For those of you who are renting, you’ll find this posting of some interest.
Money Talks News is an underrated video series that focuses on consumer affairs and personal finance. This video is on how to negotiate your rent.
The video says three things are key for negotiating your rent:
1) Know the local rental market.
2) Having a clearly defined negotiation objective.
3) Prove you are a good tenant, bring your credit score and references.
All these make good sense. My wife Miel and I have had some limited experience with rental properties. Landlords are definitely looking for good tenants. If someone has is a good prospect owners are likely grant concessions like lower rent, a free month or a smaller deposit.
What is a good tenant? Of course, opinions are going to differ, but here are some criteria that might you might be measured against when you’re applying for housing. I think that age discrimination might be illegal, but unfortunately law cannot change peoples subjective biases, as much as we’d like it to.
A) Those with good references B) A job paying at least three times the monthly rent C) Good credit D) A stable rental history E) Married F) Older
Opening a savings account is usually one of the first step towards achieving your financial goals. If you ask anyone about the steps you need to take in order to get a hold of your finances the first they usually suggest is to get a hold of your spending (by creating a budget) and the second step is usually to establish an emergency fund. That emergency fund is often in the form of a (hopefully) high interest savings account. It’s just money you can put away, not touch and watch slowly grow. You’re less worried about achieving the highest possible rate of return but instead it’s more focused on having a stable supply of money you can draw upon in order to weather unpredictable financial storms. And although there are other conservative investment vehicles that achieve the same goals as savings accounts, the flexibility and ease of use make them especially attractive.
But savings accounts can serve purposes larger than just emergency funds. Right now I have three savings accounts set up. I have an emergency fund (which, thankfully, I’ve finally managed to fully fund), one for the money that I’m saving for a down payment on a house and finally, a longer-term savings account that I’m using to accumulate money for a loftier goal: opening a bar with a friend of mine some time in the future. While those goals are all different, they share a common thread: they all contain money that I’m not expecting to need anytime in the near future and I’m comfortable with having a modest return in exchange for the security of that money always being there.
And that is the beauty of savings accounts. I focus a lot of my energy on investing. Tinkering with my 401(k), IRAs and brokerage accounts in order to maximize my investment return. There is higher risk involved, but with those accounts, I’m comfortable with taking those risks and occasionally taking losses so that I can enjoy non-trivial returns. But those accounts could lose a lot of their value; even the most careful planning can become moot if there’s another stock market crash or I make a significant mistake resulting in an unfortunate loss. With that in mind, it’s comforting to know that I have caches of money that are far more stable, and if I get in a financial pinch, I can draw upon them and be ok. They are my financial security blanket.
The United States is the most consumer-driven economy in the world, and it represents up to 2/3rds of our total economy. With that being the case, historically the personal savings rate (as a percentage of disposable income) has been in a state of general decline since the early to mid 80s. Before that, starting from the late 1940s, the personal savings rate had generally remained flat with a slight upwards trend. The data for the years surrounding World War II are an interesting case study in an of themselves, as the country saw people save their money during the war years before post-war spending sharply cut that percentage. The year 2005 saw the personal savings rate dip below 0% for the first time since 1933. This was at the height of the run-up to the mortgage crisis that lead to the economic recession we’re currently digging ourselves out of. Probably the most interesting information comes from the last three years, during the aforementioned recession. At the beginning of that period the savings rate continued to drop as the initial hit of the economic crisis was felt and budgets tightened. However, 2008 saw a (relatively) sharp increase in savings, from a declining trend bottoming out at just over 1% in the 1st Quarter of 2008 to a rate of over 3% in the 2nd Quarter of 2008. A year later, in the 2nd Quarter of 2009, the personal savings rate jumped to nearly 5%. Many economists have suggested that this correlates to people weathering the initial storm, then taking stock of their financial situation and subsequently deciding to save more money. What will really be interesting is how those rates change as the recession continues and then when we do start our recovery. Will personal savings rates return to pre-recession lows, or will people decide to hedge against future economic downturns by saving more? That, of course, remains to be seen, but I will be monitoring it closely.
