Three-Cent Stamp

Be grateful for what you have, because chances are, it ain't so bad.

The Cohen Brothers' movies are funny, in a dark way, but also usually have a moral of some sort.  In the move Fargo, to me, the message was to be grateful for what you have in life.  Marge's husband Norm enters a painting contest, to see if his wildlife painting of a duck will be chosen for a postage stamp.  He wins, but is disappointed that it is "only the three-cent stamp":

Norm Gunderson: They announced it.
Marge Gunderson: They announced it?
Norm Gunderson: Yeah.
Marge Gunderson: So?
Norm Gunderson: Three-cent stamp.
Marge Gunderson: Your mallard?
Norm Gunderson: Yeah.
Marge Gunderson: Oh, that's terrific.
Norm Gunderson: It's just a three-cent stamp.
Marge Gunderson: It's terrific.
Norm Gunderson: Hautman's blue-winged teal got the 29-cent. People don't much use the three-cent.
Marge Gunderson: Oh, for Pete's sake. Of course they do. Whenever they raise the postage, people need the little stamps.

The scene pans out, as shown above, with Norm and "Margie" laying in bed, content, their baby on the way.  Sometimes the simple things in life are best.

But for many Americans, this never seems to be enough.  To be well-fed, healthy, and have a place to live and a job is never enough.  So long as their neighbors appear to have more, they are discontented and argue about the "unfairness" of the system.

But when you look at your life from a global perspective, you realize that you are among the lucky few people on this planet who don't have to scrabble on a daily basis to find sufficient calorie intake to prevent starvation - or worry about where you are going to sleep that night, or whether the government Police will jail you.  You are, if you are reading this, one of the very lucky few on this planet, as you know how to use a computer and have access to the Internet - making you one of the elite on the planet.

But for many folks, that is never enough - they want more.  Everyone else has more, why shouldn't they?  So they mortgage their lives to buy "things" and don't save anything to create real wealth.  Or they get involved in criminal enterprises, all for a "little bit of money".

At the denouement in the film, Marge has a monologue with the prisoner Carl in the back of her "prowler".  It  also sums up, in a few words, the theme of the movie.

Marge Gunderson: So that was Mrs. Lundegaard on the floor in there. And I guess that was your accomplice in the wood chipper. And those three people in Brainerd. And for what? For a little bit of money. There's more to life than a little money, you know. Don'tcha know that? And here ya are, and it's a beautiful day. Well. I just don't understand it.

Take a moment to be grateful for what you have, because chances are, it is more than you think you have - and much more than most.   Greed and envy and the need to "have more" often end up causing people a world of grief.

Three-cent stamp!

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The Genie Effect

If you wish for something hard enough, it may seem to come true.  But beware, genies can be deceiving!

In the January 2011 issue of Sport Aviation, there was an article describing the "Genie Effect" written by Dave Matheny.   A friend of the author wanted to buy an ultralight airplane in the worst way, and set about doing so in the worst way.  He found what he thought was the answer to his dreams - an obsolete, limited production ultralight that was made by a company that went bankrupt in the 1990's.  And for "only" a few thousand less than the cost of a nice, working airplane, he could have this marvel, which was disassembled and in boxes.  Needless to say, not only was it a bad deal, it was a nightmare.

The Genie Effect describes what happens when you want something so badly that it seems to appear before your eyes!   But what is actually happening is that you are projecting your desire onto something that is less than what you really wanted.  And there is no shortage of people out there, selling clapped-out motorhomes, boats, cars, airplanes, houses - you-name-it - preying upon people with stars in their eyes who are victims of this effect.

How do you avoid the Genie Effect?

First, never, ever want anything that badly.  Yes, a fancy Harley or a fast boat may be "desirable" and you may want one - badly.  But as soon as you give yourself over to "having to have" such an item, well, the seller has you over a barrel, and you are going to get screwed.

Second, along these lines, be prepared to walk away from the whole deal.  You don't "need" a Harley or a speedboat.  So you can afford to wait until the right deal comes along - and the longer you look, the better you will be able to spot that right deal.  In addition, the longer you look, the more likely you may talk yourself out of it - after looking at motorcycles for a year or so, you may decide that the fun part was in the looking, and your burning desire to be a biker, like so many other things in life, burned itself out, saving you a lot of money in the process.

Third, avoid weird deals and oddball products.  In any consumer genre, there are always the lemons and wanna-be products that never quite panned out the way they were supposed to.  Winnebago LeSharro motorhomes, for example, were built on a Citroeon front wheel drive truck chassis, so you can imagine how well that worked out.  People buy these used "for cheap" - thinking they found the motorhome of their dreams, only to later realize it was a nightmare when they can't get any parts for it, or find anyone to work on it, either.  Walk away from "orphan" products, one-offs, products from out-of-business companies, oddball houses, and the like.  Chances are, there was a good reason these products were wildly unpopular.

Fourth, stop looking for screaming deals and settle for reasonable bargains.  It is nice to buy something for 1/2 its retail value, but it rarely happens.  So don't go looking for those kinds of deals - chances are, you will end up getting burned.  The "bargain" boat might have transom rot, or the "steal of a deal" motorcycle might actually have been stolen.  If something is priced "too good to be true" chances are, there is a reason for it.  Once in a great while it is a smoking deal, but don't count on those on a regular basis.  Spend a little more and get a good bargain - stop looking to "steal".

When you wish for something so badly and then a Genie appears, apparently offering to grant you your wish, be cautious!  There are no such things as Genies, just as There Ain't No Such Thing As A Free Lunch (TANSTAAFL!).  So you should be suspicious when something appears to be "too good to be true" because it probably is.

The ending for the EAA story was a happy one.  After looking at the boxes of parts carefully and going online and realizing that the stuff was just overpriced junk (and the seller a dreamer), the fellow spent a little more money and bought a more popular model ultralight in flyable condition.  It was not the apparent "screaming deal" he thought he was going to get.  But a flyable airplane beats boxes of parts anytime, in my opinion.

Genies are deceitful!

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Do You Want to Be Self-Employed? Probably Not!

Self-Employment is no Bed of Roses

The allure of being self-employed -  it permeates our society.  Everyone dreams of being their own boss, calling the shots, and sleeping late every morning.

Con Artists prey upon this desire in the common man with their "work at home!" scams and "be your own boss!" come-ons.  And yes, they are all scams.  If you really want to be self-employed, you either have to start your own business -  a real one, not something from a "starter kit" - or have some skill or service you can market.

But even if you have a real business that can make money, being self-employed has a number of pitfalls.  Before you leap into the void of self-employment, consider the following:


1.  No Steady Paycheck:  Most Americans, as I have noted in this blog, fall into the Job Trap - they divide their paycheck into lots of little monthly payments, and thus squander away a lifetime of wealth.  That is bad enough.  But if you are going to be self-employed, there is no assurance of that steady stream of paychecks, so having a lot of debt load and monthly payments to make can really kill you.  Once you are self-employed, you can't have a lot of personal overhead for things like car payments, cable TeeVee and the like.  You have to pay cash for your cars, and make it so you can go for months without money - if necessary.  In some ways, this is an advantage, as it finally puts you on the "cash basis" you should have been living all along.  But if you want to become self-employed, you should start doing this NOW, while you have a job, as it is hard to do once you break the safety net of the weekly paycheck.


2.  Self-Motivation:  This is also tricky.  Most Americans like the idea of self-employment as they believe it is a ticket to sloth and lack of motivation.  You can goof off all day!  It's great!  The problem is, if you goof off, you don't get paid - maybe months down the road.  There is a disconnect between work and reward, and if you do not make the mental connection, you may find yourself slacking off and then starving down the road.  Most people need the structure of a daily routine in order to get any work done at all.  In other words, the vast majority of drones need a "job" - and that may mean you.


3.  Not Getting Paid:  You work hard and achieve great results for your clients, or you build an addition on to someone's house and it looks fabulous.  All that hard work!  All those expenses!  And then.....they don't pay you.  Clients and customers go bankrupt - it happens.  And it is happening more and more lately.  Over the years, I have "written off" over $100,000 of bad debt from clients.  And by "writing this off" I don't mean I get a deduction on my taxes or anything.  You just don't get paid (the average Joe Paycheck thinks, idiotically, that a write-off provides some sort of tax benefit.  It usually just means you lose money).  There is little you can do to avoid this, other than to ask for a lot of money up-front.  But the market resists this, and in many cases, it may be illegal or require that you maintain separate escrow accounts.  It is very rare that a Joe Paycheck doesn't get paid.  For self-employed people, it is  a way of life.


4.  Self-Employment Tax:  Many Joe Paychecks assume that your taxes will be lower if you are self-employed.  Not true.  They actually are higher.  If you get a paycheck, you pay your income taxes (which are withheld from your paycheck) as well as Social Security and Medicare taxes.  The latter two are matched (doubled) by the employer.  So for every dollar you receive in pay, your employer has to cough up about $1.10 - not counting benefits.  If you are self-employed, you have to pay an 18% "self employment tax" which is equivalent to your contribution plus your employer's contribution to the Social Security and Medicare funds.  The good news is, by paying this tax, you qualify for Social Security and Medicare (if you did not pay in, you can't take out!).  But it illustrates one reason why outside contractors are paid a lot more than in-house employees.  There are other reasons as well, such as....


