the rest of the article titled “Now Is a Good Time to Buy (Especially in Indianapolis)“

Caster Semenya Photos | Glen or Glenda of Track World?

She says she’s a woman; officials unsure

From the International Olympics Committee’s point of view, athletic competition has always been an arena where countries can set aside their political and ideological differences and enjoy the fruits of pure, honest fellowship. This is of course contrary to human nature, but the IOC continues to dream. Human beings feel a compulsion to find whatever advantage they can in life. If armed forces loans or auto financing can help provide that advantage, people latch on. When it comes to sports, human nature dictates that whenever an advantage can be gained, the time is right to play ball.

Or, in the case of Caster Semenya photos, whether there is a lack thereof.

It has happened before

According to the San Francisco Chronicle, Adolph Hitler recruited a “woman” named Dora Ratjen to high jump for Germany in the 1936 Olympics. As it turned out, Dora was actually Hermann - a man who was urged to pose as a woman to sustain the illusion of Aryan superiority. He finished fourth in the Olympic event, out of the medal ceremony, but broke the women’s record two years later. Not long after setting the record, a doctor’s exam confirmed that Dora was a Hermann, and Hermann disappeared. Perhaps he went in search of armed forces loans or auto financing.

Such exams were not standard at the time. It wasn’t until the 1960s that gender testing officially began during Olympic competition. Eastern bloc nations continually found a way around that, however, as they utilized hormonal therapy that technically did not change the gender of female athletes, but gave them a muscular advantage, more masculine features and unwanted facial hair. Hormone treatments were distributed largely without the knowledge of the athletes, and in most cases also caused intense mood swings and suicidal tendencies. … click here to read the rest of the article titled “Caster Semenya Photos | Glen or Glenda of Track World?“

Wednesday, August 19, 2009

Discovering (and Challenging) Your Financial Values

This is a guest post from Karawynn, who writes about personal finance at Pocketmint. Karawynn is a potential Staff Writer for Get Rich Slowly. In her first article, she visited the Island of Misfit Foods. Karawynn has been blogging since before “blogging” was a word.

My parents taught me nothing about money management. My dad opened a checking account for me in high school and showed me how to use the checkbook register. Beyond that, I was on my own. I never had any clue how much money my parents made, and very little sense of how much most things cost. Taxes and loans and bills and credit were all vague mysteries. Mortgages and retirement accounts weren’t even on my radar. My family simply never talked about money at all.

My parents might not have taught me anything, but I learned things from them all the same:

I learned that when you moved into a new, larger, nicer house, you also bought a full suite of brand new furniture for every room in it.
I learned that it was okay to shop for sale clothes at department stores, but that the idea of used clothes was disgusting.
I learned that donating to Goodwill was fine, but buying from Goodwill was shameful.
I learned that you purchase only new automobiles, one for every adult driver. (Women get cars, men get trucks. Yes, I did grow up in Texas, why do you ask?)

We all enter adulthood with a personal ‘financial culture’, a sense of what is acceptable and what is not when it comes to money. If your family, like mine, never spoke about money directly, some of your deep-seated assumptions may be imperceptible.

Recalibrating financial values
As a fledgling adult, I had all kinds of unreasonable expectations, not the least of which was that I would coast along with the same high standard of living that my parents enjoyed during my teenage years. Even though I knew, if I had thought about it, that my parents had started out on a much lower rung — I can remember the Formica tables, vinyl chairs, and ancient matted carpets of my early childhood — no one had ever suggested that I would need to go through a similar sort of climb.

J.D.’s note: This point — that young adults cannot expect to have the same standard of living as their parents — is something I try to emphasize when I speak to college students. It’s one of the things that trapped me, too. I think it traps many of us.

Like many kids of my generation, I got my first credit card at 19, and used it liberally without any sense of the damage I was doing to myself. When my near-minimum-wage income failed to support my expected lifestyle, Mastercard and Discover came to my rescue. It was many, many years before I understood enough to blanch at the expense of five rooms’ worth of brand new department-store furniture, much less wonder whether they had been paid for with savings or debt.

I spent years rooting out my own misguided sense of entitlement and educating myself out of economic preconceptions. My college friends introduced me to trendy thrift and consignment clothing stores. I learned about depreciation and decided to buy only used cars, never new. Two years ago I paid off the last of our credit cards and foreswore consumer debt forever. If you’d asked me then, I would have said I had completed my transformation, fully recalibrated my financial values.

I was wrong.

Outside my comfort zone
I lost my job last winter just as the market dried up in the recession. My partner took a cut in both hours and wage. At Christmas last year we were running on only 25% of our former salaries. By March I had a little freelance work and he had regained some hours, which put us back at around 60%. Still, our mortgage alone eats more than half our current take-home pay.

This is hardly the first time I’ve seen my income suddenly fall through the floor. Before, I used credit cards to make up the difference. This time when our earnings plummeted, we slashed spending even farther. In some cases this meant returning to earlier habits that — pressed for time and with plenty of money — I’d fallen out of, like using the library instead of buying books.

But it also challenged me to step outside my comfort zone and try things I’d never dared before. This is how, in the last several months, I came to brave the Grocery Outlet and the Dollar Store and Goodwill. And if my use of the word ‘brave’ in this context makes you scoff, you must not have the derisive little voice in your head that I do, whispering that you’re a failure, contemptible, poor.

Identifying preconceptions
Not all the values I absorbed as a child were detrimental. I learned that homemade gifts and cards can be more appreciated than store-bought ones. I’d probably be in better financial shape than I am if I’d hung on to my parents’ culture of always eating at home, never in restaurants. (Alas, I grew up and became a foodie.)

You may choose to accept the values you grew up with, or reject them, or some of both. But before you can make true decisions about what you want to value, you have to identify your preconceptions, the little voices in your head that are too familiar to question.

First, discover your native financial culture by broadening your awareness of the alternatives. Ask older family or friends what they remember from times before you were born. Read about the economic attitudes of people in other countries. Seek out stories from people much richer and much poorer than yourself.
Second, challenge your inherited values by trying something new, even when you don’t have to. Walk into a store that you’ve always disdained. Make something that you’ve always bought. Visit a neighborhood that you’ve always ignored.

I have two kids, stepdaughters aged ten and sixteen, and I desperately want to send them out into the world with all the financial context that I lacked. Part of that means active teaching of skills and concepts, like how to plan meals around grocery loss leader sales, or why forty years of compounded interest is more than twice as good as twenty. Part of it means creating a culture in our home where money is not a taboo subject, where we talk openly about wages and savings and expenses and debt.

And part of it, I hope, means being a living example. I walk with our girls into Goodwill with my head held high, as proud as if we were in the toniest department store in town.

Homemade cards by Carrissa GoodNCrazy.

—
Related Articles at Get Rich Slowly: