Wealth – Page 30 – Wilder, Wealthy, and Wise

Scams and Cons at Any Age, Part I, as told by Admiral Ackbar

“It’s a trap!” – Return of the Jedi

Admiral Ackbar knows the score . . .

Con games are as old as lying, which is to say as old as people. The “con” in con game stands for “confidence.” The entire point of a con game is to gain the confidence of your victim or “mark” so that they don’t suspect that something is wrong. True story: I was at the State Fair here in Upper Lowermidwestia some years back and one of the carnival workers would try to lure people to play the carnival games by saying to passersby . . . “Hey, Mark.” I assumed he meant Mark Twain, who had been travelling with us:

But in reality he meant me, which was good because Mark Twain is only imaginary, and I would feel pretty bad if other people saw him, too. He was open and outgoing that I was just a mark to play his game and lose money. I fooled him! I played that stupid basketball game until I won the medium-sized stuffed animal. Only cost me $75 in tickets to finally win it!

And there are plenty of other names con men call the mark (thanks to Wikipedia for a nice list): sucker, stooge, rube, or gull (for gullible). There are lots of other names for the con game as well, but con game or scam will work for our purposes.

The perfect con game (we’ll just use “con” as a noun from here on out) should just look like another event in the mark’s life. Heck, it might even be something that the mark brags about. The idea is that the mark willingly gives the con man (or grifter) his money, and then, for whatever reason, doesn’t realize he’s been cheated, or, if he does realize he’s been cheated, won’t talk to anyone about it. In many cases the actual con game sounded much more difficult than working, and a good grifter might make even more money as a politician or salesman with poor scruples (I crossed the one out because I didn’t want to be redundant).

How do you avoid being cheated? It’s hard. The first concept is “you can’t cheat an honest man.” Ideally, if you were to avoid everything you were to run across where the deal seemed too good to be true, you’d probably be able to avoid 90% plus of the scams that are out there. The other thing is being properly skeptical of claims and looking for unbiased verification. However, the very best scams attempt to provide you with unbiased verification in the form of biased websites, biased experts, and situations that apply pressure to make a decision . . . now.

As a rule, if I have only three hours or some other arbitrarily fixed and short timeframe to make almost any decision, the answer is “no.” I’ve never felt bad about that . . . rule, except for the experience that made me set that rule . . . which you can read about below.

But different scams are appropriate for different ages. I can swindle a three year old all day long, but the big problem (and the reason I don’t spend my day swindling three year olds) is that three year olds have inherently bad credit and a very limited access to large amounts of cash. They’re certainly gullible, but they’re crappy victims. Rule number one: never spend time swindling the broke. I learned that lesson only after accumulating about 5,000 drool covered Happy Meal® toys. Stupid toddlers.

Sometimes it’s not a scam . . .

Also, despite the jokes I might make, this is a how to NOT get swindled post. Knowledge is power. Or something. Anyway . . .

Teenagers:

Teenagers are only slightly more difficult to swindle than toddlers. They simply don’t know much. But unlike toddlers, they think they know everything, which makes them easier to swindle. But also like toddlers, teenagers don’t have all that much that’s worth taking. I’d avoid cheating them – it’s really not sporting.

Here’s my story of getting grifted as a teen, from my blog post on cars (Repeat After Me: Never Buy a New Car (and other lessons for young adults)):

(Backstory: my car was rear-ended by a drunk teen.) The car, literally owned by me for less than two months needed a lot of repair. I went in to find out when my car would be done. The manager (the father of a girl that had graduated a year before me) invited me into his office. He had a fairly long speech that he shared, indicating that he had found some cheaper parts than he had originally quoted the insurance company, and, well, my $200 deductible could go down to $40 if I only paid him in cash, right then.

I’m not sure how he knew that I had exactly (and only) $40 on me at the time, but his cash radar was perfect. I pulled out my wallet (brown nylon with a Velcro® strip that kept it closed) and pulled out my $40 and handed it over.

I felt vaguely dirty afterward, like I’d done something wrong. Honestly, I still fill icky about it writing this down. The reality is that he probably just needed money his wife couldn’t track for booze or lunch and saw an 18 year old coming . . . and decided to separate me from all the cash that I had.

Yeah, not very sporting, right? But, again, all it cost me was $40. Much better to scam are . . .

College Age/Young Adults:

The biggest scam for many kids is college. And it looks so legitimate. But college is the perfect scam because it involves big money. Tuition isn’t cheap, and is rising far faster than inflation says it should. Beyond that, the current average grade at Harvard is an A minus. Let that sink in. Nothing says scam like a diploma mill, and if Harvard is a diploma mill, what chance does Lame Duck County Community College have to enforce anything resembling an academic standard?

Additionally, college has entered into the realm of “being the new high school” since employers are looking for smart employees. College at least weeds half of the students out even with the high average grades, so it’s at least some sort of test. It would be far cheaper for businesses and the economy as a whole if we just allowed IQ or intelligence testing of employee candidates which correlates well with not only intelligence but also with diligence. Alas, for some reason it seems to be some sort of allowable bypass to only hire from colleges that only accept kids with great ACT or SAT scores (which are great proxies for IQ). So, instead of an IQ test that takes half an hour or so and costs a few hundred dollars, kids now have to shell out tens of thousands to hundreds of thousands of dollars to make them candidates for top positions. And don’t even TRY to pass the bar (outside of California) without a law degree approved by the American Bar Association . . . .

Additionally, college has the advantage of generally not being paid for by the person getting the service. Often, it’s paid for by parents. When it’s not, it’s often paid for by student loans. Buy, you say: “John Wilder, the student has to pay back the student loans. Aren’t they responsible?”

“Nice hat,” I respond, “it must keep the sunlight off your pointy head.” Seriously, have you ever met an 18 year old that could intellectually conceive of paying off a debt of tens of thousands of dollars over the course of a decade or more? NO! We don’t allow these people to drink because they’re far too stupid. But, yet, we allow them to make decisions that essentially grind them into servitude for the Academic-Industrial Complex. Ohh, I need to trademark that phrase.

Another way that scams get you is similar to what happened to my friend Joe – I discussed this in a blog last year (Scams, Your Momma, and Cheap Speakers)

“So, guys, the most incredible thing happened to me,” said Joe. “I was at a Burger King® and I had just finished eating. I was walking back out to my car, and this guy in a van stopped me.”

I think I jumped in with something to the effect that very few good things happen when a guy from a van approaches you in a Burger King™ parking lot. Joe ignored me and continued, “He had these speakers in the back of his van. He had dropped them off at a rental, and he had mistakenly signed two extra out. If he took them back to the shop, they would have fired him for checking the extras out. These are $1000 speakers! Each!

“I got them for $300 for the pair! They sound totally awesome with my stereo! I had to run to the bank to get the cash, but I got them!”

I smiled.

I had just read in the local newspaper that there was a scammer group operating around the metropolitan area of Moderatelylargecity, East Westeria near where we lived. They were selling speakers worth about $50 a pair out of the back of trucks at fast food restaurants. Cash only.

I thought to myself – “Hey, Joe likes the speakers. He really likes them. And if you tell him it was all a scam, he’ll hate the speakers and feel stupid. Is it hurting anyone to let him think he got a deal?” Joe was a nice guy, and I successfully held back my inner jerk (on that far distant morning).

So, college age kids are just coming into their prime for scams. I’ve heard that they’ve updated the old “speakers from a van” to include websites touting the brand of speaker that they’re “selling.” In the information age, have to be ready for the 22 year old with a smart phone.

Amazingly, I’ve only gotten 22 years into my 78 year survey of how you will be cheated during your life. I’ll continue this topic next Wednesday.

What is Wealth? Is it More Than Money?

“Aristotle was not Belgian, the principle of Buddhism is not “every man for himself”, and the London Underground is not a political movement. Those are all mistakes, Otto. I looked them up.” – A Fish Called Wanda

This may be the most important philosophical question of our lifetime, especially if you’re haulin’ oats.

The other day I was listening to the radio and the hosts (Walton and Johnson) were discussing wealth. Since actual radio around Casa Wilder consists of a single AM station broadcasting crop reports and lean cattle futures and an FM station that is “All Hall and Mostly Oates, All the Time!” Therefore? We listen to radio stations on the Internet. Walton and Johnson are out of Houston, but we also lived in Alaska, so we also often listen to a station we like out of Fairbanks. Obviously, when the radio in the bedroom says it’s -40°F and the kitchen radio says it’s 85°F, there’s likely to be wind and a rainstorm down the hallway.

Maybe I misheard that lyric?

