Posted on 02/29/2008 4:59:13 PM PST by RKBA Democrat
My uncle got to be wealthy by spending time on small matters. He never made more than $50K a year and has well in excess of $5 million in stocks/bonds/cash. He still is the ‘cheapest’ man in the family even though he’s one of the wealthiest.
Well, I am in a similar situation.
But I am thinking, do I want to worry about saving a buck on laundry soap, or should I be worrying about the best way to invest the thousands of dollars in stock dividends coming in every quarter?
That link took us to Friends of DHS...
It doesn’t really pay principle first (interest accrues regardless so the net balance is going to stay the same), what it does is basically use it as a home equity line with your direct deposit going to it which reduces how much interest you would owe. If you paid down $13k in 6 months, you are effectively putting a lot of extra ‘principle’ down that you could do without the loan. I do like the idea of it though as it should reduce your interest paid as long as you don’t think of it like a credit card.
No reason not to do both, especially if you are married (financially savvy one handle the financial stuff, the other can handle the day to day purchases). We pretty much get all of our supplies from costco and stock up items when they send out coupons.
Nice work.
I agree Starbucks is like crack but brewing it at home doesn’t seem to be less expensive. Actually, home-brewed whole bean starbucks is even more addictive. Wish to G*d I’d never started, I’ll never be able to drink Folgers again.
And between the savings and the Roth, you can pay a downpayment if you buy a house or move to a larger one. Not renting but owning, you will over the long term build up house equity as well. You can move where you need to for a career, and where you want to for retirement, and pay enough down that you get the best rates on a mortgage and don't have to pay mortgage insurance.
And when you get to retirement, your 401k and Roth between them will have enough to support you, which social security alone won't do, if you expect to live beyond poverty levels anyway. Your house can be fully paid for. Your taxes will go down in retirement. You can withdraw 5% a year from the savings and the principle will still be there and keep up with inflation.
And if you have any kids, they won't start out in life as paupers. You can afford to help pay for their education. There will be a house and an estate when it is their turn. If you are smart about health insurance in retirement, too.
Everything is easier. Just everything. You don't do it to have a pile in a bank or fund. You do it so you can go where you want, are not beholden to the government in your retirement, can choose jobs, can take vacactions, can support your kids, everything. You are in charge of your own life, for your whole life, it is that simple. And that beats having a few consumption items or nights out a week in your 20s to 40s, hands down.
Keynes believed that savings were evil and spending good. He thought "final demand" depended on people spending for today and not saving for tomorrow. He advocated fiscal and monetary policies that deliberately penalized savings and encouraged immediate consumption. Notably the social security pension system was based on this idea, and that is why it is not a funded system. Instead of a real capital earning the amounts paid out to beneficiaries, the scheme is a pure transfer payment without any capital or any earnings from it.
That this assessment of savings is utterly false was known to some economists even at the time, but they were derided and ignored. In the depression, there was something to be said for Keynes' ideas - it was at least the way to lean at that specific time. By the post war boom era, though, it was already unsound. By the 1970s, it had set off inflation and wrecked both public finances and the US trade position in the world, and driven the dollar first off gold and then to a large devaluation compared to both harder currencies (Swiss franc, German mark, Japanese yen) and commodities (gold, oil, etc).
What the "spending good, savings bad" idea fails to understand is that savings is also a form of demand. It is a demand for goods at future points in time, as opposed to immediately. Savings fund the creation of real capital that pay a stream of consumption that is far longer in time, though narrower than the broad, flat demand of immediate consumption. A power plant may pay 6% of its cost every year for 40 years, for example, instead of 100% tomorrow and then nothing. The total demand through time the power plant can fund and the savings devoted to it represent, is in fact 2.4 times the demand on the immediate use of the save initial wealth.
But to fund it, someone has to agree to consume less in that first year.
All real productions are like this. They do not destroy demand, they shift it forward in time. Keynes' error was to think he could account for the long run by just considering the immediate demand case and then "iterating" over the years - as though everything is short term, just short term at different times. This fails to account for the real nature of intertemporal trade. Keynes himself acknowledged as much in debate, with his famous quip that "in the long run we are all dead", in defense of his approach. But we are well past the point he considered his "long run", and while he and most of his contemporaries are indeed dead, the rest of us are not and the country is still here.
