The Wrong Way to Think About Debt

The Wrong Way to Think About Debt

October 12, 2020 MST  The White Coat Investor

 Category: Getting Out of Debt 

By the time you read this, my family will have been completely debt-free for about three years.  From the time I was 18 until the time I was 42, we had some sort of debt, usually either a mortgage or even when renting we had the $5K student loan I took out as a college freshman.  

We're (fairly, in my opinion) ignoring the current month's expenses placed on credit cards (always paid off automatically), the leverage used by limited partnerships/LLCs we invest in (since our loss is limited to our investment), and the leverage used by publicly traded companies whose stocks we own via index funds.  Everything we now buy, including our home renovation (the most expensive purchase of our lives), we buy with cash.  The White Coat Investor, LLC has never had any debt and we plan to continue to grow it debt-free.

That's not to say I've never tried to use debt to our advantage.  All three of our homes we have bought with a mortgage.  My last year of residency we funded our Roth IRAs using a 0% credit card that we would pay off as an attending a few months later.  

We pulled money from our accidental rental property in order to purchase our current home.  We drug out our final mortgage a couple of years longer than maybe we had to.  I say all that to point out that I'm far from innocent of the “financial sin” I'm going to describe today.  Let me explain.

I often suggest people pay off their debt or that they are over-leveraged in a blog post, on a forum, on social media, and even in real life.  While most agree with me, there is usually someone who pipes up to give some pushback.  The argument usually goes something like this: “It's stupid to pay off a 2-4% debt because you expect your investments to do better than 2-4%.”  I used to believe this argument too.  It's easy to do so because mathematically it is correct.  The older and wealthier I get, the more I see serious flaws in this argument, and I'd like to discuss them today because the argument is so darn common, even among people who are debt-free!

I've started pushing back on these people (and no, they don't like it) by asking them two questions:

1. Are you rich yet?

2. If you are, did carrying debt at 2-4% while investing contribute to any significant portion of it?

The answer to number one is almost always no, but even if it isn't, the answer to number two is also almost always no.  I fully acknowledge that there probably is somebody out there who would answer yes to both questions.  But they are surprisingly rare.  I run into so few of them that I'm not sure I can even describe them for you, but I postulate that most of them are real estate investors who maintain reasonable loan to value ratios of 50-66% on their rental properties.  The person advocating for more leverage is usually a 25-year-old with lots of debt, few assets, and little experience.  It never seems to be the 60-year-old multimillionaire I'd like to emulate.

14 Reasons You're Thinking About Debt Wrong

To continue reading, please go to the original article here:

https://www.whitecoatinvestor.com/the-wrong-way-to-think-about-debt/

If You Have More Than $1,000 in Your Checking Account, Make These 5 Moves

If You Have More Than $1,000 in Your Checking Account, Make These 5 Moves

by The Penny Hoarder Staff  Updated October 7, 2020

You’ve done it. You’ve built up a little cushion in your bank account — $1,000! It feels good, right? Those days of checking your account balance in a panic are behind you.

Congrats! You’re on the right path. Now it’s time to think about some longer-term goals. What do you want to accomplish next with your money? Do you need to save more? Do you want to buy a home someday? Invest?

What’s the next step you should take? What are some specific things you can do to take your finances to the next level?

We’ve got some ideas for you:

1. Invest in Real Estate (Even if You’re Not a Millionaire)

An entrance into a home in the French Quarter of New Orleans, Louisiana. The doors and shutter are green while the outside of the home is orange.

The stock market can be a scary place. Stock prices shoot up and down like a roller coaster ride, and who knows when the whole thing might crash?

It would be nice to diversify and invest some of your money in real estate, but don’t you have to be wealthy to do that?

Now you can invest like the 1% does, and all you need to get started is $500. A company called DiversyFund will invest your money in commercial real estate — specifically, in apartment complexes that it owns — and you only need $500.

Real estate can potentially earn you more money than the stock market. Over the long term, investing in the stock market will earn you an average annual return of 7%, adjusted for inflation, according to a number of studies. DiversyFund can’t guarantee how its investments will perform in the future — no one can — but historically, it has earned an annual return of 17% to 18%.

So you don’t need a fortune to invest in real estate. All you need to get started is $500.