My savings has been pretty steady since I started working, even when I saw my incredible APY of around 4% cut to barely over 1%. Despite those irritating cuts, I’m still comfortable savings as much as I can – while hoping those rates eventually return to somewhere near those great rates I once enjoyed!
All data regarding the personal savings rate obtain from the U.S. Department of Commerce.
-Michael Twitter: @michael_dink
Update: This post was feautered on The Carnival of Twenty Something Finance
“[Antoine Walker] will never have to worry about money again in his life.” -former Boston Celtics president and head coach, Rick Pitino
I’m fairly obsessed with sports, but especially basketball. My Purdue Boilermakers (pre-season top 10!) and the Indiana Pacers keep me fully engrossed in the sport of basketball from late October to nearly the middle of the following summer. As such, I remember when Antoine Walker played for the Celtics just a few years ago and I detested him. He was equally capable of pounding the ball in from the blocks as he was hitting the long three with a hand in his face. Whenever I think of Antoine Walker, the first thing I always think of was his aggressiveness and (borderline) arrogance. That man never gave two thoughts to launching a 30 foot shot early the shot clock or taking on a double team instead of passing out of it like he should have. But apparently the basketball court wasn’t the only place where Walker was aggressive.
I came across an article on Walker in the Boston Globe the other day (“For Walker, financial fouls mount”) that is a must-read for anyone with a dual interest in sports and personal finance. The article goes on to talk about how Walker spent his considerable fortune that he made in his years as an NBA player. It is estimated that over his pro career (which, while not officially over, is probably done for after Memphis bought out his last NBA contract) Walker earned around $110 million. Even roughly accounting for taxes, $55 million is still a considerable amount of money to spend in such a short period of time to get to where he is now, essentially broke and indebted to various creditors (mostly gambling debts) for around $1.5 million.
How did he get to this point? Unfortunately, his story is not that unique amount professional athletes: lifestyle inflation, being overly generous to family and “friends”, failed business endeavors and a gambling problem all contributed to his current financial state. It is because of people like Antoine Walker than many professional sports operations, such as the NFL and the NBA, feature symposiums aimed at teaching rookies how to handle their money, how to make a budget, where to go to get good financial advice, how to evaluate (and get help evaluating) the multitude of business ideas they get pitched and how to create an environment where their financial success will be able to benefit them and their families even after their career ends. Unfortunately, the message doesn’t always sink in – the NBA Players Association recently released figures estimating that within 5 years of retirement, 60% of former NBA players were broke.
I suppose the only takeaway lesson from this is that everyone can make poor financial decisions, and there’s no such thing as having enough money that you no longer have to worry about how it’s been spent. In many ways I sympathize with many professional athletes who go broke after their career has ended. Maybe they weren’t given the financial tools to handle their situation, or maybe they have family and friends back home who see them as a paycheck, and have abused their relationship with the athlete for their own financial gain. Whatever the specifics of the situation may be, it is still shocking to read articles like the one I read about Antoine Walker and his financial demise.
If you’re thinking about starting a small business or are interested in getting into entrepreneurship, here is a great collection of links to free online courses and lectures.
Handy if you’re looking to pick up some free education.
Its Wednesday, so that means its time to avoid making money mistakes. Here is a listing of some of the top 6 mistakes people make with their cash as well as pointers on what can be done to avoid these errors.
1) Racking Up Junk Debt: Credit card offers are ubiquitous in American society. They’re easy to use because most stores accept plastic, so a lot of people have ended up racking up debt on the plastic crack. According to the Survey of Consumer finances in 2007 something like 44% of American households carry a balance on their plastic (1). This is a problem as credit card debt can be very expensive, with some cards charging upwards of 20%. Solution to this? Get a debit card.
2) Not investing soon enough: Its trite and tired advice, but its true. The more time you have to invest, the more money you can generally make. Time is important for two reasons. First, if you have more time, you can recover from mistakes before retirement. Second, if you have more time you can take advantage of compounding to build wealth. A good way to do this is by purchasing stock in a company with a moderately high dividend payout and good long term business prospects in a boring established industry – utility stocks are good for this. Then just sit back and let the dividends compound.