With a zero percent savings rate, a demand for foreign savings and capital equal to 5% of GDP imported every year, foreigners running up their ownership of US assets by close to $1 trillion a year, a public sector with $5 trillion in direct debt and more like $20 to 30 trillion in unfunded entitlement liabilities, an aging population set to retire into the face of that, and tax rates already at 40% and headed for 50% if Obama is elected.
All of it entirely unnecessary. If US households regularly saved 10% of their ordinary income every year, we would have no trade deficit, we'd finance our growth internally, and we'd be accumulating capital to help future workers produce all the goods and services future retirees will demand, but will not themselves be able to produce. Those future workers can then be paid by transfering ownership of portions of that capital to them, in return for their services to our retirees.
Would it help if the transition to this state of affairs were gradual rather than sudden? Sure, because the economy is an adaptive system, and right now contains many businesses and plans that are built for the present term structure of demand. All sudden shifts in demand occasion some loss to old invested capital, as the economy adapts to the new structure.
If demand is to shift toward future goods, it means increasing capacity to produce capital goods now, at the expense of items of immediate consumption. Since some of the new industries can only take up new capital and use it efficiently at limited rates, and these would form bottlenecks for others, it would be better if any transition to a savings oriented economy were gradual instead of sudden.
But this isn't remotely the present danger, when instead we are consuming as a nation 5% more per year than we actually produce, and funding it by transfering ownership of our own capital assets to foreigners. The danger is quite entirely on the other side - that we won't make the adaptation at all, or will only do so when and as foreigners lose their appetite for US capital investment and cut us off.
The best thing the US economy could have happen right now is for 10% of Americans to get the savings idea this year, and the same the next year, and so on, with the first adopters gradually increasing the portions of income they save. It would transitition us to a zero trade deficit, self funded growth trajectory within 10 years. Even if a third to half the population does go along, higher than 10% savings rates among the early adopters would make up for that - provided others don't run up huge debts in the meantime.
How can this be encouraged, by tax, fiscal, and monetary policies? Tax policy can encourage it through lower marginal rates overall, and lower rates specifically on dividends and capital gains in particular. These were features of the Bush tax cuts, which should be made permanent. A flat sales levied tax, or as a lesser move in that direction, a reduction in corporate tax to a lower flatter rate would also help. US corporate taxes have crept higher or stood still while a lower corporate tax revolution swept the world in the wake of the failure of socialism around 1990. US (and Japan) now has the highest corporate tax rates in the world.
Tax policy can also encourage savings through deferred savings plans like 401k and IRAs, and has been doing so since the 1980s, when it was realized by supply side economists that the Keynesian economics had failed. The limits on IRA contributions should be raised continually. Right now the 401k limits are 3-4 times the IRA limits, and this is pointless and only discriminates against the self employed and other groups without access to a corporate sponsored 401k plan. IRA limits should be raised to the level of the 401k limits, and the latter adjusted upward gradually, faster than inflation (at say the rate of nominal economic growth).
Fiscal policy can encourage higher savings by moving entitlements to a funded system. The way to do that is to encourage voluntary private savings alternatives to social security and medicare, allowing at first portions of contributions to both systems to be so designated. Gradually transitioning to the deployment of payroll savings being a voluntary matter, with social security available for those who want it, but not required of anyone.
At the same time, fiscal policy can encourage private savings and its investment in new real capital formation by not running large deficits, which crowd out private investemnt by scarfing up a portion of savings just to fund the immediate imbalance between government receipts and expenditure. In times of recession or war, modest deficits of 1-3% of GDP are fine. But in boom times the budget should be balanced, or run surpluses of about 1% of GDP.
Newt showed how to get that to happen without increasing taxes. Spending increases simply have to pause long enough to let the economy grow, and with it tax receipts to increase, until receipts cover expenditure. Then expenditures can resume growing at the rate of GDP, but not faster. In the transition period, nominal spending can rise with inflation, but not faster. This worked perfectly in the 1990s and there is no reason it wouldn't work again tomorrow.
Fiscal policy can also encourage the solvency of entitlements by adjusting retirement ages to reflect modern medical reality. 65 was the full life expectancy of the whole population when social security was enacted. Today the life expectancy of someone who has reached age 65 is about 20 years. For social security being an exceptional thing that only half the population would ever draw, for limited periods, it has become something people can expect to be on for a quarter of their lifetimes - and with unproductive childhood included, people now work only half their lives. That isn't sustainable, and it is the single largest direct cause of government taking half our incomes.
