Bad things happen.  Its one of those things in life that we don’t like to think about but nonetheless is there.  Throughout history, many of us have been adversely affected when somebody or something oppressed, injured, tricked, mistreated, or otherwise afflicted us with emotional hurt, physical pain, or psychological damage. Due to no fault of our own – whether by cruel fate, happenstance, or divine intervention – we involuntarily suffered something unexpected and unfavorable that, by definition, reclassified our human condition to that of “victim”.

How about in your life?

Perhaps you have suffered abuse, theft, violence, or accidental injury at some point in your life. Maybe you were born with a genetic disease or developed an unfortunate illness over time. Perhaps other people treated you poorly because of your gender, race, or ethnicity. Maybe you were born to irresponsible parents who were not there for you as a child or who never quite got their own lives together enough to be a truly positive force in your life. Or, perhaps you were born to really good parents who just never seemed to make enough money to make your growing up as comfortable as it was for many of your friends and fellow classmates.

Certainly, these were bad things that happened to you. Moreover, what happened to you was outside of your own control. You lacked the power to prevent or change these bad things when they happened to you, and you lack the power today to travel back in time and alter your personal history so as to completely avoid these bad things in the first place. Whatever these bad things were that happened to you in your life, they really happened to you, it was not your fault, and there is no changing that.

    So ask yourself was I a victim or am I still a victim?

Your answer to this question is crucial to getting ahead in America because it says a great deal about your approach to life. If you answer, “I am a victim,” you acknowledge that something bad happened to you in your past and you remain a victim of that badness to this very day. If you answer, “I was a victim,” you acknowledge something bad happened to you in your past, but you no longer remain a victim of that badness today.

Note that these two different perspectives offer you two different states of personal freedom. In one perspective, you are not really free – you are still shackled in the chains of victimhood. In the other perspective, you are entirely free – you have transcended victimhood to arrive at a human condition not defined by suffering or other forms of badness. Note that the only difference between these two different states of personal freedom is the verb tense you choose to use – present (“I am”) or past (“I was”).

Which state of personal freedom would you prefer to be in?

Hopefully, you do not revel in victimhood. It would be unhealthy if you have discovered, in some way, benefits to continuing your status as a victim. While you may somehow feel those benefits exist, remember that, in victimhood, you are not truly free. By definition, personal freedom trounces any benefits to victimhood that you may feel.

If you truly want to get ahead in America, in the past is where your victim status needs to be. Victimhood needs to be a human condition that will always be familiar to you because you have been there; at the same time, victimhood needs to be foreign to you today because you consciously realize that personal freedom is what you truly desire in the life you are seeking to create for yourself in America. To be clear: your personal freedom begins the moment you refuse to be a victim.

In honor of Friday, the best day of the week I have something special for you all. I don’t know about you but there is nothing I like better on a friday afternoon than an nice cold beer in summer. I think of it as my sort of blue collar toast to the work week. Of course, I can’t consider myself a blue collar worker since I sit at a computer all day, but at least I can pretend I just got done with a strenuous week of construction. Unfortunately a lot of my favorite beers are privately held companies but some are not. I promised myself I will make within the next few months at least a small investment in things I drink. So here are my top 5 company picks with their beer that I drink the most of:

Anheuser Busch – (NYSE:BUD) – Budweiser beer
Who hasn’t had a Bud? Anheuser Busch sells more of the brand than any other beer in the world. There is a huge plant near Fort Collins (we really are the beer capital of the US imo, or at least close). The commercials with the Clydesdales: its all real. No really, its crazy, they have horses out running around playing football at their plant. Well, maybe they don’t play football, but they are definitely out there runnin around. They pay a decent yield and own some theme parks too.

Grupo Modelo – (Public, MXK:GMODELOC) – Pacifico
What says summer better than Mexican beer, with lime? And ok so they make a lot more than Pacifico but I challenge any of you to find me a better Mexican beer than Pacifico Clara. I have a weekly debate with my buddy who loves Negro Modelo and apparently his taste buds are still maturing. He’ll come around.

Molson Coors Brewing Company – (Public, NYSE:TAP) – Blue Moon
Montreal, Canada-based company which owns the Coors Light, Coors, Coors Non-Alcoholic, Blue Moon Belgian White Ale, Blue Moon, Molson Canadian, Molson Dry, Molson Export and Grolsch brand of beers. I can forgive them for Grolsch simply because of Blue Moon. They brew coors not too far from here in Golden Colorado and we always see these ads with streams and rocky mountains and pete coors standing majestically. Sadly, it does not make Coors taste any better. They still made it this high up because I have to rep my Canadian heritage.