3) Investing to conservatively: The idea behind this is that long term cash is more likely to grow rapidly when invested in stocks or directly in small businesses. Its important that you take this advice with a grain of salt. Last years stock market declines and the nations deep recession have obliterated billions of dollars of US wealth. In addition, this principle is based on the historical performance of US equity markets and tends to ignore historical trends internationally. So, there is no guarantee that riskier assets will yield a higher return, they just tend do do so. Consider instead a mix of safe and risky assets, you’ll have the best of both worlds.
4) Under or overdiversifying: Conventional wisdom suggests that if you spread your money around, you’ll be better off. This economic principle is based on the doctoral dissertation of a guy called Harry Markowitz back in the 1950s. Markowtiz’s theory and ideas were adopted and were subsequently refined into modern portfolio theory by later economists. Its currently become fetishized and is a main pillar of wall street dogma.
Iconoclasts like the somewhat blustery David Kiyosaki argue that diversification is essentially a class based idea. They say that diversification is basically for middle class investors who don’t have the resources, time or inclination to develop a business or speculate intelligently. In this case, the numbers back up thinkers like Kiyosaki. Really wealthy people tend to have concentrated stock or business holdings. However, for most people its probably better not to put all your eggs in one basket, its just that if you want to get really rich. you need to think critically about this.
5) Investing in what you don’t understand: The world is growing exponentially more complex. Thus, its often hard to evaluate the amount of risk associated with some kinds of investments. For example, the recent stock market downturn was driven by heavy bets on derivatives. The only problem was that these products were too new for banks to reliably calculate the risks associated with owning them. The end result of this – as everyone knows – was epic losses with attendant titanic social and political repercussions. Another example is the stock market boom back in 2001. Small investors crowded into internet stocks at inflated prices, when in fact most of these investors had no way of accurately judging what the underling prospects of those business were. The outcome of boom of 2001 is also well known and bears no repeating here.
6) Relying on the advice of others: Classical sociological theory argues that information and advice are transmitted via social networks. That is, most people make decisions based on what members of their social networks are doing. For example, they buy stocks because the guy in the cubicle next door bought some. Or they buy a product because their mom or sister in law thought it was a good idea. This is dumb. You’ll only go as far as your peers if you follow this pattern. Instead, it makes sense to model your behavior on the advice of people who have demonstrated extraordinary success in achieving financial security. Also, its preferable that the person you model your behavior on be dead – live gurus are unreliable because their future track record is unknown. For example, Suze Orman is good, but she could give bad advice, get sued, become corrupt, etc etc. Model your behavior on rich dead people, not your friends.
All – if you have any additional thoughts, we’d love to hear them so feel free to leave a comment on this posting.
Adam over at Man Vs. Debt is having guest post week and today (Tuesday, October 27th) he’s featuring a post I wrote for him about the parallels between training for a marathon and managing finances. Adam is one of my favorite personal finance bloggers (and not just because we’re both from Indiana) so if you’re not familiar with his work, I suggest you head over there and check out his blog. Thanks!
The Wall Street Journal has an excellent article online about the health the 19 largest financial institutions. The article, entitled “Banks Need At Least $65 Billion in Capital” can be found here, and it features a cool interactive graph. The most interesting fact I learned from that article is that Bank of America has a capital gap of about $34 Billion, over twice as much as the institution with the second highest need, Wells Fargo with a $15 Billion gap. Bank of America also took the 2nd most in TARP money with $45 Billion, only $5 Billion less than the leader, Citigroup, whose capital gap is only $6 Billion (who thought we’d be using “only” and “$6 Billion” in the same sentence?).
While the graph is mostly depressing, one bright spot out of the bailed-out banks is Goldman Sachs, who took $10 Billion in TARP funds but has paid it back (plus interest) and do not have a capital gap. It remains to be seen whether others will follow suite, but it is an encouraging sign. I hope the WSJ comes out with the same graph 6 months or a year from now, so we can see our progress.