5. Health Insurance:  You've read all the headlines about this, and if you have a "Job" you don't think too much about it, other than to bitch about co-pays and perhaps the small amount your employer asks you to contribute.  But if you are self-employed, you have to fund the whole deal - and you will go to a bare bones, $10,000 deductible in no time at all.  And as you get older, the cost will escalate into the thousands of dollars a year.  It is not a fun scenario, as your health insurance takes up more and more of your income.  For Joe Paycheck, the escalating cost of health insurance doesn't take a dime out of his bottom line - his paycheck remains largely the same, regardless of increasing costs.

6.  Retirement Plan:  Another area where you have to "fund it yourself" is retirement, and that means setting up a SEP (the self-employed version of the 401(k)) or IRA, or both.  There are few defined-benefit pension plans anymore for the Joe Paychecks of the world, but NONE ever, for the self-employed.  You have to save your money - or else!  And since you never know where your next paycheck is coming from, well, you'd better save as much as possible.

7.  Becoming Unemployable:  Once you have been self-employed for a number of years, you are basically unemployable.  You can't take a feral cat and make it into a house pet, it just doesn't work.  And employers know this.  If you've been out on your own, chances are, you'd make a lousy employee later on.  You'd bristle at the silly rules and restrictions in the workplace that keep you from getting anything done - or the volumes of unnecessary paperwork that keeps the drones busy but accomplishes little.  And you would just refuse to tolerate the petty games that "employees" play as they try to cut each others' throats to get a tiny advancement - often at the expense of company profitability and productivity.  So if you become self-employed and decide you don't like it - too bad.  It pretty much is a one-way trip.  Look before you leap.

* * * * * 

Yes, being self-employed is a lot of fun.  But it is also very, very scary, and you have to be a risk-taker and have a high tolerance for stress. 

Most people in this country are very risk-averse, as I have noted time and time again, in my blog.  People would rather lease a brand new car, and pay four times the cost of owing a used car, for fear that they might have to pay for "repairs" on a used car.  It is largely an irrational fear, of course.  But if you fall into this category, chances are, self-employment is not for you.

The main advantage of being self-employed, I have to say, in retrospect, is that I learned what money really is, and how destructive falling into the "Job Trap" can be.  Like most Joe Paychecks, I did all the stupid things like borrowing money to pay for things I didn't need, and looking at monthly payment as the only cost involved in a transaction - not the overall cost.  Being self-employed forced me to save money, to cut expenses, and move to an all-cash lifestyle.

But it was not an easy or pleasant journey, to say the least.  Many of my friends, who have "jobs" have a lot less stress.  So long as they do not lose the almighty job, they have a steady stream of income and use it to buy nice toys and gadgets, and put a little away for retirement.  Most of them will do well, provided they do not lose the almighty job.

Of course, during the recent recession, that is exactly what has happened to many, and living the Joe Paycheck lifestyle, with its high cash-flow requirements, can be a disaster once the fire-hose of cash is shut off.

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The Hydration Trap

Note: This is a cross-posting from my Losing Weight Now! blog.

Do you need to drink 6-8 glasses of water a day?   The key is to stay hydrated.

For many years, the recommendation has been floating around that you should drink six to eight 12-ounce glasses of water a day.  For many people, this is a lot of water!  More recently, some doctors are saying that this amount may be excessive, which of course, sends the wrong message to people that no water is necessary at all (it is like the "one glass of wine a day is good for you" message that allows alcoholics to justify drinking several bottles).

It is a classic example, I'm afraid, of the media baiting you, by putting up a story about drinking 6-8 glasses of water a day - for the shock value - and then putting up another story "debunking" the first story, as people like to hear that all that "good health advice is a bunch of hooey" and moreover that "scientists really don't know nothin' anyway".


The media sucks, let's face it - they create stories largely for sensationalism value, to get you to watch, and really don't care whether they are sending the wrong messages or normative cues.  One secret to a happier life is to turn away from the TeeVee and the saturation media that dominates our society.


Do you need to drink all this water, or not?  Yes and no.  The key is to stay hydrated and avoid dehydration, which can affect your health and your moods.  And yes, some doctors believe that drinking more water can help you lose weight.  As this link notes:

Finally, it is very difficult for the body to differentiate hunger from thirst. If you don't drink enough water throughout the day, you may mistake thirst for hunger and eat more than you really need, which can also impair weight loss. So staying well hydrated is important, particularly if you are trying to lose weight. And don't forget to eat lots of water-based foods like soups, vegetables and low-fat dairy, which are equally important for weight loss, as they lower the calorie density of meals. That can help you reduce calories without reducing portions.

This is what I was getting at with my Hydrating with Food entry.  Oftentimes we think we are hungry when in fact, we are thirsty - and much of our water intake does come from food, not from water.


For me, I am still on the "drink lots of water" side of things, as most Doctors seem to be saying this.  Also, I think most Americans tend to be dehydrated and don't drink enough water.  In addition, two of my long-term conditions - Gout and Diverticulitis - are aggravated by dehydration.  When I drink water, I feel better - it is as simple as that.  Other conditions - such a painful kidney stones - can be aggravated by dehydration.



And once you start to notice how water affects your sense of well-being, you can tell when you are dehydrated.  The symptoms are not hard to see:

1. Your mouth is dry and your breath starts to get really bad.
2. You get dizzy, tired, or otherwise feel lightheaded
3. You are hungry, even though you have already eaten
4. Increased sensitivity to heat or cold.
5. Headaches, particularly migranes
6. You get irritable and impatient
   

As your body uses up water - through urination, sweating, and even breathing, your blood thickens and your blood pressure goes up.  As a result, you start to feel odd.

And you can dehydrate in conditions that would seem ideal for hydration. For example, the idiotic link above, which claims that "you don't need to drink all that water" talks with a morning show hostess (always the height of intellectual prowess) and notes that in the 60-degree studio "she doesn't sweat much" and therefore is not dehydrated.  But au contraire, a heavily air conditioned studio is also a very dry studio (air conditioners act as dehumidifiers) and as a result, you can dehydrate fairly rapidly through breathing alone.


During our cold weather snap, I noticed this effect as we drove into town.  All the symptoms of dehydration seemed to be occurring, even though we had drank a large glass of water earlier in the day.  The near-zero percent humidity meant that every breath out was expelling humid air, and every breath in was taking in dry air - a net loss in hydration over time.

Taking water with you is always a good idea.  Buying water at convenience stores is horribly expensive and even one bottle a day can end up costing you more than $365 a year, which is a lot of money.  We always take at least two quarts with us when we leave the house, as well as a small package of snack crackers to prevent low-blood sugar situations.

Also, keep track of where good drinking fountains are located in your regular routes of travel.  Forget all the nonsense (baiting again) you've read about how tap water has bacteria in it (everything has bacteria in it!  So long as it is not e coli, you are all set) or how drinking fountains are "unsanitary".  You will die of a stroke, heart attack, or kidney disease long before the drinking fountain will kill you.  The bottled water industry wants you to believe that tap water is bad - but in many cases, all they are selling you is the same tap water - often with higher bacteria counts! 



How does hydration affect finances as well as your personal health?  Dehydration is a good tool for salesmen to use to close a deal.  This is one reason why many salesmen want to drag out a closing for an hour or more.  If you can keep a prospect trapped in the car, boat, or RV showroom for hours at a time - with little in the way of hydration - they will finally break and sign almost any kind of odious deal, just to get out of there and get a drink of water.  Throw in a little low blood sugar, due to lack of food, and voila!  You've been leased a new car!

Note that many fad diets rely on dehydration to show sudden and sharp weight loss.  Water weights eight pounds per gallon, and thus, you can show a dramatic "weight loss" by dehydrating through diuretics and by limiting water intake.  But it is not a healthy practice, nor is it real weight gain, any more than squeezing out a sponge is.  It makes about as much sense as cutting off your arm to lose weight.  Yes, you can lose weight that way, but it misses the point.



Don't fall into the dehydration trap!  It is bad for your all of your internal organs, including your brain.  And if you want to lose weight, staying hydrated is important.





Disclaimer: Before going on any diet or exercise program, consult your Doctor for advice specific to your condition and needs. The entries in this blog reflect my own personal philosophies about weight loss, diet, eating habits, and exercise and reflect my experiences in losing weight. They are not intended as instructions on health, exercise, or medicine for others. The author assumes no responsibility in any way for misuse of the materials provided herein.

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Swimming Pool on a Budget

A beautiful pool can be a great addition to any backyard.  But bear in mind they add little, if any value to most homes, outside of Southern California or Florida.  And there are a number of pitfalls to avoid.  After having one pool built, I learned a few things I would do differently if I was ever to build another pool.

Living better by living stingy.  This does not mean eating Raman Noodles and recycling toilet paper, but to learn how to spend money more efficiently, so you don't end up squandering most of your wealth chasing after material things.

A swimming pool is hardly a necessity and not having one is certainly a good way to save money on a pool.  But if you want a pool, there are a few things I have learned from our first pool that might interest you:

Little Additional Value Added to Home (Perhaps Detracting):  Bear in mind that like most home improvements, a swimming pool will not add as much value to your house as it will cost.  In fact, in many areas of the country, a pool is looked upon as a dangerous, energy-consuming and time-consuming nuisance that needs to be filled in, in order to sell the house.