Anyhow, Walton and Johnson were discussing wealth. They mentioned that a recent study showed that, in Houston, a survey said that to be considered “wealthy” you had to have $2.5 million dollars in net worth. To be considered “well off” you only needed to have $1.4 million dollars – which is quite a bargain – many people work a whole year and don’t make that much money!

After a bit of research, I found the source of the story: Charles Schwab®, the investment firm. You can read the study here (LINK). In San Francisco (according to Schwab©), it’s even more money than Houston to be considered wealthy: $4.1 million.

Looking at the best numbers I could find, the median household net worth is about $100,000. To be in the paltry $2.5 million Houston-wealthy club (versus the expensive San Francisco $4.1 million club), means that your household is in better financial shape than 96% of American households.

But that’s the problem with this survey – since, at most, 4% of the people taking the survey would be considered “wealthy,” most of the people taking it have about as much idea about how much money it requires to be wealthy as a monkey trying to understand Nietzsche. I mean, apes read philosophy, but they just don’t understand it, Otto. And I imagine people who aren’t wealthy don’t understand that, either. The answer is just a bit more complicated . . . .

I’ve done about 70 posts on wealth, but I need to step back and ask that question: what is wealth? To say it’s purely a number is to show that you don’t understand wealth. Money represents not a fixed number, but a possibility.

If you measure wealth in love . . .

What is wealth?

Wealth is time. In fact, if you go to the basic equation – your life is made entirely out of time – nothing else. Your life literally is the sum of the things that you do with your time. So wealth is doing what you want to do with your time, which means doing what you want to do with your life. It’s entirely probable that a Wall Street investment banker with $10,000,000 in the bank from a job he hates and shrill wife with more implanted silicon than actual original equipment is less wealthy than a hunting guide who lives in a log cabin in Alaska who has less than $5000 in the bank.

In my case, I’ve traded a LOT of time for money in the past. My theory was to work hard while I was young so that I could build my career so I could save enough money so that my family would be secure in the future. You would say that working all the time is not a very wealthy (or in some cases healthy) thing to do, except . . . I loved the job I was doing! In many cases it was stressful. Difficult. Uncertain. Long hours. And when I did an awesome job? Yeah, it was like winning the World Junior Baking Championship. Not that I can bake, or even that there is a World Junior Baking Championship, but I think you know exactly what I mean.

I watched the documentary Lynyrd Skynyrd: If I Leave Here Tomorrow this weekend, and those guys simply loved playing music. They’d do it all day long, even when they weren’t getting paid. Being a rock star was awesome, sure, but it wasn’t the point. They were wealthy as soon as they could get paid for playing small clubs. Arenas were just the gravy.

And, yes, I’ve said in the past (and still maintain) that to support yourself, support your family you might really have to suck it up, buttercup, and work jobs you don’t like because an Alaskan hunting guide has really crappy health insurance and his spouse has neurohemoblastaphobia which can only be cured by a mouse egg (before the baby mice hatch) extract that’s been strained through bigfoot hair and breathed on by an honest politician. Yes, it’s as expensive as it sounds. Then you have to work the job you have rather than a job where you play guitar all day.

Wealth is freedom. Could you quit your job tomorrow without having a new one and still meet all of your obligations? For most people, the answer is no, either because the obligations are too high or the amount of cash they have is too low – 60% of people in the country live paycheck to paycheck. However, sometimes it’s self-inflicted.

Some people trade their freedom for a car payment. I’ve seen people who purchase a $60,000 pickup, and then have to pay $1,200 a month in car payments. I don’t know about you, but my 4,000 square foot house has a payment of less than $1,000, so it’s not making me freer to be tied to a depreciating asset that I have to pay $14,400 a year for. Plus insurance. Plus whatever taxes the state would extract for a $60,000 vehicle.

I have a pickup. It cost $6,000. I paid with cash. It didn’t cost very much because the car dealership was having a hard time selling a stick shift. The truck runs fine. Engine is a bit small, but 95% of the time it’s just being driven by a teenager to school and back.

But if your idea of wealth is a $60,000 pickup, I’ll never be wealthy in your eyes.

But I can be free without a $60,000 pickup.

And, no, I’m not a radical get rid of stuff and never buy anything sort of person – I’ve probably got more books on some topics than any library in my state. And, I’ve bought more than my share of crap in my life, but very little of it has made me happy, and very little of it has made me a better person. Except for the PEZ®, of course. And I’ve been on some incredible vacations.

Wealth is time. Wealth is freedom. And your wealth is determined by things you “need.”

The less you need? The wealthier you are, and the more choices you have.

College Funding, Value and Grade Inflation: Should Your Kid Go? Should You Pay?

“You had rich parents. You got to go to that expensive community college.” – South Park

If you do college right, you end up being able to travel to cool places. Literally cool, like Alaska. Do it wrong? You’re stuck on some hot beach in Florida during spring break.

I’ve posted several times about college here, but mainly from the perspective of the student. The other major perspective to catch is that of the parent – whether their child is asking only for advice (in a dream world – 18 year olds know everything so why would they ask an old person for advice?) or you are paying full tuition for them to attend Harvard®, you’re involved. What questions should you be thinking about when they come looking for money advice?

I think the first and most important question is if your kid should go to college at all. In 1960, it wasn’t a given that kids would go off to college. Only one kid out of twenty would go to college and graduate with a bachelor’s degree or more.

The line goes up and to the right. So, everyone is getting smarter because here in America EVERYONE is above average!

And, possibly, some folks weren’t going to college because they had been inappropriately excluded. But now? 70% of high school graduates start college. 70%!

By definition, AT LEAST 20% of the people who go to college are below average in high school. And 84% of kids now graduate from high school. Assume the dumbest drop out (not really a good assumption, but we’ll go with it). Let’s assume that the dumbest of the high school graduates don’t start college (again, not a good assumption, but we’ll go with it). Still, 20% of the people starting college would then have an IQ of less than 100.

The overall college graduation rate is now 60%. Which is ludicrous. Even more ludicrous? At Harvard©, more than half of the students have a GPA of 3.67 or more, meaning even at Harvard™ the challenge isn’t surviving Harvard©, it’s getting accepted. Admittedly at Harvard the average IQ is 125 (decent), but it sounds like the grade fairy visits there often.

So, if your kid can get into Harvard™ (or Yale©) (or Stanford®) (etc.) they should go there. If they’ve got decent study skills they’ll pass. The reason you go to Harvard™ to learn, really, you can get just as good of an education at Iowa State© for much less money. No, the reason you go to Harvard™ is to hang around with really, really wealthy people and make connections so that you’re hanging out with Mark Zuckerberg’s kid in 2032 or whatever. If you’re besties with a Zuckerberg because you had a car and Daddy Mark wouldn’t buy him one so you drove him to strip clubs? You’re set for life. They will make sure you have an awesome career, even if it just involves hanging around with their kid driving him to strip clubs for a ludicrous salary.

Think what Mark Zuckerberg might have accomplished if only he had finished college at Harvard!

The second reason that your kid should go to college is that they’re studying some sort of real science (not a fake one like sociology or anthropology) or engineering. You have to go to college, and since these degrees have (at least in the past) weeded out the intellectually inferior, well, they will generally lead to much higher wages. Ditto being a doctor or nurse. Now, as soon as we start asking how the bridge feels? Yeah, engineering will be done for. If we haven’t done that already.

See, this is an example of creative engineering. I’d pay to watch people drive this . . .

But a lot of college degrees are worthless – college becomes a four (or five, or six) year day-care for those unwilling to head to real life. And it costs and amazing amount of money for day-care. I’d just as soon give the kid enough money and send them to France for six months, not because I like my kid, but I think that France should be inundated with mouthy self-entitled 18 year olds. It’s my gift to them.

I used to think that all bright kids with good character should go to college. I don’t think that anymore. I had one kid I worked with (in a volunteer position). I asked him what he wanted to do after he graduated high school. He described a career option, where, as a journeyman, he could live in rural North Midwestia and still make at least $80,000 a year after five years, and probably more like $100,000 after the all the overtime that you can generally pick up is figured into this. When he started his apprenticeship he already had competing job offers for when he graduated.

My knee-jerk reaction (programming wears off only slowly) was to tell him, “No! Go to college! You’re so smart!” And if I had given that advice and he had taken it, well, when he graduated he’d have $60,000 in debt and (if he was lucky) would have to fight to get a $40,000 a year job. His idea was way better.

So, consider, should your kid even go to college?

Let’s say that you decide it’s worth it. College won’t be a four-year boondoggle filled with lattes and climbing walls and easy A’s – it will actually mean something.

How do you pay for it? Do you pay for it? Should you pay for it?

This is why I’m against government paid college. Then you’d have to get two doctorates and dress in an outfit made of bigfoot hair and unicorn sweat to get noticed in a job interview.

