Thursday, January 12, 2006

Corrigan's Guide to Building Wealth and Maybe Retiring Early

The state of economic and financial education is deplorable in the US. Many people struggle to even balance a checkbook let alone understand why gas prices fluctuate or where inflation comes from. The fact is that many people are unprepared for their financial future. I'm banking on social security being long gone by the time i retire and i think most people would agree that's a pretty safe bet.

But now it's a new year, a good time to look forward and be optimistic. As always, i want to be part of the problem, not the solution. I mean solution, not the problem.

Here are some basic rules that anyone can follow to build wealth, and maybe even retire early. 40 is a nice round number that i like to dream about.

Rule 1: Sleep on every purchase over 50 bucks! I'm not talking groceries here, but for lots of people impulse buying can be dangerous. Me included. I woke up one morning about a year ago with another car. It's an investment, i swear.
Luckily i now consider myself a recovering impulse buyer.

Rule 2: Don't use credit cards! The fine line between paying them off every month and plunging into debt is microscopically thin. Bottom line is if you can't pay for it with cash, don't buy it.

Rule 3: Manage your debt! Debt on assets like houses is not that bad, after all the government subsidizes part of the service on that debt. Debt on cars is a bit worse, but credit card debt tops them all as the worse debt. When you consider the interest and the time it can take to pay off a credit card, you've paid for that new TV many times over. This is more like rule 2.5

Rule 4: Save! It's really not that difficult. Every month you should save a minimum of 10% of you paycheck. “Pay yourself before you pay someone else.” My dad used to tell me that allot.

Rule 5: Invest! This also is really not that difficult. Put half of the savings (rule 4) into a Roth IRA, sit back and wait. The growth in a Roth is 100% tax free! If you have the opportunity to participate in an employer investment plan like a 401k or thrift savings plan, do this as well. It's hard to beat the employee matching, it's like getting a raise without doing any additional work.

If you don't know what to buy, buy Index funds. If you're more risk prone, move into some stocks. Contrary to what many believe, it's not gambling, that is unless you choose a strategy that make it so. Buy stocks like you would buy anything else. Look for hidden value in a company, look for undervalued stocks. Diversify enough with this approach and you'll meet or beat the market every year.

Here's my list for CY '06.


Anyone interested in an “Investment Challenge”? Loser buys the winner a bottle of Jack?

Rule 6: Buy used. 9 times out of 10 when you want to buy something, you can find it much cheaper by buying used. Why absorb the almost instantaneous depreciation of new cars, electronics and the like when someone else can take that hit! NOTE: This doesn't work for food, and only occasionally works for clothes, such as when you have a Halloween party and the salvation army is the only spot to get those classic bell bottoms.

That's right 6, just 6 simple rules that anyone can follow to build wealth, and maybe retire early. It would be easy to write a hundred more, but these are the simplest easiest to follow and don't require allot of capital, only self discipline. But don't take my word for it, the proof is in the pudding. The pudding being the math.

Scenario 1: Save 2000 dollars every year (166 dollars per month) with an annual return of 10%. After 25 yrs, you would have 216,000 dollars. If you did this in a roth, this is tax FREE

Scenario 2: Save 4000 dollars every year (333 dollars per month) with an average annual return of 10%. After 25 yrs, you would have 433,000 dollars. If you did this in a roth, this is tax FREE

Scenario 3: Save 8000 dollars every year (667 dollars per month) with an average annual return of 10%. After 25 yrs, you would have 865,000 dollars. The yearly limit for a Roth is 4000 USD right now. So only part of this would be tax free.

To put the monthly savings cost in perspective, how much is your average credit card bill per month?

Here are a few rules that didn't make the list.

Rule X: All on black. Take all your money to Vegas, hit the craps table and throw it all down on black. (this rule is sometimes known as the “let it ride” rule).