The Washington, DC area was like this, and one of my neighbors actually ended up filling in his pool to sell his home.  The house languished on the market for a year.  He filled in the pool and it sold the next week.  That's Washington, for you, and yea, that's the mindset of our Government employees.

In other areas, like California or Florida, not having a pool is a hindrance, or at the very least, it does not detract from the value of the home.  But I suspect even there, if you spend $20,000 on a pool (which is easy to do) you won't get back much in the way of resale value.

Thus, if you want a pool, sometimes it pays to buy a house with one rather than add one one, particularly if there are other aspects of the home you are not pleased with.  Adding a pool to an existing home can easily over-improve your home for the neighborhood.



Status Symbol or Practical Relaxation:  Having a pool is fun, and lazy afternoon pool parties in the summer are a good old time - we had a LOT of them!  But part of having a pool is status - the idea that you can afford one and your neighbor's can't.  Is this why you are getting one?  If you are not an outdoorsy person (and few are today, although many pose as such) you won't use it much and it will just be an energy-consuming and time-consuming waste of money.

Think about this carefully before you buy.  I've seen many pools in my day, and I'd say for more than half of them, they are rarely used by their owners.  Some people buy houses with pools and think it will be fun to have one, and never use it.  Others build pools thinking they will be fun, but never end up using it.  And yet many more build a pool to show off their wealth, and NEVER use it all!

And think about how you plan on using the pool.  Do you swim laps, or just like to cool off and splash around with your friends?  Much of the enjoyment of the pool is just being around water - you won't spend as much time in it as you might think.



Location:  The location and layout of a pool can affect how you use your pool or whether you enjoy it at all, so plan your pool carefully.  A well-planned pool is an entertainment center and joy to have.  A poorly planned one is just a weed-attractor and eyesore.  For some reason, some people place a pool a long distance from their home - and then fence it off from the house.  Such pools are not inviting and have no ambiance - being little more than a concrete pond surrounded by a chain-link fence - all the charm of a prison.

Other pools, like the one shown above, are located close to the home - mere steps away - and are the center of entertainment and relaxation - being tied in with seating areas for dining, outdoor barbecues, entertainment centers and the like.

Planning a pool involves more than just planning the pool itself, but how it will fit into the landscaping of the house, the flow of traffic, and how it will be a social center for your home.  I've seen far too many "orphan" pools, placed in odd locations, dozens of feet from the home, and not as inviting as they could be.

If your layout requires that you locate your pool away from the home, consider putting in a cabana for changing and housing entertainment (a bar refrigerator, stereo system, etc.) and also a patio for poolside dining, barbecue, etc.

In farm country, we tend to see pools away from the home, abandoned and desolate, representing tens of thousands of dollars in expense, and never used, because they were never planned properly.


Size:  Size matters, as they say, but size isn't everything.  We built a 38' by 18' pool and while it was enjoyable (it was deep in the center, and shallow at each end, making it suitable for water volleyball and water badminton) we could have gotten by with a much smaller pool.


As you go up in size on a pool, everything gets more expensive - piping gets larger, pumps are more powerful, filters are bigger and more expensive.  And of course, more energy and chemicals are needed.

If I was to do it again, I would build the smallest pool possible - the one the pool companies advertise as a "special" in the Sunday Paper.  Why?  Because I don't lap-swim, I just splash around, and that's all the pool I need.  Most of the fun of having a pool, I learned, was having it as a water feature for a background garden where you could hang out with friends and relax and have a nice outdoor barbecue picnic.

If you ARE a lap swimmer, consider an elongated lap pool.  Concrete pools can be made in any shape, and it is possible to build a long and narrow lap pool that will give you a place to do laps without breaking your budget building an "Olympic Sized" pool.  I've seen them built even with Japanese garden bridges across them, which makes for a charming garden feature.

DEPTH is another issue and expect to pay a lot more the deeper you go.  If you want a diving pool, you have no choice in this regard - you have to go deep.   Our pool was about seven feet deep in the middle, which was more than enough.  But a large, shallow pool is an invitation to divers to break their necks (it happens every year).  So be sure to put up a "no diving" sign.



Safety:  In addition to the diving issue, small children are something you should take into consideration with a pool.  Young children - toddlers really - are fascinated by water.  And every year, many drown in private swimming pools.  The scenario is all-too-common and always the same - just like motorists turning left in front of motorcyclists.

Parents of a toddler come to visit a friend with a pool.  Everyone has a cocktail and a good time.  The toddler toddles off to look at the "pretty water" and a few minutes later, there is a scream as a party guest looks out the window to see the toddler face-down in the pool, quite dead.

You read about this all the time and it happened to a friend of mine.  Why does it happen?  Toddlers like water.  They are also top-heavy (big head, small body) so they fall in when they get near.  And since they can't swim.... well, it is very, very sad.

You should have your pool fenced, and in fact it may be required by law in your area.  And if your home opens up directly to the pool, you should have some sort of alarm in place if you have small children, or have friends who come over with small children.  Yes, I know, you plan on sitting by the pool and watching the kids swim.  Good intentions.  But in the 10 minutes it takes you to chit-chat and make drinks, the toddler finds the water - they are drawn to it like bees to honey - trust me on this.

We had an alarm system on our house that alarmed every door and window.  Each time you opened a door or window, it would go "Beep! Beep!".  A friend came over with their toddler.  We told them the horror story of our friend, and told everyone to be vigilant about watching the toddler.  Yea, yea, yea, everyone said, let's have a drink, first.  A minute later, "Beep! Beep!" and I look out and the toddler is making a beeline for the pool.  I intercepted the toddler just as they reached the edge of the pool and started to do its top-heavy tip-over routine.

I swear to God, they are like lemmings!

Some people have removable fencing between the house and pool that can be installed when you have small children, and then later removed.  Others have it permanently.  Pool alarms supposedly send off a signal when the sound of someone falling in the pool is heard underwater.  Whatever method you use, use it.  Pool safety is no laughing matter, and a fun pool can be a horrid nightmare when a friend's child drowns in it.


Maintenance:  Think carefully about pool maintenance if you plan on getting a pool.  If you are not handy with pumps and things, you may end up hiring a pool maintenance company.   In places like California or Florida, they abound.  In places where people fill-in pools to sell their house, you won't find many pool maintenance companies, and you will have to do it yourself.

A clean, sparkling pool is inviting.  Unfortunately, they don't stay that way for long.  Leaves, dirt, and debris fall into the pool.  Earthworms, frogs, and even mice (ugh!) fall in.  It needs to be cleaned regularly, often with a pool net and a vacuum.  Automatic vacuums are a good idea, but they do cost about $500 to $1500 or more.

The chemistry of the pool needs to be checked periodically and adjusted, using chemicals and of course you have to chlorinate and shock occasionally.  A new gag is the salt chlorinator - a device which electrolytically separates salt into Sodium and Chlorine, and thus does not require hazardous, noxious, and corrosive chlorine (inhaling chlorine fumes will make you cough or much worse.  Handling it does a number on your skin.  Leaving chlorine tabs - even sealed in a bucket - in a room with metal in it, will cause that metal to corrode aggressively).  These devices claim to save you money, versus the cost of chlorine, but a friend of mine had one, and it broke after a few years - and they are expensive to replace!

Filters need to be backwashed (and sometimes disassembled and cleaned) and if you live in snow country, pools need to be winterized, covered, and the like - and the process reversed in the Spring.

And yes, things break and sometimes they need to be fixed.  If you can replace a pump yourself, you can save a lot of money.  If you can't, you've added to the list of repairable appliances you own.  And like most appliances, they last about 15 years.

And speaking of which, this is about how long the liner on a vinyl liner pool lasts, or how long the plaster lasts on a concrete pool  (Concrete is porous, and thus the inside surface is coated with about 1 half-inch of water-tight "pool plaster" which wears out over time).  Once you have built the pool, the game is not over - you have to keep spending money maintaining it, and after a decade or so, it will need an overhaul and update, just like anything else you own. 


Energy Consumption:  The pump runs several hours a day, and is a 220 V pump drawing at least 10-20 Amps.  So expect your energy bill to go up.  Not a lot, but it will.  Once you install a pool you've created an expense item for your home, than every day will take a little bit of money out of your pocket.  If it is something you want and desire and are willing to pay for it, great.  Otherwise, you'll wonder why you are spending the money on a pool every month and never using it (so many people just watch TeeVee today, instead).

And that's not including the cost of heating the pool!


Heater:  To heat or not to heat?  In Virgina, we installed a gas pool heater (Teledyne Lars) and it cost us $1200.  I did the install myself, which required a 1" gas line be run all the way to the pool house.  It was a nasty bitch of a job, but I was able to swim on my birthday - in March.  Of course, in the first few months we had it, our gas bill easily exceeded the cost of the pool heater.  Heating a pool isn't cheap!

Others heat with propane, which is staggeringly expensive.  A more modern innovation is the pool heat pump, which as the name implies, heats the pool electrically by pumping heat out of the air (and cooling the air as a result).  These can be a little more efficient, but it does add basically the energy cost of another heat pump to your monthly bill.

Solar heating panels work well in the South.  The problem in the South is usually the opposite, though.  By August, the pool is at 85 degrees or more and is about as refreshing as swimming in your own sweat.


Screening:  In most of the South, bugs can really ruin a day at the pool.  In the North, bugs are not a problem.  In Virginia, we could keep them at bay with sprays and torches (although sometimes at night in the summer, the mosquitoes could be vicious).  In Florida?  Forgetaboutit!  Almost everyone screens in their pool, otherwise they would not be usable.