Part of the reason that college becomes a long-duration fun-fest is the problem of skin in the game. Kids are having fun at college – why would they want to end it? The colleges are making great profit off the kids. Why would they want to end it? The only people who want to end it . . . are the people paying for it.

Incentives are very bad, indeed, especially if you’re the parent footing the bill for it.

I guess I have to leave it up to the parent, but there are other options (for many people) outside of paying for it or saddling your kid with a massive debt. They could be a great athlete, and get a full scholarship. And don’t kid yourself – some engineering and technical schools have sports teams and need people that can play reasonably well. Not NFL® talent. Not University of Alabama™ talent. Just well enough to not get hurt against the smaller NCAA Division II schools they play against.

ROTC is another one. ROTC is the Reserve Officer Training Corps. It depends on the service, but in some cases they’ll pay for your kid’s college, train them to be a military officer, and then guarantee them a job. The Army will be happy to take them as an active duty officer, or will offer them a slot in the Reserves. For the Air Force? If you’re Air Force ROTC, you’re going active duty. The nice thing about the Army? For one weekend a month and two weeks a year, you get your school paid for in just a few years of reserve duty. Assume it’s four years, and that’s over a thousand dollars a day they’re paying you, and some people don’t even make that kind of money during a summer job!

Both The Boy and Pugsley are reviewing this option. It would probably work well for both of them.

Of course, there are loans. But these can backfire amazingly. I was reading a few years ago about a guy who borrowed enough money to become a medical doctor. Downside? He owed upwards of $500,000, and wouldn’t be able to pay the loans off.

That doctor is gonna die in debt, because that’s just about the only way to avoid repaying a student loan. Or maybe he could make friends with Warren Buffet’s kid? Know where the strip clubs are?

Hmmm.

Health, Wealth, and Boundaries. Complete with fake IDs.

“We’re out of towels and I’m too old to go diving into lockers.” – Minor League

It would be nice to have Morgan Freeman narrate your life. Except for after you did stupid stuff. Or boring stuff. Nevermind – skip that.

A number of years ago my boss called me at 11pm. There had been an incident at work. As it was a Thursday and I was planning on taking Friday off, The Mrs. and I had already consumed the better part of a bottle of wine. I decided that I’d go to bed – certainly vacation was off.

In fact, I worked the next 45 days, straight. I averaged at least 12 hours a day, every day.

During that time, we worked really hard. Stressful situations daily. New decisions daily. But the team met all the goals that were set on that first day, and then some. We even ended up at budget. But 540 work hours in 1.5 months is about 225% of a typical work week (40 hours).

I break my time into a triangle:

Work – Ideally, work should server multiple purposes. It should put money in the bank and food on the table. Another, very real purpose of work is to create value for society. A well-run business generates wealth for the owner, sure. But the jobs that it creates can generate wealth for a community. And most businesses can’t stay in business unless they serve a need in the community. A power generation plant has to make power to stay in business, but if it operates well and efficiently, it produces power at a low cost, which allows people to have the relative luxury of electricity cheaply, so they can read this blog, or watch Green Acres®.
Family – As a husband and father, taking care of my family is a primary responsibility – it means more than the money from work, it means being there to be dad – both as a bad example of the kind of dad you don’t want to have, as well as teaching children responsibility through situations that force them to figure things out. I mean, what 12 year old shouldn’t know how to make a fake id so he can buy smokes?
Personal Health – If I’m not healthy, I’ll die, and that makes it hard to shower consistently. Also, I won’t be able to lead my family, or work amazingly long hours. Health may be its own reward, but it also supports the other two legs of the triangle.

I’d say “bad dog,” but I am out of beer . . . and thanks to practice and parental neglect, Pugsley makes a much better fake ID.

So during this 45 day period, a big stretch of the triangle was possible. Heck, I was in the best shape I’d been in for at least six years. Life was good. I’d focus on work, but put my second focus on family. Personal health can wait, right?

And during those 45 days, I didn’t exercise like normal. Also, I don’t eat lunch (I hadn’t since fifth grade) and in those days just worked through lunch. But we had team meetings (complete with lunch) pretty much every day. It turns out I can gain 2 pounds a week just by eating lunch more than once. Yeah.

So, forty five days later, we finished. And we were exhausted. And 45 days later? I entered into yet another work death-march that lasted a year and a half.

Yeah, and that second death-march ended with 45 days straight, too. And then time required for activities related to The Boy and Pugsley multiplied. It seems like when the work demands went down, the family demands went up. And I could safely ignore the health demands, right?

My take on this is that I’ve set my boundaries too far towards work in the past, but the bright side is all the hard work and family stuff seems to be paying off.

But it’s always (a bit) irritated me that Hollywood types get so buff. I saw Tom Cruise in Mission Impossible 12 (or whatever) this last weekend, and it’s undeniable that the man is in great shape, not only for his age, but for any age. Cruise was certainly in better shape than he was during his early movies. He’s seven or eight years older than Simon Pegg, but manages to look ten years younger. I guess maybe Scientology® might pay off, if you can deal with whole “completely made up” parts.

And Tom Cruise has a luxury that most of us don’t – he has the ability to spend 2,000 learning to fly helicopters so he could do it for this movie, plus countless thousands of hours of training. I’m lucky to get 250 hours a year to myself for training. And more power to Cruise! But most people don’t have that option. The iron triangle of work-family-health keeps showing up.

In the end that’s part of why I named the blog wilderwealthywise.com – it focuses on that triangle of important things in the average person’s life. Wealth buys time, and time buys health. And health . . . buys more time (on Earth). And with health and time? One would hope that you can end up with wealth.

And then you could have Morgan Freeman narrate . . . but hopefully not these lines:

It will all be worth it. Now, back to the elliptical . . .

How much money should I save? Depends on if you want to be free . . .

“Lost in oblivion, dark and silent and complete, I found freedom. Losing all hope was freedom. It’s OK.” – Fight Club

Alia S. Wilder, showing her prowess at falling into debt holes.

My daughter, Alia S. Wilder, texted me today.

“How much money should I be saving? Is 20% enough?”

My response?

“Depends. I’m going to try to end a World War. Are two bombs enough?”

Oh, sure, the question sounds simple, but the answer is more complicated. Unless you’re Japan.

“Is 20% enough?”

Certainly, and certainly not.

Savings is good. I’m throwing that out there as an absolute. Saving money represents potential. If I use my money to buy a pile of PEZ® today, well, when they come out next week with the President™Millard Fillmore® Commemorative MegaPEZ© dispenser? I won’t be able to buy it.

If ever there was a head that was made to be a PEZ® dispenser it’s Millard Fillmore, who looks exactly like Alec Baldwin. Fillmore, when running for reelection (he became President when Taylor died) won only . . . Maryland, which is the only State to be named after Mary Poppins©.

I won’t go too much into detail, but Alia S. Wilder has debt. Mountains of it. Not the Himalayas. Maybe more like smaller mountains, like the Alps.

Should you save money when you’re in debt, or pay off the debt? Yes, save money. Save money until you have at least six months’ worth of living expenses in cash available to you.

Why six months? Given six months’ worth of time and space, you can make miracles happen. You’ll be able to work your way through the emergency. Oh, and the emergency? Yeah, you’ll have one. You’ll get a flat tire and accidently run into the town statue of Tom Petty and then it won’t back down, but will be freefallin’ over onto your 1972 VW® Bug™. And then? You’ll have to pay, or they won’t allow you to come ‘round here no more.

So, emergencies happen. Even Petty ones.

And if I were young and had debt, the first thing I would do is build that emergency fund. There’s nothing worse than having no money and no options when an emergency strikes. Not if. When.

After that, I’d save money in my 401K, if the company offered a match.

401k’s are awesome – generally you can save 6% or so of your salary, and the company will match some percentage of that – say, 50%. And there is no place on Earth where you can get an immediate 50% return on investment, unless you’ve managed to marry into the royal family of England. Then? Yeah, that lip gloss and the Pilates class paid off.

So, you’ve got an emergency fund. You’re taking full advantage of 401k matching. Next?

Get rid of the debt.

Debt is perhaps the most evil thing we allow in society today except for Harry Potter© themed AR-15s. I mean, I like guns, but Harry Potter™ guns? But back to debt – it allows stupid current you to sell future you into slavery. You have to pay the debt. Mortgages and car loans are bad, but the worst? Student loans.

You can declare bankruptcy and get rid of mortgage and car debt. But in order to get rid of student loan debt? You have to pay it off or die. I’m not kidding – that part isn’t a joke. Student loan debt is not dischargeable in bankruptcy. Like herpes, it’s almost forever. Unlike herpes, you can pay it off.

