Monthly Archives: March 2013
Let’s just get this part out of the way first: I am a skeptic. I think the best method is to question everything, accept nothing and eventually you start to see how the world works. Accepting the mainstream and normal views on most things in life is a surefire way to live a mediocre and stunted life. I don’t want to get dramatic and say “Trust no one” like Glenn Close as Patty Hewes, but you know, it ain’t half-bad advice! Which is a long-winded way of getting to my point about misleading articles in the news.
This article was written by Graham Wood this morning on AOL.com. AOL is great at SEO so it’s the first result when you search for “California Real Estate Prices”. It’s true, prices in LA-OC have increased for the past eight months, but this article takes the cake for bad reporting. The author decided to consult the president of Realtor.com and Chief Economist at Trulia, two huge real estate sites that would obviously benefit from increased interest in real estate. There was zero mention of the real factors driving up the prices in this market, but only some stupid optimism (stole that phrase from Punch Debt) about “solid job growth” (no numbers provided) in “California’s coastal areas” (when really, California’s coast is three very distinct regions, only two of which are economic engines). To get the real story, read this excellent piece or just read the comments on the AOL article:
Comment 1: Greg Martin – March 28th 2013 @ 12:01PM
Of course the bubble is being reinflated! No mention of mortgage rates being at all time lows, or that 30 percent of the purchases are for cash and 1 out of 10 are from China in the SF Bay Area. Or perhaps you might mention that an entirely new way of doing business is being developed, with new companies purchasing hundreds of houses flipping and renting them, no more mom and pop rentals, just the Walmartization of the rental and speculative housing markets. So now BIG money has a way of moving relatively quickly into this market. Or you might mention that the months of inventory on the market is extremely low or even think philosophically that when prices “gap” down as they have that they will gap up as well. The holders of property wishing to recover their initial investment before selling or the fact that they can’t sell or refinance but if prices gap up they will be able to. I live in Santa Cruz and a short sale for a 2 BR / 1 BA on the market listed for $498K just sold for $640K. It was sold the new way, get your bid in by a certain date. It got 22 bids.
Comment 2: slolive – March 28th 2013 @ 4:32PM
Fannie Mae/Freddie sold off & continues to sell off some of their REOs in bulk to multi-million dollar investors. This does a couple things. Takes away affordable housing for qualified first time or regular income buyers or even small neighborhood investor types. 2nd artificially reduced the inventory as the investor can’t sell for 3 years and has to rent them out. (Fannie didn’t want to be embarrassed when they sold off at bulk prices and the investor flipped them so they figure after 3 years the public will forget.) Turning housing into corporate rental stock is lame when there are plenty of buyers. Ironic after all the mumbo jumbo talk about breaks for the rich instead of the little guys/gals that was going around a few months ago.
Basic housing economics is that if there are less transactions there are less economic benefits. Transactions to regular buyers or small investors come with higher local economic benefits of people going to Home Depot to buy extra pride of ownership supplies and hiring contractors to fix things up. The neighborhood suffers because they have corporate rentals instead of home owners with a vested interest in their neighborhood. You have higher prices but less economic benefit. It is less of a recovery than a commodity boom. Using 2005-06 prices as a benchmark if folly. That was a bubble with whacky loans.
In summary, reading from a variety of sources and taking in the comments can help you get a much more realistic picture of an issue rather than reading whatever light fluff piece was posted to get some search engine traffic. I don’t fully understand what’s going on with this market but I know better than to just take the word of someone heavily biased towards one point of view. Plus, it’s a good bet to avoid AOL and USA Today as a rule of thumb. Do you have any news sources that you know better than to take their word for? Besides the obvious candidates like Fox News and MSNBC?
Money isn’t everything,
Money can’t buy you happiness,
Money can’t buy you love,
If I had a dime for every time you lied to me; I’d be rich!
However, the more appropriate term would be; If I saved a dime every time you lied to me, I’d be rich!
Where I came from money was scarce. I was a Crip gang member on the streets of Southeast San Diego, and spent most of my life in and out of the prison system. I basically “aged out” of that life after several trips to some of the most notorious and violent maximum security prisons in the state of California.
The streets were just as mean as the prisons were back then.
