JoeTaxpayer

More and more we are hearing a call for China to allow their currency to float, that it’s undervalued. But if their currency rose, wouldn’t the Dollar fall? Aren’t we concerned about a falling dollar more than another country’s currency being too low? Not quite my area of expertise, yet.

Joe

Charles Dickens’ David Copperfield was first published in 1850*, and this quote is from that book:

I don’t know if Dr Thomas Stanley, author of Stop Acting Rich, is aware of this quote, but after read his latest book, I suspect he’d agree wholeheartedly with the sentiment.

If you are looking for investment advice, this is not the book for you. Dr Stanley does not offer stock tips or advice on retirement planning. He has spent the better part of the last three decades studying the habits and writing about millionaires. His conclusion is that “most people will never earn enough money to become wealthy and to be hyperconsumers at the same time.” Stop Acting Rich offers examples of how the millionaires Dr Stanley observed lived, and teaches us how to make the distinction between the Income Statement Affluent (IA) and the Balance Sheet Affluent (BA). We see how it’s easy for a doctor earning $250,000/yr to live a lifestyle that has every dollar spent and maybe then some, yet a teacher or engineer whose family income may be ‘just’ in the mid-$100K but living beneath their means, managing to save their way to wealth.

Through the book we are shown brand examples, Timex vs Rolex for the choice of watches for instance. Real millionaires tend to not waste their money on the thousand dollar watches, preferring Seiko or Timex. As a fan of statistics and data, I appreciated the depth of analysis showing the correlation between real wealth and living the glittering rich life with no assets to show for it. In fact, it’s often tough to tell just by looks what someone’s balance sheet looks like. Most rich folk do not own vacation homes, boats, or planes. I recall an interview with Warren Buffet, who trades off year to year for the spot of richest man in the US. Mr Buffet was asked about boats, and he said that he had no interest in them, that when you’re Warren Buffet, you get invited on other people’s boats enough that you can avoid the hassle of maintaining one. He said that he was happy to spend time with his friends in his living room watching the 46 inch plasma TV and eating sandwiches. No champagne, no caviar.

A fair amount of writing is given to the discussion of Grey Goose Vodka and how its purchase correlates to glittering rich. Grey Goose buyers tend to drive prestige makes of cars, wear Rolex watches, drink other high end spirits, and spend more dining out. So as I was reading about this, I checked out my pantry (I don’t have a liquor cabinet) and sure enough, Grey Goose. Last I recalled, we had a bottle of Absolut or Smirnoff in there. I asked my wife if someone brought it over and she told me that the last time her sister was over she asked her what her preferred vodka was. Two thoughts came to mind as I heard this. First, for the bottle that will likely last over a year, $15 or $50 won’t ruin our budget. Second, given the details about how there’s little difference in vodka as it’s known for its lack of taste, my dear sister in law fell for the advertising pitch, and my dear wife, trying to make her sister feel welcome in our home, threw away an extra $20 or $30 to do so.

I enjoyed this book as much as I did prior books in Dr Stanley’s Millionaire series. It helped validate my own choices in cars (Toyota, built in the USA, by the way) watches (Timex) and other purchasing decisions that help keep my family on a path toward a stronger balance sheet. If you’d like to understand what the rich really buy, and wear, and where they go to eat, take some time and read this book, you’ll be surprised.

Joe

*Note: One of my faithful readers, Elle, alerted me that the date was 1850. Thanks Elle, I fact check my finance data a bit better than this. I promise.

First this week, I’d like to share Kevin Mercadante’s guest post on Fiscal Geek Is a 15 Year Mortgage Financial Suicide? Kevin’s post is what inspired me to write a post earlier this week comparing the 15 to the 30 year fixed rate loan. I agree with Kevin’s view on this, that the difference to go 15 is pretty high and in times like this, the cash flow may be more important.

Bucksome Boomer asks Can Baby Boomers Afford to Retire? The more data I see on this, the more concerned I become. It seems the average boomer has a nest egg of $84,000. Of course that implies the median number is much lower as many boomers have millions. A nice article discussing the options that lie ahead for this generation.

Frugal Real Estate reminds us that there’s a 2009 Property Tax Deduction for Non-itemizers.

Hank at Own The Dollar wrote the excellent There Is No Such Thing As The Lost Decade With Dollar Cost Averaging. I’m not going to ruin the punchline, take a read and see how an investor who started in 2000 would have fared by simply putting in an equal amount every month, the decade wouldn’t have treated her too badly. A great analysis, all I’d add myself is that thse number would have been better still had they been partially matched in a 401(k) account, as many of us have the bulk of our savings there.

On that same note, I’ll move on to Why You NEED To Contribute To Your 401(k) posted at My Two Dollars. For those who don’t contribute to their 401(k) this article offers an explanation of how they work, the present tax benefits, and potential for saving, long term. I’ve been 401(k)ing for 25 years, others may need a little push and better understanding of the process. This is a great start.

Living Almost Large talks about Buying too much, too much house, too much car, too much stuff. I suspect many of us fall into this trap. She’s not talking ‘frugal’ here, the sentiment leans more towards Dr Stanley’s  book “Stop Acting Rich.” The difference from the well chosen house to the ‘too big’ house really adding up over time. Today’s title taken with this blogger in mind.

With that, I’ll end this week’s roundup…..

Joe

A couple weeks back, in a roundup, I referenced Jim Wang’s Devil’s advocate: Being frugal is foolish. I pointed out to Jim that one can’t always turn their next hour of labor into money, that for many, this was a quick way to save cash. His reply, “but the risk of focusing too much on frugality, especially after the low hanging fruit, is that you start chasing savings that are mere pennies when you could be earning dollars (or at least trying to improve your skills so you can earn more dollars)” left me thinking. And reconsidering some of my view.

Maybe what struck me most after I re-read his post was the concept that there’s no limit to one’s income, yet frugality not only has a limit, but it can reach a point of diminishing return as you find the easy savings first, and may wind up putting in incrementally more effort to save even less. I think for those with a frugal mindset, it’s tough to break some habits and maybe there’s no need to. When the TP, laundry soap, canned soup is on sale for half price, I’m always going to stuff a closet with it. Yet, if my income isn’t high enough for my lifestyle, there’s a more fundamental change needed, I either need to Stop Acting Rich, or improve my situation by increasing my skills and earning power.

If you are still looking to carve some money out of your budget, read Tom Drake’s 10 Money Saving Tips. A good read to help you find some places to save.

Joe