Why is debt so very bad? Well, for every dollar you have in debt, you have to pay interest. So, if you have $100 in debt, and are paying 5% interest, you have to pay off $5 every year. No problem, right?

Actually, that interest is insidious. Let’s pretend it’s a house, and you owe $200,000. At 5% interest, that’s $10,000 a year. That $10,000, divided by 12? In year one that’s most of your mortgage payment. Your debt remains – you only pay a little bit off in the first year.

Interest on debt destroys your happiness.

In a logical world, you’d pay off the highest interest rate debt first. That gets rid of the most interest, right?

Nah. Pay the one that you can pay off first. The smallest one. That allows you to feel good about digging yourself out of the debt hell you dug yourself into. Then? The next biggest one.

And this works. How do I know that? I’ve been there.

When my first wife and I decided that a mixed marriage wouldn’t work (I was human, she was a demon from hell) we mutually decided that she should move out. Nice!

She handed me a plastic grocery sack. In the grocery sack was a half a cubic foot of bills. She then handed me a checkbook.

“I don’t know how much money is in there.” Meaning the checking account.

She walked out the door.

I pulled the first bill off the stack. It was a credit card statement from a gasoline station.

It was over $700. And my soon-to-be ex-wife hadn’t paid them anything in months. Sadly, this story kept repeating as I went down the pile. I had massive debt.

I started paying them down. One at a time.

Seven years later? The only debt left was my mortgage. I remember the day – it was January 15^th. I remember writing the check. I felt like I was Batman™ Kirk©. Like if Batman® had a starship, or if Kirk™ could fight anyone in a realistic way. Yay! But paying down those first few cards and bills was huge. It gave me a sense of control. It was saying that I could take small bites and make them matter.

But one day you sign the last check to pay off the last debt, and you realize that you’re no longer working for someone else – every dollar you’re making is going to you or things you want.

And at that moment you’re free.

So, is saving 20% enough?

I have no idea. How soon do you want to be free?

Retirement Spreadsheets, The Apocalypse, and You

“Mama always said life was like a box of chocolates. You never know what you’re gonna get.” – Forrest Gump

I have no idea where this came from. But it’s exactly like the one they read to me when I was a wee Wilder.

I have an enormous spreadsheet. Okay, it’s not really enormous – I’ve made and used much bigger ones at work to calculate the number of licks to get to the center of at Tootsie Roll® Tootsie Pop™. The number of licks is 573,212 – and not one lick more or less.

This particular spreadsheet:

Has yearly calculations from the year 2014 (when I started it) until I turn 103 years old.
Divides my spending into 16 categories.
Has separate rates of inflation for each category (average inflation rate is 3.6%).
Has spots for assumed investment income as well as variable future income from work.
Has projected balances on 11 accounts, plus assumed rates of growth.
Graphically projects income and net worth . . . until I reach an age where 99.9% of people are dead.

I did use this spreadsheet for one pretty important decision – whether to change jobs back in 2014. My option back then was to chuck my current job and take a job where I would have a risky proposition at making a big payout in three years or so. The big payout would have been enough to retire on when combined with my net worth back then, for sure. Attractive, right?

But it was risky. How risky? My first guess was that there was a pretty low probability that it would pay out. How low? Maybe 20% chance?

I ranked that against staying in my current job. I did the math, and it looked like if I could keep my current job for three more years that I could take a differing job, say a high school teacher or flaming poodle-juggler (juggling flaming poodles, not juggling poodles while on fire – that would be stupid), and still keep my standard of living. Three years of high stress for (relative) economic freedom, or at least more choices.

Hmmm.

I ended up not taking the job, and the risky part won – the job would have been worth much less than the job I would have left, plus the boss I would have worked for? Yeah, he died three months later. And my math was right – I’m about where I expected to be as far as net worth.

But I know my prediction is wrong:

It assumes that inflation is rather low for a long-ish period – something that I’m not sure is realistic in an economy where the government is attempting to print money as fast as Elon Musk says stupid things on Twitter®. Seriously, Elon, filter, dude, filter.
My investments earn about 2.5% every year, after inflation.
There’s nothing in there about a civil war or societal collapse.

Huh? What investments make 2.5% every year after inflation?

No, I kid.

But there’s an entire subgroup of people of people who are preparing for societal collapse – preppers. They even make television shows about them so that people who are stockpiling food for when the apocalypse comes advertise where they keep all that food. Thankfully none of their neighbors will remember that after the apocalypse.

I guess (in a small way) that I’m a prepper, too. The spreadsheet was my prepping – preparing for my career future – and my saving for eventual retirement is prepping, too.

Prepping is preparing, and when done right, it should prepare you for a range of options. I could liquidate my retirement fortune and buy lots of oatmeal, bendie-straws and PEZ®, but in the sad event that Mad Max® is not the template for the future world, well, what do I do with all those bendie-straws now that California has made them illegal since they enacted common-sense straw registration.

In Houston, we rode out Hurricane Ike back in 2008. Here is part of what I wrote then – you can find the full thing here (LINK) if you scroll down a bit:

Wow. Didn’t see that coming.

Oh, wait, we did. On radar, on the radio, on the Intertubes. As I said, it was unlikely that we’d stop until the power stopped or the beer ran out.

I still have beer.

At 6:20PM, the lights went out. They flickered on, off, on, off, on, then finally, utterly, off.

(Skipping long description of storm – and moving to the next day.)

We listened to the radio, which mainly told us that the power company wasn’t going to do anything that day (though, that afternoon, The Mrs. indicated that the power had flickered while The Boys and I went out to reconnoiter. Sorry that we missed it, but we did find that there was power on either side of us, not three miles away. No stores were open, and we had no phones. Thankfully, one of the previous announcements for hurricane preparedness had told us to have “food, water, and ammunition” (I am not making this up). We had food for a month, water for a similar time, plus more ammunition than the Pakistani army. We were set.

Eventually, washing came up. I avoided the subject. The Mrs. doused The Boy and Pugsley with coldish water (they howled) and then we ate cold Spaghetti-O’s® and sat around in the dim candlelight. Living in the 18th Century was rapidly losing its charm.

The radio had limited information. The hosts kept telling us to check their website for more information, even though 98% of their listeners were without power. Perhaps the average person has a hand-crank satellite Internet connection?

Then FEMA came on and indicated that you could contact them by calling (no phone!) or by Internet. The Mayor of Houston indicated that within 24 hours they would have 24 trucks of ice in, but he didn’t say where they’d be. He didn’t know.

A representative from our power provider indicated that we might be out of power forever, really, since they had no idea where that mythical lightning in the wire came from. It was really a mystery to them. They even indicated that changing a light bulb might require Federal authority. They began blaming FEMA for the problem. (In actuality, they said that it might be four weeks until the power was back on, in which case I would be looking for a suit of armor, a mighty steed, and a really cool battle-axe.)

On night one, The Mrs. and I had grilled hot dogs over candles. It worked okay, but our hot dogs tasted a bit like apple potpourri. We started cooking over propane the next day.

The next morning I made coffee for The Mrs. and I. It improved our disposition greatly. Then I cooked ribeye steaks that I’d gotten on sale and frozen. That helped our disposition more. Ribeye for breakfast? Mmmmm.

I took The Boy and Pugsley to see if we could get a generator. This act in Houston (currently) would be like searching for Paris Hilton’s virginity – just not there anymore. Lowe’s® was open, and had a generator. Nah, just kidding. They had bottled water and some Chiclets©.

It appears that hurricanes smell like sex to fire ants (jerkusantus invictus). I got bit five times pulling branches out of my formerly fire-ant free backyard. I then unleashed a genocide of Biblical proportions on them, making the chemical warfare of WWI look like a Disney production of The Little Mermaid® in Candyland™.

I went back inside, and the power-gods deigned to tease us again. The lights flickered during dinner (T-bones and bratwurst saved from spoiling through immolation).

The utter lack of information was maddening. Anecdotal reports of FEMA commandeering truckloads of generators. Reports that Responders (I am ever so tired of that word) being stuck without food – you’da thunk they would have thought far enough ahead to stock up their patrol cars with Snickers®, pantyhose and Pez™ before heading to Houston. No. A Congresscritter was on the air complaining that the responders didn’t food, and wanted THE PEOPLE WHO HAD NO POWER TO COME TO THE NICE AIR CONDITIONED AND POWERED PLACE AND BRING THEM FOOD.

If you’re a responder without chow, you’re part of the problem, not the solution, bubba. I was not feeling sympathetic as I threw out $200 in spoiled food.

Power? That was a myth at this point, the electric company representative, and never really existed. Those things that you call “outlets”? Used for hanging meat to feed short animals. The representative suggested burning furniture to boil water to create steam to power a crude generator. I would have built one, but I had no power for my welder.