Boston Beer Company – (Public, NYSE:SAM) – Samuel Adams Boston Lager beer
Sam Adams is the best tasting of the mass produced beer imo. Plus it has a sweet ticker “SAM”

InBev NV – (Public, EBR:INB) – Leffe Belgian Ales
The international stock offering, I had to include at least one belgian ale cause boy do I love them. Most of the heavier beers I drink are privately held microbreweries but as I was browsing around I stumbled upon InBev, Hallelujah!

**Bonus For Non-Alcoholic Beverage:

Cadbury plc (ADR) – (Public, NYSE:CBY) – Diet Dr Pepper
Now tastes even more like regular Dr Pepper, and now being consumed en mass by Jesse every day.

Now you too can own some stock and tell yourself every day: “I just made a bit of money off of Jesse.” What more can a reader ask for, right? Happy Friday!

One readers email reads: “Jesse, you post less than half the time anymore. I love Matt but are you forsaking us?” As many of you know by now, I got engaged this month. Well I have some other big news: we are building a new house. Thats also why I haven’t been able to post as much lately.

I hadn’t posted on it yet because there has been a ton of haggling and shinanogans going on to make things work. The short story is that my fiance lives a ways outside of Fort Collins, while I live in the college area of Fort Collins. We are remedying this by compromising: building a house right outside of town in a brand new development area. Its a seven step process:

1) Find plot we like
2) Have BBQ and drink beer
3) Negotiate with builder
4) Have BBQ and drink beer
5) Sell Lauren’s house & rent out Jesse’s house
6) Build house
7) Have BBQ and drink beer

First the plot we liked:

Its hard to see there, but behind us is the mountains with a great view. Ill have to put up another pic sometime. Next we picked our house:

Next the negotiation:

Something to keep in mind when you are negotiating when building a new home particularly in the case of a semi custom home is that the builder probably has pre-arranged incentives that may or may not be flexible. For national builders a lot of times they are not too flexible on what they will do simply because they deal in so many masses that it is not worth it to try and bend to every potential buyer. But here are my tips that we used successfully to get roughly $32,000.00 off in incentives and add ons.

1)  Ask about incentive programs
Many times the builder will have some sort of program where they will take money off of the base price of the house if you use their lender.  The trick here is to make sure that if you do use their lender, make sure to insist that the builder also pay closing costs.  The reason for this is that if they are not paying closing costs you may end up with very high closing costs due to the lender knowing you are “stuck with them.”  If the builder is paying the closing costs (which 90% will agree to according to my credit union) their lender will have a harder time trying to tack extra points onto closing.

2) Ask for more
In our case to upgrade the basement from 740 feet to 1500 feet it was an $8000 upgrade.  The builder wouldn’t budge on this but they did offer an extra couple of grand at the design center (non structural upgrades).

3) Have other options
If you are willing to walk away from the builder, many times they will do extra to get you to come back.  Having real alternatives gives the ability to play one builder against another.

Ill be adding and updating as we go along in the process, things are heating up!

Here they are:

1) Investing is for meeting long-term goals; savings is for meeting short-term goals.

2) Broad diversification, with exposure to all parts of the stock and bond markets, reduces risk.

3) An investor’s most important decision is selecting the mix of assets to be held in a portfolio, not selecting the individual investments themselves.

4) Consistently outperforming the financial markets is extremely difficult.

5) Minimizing costs is vital for long-term investment success.

6) Investors should know how each investment fits into their plans and why they own that particular asset.

7) Risk has many dimensions, and investors should weigh “shortfall risk”-the possibility that a portfolio will fail to meet longer-term financial goals-against “market risk”, or the chance that returns will fluctuate.

Market-timing and performance-chasing are losing strategies.

9) An investor should not expect future long-term returns to be significantly higher or lower than long-term historical returns for various asset classes and subclasses.

They are pretty simple and do a great job of embodying everything we stand for here at TPS.

Warren Buffett makes me sick.  And not for the reason you are probably thinking.  It doesn’t make me sick that he his ridiculously good stock prowess made him one of the top investors and richest men in America.  No, that actually makes me cheer him, its his socialist views and attempts at promoting socialism in the country while having made his fortune off of our system that make him an evil person.   I mean evil in the Ayn Rand speak sort of evil.  I recently heard an interview with him and it was enough to make me sick.  He railed against free markets, our government, and free trade.  Today I am going to focus on what the focus of the interview was: estate tax.

