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Monday, December 28, 2015

Why A 4-Year College Is No Longer the Right Path for High School Graduates

I worked with teenagers at the high school level for fourteen years as a teacher and as an assistant principal.  What I learned from them is that they are highly motivated by the fear of missing out.  Yes, they act like reckless, nearly indestructible beings with their reptilian brains.  But deep down they are like frightened tiny mammals hiding from a predator...the unknown.

The dance.  The football game.  The rally.  Why did you go to these events as a high school student?  Was it because your friends were going?  Maybe.  Was it because the cute guy or girl you had a crush on was gonna be there?  Sure.  Still, you just knew you had to be there, right?  The unwritten rule of popularity is to show up at social gatherings and make your presence felt.





The fear of missing out on the experiences that are associated with college life unsettle the average teen.  Only "losers" end-up getting a job, and not furthering their education.  Going to junior college is also deplorable to many teens.  I've yet to have a single teenager smile proudly when telling me they are off to the local community college.  Indeed, for many teenagers, not getting into a four-year college is their first real life failure.  At least they think it is.

The five reasons below provide support for delaying committing to a 4-year college right after high school:

1.  Today's teenagers are far less independent than those of previous generations.  I betcha that five out of ten teenagers couldn't get on a public bus successfully these days.  Parents are doing more for their kids than ever before.  Thus, teens should postpone their 4-year college days until their twenties when they're more mature.



2.  4-year colleges are expensive, and should now only be for adults who have a strong idea of what they want to do after college.  This includes having an employment plan of action for after college.  In other words, going to a university because your parents want you to go, or because you'll be the odd man out at school if you don't, is complete nonsense.  Similarly, hoping to find your calling during your freshman or sophomore year is complete idiocy.





3.  You won't have enough money.  Chances are there is no college fund waiting for you.  Work a few years while living at home with your parents, and save enough for a couple of years at a public university.  Gain life experiences like holding down a job, and managing the money you make.  You'll be a better consumer of a college education once you do apply and get accepted to a university.  Even with a plush FAFSA package, you will most likely still need at least one loan to cover the rest.

4.  Universities still offer the same tried and obsolete majors.  When you look at the offerings, all universities still sell freshman the same disciplines from the 20th century, namely, psychology, history, sociology, philosophy, English, biology, etc.  Only about 10% of these majors lead to a job directly after the degree is earned.  The best universities allow students to create their own majors (liberal arts programs).  Therefore, students should complete their first two years (general ed) at a low-cost junior college, and then apply to a university that offers a design your major program.




5.  High school graduates don't know enough about money.  It's true...I saw their ignorance first hand!  Universities are like shark infested waters and your teen is a guppy.  Money decision-making has become more of an important skill over the past ten years with the wealth gap continuing to grow.  This is why staying home, taking classes at the local junior college, working a job or two, and getting more hours in the real world, makes more sense now than ever before.

The "right" path to take after high school today is not committing to a four-year college/university...unless of course you have a free ride.  There is no question that the better option is to attend a two-year, community college after high school.  Even the most brilliant students can gain valuable insight about the world spending their first two years taking classes with older adults, and working part-time.  Junior college graduates will be in a completely different pool for slots at a prestigious university as transfer students...yet another reason to postpone 4-year college.

Thanks for reading this far!  Until next time.        

Tuesday, December 22, 2015

5 Financial New Year's Resolutions for 2016

Can you believe it?  2015 is practically over!  I can't believe how fast this year went by.  Can you?  December is the month to look back and look forward.  Put your introspective hat on and come up with as many financial mistakes that you can remember.  The more the better.  From this list of blunders, create financial resolutions for the new year.

I know it's hard.  We are naturally wired to forget the things that cause us pain, especially money decisions that left us broke or struggling even more.  But remember we must!  Or we are doomed to repeat the past.  These are some of the financial mistakes I made last year:

1.  Not building a sufficient cushion with my rental income.  I kept taking the money out and using it elsewhere.  Some of the money was put to use buying stock, reducing my liquidity.  I loaned $1,200 to family and have only seen $500 of it back.  Of course during the year there was a major issue with one of my properties and I didn't have the money in my rental business account to cover.