Just increase retirement ages gradually, a quarter of a year per year, until 70 or 72. This alone would make a diffference of literally $10 trillion in the unfunded liability of middle class entitlements. Allow people to take it earlier if they want to, but at reduced amounts equalized in an actuary's sense (expected present value over expected future lifetime etc).
Last monetary policy can encourage savings rather than immediate consumption by keeping its focus on price stability. In the long run, a price stability focus facilitates intertemporal trade, while erratic inflation forces risk-averse people to consume now. The government needs to meet temporary economic weakness more with fiscal policy shifts and less with monetary ones, to avoid the cycle of near-zero real interest rates in every recession, which has given us the boom and bust financial system we have seen since the early 90s.
Interest rates can be more stable, with positive real returns to saving, if less of the counter-cyclical policy adjustments of the government is on monetary shoulders, and more is done by e.g. tax policy and means testing of benefits. The government can collect less and pay out more in recessions, and the reverse in booms, instead of collecting more whenever democrats are in power, and spending more always.
All of this is obvious policy wonk-ism that you can find in the better think tanks like Heritage and Cato, and in the past and present advocacy of men like Newt Gingrich and Steve Forbes. We know exactly where we need to go, and workable policies that will get us there. But there is no political constituency demanding it, because the number of people who see the issues clearly and are determined to move on them, is far too small.
Which is something you and I can change...
Well, I certainly agree with buying things with cash. If I can’t afford it, I don’t buy it, and I save up to then get it in a specific period of time.. delayed gratification works.
The ad for magicjack is at the top of the add. On the top right. Didn’t you see it. Just click. I did not have the exact address. Sorry.
Dug a little further into Craigs list... Apparently you buy in your own region. So I assume you drive to the seller's house once you buy the item? It's not an auction like eBay is it? You make an offer or contact the seller, and they state the price? Thanks.
You do not need to pay the phone company anymore. At worst it will cost you $39.00 and if you use it for just a month you are even. Except they offer a 30 day money back guarantee. Not sure what idiot would take them up on that though. Be Smart. Save Money!
This won’t work for everyone, but I have an odd suggestion for saving money for certain kinds of people: join a church (synagogue, temple, whatever.)
Oh, I know. If you join and are responsible, you will be obligated to give the church a good deal. However, if the church becomes the center of your social life instead of the bar or nightclub, you will end up saving money. The person who has no place to go on Sunday is much more likely to feel the need to go out with friends on Saturday and try to fill the spiritual void with high living and beverages.
Hold to read later
ebay is an auction, Craig’s list sort of a garage sale. It doesn’t cost anything to list or buy, so it’s easy to list stuff you don’t want but may be wanted by someone else.
People list their item, and the price they want for it (at least that’s how it works here) and typically you go pick it up. So yes, you need to pick your own city/area.
I’ve heard of bad things, because you don’t know just who you are going to meet, and occasionally, if my wife sells something, and a woman buys it, I’ll drive to the McDonalds or whatever to meet them so it’s a public place. Works nice, they know they’ll be safe, and it’s not a big deal to me.
You also have to know what you are looking for. A water heater is easy to find, you just type it in and they are all listed. A couch is also easy to search for, but there are often a gazillion of them, so check the box to show only the ones with pictures of the item.
When I sell stuff I often list delivery as an option at some reasonable price, and open to some negotiation over the phone once I know where they live.
We use it just as a way to ‘trade’ stuff around for nicer stuff. If you look, there are a lot of new, or like new things listed. It does take some looking.
This AM I had a pressure tank I didn’t know what to do with, so I offered it for free. 2 hours later a guy calls, says he’s a scrap dealer and wants it. Not only do I NOT have to hassle with getting rid of it, he’s picking it up. I can also tell the enviro-nazis to stuff it, because most of them just throw the stuff away.
The advantages: Fifty to a Hundred a month minimum investment, Growth plus Dividend. Depending on the plan they are pretty liquid.
Disadvantages: In some plans Liquidity might be a problem, like any equity investment you might win or loose in the short term, don't get in to drips unless you are in to a ten to twenty year hold.
The force is strong in this one!
Wealthy people do what poor people refuse to do.
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