In 1985, crack cocaine hit Southeast San Diego with a vengeance. The Crip and Blood gangs became divided by users and dealers. The dealers looked down on the users. They drove shiny cars, and wore flashy jewelry as status symbols and validation. Gang newcomers that sold crack took seniority over veteran gangsters who smoked it. Addiction was indeed powerful, but the entire game basically boiled down to “the have’s and have not”. The same as it is in the real world.
Business savvy dealers without gang ties recruited young gang members to sell for them. This merge was in the best interest of the dealer, as it allowed him to peddle his wares in once high-restricted areas. It also acted as a security blanket, because robbing him was then equal to robbing the gang members who worked for him. Once recruited, the gang members naturally protected the hand that fed them. Influence was gained by manipulating the dollar in poverty-stricken communities in this way.
Contrary to popular belief, gang-related homicides decreased considerably during this time. Most incidents of violence occurred over gangs selling on rival territories, rather than just being there. Money matters simply out-weighed gang affairs.
During these times, crack dealers made hundreds of thousands of dollars, yet their ability to manage it wisely was very unsuccessful. Most of them were ghetto-fabulous, but not business-wise. They had no prior business experience. No business or real estate investments here. They spent most of their profit accumulating material possessions, and lavish night-life expenditures with women. They had no bank accounts or legally protected assets. All of their cash was eventually seized in major undercover drug bust operations carried out by (paid) informants. It came down to MONEY.
In the end, most of the dealers received lengthy sentences in state or federal prison facilities. But the users actually made out better. After being placed into rehab facilities due to arrests for drug use and possession, they eventually overcame their addictions. Many are now drug counselors in the very recovery centers they once resided in.
I don’t know many people that are in the drug game now. But if I SAVED a dime for every user and dealer that I personally knew back then; I’d be rich!
The way people get rich is not a secret. But it’s not exactly what we think it is either. I’ve been studying money and wealth through this blog since June 2011, and a few things are starting to become obvious, which I hope will help me get to where I want to be financially. It seems like there are a few obvious things people do to become rich, and although they are things many people can do, most of us don’t do it. I’m a good example of the person who has done just about everything ass-backwards when it comes to my finances, but really, I’m shaking things up and doing things much more productively now.
Really: Save As Much Money As Possible
Not: Just Make Sure You Save Something!
It’s not 10%. It’s not 20%. It’s about saving as much as you possibly can. Sure, it’s great to save 10% when you saved nothing before (I started with saving $10 per paycheck!). But if you really want to make progress, what about putting away 70% of your paycheck every week? Before you can buy a house, start a business or make an investment, you will need your own funds to get things started. I know a lot of business owners. Before they started, and even once they got going, they were saving as much money as possible. They knew those funds would be able to make money for them, so spending money before it was able to make more money was akin to wasting it. So they saved. Hustled like crazy. But it doesn’t end there. They saved as much as possible in order to put that money towards an investment, which brings me to my next point…
Really: Research and Understand Investments Thoroughly, Then Invest
Not: Put Your Money Into Popular Mutual Funds!
As much time as I spend on the computer, I could have learned a lot more about investing by now than I have. But I get distracted. Anyways, it takes a lot to understand an investment. It could be a convenience store, a rental property or a stock. You don’t invest blindly. You figure out what you’re getting into. What’s your rate of return? How long before you recoup your investment? If you’re going to borrow money for the investment, do you have a decent debt service ratio that makes the bank or lender comfortable with lending to you? Is your interest rate reasonable? When looking at stocks, do you have an exit strategy? Are you comfortable with your valuation of the stock? Do you know why you think this stock is a good value? And as a side note, nobody gets rich investing in mutual funds. Especially not ones with expensive fees that may eat up your returns or ones recommended by Dave Ramsey’s “ELPs” (Endorsed Local Provider-don’t get me started). The point is, you have to understand your investments thoroughly before you get involved, and stay current on developments to make sure that you are still allocating your money wisely. If you care about investing, you will figure out what works for you and thrive. And it doesn’t have to be just stocks. Pauline at Reach Financial Independence is an awesome blogger example (cattle! She has freakin’ cattle!) of this as is Paula of Afford Anything.
