Saturday, June 24, 2017

Myth #2- You Should Live Within Your Means

Living within your means is the mantra of the conservative side of the financial world.  I know all those who say this mean well. I have even said it, but the problem is many see this as the financial ideal.  And here in lies many of Americas financial problems.  Living within your means is not a wonderfully lofty goal.  In fact, it is a clear way to financial stress and ruin. 

The problems with the “Living within your means” philosophy is multifaceted and I will seek to dissect a few of these facets.

The first problem is that is sets the bar way too low.  We see our goal in life to get to this great time when we will live within our means.  Since that is the goal we always see it as okay to postpone.  It’s the goal not the necessity. So, we get ideas like, “I will live within my means when I am done with school, when I get my next promotion, when I get my professional license, when my kids move out, when my kids get out of college or when my wife goes back to work.”  We are always one raise away from the great goal of “Living within our means”.  Which ties closely to myth #3- Making more money will improve my financial situation.

I wonder when this phrase came along, because you don’t have to go too far back when living within your means wasn’t a goal, it was a necessity. It wasn't, "you should live within your means." It was, "Thou shalt live within your means." For so many what was the floor of our grandparents is now our ceiling.  The idea of “I don’t have the money, so I won’t buy it” has turned into “someday I will have the money to afford what I’m currently buying”.

The second problem is what many define as “Living within their means”.  For many people living within their means is another way of saying, “living paycheck to paycheck.” See many people say, “I live within my means but I had to take debt because my car broke down, I needed a root canal, or I got furloughed from work.”  To these people the concept of living within their means is that their fixed expenses equal their fixed income.  Living within your means should not mean your fixed expenses equal your fixed income because that leaves no room for emergencies which will eventually happen.  Because living includes all those things they are part of your living, the problem is many of us don’t make all our living part of our financial plan.  This leads to excessive stress whenever these unplanned instances occur.

But even if you do include some for emergencies you are not necessarily fully “Living within your means”.  Why? Because you may be living within your means for this week or this month but let’s take a much bigger view to think about what truly “Living” is.  See, life starts at birth, I know this likely doesn’t surprise anyone.  But once you are born your life starts and lucky, for most of us, someone else, picks up the tab for the first 18, 20, 25 or even now sometimes, 30+ years.  At some point most of our parents will have enough and we either leave or are escorted to the door.  For many of us that means some form of education or training.  Rather than work to pay for this, or all of it, most Americans choose to have someone else pay for this period in their lives too, promising that someday when they’re making the “big bucks” they will pay it back.  So now you’re 25, 30 or 35 depending on how much education you got or how much you dragged your feet, and are prepared to live on your own/pay your own way.  Most Americans at this point do not start “living within their means” because after all they are just getting started but let’s say for argument that you do.  

You are 25 years old and you now have a point where you can earn equal to what it cost to sustain yourself.  So you do this until 65 or in other words you put in a good long 40 year career.  You decide to retire and have Social Security, Medicare and a pension pay for your expenses until the day you die at 90 years old.  So in our circumstance you lived 90 years and worked for 40 to pay your own way and let others cover you for the other 50.  “Wait a minute”, you’re thinking.  I paid into Social Security and all those other things so I am covering myself.  Yes and No.  Yes you paid into them, but if you live 80-90 years you will take out far more than you put in, that’s why those programs are going broke.  The same great math minds that want to work for 40 years and get supported for 50 set up those programs and are finding they don’t work. 

So what’s my point? If you truly want to live within your means then you need to earn and put into society as much in the 40 or so years you work as you took out in the 90 years you lived.  And I don’t know about you, but I hope to put more into society than I get out.  I realize just because you’re not working full time doesn’t mean you’re not giving anything to society and money is only one measure of contribution, but you get my point.  Truly living within your means does not mean that you earned as much this month as you spent.  Truly live within your means, means earning far more than you will spend, especially during your most productive years.  Also, hopefully you have enough to do what your parents did for you and pick up the tab for someone else for the first 18 to 30 years. 

So, by most people’s definition we need to be living far below our means, that is the real financial goal. I believe that is the secret to success and low stress in your financial life.

Myth #3- Making More Money Will Improve My Financial Situation

Myth #3: An increase in income will improve my financial situation.

Who wouldn’t love a raise? A little extra money can always help, right? Not necessarily. In the US, one might even say that more financial problems are caused by increased incomes than by a lack of income. Yes, more. In fact, for many people, the worst thing that can happen for their financial situation is a raise. But how can an increase in income actually hurt your financial future?