You gotta love wild predictions about the future. According to American futurologist Paul Saffo the wealthy will eventually evolve into a separate species due to their increased access to medical and robotic technology.
From the Telegraph.co.uk:
Mr Saffo, from San Francisco, says in the future people will be able to grow their own replacement organs, take specially tailored drugs, and use genetic research tools to alert them from any possible hereditary health dangers. He adds that tomorrow’s world will be a fusion of biology and technology, where robots do the chores, cars drive themselves and artificial limbs are better than real ones.
Mr Saffo’s comments reflect claims by American scientist Ray Kurzweil who only a few months ago said immortality was only 20 years away due to the speed of advancements in nanotechnology.
This past May I got so sick of being horribly out of shape that I decided I would start running. I was an ok runner in High School (lower-level varsity on the Cross Country team), and although I can’t say I necessarily enjoy it, there is a certain feeling of accomplishment that comes from being able to run that is just enough to keep me coming back. But I hadn’t run in quite some time, so I needed some new gear.
I don’t typically spend a lot of money on random things for myself, so I was ok with making a few purchases to get this new activity going. And you’d think that running would be a low-cost hobby, but as I look back on the last 4+ months, I’ve spent a decent amount of money. Here’s what I’m bought and how much I’ve spent on each item:
* Two pairs of running shoes, ~$80 each – I put between 300 and 350 miles on my first pair so I was definitely overdue for some new shoes.
* 1 pair running shorts, $25 – I had some athletic shorts but they were too loose to run in; thankfully the days of above-the-knee running shorts are behind me (no one needs to see that) but I needed a pair that would stay up while running.
* 3 running shirts, ~$30 each – Regular cotton t-shirts are fine for most runs, but they become a real burden during runs that are longer than 10 miles (they get really heavy when drenched with sweat). This includes two shirts my wife bought as a surprise gift.
* Camelbak, $50 – When you run for longer than 10 miles, hydration becomes an issue. Camelbaks are a great way to stay hydrated.
* Gu Electrolyte Mix, $10 – I mix this with my water for runs longer than 10 miles; it’s a bit of an enhancement over regular water.
* Gu Energy Gels, ~$15 total – Conventional Wisdom says take one of these per hour of running.
* Race Fees, $115 total – I participated in two runs: a 5k in September and the Marine Corps Marathon on October 26th. Registration fees (especially for the marathon) can be pricey!
* Running Socks, $10 total – Regular cotton socks can cause nasty blisters during the longer runs, as I found out the hard way.
* Shoe Inserts, $10 – A foot injury that I suffered about 3 weeks ago rendered these absolutely necessary.
That’s a total of $485. $485! It was all necessary for the most part, but still, nearly $500 spent on running in four months…there are more expensive hobbies out there and it’s easy to get carried away with spending money on the new hobby. The most important thing is to determine what is essential, and what could possibly be attributed to getting caught up in the excitement of a new hobby. Readers: how have you reconciled your budget with the price of new hobbies?
With banks tightening their lending terms, more and more American are likely to consider turning to family for loans. While this might be the right solution for you, it is good to consider whether or not it makes sense for your situation.
First, can the lender afford to do so? If the answer is no, move on. It doesn’t make any sense to have one family member put themselves out there to support another if it means making their own situation more precarious.
Second, consider existing relations with this family member, or perhaps friend. If you’ve faced any conflicts in the past then adding money to the mix is only likely to make things worse and bring up old issues. At the same time, if you’ve had excellent relations with someone, now is not the time to start, and money can often be a difficult area to navigate.
Next, it must be made absolutely clear what the terms are. Just saying that it will be returned at some point puts everyone in a weak position. Spell it all out and put it in writing. In fact there are several good websites which allow you to generate loan agreements – check out Virgin Money for one example.
Keep in mind as well the reduced likelihood of being paid back. 14% of loans default when they are generated by family members, whereas only 3% default with standard consumer loans.
If you’ve both thought it through and it seems to make the most sense for you, then we wish you well in handling the process smoothly.
Readers: We’d love to hear if you have any experience with family loans.
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