So my first financial New Year's Resolution for 2016 is: Let the income coming from rents of my three rentals mount until I have three months of mortgage payments for each property saved up.

This is akin to having an emergency fund.  My emergency fund allowed me to be able to stroke the mortgages on my properties for a month without the need to use credit cards.  Do you have an emergency fund to cover unforeseen expenses?

2.  Not using my credit cards enough.  My credit scores are near 800.  But they could be way past 800 if I actually used my credit cards.  Inactivity is a thing, people.  It costs you credit score points to have a credit card and simply not use it.  I was reticent to use my two cards out of sheer laziness of having to deal with a bill or an online session.  There are so many cash back rewards perks I could've taken advantage of.  My Chase card, e.g., gives me the opportunity to earn cash back on certain purchases throughout the year.  I threw these mailings and notifications away every time.  And it's not like I was going to forget to pay the balance at the end of the month, and have an interest payment.  I'm super on top of things.  With credit and lending standards tightening much more, as a result of the Federal Reserve hiking the Fed Funds Rate, now is the time to bulk up your credit score.  So...



My second financial New Year's Resolution is:  Use my credit cards.  If you're afraid to use your credit cards frequently, maybe because you had a bad experience, etc., I advise you to visit Credit Card Insider.com.  The content on this site is trustworthy, rich in financial information, and useful to everyone, especially College Students, who could benefit and learn more about student credit cards.

3.  Not giving more.  I gave this year to several school clubs and to homeless people on the streets.  I didn't give much to non-profits with great causes.  Giving more is the single greatest motivator for making more money.  Great things come to people who understand that the purpose of becoming wealthy is to make an impact on the world.  Sure there are tax benefits to giving to charity.  But finding something you are passionate about, like feeding hungry children around the world, tugs at your mind, heart, and soul.


My third financial New Year's Resolution is: To research and find a great charity to give money to.

4.  Not contributing enough to my Roth IRA.  This was one of the worst years I've had to date to add funds to my retirement within my Roth IRA.  The Gomez's had a bunch of expenses that hit us hard this year.  We had a termite infestation, a tree that needed removing, a speeding ticket, a refrigerator that needed repair, and we put the kids in pre-school twice a week.  The result:  I've contributed less than $1000 so far.  I have until April 2016 to get closer to the $5,500 limit.

My fourth financial New Year's Resolution is: To automate my Roth IRA contributions.  You have to pay yourself first!  Don't wait until the end of the month to make a cash contribution to your Roth IRA, like I did.  Don't skip a month either.  Even a small contribution is better than none at all.

5.  Not getting a will.  I'm not ready to transfer my assets to a living trust.  Nor do I have the time to manage one.  The cost of a will is a fraction of that of a living trust.  Not having a will is irresponsible of me. So...

My fifth financial New Year's Resolution is:  To set-up a Last Will and Testament at a discount legal services site like, LegalZoom.com.  If you have children, you need to do something similar, if not the same.




These were the top five financial mistakes I made in 2015.  And as you can see, I've used them to make financial New Year's Resolutions for 2016.  You may have made many financial mistakes of your own.  Trying to attend to all of them in 2016 is foolish.  Work on those first that make the greatest impact to your financial health.

Thanks for reading!  Until next time.       

Friday, December 18, 2015

7 Sources of Retirement Income

They did it!  The Federal Reserve made good on their promise and raised the Fed funds rate by a quarter percent this week.  For all of you with adjustable rate anything, be it credit cards, car loans, a mortgage, it is now time to put the debt to sleep or lock down a fixed rate.  It's only going to get worse for anyone borrowing money, and just a tiny bit better for savers looking to get better rates on CD's and money market accounts.





Who knows what 10-year T-notes will do.  Maybe now they'll start heading the other direction and provide risk-averse investors better returns.  Rock bottom Treasury rates have punished retirees needing income for many years now.  It now takes a cool mil to get 50% of your income from safe yield.  See: You Need $1M to Retire...  Where will the other 50% of your pre-retirement income come from?  That's what this post is all about.  So let's begin.