A little background for those not familiar with the estate tax.  When you die, everything you owned at death is tallied up, life insurance proceeds are added, and that sum is called your estate.  Your estate is everything you are leaving behind.  Under current law, if your estate is more than $2 million, the federal government imposes a tax on the amount that exceeds the magic $2 million mark.  The tax rate goes up to nearly half.

The death tax is an opportunistic penalty on those who have been successful and accumulated significant assets.  It disproportionately penalizes small business owners and family farmers who often have most of their net worth tied up in those businesses and no liquidity with which heirs can pay the death tax.  Heirs then get to liquidate their parent’s business to pay the tax.  The irony is that those that support estate taxes also tend to be ones that rail against corporate America.

Arguments for the estate tax go like this: in the words of Mr. Buffett “You don’t get to be a quarterback … because your father was a quarter back 20 years ago.”  In other words, without the estate tax, he thinks families who currently control most of the nation’s resources will continue to do so by birthright rather than merit.

Oh except there is one major problem with that.  Most Americans are self made.  Thats right, (According to a study of Federal Reserve data conducted by NYU professor Edward Wolff)  in the nation’s richest 1%, inherited wealth accounted for only 9% of their net worth in 2001, down from 23% in 1989.  Less than 10% of multimillionaires are from inherited money as of 2007.  How Mr Buffett who has been a genius about investing for his adult life can be so ignorant and/or blatantly ungrateful about the freedom he has enjoyed to become wealthy is beyond me.

For the record, the estate tax will not affect me, but it may affect my children someday.  I am not spending my entire adult life accumulating wealth for the government to redistribute it when I die.  That my friends, is socialism.  We are not (supposed to be) a socialist country.   There are plenty of those to move to if you want to.

Even though things are correcting right now, a lot of people have seen the value of their home double or more over the last eight years, creating an interesting alternative retirement plan for those who did not previously have one.  Great, if you are in that position.  The money train is arriving.  But the most important question for those who are planning not only to live in their house, but to live off of it is, what is the best way to get to my equity?  An interest only home equity is no good, that adds another bill and the interest rate is going to be higher than my rate of return on the money I pull out.  It also doesn’t get rid of any existing mortgage debt.

For some of the more “senior” Americans in this position, the reverse mortgage has become a popular solution to all of these questions.  But what is a reverse mortgage, how does it work, and is it really a good idea?

What is a Reverse Mortgage?

A reverse mortgage is, “a special type of loan used by older Americans to convert the equity in their homes into cash. The money from a reverse mortgage can provide seniors with the financial security they need to fully enjoy their retirement years.”

Just like a traditional mortgage it is a loan against your house, but unlike a traditional mortgage, it is not used to purchase the property, but to extract the equity in either the form of a line of credit or a monthly payout.

How does a Reverse Mortgage Work?

The concept of a reverse mortgage is surprisingly simple.  It is the opposite of a traditional mortgage (forward mortgage).  In a traditional mortgage a loan is issued to the homeowner, generally for the purchase of property, and payments begin immediately, allowing the homeowner to pay the principal down over a period of time.  Assuming we are talking about fully amortizing loans, the homeowner will be able to pay the mortgage off in full at some point in the future, commonly 30 years.

A reverse mortgage also issues a loan to the homeowner, however the homeowner does not make payments on this loan.  Ever.  Instead a first position lien is placed on the property, and the homeowner may receive either a line of credit for some portion of the equity or annuity like payments that will be guaranteed for life.  Interest accrues on the loan and is never paid off.  Rather the balance continues to grow every month.  Upon the death of the homeowner, the mortgage company takes possession of the house unless the heirs make arrangements for repayment of the debt.

What are the benefits to a Reverse Mortgage?

1. If the homeowner is at or near retirement age and continues to struggle to make end meet due to the burden of a mortgage payment, this will relieve them of the monthly payment.  This is a big relief to many retirement age homeowners wanting to retire, but worried about their mortgage payment.
2. This allows the homeowner to use the equity in their house as a retirement fund without having to sell and move.  Many older homeowners have spent the greater part of their lives in their final house.  Many have seen their children grow up there, and have deep roots in the neighborhood.  Selling the house would be a painful option.

What are the drawbacks to a Reverse Mortgage?