Really: Become a Business Owner
Not: Work Hard in One Job and Hope for an Annual 3% Raise!
I know. I’m obsessed with being a business owner. Technically, I own a few businesses but they are miniscule. I’m talking about a real business that requires sustained effort to develop and maintain. Even though, as many early retirement bloggers like Mr. Money Mustache have shown that you can save considerable amounts while working in a (high-paying) salaried job, I prefer the business owner route. No job is guaranteed, just like no business is a sure thing. So if you can put your concentrated efforts into your own business, and reap the rewards yourself or with your business partners, doesn’t that seem more rewarding than working for someone else with the hope that they will recognize your efforts and compensate you accordingly? Although I think working for a good company is extremely valuable (and will show you how to run a business efficiently), I know I don’t want to work as an employee forever.
Really: Have Multiple Streams of Income
Not: Waste Your Time Earning Swagbucks!
I have a confession: I used to waste tons of time for small rewards. $35 product research surveys. $2 Amazon Mechanical Turk gigs. Practically minimum wage restaurant jobs. But that was my mentality. I figured I had time but no money so I might as well do whatever is out there to just make some money right? No. You are wrong, my former thought process. Why did I waste my time with whatever was the easiest, first offer that came to me? I don’t know. I think I was insecure. I’m still insecure at times, but I also know what my time is worth. I have some pretty cool, specialized skills and there are people out there who don’t want to do the types of things I love to do. I’m slowly working on upping my hourly consulting rate but I am also making sure that what I provide in value is awesome and worth it. But to get really rich? I need to develop multiple streams of income: like consulting, but also owning a few businesses, investments and one-off projects like developments (my not-so-secret dream: be a real estate developer a la Bluth Company).
Really: Don’t Live Aspirationally
Not: Buy it now, pay it off later!
Do rich people have nice things? Maybe, but they constitute a teeny-tiny percentage of their net worth. See, I used to have this ridiculous vision of wearing an expensive watch, which would signify that I had “made it”. But a $4,000 watch right now would constitute a chunk of my net worth and that’s crazy. When the Omega watch or AMG Mercedes represents 0.5% of your net worth, then it’s not aspirational. It’s just something you decided you wanted and could afford because it won’t change your financial future.
We all have to make big-ticket purchases. Those things might be cars, washing machines, refrigerators, engagement rings and houses. One surefire way to stay broke is to always buy the most expensive thing you can afford. You know, the fancy refrigerator with the French door (I love those!), the 3 carat diamond, that kind of thing? Sure, they’re great if you can afford it, but what if you can almost afford it? Should you get it? If you can avoid the upsell and the urge to always upgrade, you’ll reap the rewards because someone is trying to upsell you all the time. Probably right now. Don’t look.
Another good pitfall to avoid is spending your free time in aspirational neighborhoods. Think Gangnam in Seoul, La Jolla in San Diego, South Beach in Miami. I swear, these places make me feel bad about myself. Like, what am I doing wrong? Why am I not living this life of leisure? But it’s a bit of an illusion. You can live whatever life you want, it’s just a matter of committing to your goals and making it happen. Don’t compare yourself to others and you’ll be a lot happier.
Really: It Happens Slowly, Not Overnight
Not: Buy, Sell, Make a Million!
Things build on each other. You can make one good investment and clear some money, but then what? If you want to grow your investments, you take your gains and re-invest them, instead of spending them all on consumer goods, even though that’s always tempting. All of the ideas above are about making more and saving more, but even when you’re doing all that, it will take time to build a nice portfolio (What’s nice? That’s a question for another day or “As much as possible”). Allow yourself years to build wealth. Have fun while you’re at it, live your life and do the things you want to do, but just keep growing your wealth as you go. It really is true that if you can do something consistently for at least two years and keep your focus on that goal, what you can achieve will amaze you. Just imagine what 10, 20 and 30 years of focused wealth-building will do.
But Really, Do What You Want!