In 1983, just a few months after my own birth, a young man was born in the Texas. He was athletically gifted, and he grew up playing football. He got a full-ride scholarship to play at UT at Austin, and in 2006, he played quarterback going 13-0 and winning a national championship. At this point in his career, Vince Young looked unstoppable. 

It seemed clear that he was destined to be a franchise quarterback with a long career in the NFL. He was drafted third by the Tennessee Titans and played with them from 2006-2010. From 2010-2014, he bounced around from team to team as a backup, but he ended up retiring from football in 2014. Over the course of his 8-year football career, he made approximately $35 million. However, after only a few months out of the league, he filed for bankruptcy, showing a total of $500,000-$1 million in assets and debts between $1 million and $10 million.

This scenario plays over and over when it comes to professional athletes. They start making more money than they ever imagined and begin spending it faster than they make it. They get ripped off, they buy homes and cars on debt, and they never stop spending. They assume their stardom will never end. Then injury, issues with coaches, age, and many other issues arise and compound, and before long, their career is over. In Vince’s case, he bought a mansion and several cars on credit and spent very lavishly. At one point in his career, he averaged $5,000 a week at The Cheesecake Factory (I am not sure how this is even possible! ). By the end of his career, he was so hounded by debt collectors that his coach admitted that his financial issues contributed to his termination with the team.

Did his huge salary actually help him achieve a financial future? Without such a lavish income, would he be facing as much as $9.5 million in the hole? Of course not. His inflated income was a key factor in his financial ruin.

You might say that this is an extreme example. You might not make millions a year but could use an extra thousand or two, right? Well, I share this story, extreme though it is, because it is full of the mistakes that I see all the time in people’s everyday finances. First, careers bring ups and downs. When financial planners sit down and plan your financial future, they look at your income as a steady slope of perhaps a 3%-5% increase a year throughout your working life. This may be a good average, but we will all face setbacks, with times of plenty and times of shortage. I have been out of college for 11 years and have indeed had salary increases but also salary cuts and a layoff. Many of us might get sick, have to take time off to care for someone else who is sick, or be forced to work less for other personal reasons. Our industry may shift and leave us without work for a time, or our company may fail due to mismanagement. We have no guarantee of future income.

Second, the problem for many of us is that, when we get an increase in income, creditors are more than happy to sign us up for a credit increase. In other words, when income increases, so does our ability to acquire debt. I saw this in the story of a homeless man I met in Colorado named Tom (Here is his story).

Basically, I look at how we spend money as far as our future goes in three categories. The first is saving or paying down debts. Second, we pay cash for things, and third, we use money as a down payment to acquire something on debt. When we save or pay off debts, we improve our financial future. When we spend cash on something, it could be wise or unwise, but it doesn’t enslave us to future debt. For example, when Vince Young was paying $5,000 at the Cheesecake Factory, it wasn’t what bankrupted him (as long as it was paid in cash). But when we use our new income to acquire new debt, we put our future self in bondage, and this usually hurts our financial future.

So how do I decide if a raise in income will actually help or hurt my financial future? The question to ask yourself is this: will I spend this money so that, in the future, I will need less income to live my life? Or will I spend this money in such a way that I will continue to need this level, or more income in the future? Basically, do my purchases make me more dependent on money or less dependent?

So, be honest – would an increase in income help or hurt your financial future? Would you pay down debt or use it to get more? We should all think about this issue and not just assume the very prevalent myth that an increase in income will always help our financial future.
In case you missed it

Myth #1- A Penny Saved is a Penny Earned


Myth #2- You Should Live Within Your Means

Thursday, June 22, 2017

We Don't Want Your Kind

Tony and I at Taco Bell in Sacramento

As I drive up to Taco Bell I see three people, covered in dirt and ragged clothes, dash across the street with large garbage bags. I assume the bags are their belongings but I have no idea why the rush to the smoke shop they now approach. I park and begin to walk a little.

I walk a block or so and am on my way back when I run into Harlin, one of the runners. As he approaches I can hear the bag is not his belongings but cans, hundreds of smashed cans. I approach him as he approaches me, cigar bouncing in his lips. "What you up to?" I ask.

"Just trying to trade someone for these cans, so I can get something to eat."

"I'll buy you something to eat."

"Awesome, how about some chips and a beer? Want the cans?"

"That's okay, how about we go to Taco Bell or Subway?" I was hoping to have more of a conversation with him.

By now his friends are caught up and clearly curious about why I was talking to Harlin. "Who is your friend?" they ask.

"He's getting me something to eat."

"I'm happy to get you all something. Do you want to go to Taco Bell?"