We went to bed early. Nice. The next day I went to work, to an office with power. And ice. And TV. I charged the laptops so the kids could watch Garfield© DVD’s. I had hot coffee. A functioning microwave to dry my socks. I’m not sure why I came home. Oh, yeah, the fam.

I headed home. I saw . . . our porch lights on.

The mythical lightning had returned.

We were actually really prepared for Hurricane Ike. And we were only out of power for a few days but in reality we could have handled several weeks.

And preppers are really prepared for emergencies. Some of them have complete surgery kits, antibiotics, and armored vehicles on remote homesteads powered by solar power. Plus they have gear to survive chemical warfare similar to what an army battalion could attack with after a late-night visit to Taco Bell®.

But the future is funny, because it’s squirmy. It won’t be as you expect or predict:

You might have higher inflation.
A totalitarian government might arise when Chelsea Clinton is named Pope®.
You might rip the crotch of your jeans during a softball game.
The Swiss might finally snap and launch a surprise nuclear attack at the rest of the world.

Each situation that you might run into requires a different response, but in the meantime you have to plan to live a life, but have plans to respond to most reasonable situations.

Should you plan for the stores to be out of food for a week? Sure. Should you plan for no power for a week? Absolutely – a big ice storm can take out the power for months in some locations.

But if the stores were closed for months? Yeah, that’s a response that’s categorically different, and depends a LOT on where you live. I live where most of the food comes from – there are grain elevators and cows all around. In New York City? Not so much. But like a wedding between Vladimir Putin and California Governor Jerry Brown, though possible, it’s just not very likely.

Are there general rules to a major disaster? Maybe. Here’s a first pass at some based on my experiences where I was in situations that approximated a disaster:

Be flexible. You don’t know the future, but if you’re alert, and think, you can guess at some probably things that might
Be the first out of the door. When it’s obvious that your situation has gone to hell, get out. Get in line for the re-routed plane. Get a rental car. Being late makes everyone in front of you your competition. Don’t put yourself in that position.
Understand that gone is gone. The universe doesn’t care if it’s not right. The universe doesn’t care if it’s not fair. And during an emergency, neither should you. Your plans are changed. Your house is on fire. Your PEZ® has been stolen by the ghost of Tom Petty in a kimono. Deal with the situation, not your feelings.
Understand that the old rules may not apply. Again, deal with the situation, not your feelings.
Regions matter. Your behavior should tie to the location you’re in. I’d rather be in central Iowa a year after an apocalypse than Chicago on a Tuesday.
Values and prices change rapidly. $10 for a bag of ice is a bargain if it saves $200 in food.
Laying food and supplies in before an event makes you smart, and removes you from being part of the problem. Doing it after the disaster makes you a hoarder and part of the problem. Looters and hoarders get shot.
Preppers look like hoarders to hungry people. Don’t talk about your stuff, or sit on the back deck having a ribeye when your neighbor is boiled grain from the silo near the railroad tracks.
Make sure you account for taxation when looking at your investment gains in your retirement portfolio.

Immigration, Freedom, Wealth, Corruption, and More Cool Maps

“Yeah. See, my cousin is getting married down at TJ, man, so he calls the immigration on himself.”

“But why?”

“So he can get a free ride, man.” – Up in Smoke

This will all make sense, baby, trust me.

This is the second post that I’ve really thought a very long time about, and read a lot about. Illegal immigration is a difficult topic, and one that’s certainly one of the most polarizing topics in the country today.

I’ll start out with the end conclusion: unrestricted illegal immigration is devastating both to the illegal alien and to the country entered, and is a phenomenon sure to cause amazing pain across the world. Now that the Band-Aid™ is ripped off the wound, let me further note that illegal immigration is currently considered the top problem in the United States, and certainly is up there in many European nations. I’m pretty sure it’s not considered a problem in California, since, you know, weed.

I won’t attempt to discuss specifics of this issue from a global situation – in reality, even though I read a LOT of news, I’ll admit my knowledge of the on-the-ground impacts in Europe is limited. I could talk about it, but it would be the equivalent of a nerdy dolphin talking about hang gliding – sure I’ve read about it . . . .

“But,” you say, “John Wilder, this is a nation of immigrants!”

Nope. Not even close.

What became the United States was a colony, specifically a colony of Great Britain. A colony isn’t a group of immigrants, it’s the growth of the home country by extension. In this case, the original colonies were founded by British companies operating under British law and eventually British colonies. The British brought their independent legal system, common law, system of representative democracy, religion, and culture, or at least that’s what the Saturday morning cartoons said.

You may or may not like the British, but the places they colonized remain the most free places outside of Europe. Here’s the Freedom House map of political freedoms in the world today (CC by SA, 4.0):

Thankfully, they didn’t mandate that you drive on the wrong side of the road to be free.

Groovy, baby.

And British culture and religion formed and shaped the politics that led to the American Revolution. The belief in ordered freedom, that laws stood above all men regardless of birth (i.e., a King was subject to law as much as a commoner), that commerce should be fair, and corruption was to be frowned on.

Amazingly, you can see that lack of corruption is tied to . . . wealth! Amazing! Part of the way to being wealthy is to not be corrupt. Who could have predicted that? CC-BY-4.0-DE, Transparency International

Here’s a map that shows where the wealth is, based on this website (LINK) by Theo Deutinger.

Let’s sum this up: The British language, culture, and religion was the vat that held the Special Sauce® that became America. In this particular “melting pot” it was British culture, plus the inheritance of Western Civilization that produced the slightly different culture we have here, and it fits in pretty well with the rest of the productive world. The United States is not a nation of immigrants; it’s a former colony that has created a variation on the themes that have (so far) been the most successful the world has ever seen. (Note to the Chinese instructor in the year 2230 making fun if this comment, it seemed to make sense at the time.)

So why not have immigration?

Well, I never said no immigration, even though immigration is by its very nature creates tension, and is part of the basis for the balkanized United States that I wrote about in (The Coming Civil War (United States), Cool Maps, and Uncomfortable Truths) and still feel is likely.

Want me to prove that?

The reaction to the following ad, when it appeared in 2008 was, to put it mildly, relatively positive south of the border, and relatively negative north of the border.

The tensions are currently greatest with Mexico since that country is putting the largest number of unassimilated immigrants into the country, but at different times the tensions have run high with other ethnic groups – the Irish certainly, and around the turn of the last century immigration from Eastern and Southern Europe led directly to the Immigration Law of 1924.

This particular law mainly set ceilings that aimed to preserve the existing ethic makeup of the United States – of particular note, immigration of Hispanics was less regulated, as they were considered not as Hispanic, but as European.

Eventually this policy was reversed in the Immigration and Nationality Act of 1965, which led to an increasing proportion of the foreign born in the country – now at over 13%. This was about the proportion that led to the Immigration Law of 1924.

But hey, if they’re legal, they’re American, right?

Well, no. It takes more than just a stamp on a piece of paper to be an American. Let’s run a thought experiment – The Wilder family decides to move to . . . someplace in Western Europe, say, Denmark, mainly because they love hot dogs and pastry. We become citizens! Are we Danish? No. We’re Americans who moved to Denmark and became citizens. Well, our kids are Danish, right? No. They’re the “kids of the Americans.” They’ve been raised by people whose culture is clearly not Danish. Okay, their kids?

Maybe. And that’s in Denmark, where we have genetic background from, and it’s a culture pretty similar in corruption levels and social standards to the United States. I’ll note that Denmark has just put into place restrictions on immigrants who will have difficulty assimilating to Danish culture – Denmark isn’t a big country in either area or population, and the Danes like Denmark just the way it is, thank you very much.

Being a citizen is more than a piece of paper – it requires assimilation, it requires ties. It requires buying into the culture and religion (not that you have to join that religion, but you have to respect the way that it forms and shapes the psychology of the country).

And that doesn’t mean that having the desire to “get to a better place” gives anyone the right to move to a new country. That economic incentive would thus justify that 75% of the world would have the right to move to a Western country. Also, if the immigrant is wanting to come here only for economics but is otherwise uninvested in the culture? They will bring their old culture with them – the very same culture that strangled their economic opportunity at home – the borders of the United States doesn’t hold mythical properties that make those that show up prosperous – the culture and religion do. The United States isn’t a magic bullet – it’s just got a great combination of freedom plus restraint, planning, and trust that derive from religion and culture.