In addition to keeping out bugs, a properly designed pool screen can keep out leaves as well - and also provide a little aspect of privacy.  A properly screened in pool creates an indoor-outdoor sanctuary which is inviting and fun.

An improperly designed pool screen is a nightmare of maintenance, as it collects pine needles and leaves on its roof.  I have a neighbor who has one of these and it looks like a Rastafarian with dred locks.  The entire ceiling is nothing but pine needles sticking through.  If you do screen in your pool and you have overhead trees or pine needles, consider a pool screen with a good pitch and a fine screen.


Types of Pools:  The cheapest, of course, are the above-ground kind, which have a metal, wooden, or plastic frame, lined with a vinyl liner.  They are generally not very attractive, but are cheap and easy to build - all you need is a flat piece of ground to build them on.  Some clever people have made very inviting above-ground pools by taking advantage of the natural landscape, where a house is built along a slope, for example.  If you plan it carefully, an above-ground pool can be constructed so that it is level with the home, and attaches directly to the home via a wooden deck, and has all the appearances of being an in-ground pool.  Clever landscaping on the outside edges can hide the above-ground aspect from neighbors.

In-ground vinyl liner pools are basically a buried type of the above-ground pool.  They are fairly cheap to build, but the liners, like with above-ground pools, last only about 10 years.  My dad had one of these and it worked well, and looked like any other kind of pool.  Almost 10 years to the day it was built, he had the liner replaced, at a fairly modest expense.  These pools, like above-ground pools, come in fairly standard sizes and shapes, as the liners are made in those shapes.

Concrete Pools are the traditional type of pool most people think of.  They can be more expensive to build, but don't have as many leakage problems (a naughty child can poke his finger through a vinyl liner pool, or puncture it with a sharp object).  But concrete is not eternal, either, and pool plaster has to be replaced about every 10-15 years as well.   They also can be made in nearly any shape.  We had a concrete pool.

Fiberglass Pools are an interesting animal, and no doubt you've seen these stacked up by the Interstate.  Fiberglass can be fairly expensive (being oil-based) and these can cost nearly as much, if not more than, Concrete Pools.  They may take a little less time to build, but not by much.  I have no personal experience with owning one, but I have swam in some.  We talked with several fiberglass pool companies to install one behind our home.  Most wanted a lot of dough and never returned our calls.  I almost wonder, based on how many of these are stacked by the freeway, if it is some sort of marketing scam - to get people to go into the business of selling them and make money that way.



My Overall Experience With Owning A Pool?  Positive. But several things stick in my mind: 

First:  I never felt we used it enough.  There was always some reason to go inside or "don't feel like swimming today".  Too Hot, too Cold, Too Buggy, Too Dark, Too Bright, or "There's something on TeeVee" or "I have to do something".  One reason we put in the heater was to get more use out of the pool.  I finally relaxed more and realized that you don't have to use your pool every day, but can get enjoyment out of it simply by sitting by it.

Second:  It was a lot of work, particularly in Virginia, when we had to winterize it.  Winterizing is not fun, as you have to do it on a cold Fall day and de-winterize it on a cold Spring day.  Folding recalcitrant pool covers, blowing out lines, pouring in slippery antifreeze, and getting wet, no matter what precautions you took.  Pools are a lot easier to deal with in places where you don't have to winterize.

Vacuuming and sweeping the pool were never any fun, and some guests freak out if there are even one or two leaves in the pool.  So you have to do a lot of work to keep the pool in "swim ready" condition.  On the other hand, the amount of labor to maintain a pool, if you set it up properly, is not a lot more than the amount of labor needed to mow the same amount of lawn.

Third:  It was very expensive to build - about $25,000 as I recall.  One mistake we made was picking one size for it, agreeing on a price, and then re-thinking the design and increasing the size.  Needless to say, we got nailed on the price by going this route.  Today, I would go with the 8 x 16 splash pool and be done with it.  Cheap to buy, cheap to build, cheap to maintain.

Fourth:  I would NEVER finance a pool again.  If I could not afford to pay cash, I wouldn't do it.  It is a luxury, and debt should be saved for more important things.  For that reason, I would consider a smaller pool, as it would be easier to afford and I could pay cash for it.  Don't have the cash?  Save up for one, or do without.  Borrowing money to buy a pool was, in retrospect, a bad idea.  Don't have the money?  Probably a good sign you can't afford it.


Fifth:  After about 10 years, it started to look worn.  If the house had not been bulldozed for a new development, we would have had to spend a few thousand dollars "updating" the pool with new plaster and the like.  At the time, I did not have the money to spend, so I kept putting it off.   Put it off too long, and a pool will start to leak, and bad things will happen in a hurry.

Sixth:  Work out a Pool Budget.  Figure out the amount of electricity the pool will use.  If you have a heater, factor that in.  Pool Chemicals are not cheap, so be sure to add in that cost as well.  Add more for maintenance and a budget for a liner/plaster overhaul over time.  Know these hidden costs up-front rather than being surprised later on.  You may be surprised at how much money it all adds up to.

Seventh:  I am a pool agnostic - that is to say, if I build another pool, I would not care if it was vinyl liner, concrete, or fiberglass.  I would go with the cheapest option and beat the snot out of them on price.

Eighth:  Beat them up on price.  Pool salesmen are a lot like used car salesmen, and they tend to use every bit of trickery in the book to get you to sign a contract on the dotted line.  Don't be in a hurry to sign.  Research it in advance, know what you want in advance - if you and your spouse disagree on design points or other features, the salesmen can work the two of you against each other.  Buying the cheapest, smallest pool possible is one way to eliminate "design creep" where small added features pad up the price quickly.


Some General Pool Advice:

1.  Never drain a pool without professional help:  A pool is like a boat, and if drained, the groundwater will "float" the concrete shell out of the ground and wreck the pool.  Yes, a pool will float, even if made of concrete.  They used to make boats of concrete, believe it or not!

2.  Don't Over-Chemical A Pool:  Too much shock or pH adjust can corrode parts, etch plaster and make the pool feel "chemical-ly".  Pool supply houses sell a lot of chemicals and accessories and you don't need half of them.  I etched my plaster using a "pool closing kit" from one company, that had a lot of chemicals that I really didn't need or want.  Just lower the water level and let it go green.  You can shock it in the Spring.

3.  Install a Pool Alarm or Other Safety Device:  Very young children and pools are a lethal combination!


But most of all?  Enjoy a pool!  They can be a great center for family fun and entertaining.  Even with all the work and cost, it was worthwhile.  We had many lazy afternoons, and late night parties at our pool.  I remember coming home from work on more than one occasion and finding all my friends, already there, with coolers of  beer and the party already started.  It was like coming home to a spa or a resort vacation.  It was, overall, a lot of fun to have.

I am not sure I will build another one just yet.  If I do, it will be more of a screened-in outdoor space for relaxation and entertaining, with a small pool in the middle.

Our Pool at 8033 Washington Road.  We enjoyed it a lot!

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The Death of Pick-A-Pay

Payment Optional, Interest Only, and Adjustable Rate Mortgages are very dangerous financial instruments.  Pick-A-Pay was the worst of them and may finally have a stake driven through its heart by the financial meltdown.

Pick-A-Pay isn't a used car parts junkyard.  It was a bad idea that has since been junked. And like so many bad financial instruments, it was something sold to very dumb people, who thought that they could repeal the law of gravity or that that value of π could be rounded off to three.

And now that their world is colliding with reality, and reality is winning, they blame all their woes on Obama, of course.

The basic idea was this:  You could buy a million-dollar mini-mansion and not pay for it.  Seems like a simple enough concept, right?  To an idiot, to be sure.  But to us folks living in harsh reality-world, the first question is "Well, then who pays for it?"

And of course, we strongly suspect, like with most of these ersatz deals, that you and I will be stuck with the bill, and of course, we were, to some extent.

The problem with Pick-A-Pay was that each month, the homeowner could "choose" from one of a number of payment "options".  But as explained in the link above, some of these options were not realistic.  Offering someone who cannot afford the home in the first place the "option" of making a payment based on a 15- or 30- year amortization is  specious.  If they could have afforded to do that, they would have qualified for such loans.

The other options were just horrible.  The homeowner could pay interest only at the actual rate, and thus the balance would never decrease over time.   Most homeowners in this category chose the worst option - which was to pay interest-only based on a fictitious interest rate.  The difference between the fake interest rate and the real rate was piled onto the balance of the loan, such that the loan balance actually increased over time.

The problem with that scenario, is that as the mortgage balance increases (and not by a small amount, but rather by over a thousand dollars for every payment, particularly for the mini-mansion type home) the remaining number of payments decreases.  So each successive payment, even at the artificially low "Pick-A-Pay" rate, goes higher and higher as the balance gets larger and the remaining payment period decreases.

What this means is that it is a mathematical certainty that the mortgage payment will continue to increase every month, until eventually,the homeowner cannot afford the property.

And many of these fictitious rates were only come-ons to get the buyer "into the home".  After a few years, the rate goes up to a fairly normal competitive rate - the one the buyer could not afford in the first place.  They were mortgages with foreclosure written into them!

And of course, this also means that the homeowner had no chance of refinancing to get out of this mess, as there was no equity in the home, even in a booming market where housing prices are increasing.  The balance on the loan increased faster than appreciation.