1.  Risky paper assets.  If your portfolio is entirely in securities as you build your nest egg throughout your career, then you won't have many alternatives for income other than paid dividends or liquidating your holdings periodically.  You'll also have to pray the market doesn't tank in a major way until after you die.

2.  Safe paper assets.  All sorts of bonds are available and do provide steady, reliable income during retirement.  Of course, you'll need to do more of your homework if you shoot for higher yield and decide to purchase anything outside the realm of US Treasuries, e.g., munis, junk bonds, etc.  How about a CD?  Certificates of Depreciation...ooops, I meant, Deposit...are loved by the general public because they are super safe.  If you're going to put your money in CD's, at least buy more than one with your money, and stagger them in increments of three to twelve months.  Known as a CD ladder, by investing your money in equal amounts in more than one CD with different maturity dates, you'll reduce both interest rate and re-investment risk.  Meaning, you may just lock in a better rate in a CD you buy down the line, AND, when it comes time to re-invest, you may decide it's okay because you have other money becoming available to you in the near future from an older CD.  




3.  Annuities.  With an annuity you can have a fixed sum of money paid to you each month after retirement.  You can build your annuity tax deferred throughout your career as I am currently doing with my 403b (some people have a 457b which is similar).  Or you can purchase an annuity after retirement.  Your choices will include both a fixed rate or a variable rate (invested in securities).  Heck...you can even buy a deferred annuity and not collect any monthly dough until you're in your seventies.  Meanwhile your money grows.

4.  Cash value.  Have a whole life insurance policy?  I do.  If I were to die today, my family would get about $75K from this policy.  I do have other coverage, but what I like about this one is that as I pay my premiums, I am building a fund that has a surrender cash value each year.  Of course, the big bucks won't be available until 30 years of paying $70 (my current payment) per month.  I won't break even until year 35 or something.  Still, when I decide to stop paying, I'll have another stream of income in retirement!

5.  Rents!  Rental income is my personal favorite.  I've bought three out-of-state rental properties this decade and when I retire, I'll be mostly done paying off these mortgages.  If they don't change the tax code, I'll be able to continue to write off expenses and that is a good thing because I'll have all sorts of streams of retirement income coming in.

6.  Roth IRAs.  At 59.5, I'll be able to tap into my Roth IRA without Uncle Sam taking any of my money.  This is why I am a strong proponent of Roths as opposed to Traditional IRAs.  So if you can do it, get yourself one!  I invest within my Roth IRA and every dollar I make on top of what money I have contributed will also be tax free once I leave the rat race.  You can't beat that.




7.  401ks, Traditional IRAs, DB or DC pensions.  I think everyone is familiar with these so I'll just move along.

The name of the game in retirement is income.  How will you make money when you're not working?  That is the dilemma everyone will have unless they decide to work until they kick the bucket.  That is why there is no better day like the present to start building yourself a diverse collection of retirement funds.  With compound interest at work for you, you'll be surprised at how a little money saved each month turns into a whole lot of money twenty plus years in the future.  So start now!

Until next time.  Thanks for reading.

Saturday, December 12, 2015

7 Financially Sound Things To Do With An Extra $100

A hundred dollars doesn't seem like a lot these days, but never underestimate the impact of a single dollar.  Today's post is on several sound options to put a windfall of $100 to righteous use.  The tendency for people who come into some money, especially a small sum that could've easily been gifted, is to go out and spend.  Why not?  I mean...it's not like you're using any of "your" hard-earned money.

Though it feels good to reward and indulge yourself "playing with the house's money" so to speak, it is a set-back move.  Extra money that comes your way is for moving forward, making headway, or limiting future expenses.  In a country (the U.S.) where the middle-class is no longer the majority, rare opportunities like these, are not to be squandered cementing your lower-class status.

I am about to get paid my $100 Adsense payment from Google.  And I have been thinking hard about what to do with this money soon to arrive in the mail.  This is what the spender in me wants:



This Zipp Speed full carbon fiber water bottle holder weighs only 19 grams!  At $43.75 on ebay, I can afford to equip my bike with two of these, given the $100 smackers.  There is no way to rationalize an expense like this, however, without coming into conflict with your inner thrifty nature.  I can easily find a water bottle cage for far less...albeit, a heavier one.  Boo!  Cyclists love to minimize their bike's total weight.