To continue reading, please go to the original article here:

LINK

https://www.thepennyhoarder.com

When Ancient Greece Experienced Their Own ‘2020’…

 When Ancient Greece Experienced Their Own ‘2020’…

Notes From The Field  By Simon Black Sovereign Man.com

October 12, 2020  Bahia Beach, Puerto Rico

For the powerful city-state of Athens in ancient Greece, the year 430 BC was one of the most tumultuous and dramatic in its history. Prior to 430 BC, Athens had been at the pinnacle of stability and power for decades. But in the course of that single year, the city was invaded by Sparta at the outbreak of the Peloponnesian War; Athenian officials essentially impeached their leader, Pericles, and put him on trial; and a deadly plague killed off up to 20% of the population.

In short, for ancient Athenians, 430 BC probably felt like 2020 does for us.

But despite all the hardship, Athens still managed to prevail. And that was in no small part due to the government’s enormous treasury surplus.

Historical records from that era show that Athens had 9,700 talents of cash reserves in its treasury. Now, a ‘talent’ was an ancient unit of measurement for gold and silver which was equal to roughly 26 kilograms.

Given the city-state’s population in the 5th century BC, that works out to be nearly $25,000 (in today’s money) for every single Athenian citizen at the time.

Bottom line, ancient Athens had plenty of cash tucked away for a rainy day. So when the mother of all storms came, they had the savings to survive.

History shows that such fiscal responsibility is EXTREMELY unusual. Most countries and governments tend to increase their spending and decrease their savings when they reach the heights of their power.

They believe that their power and wealth will last forever. So they start racking up huge debts and deficits in a belief that the future will look exactly like the present.

This is a completely irresponsible practice, but it’s incredibly common. And we see it everywhere today.

2020 has obviously been an inconceivable year… and it’s most likely going to become even crazier before it’s over.

But even before 2020, most of the ‘wealthiest’ nations in the world were posting huge budget deficits at a time when everything was still normal and OK.

I wrote about this extensively over the past few years, pointing out that, if the US government was losing $1 trillion per year during an economic boom, how bad would the results be during troubled times?

Well, we have our answer.

Over the past six months alone, the US federal debt has increased by more than $3.5 trillion. Total federal debt now stands at more than $27 trillion-- more than $80,000 for every man, woman, and child in the Land of the Free.

So while ancient Athens met its crisis with a surplus of nearly $25,000 per citizen, the US has a deficit of $80,000 per citizen.

And remember-- the entire size of the US economy is $19.5 trillion according to the federal government’s latest data.

So the debt is now a whopping 138% of GDP. That smashes the previous record of 118% set during World War II.

And of course the figure gets worse every year. In a good year, the economy grows by 2% to 3%. But the national debt has been growing at more than twice that rate.

None of this takes into account other unfunded liabilities-- like the fact that Social Security’s trust funds will be fully depleted within the next 10 years. Replenishing them will cost tens of trillions more.

This is clearly not sustainable. But any sense of fiscal prudence has been thrown out the window because of a virus.

There are vast factions of scientists, reporters, and politicians who still want to shut businesses down, and then send everyone free money that the government finances by going deeper into debt.

The Federal Reserve has been very supportive of this idea.

In order to facilitate this bonanza of free money, the Fed has printed trillions of dollars over the past six months and slashed interest rates back down to zero.

They’ve also committed to keeping rates low for years to come, and just last week they warned of ‘tragic’ consequences to the economy if the government doesn’t hand out trillions of dollars more in free money (and go deeper into debt in the process).

Who knew it was so easy to be prosperous? Ancient Athenians worked hard, saved money, and set aside an enormous surplus for a rainy day.

These days apparently you just have to print money and go into debt in order to prosper.

This is a huge reason why I believe that gold still has long-term potential, just as it did back in ancient Greece.

Gold has enormous value in times of uncertainty… and we’re definitely living through that now.

Who’s going to win the election? What impact will that have on the economy and public finances? Will a subsequent outbreak of Covid (or a new virus in the future) cause a stock market panic? Will there be more rioting and chaos in the streets?

These questions barely scratch the surface of what we don’t know. But it’s clear there are a lot of high-impact risks on the table.

Gold has traditionally been a great insurance policy against that sort of extreme uncertainty.