1. The interest rate is typically 1.5-2% higher than traditional mortgage rates.  Anyone thinking about using a reverse mortgage should consider comparing the cost and benefits of using a cash out refinance traditional mortgage.
2. The other costs are fairly high.  There is an origination fee which will be the greater of $2000 or 2% of the maximum qualifying amount.  There is typically a mortgage insurance premium equal to 2% of the lesser of the value of the house or the maximum qualifying amount in the first year and 0.5% of the loan balance annual after that.  There are also appraisal fees and a litany of closing costs.
3. The likelihood of keeping the house in the family after the death of the homeowners is unlikely.  However, for anyone considering a reverse mortgage, the likelihood is low under any other option as well.

Is a Reverse Mortgage a good solution?

As an absolute last resort if you are completely desperate.  The high closing costs mean you will lose out on large chunks of equity so you are better off selling and moving into a smaller house or apartment if possible.  There are also various government programs for seniors that want to keep their houses (aside from SS, there are property credits, etc).

On the radio today the business guy that comes on once in a while as fill in programming was talking about some of the extreme frugal things that people do to save money, some of the more frugal things people are up to, and some of the super extreme things that people do that are just over the line. Chances are, if you are living this frugally either you are living is destitute poverty, or you are cheap. Enjoy.

Normal frugality:

-A man saves all the boxes he gets because inevitably either he or a family member at some point moves, packs something, or needs a box for a gift. Normally it would have to be bought, but not around him: hes got boxes of any size.

-A lady makes her kids Popsicles out of juice and toothpicks

Getting extreme frugal:

- A man called in to say he and his wife have a group of neighbors that they all make grocery lists together and then shop at Sams (using one shared Sam’s account) and divvy the bulk groceries that way.

-A man would wait for abandoned houses to be condemned and the night before demolition he would take the copper pipe out of the house to recycle. (Not sure if this is even ethical….)

Oh Dear Lord you cheapskates:

-A college kid called in to say he would eat the leftovers in the commons area after people got up to leave for classes

-A guy says that his buddy collects partially cigarettes out of ashtrays and puts them away for later or finishes them.

-A lady called in to say her mother in law only writes in pencil so she can erase things off the paper and reuse it.

-A lady reuses her paper towels after they dry out

-A man called in to say he had created a separate urinal system for his house that transported the waste to an outdoor evaporator and used ‘purified’ water to water his lawn.

Anyone else got any good ones?  Ill leave you with a pic I got from JD at GRS.

David Ramsey Hypocrite. It keeps popping up as how people get to my site. I really can’t understand that considering I have mentioned David Ramsey exactly once (maybe twice). I seem to remember a few other people tackling this subject; five cent nickel and debt free revolution come to mind. Well I have no loyalty to Ramsey though I do like his debt snowball technique so I am going to dive into this David Ramsey hypocrisy issue. Of course I have a feeling I am opening up a Pandora’s box but here goes:

David Ramsey hypocrisy allegation #1: David Ramsey filed for bankruptcy and now he is a financial advisor

When I was in grade school I remember as part of the I think now defunct D.A.R.E program they brought in a speaker who was a former alcoholic and drug addict. If anything someone who has been through the absolute worst in a particular situation is in a good position to show the evils of that situation. I just don’t find a lot of credibility with this argument.

He even describes the time as the worst time in his life full of fear, desperation, etc. I think the fact that he has made it his life mission to help others avoid the same mistakes he made is noble, not hypocritical.

Score: Not Hypocrite view 1, Hypocrite view 0

David Ramsey hypocrisy allegation #2: David Ramsey rejects credit cards and ‘forbids’ their use, but he accepts them on his website

I had to do some personal investigation into this one and I was surprised to see that he does, in fact, accept credit cards. There is a disclaimer:

We understand what is running through your mind right now. “I can’t believe Dave Ramsey is accepting credit cards! This can’t be true! He’s sold out on his principles!” But before you shave your head and run outside on your front lawn screaming, “The world is coming to an end, save yourself!” let’s clear up a few things:

Number 1 – We are NOT accepting credit cards! Never have and never will. I mean, come on, do you listen to the radio show at all? Have you ever heard of a plasectomy? Please understand that accepting credit cards is something that will NEVER happen as long as Dave is still alive (and even forever after that!)

Number 2 – We are accepting DEBIT cards. We know that some people will go nuts when they hear that, but one factor is being overlooked. Debit cards do not work unless there is CASH available.