Couser Canyon Rd. Valley Center, CA 12/12/15


Alright, the financial guru in me knows there are better uses for this money.  I'm here to present 7 financially sound things to do with an extra $100 in your pocket.  Starting with...

1.  A much needed car repair.  I'm on year 8 with my 2007, Honda Civic EX.  It needs new struts and shocks, new tires, and a brake job.  The latter two are high safety needs.  No doubt your used car can use some love too.  After all, the last thing we need is to have to buy a new, used car, shelling out thousands of dollars all over again.  My car is only at 115K miles, so it has a long way to go before I use it as a trade-in.  $100 won't cover these vehicle expenses, but it will help reduce your overall bill if you choose one repair and postpone the others. 

2.  Pay down a credit card (other debt).  Success stories of people who came back from the brink of death with their debt almost always includes people explaining they put every cent they could spare to lower their debt.  $100 can be an extra payment, maybe even two!


Pic from my ride

3.  Add to your emergency savings.  Your emergency savings looking rather flimsy?  You're not alone.  But being in the majority isn't good in this case.  $100 can come in handy one day so at minimum, you are better off putting it in a Brokerage/Money-Market account linked to your checking account.

4.  Put the $100 in your business account and use it to invest in your biz.  That's where my $100 from Google should go.  After all, it was earned from this blog which is part of my personal business.  Business capital should be used to grow your business, a business expense, etc.  A profitable and successful business is the fastest way to build wealth!

5.  Buy stock.  Have shares of publicly traded companies already?  The past week was a buying opportunity, with stocks tanking.  The key to success in stock market investing is to buy when there are several days of selling that have given you an opportunity to buy a great company once again below your cost basis.  $100 may buy you one share, two shares, or more.  I bought Alcoa (AA) last week, a great value play right now, and with this extra $100, I'm gonna buy more!


Pic from my ride


6.  Go to a local Real Estate Investor club, join it, and pay for the yearly dues with the $100.  Aside from networking, you will benefit by learning the ins-and-outs of RE investing.  If RE isn't your thing, find another "investor" club to join.  The main point is to keep learning and expanding your business contacts.

7.  Pay for a weekend night stay at a great hotel for you and your significant other...getting away from the kids.  Ah...but leave the fun for the night.  Instead, use the afternoon time to review your financial house and get it in order.  Better yet, use it to make future financial plans.  You will never be rich if you and your partner fail to communicate on financial matters and goal setting, and this is incredibly hard to do with kids and work taking your every minute. 


pic from my ride

That about raps it up for today.  I sincerely hope you will think hard about any new "extra" money that comes your way in the future.  Until next time!

Monday, December 7, 2015

"Invest In What You Know," Misunderstood.

25 years ago, a successful mutual fund manager, perhaps the greatest of his era and hard to beat even today, coined the expression, "Invest in what you know."  It was taken to heart by all would-be stock investors, albeit, misguidedly.




Legendary Magellan Fund chief, Peter Lynch, whose book, Beating the Street, is one I recommended in 7 Books to Teach You How to Invest in Stocks, had good intentions when he provided those words of investing wisdom.  Unfortunately many people dabbling in the stock market took these words to mean that one had only to know how a business works to make a killing.  For example, say you work at a Starbucks as a barista.  Simply because you can see traffic to your one shop increase over time doesn't mean you should take a stake in SBUX.  Your perception holds tremendous sway and combined with someone's approval, a rockstar someone, it can have expensive consequences.




Simplicity also has a tendency to make us all lazy and overestimate complicated endeavors, like investing in equities!  What's more simple than: "Invest in what you know"?  Everybody knows something, right?  After 25 years, Peter Lynch has finally come out of retirement and taken the time to clarify his famous advice.

