Wait a minute here, does anybody really know what Ben Stein is talking about?
Anybody, anybody, anybody?
Bueller? Bueller? Bueller?
Best,
James
Monthly Archives: May 2008
Book Review: Millionaire By Thirty
Today’s posting is review of Millionaire by Thirty:The Quickest Path to Early Financial Independence. The book is a joint effort by financial adviser and author Douglas Andrew and his two sons, Emron and Aaron.
Millionaire by Thirty is an unconventional book. Many of its recommendations fly in the face of traditional thinking about personal finance. In this regard, one is both intrigued with the content, but also somewhat put off – much like watching a street corner preacher or listening to a radical politician.
Parts of the book are very conventional – the Andrews argue for aggressive saving, budgeting, homeownership and building a good credit history. However, the authors perspective differs from traditional financial advice with respect to mortgage debt reduction and arbitrage. Gurus like Dave Ramsay and David Bach generally argue that mortgages should be eliminated, but Millionaire by Thirty says this is problematic because you’re left with a bunch of illiquid equity when you’re done with the obligation.
Instead of illiquid equity Andrews says you should be investing your equity into tax protected, safe, liquid investments that give a high rate of return. Sounds good, right? Well, according to them the assets meeting these qualifications are indexed universal life insurance policies. These are policies sold through insurance companies which involve a 5 to 10 year period in which you pay into the policy, then you are eligible to take distributions. The economic structure of the insurance companies, tax advantages and compounding will allow you to receive fat payments until your death.
The idea does fly in the face of conventional wisdom that says you should pay off your mortgage. – but, rather than coming from the far left of crazy, the idea that people should pay less on their mortgages and arbitrage the difference actually stems from a Chicago Federal Reserve study, not from Andrews. This hasn’t stopped him from being lambasted by a number of bloggers (1, 2, 3) who generally argue the approach is too risky.
My take is Andrews idea is interesting. However, its definitely is NOT for the faint of heart and it certainly isn’t for beginners. To successfully execute Millionaire By Thirty‘s main idea you’d have to thoroughly research life insurance companies, and develop expectations regarding the future of interest rates and real estate prices. To conclude, if you are new to personal finance, save the book for later. If you have more experience and like reading work by iconoclasts you might enjoy it. 
Best,
James
Check out Douglas Andrew at Powells.com
Liquidizing your Home Equity to Build Wealth & Security
As a nice follow up to yesterday’s post on when to borrow against your home, I wanted to share an article that just changed my outlook on life.
First I’d like to thank DividendPrivate for tipping us off on this article, How the Affluent Manage Home Equity to Safely and Conservatively Build Wealth.
I can’t tell you how much you need to reach this article!
Frequent readers will know that James and I have been considering taking out a mortgage on our investment property to access the equity that has built up, making that money work for us, rather than simply be tied up in the property.
We have also been working hard to pay off our second mortgage, almost having paid off $20k since the New Year. While this was done with the best of intention, I now see the error in our ways!
I see that we should have been building up that fund for investment, rather than paying off our mortgage first.
You really have to read the whole article, but I’ll outline some of the key points here:
Every dollar we give the bank is a dollar we did not invest. While paying off the mortgage saves us interest, it denies us the opportunity to earn interest with that money.
By having cash available for emergencies and investment opportunities, most home-owners are better off than if their equity is tied up in their residence.
Home equity is not the same as cash in the bank. Only cash in the bank is the same as cash in the bank.
Home equity is serious money. We are separating it from the home to conserve it, not to consume it. Therefore it should not be invested aggressively. Rather, home equity is best invested in safe, conservative investment vehicles.
We agree with most of their arguments in the article, but given our current financial situation, are willing to take a bit more risk by putting our available resources in dividend producing assets. This wouldn’t necessarily be the choice for those who didn’t have as many resources to fall back on in times of difficulty. When you are trying to build wealth, it is important to not get in over your head and take unnecessary risks that jeopardize your safety net.
We are still trying to figure out how this fits in to our medium-term plans, but as always we’ll keep you posted.
All in all I’d recommend that everyone who is serious about finance read this article in full.
Check it out and let us know what you think!
Miel
Money Saving Tip of the Day
Today’s Money Saving Tip Is:
Use Google. If you are shopping online, search under the keywords “online coupon” and the name of the product you are searching for. You can sometimes score free shipping or price discounts.
For some major websites like Amazon.com, its a bit tougher to local good coupons, but it never hurts to try. Especially if you’re shopping for a big ticket item.
Best,
James
Finding Deals
Hi Folks,
Here’s another posting dedicated to finding you good deals on stuff online. While we are advocates for keeping your money in your pocket and buying less stuff, sometimes it is inevitable. When that time comes, consider checking out these sites to find the best deals out there:
Dealhunting.com is a clearing house for all sorts of promotional codes. It also gives you an at a glance look at what sales are currently going on.