And large clumps of unassimilated immigrants aren’t really Americans, regardless of where they were born or what their passport says. Technology has allowed foreign-born populations to live with television stations from home every minute of the day – learning English is now not required. And since they don’t learn English, the only jobs open to them are decidedly lower tier. This keeps them on the lowest rung of the economic ladder, and also displaces lower-skilled Americans. The relatively recent immigration enforcement phenomenon has led to much lower unemployment.

An example of one such cultural enclave in the United States that must be rooted out.

People from different cultures also assimilate at different rates – back to the Denmark example. Danish culture would be pretty familiar to the Wilder family, but if we were to try to assimilate into, say, Chinese culture? We know nothing useful for assimilation there. Literally nothing. The Mrs. and I would be rather hopeless, The Boy and Pugsley less so, but every day for them would be a titanic struggle to assimilate to a 3,000 year old culture with vastly different norms. But that’s unlikely to be an issue – China, a country of over a billion people, approved only about 1,500 green cards last year. Like an invitation to arm wrestle Queen Elizabeth®, those green cards amazingly hard to get.

But let’s ignore reality: what happens if everyone in the world moved to China?

Well, if you desire diversity – that would be the death of it. Diversity doesn’t flourish when you pull everyone from every culture into the same country – that’s the exact opposite of diversity, and the result (after the inevitable wars) is homogeneity – a single monoculture. And diversity has huge value, because as different populations have time to grow in (relative) isolation, interesting genetic things can happen, like clusters of genius, or clusters of resistance to certain diseases, or the near superhuman powers of the Sherpas or the Wilder clan.

Here’s what I just said, put more eloquently by physicist Freeman Dyson from his 1979 book Disturbing the Universe:

It is not just an inconvenient historical accident that we have a variety of languages. It was nature’s way to make it possible for us to evolve rapidly. Rapid evolution of human categories demanded that social and biological progress go hand in hand. Biological progress came from random genetic fluctuations that could be significant only in small and genetically isolated communities. To keep a small community genetically isolated and to enable it to evolve new social institutions, it was vitally important that the new members of the community could be quickly separated from their neighbors by barriers of language.

So our emergence as an intelligent species may have depended crucially on the fact that we have this astonishing ability to switch from Proto-Indo-European to Hittite to Hebrew to Latin to English and back to Hebrew within a few generations.

It is likely that in the future our survival and our further development will depend in an equally crucial way on the maintenance of cultural and biological diversity. In the future as in the past, we shall be healthier if we speak many languages and are quick to invent new ones as opportunities for cultural differentiation arise. We now have laws for the protection of endangered species.

In many cases the smartest and most able people come on over to the United States. That benefits the United States (in many cases), but what does it do to the country that sent those people over? Does it make India better to send over people who are smart programmers and great leaders, or does India suffer from this?

It destabilizes India, which, in turn, makes the world a less stable place.

The current mass-migration of peoples on the planet, regardless of their aims and difficulties, will end in violence and tears – there is no instance of a stable multicultural society in the history of mankind. The longer it goes on, the more devastating the end will be. But I’ve stopped worrying about that. Too scary. Now I just worry about fashion trends.

Your Asset is Somebody Else’s Debt. Oh, and Easter Island. And PEZ.

“Easter Island was a practical joke that got out of hand.” – 3rd Rock from the Sun

And now you know what those statues are for! Found on Twitter – I have no idea who to attribute this to.

Many of the things that you think of as assets are, to someone else, debts:

Your salary is a debt that your employer owes you – you’re a liability on their books.
Payments like Social Security or Medicare or any other government payment – is a debt that’s funded by taxpayers.
Your bank deposits are a liability on the books of the bank – technically you gave them a loan that they would have to pay back at some point.

This goes on and on, but I think this gives a flavor of the concept that debts are double-sided. Your debt is someone else’s asset, and vice versa. I’ve heard people (especially after a few beers) slur at the ceiling that the debt the economy is facing is, somehow, easily a solvable problem. “Jus’ eliminate the debt!” This is often followed by, “gonna be right back – gotta get rid of some of this beer.”

Well, if the bank did that, every one of my checks would bounce, which tends to irritate me, since by eliminating all of their debt, they eliminate all of my deposits. Yikes!

And if the government just said “debt’s gone – we forgive ourselves,” everyone who owned government bonds would be broke.

It’s interesting that this concept (asset requires a debt) only applies to financial instruments. If I own a car, or a really cool PEZ® dispenser and have NO loan against it, well, that asset is just an asset. It’s not someone else’s liability. This is rather crucial because the average dollar bill that is available in the United States is borrowed into existence. Take one of them out – look at it. It’s called a Federal Reserve Note. You’re actually walking around with a bit of somebody else’s debt in your pocket.

This wasn’t always the case. In fact, as recently as 1963, silver certificates were issued. These were just called . . . dollars. And they implied that you were still the holder of a debt, but the debt was payable in silver. Which is way better than a current dollar, which is payable in . . . another dollar.

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Look, Ma, no Fed!

Again, if I own an asset, there’s just no debt that goes against it. Keep that in mind . . . .

Okay, how much debt is out there? Well, I was reading John Maudlin’s post (LINK) and he had a number. It was a LOT. Like $250,000,000,000,000. That’s $250 trillion dollars. And to think, some people don’t make that much in a year!

So who owes this debt?

Well, corporations owe a huge chunk. And why not? Governments around the world have been force-feeding them money since 2008. Corporations, per Maudlin, own 41% of the increase. But the big owner? Governments. You can fiddle around with a maps and see how doomed your country is by going here (LINK).

As a note, the United States has a combined total of over $47 trillion in combined government, corporate, and household debt. If we didn’t eat or go to the movies or do anything else, we could pay it off in 2.5 years . . . .

But what happens when the debtor fails?

If the government fails? No Social Security. No free PEZ® monthly. No food stamps.
If the company fails? No salary.
If the bank fails? All of your money above $250,000 in a particular bank vaporizes. There are exceptions, but you can sort that out for yourself.

How likely is any of that to happen?

Governments fail all the time – and their currencies, historically, fail even more especially when we’ve reached the point where most currencies are backed by nothing. A silver certificate promised a certain amount of silver. Our current world currencies just promise that they’re worth a dollar, or a euro, or a ruble, or a yen – they have no intrinsic value. So, yeah. This really happens. And what’s one way to get out of debt, if you’re a government? Print lots of money. Oh, and your money isn’t worth so much after they pull that little trick. Again.

Companies can’t print money, or at least not for very long before they get Enron®-marched off to jail. But companies fail or disappear at a pretty significant rate. The average lifespan of a company, big or small? 10 years – then they get sold off or fail. Some, of course, last longer, like Sears®. Oh . . . nevermind.

Banks rarely fail so that your assets disappear, at least they haven’t since the Roosevelt presidency. For that to happen would call into question the entire financial system – so governments will print money by the bucket load so banks don’t fail. Make cars? You can fail. Make burgers? You can fail. Loan money at interest? Your doors will never close – worst case some other bank will be enticed to take you over.

One thing, as Maudlin mentions, is government hasn’t ever taxed actual wealth like your pile of silver or your vintage collection of Sarah Michelle Gellar photographs. Maudlin’s pretty convinced that the next debt crisis will be so big and difficult that governments will look at all the medium-size piles of wealth around the country, and start just plundering that like a pirate on a vacation. They’ll never get the big guys – those folks will move their money to places that even the IRS and God won’t be able to find. Like Easter Island. Or, (shudder) Cleveland.

REMEMBER, JOHN WILDER IS NOT A FINANCIAL PLANNER. I do hold positions in US Currency, and will probably get of some dollars in the next few days to establish positions in PEZ™, maybe a nice bottle of wine, or a steak.

Hawaii note mentioned in comments:

Houses: Fun, Profit, My Experiences and Bad Tax Advice

“You won’t Iose the house. Everybody has three mortgages nowadays.” – Ghostbusters

My second house. My worst moment there? Discovering that I had termites and the only way to treat them involved an exterminator doing a painful extraction of $2000 from my wallet.

I’ve been a homeowner since I was in graduate school, with the exception of about an eight week period from when we moved from Alaska to Houston where we stayed in corporate housing until we could close on a house – oh, and it took 8 weeks for our household stuff to make it through the Panama Canal, so closing on a house too quickly would have been useless unless we slept in the pool, and then we would have been wrinkly raisin people – and everyone hates them.

That being said, I’d prefer not to live in an apartment in a big city – it felt too much like being a tiny rat in a cage next to ten thousand other rats in tiny rat cages. Houses in the ‘burbs are much closer to the wide open country where I was raised – 15 miles from the nearest town of 1000 people. To get to a town with 5000 people? That was a 45 minute drive. So the ‘burbs in Houston were like a crawling over three miles of sandpaper to get a beer on a 110˚F day. I mean, I’m gonna do it, but I’m not gonna like it.