The Wall Street Journal's, Chana Schoenberger, had the privilege of getting the long delayed scoop in, Peter Lynch, 25 years later....  Lynch clarifies his investing philosophy to include using fundamental analysis, i.e, analyzing a company's metrics and comparing them to competitors to get an idea of the "intrinsic value" of a stock.  Buying Apple stock because you see a bunch of people buying iPhones at the Apple store, doesn't mean you should bid on AAPL the next day.  Instead, "Use your specialized knowledge to home in on stocks you can analyze, study them and then decide if they’re worth owning. The best way to invest is to look at companies competing in the field where you work."  

People who invest in individual stocks must know how to interpret a company's income and cash flow statement, and balance sheet.  If you can't do that, than you probably shouldn't be taking any stock tips or words of advice...from anyone!

Thanks for reading!

Wednesday, December 2, 2015

Hard Work, Confidence, and This Last Trait Guarantees Success

Can success be guaranteed?  I am of the belief that success can be guaranteed, and you can be successful in any arena.  It just takes three things to reach any individual or professional milestone: Hard work, confidence, and...a quality that is part innate, part developed.  Unfortunately for most of us, this quality is the one we lack the most, and for good reason.

Because nobody likes the feeling of failure, and especially, repeated failure, big-time success is hard to come by.  We don't cultivate the last piece of the success puzzle long enough to let it have impact in our lives.  Consequently, the opposite trait, giving-up before a major breakthrough, is what we cultivate the most.




There have been examples in the past of people whose determinism, so dogged, unshakeable, allowed them to get over the hump of their repeated failures.  There's the notable, Thomas Edison, who would not give up trying to keep a lightbulb lit-up long enough to be of practical use.  Even though the carbon filament kept burning out trial after trial, little by little diminishing the hopes Edison had for a potential product, the project was never scrapped, and the rest as they say is history.

You've probably determined by now that the character trait I am referring to, the one to go hand in hand with hard work and confidence and guarantee success, is none other than grit.  

   

I recently finished reading, The Wright Brothers, by David McCullough.  Mr. McCullough may as well have a time machine that turns on as you open the book and begin to read because his story telling takes you back to the era where flight was believed to be impossible.  One cannot begin to appreciate flight, and the role the gritty Wright bros played in creating a flying machine, without the necessary historical context, masterfully presented by McCullough.  This book is a must read for all inventors, would-be entrepreneurs, entrepreneurs, and business owners.

The Wright brothers made a small fortune selling their flying machine, financing their experiments at Kitty Hawk and in Ohio with the cash-flow from a successful bicycle shop business.  They never went to college, yet their mechanical aptitude (and scientific process) was better than the best college educated scientists and engineers of their time.  Goes to show us once again that college is NOT for everyone.

But I come back to what made all of the difference in the Wright bros success, and what will make the difference in your own life when it comes to being successful.  Grit.  These brothers were extremely hard working.  Mr. McCullough is equally relentless in showcasing how busy these Wrights were throughout their lives.  The brothers were confident.  They realized without a shadow of a doubt that if anyone was going to solve the mystery of flight, it would be them.  Not someone else before them.  But it was their innate grit and developed resolve that ultimately made the biggest impact in their quest to create a machine that could easily take off, stay in the air, maneuver on command, and land safely.

Now I come to you.  Do you have true grit?  Can you keep going despite everyone calling you crazy?  That's what the Wright's endured for some time.  Constant ridicule.  How about being called, stubborn?  Are you okay with people, including your loved ones, using this adjective to describe your nature?  If not, you'll never be truly successful because you'll always cut short your trajectory.




The Wright's were not insane.  That's because they made adjustments every time they failed.  In fact, they kept a log book of all of their modifications.  I suggest that for the sake of your own sanity, you do the same thing.  Keep a journal of all the things you've tried, and write down why you think they failed each time.  That way you don't repeat your mistakes.

I've come to the end here.  So remember, it is not enough that you work hard and have confidence in your success.  The last ingredient must be added to the mix.  That's true grit.  I'd tell you, "good luck," in closing, but...you can't count on luck...only what you can control.

Until next time.  If you liked this post, then you should join my ranks as a subscriber!  Thanks for reading.