And refinancing is moot anyway, as if the homeowner didn't qualify for a 30-year fixed in the first place, they certainly wouldn't a few years later when the balance on the loan is even higher.

It is a bit like playing Russian Roulette, with six bullets in the gun. The result is preordained.

Most financial experts - responsible ones, anyway, spotted the trend years in advance - as our friend in the link above did.   But no one listened - and in fact shouted them down.  Today, these types of loans are pretty much dead, now.

But whenever responsible financial experts were warning of the dangers of such suicidal financial instruments, some shill for the debt industry will quickly chime in about how, "in some circumstances" such a horrible financial instrument can be useful - and thus the instrument in question is not an utter rip-off.

For example, payday loans bankrupt thousands and thousands of people every month.  There is no rational need for a 30% interest loan that balloons to a 300% interest loan in short order.

But if you call them out on it in your blog, expect to get a grooming post from an industry shiller saying "Well, sometimes people need money for emergencies, and a payday loan can be handy!"

Buying a home is serious business, and in this day and age, it is foolish to assume that you can float your way above the negative equity of a "Pick-A-Pay" loan in the short term.  Housing prices are just not rising that high.  Even during the heyday of 20% annual equity gains in the housing markets, a "Pick-A-Pay" loan was little more than a break-even proposition.


These sorts of financial instruments are like juggling hand grenades with the pins out.  Yes, in theory, you can do it and not get hurt.  But all it takes is one slip-up and BAM! it takes you out.

And for what?  Granite Countertops?  A trendy vacation home?  STATUS?

Back in the early 2000's, the people who bought into the "Pick-A-Pay" way of life (debt) all looked down their noses at us "little people" who bought only what we could afford, and paid cash or did without.  Today, they are outraged that they have to give up possessions they never could afford in the first place - and demanding that the government bail them out, or that their loans be "modified" to accommodate them.  And, unfortunately, to some extent, the government is doing just that.

And this is sad, because it reinforces the notion (to some folks) that the debt society is the best way to go - run up your debts, declare bankruptcy, and then walk away or cram-down your lenders.  It is a nice theory, but for every person who gets away with it, there are 10 others who lose it all and have a sob story to tell.

It is smarter and safer in the long run to simply live within your means.

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Should You Get An Adjustable Rate Mortgage? (No.)

While the interest rates on Adjustable Rate Mortgages can be lower than fixed rates, the risks you are taking, in my opinion, are far too great.

It happened fairly recently.  During a boom time, housing prices started to skyrocket, due in part to declining interest rates and a booming economy.  People started buying larger and fancier houses, often buying "as much house as they could afford" and leveraging this even further by using novel mortgage instruments, such as variable rate (ARM) loans and even interest-only loans.

Then, a few years later, it all collapsed, and people ended up "upside down" on their homes and the interest rate on their ARMs escalated, and they ended up in foreclosure and lost it all.

The Real Estate Bubble of 2008?  Well, yes, but I was thinking of the Bubble of 1989.

Funny thing, but 20 years ago, the same things happened as did today, and no one learned the lesson.

Well, not no one.  I did.  After seeing friends literally crying about losing their houses, or having to bring $10,000 to $20,000 to the closing table to sell a house, I thought to myself, "Never, ever, get into one of these Adjustable-rate flim-flams."

Why are ARMs such a bad deal?  Why will your Real Estate Agent or Mortgage Broker tell you than I am chock full of shit on this one?  Let's review these one at a time.

In a traditional Real Estate market, people buy and sell homes either as places to live for themselves, or to rent them out at a profit - not to buy and flip, which is a sure sign of a bubble market.  In a traditional market, which is what we are seeing now and will see for the next decade or more, housing will increase in value only slowly - perhaps 2-5% a year, if that (declining population growth spells stagnation for this sector - still sure you are against Immigration?).

As such, in order to break even on a home sale - just to cover the closing costs, taxes, Real Estate Agent fees, bank points, etc., you have to hold a home for 5 years or more.  Buying a home is a long-term investment, not a short-term deal.  If you are not going to stay in a home for five years or more, renting is probably cheaper and easier, as the transaction costs of buying and selling will dwarf any savings or tax incentives.  In addition, it is far less riskier.

If you are going to stay in a home for more than five years, it makes sense to have a loan that is fixed for more than five years.  Otherwise, you may find yourself "priced out" of the home.  And once interest rates go up, housing prices go down - they are like Ying and Yang in that regard.  So not only is the scenario of ending up with a mortgage payment you can't afford on a house you can't sell (or refinance) possible, it is inevitable should interest rates rise.  And in that scenario, the idea touted by the Real Estate Agent, that you can "simply refinance" is just a fantasy.

If interest rates go down, you can always refinance your fixed mortgage, of course, and the savings in monthly payment will usually pay for the transaction costs within a year or two.  So there is little "danger" in getting a 30-year fixed note of being "locked in" to a high rate.

So why do Real Estate Agents and Mortgage Brokers push the ARMs?  Because it sells houses and sells mortgages.  A Real Estate Agent knows that you can't afford that mini-mansion on a 30-year fixed note, so they push you to "buy more house" ("as much as you can afford!" - a bad idea!) using complicated financial instruments.

" The more complicated you can make any financial transaction, the easier it is to rip off a consumer"  --Robert Bell

So ARMs are a bad idea all around, except for the Real Estate Agent, who gets a commission on a house that you otherwise would not buy and the Mortgage Broker gets a commission as well.  And the more they can push these oddball loans, the more money people will spend on homes, as the "monthly payment" is the same - or so they think, until the ARM kicks in.

And as we have noted here in the past, when "funny money" predominates, markets go berserk.   Colleges and Universities have been raising tuition at 2-3 times the rate of inflation simply because it is so easy to get naive 18-year-olds to sign their lives away in student loans.

I know it sounds stupid, but your average Joe or Josephine has this mental disconnect between borrowing money and paying it back.  They assume someone else (the future them) will have to pay it back.

If you are thinking of buying a home - and there are some reasonable bargains out there right now in some communities - look at a 30-year fixed-rate note or even a 15- or 20-year fixed rate.  It is the safest bet around, and if your income goes up over time, the "excess" money you are making can be used to pay down the debt, or to invest for your retirement - both actions which will increase your net worth.

The ARM, on the other hand, is a sure gamble, as if it all goes horribly wrong (which it often does) not only will you not build up equity, you may end up bankrupt.  Is bankruptcy (due to interest rate changes, which are not within your control) really worth risking your entire estate?  I think not.

If you can't afford a 30-year fixed-rate mortgage on a home, then you are looking at too much home for your income range.  Period.  Don't be talked in to bad deals by Real Estate Agents who may suggest ARMs.  In fact, if the Agent you are talking to suggests such a thing - and pushes you into it - walk away until you find an Agent who is on your side, not the side of the lenders.

Oh, yes, the dirty little secret of the Real Estate Agency business - Agents are constantly wooed by mortgage brokers and closing companies, with cocktail parties, dinners at restaurants, and even cruises and vacations (disguised as "business meetings" to discuss the latest "products" in the mortgage business).  Many Agents are sleeping with (sometimes literally, well, actually a lot of times literally) Mortgage Brokers or Closing Companies.  And yea, it is a blatant violation of the law of Agency.

Don't act so shocked....This is America!

UPDATE:  January 26, 2010.  Another reason to eschew an ARM is that interest rates today are at historical lows and will probably go up in the next 5-10 years.   If you finance on an ARM today, you might save a paltry amount on interest, but you are basically guaranteed a rate increase in the next five years.  And once interest rates rise, you can't lock in on a lower rate, can you?

On the other hand, if you get a fixed mortgage, and rates go down, you can refinance to take advantage of them.  With an ARM, it is a lose-lose situation for the homeowner.

If you "can't afford" the house without resorting to funny financing like an ARM, then you can't afford the house, period.  Buy a smaller house, or just rent.  Bankrupting yourself to own a home makes no sense at all.

Note that for commercial loans, such as I had on my Office and Investment Properties, most banks insist on variable rate instruments - and even "callable notes".  These are very risky propositions for people willing to take huge risks.  One reason I sold out of the Real Estate market when I did was that these callable notes made me nervous as hell, and when I would sell out at a profit and walk away from that ulcer, I did.

I can't imagine having such financing on my primary residence.  Life is too short for that kind of stress.

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What is Lowermybills? What are data aggregation sites?

You've probably seen these annoying ads on the Internet.  The first thing that should tip you off is the use of Pavlovian response eye-catching marketing (here, using a worn Social Security card as eye-bait).  The second thing is the incomprehensible gibberish in the ads themselves.

Before I even researched this, I could see all the hallmarks of a scam.  And if you use your gut instincts, you don't even have to research something to figure out it is a scam.  The use of a Pavlovian response ad, for example, is a sure tip-off that no bargain is here.

It is a scam?  Well, they don't steal money from you.  Do they save you tons of money on car insurance or refinance your mortgage?  Well, no.  All they are is an information harvester and lead aggregator.

What they do is ask you for a lot of information online, then package that information and then sell it to companies looking for leads for new customers.  This site, for example, explains the model in a fairly reasonable manner.  Many folks feel that the site is a "rip-off" as they collect a lot of information, but all you get is a lot of spam, phone calls, and junk mail.