Rule X: Screw the creditors. Here, you would spend your way so far into debt that your only
choice is bankruptcy. The idea is that bankruptcy courts will alleviate you of your debt responsibility while you get to keep your stuff for free! Contrary to popular belief, you won't get to keep all your stuff and write off the debt. You'll wind up with bad credit and a long term payment (although low interest) plan.

Rule X: Rob a bank. I actually like this rule, although it's really more of an idea. I've thought about robbing a bank before. If all these criminals can get away with it, then i ought to be able to. Come on, i've got two degree's! In reality though, most of the criminals get caught.

Or do they.....

Rule X: Find lost pirate treasure. This is also called the “Goonie” rule. I've never been to Maine and i don't have a tall retarded, sorry, mentally challenged friend named sloth who thinks he's superman. I do have a Filipino friend who thinks he's a ninja...naah, this one isn't worth pursuing.

Rule X: Move to China. By moving to China and converting your dollars you could instantly achieve an 8x increase in your wealth, but China sucks. After all, China is full of Chinese people

(Disclaimer, if this last sentence offended you, get a life. It's only a joke)

Sunday, January 08, 2006

America Loves Bush

A certain dose of skepticism is good for everyone. When the news is reporting the latest crisis for you to worry about, we have to remember that in almost every instance things are never as bad as they are reported. In fact, i would go as far as to say that more often than not, the reporting is only half factual. I find this particularly true with global warming and economic related news. The poor level of reporting is really shameful.

Here in Europe, the dislike of Bush and the US is pretty deep. I guess i can't really blame them. The most visible exposure to the US is through news outlets and MTV. Pimp My Ride and Sweet Sixteen make even me question my citizenship.

For the people here to project this dislike directly to me isn't really fair, but it doesn't bother me. To some degree, I think it shows ignorance to how the US works. Everyone assumes unfaltering support by all citizens for Bush. I must admit, I'm guilty of this too though in terms of clumping all Frenchman behind Chirac or all Germans behind Merkel. I guess we all have something to learn. I do think there is a certain amount of jealousy for the prosperity in America, but that is only part of it. People view Bush as an almost dictator-like leader. As much as i dislike the bloated state of governance in America, i haven't thus-far projected that to Bush to any large degree. It took us decades to get where we are. It won't change overnight. I voted for bush, twice, with a healthy dose of optimism. Tax cuts, strong defense, social security reform etc. are all things that i personally think must be the focus of our government. I was sold.

But the second term has been a big disappointment to me. No social security reform, failure to extend tax cuts, the massive spending increase (transportation bill and prescription drug benefit) are all items i would've attributed to a liberal administration, not a (supposedly) conservative one.

Then I ran across a very interesting video today.

I'm not ready to make the whole leap that the video suggests. But as a skeptic and an engineer, its difficult to argue with the evidence. There really can be no doubt that we have not been told the whole story, whatever that whole story is. I have personally tried to make phone calls from a moving plane on my cellphone, and in every case it didn't work. When you start to refute the assumptions underlying the “common wisdom”, the rest of the story quickly crumbles.

By pure coincidence I'm reading a book right now called The War on Civilization. If you have the chance, and the patience to read an 1100+ page book about the history of the middle east, this one is pretty good. It's a real eye opener to the history of war, influence and power in the middle east.

I'll end with another quote...extra points if you know where it comes from.

“When in the Course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation. ....when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security“

On a separate note, i can hardly walk today. I skied in Lech yesterday and it destroyed my legs. Lech is one of the best areas I've been to, it's often called the Austrian Aspen. Very expensive, very big ski area and very well maintained. I met up with a friend from work and his buddy who happens to be a ski instructor at Lech. Although we were able to ski anywhere, including off piste (out of bounds), skiing for 8 hrs with someone who skis for a living is pretty intense. I thought i was a good skier. I am, but apparently only for an American. I learned yesterday that i actually suck at skiing and ski at approximately the same level as your average 5 yr old Austrian girl.