I’ve continually made the choice to buy homes. Houston was the first place that we considered trying to rent – but the rent was too high, compared to what we would get. Even though we always considered Houston a place that we would only be staying for a two years or so, we ended up buying. As it is we ended up staying in Houston for thirty one months and twenty-nine days and got out as soon as we possibly could and did okay, but only because I was kinda sneaky.

So, should you rent or buy?

The positives of home ownership are:

Appreciation – Historically, housing prices have gone up over time. Even if it’s just keeping up with inflation, this is known as appreciation. I know you normally feel appreciation that someone as wonderful as me lives and shares his wisdom with you, but when used with a house, it’s not an emotion, it’s a word that means the house is worth more than it was when you bought it. Again, most of the time house prices increase over time. But home prices aren’t uniform – in San Francisco you can’t buy a cardboard box next to a fish gutting factory for less than $23,000,000. Where I live? You can buy a house that a human could live in for $15,000 (not kidding). Not a great house, but one you could live in.
Forced Savings – Unless you’re on some sort of “interest only” loan that they sell to LSD-using hippies who mistake bran muffins for money, every month that you send a check to the bank (or use that sorcery, electronic bill payment) part of your payment is interest, and part of it repays the borrowed amount, until the loan is eventually paid for. This is a savings plan that you have no real choice on, so you can’t drop all that money on PEZ®, pantyhose, and elephant rides.
Tax Deduction – If you pay interest, at least right now you can deduct it off of your taxes. I am NOT a tax adviser, so don’t go waving a copy of this blog post in the IRS agent’s face if you get audited. But be sure to poke him in the chest with your index finger while loudly saying, “My taxes pay your salary.” They love that.
Emotional – You want a house. I understand. I also want a volcanic island lair and supervillain-type cars. But no one understands me. Maybe someone will understand your narcissistic desire for a . . . house.
Opportunity to be the Evil Neighbor Nobody Likes – That’s us. Not that we’re unfriendly, but we’re loud. We yell. Pugsley mows the lawn . . . interestingly some times – I’ve never seen a lawn that looks like a topographic map, but he figured out how to do it. And the house could use a paint job. And we have little dogs that will yap at you if you drive up to our house. Yeah, we are “those” neighbors.
Asset to Borrow Against – Yeah. You can always borrow against the place if it’s worth more than you owe. I did that once. It worked out okay – divorces are expensive, and home appreciation paid for one. I’d avoid this unless you want to pay off an ex-wife, it’s risky as can be.
Perception of Being Tied to a Place – People generally treat homeowners better, especially in places where respectable people own homes. So, there’s that.
Can Customize at Will – If you want to knock out a wall? Do it. New deck? Add it on. Cow-launching trebuchet? If the backyard is big enough, sure. Unless you live in New York or California, in which case you can’t mow your lawn unless it’s above 2.4” and it must be kept below 2.55”. I just read (seriously) about a guy who cut down several trees that were damaged by Hurricane Sandy. Damaged trees that were on his own property (in New York). And the city fined him $20,000. For cutting down broken, damaged tress. On his own property. Count me out.
No Renting Rules – Smoke all you want, have pets, draw on the walls. Cut a pentagram into your wood floor if you want. It’s yours.

Yes, I owned a three bedroom log cabin in Alaska. I miss it every day. Simple days. And no termites.

But where there are positives, there are negatives, too:

Debt – Very few people can walk into a place and buy it with cash. So, people (generally) borrow money to buy a house. Essentially, when you borrow money you’ve sold part of your soul to that person – you have to go to work to earn the money to pay the money you borrowed, PLUS interest. Debt sucks. So very much. I have no debt I can’t write a check for, so, any debt I have is because it’s a choice.
High Payment – Debt can lead to a pretty high payment. One phrase that has fallen out of fashion (somewhat) is “house poor.” That essentially means that you owe so much money on your house that you can’t afford to eat a Chick-Fil-A® because it’s too expensive. House payments can eat up all of your income. The guidelines for a loan used to be that the house payment could be no more than 28% of your income and all of your debt should be less than 40% of your income. I think you should be striving for TOTAL debt to be less than 20% of your income for any sort of comfort. Some folks prefer the zero debt level. I can understand and agree – work for that if you can. Here’s a post where I work out my past experiences on that (Homes: Affordability versus Income).
Tied to a Location and Place – So, if I hadn’t convinced my employer to take a $100,000 hit for me, it would have been hard to move from Houston. I would have been stuck in a place precisely when the economy was poor there. One study from back around the turn of the century actually showed a correlation between home ownership and poverty in some locations – people couldn’t afford to move because they owed money on their house. If this were for a grade or if I was being paid I’d look it up to give you the source. You can if you want. You have DuckDuckGoogle®, too.
Risk on Sale – This is sort of like the above – how long will the sale take, and how much money will you get? Who knows? In aggregate, people talk about days on the market, average selling price. But if nobody wants to by your house because it’s just icky and you carved a pentagram in the hardwood floor in the living room, well, you’re out of luck.
Commission on Sale – Unless you’re a realtor or want to pretend to be one, you’re going to pay someone 6% of the sales price when you sell your house. And if you sell it yourself? People will want to negotiate that 6% out of you, since they know you don’t have to pay a realtor. People are awful, right? Oh, heck, I forgot, I’m a people, too.
Upkeep Costs – Replacing a roof, fixing gutters, mowing lawns, trimming hedges, painting, cutting down the dead tree on my property that overhangs the neighbor’s deck. What is this, a list of things my neighbors would like me to do? Well, yes. But also, a list of things that also you have to pay for over time. And the costs add up – general upkeep on a house costs thousands of dollars a year.
Utility Costs – If you rent, some of these are (generally) covered. If you own a home, you have to pay them all.
Insurance Costs – If you owe money (which is the default condition) on the house, your mortgage company will generally insist that you pay for insurance so that their asset (your house) maintains value and they don’t lose money. The bright side? You get to pay for it. I meant the bright side for the mortgage company, not you.
Upkeep Time – Somebody’s gotta mow. And it’ll probably be you, until you get a teenager. Then they’ll want money . . .
Large Percentage of Money Invested – You might have $4,000 and some dryer lint in your 401K, but you’ve invested $20,000 on the down payment of a house. That’s a big investment. Will it pan out?
Liability – Somebody slip and fall on the sidewalk in front of your house? Yeah, they’re gonna sue you. I hope you have insurance . . .
Homeowners’ Associations – HOAs are run by bitter, retired old cranks with nothing better to do than complain about how people keep their yard, and send nasty, threatening letters with real legal consequences behind them. Don’t forget, Homeowners’ Associations have downsides, too.

The Boy and Pugsley in our Houston house. I think this was taken at the coldest day in December, since it was never below 145˚F when we were there.

Economics:

I’ve bought five houses and sold four, so how’s that working out for me?

The net gain (based just on sales price) is up about $100,000. Not bad, right? Well, like anything, there’s more to that story . . .

In Houston, I almost certainly would have lost about $60,000 plus had to pay my mortgage, insurance and utilities for 18 months while the house sat on the market had I not negotiated one little clause with my employer before accepting a job with them – if they moved me from Houston, they would pay me what I had in the house. I didn’t want any gain, I just wanted out. They agreed. Why not? This was before the housing bubble collapsed. Home prices always go up, right? So, of my $100,000 of profit, I’d actually probably be around a net of zero dollars had I not negotiated for that . . . “one last small item.”

Oh, and my current house? If I sold it today, it would probably go for $40,000 less than I originally paid for it. Yeah.

But those aren’t the whole economic picture. I’ve actually had to pay interest on borrowed money for these houses. I did some sloppy math, and I’ve paid about $140,000 in interest. Sure, it’s deductible, so I’ll only take a $90,000 hit for interest payments.

But there’s also been upkeep and improvements. I’d estimate (and I think this is low) that I’ve probably spent $125,000 on maintenance and improvements.

So, net (and I’ll keep my sly job negotiation gain and NOT account for a loss on a property I haven’t sold) I was up $100,000 – $90,000 interest – $125,000 upkeep/improvements. This says that I’ve paid roughly $135,000 to live in my houses. Keep in mind that number could be closer to $235,000 except for that one shrewd move I made.

What’s the alternative? I picked a ballpark rent, and multiplied, and the total was $460,000 for the time period in question. So, for me, owning homes has saved me $325,000 versus the alternative of renting.