Could you get a good deal through one of these data aggregation sites?  After all, lowermybills is just one of a number of such sites.   There are a number of such sites for everything from home loans (lendingtree) to auto insurance, car rentals, cruises, airfare, and hotel rooms.  In fact, most Internet e-business models are based on some sort of aggregation.

For example, I used carrentals.com once to rent a car.  You type in the information for when and where you want to rent the car, and the site goes out and tries to find a cheap rental.

What was interesting about the site, however, is that one time, I rented a car through them, and when I got to the airport, the agency claimed they had no record of my reservation.  I showed them the paperwork, and the agent said, "Well, I can upgrade you to a better car for a lower rate, if you'd like".  In other words, they have to pay the aggregation site a fee for the "lead" and once I got to the counter, they played the game of pretending not to have my reservation, and then enticing me by offering me a better deal, so they would not have to pay the aggregator their fee.  Good news for me, bad news for carrentals.com

It is the same potential problem for Groupon - how do you police these deals and collect your fees?  The retailer has all the incentive in the world to offer a better deal to the person without the "Groupon" as they have to pay a whopping 50% to that site.  It does not bode well for Groupon in the long run.


I have tried some other aggregators in the past, and my experience has been the same as the complaints listed above about lowermybills.  Unlike Oribitz, Travelocity, and Carrentals, which provide you with immediate price quotes, other aggregator sites merely collect your data and then sell this information as "leads" to salesmen, who then contact you with some pretty mediocre deals.  So you type in all this data and get - spam, phone calls, and e-mails.

And by definition, the deals are pretty mediocre, as since they have to pay a "finders fee" to the aggregator, they cannot offer you the best deal possible, as their cost basis has increased.

But many mainline companies are getting in on the lead-selling business.  For example, when I log off from Bank of America, sometimes and ad pops up for GEICO, complete with a helpful link and an offer of a "discount" if I go to GEICO through the BOA site.  That sort of affiliation selling has been going on since time began.   Hertz rental car, for example, has agreements with every group known on the planet, to offer you 15% off on a car rental.  Of course, their rental rates are still no bargains.

And the car companies do the same deal.  You click on any of the automaker websites and they promise to provide you with an "online price quote" for a vehicle.  You enter in far too much personal data, and then are told "a salesman will contact you shortly!".  A few days later (often as much as a week) you get a half-hearted e-mail from a bored salesman with a mediocre price on a new vehicle which isn't anything like the model you specified.  He invites you to "come down to the dealership" to talk some more!

All it is, is a sales lead, nothing more - a chance to ensnare you into a trap.  They don't offer better prices on the Internet, because a majority of people are still stupid enough to walk into a dealer without researching a car first, and then get bent over the table on trade-in, pricing, financing, undercoating, floor mats, etc. - and are so stupid, they will walk away telling you how they "put one over" on the salesman.  They don't have to offer good deals on new cars, as the supply of idiots is nearly endless.

So the "get a quote now!" link on the automaker website is just another example of a data aggregation technique - they get leads and then send them out to the dealers nearest your house.  There is no real quote, so in a way it is a small lie.

Any business deal that you get into that is predicated on a lie - even a small lie - is probably a bad bet.

Aggregation sites are not really a "rip off" in most cases, but usually just an annoying waste of time.  Most just harvest data and then sell it off to salesmen.  The ones that provide actual price quotes and then booking links are often mediocre deals.

Most of the airlines, rental car agencies, and hotels have figured out that they are losing money by selling discount tickets to aggregation sites.  It took the major airlines a year or two, but they now have user-friendly sites where you can book flights at rates that are often cheaper than the aggregators.

So, in other words, if you want cheap car insurance, just go to www.geico.com or to the websites of the other major car insurers (GEICO will inevitably be cheaper, despite what the others claim).  If you have a lot of speeding tickets, an accident, or a DUI, you aren't going to get good insurance rates, period, so don't bother with an aggregator - they won't be able to save you much.

The data aggregators prey upon weak minds and weak-minded thinking.  First, they snag weak-thinkers with these Pavlovian-response ads.  Weak thinkers don't bother to ask why an ad for car insurance is formatted to look like a Social Security card.  Weak thinkers don't bother to ask why, if a deal was so good, they have to use distracting ads to lure you in.  Weak thinkers don't bother to ask why, if a deal was so good, that they had not heard about it before.  And finally, weak thinkers want to believe (oh, they want to BELIEVE!) that you can get something-for-nothing, and that the tooth fairy exists.  They want to believe that you can click on a link and get a screaming great deal on car insurance or refinancing their home.

There is, as P.T. Barnum said, one born every minute.

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A different way of looking at things.....

What could be nicer than a shiny new car?  Retiring three years earlier, perhaps?

A shiny new car!  What could be better!  That new car smell!  The envious looks of your neighbors (not to be confused with the look of utter amazement that you are such a money-squandering fool).  Luxurious ride, and all the latest gadgets!  So cool!  What could be better than that?

Um, I dunno.  Retiring earlier in life.  Not working as hard.  Having $100,000 more in the bank?  Pick one.

Whachoo talkin' bout Willis?  A new car don't cost no hundred-grand!  OK, maybe fifty grand for a nice luxury car like a BMW, Lexus or Acura.  But hundred grand?  Now way!

Way.  So totally way.

The problem with indulging yourself in luxury goods is that our good friend, compound interest - who ordinarily IS your good friend - works against you here.

Say, for example, you need a car to get to work.  You have a serviceable, but older Toyota in your driveway, that could easily last another 3-5 years without major repairs.  But instead, you decide you have to have a $50,000 BMW, Lexus, or Acura, as you "deserve" the rewards for "all your hard work".

So you trade in your ride, which isn't worth much - and they don't give you much in trade.  What's that you say?  They gave you $3000 over book value because they "had a buyer" for your car?  Oh, boy, you are a fool!  You fell for the "inflated trade" gag.  And no, there isn't a buyer lurking around the dealership looking for a car "just like yours" - although the salesman said he was there just the other day.

They inflate the trade-in value, and then pad the price on the new car.  It is an old game.  In fact, they play so many games with prices that by the time you leave the dealership, you have no idea how much you paid for the car.  Or you may THINK you know how much you paid for the car, but have no real idea. And if you lease the car, so much the worse.

The basic truth is this, however.  Most cars depreciate about 50% in five years.  Some are better than others, but even cars that "hold their value" more, still depreciate rapidly.  So after five years, that car is worth maybe $25,000, if you are lucky.  But that is not the only cost.

Your old paid-for jalopy in the driveway cost nothing to insure - even if you had collision/comp on it.  And to save even more, you could dump collision/comp on the car.  So tack on a few thousand more dollars to the overall price tag of owning a new car for five years, just to cover the increase in insurance.  For young people, this could easily be over $10,000 - or more.

And then there is interest on the loan.  Yea, you think you got 0% financing, but all that means is that they padded on $2500 to the price of the car (in the form of the rebate you did not qualify for).  Between the interest on the loan and the increase in your insurance, not to mention taxes, tags, title, and other fees, you basically gave away your trade-in to cover those costs - if you were lucky.  For many young people, they are throwing thousands of dollars more into the mix.

So, if you kept the Jalopy, drove it five more years, it might be worth nothing as a high-mileage used car.  But if you traded it in for the luxury car, you are out the jalopy plus $25,000 in depreciation expenses - at the very least.  I am being generous in assuming that is your only costs here.  Actual cost will likely be much, much higher.

Now, let's go to Mr. Compound Interest Calculator.    If you bought this luxury car at age 35, that $25,000 spent on depreciation would, if invested at a modest 5% interest rate, come to $108,048.56 at retirement.  Hoochie Mama!

That's a lot of dough to forgo!

And if you are younger, the amount is even higher.

Worse yet, there are a lot of folks out there who jump from one car payment to the next, often leasing in the process.  They spend anywhere from $500 to $1000 a month (!!!) on leased luxury cars, plus the insurance in order to have a "nice ride".

Now bear in mind that putting $500 to $1000 a month into your savings, at a modest 5% interest, over 30 years, will generate  anywhere from $418,564.74 to $837,129.48 in retirement savings over time.  Who wants to be a millionaire?  You can, if you stop leasing new cars!

Yeeeeowch!  That is a pile of dough.  And yet, I see people - middle-class people - do this all the time, convinced that since they can "afford the monthly payment" that they can afford the car.

But at the same time, often these same people are not funding, or under-funding their retirement.

And what that also means is that they will have to work longer (if someone will let them) in order to retire.  And that is the mantra of the baby-boomers these days "Oh, well, I'll just have to work until I am 70" which should be no surprise as the retirement age is creeping up to that anyway.  Try 75 or perhaps 80?

The real danger is not in having to work longer to retire (in order to pay for luxury cars!  Stupid!) but that you will get LAID OFF in your 50's or early 60's and be FORCED to retire and then wish you had all that "car money" that you squandered as a youth.

And yes, it was squandered, as a "luxury car" is just a status symbol - it doesn't get you from Point A to Point B any faster or better than your old Jalopy did.  It just does it at a much higher cost-per-mile, often double, triple, or quadruple.

Keeping an older, reliable car, for years and not having car payments, is a far better plan.  Yes, you will not be the "envy of the neighbors".  But having more money in the bank is a better idea, even if you can't show it off to people.

The road to middle-class poverty is paved with car payments - Robert Platt Bell.