Harlin quickly chimes in, "No, just a beer and chips at the gas station would work for me?"

By the look on the other two faces, I can tell they are more interested in some real food. I know Taco Bell may not qualify, but it beats the gas station. Harlin is more interested in a snack. So, I get Harlin a few items at the gas station and I then head to Taco Bell with the young couple, Tony and Stacy.

They too had a large bag of cans and I had to ask, "So why were you running to the smoke shop with the cans?"

Bag of cans they collected as it sat outside Taco Bell while we ate.

"They pay 5 cents a can but turns out you have to get there before 5 o'clock, so we will just come back tomorrow."

"How much will you get for all that?"

"I'd say we have 300-400 cans, so $15-$20 bucks."

We order, and as we wait, I begin to get to know Tony and Stacy. They've been on the streets or couch surfing at friends for the past 8 months after being kicked out of Stacy's mothers home in San Francisco. "Right now we have a friend that lets us keep our stuff at their place and stay from time to time. That is really nice because when we have a cart our stuff gets stolen all the time."

"Is this your first time on the streets?"

"No we were homeless before when Tony's Mom kicked us out." I turn to Tony, "You see your mother any more?"

The mood quickly changes, Tony didn't get mad or unwilling to share but extremely contrite. He began to share very openly some things that clearly brought him intense pain.

"My mother is in Arizona, but I don't know where. I haven't seen her in 9 months. I wish very much I knew where she was."

He continues to explain that he was trained as a chef and had worked in some very high end restaurants, earning $15-$18 dollars an hour. During that time, about 7 years ago, he got into drugs with the girlfriend he was dating at the time. Stealing became a way to feed the addiction and he wrote bad checks, stole identities and credit cards. In time, he was caught and spent 9 months in jail, did community service, went through a rehab program and spend 4 years on probation. "Given what I did, they were very lenient on me. It could have been much worse." It was during this time that he met Stacy, got his old certificates current and landed a job at "The Rose Garden" in Portland, Oregon. By the way he said it, you could tell he thought I would know about his restaurant. He was planning to move and come back later for Stacy but they found out she was pregnant and decided to ask for an extra week before he started to get things in order and bring her along. They agreed and he prepared to move. The day before he left they called him and told him that they would not be giving him the job, due to his background check and the past issues it turned up. "No real restaurants will hire me."

That was a couple years ago and since them they had a baby boy. He's now 1 and they have not seen him in 9 months because when Tony's mother left to Arizona she took the baby with her. I now understood why admitting he didn't know where his mother was brought so much pain.

He cheered up a little as he said, "but in three months it will have been 7 years since my conviction and my record will be clean. I can't wait to get a job."

"Have you been able to stay off drugs?"

He and Stacy said they had and I believed them. However being on the streets, drugs are never far away. "Heroine is a real issue in Sacramento. We had a friend overdose last week."

"So no one will take you with your background?"

"I could probably get a job at a place like this, but it's hard to take a job for $8 an hour when you were a chef in a nice place that made $18. I know that's a bad attitude to have, but it's hard."

They shared a few more stories about her siblings, she has a sister at Sacramento State and a brother who is in high school back in San Francisco. Shortly after, we finished our meals and I headed out.

I thought of a story I had read online  a story about a homeless man who turned down a job because he made more panhandling, and the car dealership used the opportunity to shame the homeless man.  I realize that Tony's story was very different, he was not panhandling but like the man in the story he had a hard time taking a job. Many of us are quick to assume such men don't want to work, but in Tony's case he had just worked an 8-10 hour day in 108 degree weather to get a $15-$20 pay check. Clearly he was willing to work.

But something keeps him from a job. What he described was pride. Being too proud to work a lowly job for lowly wages. But again I am not sure one would consider collecting cans much above fast food worker. I sense it may have more to do with that call he got from Portland. After he had paid his debt to society, done community service, probation, went through rehab, re-earned his certificates, applied for a job and got an offer, he got a call that said, "Oh wait, you are not good enough, we don't want you, we don't need your kind here."

I recently tried to take my wife to a restaurant, one that I'd been to many times before. I called ahead and they didn't answer, so I went, assuming I could get in. Once there, they said, they no longer took reservations without a tee time (it's connected to a golf course). It might sound silly, but even that felt awful, and it had nothing to do with me personally. It felt like they were saying, "you are not good enough for our restaurant." I hated that feeling and would avoid any place that I thought might bring a similar experience.

He said Taco Bell would hire him, I think, at least partially, he's scared to find out if that is true. He's happier believing they, lowly Taco Bell, would accept him, rather than apply and risk finding out that they wouldn't.