But even more importantly, it’s a safe haven during times of appalling fiscal irresponsibility. And that’s precisely what we have now.

They’re going to vastly expand the debt and print money for years to come. They’ve already told us as much.

And that’s what makes gold such an attractive, long-term asset.

Short-term, the gold price is anyone’s guess. Gold has already had an incredible run this year, and it’s possible we might see a price decline. No one knows.

But if you’re thinking about the world long-term, it’s definitely worth considering gold as part of a robust Plan B.

To your freedom and prosperity   Simon Black, Founder, SovereignMan.com

https://www.sovereignman.com/trends/when-ancient-greece-experienced-their-own-2020-29077/

How To Handle A Windfall

How To Handle A Windfall

By J.D. Roth| Updated: 11 September 2019

When my father died in 1995, he left behind a small life insurance policy that awarded each family member $5,000. It wasn't much, but it was the best he could do based on the fact that he had cancer. He hadn't been much of a planner, and hadn't been good with money, so that $5,000 per person was actually a significant amount.

At the time, I was deep in debt. I had over $20,000 in credit card balances, and was gradually adding more all of the time. If I'd been smart, I would have taken the proceeds from my father's life insurance and used them to immediately repay $5,000 in debt. But I wasn't smart. I used $1,000 to pay off debt (and patted myself on the back for it), but spent the rest on a new computer, software, and accessories. It didn't take long to realize that this was a dumb decision.

You see, when you receive a windfall, whether it's a tax refund, an inheritance, a gift, or from any other source, it's like you've been given a second chance. Although you may have made money mistakes in the past, you now have a chance to fix those mistakes (or some of them, anyhow) and start down the path of smart money management.

It can be tempting (as I well know) to spend your windfall on toys, trips, and other things that you “deserve,” but doing so will leave you in the same place you were before you received the windfall. And if that place was chained to debt, you'll be just as unhappy as you've always been.

Since my father died, I've received a few other small windfalls (and a very large windfall when I sold Get Rich Slowly). With time, I've developed a system for handling these situations.

If you receive a chunk of cash, I recommend that you:

Keep 5 percent to treat yourself and your family. Let's be realistic. If you receive $1,000 or $10,000 or $100,000 unexpectedly, you're going to want to spend some of it. 

No problem. But don't spend all of it. I used to recommend spending 1 percent of a windfall on yourself, but from talking to people, that's not enough. Now I suggest spending 5 percent on fun. That means $50 of a $1,000 windfall, $500 of a $10,000 windfall, or $5,000 of a $100,000 windfall. Don't be tempted to spend more!

To continue reading, please go to the original article here:

https://www.getrichslowly.org/how-to-handle-a-windfall/

67 Patience Quotes That’ll Stop You from Giving Up

67 Patience Quotes That’ll Stop You from Giving Up

By Dan Western

Which is your favorite patience quote?

Patience is crucial for success;

Patience is the capacity to accept or tolerate delay, problems, or suffering without becoming annoyed or anxious.

In other words, being patient allows you to go through and overcome your problems, on the path to achieving a goal, and not get discouraged if results don’t come quickly enough.

We’ve put together an amazing collection of patience quotes, to help you persist when you are starting to become frustrated along the path to success.

1.       “Adopt the pace of nature: her secret is patience.” – Ralph Waldo Emerson

2. “Don’t cross the bridge ’til you come to it.” – Henry Wadsworth Longfellow

3. “Follow your heart, but be quiet for a while first. Ask questions, then feel the answer. Learn to trust your heart.” – Unknown

4. “Have patience.  All things are difficult before they become easy.” – Saadi

5. “If you would know strength and patience, welcome the company of trees.” – Hal Borland

6. “Learn the art of patience.  Apply discipline to your thoughts when they become anxious over the outcome of a goal. Impatience breeds anxiety, fear, discouragement and failure. Patience creates confidence, decisiveness, and a rational outlook, which eventually leads to success.” – Brian Adams

7. “One moment of patience may ward off great disaster. One moment of impatience may ruin a whole life.” – Chinese Proverb

8. “Patience and wisdom walk hand in hand, like two one-armed lovers.” – Jarod Kintz

9. “Patience is necessary, and one cannot reap immediately where one has sown.” – Soren Kierkegaard

10. “Patience is the companion of wisdom.” – St. Augustine

11. “Patience, persistence and perspiration make an unbeatable combination for success.” – Napoleon Hill

To continue reading, please go to the original article here:

https://wealthygorilla.com/67-patience-quotes/

7 Keys to Success Most People Know But Ignore

7 Keys to Success Most People Know But Ignore

By   Ian Warner

These are the keys that you have read about before, yet have not made changes in your life yet. The interesting thing about success is that there are so many people that have come before us that have shown us the way.