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Trying to Play Catch-up.

One argument I hear a lot from people who are spending it all now, is that they will just make it up later and save for retirement.  Nice theory.  It doesn't work.

Saving money for retirement - otherwise known as building up your estate.  It is not hard to do on any income level provided you are willing to do without things that are unnecessary in your life.  So long as you can spend a penny less than you make and start saving - even a little - over time your wealth will increase.

But most of us, myself included, spent more than we made - borrowed money, and usually on the most onerous terms - to have NOW what we should have been saving for tomorrow.  Cars, furniture, electronics, etc. - all things we thought it would be "cool" to have and needed instantly, and were willing to finance over time - making them even more expensive.

If you asked me when I was 22 about saving for the future, I would have said, "What's the rush?  I can always save money later!  Like when I'm 40 or something..."  You know, I was a real asshole back then - to myself and others.  Perhaps not too much has changed.

But the longer you wait to save and build wealth (as opposed to squandering it) the harder it is to catch up.  You will have to run twice as fast at a time in your life when you can't run very well at all.  And you may find your earning power diminishing, not increasing with time.

The power of compound interest is in your hands when you are young, so use it.

There is darn little you "need" in terms of fancy wheels for your car, a boom-boom stereo, the latest designer rags, cases of cheap beer, or drugs.  These things provide fleeting enjoyment, at best, and mostly just misery for the long term.

But what am I saying?  My Dad tried to warn me back then, although his warnings were a bit vague. "Save your money!" he'd say.  But that was about it.  Perhaps he knew by then that trying to tell anything to a 20-something is like trying to talk reason to a rock.

But you know, once in a while, you do meet a young person with their head on their shoulders - someone who has half a clue as to what they are doing and with a good idea as to the value of a dollar.  Once in a while, that is.

In the meantime, for the rest of us, the longer you wait, the worse it will get.  Trying to play catch-up at age 50 is no treat!

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Why your Credit SCORE is not FREE.

While your Annual Credit Report is free (under the law) your credit score is something you have to pay to see.

As I noted in my earlier posting on Your Really Free Annual Credit Report, you have a legal right to see your credit report every year, from the three main credit reporting agencies.  And the correct website is NOT the one on TeeVee with the catchy jingle.  It is www.annualcreditreport.com.

While you are entitled to a free copy of your credit report, you do not get a copy of your credit score as part of this report.  Why is this?

The credit score is a bit of a flim-flam.  It was created by the credit reporting agencies in response to public outcry that some privately held agency could assemble a dossier about you and not let you see what was on that dossier without paying to see it.  Laws were enacted requiring them to show you your credit report, once a year.  So they created the credit score.

From their perspective, the information they gathered was Intellectual Property and in the Intellectual Property game, you don't make money by giving away your product for free. 

So companies that lend money pay large fees to the credit reporting agencies to be able to "run" someone's credit.  Usually they pay a flat fee for a large number of reports, or pay a per-report fee, which might include a monthly maintenance fee.

When I was a Landlord, for example, I paid TransUnion about $25 for each credit report I ran.  Anybody can do it - all you need is the signed consent of the person you are running credit on, and their Social Security number.

Under the law today, you are entitled to look at your own report once a year, for free.  In some instances, for example, if you have been denied credit because of an unfavorable report, you may be allowed to view the report more often than that.

While your credit report is information you are entitled to, your credit score on the other hand, is another piece of Intellectual Property that the credit agencies create, using a formula that is a bit obtuse.  The credit agencies argue that your credit score is their property, and thus you are not "entitled" to that piece of information under the law.

For a small additional fee, some agencies will report your score to you.  For example, Equifax will tell you your score for $7.95.  Other agencies might want you to "sign up" for a "free" credit protector service first - but the service is a negative option cancellation deal, where you have to hand them a credit card number and they ding your card until they tell you to stop (and then they say you never said to stop!).  At least Equifax is a little more upfront about it.

Do you need this information?  As I have noted before, you can kind of figure out what your score is, from the data provided.  If you have a lot of late payments, missed payments, uncollected debts, etc., your credit score is going to suck, period.  On the other hand, if you have a good payment history, a low debt-to-credit ratio, your score will be high.

The score ranges from 280 to 850 from Equifax.  Why this range, and not 0-100 or 0 to 1000 I do not know (perhaps so they can argue it is Intellectual Property and non-obvious?).   Apparently if you have a pulse, you automatically get a 280.  To qualify for a lot of these "come on" financing deals at car dealers and the like, you have to have a 770 credit rating or higher, and most people don't have credit nearly that good.  If you think a credit score of 670 is good, think again - you will get the worst sort of financing.  Bear in mind that 280 is the minimum -  670 is hardly above the middle of the pack

I actually paid to see this score from Equifax ($7.95) and it was interesting.  They assigned me a 819, which was not the highest it has ever been.  When we sold our Washington Road home and paid off the mortgage, it was 830.  We are debt-free now and have no late or other negatives on our report - why is it lower?

The reasons they gave illustrate why the "credit scoring" system is such a stupid game.  The "key factors affecting your score" were given as:

1. Credit Line on Revolving Accounts
2.  Insufficient Information or Account History on Mortgage Accounts
3.  Percentage of Department Store Accounts to All Accounts
4.  Insufficient Information or Account History for Credit Union Accounts.

Let's look at these factors and try to understand what they mean and how they affect the score and why - and how you can prevent your score from being dinged as a result.

With regard to the first item, having a lot of open credit lines can hurt, even if they are not being used, as it means you can run up a lot of debt in a hurry and thus make you a larger risk.  At the present time, I have only one credit card with a credit line of $10,000.  This may sound like a lot to some, but until recently, I had over $50,000 of credit line on credit cards.  I have since closed most of those accounts.  So I am not sure why they are dinging me here - too much credit line, or too little?  Or was the old credit line bringing me down and their computers have not updated yet?  I do not know for sure.

Again, no late payments, missed payments, uncollected debt, so I am not sure why this affects my score.

The second item is odd, too, and probably due to the fact that I refinanced this most recent mortgage before paying it off.  And I paid off a second note about a year after taking it on.  We also paid off a mortgage on our house in New York only a year after taking it out.  So for four mortgages which were paid off in less than three years, there is not a full 29 months of history that they'd like to see.

Sheesh! - you'd think that actually PAYING BACK a debt would increase your score, eh?  But as I have noted time and again, creditors would prefer you pay back their loans - payment at a time, so they can collect their hefty interest fees.  Paying off early makes it less fun for them!

The third item is interesting, as I do not have any open Department Store Accounts at the present time.  I took advantage of some of these silly promotions offered by Sears, Lowes, Radio Shack, and the like, where if you opened a charge account, they would give you 10% off or something.  I immediately closed the accounts, but they still are on the report.  These promotions were probably a bad idea, in retrospect.

What is interesting about this, as it illustrates how having too much credit is a bad thing, and how department store charge accounts are NOT viewed as a favorable thing to have.  Many financial advisers tell young people to open a department store charge account to "build up their credit score" - but clearly too much of a good thing can hurt you.  Why is this?  My guess would be that the default rate on these easily-given lines of credit are very high.

If the only account you can get is from a department store, and you have a plan to "build your credit" I suppose that could work.  But opening a lot of department store cards could backfire on you, big time, particularly if you run up the cards and can't afford to pay them off.

The last item is interesting in that it is something that I could not have any control over.  I closed my credit union accounts five years ago, and whatever data they reported is old, incomplete, or whatever.  There are no late or missed payments, no unpaid debt - everything was "paid as agreed" and yet, because the credit union never reported some payments as "on time" (but instead made no report at all) my credit score is dinged.  Hardly a fair situation, don't you think?

This illustrates how arbitrary the credit score can be, and how the score, by itself, is not a real picture of someone's credit history - although it could be a good filtering criterion.

All told, these "factors" mean little, as my credit score is excellent and I can borrow money anywhere on my terms, if I want to.

And there's the rub, eh?  Since I have no debts anymore, and money in the bank, why on earth would I want to borrow money at this stage in my life?

The old saying is true:  In order to borrow money, you have to first prove you don't need it!

But regardless of whether you are a poor 280 or a screaming 850, bear one thing in mind:  You are NOT your credit score.  Don't let these reporting agencies get you to believe that this score is somehow an indicia of your underlying worth as a human being.

Once you start praying to the false God of the credit score, your life will go downhill in a hurry.  Because worshiping the credit score is to worship our debt culture and our consumerist culture.  Don't let the credit industry call the tune - and force you to dance.

Take on as little debt as possible.  Save debt for big things - a house or an education (a real one, not one from a for-profit university).  Going into debt for shiny trinkets is a really bad idea, and if you do that, you have sold your soul to the credit reporting agencies - all for a handful of shiny junk.

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Equity or Income?

Should you buy stocks that increase in value (equity) or ones that pay dividends (income)?

I take a piss on the Motley Fool a lot here, and for good reason.  Their entertainment model of investments was so symbolic of the excess era of the 1990s.  Going on television in a Jester's Suit and then telling everyone to buy, buy, buy stocks was something that they probably look back at and shiver.

But the graph above is from one of their postings which actually makes some sense.  Yes, even a stopped clock is right, twice a day.  Sorry, couldn't help myself, I had to get another dig in.