I thought of a man in my last ward, Lynn Goodfellow, who runs a business on the edge of Boulder City. He often employs men who may not be able to find employment because of their background. I thought of the homeless Bishop who told me he had to know which employers would be willing to consider those he works with. Such employers are hero's of mine. It made me think, in what ways do we send the message, "we want you to be a part of us" or  conversely "we don't want your kind?"

I am not sure why many able bodied, homeless men do not work. Perhaps sometimes it is that they are lazy, but I think a lot of the time it's far more than that. I am not condoning able bodied men choosing not to work. Tony knew and was correct that this is a "bad attitude", but maybe we can do things to make it less hard. Perhaps after we spend thousands of dollars "rehabilitating" an individual with court, lawyers, jail, rehab and all the work and money it entails, we can offer them less rejection and more encouragement, less shame and more praise, less disdain and more love.

Here is another Homeless interview: When did you get out?

Saturday, June 17, 2017

Financially Different

My blog has mostly been about two major topics, Boulder City politics and encounters with the homeless. In order to make a successful blog it is important to be cohesive and there is nothing too cohesive about Boulder City politics and homeless people. In fact, an overwhelming percentage of people involved in Boulder City politics have homes.

So, I have had plans to break off into two different blogs, but this would require too much effort, so I am doing the next best thing. I am adding new things to write about so as to make my blog more eclectic than ever. The only cohesiveness will be in the lack of cohesion. Although, the new topic is money and homeless people usually lack money and politicians overspend it, so now it all ties together.

The first addition I will make is on the topic of financially different, or looking at finances differently. Money is something we all deal with and something I have written about a lot in my own journal and have decided to add to the blog.

The first set of post’s (who knows how many I will get to) will be on financial myths.

These include:
                A penny saved is a penny earned
                You should live within your means
                Things are so expensive now a days
                If I earned more money I would be better off financially
                You should purchase as much home as possible
                Always carrying a payment on your home is a good idea 
                Pay yourself first is the secret to wealth
                If I had more money I would be less stressed/happier

Hope you enjoy.

Here's a link to myth #1  "A penny saved is a penny eared"

A penny saved is a penny earned...Myth?

A penny saved is a penny earned. There is perhaps no more common a financial expression/advice in the English language as this. The problem is, it is simply not true. Not only is it not true but it is so oft repeated that people actually believe it and believing it can lead to some very destructive financial behavior.

This myth is tied to several other myths including, if I earned more money I would be better off financially. I will write about that one later.

So, what is wrong with this cliché? A penny saved is far more than a penny earned. In fact, the two are not even close. Many people say it takes money to earn money. This too, at least, in its intent is a myth. (again, for another day). The more appropriate wording would be it costs money to earn money. The biggest reason for this is our current taxes. For most Americans, federal income tax takes 15% to 34% of everything they earn. That is only income tax, then you have Medicare and social security. If you own a home you will pay property tax and wherever you chose to spend that money you will likely have another approximately 7% on sales tax. Depending on what state you live in you may also have state income tax. I am religious and pay 10% in tithing to the Lord (best financial decision I ever made, again, for another time).

Therefore, depending on who you are, based on simply the math a penny saved could easily be worth as much as two times a penny earned.

But that is just the beginning. The true power in saving is restricting our life style. Once we spend money or expand our lifestyle it is very hard to pull the reins back. Simple example, yesterday I had an all-beef hot dog, it is going to be hard to buy those half chicken, half pork, half cat hot dogs again. So, once we expand to a certain life style we are setting ourselves up to stay at that life style. Especially if that life style involves payments (car, home, phone etc…). That means for many purchases that spending that penny means you are setting yourself up to need to spend it again and again and again. By saving or restricting your lifestyle you are avoiding potentially years of further financial pressures. I will expand on this in many other of my myth posts.

So, who cares? After all the slogan, a penny saved is a penny earned is encouraging you to save. Your point is saving is way better. So what, it’s off, but isn’t it a step in the right direction? The problem with the phrase is by equating the two we can say, a penny earned is as good as a penny saved. We hold the penny and think, “should I spend, or save? Since a penny saved is a penny earned, if I choose to spend this penny all I have to do is earn another one…. right?” This is the core of financial ruin. This leads to getting to $1,000 bonus and spending $1,000, when you will only every see $500-$800 of it. This leads people to say, “why do I earn more and get further behind?”

So, next time you hold that penny. Realize that, for most of us, a penny saved could be worth two pennies earned, and perhaps even more.