They write books and present their findings, but we are too stubborn to change. 

7 Keys to Success Most People Know But Ignore

Beware, the points below may seem obvious. That’s because they are. You’ve heard multiple people tell you these things over and over again. The problem is that these are being ignored, and if you want to be successful, you can’t afford to do that.

I am going to jam these points down your throat one more time: 

1. Reading Non-Fiction Books Regularly

If you go into a library or book shop, all the fiction books are at the front, and the self-development/education books are right at the back. People want to escape reality.

Never in my life have I finished reading multiple books and said:  “Man I wish I did not read so much.”

Reading gives us life, it gives us ideas, it helps us grow, and it works the imagination and keeps our minds sharp. Bill Gates often talks about how he reads 50 books a year. If a billionaire is reading 50 books a year then why are we not trying to read 50 books a year?

Here is why: It requires discipline; it means that when you would rather watch TV, a movie or YouTube, you need to resist and pick up a book instead. It is not a hard thing to follow yet we struggle with this. I used to consider myself not to be a “numbers guy” but I quickly realized that to be successful, I had to shake this notion.

To do this, I started reading everything I possibly could about finance and numbers. I bought books on investing, learned real estate, stocks, downloaded apps, took courses, I just got excited on the topic.

I would not stop until I felt like I understood money and investing well. It all came from deciding to read. 

2. Seeking Mentorship

As humans, we are simulation machines. We learn from imitating those around us at an early age. Here is the problem, when we get older we get stubborn and stop simulating. We try and create our path by learning on our own, but trial and error is slow and often the most costly way of learning.

To continue reading, please go to the original article here:

https://wealthygorilla.com/7-keys-success-people-ignore/

8 Lessons I Learned from the Fittest Man On Earth

8 Lessons I Learned from the Fittest Man On Earth

By Will Chou  Wealthy Gorilla.com

One of my great passions is studying the advice of the world’s most successful. Today, I want to cover the domain of fitness and athleticism.  Although a new sport, Crossfit has taken over the nation as a groundbreaking training program, gym service, and sport. Tens of thousands tune in every year to watch the Crossfit Games. Athletes compete to be crowned the “Fittest in the World”.

8 Lessons I’ve Learned From the World’s Fittest Man

I want to share with you the top lessons I learned from Rich Fronning’s book First: What It Takes to Win. He is widely regarded as the best Cross-fitter of all time in the short several years of the sports existence.  He won back-to-back three years in a row and came in 2nd place the first time he competed, a feat no one has come close to.

1. Learn Work Ethic Through Example and Company

Rich developed his work ethic not from someone lecturing him, but by modeling his parents. His parents taught by example instead of by instruction. They worked endlessly and rarely sat down to relax.

2. Get Around Competitive People If You Want To Be Competitive

When Rich was young, he had over thirty five first cousins – on just his mother’s side. Family reunions were a natural grounds for competition. He and his cousins competed on everything, from video games to sports. It stoked his competitive fires.

3. Don’t Be Intimidated. View Yourself With The Same Lens You View Others

The first time Rich competed in the Crossfit Games, he was intimidated by everyone else who showed up. The same reaction replayed during the Regionals and Sectionals.

He saw everyone there as physical specimens and he thought he didn’t belong there. Yet every time, he took home first place by a wide margin. He realized that he was not viewing himself in the same lens he views others.

To continue reading, please go to the original article here:

https://wealthygorilla.com/8-lessons-fittest-man-earth/

How Wealth and Fame Doesn’t Necessarily Mean Success

How Wealth and Fame Doesn’t Necessarily Mean Success

By    Johnny Lops

I am sure the title of this article may have caught your attention and spurned multiple questions in your mind; “What does Dr. Lops mean that having become a CEO, or having means to buy a million dollar home does not mean I am not successful?”