But many amateur investors (which means most of us working stiffs forced to invest in 401(k) plans for our retirement) don't have even a clue what the difference between equity stocks and income stocks, or know what "retained earnings" means.  Regardless of whether you are a stock picker or investing in a mutual fund, you have to understand what it is you are investing in.

The initial idea behind stocks was that you would buy "shares" in a venture, which would then use your capital to buy equipment or build a factory, or whatever, and then sell products or otherwise seek to make a profit.  The company would then use part of that profit to buy new equipment, expand, or whatever, and the rest might be paid out as dividends - income - to the shareholders.

Seems like a simple enough scheme, right?  But like anything that looks deceptively simple, it can be devastatingly complicated (like ratio between crank swing and connecting rod length in an internal combustion engine - there is calculus involved there, although it appears to be a "simple" mechanical system).

For example, the company could use its profits to buy back shares.  This is an interesting concept, as it is a bit like a snake trying to swallow its own tail. The value of the company increases dramatically to the remaining shareholders, and thus their share price goes up (which is not a realization event, and thus not taxable until you sell your shares).

And if you did sell those shares (which have increased in value) you would pay taxes at the capital gains rate (15%) as opposed to the ordinary income rate (38% for some folks).

So you see, there are a lot of keen games a company can play to delay taxes for shareholders, or avoid them entirely.

Another variation is the "retained earnings" strategy.  The company can simply keep its profits and invest them in other stocks, mutual funds, or just put them in the bank.  The value of the company thus increases, as the liquidation value of the company is higher.  Thus, even though you have not been paid a dividend, your stock is worth more, and again, you can "cash out" at a later date, delay paying income taxes until that time, and pay the lower capital gains rate.

Of course, as you may have guessed, the IRS has some "retained earning" rules that prevent companies from keeping too much money around, without paying more taxes on it.

And occasionally, some clever investor figures out that a company that has a lot of cash on hand might be bought out for cheap - and so they try to do a "takeover" of the company to get at that cash and also spin off divisions and portions to cash out on what are in effect retained earnings of the company.  While many decry these tactics, oftentimes they are a means of clearing up a logjam in a corporation which has become too complacent and corpulent.

And this is why you see, sometimes, when a company is being stalked by a takeover outfit, that they will do things like buy back their own stock (to make it harder to take over by increasing the price per share as well as the number of available shares).  Or they may pay out more in dividends, which gets rid of that extra cash on hand and raises the share price.  Or they may go out and buy another company - which reduces the amount of cash on hand, raises the share price, and makes it harder for the takeover artist to buy out the company.  There are a number of these games, including the so-called "poison pill" provisions that can kick in, once a single investor owns a certain percentage of the company.

But aside to takeovers and various tax dodges, the difference between equity and income stocks is somewhat more profound.  Traditional businesses tend to be more income-type stocks.  For example, as I recently wrote about Altria, (which owns the Phillip Morris cigarette brands) that stock regularly pays dividends of 6% or more, which is a pretty decent rate of return in an age when banks are offering fractional interest rates.    Utility stocks are another good example.  Since they are regulated to generate a fairly standard profit, they are not an exciting stock, and they churn out dividend checks fairly regularly but increase in value very slowly.

Old manufacturing industries tend to be income stocks.  Stanley Black and Decker, one of my favorites, sends out checks like clockwork.   Until recently, auto companies (GM, Ford, and formerly Chrysler) were fairly staid dividend payers.

But in other industries, paying dividends is an anathema.  High-tech stocks, for example, rarely pay dividends.  And others that did, such as Apple, have stopped. The theory is, these types of companies have to plow so much money into research and development to stay current, that they cannot afford to pay dividends.  If they have extra money laying around (like Google) they go out and buy up other companies.  Pay a dividend to the shareholder?  Never, ever, ever, EVER!

So why do people buy stocks that don't pay dividends?  I mean, if there is no profit to be had, why would the stock be worth anything?  That is a good question, and I am not sure I have the answer, either.

Because I am not very bright, I tend not to follow convoluted arguments well.  Basically, if someone can't explain a simple concept to me in 10 words or less, I just assume they are lying through their teeth and trying to deceive me to steal my money - and I move on.  And funny thing, too, in 9 out of 10 times, I'm usually right.

The arguments about equity stocks that pay no dividends are a bit convoluted.  Why buy Apple stock, for example, if they are not paying dividends - and it does not appear they ever will?  The stock has a number if inherent values, of course.  If the company was liquidated, and all the equipment sold off, the proceeds would go to the shareholders.  But for a high-tech company like Apple, there really isn't a lot of stuff to sell off - leases on office buildings, some computer equipment, and the like.  Many "high tech" companies don't even own the factories they make things in.   And as we saw from the GM example, factories are rarely worth much, anyway.

Of course, there are other inherent values in the company, such as the rights to the products, intellectual property, and the like.  But the problem with high tech products, as we all know, is that they are obsolete within a year or two.  So having the right to sell the iPhone might be lucrative - for a year or two.

And of course, owning stock represents control of a company.  If someone wants to take over Apple, they might want to buy your stock, so there is value there, as well.

But to someone as stupid as I am, the idea of a stock that pays no dividends and keeps increasing in value in equity seems somewhat odd.  I sat through an entire class in Corporations where our professor explained this all to us, and from him, it made sense.  Once I left the class, the explanation seemed to vaporize, however.

So it still puzzles me a bit and it still makes me a bit nervous that these equity-only stocks are little more than a flim-flam for us average investors.  But on the other hand, income stocks, like the old General Motors, can go belly-up in short order and leave you with nothing.

So, should you invest in stocks that pay no dividends but increase in value in terms of equity?  Or should you buy stocks that pay regular dividends?  The answer is, probably a little of both, and the mix should change as you get older.

Of course, if you are invested in a mutual fund, chances are, you have no idea what stocks you own.  You went with Fidelity, or American Funds, or Vanguard, or whatever based on the brand name of the company (and they try to use solid sounding names.  No one invests in "Joe's Mutual Fund" do they?).

Each fund prospectus should tell you what it is the fund is trying to accomplish and what the goals are.  And sometimes the name of the fund itself is a summary of its investment type - Fidelity Equity Income, for example.

As you get older, too, you might want to think about more staid, income-producing stocks as well.  Owning a stock that pays you a regular dividend can be a nice, regular source of income for your retirement, as opposed to the uneven returns on equity, which are more volatile and dependent on market pricing.

And it is an odd thing, too, as most folks buy stocks based on the equity aspect - and most financial news programs talk about stocks in that manner as well.  Share price is king!  Dividends mean nothing!  So we watch the "Dow Jones Industrial Average" - which is an indicia of price, while ignoring dividends.  News programs talk about stock price mostly.  If then mention dividends, it is only as it is related to the stock price.

Like bonds, dividends are not sexy, like stock prices are.  You can make millions overnight (or lose them) based on share price and strategic buying (gambling, basically).  But dividends?  They will never result in a huge payout for an investor, so you never hear about them.

But as I noted in my posting about Altria, getting a 6% return on your investment, annually, is not such a bad deal in this day and age.  And if the stock goes up in value - well, that is a bonus, too.

One more thing to consider about equity and income.  In a way, they are like the two aspects of Real Estate, and with the recent bubble, illustrate how people who focus on equity can lose their shirts.

When I got into Real Estate, it was for the income.  I bought  properties that would show a positive cash flow - income - through rents.   If a property cost me money to carry, I would not buy it.  In short order, I owned well over a million dollars worth of Real Estate in the Alexandria, Virginia area.  But other than my private home, it all generated rents that more than covered the costs of ownership.  Any increase in equity was pure "gravy" for me.  And there was a lot of gravy back then.

But many of my peers were buying million dollar HOMES instead, which generated no income, and even if rented out, had a negative cash-flow.  They felt that the increase in equity would more than compensate them for the cost of carrying these properties.  And we all know how that worked out.

They assumed that a bigger fool than them would buy the home for a lot more than they paid for it - and they would then "cash out" and be rich.  The same was true, by the way, for the "dot com" stocks - everyone assumed there was a bigger fool (not necessarily Motley) that would buy these pigs-in-a-poke and everyone would profit.  But we ran out of fools - a fool shortage, if you will - and the dot com and the Real Estate market collapsed.

Those of us who had positive-cash-flow income-producing property, of course, kept chugging along, generating small, regular profits, but not, necessarily, "the big kill".

And therein lies the problem with these equity stocks.  Apple stock price is through the roof.  But they are only as good as their next product, and if a product fails in the marketplace, spectacularly, the share price could plummet.  Buying these stocks is great and all, but only so long as there are bigger fools out there to buy the stock for more money than you paid for it.

The Motley fool link mentioned above illustrates that income-producing stocks tend to increase in value over time as well, particularly if you reinvest the dividends in the company over time.  Reinvesting dividends, is, of course, just another roundabout way of retaining earnings, if you think about it (and boosting stock prices, which is why most dividend-paying companies HAVE a shareholder reinvestment plan).  The drawback being, of course, that you have to pay taxes on those dividends at the ordinary income rate.

Still, it is a nice fantasy, to be able to retire and just go down to the bank and cash those dividend checks every quarter.  Of course, if you had a stock that paid an annual dividend equal to 5% of its share price (such as Altria) you'd have to own a million dollars worth of shares in order to make $50,000 a year in dividends.  Aye, there's the rub!  You make more money from the equity, which is why people invest in these equity stocks.

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