I was hesitant about writing this article. Even though many people know this as basic advice, I wanted to put it all down in one place. I want to follow this advice and have the kind of wealth that I have previously dreamed of but that was it, I just dreamed of it, like “Hmm, oh that’s nice.” Many people have the opportunity to be rich, but certainly not everybody at this exact moment. If your current situation is riddled with poverty, crime, violence and neglect, you have bigger problems that, although intricately tied with money, encompass a lot of other crap you have to handle first. Wealth can help with some of those things, but understanding, awareness and education are more pivotal when you start from the very bottom. I don’t think being rich is some be-all, end-all in life. It is just another way to be. Neither being poor nor being rich makes you any better or worse than anyone else. Your character is what you’ll most often be judged on, but I think that can change too. But if you can be rich, and you want to be rich, then go for it. Don’t listen to the advice of big names (like big brands, they’re usually about a lot of hype) and make your own path of it.
Since I’ve stopped doing the monthly debt updates, I wanted to do a quick check-in as I have been paying off my debt pretty rapidly. As of today, my remaining debt is:
Remaining Debt: $10,892
I know what you’re thinking: she’s almost not a loser anymore! I know! I feel the same way. In fact, I checked my credit score yesterday and it had jumped up to 770 since I’ve reduced my debt by so much. Considering that my bank said I need a 740 to qualify for their best mortgage rate, it’s a step in the right direction. So here’s my plan for getting rid of the rest of the debt: pay it all off by July 1, 2013. All of it. Every red cent. No more interest. No more payments.
Is that doable? Good question. July 1 is just under 4 months away, and according to my calculations (which I calculate obsessively, recheck and adjust daily), as long as I am extremely frugal until July 1, I can do it. There’s a tiny bit of magical thinking involved too, but I have found that that always works out. Seriously. I’ve never been late on a payment and have always come up with whatever money was needed when I needed it. Things generally tend to work out. I know that sounds vague, but I have set the date for a 100% debt pay-off for July 1 and it’s going to happen. It won’t be close. It will be done.
Vote to Change the National Anthem to R. Kelly’s Ignition (Remix)
My friend and future sister-in-law (sort of, her sister is married to Ryan’s brother, but you know, we’re basically family) told me that one of her old college friends decided to make an official White House Petition to change the national anthem to R. Kelly’s “Ignition (Remix)”. If it gets 100,000 signatures by April 2, it has to be addressed by Congress. It started out as a joke, but now it’s gotten tons of national coverage and has over 9,000 signatures. Go ahead, sign it.
It felt like the internet was full of flame wars this past month. Most relevant was that Financial Uproar took the time to expose many, many, instances of Finance Fox being a dirty plagiarizer. As I commented on the post, it looks like we have a Carlos Mencia on our hands. And in true “Menstealia” fashion, Finance Fox is blaming the whole thing on a ghost writer, which I gave my two cents on in DQYDJ’s excellent piece On Shortcuts, Originality…and Casablanca.
Philadelphia Magazine decided to publish Being White in Philly. I’m undecided about this article. I get what the author was trying to do, I respect the intent and yet…it still makes me kind of uncomfortable. Read it and tell me what you think.
Mr. Money Mustache (what no moustache?!) interviewed Ryan Carson, CEO of Treehouse. This was an excellent interview, and I love that education is becoming accessible and self-directed. We are the masters of our destiny! Captains of our own ship! We can do this. We can learn. We can build. And we don’t need to accrue crazy amounts of debt to do it.
Blonde on a Budget is almost debt-free too (and won’t be blogging personal finance once she’s there). She started blogging at just the same time I did, and has pretty much killed it turning around her financial situation. I hope she’ll share her new blog with us when it comes time to say goodbye to Blonde on a Budget, as I love posts like this one about her mom as role model.
Money Mamba reviewed the most successful investing strategies.
I laughed out loud at Budget and the Beach’s Budgeters Anonymous video.
Finally, I just want to send a general blog shout-out to Michelle at Making Sense of Cents. She is one of the most productive bloggers out there, hustles hard in her real life and is just all-around independent and successful. For only 23, that’s really impressive. And she’s making as much in side income these days as many people make at good day jobs. She motivates me to work harder!
Vote for me so I can feel good about myself
Can you do me a 10 second favor and go vote for me at Free Money Finance? Just leave a comment with the word “Reasons” in it and you’re done. I’d really like to make it past Round 1 this year!
Reggaeton Video of the Week
The answer is no: I never get tired of listening to Daddy Yankee. Las que juegan se quedan solas!