Week after week, the media will report a story of a celebrity or famous athlete having been caught in a scandal. The story may pertain to an affair, an aggressive act, a divorce, or a “baby mama” looking to get appropriate access to child support.

We read these stories because we remain interested in the public lives of these individuals. But what is interesting to me is that regardless of the controversy they are confronted with, we continue to admire them for the initial talent or skill that brought that person national attention.

But the question remains: is that person truly successful?

How Wealth and Fame Doesn’t Necessarily Mean Success

In my practice, I see time to time that the answer is yes but no. As we live in this era where social media controls what the world sees, for many we strive for an appearance of success with what we can show off. But frequently, away from the computer many struggle with other attributes that truly defines our success.

Let’s take a look at various examples describing my concerns for us as we look to achieve our own piece of success.

1) Never Used to Hearing the Word “No”

Can we truly get what we want at any time? Is that what we aspire to achieve through wealthy and notoriety? I hope not. Being okay with being told no is a tell tale sign of healthy emotional intelligence.

Emotional intelligence is just as necessary for overall success as is cognitive intelligence and social intelligence. No matter what our status, having capability of managing our frustration and having the tools for conflict resolution creates more opportunities to have healthy interactions with the people in our lives and with ourselves.

In my practice I see this regularly with couples where one person in the partnership who is a rising star begins to utilize their life success and trusting their instincts to how they communicate at home.

Because their decisions and instincts are correct in their work, they begin to believe at home, it is the same and they begin to negate and not be welcoming of their partner’s input.

To continue reading, please go to the original article here:

https://wealthygorilla.com/wealth-and-fame-doesnt-mean-success/#ixzz5NgXYD6BT

8 Ways To Prepare To Become A Millionaire

8 Ways To Prepare To Become A Millionaire

Written by Sam

Today I went to lunch with a very wealthy person. I don’t know exactly how wealthy , but based on his frequent trips to Maui, the fact that he earns a free plane ticket every month through his frequent flier points, and the fact that the other day he decided to go out and buy a truck just because he’s never had one before, there’s good reason to believe he’s close to a seven-digit earner.

As I talked with him, it raised a lot of questions in my mind about how managing my finances will change as my wealth grows. If I were a millionaire would I still need to budget? Would I still want to track all my spending? Would I still need to negotiate with my wife about finances?

It seems logical that with an income over $1,000,000 a year you wouldn’t need to plan as vigorously. But in the end that’s a lie. Millionaires that manage their money irresponsibly can quickly lose it all and fall from grace (MC Hammer comes to mind).

Financial management principles are the same for millionaires and low-income-earners alike. Certainly the numbers your dealing with will change, but the basic principles and processes are still the same.

In fact, by following sound financial management principles and optimizing your frame of mind, you can accelerate the process of building wealth and know how to keep it when you arrive. Here are 8 ideas that will help you think about and manage money like a millionaire, regardless of your income.

1. Be Who You Want To Be. Earning More Money Amplifies Who You Are

I’m going to borrow my first idea directly from my lunch partner who said “earning more money really just amplifies who you are.” While that might seem initially like a good thing, it really is a double-edged sword.

For some, becoming a millionaire leads to a life of over-indulgence and decay. We catch glimpses of this in the popular media and entertainment world; drug addiction, abuse, and infidelity. Blemishes in your character will still be there if you become wealthy. Don’t fool yourself into thinking that having more money will solve your problems. It could make them worse.

On the other hand, if you have a mindset of serving and making a positive contribution to your family and community now, you will be able to manifest those contributions with even greater power and effectiveness when you’re rich. By focusing on the positive contribution you want to make in your life, you will be prepared to expand and amplify your contribution as you earn more money.

2. Build Your Relationships. Earning More Money Amplifies Your Relationship Dynamics

Let me tell you a secret: earning more money does not solve your relationship problems. Even though my income has increased significantly over our 10 years of marriage, we still tend to argue about the exact same financial issues.

To continue reading, please go to the original article here:

http://www.gettingfinancesdone.com/blog/archives/2007/01/8-ways-to-prepare-to-become-a-millionaire/

Excerpts and Tips From Dave Ramsey On Debt and Investing

Excerpts & Tips From Dave Ramsey On Debt & Investing

Written by Sam

Dave Ramsey’s Financial Peace University or FPU. Committing to attending the 13 weeks of classes was one of the best financial decisions we’ve made. The course covers a broad range of topics regarding personal finances and really gives you a good 10,000 foot view of your financial situation. In this post I’ll describe how

Dave addresses many myths about debt and gives a step-by-step plan to get out of debt.