But your mileage may vary based on the following criteria:

Debt Load – As mentioned, if you’re paying too much money in debt – you fry your family future. Avoid debt as much as possible.
Area – Is the area poised for growth? Good schools? Industry/commerce moving in? Or is it a dead zone with a declining population like Flint, Michigan?
Commute Time – Every minute commuting is a minute you’ll have to spend EVERY DAY that you go to work. Those minutes? They’re your life.
Duration – How long are you going to be there? Six months? Five years? Buying becomes an option . . . .
Single Vs. Dual Income – Let’s pretend you now have only one income – your spouse isn’t working. If you can’t afford the house with one income, you can’t afford the house.
Cost of Rent vs. Cost of Ownership – In the town where I live in Midwestia, I mentioned you could buy a livable house for $15,000. Why would you rent? Dunno, but people do.
Consequence of Default – Varies by state. I’m NOT a lawyer, and I’ve never defaulted. So, what’s the consequence if you can’t pay? Do you have to declare bankruptcy, or can you just mail the keys in to the mortgage company. You might want to know this where you live.

Buying a home is a complicated decision. It’s worked out well for me (so far) but it could have been different. Think about it, especially before you buy that unique fixer-upper in central Manhattan. Is it really worth $41,000,000 to own a single room apartment that was once rejected as a site for a Sex and the City™ episode?

What should you do in an economic downturn? Depends . . .

“Out these windows, we will view the collapse of financial history. One step closer to economic equilibrium.” – Fight Club

Since 1940, the United States has had 12 recessions, as recorded by the Fed. The graph is below.

fed unemployment

Want to start a small business? Just buy a big one before a recession, and wait! Saves a lot of hassle! The gray bars are recessions.

Why do we have recessions?

There have been several economists who have tried to explain this. One of the earlier explanations was from Ludwig Von Mises. Von Mises, being Austrian, was the founder of what is known as the “Austrian” school of economics. Austrian economists are the mortal enemy of Keynesian economists (named after John Maynard Von Keynes, it being a new rule that every economist must now have “Von” in their middle name). Often the Austrians and Keynesians will have gang fights over who has better economic theory, but they’re economists, so the gang fights look like slap fights between anemic three-year-old girls.

Von Mises felt that recessions were caused by a debt cycle. At a time (like today) you can borrow massive amounts of money at very low interest rates. My current house is mortgaged at 4% or so, but my first house was financed at a rate just over 9%, and that was a bargain at the time. And my current savings account pays interest in dust and, on a good year, in little balls of dryer lint.

voneconomics

Little known fact: Ludwig Von Mises (Miller) was Superbowl® 50 MVP!

This condition (like we’re in today) encourages investment, and discourages savings. An example:

The little town I’m in has one hotel that was built since Bill Clinton was president. There are a collection of at least two other (nice) hotels around town. And, there are about three hotels that were constructed when the building code required use of lead pipes, lead paint, and asbestos carpet. So, there are hotels for moderate budgets (like $90 a night) all the way down to hotels that take payment in squirrel pelts (tanned only – no raw pelts). No five star hotels, but, really, this town isn’t one you’d come to visit as a tourist.

But somebody decided we needed another hotel. And they built one – a brand new, brand name hotel in a town that already had enough rooms. Why?

Interest rates are low, so the hotel company is just looking for places to spend money. If they can borrow it at 5%, they don’t have to make too much money for the investment to pay off.

In an environment with low interest rates and large amounts of money available, companies will borrow money to do almost anything – projects that are crappy at 10% interest look great at a 5% cost of capital. So they borrow first to do the “great” projects and, once those are done, companies then borrow to do the so-so projects.

What happens when the interest rate goes up? Or the business ideas that are presented are so silly (strawberry picker making $15,000 a year buys $720,000 California house – LINK) that when they make the papers they become legendary. Another way to tell is when a Wells Fargo® bank has a Starbucks© inside it’s lobby – and the Starbucks has a Wells Fargo™ bankette inside. With a tiny Starbucks©. You can tell that maybe, just maybe, the economy is nearing peak stupid. (This happened in Houston – there was a Starbucks™ in the mall in front of the Target©. The Target® had a Starbucks™ just inside the door. So did the Wells Fargo© bank. Next to the Target™.)

As we watched the housing market collapse, as well as the financial shenanigans machine industry that supported it, my lawyer friend said to me . . . “Well, when you’re at the beach and the tide goes, out, you see who wasn’t wearing any clothing.” The length of time of artificially low interest rates and the greater the amount of “silly” investment is like a drunk’s binge – the longer it lasts the bigger the hangover.

Examples of irrational thought:

The price of a house never goes down – it’ll go up forever. And this one is in a great location, right next to the high paying jobs at the chemical plant.
The price of a stock never goes down – stocks will go up forever. And that new car will never replace horses! Silly!
Comics are totally the best investment anyone could ever make. This issue of Teen Manga 2000 will be worth millions!
“It’s different this time.”
“Stocks have reached a new permanent high plateau.”
“This company, Montgomery Ward Toys ‘r’ Us Sears Tesla will last forever . . . .

And then, something happens. Oh, sure, it looks like . . . 9/11. If the economy were healthy and operating on all cylinders, 9/11 wouldn’t have led to a recession. The reason for the recession isn’t what’s in the papers – the economy was sick from too much bourbon. It was going to throw up anyway.

Make no mistake – the United States is an economic engine. 2% growth is middling, but a 2% contraction is catastrophe. Why?

All of the jobs are created at the margin, at that 1% or 2% of growth. A small contraction ripples through the economy – now people are losing jobs. A 2% contraction is really a 3% or 4% contraction. That can set off a chain reaction (like during the Great Depression) – those people aren’t consuming, so the next group of people lose their jobs/businesses. And so on.

Also, in the past, inflation was a thing that happened. Now we pretend it doesn’t, even as food goes from a $5 lunch to a $10 lunch, minimum.

Eventually, however, the Central Bank (in the case of the United States) can hold back the interest rates no longer – it has to raise them or risk the currency (dollar) becoming worthless. Interest rates rise.

Formerly profitable projects and businesses are no longer profitable at the new rate. They get cancelled, or in some cases abandoned during construction. Or the entire business fails. The average business lasts . . . 10 years, regardless of age. Big ones, small ones, they get eaten or fail. It’s part of that regrowth that’s actually nice about capitalism. Wouldn’t it be nice if the DMV had to compete to get you to come in and get license plates or a new driver’s license?

So how should you behave in an economic contraction?

First, the pitfalls: being right early is EXACTLY the same as being totally wrong. In 1994 I saw that Marvel® had a great group of characters, and if they could only exploit them, they’d have a franchise that was worth millions. So, I placed a big bet – $2000 – on Marvel™ Entertainment stock. Which promptly went bankrupt, making my investment worth a handful of magic beans. Sigh. Again, being right early is exactly the same as being wrong.

Second: Getting out early (which I’ve done a time or two or almost always) has proven to be a killer. Getting out while the market is still going up has cost me a lot of gains. Not that I’m complaining – the world has been awesome for me, but I really wish I could afford a private island with a heliport inside and extinct volcano. I’ll have to buy an island without a volcano. Again. Sigh. Is an extinct volcano too much to ask?

So, what do you do when faced with an economic downturn? I’ve developed a helpful graphic:

Size of Downturn	Best Investment	Amount of Panic	Beware of:	Move to:
1-3%	Stay the course – keep investing every month.	Bernie Sanders waves his hands and screams for more aid.	Falling stocks.	A nice property you bought at a bargain.
Less than 5%	Whiskey. AAA Bonds of solid countries, like Switzerland. Gold.	Bernie Sanders takes his hand out of his pockets and puts them in yours.	Communist revolution. Oh, wait, they already got California.	Montana or Idaho.
More than 10%	Ammunition. Even more whiskey.	Bernie Sanders forms a cannibal paramilitary organization.	Better Call Saul being cancelled.	Your island with a helipad in an extinct volcano.

The real answer is that response to a downturn depends on:

How much money you have. If you have plenty, you’ll be fine.

How long the downturn lasts. If a year or two, you’ll figure it out. If a decade or more? Yikes! (Unless you have lots of money.)

How severe the downturn is. See above. The “More than 10%” is not really all that much of a joke.

How much your job is impacted. This you can figure out now. If your company could do fine without you, you don’t figure into any strategic initiatives, and you make a lot of money? I hope you saved some, because you and dozens of people that look just like you will be looking for a job soon enough.

Ma Wilder’s family, the McWilders, took in a batch of neighbor kids during the Great Depression and helped to raise them. Great Grandpap McWilder was wistfully employed on the railroad and operating a boarding house. Plus he ran a gambling house (I think) that sold illicit whiskey. He did what he had to do to get by during the Depression.

Great Grandfather Wilder ran a bank that did fine during the Depression. Never had to hustle, worked banker’s hours. Depression? Not for him.

So, be like Von Mises and Great Grandfather Wilder! Blitz that recession!