Dealtime.com is very helpful as you can search products by price range, type of product, or specific brand. Once you’ve narrowed down what you want, it shows you the prices at a number of stores.
Reesycakes.com is a site for you shoppers out there. They’ll help you find the deals.
Happy Sales!
Miel
When To Borrow Against Your Home?
Hello All,
A major source of wealth for many Americans is home ownership. However, home ownership usually impacts your wealth through equity accumulation – or the residual difference between what you owe on your mortgage and the market value of your home. This creates a problem for homeowners: real estate equity is not liquid – its not like cash or stocks which can be easily exchanged or sold. This leaves the homeowner with an asset they cannot easily access. – This is problem if you want to aggressively build wealth.
One option for getting at the equity in your home is take out a loan against it. However, there are several guidelines that you might consider when deciding on borrowing against equity. These apply for both lines of credit (HELOCs) and bread and butter equity loans.
Its okay to borrow when:
1) You hate borrowing, it stresses you out.
2) The loan is used to consolidate unavoidable consumer debt – like a car loan – and you pay it off fast.
3) The funds are used for major investments – such as starting a business, getting an education, doing home improvements or buying property or stocks. You should have good track record of making sound investments also.
4) You can handle the payments, have a sufficient cash reserve and don’t have a ton of other obligations.
Its NOT okay to borrow when:
1) The funds are used for consumer junk – coloring books, cheap crap from Target, Twinkies, etc. Don’t borrow against your home equity if you are a spendaholic.
2) Debt makes you feel relieved.
3) Borrowing will frustrate other important goals – like paying for your kids education.
4) You do NOT have sufficient funds to pay the debt if your income drops.
5) The loan eats up all the equity in your house.
Finally, I’d be remiss if I did not mention that some financial Gurus say you should avoid debt – notably Dave Ramsey. However, prudent borrowing should not be dismissed out of hand. If its done properly accessing your home equity via a loan can be an important part of your personal financial picture.
Best,
James
Town for Sale: only $45, 410
Hi All,
If you’re interested in an amusing diversion, evidently there is an entire town available for sale in Texas. It’s not much of a place, the entire town only has 4 or 5 buildings, but since the whole kit and kaboodle is going for like $45,000, it’s worth looking at. Check out the ebay listing here.
Best,
James
Visualize your Goals
Us DINKs believe strongly in visualizing your goals. We have done this consistently with all of our goals and find it to be both helpful and fun. Our first was a hand drawn thermometer on the back of our bedroom door, for saving for our place.
Most recently we saw some real results with our web traffic. We were on one of our regular calls when we started talking about how to increase our web traffic. I decided to work my magic on publisher and tweak our traffic reports to show that they are double what they currently have been. I figured that this would give us a goal and a nice visual to back it up. See below:
The incredible thing is, our traffic more than double the very next day. See below:
While the web traffic dropped back down again afterwards, I’d like to think that there was no coincidence that we had the biggest increase in traffic we’ve ever seen in a day. Not bad for results there.
Pertaining to our general finance goals that we’ve been working on for the end of the year, I’ve made up this little poster. This gives us not only the overall goal, and small pieces of that goal, but also reminds us of the steps that we are committed to taking to reach that goal.
We’d love to hear from our readers to see if they’ve had any success with visualizing their goals.
Cheers,
Miel
Money Saving Tip of the Day
Today’s Money Saving Tip Is:
Go Shopping with a List: The main idea here is if you shop with a list, you’re far less likely to impulse purchase or buy things you won’t ever use. My wife and I are totally guilty of this. We often go shopping with only a general idea of what we need. That said, shopping with a list is a proven way to cut your expenses.
Best,
James
Goals without Limits
Lately I’ve been contemplating putting exact numbers on your goals.
Part of me definitely sees the value of defining your goals and setting specific time frames and parameters in place. Otherwise you would be working towards a vague goal; you wouldn’t even know when you reached it.
At the same time, I also consider that while we stretch ourselves to reach those goals, we are also limiting ourselves in a sense. By telling yourself, and the world, that you are capable of only so much – you thereby limit yourself.
While I don’t have any analytical data on it, it seems very common that one peeks as they reach their goal. This means that while a goal might challenge you, it also puts a mental cap on what is possible.
So I’ve been thinking about how best it is set your intentions towards a specific goal, while still being open to going beyond that. I suppose part of it is just how you frame the goal, and how you talk to yourself about it.
I still haven’t figured this out myself. If readers out there have any ideas on how they’ve worked around this I’d love to hear from you!
Best,
Miel