Dumping Debt   

Debt Myths

Myth – Lending to a friend or relative helps them. 

Truth – Instead it really changes the dynamic of the relationship and damages it.

Myth – Co-signing on a loan is ok. 

Truth – Statistically the person you’re co-signing with won’t repay the loan. That’s why the bank requires someone to co-sign.

Myth – Cash advances help poor people get ahead. 

Truth – Cash advances are a way for poor people to have things they can’t afford.

Myth – Lottery and power ball will make me rich. 

Truth – Lottery and power ball are a tax on poor people.

Myth – Car payments are a way of life. 

Truth – Most millionaires drive paid-off used cars.

Myth – Leasing is a good deal and a sophisticated way to drive a car. 

Truth – Any expert or analysis will tell you it’s one of the most expensive ways to drive a car.

Myth – I can get a great deal on a new car. 

Truth – The value of the car goes down 60% in the first four years.

Myth – Home equity lines are good for tax deductions and are a good replacement for an emergency fund. 

Truth – The math doesn’t work. You shouldn’t take out more debt just to avoid paying some taxes.

Myth – I’ll get a 30 year mortgage and pay extra. 

Truth – Nobody pays extra. You should get a 15 year fixed-rate mortgage.

Myth – It’s ok to take out an adjustable rate or balloon mortgage because I know I’ll be moving. 

Truth – You will be moving when they foreclose on your house.

Myth – You need to have credit cards and take out a car loan to build your credit. Truth – Open credit card accounts with zero balances and car loans count against you when qualifying on a home.

Myth – You need a credit card to rent a car. 

Truth – All major car rental operations accept debit cards.

To continue reading, please go to the original article here:

http://www.gettingfinancesdone.com/page/10/

10 Secret Places Rich People Hide Their Money

10 Secret Places Rich People Hide Their Money

Michelle L. Black  Updated: Oct. 02, 2020

It's no secret that people with money like to shield their earnings from the IRS. What is often a secret, however, is how and where they do it.

No one enjoys paying taxes. So, no matter your income level, searching for new tax breaks can be a wise use of your time and energy. The ultra-wealthy, however, sometimes take steering clear of taxes to another level. Former treasury secretary Lawrence Summers, along with finance professor Natasha Sarin, recently released a research paper with some eye-opening claims. According to Summers and Sarin, the top 1 percent of taxpayers are projected to avoid more than $5 trillion in taxes between 2020 and 2029. Of course, the legal tax-reduction strategies used by rich people are worth reviewing and utilizing when possible. But it’s not a bad idea to learn about the illegal methods as well—so you can avoid them and their potential consequences. While we’re on the subject, check out some of the craziest tax deductions ever claimed.

Business Deductions

Starting a business (or multiple businesses) is a common way the rich aim to reduce their tax liability. But you don’t have to be wealthy to use this method, notes Jon Dulin, founder of Money Smart Guides. If you’ve been wanting to give entrepreneurship a try or even formalize a side hustle, this may be a good option. Of course, you have to go through the proper channels first: Creating a legal business entity typically requires a simple visit to the websites of your Secretary of State and the IRS.

Once you establish your business, tax deductions are just one of the benefits you may be able to enjoy. “For starters, you can write off losses the business incurs in the beginning and then use business expenses to offset business income to lower taxable income,” Dulin says. “

Additionally, you can put money into tax-deferred accounts, like solo 401(k) plans, which allow the business owner to save a lot more than traditional 401(k) plans since you are contributing both as the employer and the employee.” Wish you knew more about your 401(k)? Here are the answers to 10 common retirement savings and 401(k) questions.

Hiring family members

Another tactic the rich often use to shield income from taxes requires getting the family involved. If you have a business, you can use this strategy to your advantage, too, by hiring your spouse or your children and paying them a salary. The IRS even says that “one of the advantages of operating your own business is hiring family members.”

To continue reading, please go to the original article here:

https://www.rd.com/list/secret-places-rich-people-hide-money/