Next Myth #2- You Should Live Within Your Means

Wednesday, June 14, 2017

General Elections-How I did

So as always, I want to follow up my predictions with how I did. (Here are my predictions, If you want to reread them).

First question 2. I, like everyone else, guessed this would not pass, and it did about how I predicted.

I wrote that I thought question 1 would not pass. So check 2, got it right. However I was way off on it being close. I felt question 1 supporters were gaining ground. They gained nothing and lost in a landslide. This loss was so bad that I don't think there will be any stomach for making any changes moving forward. It is clear the people of Boulder City, at least for now, feel the growth ordinance should be left alone. The fact that this was on the ballot had impact on everything else. It also showed the limits of the "Woodbury" influence. A great man, who will continue to have much influence in this town, but the feeling of inevitability around issues he backs is gone.

Next, the hardest loss for me, Cam Walker. I noted that it would be close and a tough win for Cam but I felt he would get reelected. I was wrong. It was fairly close with only a few hundred votes between him and reelection. He was able to pull votes that also went No on 1 but 1 had to be closer for this to give him the win. I feel Cam has served us well and his presence will be missed. I don't know what is next for Cam Walker but I hope he will continue to be involved, as he has done much good for this town. Maybe we will see his name on a ballot again?

John Milburn also lost, which I predicted, but for the wrong reasons. I had thought that his indifference would hurt him but rather I think his votes were swept up in the anti-growth fever. He had publicly opposed 1 but was connected to it none the less. While I hope John will continue to be engaged in the community, because he really is a great man, I think ,we will not be seeing his name on a ballot again.

Warren Harhay or now Councilman Harhay, I totally got this one right. I guessed his win and that he would pull more votes than McManus. His style is well liked and it really is an amazing story to go from complete unknown in the town to the man with the most votes. I think Councilman Harhay will end up being a surprise in many ways and will actually lead in a fairly centric fashion. This will please many who voted against him and anger some who voted for him, but overall will be good for the town.(more on this below)

I think nothing showed the power of the Alliance's influence like Councilman McManus's win. He was very quiet the last few weeks, was not that outgoing, but won even without a smile. And I will note, I did see after the election that he is capable of smiling. While I was wrong on the outcome I think he will add some powerful insight to the council.

So what now? I predict that good things are in store for Boulder City. I'm an optimist. I think McManus will be less centrist than Harhay but I don't think either will be obstructionist.  There will be pressure from the extreme side of the Alliance to be just that. And it will be tempting. Being obstructionist could make a clear and easy articulation for the next election. "We have 2 votes but are hopeless because the majority of the other 3 votes. If you help us win the mayor and another seat we could have 4 votes and finally really make a difference." As I said this is tempting and the easy way to go. This is the, "us versus them" model. It will require avoiding true compromise, so you are free to always vote against the issue. The model is employed in DC all the time and does. 1. Energize the base and 2. Make arguments easy (true compromises can be intricate, take a lot of work and be difficult to explain/sell to the public.) The down side to this path is we will have two years of getting little to nothing done, angry meetings and strained relationships inside city hall that will seep into every area of our town. Which in a town like Boulder City means every area of our life.

However their is another path, and I believe all on the council, including Harhay and McManus will follow it. It is a path of working together, finding compromise and realizing that the balance both McManus and Harhay bring can be a good thing. Such compromises will mean a lot of votes that will offend the hardline base, on both sides, that don't want compromise. Such votes will take time,  leadership and courage. It means proposing new ideas that might end up being unpopular. This path is harder, it takes engaged Councilmen and Women willing to take risk. It takes engaged citizens willing to study and look at new ideas. It takes understanding the opposite side instead of insulting them. It is the path I believe in. It is the path we in Boulder City can and I believe will follow.

I am grateful for all who ran both those who won and those who did not. I am grateful for all who were willing to speak their mind whether their issue was accepted or rejected. Let's believe these next two years will be the best years Boulder City has ever seen and then let's work to make it so.

Friday, June 9, 2017

Improving Elections

Elections seem, by their nature, always to divide. They are a great thing, that I wish united us. How could we make elections less divisive? How much is on the candidates? The media? The people? I wonder in a effort to drive out turnout, or getting our side to win , if we don't overstate the importance of elections? This is almost sacrilege if you listen to RNC, DNC or talking heads. Such talk may lower turn out. But, by overstating the purpose of elections we get disappointment and voter fatigue that leads to long term lower voter turn out.

I explore how to be less disappointed after elections in my most recent article. (Here is the link). Keeping some of this in mind, may help us stay more positive and less divisive during elections. What ideas do you have?