There is one problem with this: there is no distinction in Visa processing between debit and credit cards. I find this to be somewhat of a cop out especially considering his militant views on the subject. This is basically akin to leaving a cookie jar on the table around people addicted to cookies and telling them “you better not take a cookie.” It leaves somewhat of a doubt in my mind about how much of his stuff is “for show” and how much is “for real.” He obviously is just trying to make a living like the rest of us but the thing is, he’s gotta know most people are so desperate for his information (and likely to buy) are the ones who use credit. There is no way around the fact he makes money off the people he’s trying to help and that not offering a credit card option would hurt his income.
You could argue the “drop of water in a lake” theory …but what is a lake except a lot of drops of water? I can see both sides here. I lean toward hypocrite here, but I can’t be decisive about it. Point for each side plus a half point for hypocrite.

Score: Not Hypocrite view 2, Hypocrite view 1 .5

David Ramsey hypocrisy allegation #3: David Ramsey pushes “smart” financial decisions but his debt snowball is fundamentally “not smart” because it basically ignores interest rates

As one fellow blogger put it “David Ramsey is bad at math.” That is true, but he is also “Good at motivation.” The argument goes that he is telling people to be smart about finance, but paying off low interest rate small debts before larger high interest debts is decidedly backward as far as the smartest way to pay off a debt. I can see this point of view but I also think he is right in a lot of ways just for the morale boost it provides. This isn’t “hypocrisy” in the pure meaning of the word so this argument is null and void. No points for either side.

Score: Not Hypocrite view 2, Hypocrite view 1.5

The long short of it is that I don’t think he is a hypocrite: he lives what he preaches and thats really what it comes down to. I would definitely say there is some “stage acting” going on but that doesn’t make him an hypocrite, it makes him a showman. A lot of people have used his system successfully which is what I care about here: you the reader. By all means listen to his show and read his books, just don’t become a militant on any issue and keep an open mind.

We have a buying problem. Our buying has given us a credit problem.  And our credit problem has made us slaves to the credit market.  Many Americans use their credit scores as a way to evaluate and judge their financial success in life. Through decades of marketing, product innovation, and the passing of personal finance myths from one consumer generation to the next, America’s financial services industry has most of us conditioned to focus our attention on improving the credit scores computed and maintained for each of us by America’s four major credit bureaus, Experian, Equifax, Innovis, and Transunion. Such effective conditioning comes as no surprise – it is, after all, the financial services industry that profits handsomely from us taking out mortgages, using credit cards, obtaining car loans, and otherwise borrowing money for just about anything we want to buy or do to enhance our lifestyles.

Your credit score helps someone, and its not you

Alas, the more we consumers borrow cash from the financial services industry, the wealthier the industry becomes and the poorer we become. This can readily be seen in the simplest definition of your wealth, which is determined by your net worth:

Net Worth = What You Own – What You Owe

The more you borrow from the financial services industry, the more debts you owe. The more you owe, the lower your net worth sinks toward zero, or even into negative territory. The financial services industry has a net worth too. But, what is true for your net worth is exactly the opposite for the financial services industry’s net worth – the loan you must repay to the industry is an asset the industry owns. The more the industry lends cash to you and other consumers, the more assets the industry owns. The more the industry owns, the higher the industry’s net worth rises.

Look at the recent VISA IPO.  Just have a look at it.  In a struggling market Visa is not only surviving but thriving.

From the financial services industry’s perspective, your focus on your credit score is a great thing. Your behavior helps the industry grow wealthier over time. The financial services industry has it good – the product it sells is cash, the price of its product is a given interest rate, the interest payments we make are the industry’s revenues, and thanks to the industry’s unique ability to scale by simply recycling our interest payments into still more revenue-generating product, the industry’s profits are hefty. The industry has made the rules of the game, and the ball used to “win” in that game is your credit score. So, as conditioned, you focus on the ball, trying to move it up the field toward the goal. But, clearly, your behavior – your focus on your credit score – is not such a great thing for you and your family’s wealth. While having ready access to cheap credit can be a good situation in which to be, obsessing about your credit score so that you can borrow more and more from the financial services industry could ultimately preclude you and your family from achieving true financial freedom and security in your lifetime.

I submit to you that you and your family don’t have to play the financial service industry’s game. You have a choice. You can change the game. You can freely elect to change your behavior. You can remove your focus on your credit score and, instead, focus your attention and effort on building net worth.  Get rid of what you owe, and add to what you own/save.  Its so simply, yet it will be your saving grace in the end, I promise.